Mimeo Report No. 61-2
SEMINAR ADDRESS: THE FARM CREDIT SYSTEM
Mr. Marshall H. Edwards
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 /"
Mimeo Report No. 61-2
THE FARM CREDIT SYSTEMI
Mr. Marshall H. Edwards
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."
MARSHALL H, EDWARDS LoSerena
Home phone 533 5781
P. O. Box 270
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
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.
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
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
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 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
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
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
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
(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
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.
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
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
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
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
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
1932, July 21 Emergency Relief Act 1. Regional agricultural credit
1933, March 27 Executive Order creating Farm 1. Farm Credit Administration
1933, May 12 Emergency Farm Mortgage Act 1. Land Bank Commissioner
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
1934, Jan. 31 Federal Farm Mortgage Corporation 1. Federal Farm Mortgage
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
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
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
Amendment to REA Act
Farm Credit Act of 1953
Farm Credit Act of 1953
1. G.I, (Veterans) loan
2. G.I. (Veterans) loan
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
1. Farm Credit Board created
to manage FCA
2. Approved PCA class C
1. Means of Coop owning the
3 banks and discontinuing
the P.C. Corp.
RAE:ms October 1960
Agr. Econ. Exp. Sta. 500