7. Lending Programs

The federal government has traditionally subsidized financing to farm operations through the Farm Credit System, a privately owned, federally chartered network of lending institutions that focus on agricultural loans, and USDA’s lending agency, FSA.

Created by Congress in 1916 to provide a reliable source of credit for agricultural producers,²⁷⁸ the Farm Credit System now holds nearly 41% of the farm sector’s total debt—a larger share than that held by commercial banks.²⁷⁹ The Farm Credit System benefits from a range of publicly funded guarantees, subsidies, and exemptions. It is exempt from all taxes on profits earned from real estate transactions, gets funding capital from the Federal Farm Credit Banks Funding Corporation, and enjoys USDA guarantees on many of its loans.²⁸⁰

USDA also manages FSA, which, among other things, acts as a lender of last resort for farmers and ranchers. In addition to offering direct loans to farmers, the agency also issues guarantees on loans made by commercial lenders for farmers that would not otherwise qualify. While FSA’s overall impact on the agricultural credit market is relatively small—it holds about 2.6% of all farm debt through direct loans and guarantees another 4%-5% of loans—it has come to play an important role in supporting beginning and female farmers,²⁸¹ and, to a much lesser degree, farmers of color.²⁸² The Agricultural Credit Improvement Act of 1992 required FSA to reserve funds

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for beginning farmers and to target disadvantaged farmers,²⁸³ a population that it had long discriminated against.²⁸⁴

In 2013, FSA created a microloan program aimed at smaller farmers through its existing direct operating loan program. In the first three years of the program, the agency distributed more than $350 million through almost 17,000 microloans.²⁸⁵ The program caps loans at $50,000 instead of $300,000 and has a streamlined application and approval process, making it easier for small and diversified farmers to participate.²⁸⁶ FSA’s microloans are designed to support “non-traditional” farms, such as urban, organic, and direct-to-consumer operations.²⁸⁷ The current $50,000 cap is too low to benefit most farmers engaged in commercial production, but a streamlined loan program with a ceiling of $100,000 could help carbon farmers get off the ground or expand their operations, since many climate-friendly practices do not require large capital expenditures.

Congress should require FSA and the Farm Credit System lending institutions to offer programs providing favorable credit to farmers and ranchers using climate-friendly practices recognized by NRCS and to require minimum climate-friendly practices relating to all loans. Both FSA and the Farm Credit System are already required to offer services to young, beginning, and small farmers and ranchers.²⁸⁸ Congress should extend this mandate

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to carbon farmers, giving FSA and the Farm Credit System reasonable, but escalating goals.