Special Study: Public Policy, Lending and Social Equity Issues for Rural America

The United States has been involved in farm credit markets for more than 100 years. When federal credit programs were originally enacted, small family farms played a dominant role in the rural economy. Consequently, improving farm incomes had more of an impact on bolstering the rural economy. But with farm consolidation, declining rural populations and declining federal budget resources, policy objectives have evolved to reflect the changing structure. Rather than enhancing overall farm income, programs have become tailored to address specific market failures or achieve specific social objectives. The Farm Credit System (FCS) addresses broad-based credit availability issues related to informational asymmetries and non-competitive markets. Credit programs administered by USDA’s Farm Service Agency (FSA) are designed specifically to serve creditworthy farm businesses that are of higher risk. FSA’s direct loan programs, which are costlier to administer, have become directed toward groups and purposes where the net social benefit is greater. This includes encouraging new entrants into farming, especially members of socially disadvantaged groups, and, more recently, promoting organic and farm-to-table types of agriculture. FSA-guaranteed lending has evolved as a cost-efficient method to serve mid- and large-size family farms suffering temporary financial hardships.