What Is the Federal Farm Credit System (FFCS)?
The Federal Farm Credit System (FFCS) is a network of government programs and financial institutions created to provide financing for agricultural businesses in the United States. The FFCS was created because agricultural businesses often struggle to secure affordable credit through traditional lenders. Through the FFCS, farmers are given access to credit on terms that might otherwise not be available to them from private lenders.
- The FFCS is a network of institutions designed to support the United States agricultural sector.
- It was created by Congress in 1916, and was bailed out by Congress in the mid-1980s after reporting near-record losses on its loans.
- Today, the modern FFCS includes dozens of institutions and is involved in various lending and banking activities.
How the FFCS Works
The FFCS can be a vital source of funding for the agricultural sector, which is often viewed as a high-risk industry by traditional lenders. After all, even if a farmer has excellent credit and a sound business plan, a single season of drought might dramatically affect their bottom line. Because of this, farmers have traditionally struggled to reliably secure credit from banks and other mainstream financial institutions.
To address the unmet needs of farmers, Congress intervened in 1916 by passing the Federal Farm Loan Act. This new legislation was responsible for establishing a network of new financial institutions called Federal Land Banks (FLBs). The Act also created hundreds of National Farm Loan Associations (NFLAs), which, together with the FLBs, formed what would later become known as the FFCS.
In 1985, the United States agricultural sector faced a period of financial uncertainty caused by the announcement of severe losses by the institutions of the FFCS. Collectively, the lending consortium reported losses of nearly $3 billion, which at the time was among the most severe failures in the history of the United States financial sector.
These dramatic losses, which were driven by a wave of bankruptcies among farmers in the preceding years, forced Congress to pass a series of laws in the mid-1980s: the Farm Credit Amendments Act of 1985, and the Agricultural Credit Act of 1987. Together, these two laws effectively bailed out the FFCS while imposing new federal oversight and regulations. These new laws also gave rise to the Federal Agricultural Mortgage Corporation (FAMC), which is colloquially referred to as “Farmer Mac”.
Real World Example of the FFCS
By 2005, the bailout loans issued to the FFCS were finally repaid. Today, the modern FFCS is larger and more complex than ever before, consisting of three FCBS, seventy-two agricultural credit associations (ACAs), one federal land credit association (FLCA), and one agricultural credit bank (CoBank).
The CoBank is authorized to extend loans to ACAS as well as the FLCA. Its mandate also includes lending to agricultural cooperatives and rural communities, as well as supporting domestic exporters of agricultural products.