Eighties’ Farm Credit Crisis
Fades Quietly Into History

WASHINGTON —(AP)— There was no fanfare, just a quiet announcement: The 1980s farm credit crisis officially is over.

The last remaining enforcement order involving a once-troubled lender has been lifted by the Farm Credit Administration, which now appears on solid footing and on track to repay the nearly $1.3 billion taxpayer bailout approved by Congress to avert total collapse.

"Today, the system is in much stronger financial position to serve farmers, ranchers and cooperatives and to ensure a dependable source of credit is available," Marsha Pyle Martin, chairwoman of the administration, said late last week. "The system is in the best financial condition in its history."

Created in 1933 by President Franklin D. Roosevelt, the 218-institution farm credit system remains the top mortgage and real estate lender in agriculture. It has, however, been surpassed by commercial banks in short-term loans to farmers and faces new competition from the financial arms of farm supply and insurance companies.

The system nearly failed in the 1980s due to a sharp drop in land values, then farmers' main security for a loan, and what the congressional General Accounting Office recently described as "weak credit standards, ill-advised loan pricing and excessively risky financing policies."

The economic crisis triggered thousands of farm foreclosures and was a factor in the national consolidation of agriculture during which the number of farms dropped by more than 200,000 from 1987 to 1997.

Congress responded in 1985 by expanding the Farm Credit Administration's enforcement powers, including civil penalties, removal of incompetent or untrustworthy bank board members and "cease and desist" orders preventing institutions from continuing risky practices.

Before that, "It was really a much cozier relationship," said Eileen McMahon, a spokeswoman for the credit organization. "That was really a huge change."

At its peak in 1991, the administration had 82 enforcement orders affecting institutions that controlled 82 percent of the system's $61.4 billion in assets. It included the liquidation of the Federal Land Bank of Jackson, Miss., which once had $3.2 billion in loans in Alabama, Louisiana and Mississippi.

Today, no orders remain.

There was also a change in lending philosophy that moved loans away from collateral based on land value to a farmer's ability to repay the money, based more on annual income. The recovery also was helped by the overall economic boom that has curbed inflation and lowered interest rates.

Since 1990, Martin said, member institutions' available capital has more than doubled to $11.6 billion and the number of bad loans is down 80 percent. The GAO predicted in 1994 that the taxpayer bailout would be repaid by 2005, "barring another unexpected crisis in agriculture."