Farm Credit System leaders asked members of a House Agriculture subcommittee to pass legislation that would bar FCS institutions like Farm Credit Services of America from leaving the System.

The House Agriculture Subcommittee on Conservation, Credit, Rural Development and Research held a Sept. 29 hearing on the proposed termination of Farm Credit Services of America as a Farm Credit System institution and its purchase by the Dutch banking conglomerate, Rabobank.

The action would “allow an institution to abandon its congressionally mandated mission and purpose,” said Jerold Harris, CEO of U.S. AgBank, headquartered in Wichita, Kan. “We are asking that this committee repeal the termination authority as soon as possible.”

Harris testified on behalf of The Farm Credit Council, representing the views of the Farm Credit System. Congress added the authority for a Farm Credit institution to terminate its System status in the Farm Credit Act of 1987. U.S. AgBank is one of five Farm Credit System Ag Banks in the U.S.

Talking specifically about the proposed FCS of America termination, Harris reviewed the previously announced financial details of the transaction. “We simply can't see how the Rabobank purchase proposal works out as a good deal for stockholders,” he said. “The departure of FCS of America would leave a gaping hole in the System's service to agriculture in four key agricultural states.”

Farm Credit Services, based in Omaha, serves farmers in Iowa, Nebraska, South Dakota and Wyoming.

“Irrespective of the numbers, Mr. Chairman, it makes no sense for a System institution to terminate its System status, or for Congress to allow it,” Harris said. “The termination provisions of the Act are inconsistent with the basic mission and purpose set out by Congress for the Farm Credit System.

“The Act states that the System is to be a permanent source of credit for all sizes and types of agricultural producers, and the System exists to promote farmer-ownership and control of these financial institutions. How is it possibly consistent with those stated goals for any System institution to exit the System?”

Harris provided the subcommittee with a brief history of the financial stress of the 1980s in the territory served by Farm Credit Services of America and explained how $631 million of financial assistance from farmers, other Farm Credit institutions and through U.S. Treasury guaranteed bonds was provided to what is now the Farm Credit Services of America.

Harris also said the Farm Credit System is undertaking a comprehensive review of operating limitations imposed on Farm Credit by the Farm Credit Act and regulations issued by the Farm Credit Administration.

He noted that FCS of America pointed to its frustration with these limitations in its announcement that it planned to leave the System. “But instead of choosing to depart the System, we have chosen another route — one which involves a comprehensive review of what we need to make sure we can continue to fulfill the mission you have given to us and to ensure we can serve the agriculture and rural communities of the 21st century.”

Farm Credit Systems members have pledged to work with the Agriculture committee to get needed changes accomplished, Harris said.

Harris' testimony has been posted at the Farm Credit Council's Web site: www.fccouncil.com.

The Farm Credit System is a national network of cooperatively owned lending institutions that collectively provide a wide range of financial and lending services to farmers, ranchers, and rural communities throughout the U.S. The Farm Credit Council is the national trade association representing Farm Credit institutions.

Farm Credit institutions are cooperatives, capitalized largely through investments made by farmers, ranchers and the rural businesses that borrow from them. Over the years, the Farm Credit System has emerged as rural America's customer-owned financial partner because of its direct focus on rural lending needs, according to Harris.

e-mail: flaws@primediabusiness.com