Farm Credit Administration Summary

  • Last updated on November 10, 2022

The Farm Credit Administration is the federal agency that regulates all other government entities providing credit facilities for farmers, other rural landholders, and rural-based businesses.

After the end of the U.S. Civil War in 1865 and the opening of the West for settlement, homesteaders needed access to long-term credit to purchase farmland. They also needed shorter-term credit to purchase equipment, livestock, and seed, as well as to make necessary improvements on the land. Credit facilities were available for businesses but not for agricultural enterprises. Although the federal government knew farming was part of a healthy and balanced national economy, the government did very little to help rural landholders until President Woodrow Wilson signed the Federal Farm Loan Act of 1916Federal Farm Loan Act of 1916 into law.Farm Credit Administration

Federal Farm Loan Act of 1916

The Federal Farm Loan Act authorized the creation of twelve federal land banks spread throughout the country. The act also created hundreds of national farm loan associations, which acted as retail agents to loan money to individual farmers and to supply long-term credit for land purchases. Although helpful over the long term, the act offered no short-term loans to purchase livestock or seed. Nor did it provide loans for tractors as farming in the United States became mechanized after World War I. This deficiency was not rectified by the Agricultural Credits Act of 1923Agricultural Credits Act of 1923, which made money available to federal intermediate credit banks, as these institutions did not lend to individual farmers.

When the Great Depression hit America during the 1930’s, it hit rural America particularly hard. Few institutions offered agricultural loans, and farmers owed more than their depreciating land was worth. Many simply walked away from their farms. Banks, already crippled by losses due to defaults on business loans, were forced to carry foreclosed farms on their balance sheets. This drove many smaller rural banks into insolvency and eventual failure.

President Franklin D. Roosevelt signed the Emergency Farm Mortgage Act of 1933Emergency Farm Mortgage Act and the Farm Credit Act of 1933Farm Credit Act into law in 1933 as part of his New Deal;agricultureAgriculture;New DealNew Deal plan to resurrect the moribund U.S. economy. The two acts made the federal government a guarantor of last resort for institutions providing agricultural credit facilities. Few lending institutions were enthusiastic about such a program. The Farm Credit Act established the Farm Credit System, through which federal money, via local agricultural lending boards, would be loaned to individual farmers and other rural landholders for short-, intermediate-, and long-term needs.

The Farm Credit Administration (FCA), created by executive order, was originally created as an independent federal agency and made responsible for all existing agricultural credit organizations. From 1939 until 1953, the FCA was part of the Department of Agriculture, but it later reverted to being an independent agency. The Farm Credit System served as the regulator of all later federal credit unions, until this function was given to the Federal Deposit Insurance Corporation (FDIC) in 1942. The Farm Credit System was the vehicle through which federal money would reach qualifying individual farmers. The Farm Credit Act of 1933 was updated and extended to include fishers and other types of rural landholders by the Farm Credit Act of 1971Farm Credit Act of 1971. This 1971 act, as amended, also provided the authority for the Farm Credit Administration.

The 1970’s were a boom time for American farmers. Grain harvests in the Soviet Union failed repeatedly, and worldwide demand for U.S. agricultural exports reached record levels. Farmers received record prices for their products. Many farmers borrowed heavily to expand operations, thinking that the boom would be of indefinite duration.

Changing Credit Availability

Beginning in 1979, the Federal Reserve tightened the availability of credit in U.S. markets to control domestic inflation. Tightened credit drove up prices for agricultural goods both in the United States and abroad. As a result, developing countries that had previously purchased U.S. agricultural goods cut back on their purchases. These countries improved their own national agricultural productivity to become food exporters themselves. As labor costs in developing countries are a fraction of labor costs in the United States, agricultural products from developing countries were much cheaper to purchase, further reducing international demand for U.S. agricultural exports. Faced with rising costs, declining demand, and tightened availability of credit, U.S. farmers were in grave financial trouble by the mid-1980’s. Some 300,000 American farmers were billions of dollars in debt and facing foreclosure.

The Farm Credit Amendments Act of 1985Farm Credit Amendments Act of 1985 and the Agricultural Credit Act of 1987Agricultural Credit Act of 1987 provided $4 billion in federal money to agricultural lending agencies and streamlined the Farm Credit System that had been in place since 1933. It also created the Federal Agricultural Mortgage CorporationFederal Agricultural Mortgage Corporation (Farmer Mac) to provide a secondary financial market for the securitization and purchase of farm and rural home mortgages. The sales of these mortgage-backed securities provided liquidity in order for Farmer Mac to continue to make new agricultural loans for mortgages and rural land improvements.

The Farm Credit System is solvent and receives no federal government appropriations. The Farm Credit System does not take deposits. Through regional farm credit banks, the Farm Credit System raises money for new agricultural loans for issuing bonds and notes in U.S. capital markets. These bonds are backed by the federal government but are different from U.S. Treasury bonds and notes. The various lending institutions within the Farm Credit System are allowed to pool their funds in order to share risk and more easily absorb losses. The Farm Credit System, of which Farmer Mac is a part, has grown to carry more than $135 billion in loans to over 500,000 rural borrowers.

Further Reading
  • Bishoff, Jonathan M., ed. Agricultural Finance and Credit. New York: Nova Science Publishers, 2008. Discusses the importance of credit in capital-intensive farming.
  • Farm Credit Administration. The Director’s Role: Farm Credit System Institutions. McLean, Va.: Author, 2006. Looks at the governmental institutions designed to help farmers and examines their effects.
  • Gardner, Bruce L. American Agriculture in the Twentieth Century: How It Flourished and What It Cost. Cambridge, Mass.: Harvard University Press, 2002. Takes a long look at agriculture and discusses agricultural credit and other economic issues.
  • Hurt, R. Douglas. Problems of Plenty: The American Farmer in the Twentieth Century. Chicago: Ivan R. Dee, 2002. Discusses the economics and social aspects of farming during the twentieth century, including the loan process.
  • Sunbury, Ben. The Fall of the Farm Credit Empire. Ames: Iowa State University Press, 1990. Looks at the effects of the Agricultural Credit Act of 1987 on credit and farmers.

Agriculture

U.S. Department of Agriculture

Farm labor

Farm protests

Farm subsidies

Great Depression

New Deal programs

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