Thoughts about the Farm Credit System

One of the themes of this blog is that I sometimes think about public life in terms of three sectors:

  • Government
  • For-profit
  • Not-for-profit

I worked for the Farm Credit System for 32 years, retiring at the end of 2016. How does the Farm Credit System fit into my classification scheme? That is an interesting question, which I consider in this post. My story involves all three sectors. After considering that question, I discuss things I learned from my career in the Farm Credit System, as related to themes of this blog.

Government makes the rules under which other organizations exist and operate. Most entities in both the for-profit and not-for-profit sectors are organized under state law. Relatively few entities in either sector are organized under federal law. The Farm Credit System is organized under federal law.

The Farm Credit System began in 1916 when Congress created a system of financial institutions to lend money to farmers. At the time, it was felt that commercial banks were not meeting farmers’ credit needs. The Federal Farm Loan Act was signed by President Woodrow Wilson on July 17, 1916. The Farm Credit System celebrated its 100th anniversary just over a year ago.

The photo above is from the celebration of the 100th anniversary at Yankee Farm Credit, the part of the Farm Credit System where I worked. (Click here for a blog post about that celebration last year.) Yankee Farm Credit presented a plaque of appreciation and a donation to Katherine Sims, executive director of Green Mountain Farm-to-School.

Government supplied the money to start the Farm Credit System. Therefore, the Farm Credit System was originally part of government. It was created, however, as a system of farmers’ cooperatives with the intent that the farmers would eventually buy out the government and assume ownership themselves.

Farmer ownership of the Farm Credit System was eventually accomplished, notwithstanding such external events as World War I (the U.S. entered the war in 1917), the Great Depression, and World War II. President Franklin Roosevelt significantly modified and expanded the Farm Credit System, and put more government money into it, as part of his New Deal in the 1930s. After many ups and downs, farmers paid back all the government money by 1968. How often does a government program move from the government sector to the private sector? In this case, that was the plan from the beginning, and it was successfully accomplished.

Various parts of the Farm Credit System paid back their portion of the government money at different times. At Yankee Farm Credit, there is a framed certificate titled “Complete Member Ownership Certificate” for the Burlington, Vermont, association dated January 1, 1951. The farmers were justifiably proud. In a history of the local association written in 1954, they said the following about that accomplishment:

This was the dream we had all been looking for… Now, no one could say we were a subsidized agency of Uncle Sam. In fact, we had cracked the shell and appeared on our own two feet.

In recognition of the fact that the Farm Credit System had become privately owned, Congress updated the governing law with the Farm Credit Act of 1971. That is still the governing law for the Farm Credit System today, as subsequently amended from time to time. See 12 U.S.C. Chapter 23. (U.S.C. = United States Code, i.e., federal law)

After 1971 the Farm Credit System was privately owned but regulated by the government, as are most financial institutions. For example, commercial banks are privately owned but closely regulated by the government. The regulator for the Farm Credit System is the Farm Credit Administration, an agency in the executive branch of the federal government.

The Farm Credit System expanded greatly in the 1970s, and crashed in the 1980s. There were many reasons for the crash, including some amount of mismanagement, but the biggest reason was that the U.S. agricultural economy soared in the 1970s and crashed in the 1980s.

In any event, the Farm Credit System was on the brink of failure in the 1980s and was rescued with a federal bailout by the Agricultural Credit Act of 1987. That bailout provided for up to $4 billion of temporary federal assistance, to be paid back if used. The Farm Credit System used $1.3 billion, and paid it all back by 2005.

Here is a question that relates to my three sectors of public life: When the Farm Credit System moved from the government sector to the private sector with the Farm Credit Act of 1971, was it for-profit or not-for-profit?

That is a good question, and there may not have been a lot of clarity in the answer. The Farm Credit System has always been a system of farmers’ cooperatives. Each part of the system has its own governance structure, and not every part of the system may have thought about that question the same way. Commercial banks, which lend money like the Farm Credit System, are clearly for-profit entities. But commercial banks are corporations, which have different governance principles than cooperatives. Some think that cooperatives are, or should be, run on the not-for-profit model.

My view is that prior to the bailout of the Farm Credit System in the late 1980s, the majority of leaders in the system leaned toward the not-for-profit model, and that subsequent to that bailout, most system leaders leaned toward the for-profit model.

The for-profit model proved to be a successful model for rebuilding the Farm Credit System. Since the mid-1990s, the system has been on sound financial footing. The Farm Credit System came through the financial crisis of 2007-2008 in excellent shape, one of the few major financial institutions in the country to do so.

Today the Farm Credit System in total is a $300 billion financial institution. If it were a commercial bank, and a single entity, it would be the 12th largest commercial bank in the United States. It is one of the strongest (i.e., best capitalized) financial institutions.

(Yankee Farm Credit, the part of the Farm Credit System where I worked, is a $500 million financial institution, a small part of the overall Farm Credit System.)

What did I learn from my Farm Credit System experience?

I gained an appreciation for two ancient Greek maxims:

  • Know thyself.
  • Nothing in excess.

Let’s take them in reverse order:

Nothing in excess
This maxim particularly applies to debt—whether you are a farmer, a financial institution, or a government. While working for the Farm Credit System, I gained an appreciation for debt that I had not had before. Debt can be a powerful tool for constructive purposes, but excessive debt can be terribly destructive.

Know thyself
Know that you can never know everything. Be open to learning. Be curious. And expect to be surprised as you learn new things about the past and the present.

Know that you cannot perfectly predict the future. Nature will surprise you. (Farmers know this well!) Other people will surprise you, both good and bad. You will surprise yourself, both good and bad.

From an organizational perspective, each type of institution (e.g., corporation, cooperative, etc.) has strengths and weaknesses. Know them. Build on the strengths, and guard against the weaknesses. I believe the not-for-profit mentality in the Farm Credit System in the 1970s contributed to weakness in the 1980s.

From a societal perspective, each sector of public life (government, for-profit, not-for-profit) has strengths and weaknesses. Each sector has a different job to do. Know them. Don’t confuse them.

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1 Response to Thoughts about the Farm Credit System

  1. Allen Willeford says:

    For those who don’t know me well , this is the organization I worked for 34 years and retired in 2004.


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