Through good times and bad

Rural Cooperatives, Nov-Dec, 2004 by Dan Campbell

When Farm Credit Services of America (FCSAmerica) pulled the plug on its proposed sale to Netherlands-based Rabobank in mid-October, it came as welcome relief to many. Opposition to the sale was loud, adamant and rapidly building steam nationally, not just in the four-state district (Iowa, Nebraska, South Dakota and Wyoming) served by FCSAmerica.

At a Congressional hearing in Washington (see page 13) on Sept. 29, Myron Edleman, a South Dakota cattleman and president of the grassroots group Farmers for Farm Credit, testified that the opposition among his fellow member-borrowers was "overwhelming." A number of major farmer organizations--the National Farmers Union and National Association of Wheat Growers among them--also weighed in against the deal.

Regardless of the pros and cons of the proposed sale, it appears that there was a serious failure to communicate here. It was incumbent upon the board to make its case to members and to get some read on their reaction to liquidating the co-op before plowing forward.

Indeed, for a step as radical as selling a co-op, there should be substantial support before taking any such action. While members would have eventually been asked to vote on the proposal, this was a classic case of putting the cart before the horse. Many co-ops are attractive takeover targets for outside firms, and Rabobank obviously saw this as an opportunity to enter farm lending in America's heartland. It should serve as a wake up call to other co-ops to be vigilant.

Widespread concern has also been expressed that the sale of FCSAmerica could pull the first thread that would eventually unwind the entire Farm Credit System (FCS). All farmers have a stake in this debate, since the existence of FCS forces other lenders to be more competitive. Thus, the FCS system benefits even non-members in the same way ag marketing and supply co-ops have a beneficial impact on prices and services for both members and non-members.

The hearing turned the spotlight on a much broader area than just the Rabobank deal; it showed sharply divergent viewpoints regarding the need for, and role of, a cooperative system of farm lending in rural America. Commercial banking industry, trade groups say "mission creep" has been going on for years, and that the FCS is no longer serving its intended farm niche. As such, FCS should have its charter yanked, or at least severely scaled back, they say.

The FCS and its backers' stance is the polar opposite: they say the charter needs to be expanded to allow it to serve more rural Americans with more services.

Given the uproar over just the proposed sale of one of its member institutions, the odds of Congress yanking the FCS charter seems remote, to put it mildly. Some have speculated that the real strategy, of the banking groups in making these arguments is to keep FCS from gaining increased lending flexibility, not taking away what it already has.

The commercial bankers say they are more than willing to meet any and all farm credit needs in America, but the track record shows that when the going gets rough for farmers, so does the interest of too many of these lenders. The farmer owned and directed FCS, on the other hand, will always be there, through good times and bad, with its mission to serve farmers, not outside investors.

Some have commented that FCSAmerica was an inviting target for takeover because it has accumulated large unallocated reserves. This situation has been at least partially addressed by a recent announcement that the coop is allocating some of these funds back to members.

The Congressional hearing was a key event for co-ops in the early years of the 21st century. It showed how fervent producers still are about controlling their fate through cooperatives that they own and direct. Among the nation's network of farmer-owned cooperatives, none is more vital than their FCS associations. Any actions taken that could directly or indirectly raise farmers' cost of capital, or reduce its availability in times of economic stress, would be precisely the wrong step at the wrong time.