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 Biographical sketch
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Group Title: Agricultural economics mimeo report - University of Florida. Agricultural Experiment Station ; no. 61-2
Title: Seminar address : the farm credit system
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Title: Seminar address : the farm credit system
Physical Description: 28 p. ; .. cm.
Language: English
Creator: Edwards, Marshall H.
Publisher: Dept. of Agricultural Economics, University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 1960.
 Notes
General Note: Presented to the Seminar of the Dep. of agric. economics, University of Florida, Gainesville, April 29th, 1960, in its seminar series, "The New image of agriculture.
General Note: Agricultural economics mimeo report - University of Florida. Agricultural Experiment Station ; no. 61-2
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Table of Contents
    Front Cover
        Front Cover
    Title Page
        Page i
    Biographical sketch
        Page ii
    The farm credit system
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
    Chronological record of federal acts and executive orders relating to agricultural credit agencies
        Page 27
        Page 28
Full Text



October 1960


Agricultural Economics
Mimeo Report No. 61-2


SEMINAR ADDRESS: THE FARM CREDIT SYSTEM



by

Mr. Marshall H. Edwards
Bartow, Florida


Marshall H. Edwards (third from right), Bartow, Florida, is shown above with fellow members of
the Federal Farm Credit Board, the body responsible for setting policies of the Farm Credit Adminis-
tration. Mr. Edwards was Chairman for the year 1958-59.







OCT 9 962

Department of Agricultural Economics
Florida Agricultural Experiment Statif /"
Gainesville, Florida






October 1960


Agricultural Economics
Mimeo Report No. 61-2


SEMINAR ADDRESS:


THE FARM CREDIT SYSTEMI


Mr. Marshall H. Edwards
Bartow, Florida


1 Presented to the Seminar of the Department of Agricultural Economics, Uni-
versity of Florida, Gainesville, Florida, April 29, 1960, in its seminar series,
"The New Image of Agriculture."








BIOGRAPHICAL SKETCH2


MARSHALL H, EDWARDS LoSerena
Bartow, Florida
Home phone 533 5781

Business Address

P. O. Box 270
Bartow, Florida
Business phone 533 3561

Service and Term

Reappointed by the President, after serving 3-year term, for a 6-year term
ending March 31, 1963.

Age and Education

Born 1902; LL.B., University of Illinois

Occupation

Lawyer and citrus grower; reared on a 240-acre grain and livestock farm,
Delhi, Illinois; engaged in citrus operations in Florida since 1925. Owns
and operates 250-acre citrus grove.

Former Affiliation

Mayor-commissioner: Bartow, 1936-40
Member: Bartow City Commission, 1935-40
Law Partner: Huffaker and Edwards, Bartow, 1924-40
President and member of Board of Directors: Polk County
National Farm Loan Association
Chairman: National Farm Loan Association Stockholders'
Committee, Third Farm Credit District
Member: National Fcrm Loan Association Advisory Committee
and Executive Committee



2Provided by Federal Farm Credit Board, Washington 25, D. C.












THE FARM CREDIT SYSTEM


First, I would like to express my appreciation on being invited here today

to speak in behalf of the cooperative Farm Credit System. It indicates a recog-

nition on your part of the growing importance of credit to the over-all agricultural

picture -- a concept to which I wholeheartedly subscribe.

My friend, Mr. Fifield, wrote me some time ago and invited me to come

and talk to you. It was Mr. Fifield's suggestion that I discuss Farm Credit; the

economic and sociological philosophies of those who organized FCA; my analysis

of the position of FCA today among farm credit institutions; my thinking as to the

present motivating philosophies of the Farm Credit Administration; and my thinking

as to the mission of the Farm Credit Administration during the 1960' s.

At the outset, may I assure you that I am not an agricultural economist,

nor even an economist. I customarily describe myself as a "country lawyer."

It is obvious that a "country lawyer" did not conceive the aforementioned topics.

Accordingly, if I fail in this assignment, please don' t blame me -- blame

Bill Fifield.

In his letter to me, Mr. Fifield apparently used the abbreviation FCA or

Farm Credit Administration as descriptive of the whole Farm Credit System and

I have so construed this communication. Ordinarily, and under present law, the

term "Farm Credit Administration" has reference only to The Federal Farm Credit

Board, to the Governor and the Governor's staff, or, in short the administrative

branch of the Farm Credit System.













Many times today you will hear me refer to the cooperative Farm Credit

System. Perhaps at the outset it would be well for me to briefly outline and des-

cribe the System. I realize that many of you here today are familiar with the

Farm Credit System; however, you might be surprised to know of the considerable

amount of confusion which exists relative to the various segments of the System.

I see some folks here representing the Columbia Farm Credit Banks, and I am sure

that they will agree with me.

In the cooperative Farm Credit System there are 12 Federal land banks and

821 Federal land bank associations. The association name represents a recent

change, by the way. Beginning this year what for over 40 years has been called

National farm loan associations has been changed to Federal land bank associations.

I won' t go into the reasoning behind the name change as I feel it is quite obvious.

As you know, these Federal land banks and associations provide farmers with

long-term mortgage credit.

Next,there are 12 Federal intermediate credit banks and 494 production

credit associations whose purpose it is to make short-term loans which combine

to provide farmers with a well rounded short- and intermediate-term credit service.

Then, there are the 13 banks for cooperatives -- 12 district banks and a central

bank for cooperatives, in Washington, D. C. -- which provide a complete credit

service for farmer cooperatives.

This is the Third Farm Credit District which comprises the States of

Florida, Georgia, North and South Carolina. Mr. Rcbert Darr is here today.












He is president of the Federal Intermediate Credit Bank of Columbia. Mr. J. D.

Lawrence is also here. He is president of the Columbia Bank for Cooperatives.

Mr. Lawrence is also general agent for the Third Farm Credit District. The term

"general agent" is descriptive of the individual who is the liaison or contact

medium between his district and the Farm Credit Administration.

Perhaps, if we were setting up a system of farm credit today and had the

same capital which is presently available we might create a slightly different

setup. Instead of having three banks in each district, we would probably have but

two banks; one bank making long-term loans, as well as short-term loans, and one

bank making loans to cooperatives.

However, we on the Federal Farm Credit Board did not create theSystem.

Rather when the Board came into being by virtue of the Federal Farm Credit Act

of 1953 we were compelled to accept theSystem as we found it. Since that time

we have attempted to improve theSystem in accordance with the general philosophy

of the 1953 Act.

As a background for my remarks I will endeavor to give you a bit of the

history of the various acts of Congress which created the 37 banks, the 821

Federal land bank associations and the 494 production credit associations which

presently comprise the Farm Credit System.

The Federal land banks were established under the Federal Farm Loan Act

of 1916. They provide growers, farmers and ranchers with long-term credit on farm

real estate. These loans are made through Federal land bank associations, which












associations were also created by virtue of such Act. The philosophy or thinking

of Congress in passing the Federal Farm Loan Act of 1916 was that you could not

have a good nationwide economy unless you had a good agricultural economy.

Each borrower from a Federal land bank is required to become a member

of the Federal land bank association through which the loan is made. The borrower

buys capital stock of the association in an amount equal to 5 percent of the face

amount of the loan and the association is required to purchase an equal amount of

stock in the Federal land bank of the district.

The Federal intermediate credit banks were established under the Agricultural

Act of 1923. They were organized as banks of discount to provide a permanent

and dependable source of funds for institutions making loans to farmers and ranchers.

Although these banks served many privately capitalized financing institutions in

the decade following their organization, they never served farmers effectively until

the system of production credit associations was established in 1933. Up to that

time there were not enough primary lenders with sufficient capital to make funds

available to individual farmers in anything like adequate volume. The production

credit associations were established to make the rediscounting services of theFederal

intermediate credit banks available to every grower, farmer and rancher in the

United States who has a satisfactory basis for credit.

As a result of the growth and development of the production credit system,

the major part of the credit business of the intermediate credit banks is now done

with the production credit associations. The most recent figures for the System as a













whole show that about 93 percent of the banks' average daily balances of loans

and discounts outstanding were accounted for by the production credit associations.

The banks also do business with a number of other financing institutions (called OFIs),

principally State-chartered, privately capitalized agricultural credit corporations

and livestock loan companies.

There are 494 production credit associations, as I have heretofore stated.

Loans by the associations are usually on a budget basis for periods up to 1 year. Some

loans for capital purposes are made for periods up to 5 years. Each borrower from a

production credit association is required to own class B (voting) stock in the associ-

ation in an amount equal to 5 percent of the amount of the loan. The loans are

usually secured by chattel mortgages on crops or livestock but unsecured loans are

made in appropriate cases.

The production credit associations provide credit to members at the lowest

cost consistent with sound business practices. Interest rates vary among the

associations.

Initially, the production credit associations were capitalized a!mrst entirely

through the purchase of class A (nonvoting) stock by the Government. Over the

years growers, farmers and ranchers have also purchased substantial amounts of

class A stock to increase the lending capacity of their associations and to retire

Government capital. These purchases of class A stock were over and above the class

B stock required to be owned in connection with each loon. Most associations have

elected to devote their earnings to building their financial strength and, consequently,











members have foregone returns on their stock investments. As capital investments

by members grew and earnings of the associations accumulated, the Government

capital in the associations has been gradually retired.

The banks for cooperatives were organized under the Farm Credit Act of

1933. They make loans to growers' and farmers' marketing, purchasing and service

cooperatives. Three distinct types of loans are made: commodity, operating

capital and facility loans. Interest rates vary with the type of the loan. Generally,

the commodity loans carry the lowest interest rate, operating capital the next

higher, and facility loans the highest interest rate.

The banks for cooperatives were capitalized by the United States out of

the revolving fund from which the Federal Farm Board previously made loans to

cooperatives under the Agricultural Marketing Act of 1929. The Act creating the

banks contained no provision for the ultimate retirement of Government capital.

The Farm Credit Act of 1955 provided a plan for the systematic retirement

over a period of years of the Government capital in the banks for cooperatives.

This was made possible by the creation of permanent capital contributed by the

users of the banks.

So much for a resume of the Farm Credit System, how it was created and

what it comprises.

With the return of all Government capital from the land banks and much of

Government capital from the production credit associations, there became estab-

lished a philosophy we presently think of as being created by the liberal or progressive












minds in Farm Credit to the effect that a more democratic system should be evolved

so that the agricultural interests which owned all of the national farm loon associ-

ations and a large majority of the production credit associations should have more

voice in determining the policies of the System and its administration. And so the

principles of the Farm Credit Act of 1953 were formulated and subsequently enacted

into law by the Congress of the United States.

The Farm Credit Act of 1953 by its terms established a congressional policy

of farmer ownership and control of the Federal Farm Credit System. The Act made

the Farm Credit Administration an independent executive agency. The Act improved

coordination and representation through replacement of Presidentially appointed

commissioners with appointees of the Governor. The System, accordingly, presently

has but one executive head; namely, the Governor, who is employed by the Federal

Farm Credit Board and approved by the President. Such approval is required so long

as Government capital remains in the System.

The System is no longer bureaucratic in nature. The Farm Credit Act of 1953

increased farmer participation in the management and control of the Farm Credit

System through establishment of the Federal Farm Credit Board and through an

increase in the elected members of the district Farm Credit Boards. The members

of the Federal Farm Credit Board are named by the President from the three nominees

of the three banks. Likewise five of the seven directors of the district boards are

elected by the owners or users of the three banks. Only two of the district directors

are presented appointed by the Governor of Farm Credit, as I have heretofore stated.











Ultimately, six of the seven district directors will be elected by the owners and

users of the cooperative Farm Credit System and only one will be appointed by

the Governor.

The Farm Credit Acts of 1955, 1956 and 1959, to which some reference

has and will be made, were recommended for passage to the Congress by theFederal

Farm Credit Bocrd and were enacted into law. In the main, such Acts were to

further the general philosophy and purpose of the Farm Credit Act of 1953; that

is, to make the System user-owned and to uiimrately retire Government capital

from the System.

As you can well imagine, with such a far-flung credit system, we face

several public relations problems. Just to give you 3 little idea of what I mean,

the University of Tennessee a ,cuple of years ago conducted a survey in that State

to find out how much farmers knew about credit and lenders. Some of the results

were quite astonishing.

We were amazed, for example, to discover some farmers interviewed had

never heard of Federal land bank loans. I want to remind you that the Federal

land banks have been in operation over 40 years -- since 1917. In this connection,

you folks in your daily contac-s with farmers, students and the general public,

are mighty important to us in explaining the services available through the Farm

Credit System. On the plus side the survey showed that farmers who are members

of either PCAs or Federal land bank associations have a far better knowledge of

credit. This part of the survey was very gratifying.









One of the chief misunderstandings that has dogged us over the years is the

widespread feeling that the System is governmental -- that is, that we loan Govern-

ment money. The System is, in fact, the largest organization in the world of

farmer cooperatives having a common function. It has a combined net worth of

$1.2 billion. Last year -- 1959 -- farmers and their cooperatives borrowed a record

of $4 billion from the System. On December 31 of last year loans outstanding to

farmers and their cooperatives amounted to $4.4 billion.

Probably the confusion about the System's status stems from the fact that the

various segments were established by acts of Congress and do operate under Federal

charters. Also, the Federal government furnished much of the original capital to

put the System on its feet. However, all parts of the System now have either paid

off all of their Government capital or are well on their way.

The System as a general rule obtains its loanable funds through the sale of

bonds and debentures to the investing public. The several banks in the System do

from time to time obtain loans from private banks. This is true of all three banks.

These loans are customarily made between the sale dates of consolidated bonds or

debentures.

In the calendar year 1959 Farm Credit Banks sold $3.3 billion of bonds and

debentures to the public. The 37 banks of the System employ a fiscal agent in

New York City to sell their securities in amounts to meet the needs of farmers.

As a point of interest, the securities are now so well regarded in the investment

markets and sell at such favorable rates that the System is able to provide farmers and

their cooperatives credit at rates that are comparable to those paid by other types

of businesses.












The patronage refunds of each regional bank for cooperatives are paid in

class C stock to borrowers during the fiscal year for which the refunds are declared.

Patronage refunds of the Central Bank for Cooperatives are paid in class C stock to

the regional banks for cooperatives upon the basis of interests held by the central

bank in loans made by the regional banks and upon direct loans ma;e by the central

bank to cooperative associations; ard any part of such refunds derived from such

direct loans of the central bank shall be paid in class C stock issued to the regional

bank or banks which issued to ths borrower ths stock incident to the loans, or to a

regional bank or banks dosiognnted by the Fa.-: Credit Administration, and such

bank or banks issues a like amount of class C stock to the borrowers. All patironage

refunds are paid in the proportion that the amount of interest earned on the loans

of each borrower bears to the total interest earned on the loans of all borrowers

during the fiscal year.

We feel that prcbcbly the most important service the System has rendered

to American agriculture has been to g.ve farmers, who pool their credit resources,

access to the capital markets of the country and permit them to compete with

industry for capital funds at a basis that approaches equality. We feel particularly

proud of this accomplishment.

In determining interest rates charged borrowers, the banks start with the

cost of funds and add to that a charge to cover the cost of operating the banks

and associations, including reasonable provisions for losses. If the income to banks

and associations, as a result of such interest rates, is greater than is needed to cover











the operating expenses, losses, and reserves, the difference is paid out to member

stockholders in the form of dividends. Some of the production credit associations

also pay patronage refunds in addition to dividends on stock. So, when you hear

us in the System refer to our obtaining credit for farmers at cost, this is what we mean.

Another reason for the erroneous "Government" label being put on the System,

perhaps, is that it operates under the supervision of the Farm Credit Administration,

an independent agency of the government. Here, again, I would like to point out

some factors that perhaps have escaped your attention.

The Farm Credit Administration operates much in the same way as the Federal

Reserve System does with the national banks. For example, we have a 13-member,

part-time Federal Farm Credit Board, of which I am a member, for the purpose of

policy-making at the national level. The Farm Credit Administration operates under

policies established by this Federal Farm Credit Board. In its operations and in

making decisions, this Board is careful to canvass the interests and needs of all the

banks and associations and strike a careful balance between public responsibility

and the requirements of agriculture.

Although the money to operate the Farm Credit Administration and the

Federal Farm Credit Board is appropriated by Congress, the cost is actually paid

through assessment upon the 37 banks of the System. In other words, it is not paid

for by the taxpayers.

In their letters to me regarding this meeting, Ralph Eastwood and Willard

Fifield suggested that I spell out the general philosophy and purpose of the System.













The primary function of the banks and associations of the System is to furnish credit

to farmers and their cooperatives on terms especially suited to agriculture and at a

reasonable cost.

I personally feel that during the more than 40 years the System has been in

operation, we have accomplished this and more, despite the fact that we do not

account for a major portion of form loans. The percentage varies as to the three

parts of the System. The Federal land banks presently loan about 18 percent of

all the farm mortgage money advanced. The production credit associations account

for about 12 percent of the total production financing of farmers. On the other

hand, it has been estimated that between 50 and 60 percent of all of the credit

extended to farmers' marketing and purchasing cooperatives is extended by the banks

for cooperatives. It would seem to me that the importance of the System goes far

deeper than the amounts in dollars that it has loaned to farmers.

The System has served as a means of supplementing other credit sources, but

because of their competitive positions, credit cooperatives serve as a yardstick

and tend to set the pace for other lenders both with respect to interest rates and

quality of service. Consequently, we feel that the System's influence on the whole

credit structure is, on the whole, greater than that indicated by the total share of

credit furnished. Some examples of introduction of new credit services for farmers

that come to mind are the long-term amortized loan, budgeted loans, extension

of lines of credit, provisions to pay off loans in advance without penalty -- to

name a few.













I do not want to leave with you the impression that I feel that the major reason

for the cooperative Farm Credit System to be in business is to provide competition

for other lending institutions and to more or less set the pace for farm lending.

There is a definite need for the System beyond this. Most other sources of farm

credit are limited to selected areas in which they serve.

Commercial banks are dependent upon the volume of deposit funds and gen-

eral credit policies of the Federal Reserve System. For nearly all other lenders,

providing credit to agriculture is a function that is incidental to other purposes.

Banks are primarily concerned with safeguarding depositors. Insurance companies

are mainly responsible to their policyholders and stockholders. Dealers are pri-

marily interested in selling seed, fertilizer, machinery and whatever they provide.

In these circumstances, credit services to agriculture tend to be a secondary con-

sideration. On the other hand, the sole purpose of the banks and associations of

the Farm Credit System is to provide credit services to the farmers who own an

interest in them and they are in business in every farm section of the country.

Many advancements of farm lending have come about as a result of farmers

being given a "voice" in setting credit policies. As you know, farmers elect and

serve on boards of directors of Federal land bank associations and production credit

associations, as well as serving on loan committees. Also, they have a vote in

selecting Farm Credit Banks board members and have a good deal to say about who

serves on the Federal Farm Credit Board.











There have been some other more recent changes in lending practices by the

System. As many of you know, we now lend to part-time farmers and to family farm

corporations. Loan limits have been raised on land bank loans. The PCAs offer

intermediate-term loans for capital purchase items in use on farms and also the PCAs

in some areas are financing patrons of farm supply cooperatives. That is, they are

providing credit at the point of purchase.

The land banks are now authorized to make unamortized or partially amor-

tized loans. The thinking behind this is that there are now cases among farmers

where a permanent funded debt is suitable for their farming operations.

These recent changes, I feel, illustrate another objective of the System --

which is to tailor our credit services to fit the changing needs of farmers.

Earlier I mentioned progress being made to the complete farmer-ownership

of the System. This is another of our specific objectives. The Federal land bank

associations have been farmer-owned since their very beginning in 1917, while

the last of the 12 Federal land banks became fully farmer-owned in 1947. Most of

the PCAs have reached that goal, while the Federal intermediate credit banks and

banks for cooperatives are making continued progress in that direction. Government

capital in the System has been reduced from a peak of $883 million in 1939, to

$219 million on December 31, 1959.

Paralleling the retirement of Government capital and the development of

financial independence, there is a broad program to decentralize authority and

generally to increase the extent of self-determination on the part of the various banks













and associations. This objective and philosophy has been reaffirmed in recent leg-

islation, particularly in the Farm Credit Acts of 1953, 1955, 1956 and 1959.

Now, what of the future? Developments in the next 10 years in agricultural

credit, generally, and in the cooperative Farm Credit System, particularly, will

depend mainly on what happens to farmers and their cooperatives. Most of the

leaders of the Farm Credit System expect these trends:

(1) Further shrinking in the number of commercial farmers as most

small, uneconomic farms find it difficult to survive.

(2) Increasing capital requirements per farm on commercial farms

resulting, in part, from a larger number of acres and, in part,

from increasing other capital investments per farm such as more

machinery and better livestock,

(3) As technological advances continue and the total investment

in commercial farms becomes larger, farming will become still

more of a business operation requiring high degrees of technical

and management skills. The need for such skills will be further

accentuated by relatively narrow margins between prices

received and prices paid, which again will be a continuation

of recent price ald cost trends.

(4) There will probcA:y) be moderate increases in part-time farming,

if industry penetrates further into rural areas.











(5) The pattern of change for farmer cooperatives will be similar

in many respects for that of many farmers. There will be con-

solidation, both vertical and horizontal, as well as normal

growth with the result that the number of associations will

decline further and the average size in terms of both number

of members and volume of business will increase. There will

be adaptation into advancing technology and changing pro-

duction and marketing methods so that investments in plant

and equipment for purposes of both modernization and ex-

pansion will grow. Such conditions clso will require sub-

stantial net worth as a basis for the financial strength nec-

essary to borrow increasingly large amounts of money.

(6) Under the foregoing developments the credit requirements of

farmers and their cooperatives will expand. it is likely that

in meeting these capital requirements agriculture will depend

more on credit and somewhat less on capital accumulation

than in the recent past. With these growing needs for credit,

we can visualize that the loan volume of the banks and

associations of the Farm Credit System might increase

during the next 10 years about as follows:

(a) Federal land bank loan volume might expand by
about $1 billion, reaching a total of a little over
$3 billion outstanding by 1970.












(b) Short- and intermediate-term credit from the PCAs
and Federal intermediate credit banks is likely to
about double, reaching a total outstanding of
$2.75 billion.

(c) Loans by the 13 banks for cooperatives also will about
double in the next 10 years to a total outstanding of
about $1 billion.

These, of course, are only our best guesses, based on what we see ahead now.

But if volume grows at about these rates, these increases would bring the total for

the cooperative Farm Credit System to around $7 billion by 1970 compared to

$4.4 billion outstanding in 1959. These prospective increases do not seem out of

line, particularly when you consider that the amount outstanding from the System

jumped from $1.5 billion in 1946 to $4.4 billion in 1959.

(7) The goal of complete member-ownership of the System, if not

fully realized, will be very close by 1970. If the rate of

reduction of Government capital in the System is maintained,

most of the balances will be repaid within the next 10 years.

(8) We visualize that the interest rates paid by the Farm Credit

banks on bonds and debentures sold in the investment market

and the related rates of interest which must be charged

borrowers will average higher than during the past 10 years.

It is anticipated that investments required to maintain the

desired growth of th1e total economy will press sufficiently

hard against the rate of savings so that interest rates will

fluctuate within ranges higher tl.an the average for the

past 10 years.











We in the cooperative Farm Credit System are talking more and more in terms

of "qualitative (quality) credit." By this we mean we are giving more attention to

constructive, personalized service, technical assistance, and counseling in financial

management. I believe, too, that the land grant colleges and extension service can

be of immense help in this regard. We find many farmers ill-equipped in financial

management. In the past there has been a great hesitancy on the part of people to

offer financial help to farmers for fear that such advice is unwelcome. However, I

believe you will find that the attitudes of farmers have improved considerably in

recent years and they are actually anxious to receive this kind of good, sound help.

In conclusion, I would like to say that the building of a dependable credit

system by farmers has been a very necessary and worthwhile endeavor and, I think

you will agree, a successful one. This will be more fully realized in the years

ahead. Despite the tremendous demands for credit that are expected to be placed

upon the System in the future, we are confident that we have the machinery to

meet these demands,

We realize that we are in a troublesome day of agriculture. We are fully

aware of that. We know of the decrease in the number of farms. We know that

fewer and fewer people are piC-.ucing more and more. We realize that this is the

machine age. We realize th.t we have big problems ahead, but we think we will

be able to meet these demands and solve them.

It was very nice to be here today. Thank you for the invitation. It has

been a pleasure to accept this invitation and to discuss Farm Credit with you. I













have talked to you as a citrus grower, as a country lawyer -- not as an economist.

I have had some experience with Farm Credit. It has been an interesting and

rewarding experience. Thank you so much,

Chairman Eastwood: The applause indicates our appreciation for your taking

the time to share with us your knowledge of the Farm Credit System. And, as is our

Seminar custom, at this time we shall turn the discussion over to the audience for

their participation.

I should like to ask you the first question this afternoon. Several have

asked me to be sure that the question be asked as to whether the Farm Credit System

in the years ahead will be more competitive in the interest rates it offers to borrowers

who have relatively low risks in their farm operations, and I would like to lead off

with that question.

Edwards: The Farm Credit System, so far as interest rates are con-

cerned, has always been competitive. As in the past, I think we will be compe-

titive in the future. We have to be reasonably competitive to make loans. We

are, however, users of money, as I indicated. We buy money in the money markets

at discount (wholesale) rates, and sell it out to the farmers at retail,

In some instances, our interest rates that farmers pay are a little bit more

than they might get money from a commercial bank, but the farmers in most in-

stances are glad to pay the di;fer~ce because they realize that they get more for

the interest rates that they pay than they might get at the commercial bank. They

know how long they are going to keep this money. They know they have a part











in the System. They know the System belongs to them. They know the System is

set up for their benefit. Mr. Darr, would you like to add anything to that?

Darr: I think Mr. Edwards has adequately answered that question

and I would make this additional observation that many of our production credit

associations are paying dividends on their preferred capital and they are making

a patronage refund to their borrowers in proportion to the interest they pay. This

offsets part of the cost of credit. Patronage refunds also are distributed by the

Federal intermediate credit banks and the bank for cooperatives, of which

Mr. Lawrence is President of the Columbia Bank for Cooperatives. Actually,

thenthe cost of credit in our cooperative Farm Credit System is the cost of money

and the cost of operations.

Fifield: Would there be any special lowered interest rate or discount

on better risks than on the others?

Edwards: My answer to that question would be "no." As you know,

Bill, the insurance companies do change their interest rates depending upon the

risk, but we don't do that. Our interest rates are the same for all the people.

Professor Clark: Is that true of Federal land banks? I was under

the impression that recently they had uniform rates over the Nation, but of late

they now have different rates.

Edwards: The interest rates charged by the Federal land banks vary

from time to time. This depends upon the cost of money. It has varied through

the years. Money has softened a bit in the last sixty days, but money has been













high priced in the last year. This caused us to ask Congress to increase the interest

rate that we could pay on our consolidated land bank bonds above 5 percent, so

we could meet competition in the money market and get money by paying more

than 5 percent. To answer your question specifically, I would say that all interest

rates on loans of Federal land banks at the same time to all individuals is at the

same rate of interest -- presently 6 percent.

Professor Godwin: Are these bonds guaranteed by the Government?

Edwards: Definitely not. We want to emphasize that we are not

lending Government money in the Federal land banks. The System is owned by

the farmers; not Government-owned. The bonds are so well thought of by the

investment bankers and the public that we sell them at rates comparable to treasury

offerings. This has been true for a number of years.

Godwin: Could we have some clarification of just what the role of

the Government is in the Farm Credit System?

Edwards: The Government has no role in the Farm Credit System in a

strict Federal sense, except that the System was created by acts of Congress. In

the beginning, obviously, capital had to come from some source and it was Govern-

ment capital. Much of that Government capital has been retired; from a high of

$883 million in 1939 to $219 million on December 31, 1959. Now there is no

Government capital in the Fedural land banks. There is very little Government

capital in our production credit associations and the Government capital in the

banks for cooperatives and Federal intermediate credit banks, we hope, will be

retired fully by about 1970 or thereabouts. So it isn't Federal money. The Federal











government has no voice in the System, except through its Congress which passes

the laws under which we operate. I made a comparison, if you will recall, with

the Federal Reserve Board and Federal land banks.

Godwin: There are staffs employed by the Federal government who

perform services in the Farm Credit System and the Government borrows money at

preferential interest rates which it lends in turn to the Farm Credit System for loans

to farmers. How do you repay the Federal government for these services?

Edwards: You have reference apparently to the franchise tax.

We do pay interest on Government money by franchise tax.

I have a comparison of the expenses of the Farm Credit Administration and

loan volume of the System as of December 31, 1953, and December 31, 1959, which

is interesting, in that such figures show a reduction in personnel and expense but

a great increase in loan volume.
Percent
1953 1959 Change

Staff positions in
Governor's office 322 207 Down 35.7

FCA budget, paid by
the 37 banks $ 2,162,250 $ 2,125,000 Down 1.7

FCA budget expenses 2,112,197 2,080,700 Down 1.5

Loan volume 2,172,088,000 4,499,468,000 Up 104.8


Generally, throughout the Systemij, you will find that regardless of this increase in

business the increase in operations' costs has been very little. There has been a

reduction of PCAs and there has been a reduction of F LBAs, but more is to be

accomplished.











Clark: I would like to ask what the Farm Credit Administration may

do, and the role of Government in it may be, if a depression were to come, during

which the System could not borrow money from its usual sources but needed in-

jections of new money.

Edwards: That is a difficult question, of course. It presupposes certain

facts which we hope will never come into being. That is: (1) that we can't sell

consolidated land bank bonds or consolidated debentures to the investing public

(2) that the demands are greater than the amount of reserves and resources that

has been built up by the System throughout the years and which has been consid-

erable, as you might imagine. It also presupposes that we can't get any money in

the markets, In short, it presupposes that our demands are greater than our capital

and reserves, but there is still need.

Well, I would guess we would have to ask Congress for relief and ask that

the Treasury do something about it as an emergency measure. We would try to do

something. I hope that it doesn't come into being while I am up there; I hope that

my successors would find ways and means of getting this capital.

Mr. Lawrence suggests that the Federal Reserve Board could, if it wanted

to, come to our aid. I might say in passing, that when we anticipated that we could

not get money for 5 percent, we approached the Federal Reserve Board to see if they

would come to our assistance, and the shoulder which we received was very cold

and clammy.











Clark: The reason I asked the question was that some of the orig-

inal appropriation of $883 million has been put into a revolving fund to be pumped

back into the System if there is a need.

Edwards: A lot of it has gone to the Treasury. There is some in a

revolving fund, yes sir. There is, I think, originally a revolving fund of $100

million and that has been reduced, of course, but there is still a revolving fund

available to the Federal intermediate credit banks, but some of the original

Government money has gone back into the Treasury.

Eastwood: I think it is time in our Seminar to invite each of our panel

members to make a closing statement of any thoughts or ideas that may have occurred

to him during this question and answer session. Mr. Lawrence, would you like to

have first chance at that?

Lawrence: Dr. Eastwood, it is such a big subject and so much dis-

cussed, I hardly know where to begin.

Something else might be said on the Government's part in this System. As

Mr. Edwards pointed out, the Farm Credit Administration receives no Govern-

mental appropriations whatsoever for the support of any of the banks or the Farm

Credit Administration office in Washington. The Farm Credit Administration office

in Washington is a Governmental bureau. It is supported entirely from assessments

against the banks under the distr': ts.

The banks not only support that office, but pcy a franchise tax to which

Mr. Edwards referred. In the case of the banks for cooperci ;yes, that franchise tax











is 25 percent of earnings after making provisions for reserves for losses against loans,

or the cost of money to the Government, whichever is lower. If the cost of money

is lower, we pay the Governrient the cost of money on the amount of Government

capital we have. If the franchise tax is lower, we pay that. And that is the

nature of an income tax. So we do pay the Government for the use of the declining

balances of Governmernal money thca we have. As Mr. Edwards pointed out, we are

paying off that mortgage every year. We hope to have it entirely paid off by 1970

and then the Government's part in this program will be largely, as he pointed out,

interest in the public welfare, because after all, Farm Credit Administration program

is a public program, is cn agricultural program for the benefit of all the public.

Eastwoad: Thank you, Mr,.- Lawrence. Mr. Darr, would you like to

make a closing remark, or leave a tho'r;t with us?

Darr: Well, Dr. Ea;z-ood, we are most appreciative of the fine

cooperation, the help and the thoughtful su4sstions we received here from members

of the st.'f, and I feel that this has been a very fine session. I have been working

closely with Florida agriculture for 15 years, Good financial management on the

part of farmers in this Iwhole area of agribusiness is going to be the key to future

success of the oaricultural en-' ovor, c'd we h:ve confidence in the future of

Florida agriculture. Our intermediate--term credit program is rather new, but it is

growing fast. I believe this year the production credit associations will lend about

$55 million to Florida farmers. I know the FEc-eral land bank business is growing,

as is the banks for cooperatives. As Mr. Edwards has said, we believe we have











access to the money market and the machinery to do this job and we will be most

appreciative of any suggestions coming from you folks at any time. Thank you, sir.

Eastwood: Thank you, Mr. Darr. Mr. Edwards, do you have a concluding

remark or thought for us at this time?

Edwards: I perhaps talked too much now. I don't have anything further

to add, except it has been a pleasure for me to visit with you. I appreciate the

invitation, and I shall remember this afternoon pleasantly.

Eastwood: This fine presentation concludes our seminar today. Thank

you very much, gentlemen, for bringing such a stimulating message on the accomp-

lishments and goals of the Farm Credit Administration. We consider ourselves for-

tunate, indeed, when leaders of your abilities so graciously assist us in examining

the economic aspects of measures of public policy involving the new image of

agriculture.








27


CHRONOLOGICAL RECORD OF FEDERAL ACTS AND EXECUTIVE
ORDERS RELATING TO AGRICULTURAL CREDIT AGENCIES


Date Description of Act or Order Agency Created

1916, July 17 Federal Farm Loan Act 1. Federal land banks
2. Joint stock land banks

1921, March 3 First seed loan appropriation. 1. Seed loan agency in USDA
(A few loans made earlier in
1918)

1923, March 4 Amendment to Federal Farm 1. Federal intermediate credit
Loan Act banks

1929, June 15 Agricultural Marketing Act 1. Federal Farm Board
2. Stabilization corporations

1932, Jan. 23 Amendment to Federal Farm Loan
Act -- added $125 million of
Government capital to Federal
land banks

1932, July 21 Emergency Relief Act 1. Regional agricultural credit
corporations

1933, March 27 Executive Order creating Farm 1. Farm Credit Administration
Credit Administration

1933, May 12 Emergency Farm Mortgage Act 1. Land Bank Commissioner
loans

1933, June 16 Farm Credit Act 1. Production credit system
2. Banks for cooperatives

1933, Oct. 16 National Recovery Act and Exe- 1. Commodity Credit Corporat
cutive Order

1934, Jan. 31 Federal Farm Mortgage Corporation 1. Federal Farm Mortgage
Act Corporation


t











ion











Description of Act or Order


1935, Apr. 30



1935, May 11


1937, July 22


1939, June 24


Executive Order 1. Resettlement Administration
-- later changed to Farm
Security Administration

Executive Order and REA Act of 1. Rural Electrification
May 20, 1936 Administration

Bankhead-Jones Act providing for 1. Tenant-Purchase Loans --
tenant-purchase loans Division of Farm Security
Administration


Presidential Executive Order plac-
ing FCA, REA, and CCC in the
Department of Agriculture


1944, June 22




1945, June 30


1946, August 14




1949, July 15


1949, Oct. 28


1953, August 6




1955, and 1956


Service Men's Readjustment Act




Amendment ti Farm Loan Act


Farmers Home Administration Act
of 1946



Housing Act


Amendment to REA Act


Farm Credit Act of 1953




Farm Credit Act of 1953


1. G.I, (Veterans) loan
guarantee
2. G.I. (Veterans) loan
insurance

1. Increases loan limit on
FL3 loans to 65 percent

1. Farm Security Adminis-
trction changed to Farmers
Ho1r .e Administrftion
2, ,:tgage insurance system

1. Firm housing loans
(Farmers Home Admin.)

1. Rurd! telephone credit
pr:,-ram (RcA)

1. Farm Credit Board created
to manage FCA
2. Approved PCA class C
preferred stock

1. Means of Coop owning the
3 banks and discontinuing
the P.C. Corp.


RAE:ms October 1960
Agr. Econ. Exp. Sta. 500


Date


Agency Created




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