Farm bill meets mixed reviews. Some hail aid as enormous step, others doubt its impact

Jeff Brockhoff may stay down on the farm after all. The young Hiawatha, Kan., farmer has received a possible boost from a new federal law that will bail out not only the nation's largest agricultural lender but thousands of debt-laden farms as well.

``It depends on what the regulations are,'' Mr. Brockhoff says of the new legislation. If all goes well, he hopes to buy some land and continue the family's farming tradition.

The measure passed by Congress earlier this month may help, at least indirectly.

``It's an enormous step forward,'' says Keith Stroup, legal counsel for the League of Rural Voters, a group dedicated to helping small farmers.

``My impression is that there are a substantial number of farmers that will feel some indirect form of credit relief,'' adds Peter Barry, an agricultural finance professor at the University of Illinois.

The $4 billion bill aims to buoy the Farm Credit System - a quasi-independent, borrower-owned lender. In return for allowing the troubled system to sell government-guaranteed bonds, however, the bill forces the system and a similar federal agency - the Farmers Home Administration - to make every effort to help farmers work out their debts. Legislators and farm groups pushed for these changes following widespread reports that both farm lenders were foreclosing on farmers even when a compromise would have saved the lenders' money.

That's what the Brockhoff's claim happened to them.

Caught in the 1980 drought, Stephen Brockhoff took a second mortgage on his farm to cover his $60,000 to $80,000 operating loss that year. Unfortunately, the interest rate on his loans skyrocketed and back-to-back poor crops reduced his income. By 1985, Mr. Brockhoff was unable to pay his loan to the Farm Credit System and the following March the system foreclosed on his farm and the family moved to temporary quarters in the county.

Eventually, relatives bought the Brockhoffs' homestead and returned it to them. Now, Brockhoff hopes to keep farming his downsized operation. His son, Jeff, wants a low-interest Farmers Home loan to buy two plots of land.

``That looked to be the only way to keep farming,'' says the younger Brockhoff. He will no longer be able to lease the land because of rule changes at Farmers Home.

Estimates vary widely as to how many indebted farmers could be helped by the new bill.

``Our estimate is that over the next two years, 100,000 to 200,000 [farmers] will be able to stay on the land,'' says Mr. Stroup of the League of Rural Voters.

Ross Korves, an economist with the American Farm Bureau Federation, is much more conservative. ``It was at best a minor shot in the arm,'' he says. The debt relief will pump considerably less than $5 billion into the farm economy, he adds.

The amount of debt relief to farmers will depend on how aggressively lenders restructure troubled loans.

For its two basic farm lending programs, the Farmers Home Administration had 22 percent to 33 percent of its $1.6 billion loan portfolio delinquent as of October. Based on some partial data, an agency official says that perhaps less than a third of those delinquent loans can be restructured. The agency figures that some 5 percent of its borrowers might take advantage of the program, letting their loans become delinquent so that they could get them restructured and reduced, the official adds.

Several Farm Credit System officials say they doubt the new laws will mean a dramatic rise in loan restructuring.

``I don't think they'll change anything for our district,'' says Jim Ruen, spokesman for the St. Paul, Minn., district, which has been the most aggressive district in loan restructuring.

On the other hand, the inflow of funds will give several hard-pressed Farm Credit districts some room for maneuver.

``It's not going to be a panacea, but it will help,'' says Don Wickens, a spokesman for the Jackson, Miss., district. ``It gives you the capability to do a lot of things.''

On Dec. 8, the district froze its borrowers' stock of its long-term lending arm because it was perilously close to running out of money. The freeze means that no borrowers can pay off their loans and receive the distributions that the cooperative would owe them. But Mr. Wickens says the new legislation should quickly end the freeze. Several other Farm Credit districts are said to be in nearly as perilous a shape as Jackson.

By itself the new law won't solve the system's problems of attracting new borrowers.

``They need to be able to see a customer, greet him with open arms, and not put him under a microscope,'' says Hugh Macklin, president of the system's Capital Corporation, which the new legislation will phase out. Ultimately, he says, the system has the resources to succeed, but it will have to reduce its costs and overcome the turf wars that have kept the districts from working together.

``We've got the problem of associations and the banks saying: `This is my turf. Don't mess with it,''' says Mr. Macklin. ``And that doesn't help.''

You've read  of  free articles. Subscribe to continue.
QR Code to Farm bill meets mixed reviews. Some hail aid as enormous step, others doubt its impact
Read this article in
https://www.csmonitor.com/1987/1228/afarm.html
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe