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H.R. 4782 

MAHCU 6 AND 6, 1B80 

SerUl No. 96-MM 

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Suial No. 96-BIH 

Printed for the nn at the Committee on Agricnltore 


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S. FOLBY, WaaliliictoD, Chairman 


Ranking Minoritv Member 

M. THOMAS, CalUomla 

Vice CBolrmon 
WALTER B. JONES, North Carollns 
ED JONES, TenneHBee 
OEORGE E. BROWN, JK., CalUornla 
DAVID R. BOW EN, MlBsisBlppl 
FLOYD J. FITHIAN. ladlaaa 
IKE a KELT ON, MUaouri 
CHARLES WHITLEY, North Carolina 
TOM DASCHLE, South Dakota 

PaoriBBioiiAL Burr 

FowLiR C. WiBT. staff Dlreolar 


JOBN E. HoaiN, CoKfiial 

John R. Krauir, a pedal Ootiiual 







QEOROE E. BROWN. Ja.. Callforala 


ALVIN BALDTJ3, Wlaconaln 



LEON E. PANETTA, California 

TOM DASCHLE, Sonth Dakota 

ED JONES, Tennrnee, Ohainttan 


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H.R. 4782, ft bill to omend further the Farm Credit Act of 1971 to permit 

Farm Credit Syst«m institutions to improve their services to horrow- ^'i" 

ers, and for other purposes 90 

Report from the OflSce of Personnel Management 120 


March 5, 1980 

Amaud, Larry J., Opelousas Production Credit Association, Opelousas, La. 79 

Prepared statement 239 

Bnibaker, Galen B., member and past chairman. Federal Farm Credit 

Board, Rocky Mount, Va 54 

Prepared statement HI 

Bullington, Earl, president, Cam then ville Production Credit Association, 

Carutherevilie, Mo 81 

Prepared statement 249 

Carter, Joe, president, Spokane Bank for Cooperatives 63 

Davis, Eugene C, Bmneau, Idaho, representing the 12th District 

Farm Credit Board of Directors _ 68 

Evans, Hon. Melvin H,, a Delegate to CongresH from the Virgin Islands.. 2 

Gaston, William W., president, Gold Kist Inc., Atlanta, Ga 61 

Prepared statement 150 

Gibson, Jack, farmer and executive vice president, Parkdale Bank, Park- 
dale, Ark 75 

Hinton, R. D., farmer, Minden, La., representing the Farm Credit Banks 

of New Orleans, La 49 

Home, C. W. S., preiiident, Federal Land Bank and Federal Intemiediate 

Credit Bank, Columbia, S.C SO 

Prepared statement 244 

Simp, Melvin E., farmer and former member. Federal Farm Credit Board; 

president, Growm ark. Inc., Quincy, III 55 

Wilkinson, Donald, E., Governor, Farm Credit Administration 10 

Prepared statement 124 


Amdahl, Burgee, president, St. Paul Bank for Cooperatives and Federal 

Intemiediate Credit Bank of St. Paul, statement 160 

Austin, Ralph N., rancher and Chairman, Federal Farm Credit Board, 

Concklin, Peter R., Hud.son Valley Production Credit Association and the 

Hudson Valley tederal Land Bank Association, statement 

Hammerschmidt, Hon. John Paul, a Representative in Congress from the 

State of Arkansas, statement 

Harding, W. M., president. Central Bank for Cooperatives, Denver, Colo., 


Hovendick, Donald, L., Farm Credit Banks of Omaha, statement 

Jones, B. H. (Bill), vice president. National Cattlemen's Association, 


Kennedy, Keith K., president. Federal Intermediate Credit Bank of St. 

Louis, statement 

Miller, Robert L., chairman of the board, Muskogee Production Credit 

Association, Muskogee, Okla., statement.. 


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Mirarchi, Frank, Fnrm Credit Banks of Springfield, Mass., Rtat«ment 

Pfaff, Stewart, Spokane Bank for Cooperatives, statement 

Wilkinson, ]>onald E., Governor, Farm Credit Administration, letter of 
Oct. 29, 1979, to Hon. Melvin H. Evans, a Delegate to Congress from 

the Virgin Islands 

Zorinsky, Hon. Edward, a U.S. Senator in Congress from the State of 
Nebra.'ika, letter of Sept. 24, 1979, to Hon. Melvin H. Evans, a Delegate 
to Congress from the Virgin Islands 


Mabch 6, 1980 

Billington, Jim, vice president. National Association of Wheat Growers 

Feland, Armstead i-t., Ill, executive vice president and general manager, 
Southern Farmers Association of North Little Rock, Ark., and Farm 

Credit Banks of St. Louix 

Prepared statement 

Frederick, Robert M., legislative director, the National Grange 

Prepared statement of Edward Andersen, master 

Hassebrook, Charles H., Center for Rural Affairs 

Prepared statement 

Hendrix, Robert M., farmer and director. Production Credit Association, 

Dycrsburg, Tenn 

Jackson, Marlin D., chairman, agricultural bankers division, American 

Bankers Association 

Prepared statement 

Johnston, C. R., president, Missouri Farm Bureau Federation, American 

Farm Bureau Federation 

McCarthy, James A,, former, Texas Farm Credit District 

McDougol, Richard A., Sacramento Farm Credit District Board of the 

Farm Credit System 

Prepared statement 

McGranaghan, Jerome P., Washington counsel, National Association of 

Mutual Insurance Companies 

May, William S., president, Federal Land Bank of Wichita 

Prepared statement ___ _ — 

Minger, Walt, senior vice president. Bank of America 

Prepared statement 

Morrissey, Daniel J., Lohman Bros., Geneseo, III., Independent Insurance 

Agents of America 

Prepared statement 

Pratt, Charles A., executive vice president and general manager. National 

Live Stock Producers Association 

Smith, Wilmer, representing board of director**. Tenth Farm Credit District, 

Tex - - - - 

Prepared stat«ment 

Stalbaum, Lynn E., legislative representative, National Milk Producers 


Prepared statement 

Taetle, Joseph, tax counsel, American Bankers Association 

Tetherow, Paul N., assistant manager, Pennsylvania Rural Electric 


Prepared statement 

Tyler, Robert N., vice president, secretary, and counsel. Old Republic Life 

Insurance Co., Chicago, 111 

Weller, Paul S., vice president for public affairs. National Council of 
Farmer Cooperatives 


Murphy, Terry, president, Montana Farmers Union, letter of Feb. 25, 
1980, to Hon. Ron Marlcnec, a Representative in Congress from the State 
of Montana 

Taute, Earl, Glasgow, Ky., statement 

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American Cotton Shippers As^^^c^ation 417 

Amerioan Farm Bureau Federation 420 

Anderson, Glenn, president. Cooperative League of the U.S.A., letter of 

Feb. 15, 1980, to Hon. Ed Jones _ 454 

Aves, Allan, president, American Soybean Association 452 

Bankers Committee for Tax Equality. ._ 465 

Beeniilier, J. Bernard, Keneral manager, Bedford Rural Electric Coopera- 
tive, Inc. Bedford, Pa., letter of Feb. 26, 1980, to Hon. Ed Jones 455 

Bunch, Thelbert, Rt. I, Jones, La 469 

Peland, John J., Southern States Cooperative, Inc. 470 

Frederick, Philip K., Lewisburg, Pa 473 

Gimnari, Roy, Coos Bay, Oreg 478 

Hance, Young U., Southern Maryland Farm Credit Association 479 

Heitz, George A., Rockingham Poultry Marketing Cooperative, Inc 481 

Howard, Russell A., president. National Association of Professional 

Insurance Agents 483 

Hurst, William T., Jr., Bryan Fishermen's Cooperative, Inc., Richmond 

Hill, Ga 487 

Langford, Joe W., Langford Mlg. Co., Lena, Miss., letter of Mar. 7, 1980, 
to Hon. Jamie L. Whitten, a Representative in Congress from the 

State of Mississippi 457 

Lesley, John T., Tampa, Fla 490 

MacUonald, J. Kenneth, Martinshurg, W. Va 495 

Marshbum, J. U., Citrus World, Inc., Lake Wales, Fla 497 

Miller, Earl L., general manager, Somerset Rural Electric Cooperative, 

Inc., Somerset, Pa., letter of Fei>. 2.1, 1980, to Hon. Ed Jones 459 

Mills, John N., Richmond Farm Credit Service 500 

National Farmers Union — 429 

National Rural Electric Cooperative Association 602 

Orange Richard S., Indiana, Pa., letter of Mar. 3 1980, to Hon. Ed Jones. 461 

Price, Richard F., Southern States Cooperative, Kichmond, Va 505 

Ransom, Paul S., Monroe, La.. 507 

Rubin, Bernard, Salisbury Md -_ 509 

Security Pacific National Bank Los Angeles, Calif 437 

Slick, Benjamin H., manager. New Enterprise Rural Electric Cooperative, 

Inc., New Enterprise, Pa., letter of Feb. 2.>, 1980, to Hon. Ed Jones... 462 

Southworth, Robert V., South-side Electric Cooperative, Crewe, Va 511 

Story, Garv, administrative a.ssistant, Canadian Production Credit Asso- 
ciation, Canadian, Tex., letter o( Feb. 28, 1980, to Hon. tid Jones 464 

Taliaferro, William L., Center Cross, Va 513 

Wasson, J. David, Jr., Laurens Electric Cooperative, Laurens, S.C 516 

Statehf.nts From Fbdkral Land Bank Asbociationb 

Bagwell, Jim, Cullman, Ala 519 

Bozeman, P. W,, Jackson, Miss 521 

Brown, Lmmett L,, Rayville, La 522 

Campbell, Eugene L., Richmond, Va 524 

Carpenter, Dewitt Roy, Alexandria, La 526 

Chapman, John H. Cullman, Ala 527 

Dowling, Lamar, Monroe, La - 529 

Edwards, Delbert L., Greenwood, Mise 531 

Hamby, Gene M., Jr., Muscle Shoals, Ala 533 

Hamilton, Jack S., Lake Providence, La 534 

Hand, Ivan L., Starkville, Miss -._ _ 536 

Haynes, Fletcher S., Charleston, Miss 539 

Heltz, Glenn E., St. Louis, Mo __ 540 

Henderson, Harry R., Lake Providence, La 546 

Howell, Robert C, Enterprise, Ala _ 548 

Huggins, Frank, Jr., Tupelo, Miss 5S0 

King, L. H., Jr., Muscle Shoals, Ala _ 551 

Ladner, Dickie Joe, Hattiesburg, Miss _ 553 

Langlinais, Kent, Crowley, La 555 

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Lilley, Jack W., Jackaon, Miss 558 

Marsh, Paul J., Lake Providence, La 659 

Mobley, James Earl Dothan, Ala 561 

Montgomery, Bob, Jaciison, Miss 562 

Morgan, Rex A., Greenville, Miss 564 

Morrison, W. C, Jr., Baton Rouge, La 566 

Prichard, D. H., Tupelo, Miss _ 567 

Roberson, Lake, Cleveland, Miss 569 

Roberts, Owen, Brookhaven, Miss 571 

Rogers, Paul, Hattiesburg, Miss 573 

Singley, Philip, Hattiesburg, Miss 575 

Smith, S. J., Brookhaven, Miss _ _ _ 576 

Spencer, Perry, Brookhaven, Mias 578 

Taliaferro, Oscar B., Richmond, Va 580 

Thomas, W. M., Cleveland, Misa _ 583 

Thomason, Dallas, Rayville, La _ 585 

Thoraley, A. D,, Dothan, Ala 587 

Thompson, William C, Newton, Miss 588 

Wood, Johnnie, Montgomery, A 
Yancy, J. W., Rainsville, Ala.. 

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wednesday, uabch 9, 1980 

House of Representatives, 
Subcommittee os Conservation and Credit 

OF THE Committee on Agriculture, 

Washington, D.C. 

The subcommittee met, pursuant to notice at 10:15 a.m., in room 
1302, Longworth House Office Building, Hon, Ed Jones of Tennessee 
(chairman of the subcommittee) presiding. 

Present: Representatives Harkm, HucEaby, Hance, Baldus, Bedell, 
English, Panetta, Daschle, Madigan, Coleman, and Marlenee. 

Staff present: Robert T. Loweree and J. Robert Franks, associate 
counsels; Pe^^ L. Pecore, clerk; Robert A. Cashdollar, James W. 
Johnson, Jr., Wayne A. Fletcher, and Frank Winston. 

Mr. Jones of Tennessee. The Subcommittee on Conservation and 
Credit will come to order. Let me say good morning to each of you 
and welcome you here. This is a very important day for H.R. 4782 — 
Farm Credit Act Amendments of 1979. We have a good group of 
witnesses today and also tomorrow. 

[H.R. 4782 and the report from the Office of Personnal Manage- 
ment appear on p. 90.] 

Mr. Jones of Tennessee. We will announce the ground rules as we 
get to them and as we hear the witnesses. 

I want to report to you, first of all, that this subcommittee held 
6 days of hearings in five cities throughout the United States in 1979. 
We were in Hutchison, Kans.; Aberdeen, S. Dak.; Memphis, Tenn.; 
Spokane, Wash.; and Champaign, 111. Probably more hearings have 
been held and more time spent oy this subcommittee on this one bill 
than on any other piece of legislation we have had, but we wanted to 
get a broad spectrum of the bill, and we wanted to know the needs 
and demands of the Farm Credit Board and what was necessary for 
the decade. 

In each of vour testimonies today, I want you to he as complete 
as you can ana take whatever time is necessair to do the job. However, 
at the same time I want to request you to be brief, because we do have 
a large number of witnesses. However, we do not want to leave any- 
thing undone. 

Our first witness is a Member of Congress, Hon. Melviu Evans, 
Delegate to Congress from the Virgin Islands. 

Melvin, we are delighted that you could take the time and show 
the interest to come over here this morning to be heard. 

It is possible that Congressman Hammerschmidt from Arkansas 
will be here later. If not, llmow be does have a statement to file. 

So, Melvin, you may take over and proceed as you see fit. 

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Mr. EvAKB. Good morning. Mr. Chairman and distinguished 
members of the House Subcommittee on Conservation and Credit, I 
wish to extend my appreciation to you for granting me this golden 
opportunity to appear nere today on behalf of my home district, the 
U.S. Vii^in Islands. My testimony this morning will be brief, and I 
would welcome any questions which you may like to ask. 

On July 19, 1979, 1 introduced H.R. 4863, a bill to amend the Farm 
Credit Act of 1971 to include the Virgin Islands within the farm credit 
districts of the United States. Presently, the act extends coverage to 
the 50 States, the District of Columbia, and the Commonwealth of 
Puerto Rico, but not to the territories of the United States. For the 
following reasons, I am respectfully requesting that during markup on 
H.R, 4782, the U.S. territories be included within the Farm Credit 

In the Virgin Islands, where the population is estimated to be in 
excess of 120,000 people, both the fishing and agriculture industries 
are extremely important in meeting day-to-day food requirements. 
One must consider that this is an offshore territory and the cost of 
transportation is almost prohibitive. This adds tremendously to the 
cost. This is particularly true in bulky goods and fresh produce. Also 
important is the fact that these local industries provide much needed 
employment. From the latest labor force statistics available, ap- 
proximately 116 fanners on the Islands of St. Croix, St. Thomas, and 
St. John are employed full time, with another 211 hired on a part-time 
basis, comprising a total work force of 327 farmers. I am also advised 
that on all three Virgin Islands, approximately 265 fishermen are 
licensed by the Vii^in Islands government. 

Individuals employed in botn the fishing and farming industries in 
the Virgin Islands have continuously sought my assistance in locating 
financial support to enable them to pursue their chosen livelihoods. 
As far back as I had the honor of serving as Governor of the Vircin 
Islands in 1972, we attempted to have the Virgin Islands included 
into the system. 

Their predicament has gradually worsened over the past several 
years, and their prospect for a bright future is very bleak. The Vit^n 
Islands' government for some time now has been financially unable to 
extend adequate loans or grants to local fishermen and farmers. 
Adding to this adverse situation has been the tremendous dama|;e 
done to these industries as a result of Hurricanes Frederick and David, 
which pounded the Virgin Islands last August. 

I am without doubt that the inclusion of the U.S. territories in the 
Farm Credit Act of 1971 will be extremely beneficial to' those citizens 
who reside in the U.S. Virgin Islands, Guam, America Samoa, the 
Trust Territories of the Pacific Islands, and the Northern Mariana 
Islands. In the U.S. Virgin Islands alone, there are approximately 8 
banks with 31 branches doing business there, including the Bank of 
America, the Chase Manhattan Bank, the Bank of Nova Scotia, 
Citibank, First Pennsylvania Bank, First Federal Savings and Loan 
Association, Royal Bank of Canada, and Barclays Intemational 
Bank. These well-known and large banking institutions would, I 

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believe, have the ability to serve a production credit association or a 
Federal land bank association located in the Virgin Islands. 

Through letters, I have received the most gracious and welcome 
support of Senator Edward Zorinsky, chairman of the Senate Agri- 
cultural Credit and Rural Electrification Subcommittee, along with 
Gov. Donald E. Wilkinson of the Farm Oedit Administration, in 
obtaining inclusion of the U.S. Virgin Islands. For insertion into the 
record, I have enclosed copies of both communications. 

I endorse and support the language suggested in Governor Wilkin- 
son's letter pertaimng to H.R, 4782, which would include the Virgin 
Islands. It states as follows, and I am ju:t taking one part of it. 

We would have no objection to bd amendment to H.R. 4782 which would in- 
clude the Territory of the VirRln Islanda in one of the 12 Farm Credit districts 
now authoriied by the Farm Credit Act of 1971, if it would also provide that the 
actual extension of credit services in the territory by a Farm Crcait institution is 
subject to the approval of the Farm Credit Administration and would be made 
under such conditions as it may prescribe. Any approval by FCA and prescribed 
conditions would be based on a feasibility study, such as you mentioned in your 
letter, which haa not yet been completed and, because of its nature, may require 
some time. 

At this point I would also like to quote the last paragraph of this 
letter as follows: 

If the qualifications we have outlined are included in the l^islation it would not 
be necessary to delay amending H.R. 4782 until after the feasibility study is 

My original bill had provided for the Virgin Islands, but I presume 
that if the other territories meet the conditions that are outlined in 
Governor Wilkinson's letter, that there would be no objection to 
including them. 

Mr. Chairman, I want to say at this point that the fishermen and 
farmers of the Virgin Islands, and I would presume to speak for the 
other territories, would be very thankful for your serious considers- 
tion on this, because this would go a long way toward reducing the 
cf>8t of living which is already extremely high m these offshore areas. 
It would permit them to expand their industries and begin to met the 
needs of the population they serve. 

I want to tnankyou, Mr. Chainnan. I am ready to answer questions. 

Mr, Jones of Tennessee. Thank you very much for & worthwhile 
statement. The letters you have submitted will he placed in the record. 

[The letters referred to above follow:] 

U.S. Senate, 
Wathington, D.C., SepUmber H, 1979. 
Hon. Melvin H. Evans, 
Hou*t of fiepTMentoiwM, U.S. ConyreM, 
Waihintlon, D.C. 

Dear Mr. Evans; Thank you for your letter requesting that the Farm Credit 
Act of 1971 be amended to Include United States Territories and Possessions. 

As you note in your letter, the Subcommittee on Agricultural Credit and Rural 
Electrification wiU hold bearings on the proposed Farm Credit Act Amendments 
of 1979 in early October. I have taken the liberty of forwarding a. copy of your 
letter to the Governor of the Farm Credit Administration, Dondd E. Willunson, 
and requesting his comments at the hearings. 

I intend to submit a copy of your letter into the record of the hearings, but if 
you have any further comments I invite you to testify at the hearings or to submit 
a written statement. 

With all good wishes. 


U.S. Smator. 

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Faru Credit Adhinietration, 

Waihinglon, D.C., October £9. 1979. 
Hon. Melviv H. Evans, 
Hou»e of Representativet, 
Washington, D.C. 

Dear Mb. Evanb; Thank yoii for your letter of October 12, 1879, concerning 
the extension of the Farm Credit Act of 1971 to the United States Virgin Islands. 

We know that you are aware of a bill — the Farm Credit Act Amendments of 
1979— that haR lieen recommended to the Congress by the Farm Credit Admin- 
istration and the Farm Credit System and is now pending in both Houses. This 
bill, H.R. 4782, would provide authorizations which we and the System believe 
would further enhance the ability of the Farm Credit l>anks and associations to 
meet the credit needs of farmers, ranchers, their cooperatives and other eligible 
borrowers. The bill does not, however, authorize the extension of Farm Credit 
System credit services to the Territory of the Virgin Islands. 

We would have no objection to an amendment to H.R. 4782 which would in- 
clude the Territory of the Virgin Islands in one of the twelve Farm Credit dis- 
tricts now authorised l>y the Farm Credit Act of 1971, if it would also provide that 
the actual extension of credit services in the Territory by a Farm Credit institu- 
tion is subject to the approval of the Farm Credit Administration and would be 
made under such conditions as it may prescribe. Any approval by FCA and pre- 
scribed conditions would be based on a feasibility study, such as you mentioned 
in your letter, which has not yet been completed and, because of its nature, may 

If the qualifications we have outlined are included in the legislation it would 
not be necessary to delay amending H.R. 4782 until after the feasibility study 
is completed. 

We appreciate your interest in this matter. 

Donald E, Wilkinson, Oovemor. 

Mr. Jones of Tennessee. Does any member of the subcommittee 
have questions? Mr. Huckaby? 

Mr. Huckaby. Welcome to the subcommittee. 

Could you describe to us the type of farming oijerations conducted 
in the Virgin Islands? I am talking about St. Croix and St. Thomas. 

Mr. Evans. Most of the fanning is truck farming, like vegetables 
and fruits. The cost of these perisnables is very b^h and there is a 
tremendous market. 

I recently had the opportunity, in fact on several occasions, but 
within the last 2 or 3 weeks I visit«d two farmers on St. Croix. They 
showed me something that made me feel very happy. They are pre- 
prepared to expand tbeir operations to provide a great percentage of 
the fruits and vegetables which we need, if they only had the capital, 
among other things. This was on the island of St. Croix. 

St. Thomas is smaller, but they also have the ability to produce a 
significant amount of the produce they need. 

We used to be in the sugar cane industry but that was phased out in 
1965 or 1966. So we are talking now about the truck farming and the 
dairy industry. There is also some production of pigs. That is what we 
are talkii^ about really. 

Mr. Huckaby. What is the averf^ size of a farm there. 

Mr. Evans. It would be hard to give an average because they vary 
so much, but I would think that the average farm would be between 
25 or 50 acres. Some are as large as 100, however. 

Mr. Huckaby. That is somewhat significant if you are in the truck 
farming business . 

Mr. Evans. Yes, very significant. 

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Mr. HucKABT. I had assumed the only source of credit is through 
the commercial banks. Is that right? 

Mr. Evans. It is anticipated that the commercial banks that now 
exist there would be the channels through which the credit is extended. 

Mr. HucKABT. Thank you. Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. Thank you. Does any other member of the 
subcommittee have a question? 

If not, we will take your testimony into serious consideration and 
see what we can do. 

Mr. Evans. Thank you again, Mr. Chairman, and members of the 

(The following information was subsequently submitted by Mr. 

HousK OK Rbpheskntatiybs, 
Watkingloyi, D.C., March IS, 1980. 
Hon. Thomas S. Foley, 
Chairman, House CommtUee on Agriculture, 
Waihington, D.C. 

Dear Mr. Chairman: The following is submitted for the record and to supple- 
ment an answer given l>y me to a question asked by the gentleman from Louisiana, 
Mr. Huckaby. 

There are four farms in St. Croix comprised of 1000 acres each, and there is one 
farm comprising 3000 acres, and others in St. Croix range from 50 acres and less, 

Most of the farms on St. Thomas have less than ten acres. 

The largo farms in St. Croix are dairy farms. The smaller ones are primarily 

for truck farming. 

mH. Evanb, M.C. 

Mr. Jones of Tennessee. Congressman Hammerschmidt may not 
appear, so we will make his statement a part of the record at this point. 
[The prepared statement of Mr. Hammerschmidt follows :) 

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Before Conservation and Credit Subcomnlttee 

of the House Agriculture Committee 

Pam Credit Act Amendments of 1979 (H.R. 47S2) 

Mr. Chairman and Members of this distinguished Subcommittee: It is 
Indeed an honor to appear before you once again to express my enthusiastic 
support for legislation I have co-sponsored, the Farm Credit Act Amendments 
of 1979 (H.R. 47S2) and commend you for scheduling this Important hearing 


If there was ever any doubt that farmers — like the rest of the nation " 
operate on credit, we should take a look at the $45 billion they and their 
cooperatives borrowed last year through the Banks and Associations of the 
Tarm Credit System. Credit is a key factor behind the success story of 
American agriculture. 

Back in the 1950's and I960's it was possible for a young couple to go 
into farming with an investment in the range of $10,000 or less. This included 
land as well as equipment. Today we know It takes up to a quarter of a 
million dollars. Today's farmer must be able to manage cash as well as credit. 
He must be aware of the financial leverage available to him and how to use It. 
Access to a continuing line of credit Is crucial to any farmer In 19S0. 

With outstanding farm debt now topping the $140 billion mark. It's obvious 
that no one institution can meet the credit needs of all fanners. It takes the 
cooperation of all lenders -- In both the private and government sectors to do 
the Job. 

The system of American agriculture under which land is kept in control 
of those who actually fann It has paid immense benefits. It haf made us the 
best fed nation in the world. If this blessing of abundance Is to continue 
and If the family farmer la to remain a reality, then the Farm Credit System 
must continue, as it has in the past, to respond to the needs of rural Amorlca. 
Legislation before you now will help meet that goal. 

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The amendments in H.R. 47S2 are necessary to enable the Farm Credit 
System to keep pace with the growing needs of farmers and their cooperatives. 
In my judgment, this bill must b« approved so that the Farm Credit System 
and the Fann Credit Administration can continue improving the income and 
well-being of American fanners and ranchers by furnishing adequate and 
constructive credit and closely related services to them, their cooperatives 
and to selected fann related businesses necessary for efficient fanii operation. 

The System, with annual loan volume of about tSO billion Is now the 
largest lender to American agriculture. It Is Important to note that these 
changes irould not require appropriated funds. Furthermore, it Is my under- 
standing that a Farm Credit System Legislative Task Force approved this bill 
and worked to achieve consensus on It within the System. The Federal Farm 
Credit Board approved the proposal and Directed FCA to take appropriate 
action to expedite consideration of the proposed legislation. Before that, the 
boards of directors of nearly all of the nation's Fann Ci'edit Districts, the 
board of directors for the Central Bank for Cooperatives, and the System's 
Policy Coordinating Committee endorsed H.R. 4782. 

The bill before you would add several major authorities to the current 
statute. Some of the proposed amendments reflect changed curcumstances 
affecting agriculture in the United States. Others permit the institutions of 
the Farm Credit System to more adequately meet the credit and related needs 
of their member- borrowers. And, some would enhance the effectiveness of 
the Farm Credit System In carrying out its statutory responsibilities of super- 
vising and examining Farm Credit System Institutions. 

One important provision included in this measure (Section 403, Title IV), 
is of greatest importance to the citizens throughout the State of Arkansas. It 
would specifically reaffirm the System's long-standing exemption from state 
usury laws, the clarity of which was inadvertently diluted by the 1971 Act. 

Congress chartered these totally borrower/member-owned cooperatives to 
serve a limited purpose: to provide farmers and their cooperatives with their 
own ongoing and dependable source of credit and related services. Without 
the usury exemption, they could not service that limited purpose in times of 
high money costs. Thus, the consistent position of the Farm Credit Adminis- 
tration has been that System lending Is exempt from state interest limits. 

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In 1967, Public Law 90-204 was enacted apedfically to clarify this usury 
exemption. But wtthoui comnent. that law waa repealed and replaced by the 
1971 Act. Ai a result, despite reported decisions upholding the exonptlon In 
Minnesota, Nebraska, and Alabama, with more than $1 bUUoa at risk in Ark- 
ansas, counsel has consistently advised against lending at rates over 10% In 
reliance upon the nonspecific language of the 1971 Act. 

In Arkansas, a constitutional provision limits the Interest that may be 
charged for credit to 10 percent per annum, and requires forfeltura of both 
principal and Interest If the celling Is exceeded, ~ even Inadvertently. Such 
a limitation during periods of high Interest rates, which we are now enduring ~ 
serves only to impede the flow of credit In the State and adds to the upward 
pressures on prices. 

1 believe that unreasonable restraints on the cost of credit are counter- 
productive because they tend to make credit scarce by reducing the number 
of reliable lenders willing or able to compete for the available business. 
Moreover, the credit needs of fanners require and merit the attention of 
numerous credit sources. Such sources must be reliable and continuing with 
credit terms that are reasonable under existing economic curcumstances. 

I urge the Monbers of this panel to clarify and reaffirm that lending by 
the Farm Credit System Is exempt from State-Imposed Interest rate limitations. 
This clarlflcatkHi will ensure once and tor all the continued availability of new 
credit for farmers and ranchers In tight money periods. 

In addition, 1 strongly support the provisions in the bill to permit 
Federal Land Banks to make loans for store than 05 percent of the appraised 
value of farm real estate when these loans are guaranteed by a Federal agency 
such as Formers Home Administration or by a state government. 

The principal Impetus for the present proposal comes from a shift In 
direction of PmHA loan programs away from participating with private lenders 
in making loans to guaranteeing loans made by private lenders. Many of the 
land banks have been Involved In the FmHA participating loan program -- 
espsdally as a means of providing credit to young farmers. A modiflcatlm In 
the law, along the Unas of the present proposal is Important If the System Is 

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to continue to reach borrowers It now serves under the FmHA/FLB partidpat- 
Ing loan program. 

I also favor an expansion of cooperative eligibility. This bill would 
lower the farmer'nieiiiber eligibility requiranent for Bank for Cooperatives 
financing to 60 percent of voting members or such higher percentage as the 
district board may establish. 

Under present law, 80 percent of the voting memberi of a cooperative 
(70 percent in the case of rural electric cooperatives) must be fanners in 
order for the cooperative to be eligible for Bank for Cooperatives financing. 
By kwerlng the requirement to GO percent. Banks for Cooperatives will be 
able to more fully serve the credit needs of rural America without abandoning 
the principle of fanner control of the eligible co-ops. Iiloreover, district 
boards would retain the right to set higher fanner-member eligibility require- 
ments for cooperative eligibility If they so choose. 

U enacted, H.R. 4762 will assure farmers across the nation and particu- 
larly in the State of Arkansas that they can rely on the Farm Credit Institu- 
tions they own to continue to service their credit needs; that this credit 
source will not dry up In the event of a misguided challenge under State law 
to their institution's authority; and that credit will continue to be provided at 
the lowest reasonable cost on a sound business basis. 

Again, thank you for your time and attention. 

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Mr. JoNKS of Tennessee. The next witness will be the governor of 
the Farm Cretiit Administration, Gov. Donald E. Wilkinson, a very 
able, cooperative, and patient gentleman. 

I have hatJ personal dealings with the governor for a good many 
years since he has been governor of the Farm Credit Administration. 
My friendship with him dates hack many years. Probably neither one 
of us wants to talk about the length of time. We are delighted you 
are here. Take whatever time you need. I see you are accompanied by 
Mr. Austin. We are glad that he is here too. 


Mr. Wilkinson. Mr. Chairman and members of the Subcommittee 
on Conservation and Credit, I am Donald E. Wilkinson, governor of 
the Farm Credit Administration. I am very pleased to have with me 
the chairman of the Federal Farm Credit Board, Mr. Ralph Austin, 
from WestclifFe, Colo. 

We appreciate very much the interest of this subcommittee in 
updating the basic authority which has been granted to this fann 
credit system to serve the credit needs of American fanners, ranchers, 
and commercial fishermen as we proceed into the decade of the 1980's. 

Mr. Chairman, I have submitted a rather detailed statement giving 
an overview of H.R. 4782. I would just like to summarize that state- 
ment in a very few minutes. 

Mr. Jones of Tennessee. Without objection, your entire prepared 
statement will be inserted in the record. 

She wepared statement of Mr. Wilkinson appears on p. 124.] 
r. Wilkinson. The Farm Credit Administration, its Federal 
Board, and the entire farm credit system recognize that we have 
been granted a most unique authority as now encompassed in the 
Farm Credit Act of 1971. This legislation anticipated the needs of the 
^stem and of American agriculture very effectively 10 years ago. 
Our basic intent in coming before Congress at this time with H.R. 4782 
is to update this basic authority so that we may be contemporary with 
the changing needs of an American agriculture. 

There are some 28 amendments contained in H.R. 4782 and I will 
not address each of them. Let me speak, only briefly, about six broad 
proposals contained in the bill. 

The first proposal deals with lowerii^ the farmer member eligibility 
requirement for a cooperative which chooses to borrow from the baiuc 
for cooperatives. 

We would be lowering this voting control re()uirement to 60 percent 
of the members. That i-s, 60 percent of the votmg members of a co-op 
eligible for BC financing must be farmers. 

Members of the subcommittee, this proposal is needed if the BC'a 
are going to continue helping rural electnc cooperatives and supply 
cooperatives to serve rural America. At the some time, this proposal 
retains the principle of fanner control as a traditional require- 
ment for eligibility for a cooperative to borrow from the bank for 

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The second proposal would aJlow Federal land banks to make loans 
for more than 85 percent of the appraised value of the farm real estate 
security when these loans are guaranteed by the Farmers Home 
Administration or some other federal or State governmental unit. 

This proposal would, for example, promot« greater cooperation 
between the Farm Credit System and Farmers Home as the FmHA 
changes its emphasis from chrect lendii^ to guaranteed lending pro- 
grams. The significant point of this issue, Mr. Chairman, in our 
estimation is that this proposal would enable the Farm Credit System 
to expand its credit services to youi^ farmers and to low-equity 

The third proposal would authorize the Federal land banls and 
the production credit associations to finance a larger part of the pro- 
cessmg and marketing activities of a bona fide farmer. 

This proposal is designed to help our eligible producers, who are 
farmers, ranchers, and fishermen to mcrease their income by financing 
their involvement beyond the traditional production activities, es- 
pecially where they may not be serviced by a cooperative. 

The fourth proposal would authorize the banks for cooperatives 
to finance exportmg and importing activities for U.S. farmer co- 

We have a very strong conviction that U.S. agriculture needs to 
do a better job in selling its production to the international market. 
Also, we are concerned that farmers and ranchers be able to fully 
benefit for export sales by retainit^ ownership of their commodities 
as they go farther into the marketing cbanneb. One method of doii^ 
this is for the producer to market his goods abroad through his own 

At the present time, the cooperative credit institutions that serve 
those cooperatives are limitecl to financing their domestic needs. 
This proposal would expand present authority which BC's now have 
to meet Co-ops' international financing needs. 

The fifth proposal would expand, in three distinct ways, the sys- 
tem's capacity to serve the credit needs of pro<iucers ana harvesters 
of aquatic products. First, it would enable other financing institu- 
tions which discount through Federal intermediate credit oanks, to 
Erovide credit to the aquatic industry. Second, it would allow the 
anks for cooperatives to work with aquatic processing facilities as 
long as they are cooperatively oi^anized. Third, it would allow the 
Federal land banks to make long-term loans to aquatic producers. 

The sixth proposal that I will mention would provide greater co- 
operation between the farm credit institutions and the commercial 
banking industry. Gentlemen, we think this is a rather significant 
item today. We find that many of our commercial banking friends in 
the rural communities are loaned out. We are concerned with the 
farmer and rancher being able to secure credit, whether it is from the 
commercial banks or from the Farm Credit System. 

One amendment contained in H.R, 4782 would grant authority for 
the Federal Land banks to participate with other financial institutions 
in making loans. A second wouki improve present participation pro- 

frams wmch involve production credit associations and commercial 

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We think these two participation proposals could well be very sig- 
nificant in providing opportunities for utilizing the system and its 
funding sources to make funds available through the commercial 
banker to serve farmers, ranchers, and aquatic borrowers. 

A couple of points of clarification, if I may, Mr. Chairman and 
gentlemen — or perhaps "additions" would be a better phrase. 

Through the various hearings that this subcommittee held through- 
out the Nation, and from some of our own district policymakers, we 
have determined that there is some interest within the system to 
extend the maturity for PCA loans, which presently is limited to 7 
years. The recommendation on the part of some of the people who 
testified at the hearings would indicate that an expansion m the term 
of PCA loans to 10 years should be considered. 

We would recommend that authority be granted to the district 
boards to determine what the term of PCA loans should be for that 
respective district, up to a limit of 10 years. 

This amendment is not presently in H.R. 4782 and, Mr. Chairman, 
it would receive my endorsement and our endorsement should it be 
your wish to make that addition. 

The second point is one of clarification, for in this bill there is a 
request for autnority granted to the Farm Credit Administration to 
incorporate as an official business entity structures inside our own 
system. This is basically a housekeeping recommendation. It would, 
for example, allow for the incorporation of our fiscal agency in New 
York City, which is our funding arm, and farm bank services in 
Denver, Colo. We believe by official incorporation these entities could 
operate more efiiciently and effectively as corporations operating under 
traditional, legal requu-ements. 

I wish to emphasize for the record that this proposal in no way 
authorizes an expansion of the system's authority to offer insurance 
as a financially related service. It would not authorize the farm credit 
system, or any part of it, or the Farm Credit Admimstration, to 
incorporate an insurance underwriting company for borrowers, 

Mr, Chairman, my last point would speak to a recommendation 
which we have submitted to you, and not encompassed in H.R, 4782. 
It is a technical change which relates to the fundii^ of the retirement 
benefit program which is encompassed in the bill. The technical change 
is designed to insure that the proposed retirement benefit prt^am will 
be funded entirely by the farm credit system and entau no cost to 
the U.S. taxpayer, 

Mr. Chairman, that is a brief overview of some of the points I 
thought you may wish to have discussed. Mr. Austin and I stand 
ready to respond to any of your questions. 

^^. Jones of Tennessee. Thank you very much. 

Mr. Austin, do you have anything you would like to say? 

Mr. Austin. I have nothii^ beyond my written statement ; however, 
I will be happy to answer any questions you may have. 

Mr. Jones of Tennessee. Then we will make your statement a part 
of the record aloi^ with the prepared statement of Governor Wilkin- 

[The prepared statement of Mr. Austin appears on p. 137.] 

Mr. Jones of Tennessee. Gentlemen, we have the Governor and 
Mr. Austin here. May we have your questions? Mr. Huckaby? 

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Mr. HucKABT. The legislation, H.R. 4782, is before us now. I 
understand from your testimony the only specific change you are 
encorsing is the extension of PCA in terms of from 7 to 10 years. Are 
there other things? 

Mr. Wilkinson. One of the specific changes would be requesting 
authority to permit the banks for cooperatives to extend credit 
Bervices to domestic cooperatives for needs of those cooperatives 
involved in international marketing, Mr. Huckaby. We are presently 
restricted to domestic credit use. 

Mr. Huckaby. Would you envision any type limits on the amount 
of loans in this area? 

Mr. Wilkinson. The basic limitation would be that which is 
already imposed upon our borrowers and that would be the basic 
evaluation of the credit capability and the ability to handle that type 
of loan. We would not necessarily determine what is to be used 
domestically and what would be international. It would be basically 
the cooperative's credit capability. 

We do not see this to be a rapidly expanding business because 
cooperatives are just b^inning to get aggressive in the international 
marketing area. 

Mr. Huckaby. But would it not be possible in the future if several 
of the major cooperatives in the Nation went tc^ether where they 
could be competing on a scale with Cargill or Continental or some of 
the major exporters? You are all of a sudden talking about massive 
sums, aren't you? 

Mr. Wilkinson. Yes. I think I should have mentioned to you that 
we recc^nize right now some of our cooperatives have needs that 
are beyond the ability of our own bank for cooperatives or the partici- 
pative Central Bank for Cooperatives. We visualize large needs of 
that nature being supplied m a truly participative arrangement 
which would include the commercial bankmg industry. Many of our 
cooperatives are already involved in that kind of a financing structure. 
Mr. Huckaby, My concern is this. Like other programs, once you 
reach a point of somewhat limited resources, like not penalizing the 
small farmers because you are supporting the massive cooperative 
effort — that is, couldn't that be a problem? 

Mr. Wilkinson. We would recognize that the No. 1 concern of this 
system would always be the farmer and the rancher, and that their 
production needs would receive the highest priority. We would then 
go on to recognize that that same farmer-rancher through his coopera- 
tive would have needs as well. 

In a sense, Mr. Huckaby, we are cognizant of the need for a priority 
structure. This is especially true as we near some kind of general 
credit restraint. 

Mr. HocKABT. Thank you, sir. Thank you very much, Mr. Chair- 

Mr. Jones of Tennessee. Mr. Hance? 

Mr. Hance. I have several questions. You make them for more than 
85 percent. Would the Board set the limit, or would it be 100 percent, 
or 110, or what? 

Mr. Wilkinson, The present limitation is, of course, that we may, 
through the Federal land bank, make loans available for up to 85 
percent of the appraised value of the property being acquired. 

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Working with an agency such as the Farmers Home Adminstration, 
it would be a credit decision by the Federal Land Bank Association as to 
how much in excess of 85 percent each individual could borrow. 

Mr. Hancb. Let's say you have 90 percent from FmHA or SBA, 
you would participate up to 90 percent? 

Mr. Wilkinson. Yes. We would be able to go beyond 85 percent of 
the appraised value. 

Mr. Hance. Would this legislation allow you to go above that? 

Mr. Wilkinson, Yes, 

I would invite you to explore this question with some of our experts 
who are going to be talking about it later today. 

Mr. Hancb. Yes; I think that is somethii^ that we should make 
sure is tied down. 

On your dropping of the members of the co-op from 80 percent to 
60 percent, is this primarily of this? In rural areas and small towns 
there is terrible telephone service. The phone cooperatives could bring 
some of the smaller towns into the telephone co-ops, couldn't they? 

Mr. Wilkinson. This would be one possible use; yes. We are 
privileged to be able to serve both the rural electric cooperative and 
the rural telephone cooperatives. 

Mr. Hancb. In the rural areas, the major phone companies really 
have not gone after the smaller communities. What phone service they 
have, then, is bad. If they are not hooked up with the rural co-op, 
they do not have as good a phone service. 

In fact, in one town in my district the phone rii^ when it rains. 
Every phone in town rings when it rains. They keep wanting to hook 
up with one of the co-ops. 

Therefore, I can see the need there. 

I have one other question. You permit the Federal Farm Credit 
Board to set the salaries within limits. What ore we talking about 
in limits? 

Mr. Wilkinson. Within the limits of the Executive Schedule salary 

Mr. Hance. I see. 

Mr. Wilkinson. There is a maximum on the Executive Schedule 
as you know. 

Mr. Hancb. Yes. We just did not want to read about it in the news- 
paper some time that somebody's salary had been set at $200,000. 

Mr. Wilkinson. No, sir. This wouW be within the limits of the 
executive salary range mentioned. 

Mr. Hancb. Thaiw you, Mr. Chairman. 

Mr. Jones of Tennessee. The Chair recognizes Mr. Madigan. 

Mr. Madioan. Governor Wilkinson, let me follow up on the last 
issue that you discussed with Mr. Hance. As for changes in your 
personnel policy, I understand you ore asking to remove personnel 

Eohcies from requirements set by the Office of Personnel Management. 
i that correct? 

Mr. Wilkinson. It would modify some policies under which the 
agency operates, Mr. Madigan. 

Mr. Madioan. Which would give you the ability to set salaries 
above the levels that are presently available to executives in similar 
circumstances within the Federal Government; is that correct? 

Mr. Wilkinson. Salaries would remain within the limits of the 
Executive Schedule, as established by the Federal Farm Credit Board. 

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Mr. Madioan. A salary as established by the Federal Farm Credit 
Board and not a salary as established by the Office of Personnel 
Management; right? 

Mr. Wilkinson. The proposal would grant the Federal Board the 
leeway or the opportunity to adjust executive salaries within the 
limits of the Executive Schedule. Salaries would not be locked in, as 
they are now locked in, to a specific executive level such as three or 
four, or whatever it may be. 

Mr. Madioan. Is the purpose of that to be able to establish salaries 
that are higher than the salaries of comparable executive positions 
within the Federal Government? 

Mr. Wilkinson. The purpose of this would be to do in essence what 
Coi^ress has grant«d to some other banking agencies such as the 
Federal Reserve System where they, like we, depend on brining in 
talent from the banking commumty to serve within the Federal 
regulatory and supervisory agency. This legislation would grant the 
Federal Board autnority to modify and adjust FCA salaries, if neces- 
sary, within the rai^e of the executive schedule. 

Presently, Mr. Mndigan, we bring in a deputy governor from the 
system, and he is granted the same salary as a deputy governor or a 
senior deputy governor who has been serving ^\'ith our Farm Credit 
Administration for many years. We are only asking for greater leeway 
in administrative determinations by the policy board, within a range. 

Mr. Madiqax. One of the reasons I understand why people are 
willing to work for the Federal Government at a salary perhaps not 
equal to that which they might be able to obtain in private employ- 
ment is because of the rather generous terms of the Federal retirement 
system. What is your retirement system? 

Mr. Wilkinson. Our retirement system is the Federal retirement 
program. That is, the civil service retirement program. 

Mr. Madigan. So, you would be keeping the benefit of the Federal 
civil service retirement system but raising the salaries of those doii^ 
work comparable to people in the Federal Government at a lower 

Mr. Wilkinson. Yes. 

One of the issues in this bill would speak to this retirement issue. 
When we bring one of these individuals in from the system, and when 
they become an employee of the Farm Credit Administration, their 
prior years with the farm credit system do not grant them any credit in 
the retirement benefit program, as is done m the Federal Reserve 
System when they bring in a bank employee and as we would be au- 
thorized to do under this l^islation. 

Mr. Madigan. But if they come in and stay in for 20 years and 
achieve 55 years of age they would be entitled to the same pension as 
someone who worked in the Federal Government for the same period 
of time doing similar work ut a, lower rate of pay; right? There is a 
"yes" or "no" answer to that question. 

Mr. Wilkinson. This proposal is designed to minimize the difficulty 
Ave are having in securing talented individuals who know what the 
needs of farmers and ranchers for credit are, and they know how to 
most effectively work with the banks and the many associations in 
providing that credit in a truly decentralized, supervisory fashion. 

Mr. NIadigan. Is that a "yes" answer to my question? 

Mr. Wilkinson. Yes. 

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Mr. Madiqan. Thank you very much. 

With regard to the membership in the cooperatives eligible to 
borrow from the banks for cooperatives, your proposal lowers this to 
60 percent in terms of the number of voting members who would 
actually be farmers and makes it so that the other 40 percent are 
nonfarmers. That may be anybody, I assume. 

Would they be eligible for loans, that is, those 40 percent, from the 
system of which they were then a voting member? 

Mr. Wilkinson. Nonnally, no. Our loans through our direct- 
lending oi^anizations such as production credit associations and the 
Federm land hanks are to bona fide farmers and ranchers. That means 
that they have ownership or are involved in the actual process of 
farming and ranching. 

The 40 percent that you are referring to in a cooperative, a rural 
electric cooperative for example, could be people who are living in the 
community who may not be fanners. 

If you will remember, a rural electric is mandated to serve an area. 
It has the area coverage rule. It cannot be selective. A rural eletric 
cooperative becomes ineligible to borrow from the bank for coopera- 
tives at the present time when more than 30 percent of the numbers 
become nonfarmers. 

We believe it can be reduced as long as it is still farmer controlled, 

Mr. Madioan. The proposal on loss sharing comes to this. In our 
hearings we received some private comments in opposition to that from 
people who think that their part of the syst«m is working well and that 
systems in other parts of the countiy are not working as well and 
people may not have been as diligent there. Your loss-sharing proposal 
would seem to reward the inefficiency or inadequacy of those people 
who have not done as good a job as other people in the system have 

Would you respond to that criticism? 

Mr. Wilkinson. The system has already faced up to that in two 
specific ways. They have already determined that they will go to the 
monev market with one consolidated type of funding device. They, 
therefore, do pledge to the investor that the total collateral of our 
lending institutions will be available for backup of that loan. 

Second, Mr. Madigan, our various associations and our banks 
throughout the entire system have joined in loss-sharing agreements. 
They have pledged that should there ever be such a need, they will 
underwrite the loss of such a bank and association. It is a tiered loss or 
a tiered liabilitv effect. 

This particular amendment basically extends the loss sharing into 
some of the other areas that were not originally authorized. 

We believe that the system, through its own supervisory responsi- 
bilities of its district boards, is beyond the point where one part of 
the system would in any way jeopardize that of another as long as the 
policymakers know what their responsibilities are. 

Mr. MAnioAN. One final question. In Memphis I was surprised at 
the answer I got to one question. I am sure the answer I got was 
correct, but I would like for you to verify it. 

I was under the impression that PCA's in some instances come from 
the Farm Credit Administration and have tax advantages that did 
not accrue to private institutions doing similar kinds of activities. 

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I am talking about the Federal tax. I was told in Memphis I was 
wrong about that. 

I was told there are no Federal tax advantages for PCA's and Farm 
Credit institutions that are preferable to the tax treatment of private 
lending institutions. Was the answer I was given a correct answer? 

Mr. Wilkinson. If the question referred to CPA's, the answer was 
correct because they are taxable. However, you also included other 
institutions of the farm credit system in your question. There is a 
differential in the taxation of the various systems. The Federal land 
banks do not have the same tax structure as the production credit 
associations. This has been developed over the many years of the farm 
credit system. Today there are differences in the tax status of the 
institutions which you have acknowledged. 

Mr. Madioan. Thank you, and thank you, Mr. Chairman. 

Mr. Jones of Tennessee. The Chair recognizes Mr, Baldus. 

Mr. Baldus. Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. Excuse me, we are not using the 5-minute 
rule for the Governor, but we will when we get to the other witnesses. 

Mr. Baldus. I would like to welcome Governor Wilkinson who is 
a former Commissioner of Agriculture in Wisconsin. His knowledge 
and interest in agricultural matters, of course, goes back a long way. 

I am particularly interested in the request to finance export facilities. 
Would you care to expand on that? 

Another one of the things I am somewhat interested in is the expan- 
sion of your ability to handle paper or notes. 

My question is this. Is that considered necessary? Are there com- 
mercial banks that do that now? What is the relationship? 

Mr. Wilkinson. Mr. Baldus, yes. There are commercial banks that 
are doing that now. The commercial banking industry is deeply in- 
volved in international banking, not only in providing the credit, even 
to some of our cooperatives, but also in providing additional services. 

We in no way want to minimize the importance of those institutions 
in continuing to be of service to our own cooperatives, as they have 
growing needs. 

What I think we may want to recognize here is that the coopera- 
tives of the United States have, in a real sense, invested millions of 
dollars in providing their own cooperative institution the means 
to serve their credit needs. These are called the banks for cooperatives. 
These banks have traditionaUy been able to follow the borrower needs 
wherever those needs exist, from one part of our Nation to another. 

Now, as we see cooperatives interested in becoming involved in 
exporting of grain and exporting of citrus, cotton, or whatever it may 
be, you nave the problem of financing the transaction while it is on 
water. There is the process of handlmg the negotiations and paper 
transactions between the buyer of a foreign country, or it may be a 

Erivate business or a cooperative structure overseas, and so on. Our 
allies for cooperatives are interested in being able to do exactly as the 
commercial bankii^ industry has done. That is, to follow their bor- 
rowers and to provide the needs of those borrowers from the start of 
an export transaction to its conclusion. 

Id answer to your question, then, this proposal would enable BC's to 
provide credit and provide service to cooperatives engaged in exporting 

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Mr. Baldus. I am interested in this. In the years to come I think we 
are going to need to expand export facilities considerably. It seems to 
me that we are running at about the maximum limit now, especially in 
the grain industiy. There is going to have to be considerable expansion 
in the facilities. Your request goes to not only the expansion of facili- 
ties here but potentially m other countries. 

Mr. Wilkinson, Yes. 

Mr. Baldus. I have heard some concerns expressed about that. 

Mr. Wilkinson. Let me explain that by providing an illustration. 
Let's take the cooperative which is sellii^ grain in the international 
market and needs to purchase or build an elevator in Rotterdam. 
This legislation would enable the bank for cooperatives to provide 100 
percent of the funding necessary to do so. 

If the co-op wishes to go into a partnership with a foreign entity, 
say on a 50-50 basis, then the bank for cooperatives would generaUy 

Srovide the proportionate amount which would be owned b^ our own 
omestic cooperative. But, it is hoped that the lending institution 
would be able to assist that cooperative in whatever its needs may be, 
whether it is a facility such as you are suggesting, or whether it is a 
trading company of some kind m which there is partial ownership, or 
whether it is in some other device to implement the movement oi the 

There would be no foreign financii^ under this l^islation, Mr. 
Baldus, unless it is linked to our domestic cooperatives for their needs. 

Mr. Baldus. It would be o^vned by the cooperative? 

Mr. Wilkinson. Yes. 

Mr, Baldus. Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. Thank you. Mr. Coleman? 

Mr. Coleman, Thank you, Mr, Chairman, 

Governor, I want to welcome you. I thank you for spending time 
to explain your position. I think you have done a very nne job. 

We have had conversations prior to today. I want to make some 
of the questions I have asked you previously for the record. Your 
response will be on the record. 

One of the areas we are concerned about is the a.spect of insurance. 
You talked about that candidly in your prepared remarks. I under- 
stand the legitimacy and the reasons for collateral for any loans that 
anybody might maice to anybody. I would like to have you expand 
on your proposition and the concern that I have voiced^that is, the 
pot«ntial for intimidation, shall we say, by PCA employees in trying 
to sell insurance beyond just the collateral for the loan. 

We have pilot projects that are going on. I would like to have you 
tell us what the results have been and your own views insofar as getting 
into the insurance business is concerned. 

Mr. Wilkinson. I thank you for that question. As the members 
of this committee well know, the basic authority in the act of 1971 
and its predecessor authorities grant the farm credit system the 
authority to provide not only sound, constructive and adequate 
credit, but financially related services. Those services which are 
credit oriented include bookkeeping and recordkeeping, estate plan- 
ning, and so forth. They also include insurance services that are 
directly tied to the extension of credit. The system has provided 
credit life insurance, for instance, Mr. Coleman, for nearly 30 years. 
This has been a very effective service provided by production credit 

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associations and Federal land bank associations. More recently, per- 
haps 15 years ngo, crop insurance was provided by some system 
institutions because of the relationship between the crops and the 
repayment capacity of the borrower. 

In 1971 additional insurance authority was granted to the system 
to provide insurance to protect the assets of the loans to borrowers. 
The pilot programs that you make reference to are property and 
casualty insurance programs which are now in existence m 3 of our 12 
districts. The program's pilot status is maintained, in part, to insure 
that the authority would not be misused, exactly in the way that you 
have spoken to, Mr. Coleman. 

What we have done is to make sure our insurance services are 
available only to member-borrowers of the PCA's or the Federal land 
bank associations, not to outsiders. I hope everyone understands 

In our Columbia district, which includes the Carolinos, Georgia, and 
Florida, the loan ofl5cers are required to have the borrower sign a form 
which emphasizes that insurance is either advisable or required to 
protect the loan, but it need not be supplied by this institution. It may 
De obtained from your traditional source of insurance. The borrowers 
sign statements that they were not coerced into purchasing the 
insurance from Farm Credit. Mr. Coleman. 

Mr. CoLEUAN. Let me interrupt right there. Is that s rule that you 
promulgated yourselves, without any direction from Congress or 
anybody else, as far as the disclaimer goes? 

Mr. Wilkinson. This is exactly right. This was one of the results 
of our pilot programs. We have strengthened guidelines of the Farm 
Credit Admmistration pertaining to the supervision of the property 
insurance program. 

I think it is significant when you realize that after 4 years in the 
Columbia district, where we have veiy aggressive credit institutions 
and credit programs, of all of the lorm credit borrowers, only 7 
percent are involved in the purchase of that institution's property 
insurance. The others have apparently had their ongoing insurance 
programs and have been well served. Our major concern is that either 
the independent insurance agents or others are there serving our 

There is another point that you and I talked about that I think is 
most important. System institutions are credit institutions. They must 
and shall always remain credit institutions, not insurance companies. 
Financially related services must always be supplemental to the 
system's lending function. Those offered are there to be of assistance 
to the borrower, if he or she desires. 

Mr. CoLEUAN. On another topic, you are asking specifically in this 
legislation to be exempt from Stat« usury laws and also the Federal 
truth-in-lending or State truth-in-lending laws. Is that right? 

Mr. Wilkinson. Let me clarify both of those issues, Mr, Coleman. 
For many years it has been recognized that farm credit institutions 
are federally chartered, that system interest rates are determined by 
the market process and that these institutions are exempt from State 
usury laws. 

Inadvertently or otherwise, explicit language to this effect was 
omitted in the act of 1971. We still presume that that exemption 

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However, we now have found some of our associations involved in 
usuiy restrictions, especially in one State where the constitution 

Erovides that a lender is in jeopardy of losing not only the interest, 
ut the principal. Since this can mean a loss of possibly millions of 
dollars to a PCA, it is felt that a clarification of the exempt status of 
the system would be helpful for everyone. That is the purpose of the 
usun^ provision in H.R. 4782. 

Nfr. Coleman. Have you had any litigation? Have you been sued, 
or have you sued anybody on a loan under a State usury ceiling that 
was called in question? 

Mr. Wilkinson. There was interest expressed in this in the State 
of Arkansas, until recent authority was granted by Coi^ress to 
temporary preempt State usury laws. As a result, then, it is in limbo 
at the present time. 

Mr. Coleman. You have advised your different oi^anizations that 
they could, in fact, go ahead and lend under the present law; right? 

Mr, Wilkinson. Yes; we have advised this but, basically, Mr. 
Coleman, if you were sitting on a board of directors of a PCA liable 
for millions of dollars, I think you could appreciate the concern that 
some of the institution directors have. 

I did not answer your question on truth-in-lending. The bill would 
in no way grant the Farm Credit System any exemption from the 
Federal Truth-in-Lendii^ Act. We will continue to comply with the 
Federal Tnith-in-Lendii^ Act. What the proposal does speak to is 
that if it should be the wish of Congress to exempt agriculture from the 
Federal Truth-in-Lending Act, then States should be prohibited from 
imposing their own truth-in-lending requirements upon the Farm 
Credit ^stem. 

Mr. Coleman. I was not here in 1971 to know whether or not this 
was an oversight. If I were looking at it from your standpoint it would 
be an oversight, but would you say, philosopnically, that if you were 
exempt from the State usury laws — and obviously local banks are 
not — then is that a strong competitive edge that you would have 
over them? 

Mr, Wilkinson. State banks would not be, but Federal banks, as 
you know, operate on a mai^:in or a ratio that is determined. 

Yes; we would have to recognize that. Our strong wish is that, inas- 
much as agriculture has ongoing credit needs and inasmuch as we 
would wish the commercial banking industry to remain involved, we 
would urgently request those States that do have rigid usury require- 
ments to recognize the need to permit agricultural credit to be serviced 

We believe the commercial banking industry must remain in 
agricultural lending, and we would like to see a general exemption 
from State usury laws for all agricultural credit transactions. 

Mr. CoLSMAN. I guess that is a magnimous statement on your part. 

Let me ask you one final statement so that others can then ask their 
questioi^. Going back to the insurance question again, you mentioned 
taat the Carolinas experience in 4 years was that they nave increased 
their insurance 7 percent. 

Mr. Wilkinson. No. 

Mr. Coleman. This was for nonloan collateral insurance purposes; 

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Mr. WiLKiNBON. Only 7 percent of the members of those institu- 
ttODS that have loans nave secured property insurance from farm 
credit institutions. Only 7 percent of the membership. 

Mr. Coleman. I see. That 7 percent is, for example, if they take 
out a loan on a tractor, let's say, then you have the credit life 

Mr. Wilkinson. The property and casualty insurance; yes. 

Mr. Coleman. On that tractor? 

Mr. Wilkinson. Yes. 

Mr. Coleman. That is the 7 percent you are talking about. Or are 
you talking about the fact that ne has the tractor loan with you but 
he also has a house, and a dwelling, and a bam and other things that 
he has insured with another company that you have now gone into 
and insured as a result of your relationship with the loan? 

Mr. Wilkinson. This would be on the borrower — on the number 
basis — those borrowers who have some kind of a loan with ua, such 
as a production loan for fertilizer, or whatever it may be, or a tractor 
such as you mentioned. Seven percent of those borrowers have secured 
insurance on their collateral. 

Mr. Coleman. On the collateral? 

Mr. Wilkinson. Yes; either that or that collateral which would be 
necessary to assure repayment of that loan. 

Mr. Coleman. The original question is this. I am not concerned 
about the collateralization. I think everybody ought to have some- 
thii^ to go to to secure his note. 

My question is this. What about the dwellii^? What about the 
noncollateralized asset which they could purchase the insurance from 
your organization for? 

Mr. Wilkinson. Our regulations say that there shall be a correlation 
between the loan and the collateral which is insured and that after 
X number of months — a very limited number of months — if that loan 
is paid up, that individual is no longer eligible for continuation of the 
collateral insurance. 

Mr. Coleman. My question is this. I go ahead and take your 
insurance on the tractor that we have a loan on. At the same time you 
happen to mention "What is the insurance situation on the rest of 
the property?" I say it ia with XYZ Corp., and you say, "Well, would 
you like me to take a look at it and see if I can put a bid in to give 
you a break on that, and we could insure your farm and a lot of 
other things"? 

Mr. Wilkinson. That would go beyond the authority. The words 
that I used are that there shall be a correlation between the premium 
of the insurance coverage, the coverage, and the collateral which is 
used for that loan. 

Mr. Coleman. So the guy is not going to be intimidated by wanting 
to go back to this ot^anization for a loan in the future. He wants to 
keep that relationship hne, and ^e is not going to be intimidated 
to take out an insurance policy on his house, or his mother-in-law's 
life, or anything else to make sure he is going to have this working 
relationship with PCA or the land bank, or whatever it might be. Is 
that correct? 

Mr. Wilkinson. I think that is correct. 

Mr. Coleman. It is beyond the scope of your authority, you think. 
Is that right? 

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Mr. Wilkinson. Yes. We receive many complaints from individuals 
who cannot get credit. They may not be creditworthy, or so forth. 
Mr. Coleman, I have yet to receive one letter from any borrower 
complaining that he was coerced into buying any insurance. I don't 
think that the farmer-rancher of today is so timid that if he believed 
he was coerced he would not write some agency of the Federal Govern- 
ment, including the Governor of FCA to protest. After all, he is a part 
owner of the PGA. 

Mr. Marleneg. I tend to disagree with you, I have talked to 
several people in the field who are very concerned about this very 
aspect. When their loan or application- — that is — when they go to the 
Federal land bank or the PCA they are asking for money. They are 
not inclined to jeopardize their standing with that lending institution 
by writing a letter and documenting any type of implied coercion on 
buying insurance. 

Mr. Wilkinson. Mr. Marlenee, all I can say is that in our super- 
visory efforts FCA is doing and will continue to do anything possible 
to work with the banks and associations to make sure that coercion 
is not a part of the total process. 

Mr. Mahlenee. If the gentleman will yield further, let me say this. 
Isn't this, in fact, the way that a great many PCA's liquidate to a lai^e 
extent their operating costs; that is, by selling insurance? Does not 
that, in fact, take up a lot of the operating costs of some of the lending 

Mr. Wilkinson, No; I would not say it would be a lot of the operat- 
ing cost. 

You are correct 

Mr. Mablenbe. Would they not have a vested interest in selUng 
as much insurance as they could? 

Mr. Wilkinson. In a true cooperative, which the PCA is, the bor- 
rower or stockholder of that cooperative is the one who benefits, not 
the institution, not the managei . We prohibit salaries to be based on 
insurance sales. We prohibit many otner thii^s that you would find 
commonplace in a traditional insurance company. Only the owners, 
the borrowers, of that credit institution may be the Deneficiary of 
any earnings or savings accrued from any operation, including 

Mr. Marlenee. Thank you. 

Mr. Coleman. I would like one final question. 

What is your feeling as to the general availability of credit in the 
rural area, and whether or not it is being met sufficiently today by a 
combination of organizations, and where your own strength lies? 
Could you address that general philosophical question? 

Mr, Wilkinson. Yes. Mr. Coleman, I am frankly quite concerned 
about the availability of credit for the rural community — the fanner 
and rancher. Too many of our commerical banks are loaned up. The 
problem that they face in losing some of their traditional deposits is 
a serious one, as is the inability of many of these banks to retain their 
normal relation with a correspondent bank. These developments 
threaten to, in a sense, sever tne availability of credit to the rural 
banker. I believe that the American farmer needs options for credit 
just as he needs options for insurance or fertilizer, or any other 
production component. 

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We believe that the farm credit sj^stem will be able to provide the 
needs as we anticipate them for this coming year and on into the 
future, since we derive our funds from the money market, as you know. 
We are sincerely concerned, however, that the farm credit system, 
not become the sole source of o^cultural credit. We would rather see 
the commerical banking industry do whatever it needs to do to make 
more funds available to rural America. 

We will try to help local banks through some short-time problems 
through our participation lendii^ programs, but long-term problems 
will require us to take another look. 

Mr. Coleman. Thank you, and thank you, Mr, Chairman. 

Mr. Jones of Tennessee. The Chair recognizes Mr. Harkin. 

Mr. Harkin. Thank you very much, Mr. Chairman. 

Governor, I noted in your prepared testimony a statement. I want 
to focus in on two aspects of this. You talked about the second pro- 
posal — about changes, and then about the third or fourth proposal. 
That is, the secona proposal would allow the banks to make loans in 
excess of 85 percent of appraised value. You state that this is designed 
to enable the land banks to continue providing credit to young and 
low-equity famers. 

You then go on to point out that more than $1 billion was loaned 
to almost 25,000 farmers during the 1974-78 period as part of the 
cooperative effort with the Farmers Home Administration. $1 billion 
sounds like a lot of money, but can you tell me how much total money 
you loaned out during that period of time so we can put it into 

Mr, Wilkinson. I would have to secure the actual loan volumes for 
those 4 years, Mr. Harkin. But let me tell you that last year we loaned 
$57 billion. 

Mr. Hahkin. In 1 year? 

Mr. Wilkinson. In 1 year. The year before it was about $39 billion 
or S40 billion — somewhere in there. 

Mr. Harkin. So would you say that between 1974 to 1978 you 
probably loaned over $100 billion anyway? 

Mr. Wilkinson, Yes, 

Mr. Harkin. It was $150 billion, maybe? 

Mr. Wilkinson, Yes. 

Mr. Harkin. Probably so. 

Mr. Wilkinson. What we are saying is that our relationship with 
the Farmers Home has been an evolvii^ one, we have worked together 
in an effort to try and better serve young and low-equity farmers. The 
program has not always been in existence. We would like to see it 
improve and grow. 

Mr. Harkin. I wanted to put it into perspective. More than $1 
billion was loaned to 25,000 farmers, but what you are really saying is 
one one-hundred-fiftieth of all the money we loaned out was for that 

Mr. Wilkinson. Through this relationship with Farmers Home. 
Is that the point you are makii^? 

Mr. Harkin. And to low-equity farmers. 

Mr. Wilkinson. Our own Federal land banks and others would 
have their ongoing program for low-equi^ farmers as long as they had 
the repayment capacity, Mr, Harkin. That is the important thii^. 

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Mr. Habkin. Do you suppose you could get me any information 
about — during those years from 1974 to 1978 — how many low-equity 
beginning farmers you actually financed? Could you provide that for 
the recora? 

Mr. Wilkinson. Yes; we could provide that for the record. 

Mr. Jones of Tennessee. Without objection, the record will remain 
open at this point for thepurpose of inserting this additional infor- 
mation requested by Mr. Harkm. 

[The additional information supplied follows :] 

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Federal Lend bank. Loam Hade 

DuTlog 1979, Fedaral Land Bank* (FlBa) aada 74,306 agricultural loana 
totaling $8.2 bllllan. About ooa-thlrd of the loaoa MTe uaad to 
purchase real tstata (Table I). The caBalnder wra oaad to reflnanea 
eilatlog loans, lmptov9 propertjt, or larva othar purpoaea. 

T» appcoachei to exaBlDlog low aqult; loaoa are nae mrth mai dabt-ta~ 

assec tati-ae FLB botrovera vltb net mcths leaa than $100,000 ta 1977 

Uteet available data) bad an average agricultural lacooe of $15,740. 
This group ot (arsera held 35 percent ai all TLB fars loana. Borrowera 
■tth debt-co-assec ratios greater than 50 percent received 15,422 FLB 
fara loans Is 1977 Aaocher 3,091 loans uara aade to alallar borrowera 
under Ihe PLB/FnHA Joint loan prograa. 

In each of the past 6 yeare 
of aga) received „oce ch^n 
(Table 2). by contrast tt: 
are not yet avatUble) Indl 


araera (those facsar* undac 35 yaara 
t of all IXS agricultural loana ude 
nana of Agriculture (1978 Census data 
t only 13 percent of all coimerclal 

It irauld be expected that Che voluae ot loana to young faraera muld be 
pfspor lonaCely leas Chao the loan voluae to all fLG bolfowers. A* 
tarmers grau older, they enlarge thetr operatlooa and increase Chetr 
equity base and their financing needa Increase, nouever Table 2 shoica 
that the relative share of loan voluBC for young FLS lorcowecs waa quite 
high. In the past 3 years It averaged aore than 20 percent of all loan 

For young fai 

ige agricultural loan In 1 
uaa $846. The average Is 

The average debt/aaset i 

«a $110 

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Mr. Wilkinson. This figure might be of help to you because I 
think I know what you are interested in. 

In 1978 over 50 percent of Federal land bank loans went to borrowers 
who had less than $20,000 net farm income. 

We are not a big fanner lender exclusively or even primarily. 
Fifty-six percent of the farm loans went to borrowers who had less 
than 20percent net farm income. 

Mr. Harkin. I know some mighty big farmers who have less than 
$25,000 a year net income. That does not say much to me. 

Mr. Wilkinson, If you wish additional statistics, we will attempt 
to provide what you are asking for. 

Mr, Harkin. We will have further hearings, and I will be asking 
for some of these statistics. 

I am concerned. I have been doing some research preparing for 
these hearings. I started looking over Uie 1371 debate on the amend- 
ments. Probably one of the hottest things, one of the most recurrent 
themes in the debate of 1971 was the neSi to provide income to low- 
equity, beginning farmers. Time and time again there was a lot of 
information mentioned about that. 

At that time, Congress directed the system to finance "bona fide 
farmers." We left the definition of what a bona fide farmer would be 
to the FCA administrators. When we took a look at what happened, 
what has happened since 1971 is this. We are findii^; what I think 
are some very odd things happening in terms of that definition of what 
a bona fide farmer is. I would submit that the resulting definition that 
has come out of the Farm Credit Administration is so broad that it 
would include any individual investing in land or livestock production. 
Would you care to comment? 

Mr. Wilkinson. The definition of a bona fide farmer is an individ- 
ual who is either an owner of agricultural land or one who is operating 
for agricultural purposes. 

Mr. Harkin. Investing in, also; right? 

Mr, Wilkinson. Yes ; who is an investor or an owner. 

Mr. Harkin. Eligibilitv guidelines are similarlv generous for legal 
entities. "For all practical purposes excluding only diversified corpo- 
rations with nonfann interests exceeding agnculture interests" — that 
is what you say. Is that true? That is, legal entities. Only legal entities 
are allowed 

Mr. Wilkinson. We have some pretty specific criteria which we 
consider in determining eligibility. 

Mr. Harkin. Yes. 

Mr, Wilkinson. They have to meet at last one of the three require- 
ments of either 51 percent of their production assets is in agriculture. 

Mr. Harkin. I just mention that. They have to have a majority 
in an agricultural interest. 

Mr. Wilkinson. And a majority of the ownership must by held 
by the farmer entity. We are not financing subcorporate associations 
on Wall Street or places like that. 

Mr. Harkin. I ]ust noted here that many nonfarmers, for example, 
investing in hog production, cattle feeding and land have been recip- 
ients of FCA credit. The Omaha district member banks have some 
figures. I will discuss those later. They financed somewhere between 
50 and 100 of these hog factories that operated under a group owner- 
ship, hired labor industrial model. That is where people invest in them. 

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They built them. They hire people to run them. And, of course, 51 pei^ 
cent of the owners are involved m the hog production units themselves. 

We see the hog factories going up in the Midwest. I am a little con- 
cerned about that. I am concerned about what is happening. When I 
see these big vertically integrated people getting FCA loans and 
financi^, I b^in to wonder if they are really bona fide farmers. 

Mr. Wilkinson, They are producing food and fiber, and many of 
them did start, Mr. Harkin, as a family corporation and then broaden- 
ed into the area you speak of. We have watched this eligibility factor 
quite closely. 

Mr. Harkin. It seems to me again in 1971, and when we begin our 
markup I will be reading into the record some of the comments that 
were made 9 years ago. It seems to me that perhaps since the Farm 
Credit Administration is, as you state in your handbook, "The Farm 
Credit Syf=tem institutions are Federal instrumentalities operating 
imder a Federal statute to carry out a Federal purpose as enunciated 
by Congress." 

Perhaps in leaving the definition of a bona fide farmer to the Farm 
Credit Administration we— I mean the Congress that was before 
me — was perhaps a little negligent in carrying out the responsibilities 
and perhaps we have to here enunciate for you, and delineate a little 
more clearly, just what we mean by bona fide farmers. 

I am sure you are aware of the GAO report that has come out 

Mr, Wilkinson. Yes. 

Mr. Harkin. There was an article in the Des Monies Register dated 
February 6 that I am hearing a lot of comments on. It basically refers 
to the GAO report on the Farm Credit Administration. 

The report goes on to say that some of these loans are being made 
for recreational or pleasure farming and where the agricultural benefit 
is questionable. It says, "FCA Governor Donald Wilkinson strongly 
defended the system's lending practices noting that Congress in 1971 
broadened the agency's scope," which I was just referring to, "and 
while he admitted 'management weaknesses' at some institutions, he 
said substantial progress nad been made in this area." 

Do you want to comment a little on those "management weak- 
nesses" and what is being done? 

Mr. Wilkinson. Yes; I will, Mr. Harkin. 

We recognize the concerns expressed in the GAO report in the 
scope of lending and elsewhere. The Farm Credit Administration has 
a responsibility to supervise 37 banks and almost 1,000 associations. 
It carries on an ongoing examination program the same as other 
banking agencies have. 

We have been working with these banks and with their boards to 
recognize what their authority is in making those loans. But when 
you are making over 1 million loans, it is not always possible for the 
Federal agency, or even the banks, to assure themselves that there 
will be complete uniformity as pertains to the scope of lending from 
one part of our system to another. But as we work with these Danks, 
they and their district boards are recognizing the importance of 
providing credit to the eligible borrowers. We are recognizing that, 
yes, there may be human error here. That is what I was acknowledg- 
ing. We are not locked into a total rigid system. We are a very de- 
centralized system, and it is strong because of that. They have been 

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able to meet other needs. But in doing bo, Mr. Hai^in, yes, there are 
some imperfections and the General Accounting Office makes some 
recommendations for improvement which we will always welcome. 

Mr. Habkin. I understand human failings. What kino of followup 
system do you have in place to notify your member banks, the FCA's, 
and your land banks when you find a practice thatyou or your board 
would say would be sort of on the edge there? What do you do to 
follow up and let everybody else know that this is not what you want 
to do? 

Mr. Wilkinson. We have a very specific followup pn^ram. 

Annually, every bank is examined. There is a supervisory prt^ram 
worked out with the district boards who are the policy btxues over 
those banks. There is a detailed discussion with the bank president 
and the management staff of these banks. Irreguluities are then 
flagged and pomted out as having to be chained and corrected. So, 
both the pohcy boards are so notified, and the management people 
are so notified. 

In addition, we do not stop with the bank. Our examiners are out 
in the associations, the FCA's, the land bank associations. 

Mr. Harkin. I understand that. Let me give you an example, and 
these are examples from the GAG report. 

The GAO cited these examples of questionable FCA loans — about 
$100,000 to a couple for purchase of 3 acres of pasture and 2 acres of 
builcfii^. This couple had nonfarm income of $46,000 a year, and 
they used the pasture for nonfarm purposes. 

A $100,000 loan to a hobby farmer for purchase of 90 acres of land 
from which he has a $500-a-year net income. 

A high-risk $100,000 loan to help a horse breeder buy 38 acres of 
land. This "rancher" has a nonfarm job from which he earns $32,000 
a year. 

A $60,000 loan to a retired person with a $42,000 annual pension 
who lives 1 ,000 miles from the 80 acres which he bought with FCA 
money. This individual has additional income from salary, interest, 
and dividends of $70,000. 

What I am saying is this. What have you done to identify these and 
send the word out to all the banks that these kinds of things have got 
to be stopped? Do you agree that they must be stepped? 

Mr. Wilkinson. If there are irregularities, and if^ there is misuse of 
authority granted by Congress 

Mr. Harkin. Excuse me. I think probably every one of those loans 
was well within the purview of the guidelines you have set out. What 
I am asking is this. Are you going to t^ht«n up the guidelines or not? 
I don't think there is any illegality here in these loans. I think under 
your definition of bona fide farmer they are probably all bona fide 

Mr. Wilkinson. Our response back to GAO will show that we will 
work with those banks to tighten up those guidelines and their admin- 
istration of their credit programs. Yes; there will be a tightening if 
there are certain areas where the scope of fundii^ is too loose, then 
this will jeopardize the l^itimate borrowers. 

GAO has cited very few out of thousands and thousands of loans 
that have been made — a very few. 

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Mr. Habkin. I understand you recognize that, but it indicates to me 
somewhat of a trend when you couple that with some of the things 
that have been happening in the FCA. It is a trend. These are in the 
statements that have been made by you and others. 

This is a quote from you — I don't Know if it is actual or not: 

Mr. Wilkinson states: The GAO report does not recognise the important changes 
that are in agriculture, particularlj ibe role in extent of absentee farmers and the 
inportance of part-time farmers. 

He noted toat some 14 percent of all "principal farm operators" have ofl-farm 

When you couple that type of a statement with the implied attitude 
that seems to be in here, with the examples I have given you, it may 
indicate a trend that we may be worried about. 

Mr. Wilkinson. You are familiar with the trend in agriculture of 
much of its income coming from off-farm sources. It has been our 
interpretation of the desire of Congress to provide service to agricul- 
ture. It does not say it has to be 100 percent farmer-rancher. As a 
result, we evaluate a person's involvement in agriculture. We try to 

firovide their credit needs, and we try to stay away from those specu- 
ative loans which have been cited by you in the GAO report and are 
contrary to FCA regulations. 

We recognize our responsibility in serving part-time farmers. 
Outside employment is very important for a laige portion of our 
farmers today. 

Mr. Harkin. Mostly because they cannot make enough money 

Mr. Wilkinson. Yes, and our concern, of course, is the same as 
yours — that they not continue to live and just get more and more 
credit but that their total income situation improve. Yours is a 
proper concern- 
Mr. Harsin. Thank you. I thank you for recognizing that. I am 
not trying to be hard with you. But I just looked at the debate in 
1971. When I go to a rural discrict that I represent, I see the tre- 
mendous need not only for credit but the need for credit for the young, 
beginning farmers. They don't have access. 

I am beginning to wonder what we are doii^. We have a federal 
system set up. ^d, as you stated, it is a Federal instrumentality, 
operating under Federal statutes, to cany out Federal purposes as 
enunciated by us. Maybe we are not enunciating the right things to 

Let me ask you this. This is probably obvious. Do you feel that we 
ought to more directly enunciate the guidelines for the Farm Credit 

Mr. Wilkinson. You have properly enunciated the mandate which 
the Farm Credit Administration and its system should be working 
with its borrowers on. First of all, remember that we are not privileged 
to have any subsidy from the Federal Government. These loans have 
to be sound, constructive loans. It is for that reason that we try to 
cooperative with the Farmers Home in taking care of some of these 
beginning and low-equity farmers. 

I sincerely hope that there is no eligible farmer, youi^ or otherwise, 
who has the repayment capacity that has been turned down. 

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Mr. Habkin. I can give you a lot of instances of that. I have them 
in my district. 

Mr. Wilkinson. That had repayment capacity? 

Mr. Harkin. He did not have repayment capacity considering the 
interest rates he was being chained. That is obvious. The fact was that 
the person was a good farmer. They had good land. They could 
produce. We knew what the production capacity of the farm was. 
But, mth all the other factors thrown in, that is, with the cost of 
money, the payments back on interest, there was no way they could 
do it. They could not make those repayments unless they got some 
type of an interest subsidy through Farmers Home. 

Mr. Wilkinson. That is exactly what I have been concerned about. 
I think we are sayir^ the same thing. 

Mr. Harkin. Perhaps beyond the six or seven recommendations 
that have come to us, that is, that we were anticipating addressing in 
our markup, then perhaps we ought to take a look at the joint Farmers 
Home-Farm Crecfit Aoministration program that you have talked 
about. Perhaps we ought to make that one of our points in terms of 
puttingsome eflfort in that area. 

Mr. Wilkinson. We would welcome any recommendations. 

Mr. Harkin. Thank you. 

I have one more question here. This is not so contentious. You have 
a proposal on authorizing the banks to engage in international finan- 
cial operations. That is long overdue. 

Mr, WiLKiNBON. Thank you. 

Mr. Harkin. We have got to do that. Time and time again I am 
confronted by this. Why can't the cooperatives get more than that 
10-percent share of exports? 

Mr. Wilkinson. Yes, sir, we are concerned about that. 

Mr. Harkin. I think they can. I think they can provide the kind 
of direct exports to foreign countries that our farmers in the land- 
locked Midwest need. I think it may be one of the answers to give 
them a little bit more for the products we seU abroad. 

If we have more cooperatives involved in that, it might happen. 

Mr. Wilkinson. Yes; I agree. We are talking about farmer 

Mr. Harkin. I am supportive of that. 

I have one more question. If you don't want to answer it here, and 
it may be too technical, then you might want to provide it for the 

In your prepared statement you said : 

The banks tor cooperatives would also be authorized, under H.R. 4782, to 
finance trading facilities and to invest in certain foreign financial servicing 

I do not understand the last part. I wish you would spell that out. 

Mr. Wilkinson. May I respond to that? It is not that comphcat«d 
an answer. 

It is important that a bank for cooperatives in some way have access 
to intelligence — credit information — and availability of letters of 
credit, and so forth, in the area where this loan is to be implemented, 
such as Europe. 

There are such associations of lenders existing. This would authorize 
the banks for cooperatives to become a member of such an institution 
to improve the service available to that borrowing cooperative. 

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I think ma^rbe our next participant, Mr. WiUiam Gaaton, who is 
now involved in this hearing can speak more specifically to the tdnd 
of service that he, as a co-op borrower, might wish to have from such 
an institution, Mr. Harkin. 

Mr. Harkin. Yes; I will take that up with him. 

Mr. Wilkinson. If you wish more from me, I can provide in writing 
a more specific answer. 

Mr. Habkin. I would ap^ciate it. 

Mr. Jones of Tennessee. Without objection, the record will remain 
open for the purpose of inserting the additional material to be supplied 
by Mr. Wilkinson. 

(The additional information supplied follows:] 

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A ltor« l>it«ll>d 6[pl»B«tlon of th* Function 
For«l«p Flmiu:l«I SrirtelDjt Op«ritloa» 

Oiacaeu braoehM of U.S. banka aod bank holding emipuiy aabaidlarlia ara 
of tan raqulrad to aalotaln na«r*« loivla, pay ipaclal banklii« f««(, «al in 
goiwTal ■haoTb mnHrou* coata for oparatlog full banking oparatlona. At 
tha aaaa tlaa, tba fotalgn oouocrr'a lagal, political, and cultural c«adl- 
tloB* nay greatly reatrlet tha bnneh'a «blllC7 to obtain datallad cradlt 
Inforaatloo. Bacauae of thla, the branch la aMMtlaaa obllgacad to uaa a 
locally omod credit rapartlog aarrlea. Slallarlr, cndlt collactlona nay 
require local lateraedlartaa to aaalat, aapedally la regard to tha lam and 
co^rdal practlcea of that country. Banca, bluing ovnarahtp In a foreign 
credit nportlng agency oc loan aarvlclng facility la oftan a vieh laaa 
expenalta aathod of ••tabtlahlng alnlHH overioaa preaanea than aataUlahlng 
a foralgn branch> 

Each country taaa Ita on lava, cuatoaa, dutlea, and Inapactlwi raqalTeaant*. 
The actlw eooparatloo of local oftlclala and bualnaaaaan la often naadod 
to enaurn that thaaa nilaa at* not uaed to Inhibit tha laportatlon of tha 
cllant'a gooda. In addition, foreign port fadlltlaa, aapaelally tbooe In 
third world coontrlaa, be*e Halted capacity to unload and atora coiaodltlaa. 
Tha cooparatlao of local cuatoaa br^«TB, fral^t lonardara, and Harahouaa- 
■en la axtraaaly laportant In arranging aafe and rapid dtllvary et tha coa- 
■odlty Into tha handa tS the purchaaar. Thla cooperatlcn can ta aaaarad by 
local bualnaaaa organlaattona that aalnlaln good working ralatlooa with thoaa 
who rm tha port. 

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r of D.S. bMik haldlit coBpaolu. Bcttng Is eoacatt with thalt na- 
tenk and Bdga Act corpocatloo aubaldlarlas, ban acqutnd eustoa bouM 
■ to h*Ddla tb«*a Battan for dotMatle and o«al*«aa tradtiii 
actlvltlaa. In fonulatlnl Chia axiKirt propoaal. tba banka for coopantliMa 
hai« lookad to lAat tbaa* O.S. coaaarelal baoUni ioatttutlona ham dooa and 
■hat eoopatatlvaly oMiad agrlcultaral banka In Mhal cpancrlaa ara doing In 
tiM a^ott field, tiaatam Eoiopaan cooparatloa banka, vhlcfa plar an actlv* 
tola In financing agrlcnlcutal axporta, ba*a foraad a eooaottlna gvoup to 
coordlnata taclprocal axport/lBporl financial aarvlcaa tn Earopa and orar- 
aaaa. Tba Japanalo cooporatlva banka fatva fotnad a alngla, en— only amad 
bank to handla tha l^ort and aipoR of agrlculcural product! <ltoTloebukln) ■ 
Tlw U.S. banka for cooparatlvaa mold Ilka to baia tha option to Join In eo>- 
KB omarablp wlch othat banka. D.S. oi fotalgn. In thi onMnblp of ovataaaa 
trade cxpadltlng flraa and credit lapottlng MtTleai. IHtbaat thia tight, 
the U.S. banka for cooparatlvaa would ba at a |raat dleadvantaga tn thalr 

Fcrtiapi the beat way Co axplaln Miat the K* would ba authorised to do un- 
der thla proTtaloa of RX *78Z la to daacrlba tba trpoe of coata and prob- 
laM e co-op could now faca lacauia the BCa do not ban thla aoCborlty UHlar 
prceent law. Let ua aa; that a anall fnilt-proecaalng coopatatloe In Haah- 
Ington State dealtaa to expand Ita aarket for froeen cherrlea. Tba co-op 
know* that then ta kaan co^etltlon for tba lala of froten charrlaa In tha 
D.S. ^rket and that opportunltlae for doaeatle axpanalon ara very llalcad. 
BoweTer, tbere ara raporta that there la a atrong daaand for froaaa charrlaa 
In Indonaila. Tha co-op aanagar cootacte ea International BarketlBg 

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coonilttni fllB ■paeialtilni Id airteulcnnl producUi Tka eoBsultln( flla 
■irasa, for ■ aliabla faa, to avaluat* tha profit potantlal for tha dlraet 
aala of charilaa to tBdooaala. 

Aftar a dalay, nht^ could laat for aavaral aootba, tha eooaultaat pniduoal 
■ raport od tka prlea paid for froian diarrlaa la Indoaaata, with aatlaataa 
of tka potantlal daaaod and Idastlflcatloa of tha coaaarclal outlata for 
thooa cbarrlaa* Baaad oo thla loforaatlaa, tba co-op aanagaT datatalaaa 
that tha iBdoDaaiBo prlca oxcaada tha ooat of axportlng tha eo-op'a froaaa 
chanlaa \>f a lufflclant aaTglB. 

Tha fmlt iTowara oo tba eo-op'i board of dlractora authorica tha ^toaiar 
to aarkat throu^ axport ta ladonaala all froaan charrlaa In eicaaa at thoaa 
oeadid for tha D.8. aarkat. Tha co-op Banagar concacta aavaral co^Kidlt; 
brokan tbrou^ referaacaa provldad hf tha Saattla Port ADthDEltT< Hm 
brokar laapondi froa Loa Jngalaa Chat ha can, for a faa, provlda purchaaa 
coatracta for frotan cbarrlaa to tha fruit cooparatlTa. 

Tha prlcaa offaiad on tha coatracta ara attractlva, but tha co-op doaan't 
knoH vhathat (I) tba offera ara bona tlda, or (2) tba proapactlva liq>ortaTB 
hava tha financial capablltcr to pay for tha gDoda on dallvarT> 

Tb find anaaara to thaaa qoaatlooa, tha co-op contacta Ita baik for coopara- 
tlTea (BC) with tha Inforaation nquaat, irtileh la turn csntaeta ita corra- 
apoodant hank In San Planciaco. Tha corraapondant bank raaponda that Ita 
branch la Indonaala can't provlda any cradlt Intoraatloo at thla tiaa but 

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Kill pTBpar* ■ rapOTt, for • ipcctal fae, orer thi naze Kmth or to. Iha 
■C pwBM thla IntoTBitlon badt to Cb* co-op, aUd airaa* to pq> tba apa- 
cldl fa* and hu do diolca but to «alt for tba rapoct. 

WhlU iMltlnt, tha co-op aanagat obtain* coat flgaraa for ttaa othar aapacta 
of tha aala. Thnn^h ■ cuatoaa hrokarag* flTa (ownad by « San Franclaco 
bank boUtns eoapanj) In Saattla, ba detaialnaa aattaatad ahtpptng aspanaa, 
cuatoaa faaa, and Intaraadlarjr tarabouaa coata far tha apaclflc cootracta. 
It bacoBoa appaiant tbat aiir iblpplog dalajra of tba froaan ctaartlaa will ba 
coatly anoii|b to aarlonaly aroda tba profit Batiln. FurtbaiBora, tha fnlt- 
pTocaaalos cooparacti* haa to borrow tba funda to p^ for tha fraah charrtaa 
It iflU procaaa for a^art. Hlth cutrant blgh rataa, tba dwrrlaa naad to 
ba purcbaaad bj tba co-op, procaaaad, and paid for ty tba aollat within 60 
daja ar tha co-op'a profit ■at(lii on tha aala will ba futtbar radncad- 

ItafortDBataljF, tha report that ta avantnallT racalvad froa tha corraapoodoDt 
bank doaa not prorlda auftlctant datall to aaiura tba co-op Banagar that tha 
froaoi charrlaa will ba aafaty uoloadad and atorad until tba local foTat(n 
potchaaar can tranaport tbaa to distribution polnta. 

Aftat aavaral loag-dlatanea telapbone calla to the U.S. couaael la Jakarta, 
tha ca-op Banalar lata tba naBsa of aaveral cuatoaa houae brokara and wara- 
luuaa omen tharc. Bt dallvera thaaa oaaaa to tba bank for cooparatlvaa ' 
loan officer, iifao sandi tbaa to tba correspondent bank la Saa Praaclaco. 
Thn niana are aent on to tha Indoneilan brandi of tha San Praaclaco bank, 
with Inatructlou to obtain apaclflc lafolHtlon about tba airallabllltr 

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of port fscllltt*>> It tha co-op is laekr, this InfonactoD vlll ba latuiDod 
IB tlai foe tb« contracu to bs iMgotlatcd witb tha laioemaiMH bufan bafat* 
tha dtanr harraat la coaplatad- If tha buraca naad cradlt to coraT tha aala 
until Cba cbarrloa can ba raaold Id Indonaala, tha nbola procaaa of daallng 
witb diitant and dlalotaraatad financial paitlaa baglna again. If tha cea- 
traeti an algoad and tba ehatrlaa ihippad, aad a problaa davalopa with cba 
■hlpaaDti tha oo-op Biat again ttf to Eaeoaclla It thcoa^ tfaa Mbola ^aca« 
of Intanadlariaa* Tba aana la tnia if a problaa davalop* c«llactlnt fnm 
tha foralgQ buror fol tha aala* 

Altogathar, In thla maa^la tha aarvleaa of aix ot aora prlaatilr foralcn, 
dlaintaraatad partlaa «at« raqolrad to canau^nta tha export aalaa traoaae- 
tlon. It fa not anrprialni thao that ao-opa, and aapadallr aaall co-opa, 
daalring to axport muld Ilka tba banka for eooparatlTaa to pl)g> a aola 
actlTe rola la ezpadltlng traoaactloni af tbla aort. In ■any dreiBatascaa, 
the boat aarrlca and cradtt aacuritj can ba provldad lif tha hank for coopara- 
tlvaa if it otma. In vhola or In part, a foralgn financial aerrlea agancy. 

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Mr. Wilkinson, We will provide specifically for the record furtiier 
explanation of a financial trading facility. 

Mr. Harkin. Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. The Chair will recognize Mr. Marlenee. 

Mr. Marlenee. Thank you, Mr. Chairman. 

I welcome the Governor to the subcommitt«e. 

After listening to the discussion, I am moved to comment. Perhaps, 
with all the recent talk of regulating the FCA, we could make this a 
social program and finance anybody who demonstrated a need, even 
if they could not demonstrate repayment ability. Perhaps we could 
even tie food stamps to this program if we had a lot of people out there 
who wanted to farm and coidd not get a loan to do it. 

I think the Federal land bank system and the farm credit system 
have worked very well. I compliment you on the past service to agri- 
culture that you have given. 

Mr. Wilkinson. Thank you. 

Mr. Marlenee. What is the default rate? 

Mr. Wilkinson. It is a small fraction of 1 percent. If you put all of 
our loans together, whether it is a bank for cooperatives or land banks 
or the PCA^, it is a fraction of 1 percent. 

Mr. Marlenee. I am not amenable to a lot of changes in the system 
which is working very well. When I hear of talk of more guidelines and 
writing more regulations, I am moved to think about the costs created 
with Federal Government involvement, 

I am going to address some of those a little bit later when you Asfc 
for an exemption for truth in lending. 

Whb makes the decisions on these loans? We are talking about 
writing more guidelines and more regulations to deal with these people 
who got loans on 90 acres for a hobby farm, and so forth. Who mtide 
that decision? 

Mr. Wilkinson. We hope that loan decisions are made by a pro- 
fessionally trained agricultural loan officer of a Federal land bank 
association out in the service area. 

Mr. Marlenee. And approved by the Board? 

Mr. Wilkinson. Under guidelines as approved by the Board; yes. 
And as approved by the loan committee of the local association board, 
Mr. Marlenee. That is correct. 

Mr. Marlenee. People who knew the circumstances? 

Mr, Wilkinson. People who often know the individuals. 

Mr. Marlenee. They knew the individuals ; yes, and their ability. 
Thev had a broad range of discretion in issuing that loan. 

Mr. Wilkinson. Yes. 

Mr. Marlenee. That is as it should be. 

Mr. Wilkinson. At the grassroots level and not at the bank level, 
or not in Washington. 

Mr. Marlenee. Not in Washington nor at our committee level, 
but at the grassroots level. That is where the decisions on these loans 
should be made. 

Mr. Wilkinson. Hopefully, that is where they will all continue 
to be made. 

Mr. Marlenee. If you were to tighten the guidelines and issue a 
bunch of guidelines and new regulations, and pohced the whole qrstem, 
ii you will, how many added employees would it take? 

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Mr. Wilkinson. It would be my hope that there would not be one 
single individual added to the Farm Credit Administration in Wash- 

Mr. Mablbnbe. For policing purposes? 

Mr. Wilkinson. For policing purposes. 

It is our hope that it would be recognized as a responsibility of the 
district boards and their bank staffs to train, supervise, and work with 
those local associations so that those boards and those loan officers 
would not permit the type of loans which Mr. Harkin has been refer- 
rii^ to earlier. 

When you do decentralize that kind of authority, you may occasion- 
ally have such types of loans, but hopefully very few, 

Mr. Marlbnbb, It seems to me tnat they are in a very, very small 
percentage rate. The default rate has been very, very smail, and that 
you have done a very good job without writing further guidelines and 
further regulations. 

Would you agree with that? 

Mr. Wilkinson. It would be our hope that we will not have to 
impose more rigid regulatory control over the farm credit system. 

Mr. Marlenbe. Let's move on to participation with other institu- 
tions. I wish you would expand on that because in visitii^ with some 
of my PCA's out there this caught my attention and interest, 

Mr. Wilkinson. I would be happy to. I still believe this participa- 
tive program is one of the answers to the present credit crunch and 
mtn' De a continuing source of credit, especially for small, rural banks. 

Let's say a rural bank serving agricultural communities suddenly 
finds that it is loaned up. It is now possible for that bank to sell certain 
of its agricultural loans in a participative relationship to the produc- 
tion credit association. It may participate like 50-50, or 8tf-20, or 
whatever the percentEige may oe. It would still retain ownership of a 
portion of that loan. 

The funding of that, of course, would come from the production 
credit association back through the farm credit system, not through 
deposits of the commercial oank, not through the correspondent 
bcmks. It is a supplemental source of funding. 

The aspect of this legislative proposal, Mr. Marlenee, which we 
think is important is that it would establish a lender-to-lender relation- 
ship. For, as you so well know, to be a member of a PCA you have to 
purchase stock in it, and to date it is the borrower who is the owner 
of that stock. 

The legislative recommendation before the subcommittee is that 
the commercial banks should have the authority to secure PCA 
stock, without informing the borrower. In other words, the farmer 
would not have to be informed that the commercial banker is not 
the sole provider of that credit, even though the PCA had purchased 
part of the loan. 

Mr. Mablenbe. I understand that one of the problems in this 
participation is that nothing can be advanced to the bank for the 
handling of the loan. Is that true? A bank gains no percentage points. 
Say the PCA participates to the extent oi about 70 percent and the 
bank is involved for about 30 percent of a loan. But the bank is 
handling all of the paper and all of the front work, and it is in essence 
the bank's loan. 

Mr. Wilkinson. That is correct. 

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Mr. Marlbnee. It is my understanding that PCA's cannot allow 
the bank any margin for handling that paper. Is that true? 

Mr. Wilkinson. Well, the bank is securing the selling of that note 
at an interest rate that is frequently lower than its other source of 
funding. It is benefiting from a lower interest rate — the PCA's plus 
a margin of whatever the PCA and the btmk negotiate. 

Mr. Marlenee. Then the bank could write the whole loan at 14 
percent, and PCA's rate would maybe be 13 percent, so the bank 
would be making a 1-percent margin. 

Mr. Wilkinson. Yes; I understand that. 

Mr. Marlenee. It is possible; right? 

Mr. Wilkinson. Yes. 

Mr. Marlenee. I want to make that clear. 

Mr. Wilkinson. If I am wrong, I will correct the record, but this 
is rny understanding. 

Mr. Marlbnee. I wish you would look at that because I think it 
is a valuable tool that we could use in the small bank area, the small 
areas of financing out there, where the small banks are loaned up and 
the PCA's, the livestock PCA's or the farm PCA's, could participate 
in that manner. 

Mr, Wilkinson, We do, too. 

Mr. Marlbnee. If you allow the Federal land bank to exceed 85 
percent of the appraised value, who would make these decisions to 
participate in those types of loans? Would it be the local person? 

Mr. Wilkinson. Yes, between the local loan officer of the Federal 
land bank association and his counterpart in the Farmers Home 
Administration local office. 

Mr. Marlenee. Well, I am not sure that I understand that entirely. 
Would you explain that portion of it to me — how that is transacted? 

Mr, Wilkinson. Take a low-equity farmer who is almost on the 
veree of being judged credit worthy by a commerical bank or a Federal 
land bank association and yet it is felt that his repayment capacity 
may be jeopardized if interest rates continue upward. 

We would recommend that this farmer go to the local FmHA office 
to secure their interest in participating so that FmHA and the Federal 
land bank agents would get together with that borrower and negotiate 
the details of the loan. 

It is my understanding that traditionally the borrower would go to 
the Farmers Home and from there bring the other entities into it. 

Mr. Marlenee. I am a little bit concerned about making loans in 
excess of 85 percent of appraised value. I think this would probably 
create a conflict from one Federal land bank board to another and 
open that board to criticism — probably extreme criticism — and even 
criticism on us for writing such a program. 

I have already talked to several of flie land bank people out there — 
Federal land bank people — in my area, and they are not very warm 
about going this route. 

You have asked for an exemption from the truth in lendii^, and 
these would be State laws; right? 

Mr. Wilkinson. Yes. I think it is important that we again clarify 
that. We are not asking for an exemption for farm credit system 
institutions from any Federal law. We are asking that, if Congress 
exempts agricultural transactions at the Federal level, system 
institutions should not be then subject to State truth-in-lending laws. 

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Mr. Marlbnee. You must feel that some of these requiremente tae 

Mr. Wilkinson. In the truth-in-lendin^ area where you are dealing 
with a borrower whose t^cultural loan is really not a consumer loan; 
it is a business loan. They know exactly what the contract is callins 
for in their loan with their own cooperative. Moreover, and we feei 
that truth in lending was not intended specifically for a business 
borrower since it is a consumer protection law. 

Mr. Marlenee. It is an unnecessary cost? 

Mr. Wilkinson. Yes. It is unnecessary paperwork. 

Mr. Marlbnee. It adds to the inflationary spiral that we are under. 

Mr. Wilkinson. Yes. 

Mr. Marlenee. If this be the truth, then why does this Coi^;ress 
not address the problem in relationship to the rest of the lending 
institutions instead of just the Federal land bank? 

Mr. Wilkinson. It would be for all our cooperative credit institutions. 

Mr. Marlenee. I am talking about banks — not only the farm 
credit institutions, but I am talking about everybody. 

Mr. Wilkinson. Our authority is just the farm credit system. 

Mr. Marlenee. Yes, but rather than exempt you, I would rather 
see the whole thing examined, because that is a part of the inflationarv 
spiral we are under. There are the requirements, as you have said, 
that are inflationary and add costs. I hope that ^is committee does 
not add any more guidelines and regulations. 

I thank the gentleman for his answers. 

Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. Mr. Huckaby? 

Mr. HucKABT. Governor Wilkinson, I am sure you are aware of 
this. According to the U.S. Forest Service and National Forest Prod- 
ucts Association, most oiganizations involved with timber are sug- 
gesting that we are headed for disastrous shortages of timber in this 
Nation in the 21st century. 

We now have legislation that ia a part of the windfall profits tax 
bill which is in comerence to conduct a pilot program to offer loans 
on an annual cash-Sow basis to private individuals who own land 
over the entire life of a stand of timber, and it would be repaid with 
full interest at that time. 

I would ask you if you would go back, examine this legislation, and 
see if we might perhaps through this legislation change Federal land 
bank policies so you would be able to participate possibly in this 
program. I am referring to the areas of not having the ability to take 
second mortgages and things of this type. 

Mr. Wilkinson. Yes; I am famihar with that particular interest. I 
am pleased that Mr. Cardwell of our staff has been working with you 
on that legislation. I hear your question that we go back and look and 
see what would be necessary. I will accept that, and we will be in 

Mr. Jones of Tennessee. Without objection, the record will remain 
open at this point for ^e purpose of inserting the information re- 
quested of Mr. Wilkinson. 

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[The additional information supplied follows:] 


We have, as Repreeentative Huckabf suggested, reatudied H.R. 4718 to deter- 
mine if there is any way the Federal laud banks can participate in the impletnen* 
tation of the bill. Our restudy does cot provide reasons for optimism, largely 
because the success of the program is preoicated on contioued inflation — in cost 
of land and in tjte price of timber products. Thus, it woiUd be considered aa 
speculative lending, which is both out of character and beyond the loan purpose 
scope of these banks- 
Mr, HucKABT. Thank you, Mr. Wilkinson. 

Mr. Jones of Tennessee. I have a question or two. 

By the way, does any other member have questions? We have 
spent a lot of time with the Governor. 

If you do not want to ask them now, you can provide them for 
the record and that will be alt right. 

Mr. Wilkinson. That will be fine. 

Mr. Jones of Tennessee. Mr. Madigan talked about the farm credit 
system end the tax status. 

Would you provide for the record, or give us, if you can in a short 
period of time here because we are behind time now, an explanation 
of how the tax status differs from commercial banks today as related 
to the Farm Credit Board. Then, are there any provisions in H.R. 
4782 that would impact on that status as it is today? 

Mr. Wilkinson. We will provide for the record the differences. 
There would be nothing in this legislation which would change the 
present tax status of system institutions. 

Mr. Jones of Tennessee. We will appreciate that. 

Without objection, the record will remain open at this point for 
the purpose of inserting the additional information requested of 
Mr. Wilkinson. 

[The additional information supplied follows:] 

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1 f 




ecal 1 


en. IP 





loa 2 







B 1 

aak a 

Isnd banks and Fedi 

I by 

and Section 

■e exenpt par. 
2.8 of Che Fsrn Credit Aci 

Judament of Coi 

il land bank associations ere exeapC 
I of Section S01(c)(3} of the Internsl 
1.21 of the Fan Credit Act; Fedei 

tlon 301(c}(3} of the Code 

■he exeapclon of these Instl- 

tliat, In view of their unique 

anions upon their ability tO 

tlon o{ acceptance of deposits, 

that chey could perforn their aa- 

if providing dependable credit to agriculture at reasonabla 

part* of the country and under all types of economic con- 

• capital end the prohl 

Pioductlon credit associations, the ultimate lendei 
ate credit bank syataa, ace, foe the Boat part. But 
provisions that are applicable to corporations. Tti 

> Hjor dlCfer- 

Soae of the FCAs operate as cooperatives imder the proi 

Subchapter I of the Internal Tievenue Code. As would be 

with any other corporation uhlch elected to operate on 

tive basts these PCAs are entitled to deduct patronage 

that are payable to their borrower- patrons on the basis 

WM of business done. In the fola of cash, or partly cai 

20 percent} and partly In the forn of "qualified wrltti 

of allocation.' This peralts such FCAs to ello 

tlally reduce) incoaa tax at the corporate level. However the 

full amount deducted by the PCA muse be taken Into Income by thi 

borrover since such a refund repiesenta In essence a reductii 

Cha borrouer'a interest payaeat which he has previously deducted 

of the vol- 
t leaac 



1 2.14 of the Fsra Ci 

I year 


1/Z of 1 percent of loans 

3-1/2 percent of loans outi 

ressrvs ace permitted but not required. 

this provision, which was first enacted 

that the laandatary additions to bad debl 

be accepted Aa reasonable additions for 

poses. Thai 

of the Congi 

chat It was a desirable legislative goal 

With respect to tbe aaount that sight be 

to their bad debt reserves Referring ti 

volvlng the reaaanableneas of the reaervi 

the Senate Co^lctes on Agriculturr 

: a FCA Is required 
debts an aaount equal to 
Ltll such reserves exceed 
ther additions to bad debt 

The isglslatlvs history of 
in 1961, Bskes it clear 
. reserves by a FCA should 
Federal Incoae tax pur- 
9 s realisation on the part 
froa other taxpayers and 

to provide aoae certainty 
: raasonsbly added each year 
:o extenalve llCigaCloo In- 
'es for FCAa, the report of 
Forestry stated: 

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'laaanuch a 

■uch court declal 

low have dellaeaced what are 
deeaed reaaooHble bad debt reserves for i:he ProducI:loD Credit 
AasoclacLoQB, it la coaaldered chac Che AsaoclatlQus ahould 
not have to continue to resort: to court action to austatn de~ 
ductlona made for bad debt reserve. ... In. the opinion of 
the comaictee the aaouut of bad debt reserves for Production 
Credit AsBoclations ahould not be left en Irely for adiDioia- 
cratlve determination. ... It (this amendmenL| of course 
need not be viewed as a precedent for other InsCICutlona which 
are not coaparable either In their lending or their noatt ex- 
1 debt I 

The lateroal Revenue Code c 

*hlch apply 
Mpe rat Ives and 

y a cotpora- 
lal banks aod not 
pToviaiona of the 

■etclal banks- 

Subchapter b of Che Code, entitled 'Banking Inst 

coiBMtclal banks but not bsnka for cooperatives 

accept deposits and therefore are not considered 

la defined. Banks for cooperatives compute theii 

Subchapter T of Che Code, entitled ''cooperatives and their Fatrc 

Under thia aection, a BC le entitled to deduct, in deteminlng 1 

able Incoae, amounts paid out or allocated to its patrons uhlch 

the deflolclon of a patronage dividend set out in the Code. 

utlons,' applies to 

banks' aa that tera 
Cusble Incone under 

Other dlffei 

eea BCs and cooaercial banks are: 

Coaaercial bonks treat gstna or losses c 
ordinary Income and loaaes whereas the BCs are required to treat 
such galas and loaaes aa capital galoa and loaaes. This required 
creacnenc for BCa Is not advantageous since capital losses Bust be 
offaet against capital gains which hardly ever occur In the BC aya- 
tem whereas cooaeccial banks can offset these losses against op- 
erating Incoae for tax purposes. 

Section H provides special fonuls rules for deteratnlng reserves 
for losses on loans nade by conaerclal banks. These provisions ace 
generally oore favorable than Che actual experience provision of 
Section 166(c) for deductions for s reserve for bad debts. 

The due dace of the Incase tax return for a bank for cooperatives 
is the 15th day of the 9th nonth following the close of Che taxable 
y^ar. The due date for a coooerclal bank Is the 13th day of the 
3rd Bonth following the close of the taxable year. 

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Mr. JoifES of Tennessee. Mr. Hance mentioned the fact that the 
Fanu Credit Administration did make some loans to telephone cooper- 
atives. Is that right? 

Mr. WiLKiNBON. Yes. I think there are some. We are certainly 
authorized to make loans to telephone- cooperatives through our sys- 
tem, as we do to the rural electrics. 

Mr. Jones of Tennessee. Do you know whether you make any? I 
know that you are eligible, but do you make them? 

Mr. Wilkinson. I am informed that we do; yes. 

Mr. Jones of Tennessee. I was not sure. 

Mr. Wilkinson. I was not sure either. It is not very extensive. We 
would like to see it expanded if it serves the commumty. 

Mr. Jones of Tennessee. There is one other question. Of course, 
there are other sources also. 

Can the FLB's and the PCA'a or the banks for cooperatives under 
the present plan make loans forgasohol production? 

\lr. Wilkinson. Yes, Mr. Chairman. There are various ways in 
which the farm credit system could participate in an expanding gas- 
ohol program. These are legitimate Dorrowers who are farmers and 
ranchers who may develop their own process. They could secure fund- 
2 the PCA'a as long as it is repayable. 

What we are ui^ing also is that a ^up of farmers go together to 
establish a cooperative and therefore be eligible to borrow from the 
bank for cooperatives. 

Mr, Jones of Tennessee. That was my next question — if you can do 
that as a group of farmers through the bank for cooperatives. You 
say that is right? 

Mr. Wilkinson. Yes. There is nothing in the present proposal that 
would prevent that, and we deem there is nothing necessary. We 
believe there is adequate authority for gasohol financing under the 
present law. 

Mr. JoNEB of Tennessee. Very good. Thank you a lot. 

If there are no further questions, we appreciate very much your 
presence, and we thank Mr. Austin for his presence. 

[The prepared statements of Mr. Wilkinson and Mr. Austin appear 
on p. 124.] 

Mr. Jones of Tennessee. I will now yield to Mr. Huckaby for the 
purpose of introduction of a witness. 

Mr. HucKABT. Thank you, Mr. Chairman. 

Our next witness is my good friend and former neighbor, Mr. R. D. 
Hinton, from Minden, La. I grew up next door to his family's farming 

Mr. Hinton has certainly one of the finest Jersey daily farms and 
cattle herds in the Nation. For many, many years — I know for at 
least 30 and perhaps longer than thatr— Don has been very active in 
the State of Louisiana in farm credit progams. 

Don, we certainly want to welcome you to Washington, and we 
look forward to your testimony this morning before the subcommittee. 

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Mr. HiNTON. Thank you very much, Mr, Chairman and members 
of the subcommittee. 

I do not have a very long statement. I think it could mean somethit^ 
because I have had many long years of experience with the Farm 
Credit Administration. In fact, I do not think I could be in business 
today if it had not been for them. 

I am a loi^time dairy fanner in the Minden area, and have been 
associated with the farm credit system as a borrower and a director 
at the association and a director at the association and district levels 
for a number of years. I have been a member-borrower of both our 
local production credit association and Federal land bank association. 

I have served as a member of the board of directors of my production 
credit association and of my Federal land bank association, including 
a term as president of the Federal Land Bank Association of Shreve- 
port, La. I have also served as a stockholder representative on the 
Federal Land Bank of New Orleans district stockholders committee. 
This is an advisory committee to bank management and to the bank's 
board of directors. I have also served 6 years on the district board of 
directors in New Orleans, being appointed by the Governor of the 
Farm Credit Administration. 

In summary, I feel that I am well acquainted with the operation 
of the farm credit system from the borrower and the association 
levels, up to and including the bank and district leveb. 

As I am more familiar with the operations of the production credit 
associations and the Federal land bank associations, I will confine my 
remarks mostly to how the Farm Credit Act Amendments of 1979 
affect these two entities of the farm credit system. I feel reasonably 
sure that more experienced and knowledgeable individuals will testify 
before your subcommittee on the proposed legislation as it affects the 

I have had a keen interest in agriculture all of my life. As I stated 
earlier, I am in the dairy business in the Minden, La., area and have a 
herd of registered Jersey cattle. I have been a longtime supporter of 
soil and water conservation, having served as chairman of the water 
resources committee of the Louisiana Association of Soil and Water 
Conservation District Supervisors and the State soil conservation 
committee, as well as chairman of my local district board of 

As I purchased land and expanded my dairy operations, I made use 
of both the long-term credit avadable through the Federal land bank, 
and the short- and intermediate-term credit through the production 
credit associations. Over the years, I have seen the farm credit system 
develop as a major lending institution with its primary goal of service 
to its member-borrowers. This is as it should be. 

A great step forward wels token with the enactment of the Farm 
Credit Act of 1971. This legislation expanded loan authorities and 
gave the local associations more authority in the loan-making process. 

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We were all grateful to Congress for their wisdom and foresightedness 
for grantii^ this new and expanded authority to all entities of the 
farm credit system. 

Now we have come to a point where additional authorities are 
necessary, if we are to move into the 1980's with proCTessive financial 
institutions geared to meet the credit needs of modem-day agricul- 
ture. I would like to comment on just a few parts of the proposed 
legislation and give you my views on how they will aSect the user of 
the system — the farmer-borrower. It is from this vantage point that 
I offer these comments — a dairy farmer interested in his cooperative 
lending institutions. 

The first comment is on the amendment which would authorize the 
Federal land banks to lend more than 85 percent of the appraised value 
of real estate when loans are guaranteed oy a Federal or State agency. 
The purpose of this amendment is to assist young farmers getting 
started who need in excess of 85 percent financing on their primary 
real estate collateral. Many of these young farmers lack equity in the 
real estate they wish to purchase, but many have strong managerial 
abihty and a diesire to succeed. In my judgment, this program would 
benefit agriculture in the long run, as it would assist young people in 
getting started in farming. 

In mis connection I would like to say that one of the big problems 
in the Nation is the need to help young fanners in agriculture. I think 
it should be remembered by the committee, also, that this system 
belongs to the farmers. We, as directors on the loan committees, have 
got to operate this sytem in a way that will make it lasting. Otherwise, 
we cannot be effective. It is not a Government program, in any way 
althou^ we are regulated by you, but we do pay for our own regula- 
tions. We do need a way to help these younger farmers and this is one 
way it could be done, provided you had some group from other groups. 

Another amendment would permit the production credit associations 
and the Federal land bank associations to finance the processii^ and 
marketing facilities of bona fide farmers. The purpose of this amend- 
ment is to extend the scope of financing by the land bank and the 
firoduction credit associations to include processing and marketing 
acilities directly related to an applicant's farm, ranch, or aquatic 
operation. We are not seeking any new authority, but we are seeking 
authority to broaden our current loan authorities to finance a process- 
ing and marketing facility that is owned and operated by farmers to 
process their own production and some of their neighbors production. 

As an example, three cotton farmers wish to go together to build a 
cotton gin to gm their own cotton plus some of their neighbors' cotton. 
The gin is located on a small tract off their farms. 

Currently, Farm Credit cannot handle this type of facility, but we 
feel Farm Credit should have this authority. We wont to help farmers 
get more income from the products they produce by being able to 
participate in the marketing and processing of their own production. 

We are also interested in amending the existing law to authorize 
the land banks to participate with other lenders in the system, or 
outside the system on real estate loons. This program would provide 
us with the authority to make more effective use of capital and to 
more fully meet the credit needs of those creditworthy borrowers who 
need this type of financing. We feel that there is justification in par- 
ticipation with commercial bankers, production credit associations, 

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and others in making real estate loans. Production credit associations 
currently have the authority to participate with other lenders, such 
as conunercial bankers. The land bank should be afforded the same 

Another amendment beingproposed would authorize the payment 
of patronage refunds b^ the Federal land banks and the Federal land 
bank associations. This proposal would be similar to the authority 
now being held fay the production credit associations and the bfmks 
for cooperatives. We feel that this authority would enable the land 
banks to operate on a purely cooperative basis, that is, to return earn- 
ing to borrowers on the basis of their contributions. 

Certainly, the existing authority which Farm Credit has to offer 
insurance to its members should not be restricted. The farmer benefits 
when he has the ojition to purchase insurance through his Farm Credit 
association. This is true whether he decides to purchase credit life 
insurance, or property insurance. Farmers need help. Retaining this 
authority for Form Credit to offer insurance will help the farmer — 
without costing the American taxpayers one cent. 

In view of tmie restrictions, I will not comment on other amend- 
ments submitted in the Farm Credit Act Amendments of 1979. They 
are all important and worthwhile. The New Orleans District Board of 
Directors supports the 28 amendments to the Fann Credit Act as 
submitted to Congress. We would urge pass^e of this very important 
piece of legislation as submitted because it reflects the very best tfaink- 
mg of the Farm Credit System at this time. 

Initially, there were many, many suggestions made concerning 
potential amendments, but, after much deliberation, these 28 items 
finally evolved as being the consensus position of the entire farm 
credit system. For this reason, we urge passage aa submitted. 

It is my personal feeling that the enactment of this legislation would 
give the American farmer a chance to do an even better job of pro- 
viding food and fiber to the consuming public. It will add to the in- 
creasing high standards of living of the American people. In my home 
area, ^e only opposition I have heard concerning this l^:islation is 
from people who do not want us — the farmers — to compete with them 
through our credit institutions or from those who want to restrict 
competition in general. 

It should be remembered that this great credit system operates 
without any cost to the taxpayer. This is a farmer-owned and operated 
system. As I said before, it even pays the cost of supervision. This 
entire system does not cost the taxpayers one red cent. 

Mr. Chairman, I am grateful for this opportunity to appear before 
your subcommittee and to visit with you concerning a subject which 
has been close to me all of my adult life. I have used the farm credit 
system for a number of years and, had it not been for this progressive 
credit system, I would not have been able to conduct my farming 
operation in the manner I am doing today. 

The farm credit system is part of the reason for the success I have 
achieved to date. The American farmer and the American public need 
the farm credit system. With the passage of this legislation, we would 
be able to achieve even more for the farmers and the consuming public. 

I would be pleased to respond to any questions you might have, 
Mr. Chairman. Thank you. 

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Mr, Jones of Tennessee. Thank you for a logical and constructive 

I will have to change the format a little bit. You are not on a 
panel. We have panels coming up next. I wonder if any member of 
the subcommittee has questions? Mr. Huckaby? 

Mr, HocKABT. Thank you, Mr. Chairman. 

Mr, Hinton, would you concur with the Governor's statement that 
possibly, in addition to the so-called agreement that has been worked 
out which is not in the existing l^islation extending the loan period 
for PCA loans from 7 years to 10 years, that that would be the 
way to go? 

Mr. Hinton. I would agree with that. There are circumstances 
where people need more time. Of course, what I have used in the 
past is to go to the Federal land hank Eind get a long-term loan to 
nelp handle that type of situation. But there are some times that 
prooably it would be worth quite a bit to the farmer. 

Mr. RncKABT. Also, in mentioning the Federal land bank, as I 
understand it, Farmers Home Administration today guarantees up to 
90 percent of a farm loan, and the Federal land bank is asking authority 
to Dasically ^o from 86 to 90 percent where they have a Farmers 
Home Administration guarantee. 

Don't you feel probably that our Federal land banking system, our 
entire farmer-owned credit system, is solvent enough where we don't 
have to have the Government guarantee behind this in order to go 
from 85 to 90 percent? 

Mr. Hinton, Except for young fanners. As you knowj about the 
only way for a young man to get into the farmii^ business is to inherit 
it or marry it. I do know of some young farmers who have started 
and made it without that. But, I think that we are goit^ to run out 
of food, I feel that food might be in the same position that energy is, 
let's say, 16 years from now. I think it is up to us to keep young 
farmers coming, and I don't think it would hurt. Besides tnat, the 
faim credit system has operated in a way that that man is going to 
show his abihty. There will not be a whole lot of chance of losing on 
him because he has ability. There are trained credit people down at 
the local level with fanners who know these people on the loan 

I served on one of these production credit loan committees for 17 
years. We took up every man, and we knew everybody. There are 
people who are exceptions. You might need to go above the 85-percent 
for them. 

Mr. Hdckabt. Thank you. I have no further questions, Mr. 

Mr. Jokes of Tennessee. Thank you. Mr. Madigan? 

Mr. Madioan. Mr. Hinton, Mr. Huckaby was your neighbor when 
he was a young fellow? 

Mr. Hinton. Yea, sir. That is one of the reasom he is as good « 
man as he is today. [Laughter and applause.] 

Mr, Madioan. Did he get into any trouble when the was young? 

Mr. Hinton. When he was young ne was a good student. He was 
one of the best basketball players we had in Minden. They had 8 
State championship team. All of them were good students. They were 
not good enough where any one of them could make a college team 
when they left, but they had such good teamwork that they won the 

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State championship. I really do not have anything against his rectffd. 

Mr. Madiqan. I assume you voted for him? 

Mr, HiNTON. He is not in my district. [Laughter.] 

Mr. Maoioan. That is a shame, because we could all use somebody 
like you. [Laughter.] 

Mr. HiNTON. A lot of my people do Uve in his district. They voted 
for him. 

Mr. Maklbnbb. If the gentleman will yield, let me say this. I am 
happy to report to you, Mr. Hinton, that Jerry still displays good 

Mr. HiNTON. He was a good team man on that basketball team. 

Mr. Jones of Tennessee. I have a comment. I want to make on 
observation. Mr. Hinton, I think it is a great credit to your account 
that you are able to get along with Jerry Huckaby as well as you are 
inasmuch as you are a Jersey breeder and he is a Holstein breeder. 

Mr. HiNTON. I understood that. He just bought a herd that had 
Holsteins in it. 

Mr. JoNEB of Tennessee. Yes; I understand how he got in trouble. 
I was a Jersey breeder for 30 years myself, before I came to Washington. 

Mr. HiNTON. That is what ex-Congressman Joe Waggonner told me. 

Mr. Jones of Tennessee. I found I had two full-time jobs. I had to 
get rid of one of them. 

Mr. HiNTON, It is hard to run a dairy now full time. 

Mr. JoNKs of Tennessee. Let me say to you that we are very proud 
of Jerry Huckaby. He does a fine job on the committee. We are proud 
he is on our subcommittee also, 

Mr. HiNTDN. We are proud of our ex-Congressman. I had a visit 
with ^im last week. He was very complimentary of you, Mr. Jones. 

Mr. JoNGB of Tennessee. He comes to see us occasionally. 

Mr. Hinton. He said that vou are one of the finest men in Congress. 

Mr. J0NB8 of Tennessee. I appreciate that. He is a fine gentleman 
also. We appreciate the time tnat you have given us here. It is good 
that you would come and give us testimony. 

Mr. HiNTON. Thank you. The farm credit system has been very 
important to me. The system is such that a man can go into business 
ana operate. They don t demand the payment every year. All they 
want to do is keep your business in good shape. 

Mr, Jones of Tennessee. Thank you very much. If we can be of any 
benefit to you, just let us know, 

Mr. Hinton. Thank you. 

Mr. Jones of Tennessee. I understand we now have a panel. Mr. 
Galen Brubaker has asked to be moved up because of a conflict with 
travel. Mr. Brubaker is a member of the Federal Farm Credit Board 
from Rocky Mount, Va. He is accompanied by Mr. Melvin Sims, 
president. Farm Services, Inc. of Bloommgton, Dl. 

Mr. Brubaker, we are delighted you are here. We are going to keep 
nn going. We will not adjourn until we are finished with you two 

Let me announce to the subcommittee that we will go back to the 
5-mnute rule for q uestioning the rest of the witnesses today. 

Mr. Brubaker, please proceed. 

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Mr. Brubaker. Thank you, Mr. Chairman. 

I am Galen B. Brubaker from Rocky Mount, Va. I am a dairy 
farmer and have served the farm credit institutions in some position of 
the policymaking bodies for the last 30 years. I bought a farm in 1950 
and borrowed all the money I could from PCA and the Federal land 
bank. My daddy took a second mortgage for the rest of it and was 
elected shortly tnereafter to a PCA boara. I have served at the district 
board level and am currently in my last year on the Federal Farm 
Credit Board. It was a pleasure to serve as the chairman in 1978 and 

I would like to summarize my statement which was submitted to 
the staff, Mr. Chairman. I would like to cover the parts that we refer 
to as the internal operations concemii^ the requests, that is, the 
Federal Board requests for FCA, 

Mr. JoNBS of Tennessee. Without objection, your entire statement 
will be made a part of the record. 

Mr. Brdbakeb. There are six of these items. The first one is to 
authorize the Federal Farm Credit Board to set the salaries of the 
Governor and Deputy Governors of the Farm Credit Administration 
within the maximum limits of tiie executive pay schedule which is 
currently $69,630 per annum. 

Second, it would be to authorize the Federal Farm Credit Ad- 
ministration to establish its own salary and classification system for 
employees below Deputy Governor level, subject to the ceilmg of the 
general schedule. 

Third, it would be to authorize the Farm Credit Administration to 
establish qualification requirements for positions in the agency. 

Four would be to provide exemptions to the Farm Credit Adminis- 
tration from Federal regulations concerning travel, procurement, and 

Five would be to provide for portability of retirement benefits 
between farm credit district plans and the Farm Credit Administration. 

Six would be to increase the Federal Farm Credit Board per diem 
to the daily equivalent of the rate prescribed for GS-18, 

The Federal Board and the farm credit system feel that these 
requests are very important inasmuch as we have at the Federal level 
a very small staff — about 250 — which is less than it was when you 
were considering the 1971 bill and at the same time the volume of 
the farm credit system has increased tremendously. 

With this small staff it is imperative that we have our secured 
trained personnel as vacancies come within our system. 

In the 6 years that I have been on the Federal Farm Credit Board 
we have lost two Governors, eight Deputy Governors and currently 
we have two vacant Deputy Governor positions. Our General Counsel 
and the Deputy General Counsel positions are also vacant. 

The system is willing to pay for the extra increase. You have heard 
today that there are no tax dollars that go into supporting the Farm 
Credit Administration. 

We do not have and do not feel that we should have to bring these 
people on and do all their training because this would increase the size 
of the staff. Many times we can get these individuals from the system. 

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The distnct banks and the district boards do have the authority to 
set their own salary programs which are competitive within the 

Because of this, the average is well above what we are requesting 
here in these provisions. 

It is my understanding that some Qovemment agency already has 
one or more of these requests that we are addressii^ here. Again, ^1 
of the districts in the farm credit system, even to the association level, 
are supportii^ these requests. They are very interested in this. 

We want to continue to have highly competent, well-trained and 
and experienced personnel. We feel this is very important. 

Thank you, Mr. Chairman. That is all I have. I appreciate this 

Mr. Jones of Tennessee. Thank you very much, Mr. Brubaker. 
Now we will place your prepared statement m the record. 

(The prepared statement of Mr. Brubaker appears on p. 141.] 


Mr. Sims. Thank you, Mr. Chairman. 

My name is Melvin E. Sims. I am a farmer from Quincy, 111. With 
my son and a brother, I am part of a family farming operation which 
has used both the Federal land bank and the production credit asso- 
ciations as sources of financing. We have also been involved in agri- 
cultural cooperatives most of our lives. I currently serve as president 
and chairman of the board of Growmark, Inc., a new regional coop- 
erative involved in farm supplies and grain marketing in Illinoifl, 
Iowa, and Wisconsin. This organization was formed through the 
combination of two rather well-known cooperatives; namely, FS 
Services, Inc., and Illinois Grain Corp., in which I also was very 

In addition, I serve on the board of directors of Farmers Export 
Co., an interregional grain marketing cooperative and am a share- 
holder representative of OF Industries, Inc., an interr^onal fertilizer 
manufacturing cooperative. 

All of these cooperatives use the bank of cooperatives as their pri- 
mary source of borrowed capital. 

I was also on the board of directors of the sixth farm credit district 
from 1958 to 1965, and a member of the Federal Farm Credit Board 
for a 6-year term which ended early in 1978. 

I do not believe we would have the vibrant and strong agricultural 
economy that exists in Illinois today were it not for the growth and 
strei^tb of the Farm Credit System. In my judgment, the system is 
one of the most notable success stories of cooperatives in action. Con- 
gress provided for an organization with farmers in control and ad- 
vanced seed money to get started. Farmers took advantage of that 
opportunity, made sound decisions, and implemented strong lendiag 
policies and practices, all of which enable farmers and their co- 
operatives to have access to the money markets of this Nation in a most 
efficient manner. 

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As a producer-owner and user of the Farm Credit System, I am 

Eroud that all of the Qovemment funds loaned to our system have 
een repaid and that there are no tax dollars involved in our system's 

My purpose is to voice support for the proposed Farm Credit Act 
Amendments of 1979 generally, and to commsnt specifically on two 

f)oints that are of particular interest to me. Mr. Brubaker has already 
isted the six which involve the internal operations of the Farm Credit 
Administration, so I add my comments to those. 

The first area pertains to various internal operations of the Farm 
Credit Administration, the Government agency which supervises 
the banks and associations. More specifically, the proposed amend- 
ments to which I refer are those that would : 

One; Authorize the Federal Farm Credit Board to set salaries of 
the Farm Credit Administration's Governor and Deputy Governors 
within the limits of the executive schedule. 

Two: Authorize FCA to set up its own salary and classification 
system for employees below the Deputy Governor level, subject to 
the ceiling in the general schedule. 

Three: Authorize FCA to establish its own qualification require- 
ments for positions in the agency. 

Four: Exempt FCA from Federal travel, procurement and property 

Five: Provide for improved portabihty of employee benefits be- 
tween the system and FCA. 

Six: Increase the per diem paid to Federal Board members to the 
daily equivalent of tne GS-18 rate. 

"Die net effect of these proposals is to give FCA more flexibility in 
personnel matters — in calnng its own shots, so to speak. 

As a former member of the Federal Board and as a current system 
user, I believe the proposals are justifiable, reasonable and necessary. 

During the past 33 years I have served as a. director of at least one 
and sometimes many farmer cooperatives. I cannot em^asize too 
much the importance of having excellence in management. This added 
flexibility that we need which is not a new precedent but is given in 
other agencies would be extremely helpful in recruiting and maintain- 
ing exculence in management that is so badly needed. 

The fanners who own and use the system have expressed a willing- 
ness and they strondy support this particular aspect of the bill. 
Through increased emcienc^ and by having excellent management 
tbrougnout the years it would payoff any costs. Our attrition rate 
has been about 18 percent a year in the high executive level. That 
means every S years you have a whole new crowd. It Ls costly to have 
this rate of turnover to the system and to the people that use it. 

These proposals might be more difficult to justify if those who use 
the system did not also own and control it. But, as this committee 
knows well, they do. 

These proposals might be less persuasive if public funds were used 
in any way m the system's operation and supervision. Of comse, the 
fact is that none are. 

For a number of reasons, these amendments are necessary. 

The Farm Credit System has changed considerably in recent years. 
Not only has it experienced substantial increases in loon volume, but 
its operations involve more complex decisionmaking. Both changes 

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are but a reflection of what also has occurred in the aeiriculture indus- 
try that the system serves. And there can be little doubt that these 
chfmges will continue in the years ahead. 

In short, the system is going to have a bigger job to do. Doing that 
job is going to require the most competent sts^ available if the system 
IS going to meet its responsibilities, as set forth by Congress, to serve 
^;riculture eflfectively. 

FCA must be in a position to compete with other parts of the f^ri- 
banking industry in attracting, developing and retaining employees 
with the knowledge and talents needed for dealing with the challenges 
that we will be facing in coming years. Banks and associations of the 
Eastern have had the flexibility tnat FCA does not have in tailoring 
tjfieir overall personnel procedures, including salary and benefits, pro- 
grams, to be competitive in the areas in which they operate. 

These limitations on FCA's personnel policies and procedures have 
had a number of unfortunate resiUts. 

The fact that FCA must go through the administrative require- 
ments of the Office of Personnel Management in its hiring of personnel 
has meant delays in mabdng firm job offers, with the result that quali- 
fied and desirable candidates often accept other employment 

FCA also finds itself hamstrung in fitting credit and operations 
professionals into inflexible Federalsalary and classification schedules 
and in gearing starting salary levels to compete effectively for highly 
qualified personnel. 

I firmly beheve that FCA can benefit from the practical experience 
and knowledge of employees within the system. But, even if sautry and 
classification obstacles are overcome, FCA has difficulty attracting 
experienced professional personnel from within the system because 
those employees face the loss of retirement and leave benefits in trans- 
ferring to FCA and possible financial hardships imposed by travel and 
per diem regulations, 

The per diem rate for members of the Federal Farm Credit Board 
was based on the GS-18 daily equivalent when it was established some 
14 years ago. The per diem rate, however, has not changed since that 
time. Fairness and equity call for such an adjustment. Linking the rate 
to the GS-18 level would eliminate the need to come to Congress for 
periodic updatings. 

It is my understanding that certain other Federal and quasi- 
governmental agencies such as the Postal Service, Tennessee Valley 
Authority, the Federal Deposit Insurance Corporation and others have 
authorities similar to those proposed for FCA. Therefore, this Congress 
would not be setting any precedents in taking the action that is 
requested. The fact that FCA'a operations do not involve public funds 
is an appropriate rationale in and of itself. I am confident the user- 
owner control mechanisms in the system will result in proper admin- 
istration of these personnel policies and procedures. 

Another part of the legislation which I would like to comment on 
pertains to the banks for cooperatives providing various services 
needed by cooperatives involved in export sales. My interest in this 
area stems primarily from my previously mentioned involvement in 
the grain-related activities of Growmark and in Farmers Export. 

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Exporting grain raised on Illinois farmland is a major responsibility 
of these cooperative businesses. During the fiscal vear which immed- 
iately preceded its consolidation into Growmark, Illinois Grain Corp., 
had a volume of about 300 million bushels as it served 187 local 
cooperatives throughout the State. This volume ranked Illinois 
Grain as one of the largest such operations in the Nation and the 
lai^est serving a single State. 

1 would say that in my involvement in grain marketing through 
Farmers Export Co., and the grain division of Growmark, I am 
interested that additional authority be given so that the banks for 
cooperatives would be permitted to extend their areas of activity 
into the services that are needed for the export business. 

About two-thirds of this volume moves to export positions by rail 
and barge. Growmark has a major ownership position formerly held 
by Illinois Grain in Farmers Export, which has facilities on the east, 
gulf, and west coasts, as well as in St, Louis Grain Corp., an interre- 
gional grain marketing cooperative operating in the St. Louis market 

It is my opinion that during the ISSO's the cooperative dream of 
matching the market power of today's international trading companies 
can become reality. It will have to become reality if farmers are to 
have the opportunity to gain the kind of marketing efficiencies they 
will need to remain viable business entities. In my judgment, farmers 
are going to find it more and more difficult to gain further significant 
efficiencies in production. The key to farmers' success in the future is 
going to be linked increasingly to their marketing activities and the 
export market offers the greatest potential for farmers and their 
cooperative organizations. 

However, if that dream of equal market power is to become reality, 
farmers and their cooperatives will have to work tt^ether and utilize 
the best expertise available to them — expertise that is combined with 
an understanding of their business and objectives. That is where the 
banks for cooperatives enter the picture. 

As I stated before, the banks for cooperatives are the primary lenders 
to the dynamic and growing cooperative structure we have today. 
While they have done a fine job of^ providing necessary capital for our 
growth and development, they are unable to provide exporting coopera- 
tives with the additional services necessary m the area of ioreUgn sales. 
It is true, of course, that commercial banks do have these services 
available. But I believe, for a number of reasons, that cooperatives 
and their farmer members would benefit from having these services 
available from their primary lender. 

First, since it is their only area of operations, banks for cooperatives 
know and understand their borrowers' business and the agriculture 
industry. In addition, there appears to me to be obvious efficiencies 
involved in having that primary lender provide all the services needed 
by a business organization — efficiencies that could translate into 
greater returns to farmers and a more competitive position in the 
mtemational marketplace. 

With the growing emphasis farmers are placing on the export market, 
the banks for cooperatives need these proposed new authorities if they 
are to be responsive to the needs of their borrower-owners and if, in 
turn, the individual farmer is to be served adequately by his 

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Admittedly, the banks for cooperatives would be entering into a new 
and complex area of activity. But I firmly believe that it is in the best 
interests of farmers and their cooperatives that the banks gain these 
authorities so that they will be in a position to meet the needs that are 
going to have to be met. 

The banks for cooperatives have posted a sound record in their 
financing of farmer-owned businesses in the past. This record shows 
that the l3anks do have the ability to administer services on a successful 
and self-sustaining basis to the benefit of farmers individually and to 
our entire economy. 

In closing, I would like to restate my support for H.R. 4782 as a 
whole. I appreciate this opportunity to address what I view as some of 
the key issues in this legislation. 

I will be pleased to respond to any questions you may have. 

Thank you. 

Mr. Jones of Tennessee. Thank you very much. Mr. Hucfcaby? 

Mr. HucKABT. I have one brief question. 

Mr Sims, down the line in the 1980's as the farmers cooperatives 
become more and more involved in the export business, which I 
basically support as a concept, do you foresee needs for massive 
amounts of credit in this area? 

Mr. Sims. Laige amounts of credit are needed to engage in grain 
marketii^. Of course that extends on into the exporting of that grain. 

I have the view that this is something that both the private com- 
mercial banks and also the cooperative farm credit system needs to 
share inprovidii^ large amounts of credit. 

Mr, HucKABY. Do you feel we should put some type of limit, 
possibly, on the amount, either for an individual loan or for the total 
system or a percentage of what it could devote to these purposes so 
that we are sure that we are able to still have funds availoole for that 
individual family farmer? 

Mr, Sims. We are now approachii^ the time that credit rationing 
is a current subject, except in those periods — I think if the loans are 
sound and there is repayment capacity that there will be adequate 
credit for all aspects of this. I do not see that limits need to be placed. 

We do have professional managers there, and we have directors who 
represent the ou'nership, and the ownership has tremendous amounts 
of money invested in the farm credit system, as you well know. They 
are interested in preservii^ that equity. 

Mr. HucKABY. Thank you. Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. Thank you, Mr. Huckaby. Mr, Madigan? 

Mr. Madiqan. Mr. Sims, with regard to changii^ the salaries of 
employees of the farm credit system so as to make the jobs more 
attractive to people who hold them — and presumably more attractive 
to people who might seek them — as we consider this suggestion of 
actually making the salaries higher in order to accomplish that, and 
also recognizing that people who are employed by the system are, as 
was indicated earlier, also participants in the civil service retirement 

program, then it becomes necessary to recognize that the civil service 
retirement system has, as one of the factors in computing the reture- 
ment benefit, the salary that you have received. 

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ThBrefore, if we allow people, having comparable jobs in the farm 
credit system in the Federal Government, to both be in the civil 
service retirement system, and if we allow that person in the farm 
credit system with the comparable job to make a higher salary, 
then we also will ultimately allow that person to receive a greater 
pension inasmuch as it is based in part on the salary that he or she 

It seems impossible to me, if we start creating circumstances like 
that, to do anything other than increase the salary of the Federal 
employee. Absent doing that, I think all the Federal employees would 
want to go to work with the farm credit system or at least to argue 
that the job they are doing is comparable to the job being done over 
here. The argument is no longer valid that their salaries should be 
lower because the retirement benefits are good, because, in fact, the 
retirement benefits over there are going to oe as good. 

So, when we reach that point, I wonder how you would counsel us 
as to how to treat the Federal employees. Should we raise their 
salaries also? 

Mr. SiMB. When I look at compensation, I generally include both 
salary, retirement program, and the fringe benefits in total. I think 
that is what a person looks at when he decides on his career and the 
opportunities. I recognize that this does bring some problems to other 
Uovemment employees, but there are some important differences. 

One is that the taxpayers' dollars do not pay the salaries of those in 
the Farm Credit Administration or anywhere else in the farm credit 

The retirement programs, I am told, in the System are fairly 
comparable now to civu service. There are some differences. 

In the Farm Credit Administration, we have to recruit specialists 
primarily. Those almost must come from financial institutions and 
primarily from the farm credit system. There is a great disparity 
at the present time between the salary levels at the executive level 
certainly in the Farm Credit Administration and in the district 

Mr. Madiqan. Excuse me. Would you think that that problem is 
any different for the Federal Reserve System, or the Treasury De- 
partment, or the Department of Commerce? 

Mr. Sims. It is my understanding that there are some other agencies 
that do have the flexibility that we are asking for. Therefore, this is 
not a precedent. 

Mr. Madioan. We have heard several people say that there is no 
tax money involved in the operation of this system. Of course, there 
are two ways that things can be supported by the Government. One 
is by the appropriation of money. The other is by the granting of some 
tax advantage. £)ither impacts upon the Treasury in the some manner. 

If we are going to cut the Farm Credit System loose from the Govern- 
ment — and m effect this bill does that — then should not we do that in 
total and eliminate whatever tax advantages that exist as well? 

Mr. Sims. I guess if you asked me a direct question I would say, yes; 
I would go for cutting it loose. It is a fanner owned and contr<nled 

I think the regulatory and examination functions should be a govern- 
mental agency. It is a large financial institution. Farmers are best 
served by having a governmental agency regulate this because the 

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investors then have more confidence in the systfim because of this 
regulatory and examination function by Government agencies. So, I 
am not saying we should divest ourselves completely from 

Actually, they; are only part of the system which has a tax advantage 
at the present time. Banks for cooperatives, for instance, pay all the 
taxes that others do. 

Mr. Madioan. Thank you. Also, Mr. Bnibaker, we thank you. We 
appreciate your joining us this morning. 

Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. Thank you, gentlemen. We want to thank 
you for being here with your testimony. In view of the shortness of 
time, we will forgo any more questions at this time. 

We are del^hted you could come. 

Our next witnesses are Mr. William Gaston, president of Gold Kist, 
Inc. of Atlanta, Ga. He is accompanied by Mr. Bumee Amdahl, 

K resident of the St. Paul Bank for Cooperatives, St. Paul, Minn.; 
Ir. Wayne Anderson, vice president, export services. Central Bank 
for Cooperatives in Denver, Colo.; and Mr. Stewart FfafT, Garfield, 

I also see that Mr. Joe Carter is here. He is the president of the 
Spokane Bank for Cooperatives. He was with us when we were out 
there. Joe, since you are a constituent of Congressman Foley's who is 
the chairman of our committee, I would like for you to join this group 
too, if you don't mind. I hope the other gentlemen don't object. 
Mr, Gaston, please proceed as you wish. 


Mr. Gaston. Thank you, Mr. Chairman. We are glad to have Mr. 
Carter with us. 

I know the hour is late. We will try to he as brief as we can. I will 
not repeat the introductions of the panel but let me say that I am 
pleased to have them join me at this table to present our views on this 
important legislation. 

Mr. Jones of Tennessee. I presume they may have statements for 
the record also. 

Mr. Gabton. Yes; they have submitted statements, Mr. Chairman, 
for the record. They will be available to answer questions, if there are 

Mr. Jones of Tennessee. Without objection, all of your statements 
will be made a part of the record after you summarize. 

Mr. Gaston. As the chairman indicated, I am Bill Gaston, president 
of Gold Kist, Inc., in Atlanta, Ga. I serve as chief executive officer of 
this major farm supply and marketing cooperative, and I represent one 
of the users of the cooperative Farm Credit System. I also serve on the 
board of directors of the Central Bank for Cooperatives in Denver, 
Colo, and a number of related agribusiness organizations. 

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We have submitted copies of our $tat«metits for the record, and I 
would like to say that all of us on this panel consider this legislation 
very important to the continued well-bemg of agriculture. 

We come before you today in strong support of all of the Farm 
Credit Act amendments and particularly those that would enable the 
banks for cooperatives to more adequately serve the needs of farmer 
cooperatives and export financing and the related activities of export- 
ing farmers' products, 

I am sure you are all aware of the tremendous importance that our 
exports play in the Nation's balance of payments, as well as farm 
income and the ability of our country to pay for our oil imports. Gold 
Kist, the cooperative that I represent, has been an exporter of agri- 
culture products almost from the beginning of our cooperative life in 

Last year we exported over $200 million of agricultural products to 
a number of foreign countries. This amounted to approximately 13 
percent of our business volume. This volume has doubled in the export 
market over the past 4 years. 

Margins from selling these products abroad, such as soybeans, 
soybean products, peanuts, peanut products, poultry and poultry 
products are distributed back to our commodity operating divisions 
which then flows back to the farmers who marketed their products 
through our cooperative. The same applies to the profit stream in the 
other cooperatives that are engaged in the exporting business. 

During the past 3 years I have been actively involved in bringing 
together a new worldwide trading organization that is owned by six 
U.S. cooperatives, one Canadian cooperative, and four European 
cooperatives. This venture, or this firm has acquired a major share in 
one of the world's largest commodity trading companies which is 
headquartered in Hamburg, Germany. 

Our goal in this joint venture of cooperatives is to continue expand- 
ing our exports of agricultural commodities throughout the world in 
order to capture profits for the cooperatives that then can be returned 
to our farmer-owners. 

For us to continue to expand our farm exports, we need the bank 
tor cooperatives to advise and to assist with our financing transactions 
in the international trade. To provide such service effectively, the 
bank for cooperatives needs the authority proposed in H.R, 4782. 
That will pennit them to provide their cooperative owners mth the 
financing and the funds-handling capability that is essential to effec- 
tive exporting. 

The bill also would realistically bring up to date the eligibility 
requirements that a cooperative must meet to borrow from a bank for 
cooperatives. The proposed legislation would require all cooperatives 
to have at least 60 percent of their voting stock held by farmers and 
ranchers. Presently, as you know, the minimum eligibility is 70 percent 
for utility cooperatives and 80 percent for all other cooperatives. This 
reduction would benefit not only the Nation's farmers and ranchers, 
but also the consuming public. It would enable more cooperatives to 
have access to competitively priced funds and services available from 
the bank for cooperatives. 

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Coopertitives are striving diligently to move into iutematiouftl trade 
in order to take the farmers' products to the ultimate foreign consumer 
so that our farmers can be assured of the best possible return for 
their commodities. 

Rural America is changing in its makeup which is chai^in^ the 
membership of many cooperatives. The changes proposed in this bill 
thus will enable the bank for cooperatives to adjust to these changes 
by growiiuT in their scope of service to cooperatives j ust as the Congress 
envisioned in chartering the banks 47 years ago. 

Mr. Chairman, we respectfully request your support of this legisla- 
tion that is needed for cooperatives to grow and succeed in their service 
to farmers and farmer members. 

We ui^e the enactment of H.R. 4782 which will permit similar 
growth in service and effectiveness in other segments of the Farm Credit 

We will be glad to answer questions. 

Thank you. 

Mr, Jones of Tennessee. Thank you very much. We appreciate 
your attendance and that of the panel, and that of Mr. Carter. We 
will now place the prepared statements in the record and then hear 
from Mr. Carter. 

[The prepared statements of Messrs. Gaston, Amdahl, Harding, 
and Pfan appear on p. 150.) 


Mr. Cahtbh. Mr. Chairman, I thank you very much for this oppor- 
tunity to appear. It is a pleasant surprise for me to have this oppor- 
tunity. The situation in trie Northwest is different from what is is in 
some other parts of the country. 

The bank for cooperatives in Spokane at this time actually is in- 
volved in financing of 28 cooperative associations that export. One of 
these is a large grain exporter. The other 27 are small companies. 

In the Northwest we have a great variety of crops. Tne Pacific- 
rimmed countries now are a great market for the Northwest ; cherries, 
I apples, onions, the variety of crops that we grow there which most 
people are not familiar with. 

In addition to that we have exporters for peas and lentils to other 
parts of the world for many years. It is these small companies which I 
wish to make a point for on this day. Strangely enough, foreign pur- 
chasers come to deal directly with these smafl companies and with 
farmers in the Northwest. 

When a cooperative company that we have financed finds it neces- 
saiy to go through the usual channels — the small company — they have 
to first deal with a trader here, an exporter, a trader on tne other side, 
and insure. As you all well know, you can insure the risks that are 
involved in these kinds of trades. 

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We have had some great experiences in getting that insurance. For 
a small company it is verv dimcult. We have been assured that that 
insurance through the Foreign Credit Insurance Association, the 
FCIA, would be available to our banks for cooperatives on a blanket 
basis across the United States. We would proviae that service to these 
small companies. In addition to that, they have difficulty with the 
paperwork and with the structure of export with which they are not 

We have recently had an experience and lost a sale to Algeria of peas 
from a company in Colfax, Wash. The reason for this was that when 
that small company went to buy the insurance, even though they 
would go through the other steps, that insurance cost was so high to 
that stoall individual company that they were not competitive in the 

In the last month one of the companies that we finance was involved 
in exporting beans to Mexico. They had the same experience because 
of going through those steps. 

Our pea and lentil exporters come to this. These exporters have been 
in this Dusiness a long time — ^like 20 or 30 years. We produce a large 
percentage of the dry peas that are produced in the United States. 
We produce all of the lentils, which of course is a generality. Most of 
these are exported. 

Those markets over the years have been well developed. They have 
the relationships established. The emerging markets for other com- 
modities need the expertise that we can provide for them. They need 
the stability that we can provide in a blanket insurance policy. We 
do finance those companies for all of their needs, and we think it would 
be extremely beneficial for them if we could provide this service and 
this financing for those companies and for those things. 

Thank you ven[ much. 

Mr, JoNBS of Tennessee. Thank you very much. Mr, Madi^n? 

Mr. Madigan. Mr. Gaston, let me ask you one question. Would 
you justify for me the proposal here that the Farm Credit System should 
be exempted from the truth-in-lending laws? 

Mr. Gaston. That they be exempt from truth-in-lending laws? 

Mr. Madiqan. That is a part of the bill, that is, ;)art of the proposal 
that you are testifying in support of, and I wonder if you could justify 
that particular feature for me. 

Mr. Gaston, I would ask one of the members of the panel to respond 
to that. They may be more familiar with that than I am. I have been * 
in the exporting end of it and not in truth-in-lending. 

Mr. Amdahl. I suspect, Mr. Madigan, you can get a more authentic 
answer from one of the other panels than from this one. You have 
credit bank presidents of longer t«rm than mine. I have been 6 weeks 
on the job, 

I have had 20 years in the PCA. My understanding of the support 
for the justification is this. We need a clarification to follow the Federal 
statutes and to not be preempted by State statutes. We have not, in 
our district, had the question arise, nor the problem be challenged. I 
would be the first to support that exemption for total agriculture for 
all lenders. 

Mr. Madigan. Are you saying that truth-in-lending laws are bod 

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Mr. Amdahl. No; I am saying that uniformity from Federal law — 
to not have the State parameters put around a certain area for in- 
stitutions that are deaigne<l to serve many States under Federal 

Mr. Madiqan. Are you aware that that provision was in this bill? 

Mr. Amdahl. Yes. 

Mr. Madioan. It is surprising to me throughout these hearings, not 
only here, but in the field hearings, how many times we have been 
able to ask people questions about the bill, that is, people who had 
come to testify in support of the bill, only to find that they did not 
know that the particular provision we were asking about was in 
the bill. 

It has also been surprising the number of times that after a hearing 
somebody has come up and said, "Gee, I don't know that I am really 
for that part of it." 

I will not belabor this by trying to ask any of you about features 
of the bill that I think you might not be famihar with, but I did want 
to make that point for the record. I think a lot of people have come to 
testify in support of a bill with which they were not totally famihar. 

I appreciate all of you being here today. 

Mr. Gaston. Mr. Chairman, I would like to respond. I was familiar 
with that provision in the bill, but I would say that this is a broad 
bill. It has had a tremendous amount of study on it. I am not saying 
that each of us would know all the intimate details of all provisions 
of the bill. I trust the judgment of many of the people who have 
studied this bill. There will he people coming later on in the hearinra 
who will have much more knowledge of certain aspects of the bill 
than perhaps some of us may have at this particular time. 

Mr. Madioan. Thank you. 

Mr. JoNEB of Tennessee. Mr. Gaston, I have a question or two. 

I think you are saying in your testimony here today that the 
present sources of export financing are not adequate. Is that right? I 
am talking about the trade as a whole, not just what you are pro- 
posing. I mean the trade as a whole, 

Mr. Gaston, No. I am not saying that it is not completely adequate. 
I am saying that we feel we would be better served by having our own 
bank for cooperatives. We, the cooperative members and the farmer 
members, own the bank for cooperatives. We feel we would be better 
served by having those banks provide the services than by a stand- 
alone bank that we are not related to or financially involved in. 

Mr, JoNBB of Tennessee. How would you be better served? 

Mr, Gaston. I think, Mr. Chairman, that we would be better 
served by having close contacts with the bank of cooperatives. They 
know our business in great detail. We work with them on our borrow- 
ings on a day-to-day basis, but then when we have to do business in 
the international arena, we have to go outside of our bank of coop- 
eratives system to a so-called outside banker. Then we have to go 
again through the same procedure of explaining what we are trying 
to do, and so forth. So, I think it is a matter of the knowledge of our 
business, having an ownership interest in the business — these would 
provide services that we are not provided by the international banks. 

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The intemationa) banks do a good job for a nmnber of customers. 
We j'list think we would be better served by the cooperatives sjfstem, 
plus we would gain some profits back from that business if it is 

Mr. JoNBs of Tennessee. Would that alleviate some of the problems 
you had with the peas and lentils, Mr. Carter, if you had export 

Mr. Carter. By all means, yes. 

Mr. Jones of Tennessee, I thought that was what you were saying. 
I believe we heard that when we were in Spokane, Wash. 

Mr. Cahtbr, Yea, you did, Mr, Chairman. 

Mr. Jones of Tennessee. Mr. Gaston, can you cite specific examples 
of co-ops which have experienced difficulty in obtainii^ export- 
related financing from the commercial banks? 

Mr. Gaston. I could, Mr. Chairman. I will ask someone on the 

Mr. Jones of Tennessee. Yes; anybody could respond to that. 

Mr. Amdahl, In our district we have much of the same type of 
mix that Mr. Carter referred to. We have many small cooperatives 
who are entering the export market, not necessarily in grain, but in 
specialty crops. I could cite examples, and I think I have in ray pre- 
pared testimony which was submitted for the record, in terms of all 
the way from buckwheat-type cooperatives selling buckwheat seed 
and who are located in the very rural areas. They ]ust are not in the 
location or the type of clientele that find themselves visited by com- 
mercial banks offering these services. So they come to the bank for 
cooperatives, and we try to work them through the commercial 
channels. We could do a much greater service for them if we were able 
to have the linkage and authorities that are asked for in this bill. 

Mr. JoNBB of Tennessee. In export financing — that is, are these 
transactions that are more risky tnan some of the other businesses 
that you engaged in today? 

Mr. Gaston. I do not say it is any more risky. I would say that 
farming and agribusiness is a risky business. 

Mr. Jones of Tennessee. You have enough of that already. 

Mr. Gaston. We would hope to eliminate some of the risk by hav- 
ing a closer connection with the financing and the handling of the 

Mr. Jones of Tennessee. So that does not excite you at all, that is, 
the risk that you would be taking? It doesn't bother you? 

Mr. Gaston. It does not. The Farm Credit System and the farm credit 
banks have the capability of attracting and recruiting and training 
and hiring and motivating pei-somiel as well as any other company in 
the United States. 

Mr. Jones of Tennessee. I have one final question. Could the pro- 
posed export authority put a strain on funds that are available from 
the bank for co-ops for other purposes? 

Mr. Carter. Mr. Chairman, those funds would be used to do that 
exporting from some source. I think we need to start with that premise. 
Then it is a matter of the manner in which they are channeled to these 
companies and to these agricultural institutions that need to do that. 
It is our opinion that it would take no more funds to do it this way, 

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and might have a better use of the funds if we did it through this 

Mr. Jones of Tennessee. So it does not concern the system that 
you would be involved in export financing, as far as financing at home 
IS concerned? 

Mr. Carter. Not from availability of funds standpoint. 

Mr. Amdahl. Mr. Chairman, let me add something here. We also 
have to bear in mind that the banks for cooperatives are now providing 
approximately two-thirds of the credit that the cooperatives that we 
are talking about are using, right up to the domestic shore. So we are 
really talking about an extension of that credit for short periods 
durii^ the collection periods. 

Mr. Jones of Tennessee. Do you mean that that credit is being 
extended through the farmers who own the grain? 

Mr. Amdahl. Let me use Mr. Gaston's cooperative as an example. 
If he is using bank for cooperatives loanings up to the point of the 
shoreline and it stops there, we have merely had a pay-down for 6 
weeks or 60 days, or whatever, until that collection takes place. So it is 
really more of an extension of credit for a little longer period of time. 

Mr, Jones of Tennessee. I see. Mr. Carter? 

Mr, Carter. Mr. PfafT is here also from the State of Washington. 
He would like to make some short comments. 

Mr. Jones of Tennessee, Certainly, we would be glad to have him. 

Mr. Pfaff. Thank you, Mr. Chairman. I am a farmer from Colfax, 
Wash. I am presently engaged in the raising of peas and lentik. You 
askecl the question of whether we knew of anyone who was not allowed 
to export a crop because they could not receive the proper lines of 

I think I can answer that in the affirmative. Our country growers 
could not get the financing at the time to make sales of lentils to 
Egypt. This is happening quite regularly. The small farm co-ops have 
trouble going to the local loan banks and receiving a large enough 
amount of credit to make a sizeable sale of lentils and peas. 

Let me make one other statement, Mr. Chairman. It is necessary 
for the farmers to grow a crop and then follow it through the export 
channels and into the final destination. We find that we are having 
much better luck in the receiving of crops if we will do that. This is 
what we are presently engaged in now; that is, growing a crop, and 
we would tike to export it and follow it clear to the destmation. 

Thank you, Mr. Chairman. 

Mr. JoNEB of Tennessee. Thank you very much, Mr. Pfaff, 

I must confess that when I went to Spokane, I received a very 
liberal education on lentils and peas. The trip was worth it just to 
hear what you gentlemen had to say. 

Mr. Pfaff. We like to sell our crop wherever we go. 

Mr. Jones of Tennessee. You did a good job that day — I would 
have to say that. 

If there is nothing further to say, we will take a good look at all of 
your statements, and we will do our best to agree with you on all 

Thank you very much. 

We will recess now until approximately 2 o'clock this afternoon. 

[Recess token.] 

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Mr. Jones of Tennessee. The Subcommittee on Conservation and 
Credit will resume its sitting. 

We will call to the witness table Mr, Eugene C. Davis of Bruneau, 
Idaho, an<l Mr. D, L. Hovendick, president, Federal Intermediate 
Credit Bank of Omaha, Omaha, Neb.; Mr. Frank Mirarchi; and Mr. 
Peter Concklin. 

Mr. Davis, before you begin, let me say this. We are going to hear 
all of the witnesses, and then call you all back for questioning, if it 
is all fight with you. If you don't have any travel difficulties, we will do 
that. The reason is this. At 3 o'clock we have an emergency credit 
bill on the floor of the House, We do need to be there. 

Will that give you any difficulties? 

If that is all right, we will do it that way. 

Mr. Davis, please proceed as you wish. 


Mr. Davis. Thank you, Mr, Chairman. 

I am Gene Davis. I am from Bruneau^ Idaho. I would like to intro- 
duce my committee membera to you, sir, if I could. On my right is 
Mr. Pete Concklin. He is from the State of New York and ne is 
engaged in the business of raising apples, other produce; also stores, 
processes, and markets hia produce. 

We have Mr. Frank Mirarchi. He is a fisherman who owns and 
operates a fishing vessel off the coast of Massachusetts and in the 
coastal waters. 

The next gentleman, Mr. Don Hovendick, is president of the 
Federal Intermediate Credit Bank at Omaha, Neb. 

In conjunction with a brother, his son and a son-in-law, and my 
son, we own and operate a family corporation known as Bruneau 
Cattle Co. With a combination of 4,500 acres of deeded land, 7,100 
acres of State leases, and a licensed use of 70,000 acres of Federal land, 
we raise alfalfa hay, com silage, and small grains with 1,000 mother 
cows, 800 to 1,000 head of yearling cattle, and 5,000 head capacity 
feedlot. Of course, we turn the feedlot 1 .8 to 2 — or a little more — 
times per year. In the feedlot as well as feed our own cattle, we do 
some custom or commercial feeding in that lot. 

I have been a PCA member since 1956, have served on as a PCA 
board member, and for the last 5 years have served on the 12th 
District Farm Credit Board of Directors. I am appearing before you 
on behalf of the 12th District Board of Directors. My remarks today 
apply to ray own situation as well. 

As a family farmer, I con attest to the need for this vital legislation. 
As I pass the reins to my children, I hope that I can assure them that 
the farm credit system will have the capability to finance their future 

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Durii^ my tenure with the farm credit system, it has never faltered 
in carrying out its primary mission of furnishing adequate, constructive 
and dependable credit and closely related services to America's 
agricultural industry. 

Today we see many third generation farmers borrowing from the 
farm credit banks that provided unwaiverir^ support to their grand- 
parents. These young people serve as a proud tribute to the farsighted 
founders of the farm credit system. While these youi^ farmers imierit 
the proud traditions of their predecessors, they also bnng new methods 
and new ideas that create new requirements. These new requirements 
necessitate periodic refinement and updating of the farm credit system , 

There has been an explosion in the credit needs of our fanners, 
ranchers, and aquatic producers. For instance, our district's PCA 
outstanding loan volume increased from $320 million in December 1969 
to over $1.2 billion in October 1979. These figures clearly demonstrate 
the continuing need for a strong and vigorous Farm Credit System. 

The Farm Credit System has stayed in the forefront of agricultural 
finance by continually feeling the pulse of the Nation's family farmers. 
It has anticipated and filled the credit needs of agricultural producers 
and kept the future of agriculture as its most vital concern. The future 
of agriculture holds great promise for producers and consumers. How- 
ever, farmers realize that without adequate credit tools these promises 
will be unattainable. 

A useful analogy can be drawn between my "labor tool" and my 
"credit tool." Both tools must be used amply to insure success. With- 
out my labor tool, weeds would soon overtake my alfalfa fields and 
cattle would disappear from my rangeland. Without my credit tool, 
I could no longer purchase the seed, fertilizer, machinery, and land 
needed in my farm operation. My labor tool and credit tool are 
mutually dependent, and the survival of my family farm depends 
of access to both. 

The farm credit banks of the Twelfth District in Spokane fully 
endorse the entire set of proposals because they are in the best interest 
of our Northwest producers. While the scope of these amendments is 
broad, I wish to limit my remarks to three specific areas: 

One: Processing and marketing authority. 

Two: Aquatic provisions. 

Three: Credit related services. 

Regarding the processing and marketing authority, American family 
farmers have continually demonstrated their ability to fill gaps in the 
marketing, processing, transportation, and storage of their farm 
produce. By circumventing a few links in the food chain, these farmers 
can realize better returns while keeping consumer food costs low. 
Many of these on-farm marketing and processing operations are now 
financed by local PCA's and FLBA's along with their production 
requirements. Efficiency, however, is demanding larger investments 
and increased access to neighbors' farm products. The emphasis today 
is being placed on capital intensive processing equipment, large 
marketmg facilities, and increased storage. Consequently, many of 
our farmers, ranchers, and aquatic producers have now grown past 
PCA and FLBA's ability to meet their full financial needs under 
current law and regulation. Some of these farmers have abandoned 
workable projects or operated them less efficiently due to lack of 

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I think it has been pretty well stated up to this point the need for 
an expansion of our credit capabilities ana the need for me, as a bor- 
rower or anyone else within the system, to have access to further 
implement our business ventures in this area. 

We could give you some specific examples. Whether it be an apple 

f rower or a man with storage, might it be a feedlot operator, might it 
e a cow-calf man, there is a need to go further with the transportation, 
marketing, and so forth, of each of our products. 

We think a great efficiency can be achieved here and certainly this 
is what we have to do in our business to remain in business today. 
We think this is also a service to the consumer of this country and 
they, of course, are the ultimate person who we market our products 

In this important marketing, processing, transportation, and 
storajre area, Il.R. 4782 will more closely aline the farm credit system 
with the financial needs of farmers. This oill will enhance each farmer's 
ability to broaden his scope of activity within district board policy. 
Each district board will develop policy requiring a demonstrated 
relationship between the total processing and marketing activities 
and the fanner, rancher, or fisherman's own production. This policy 
would insure that the processing and marketing activities financed 
by the Federal land banks and PCA's are an extension of the farmer's 
own production. In other words, the proposal does not in any way 
entail a shift in the farm credit system's long-held prime objective 
of serving agricultural producers and their cooperatives. It wUl con- 
tain several Duilt-in safeguards against any departure from this basic 
principle of the system. Such safeguards would be consistent with 
present policies and regulations. 

During the congressional field hearing held at Spokane, I had the 
opportunity to meet a young vegetable farmer from the Columbia 
Basin irrigated region in Washington State. This man related how 
important the marketing function played in the price to him. He saw 
an opportunity to market his vegetables to nearby towns if these 
vegetables were market ready. But to be market ready he had to have 
the capacity to process, package, and transport them. Because of the 
economic advantages he perceived, he felt he could pay more for his 
neighbors' vegetables and deliver the market-ready vegetables to the 
retail shelves at a competitive price. However, he found that his 
local PCA could not finance this venture because of the present 

There were other factors that weighed into his decision. For 
instance : 

One: Havinjr farmers able to deliver market-ready vegetables to 
local communities would increase consumer choice. 

Two: Dispersing labor forces from large population centers to 
rural employment opportunities could help alleviate unemployment 
problems in urban areas. 

Three: Processing on the farm relieves already overtaxed city 
disposal systems, thus saving municipalities many thousands of 
dollars each year. 

Four: Savmg energy and fuel by not having to ship waste products. 

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This young man is representative of the many innovative farmers 
in the Northwest who have a genuine need for this extended financing. 

A large number of my fellow fanners in the Northwest own irrigated 
land and are subject to the Federal water district regulations and 
acreage limitations. Because they cannot expand their acreage, they 
continually look for ways to increase farm income to offset tne ever- 
rising cost of farming. Extendii^ their farm operations vertically to 
include marketing, processing, transportation, and storage of their 
neighbors' crops and their own is increasing in importance to the sur- 
vival of their farming enterprise as well as their neighbors' businesses. 

Many experts have stated that farmers quickly adapt new research 
findings to fit their field conditions. For instance, many farmers in 
Idaho, Washington, and Oregon are planting new and more produc- 
tive potato varieties, increasii^ their productivity immensely. This 
increased potato supply has brought a savings to the consumer and 
increased the farmer's yield and mcome. However, due primarily to 
lack of credit, individual producer-owned marketing, processing, trans- 

fiortation, and storage of potatoes has gone largely undeveloped. Many 
eel that efficiencies resulting from lower transportation costs, control 
of labor force, and better use of facilities will aid these potato farmers 
in establishing competitive marketing and processing facilities. 

There are some who ar^ue that the increased authority to finance 
processing, marketing, storage, and transportation activities of 
farmers is unneeded because commercial banks are capable of extend- 
ing this financing. 

The farm credit system believes that commercial banks should be 
an important option for this type of financing, but not the farmer's 
only option. Presently, a PCA borrower had no alternative but to 
split his financing between the PCA and a commercial bank when he 
wants to expand beyond the production function. However, split fi- 
nancing can cause severe disruption in the farmer's business activities, 
so it is often more eflScient and economically sound to finance with 
one lender, be it either the PCA or a commercial bank. The farmers 
at the Spokane congressional field hearing echoed these sentiments 
through their support of this proposal. 

I would like now to comment on the aquatic provisions of the 

The 1971 act, as most of us are aware, did allow financing, for the 
first time, of aquatic producers. Now with the Fishery Conservation 
and Management Act of 1976, as well as providing management and 
conservation of the fishery resources, it also allows that we in this 
Nation now have some control over foreign fishii^ within the 200- 
mile limit versus what it used to be at 12 miles. This is the thing that 
has really magnified the need for additional credit, I believe. It is one 
of the things, I should say, in the aquatic business. I am sure that 
Mr. Frank Mirarchi will have some observations on this if there are 
questions concerning that. 

Our district foresees exciting years ahead for the fishing industry. 
Our Nation's fishermen are challenging the long dominance of Pacific 
waters by foreign fleets and processors. The aquatic industry in many 
ways parallels the agriculture industry. It is subject to many of the 
same uncontrollable climatic conditions, biological cycles, and market 
fluctuations. Also, they both require lai^e amounts of labor and capital. 

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The U.S. aquatic industry must move rapidly if it is to be on a com- 
petitive basis with Foreign fleets in harvesting and marketing this 
valuable resource for America. Much of the aquatic infrastructure is 
missing. Much of the marketii^, processing, and packagii^ is done 
by foreigners. There is a great opportunity for American nshermen to 
expand their harvesting function into marketing. 

There are three distinct amendments to the 1971 Farm Credit Act 
that would help the farm credit system more fullv serve the credit 
needs of producers and harvesters of aquatic products. One amend- 
ment would authorize the Federal intermediate credit banks to dis- 
count the aquatic loans of other financial institutions, the OFI's. The 
second would clarify that cooperatives solely ei^aged in furnishing 
aquatic business services are eligible to borrow from the bank for 
cooperatives. The third amendment would allow Federal land banks 
to make long-term loans to producers and harvesters of aquatic 

Fundamental changes in the condition of the U.S. fishing industry 
have occurred since the passage of the 1971 Farm Credit Act, and 
successful eimloitation of these opportunities requires greater capital 
investment. The Fishery Conservation and Man^ement Act of 1976, 
as enacted, provided for a program for the conservation and manage- 
ment of fishery resources withm a declared fishery conservation zone 
through a system of fishery management plans prepared by regional 
fishery management councds. This act, subject to special conditions, 
excluded foreign countries from participating in the fishery resource 
within 200 miles of our shore. The act opened up a tremendous 
potential of production to domestic fishermen that was previously 

In our district alone, we hear many success stories from our PCA's 
who make aquatic loans. For instance, in southwest Washington PCA 
there is a father-son partnership which finances two boats with a loan 
from their PCA. 

In conjunction \vith their fishing operation, they are running an 
efficient shrimp processing plant. This processing plant has been devel- 
oped out of their own hard work and perseverance, but they have 
reached the stage where they need to borrow additional funds to ex- 
pand and modernize their facility. However, they have not been able 
to find an adequate source of credit for their needs. The new authori- 
ties of the Farm Credit Act Amendments of 1979 would help to alle- 
viate the problem and help them achieve a more efficient scale of 

The Alaska Commercial Fishing and Agriculture Bank is being 
chartered to help fill a vast need for agricultural and aquatic financing 
in that State. In many aspects, it is patterned after the cooperative 
farm credit system. The bank has requested to establish an OFI 
relationship with the farm credit banks in the 12th district. Because of 
present restrictions, the 12th district will be hampered in fully funding 
this new bank's needs. By approving the Farm Credit Act Amend- 
ments of 1979, this bank will be able to help fund the credit require- 
ments of a State so important to our country's interest. 

In addition, I view this expanded authority for the PCA's and 
FLBA's OS being complementary to the bank for cooperatives' author- 
ity to finance cooperatives. A farmer who uses the PCA or FLBA to 

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extend his farming enterprise will also have Kccess to cooperatives for 
other marketing or supply needs. If a, question should ever arise over 
jurisdiction or proper financing channels, it would be resolved by the 
district board of directors. The sole criterion that we use is that the 
best interest of the farmer and farming community be satisfied. 

I turn now to number three, credit related services. I think thia is 
something that we hear a lot about, and I think that I would like to 
answer in this way. I think we can offer these services on a competitive 
basis that is good for the farmer, for the egg producer, and for this 
country. That is the job that I think we should do, and I think thin ia 
where we should let the decision ride. If a man wants to avail himself 
of that service, fine. If he wants to go elsewhere, that is fine too. It 
is free enterprise, if you please, sir. 

I look upon farm credit as a tool of my operation. I think most of us 
do. The tools in ray operational don't care if it is a plowshare or the 
saddle that may be on the horse, or what it is — at times need updatii^, 
sharpening, honing, and I look upon the amendments to this act that 
we are asking for approval of by the Congress as being the same as 
what we are doing with the Farm Credit Act of 1971. We are updating 
that act. 

With our fast-changing agriculture, it is certainly time that that 
updating take place. 

I woiud liken this to possibly a man who might be working for my 
outfit or some other engaged in agriculture production. If I put a man 
on and he is getting me 100 percent of what he's got, I thmk that is 
all I can ask of him; but I think the measure of what he might produce 
for me or the outfit is then involved in the kind of tools that I provide 
for him to do the job that needs to be done. To me it is that basic, 
and that is what we are asking for in the changes in the regulations 
that we are governed by. 

Many comments have been made pertaining to the farm credit 
system's credit-related services authonty. In my opinion, this issue 
could be settled very simply — let the good of the farm community 
prevail. Some groups propose to do tms by restricting farmers' in- 
surance choices by precluding the PCA's from offermg insurance. 
The farm credit system believes differently. 

It firmly believes that the quality of insurance is at its best when 
competition is keenest. FLBA's and PCA's want the opportunity to 
offer insurance at competitive rates and with quality service. Let 
the farmer be free to choose the insurance that is in his best interest. 

In these times of our Nation's economic struggles and all of the 
attention given to diminishing American productivity, it is important 
that we as American fanners register our record, which is one of in- 
creasing productivity and eflBciency. Passage of H.R. 4782 can only 
aid American agriculture to further achieve this high d^ree of 

The farm credit system stands as a testament to the foresight of 
lawmakers and o^ribusinessmen who understand the absolute neces- 
sity of constructive credit for agriculture. These farsighted people 
created the farm credit system; the farmer members nurtured it. 
Today all of us, lawmakers, businessmen, farmers, and consumers 
have a vested interest in keeping the farm credit system strong, 
viable, and responsive to the needs of its borrowers. 

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On behalf of the farmers, ranchers, fishermen, and their cooperatives 
of the Northwest, I ui^e Congress to give H.R. 4782 early and careful 
consideration. The Nation's basic industry of producing food and 
fiber needs this legislation passed as it approacnes a new era with 
new responsibilities to the United States and, yes, perhaps to the world. 
We must help fanners pursue new market and processing opportuni- 
ties and provide expanded export opportunities so that we can feed 
our country, supply food to other hungry nations, and provide for 
balance of trade with other countries. 

I would also like to conclude mv statement by saying that for 2 
years now, we in farm credit at all levels have been involved ivith 
considering, reworking, and coming up with a composite of what is the 
decision of farmer, rancher, aquatic producer — those of us who own 
the system. We think this is what the system needs. I know that we 
have spent a lot of time here, and I think it is time well spent because 
it is so important to all of us. 

I ui^e Congress to look upon this legislation in terms of agriculture's 
needs for the 1980's anil 1990's. Your positive response and support 
will enable this all-important farm credit system to continue to pre- 
serve its independence and provide a very essential source of sound 
and dependable credit for this Nation's most important industry. We 
farmers thank you for your continued support. 

We would respectfully ask you, Mr. Chairman, and the members 
of your subcommittee to take this all into consideration when consider- 
ing our request for passage of this act. 

Thank you. 

Mr. Jones of Tennessee. Thank you very much, Mr. Davis, We 
appreciate your being here. 

Do you other gentlemen also have statements that you would like 
to deliver, or to make available for the record? 

Mr. Mararchi. I believe all of us have submitted written state- 
ments for the record, Mr. Chairman, and we stand ready to answer 
questions which may arise. 

Mr. Jones of Tennessee. Without objection, the statements of all 
of you gentlemen will be inserted in the record at this point. 

[The prepared statements of Messrs. Hovendick, Mirarchi, and 
Ooncklin appear on p. 192.] 

Mr. Jones of Tennessee. We now call Mr. Jack Gibson of Boydell, 
Ark. He is accompanied by Mr. Keith Kennedy, president, Inter- 
mediate Credit Bank, St. Ixiuis, Mo., and the Honorable Robert L. 
Miller, State senator, Biggs, Okla. 

Gentlemen, we welcome you, and we appreciate your taking the 
time to be with us today. 

You may proceed as you see fit. 

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Mr. Gibson. Thank you, Mr. Chairman. On my left I have Mr. 
Robert L. Miller, president of the Muskogee, Okla. PCA and a State 
Senator. On my right I have Mr. Keith Kennedy, president of the 
Federal Intermediate Credit Bank of St. Louis, Mo. 

We will all be available for questions. 

Mr. Jones of Tennessee. Please proceed as you wish. 

Mr. Gibson. Mr. Chairman, my name is Jack Gibson. In addition 
to being a farmer, I am executive vice president and chief executive 
officer of the Parkdale Bank, Parkdale, Ark. I am also chairman of the 
board of the Federal Land Bank Association of Southeast Arkansas, 
Dermott, Ark., and a member and former director of the Selta Pro- 
duction Credit Association there. 

I was privileged to testify last October at the Memphis hearing in 
support of a number of aspects of this bill, H.R. 4782, which are 
especially important to us in the Delta. But today I want to speak to 
just three of the proposed amendment issues. They have to do, in my 
opinion, with providii^ dependable credit to farmers at a reasonable 

First, this bill would clarify that rates of interest on loans from 
the farm credit system are to be set according to the Farm Credit Act 
with FCA approval and are not subject to State interest limitations. 

We are not asking for a change in the law, but only to add clarifying 
language to remove any possible doubt that the system's longstanding 
usuary exemption was carried forward in the 1971 act. 

Mr. Chairman, it is quite a complex responsibility to sit on one of 
these boards, antl although the above $25,000 is exempt now from the 
usury provisions, we still have a lot of under-$25,000 loans that are 
still having to be kept at the 10-percent level. We feel that we would 
be derelict in our duties if we did not keep these at 10 percent 
because of the stiff penalty in the State of Arkansas on usury, which is, 
as you heard before, resultant in both the amount of the loan and the 
interest being forfeiteii. 

We are asking here for a housekeeping amendment. Nonetheless, it 
is a housekeeping amendment that goes to the very heart of this farm 
credit system and its ability to achieve the very central purpose for 
which it exists — to provide a dependable source of credit for our 
Nation's farmers and their cooperatives. 

Unlike commercial banks, savings and loans, and credit unions, 
these farm credit banks and associations cannot accept deposits. Apart 
from their own capital and surplus and short-term borrowings to meet 

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short-term cash managemeDt needs, their only source of loan funds is 
from the iuvestiag pm>Uc which purchases farm credit consohdated 
systemwide bonds and discount notes at preTailing market rates. 

This especially puts your farm credit loan and agencies at a dis- 
advantage to commercial banks. We, in a commercial bank, can 
accept deposits. We have some equalizing factors there that the farm 
credit system does not have. 

Since I testified in Memphis last October, those market rates have 
continued to rise. Last week the 6-month issue of farm credit con- 
solidated bonds cost 15.40 percent. The 9-month issue cost 15.45 

Even disregarding the cost of operation, necessary earnings and 
reserves, with just the cost of funds exceeding the 10-percent usury 
limits of at least 11 States, the farm credit system obviously could 
not continue to function for long if its lending were subject to those 

Unfortunately, the Farm Credit Act of 1971 did not cany forward 
the exact language of prior laws which clearly exempted the system 
from State interest limits. Nonetheless, the Farm Credit Administra- 
tion has consistently maintained that the usury exemption was 
continued. In reliance upon that position and because the need for 
system institutions to lend at rates unrestricted by State law is so 
fundamental to the functioning of the system, farm credit banks and 
associations in most districts have continued to set rates as necessary 
to cover the cost of funds plus operating expenses, reserves, and neces- 
saiy earnings without regard to State limits. 

However, the result has been that, without a clear expression of the 
exemption on the face of the statute, borrower's counsel continue to 
challenge such loans as usurious under State law. 

Though I am told the system has in every instance been successful in 
defending the usury exemption, the cost, frustration, and delay of 
such repeated challenges could be avoided by this clarifying amend- 

Without that clear expression of the usury exemption, though, in 
Arkansas where, as I mentioned earlier, the penalty for usury is 
forfeiture of both principal and interest, and with more than $1 biflion 
in loan principal at stake, our lawyers have strongly advised against 
lending over tne 10-percent State limit. 

The cost of funds from FICB in St. Louis has exceeded 10 percent 
for every month since May 1979. As a result, the 10 Arkansas PCA's 
with fiscal years ended December 81 had aggregate losses on loan 
operations of more than $865,000 for 1979. 

Now, as a country banker, let me acknowledge that legislation 
enacted by this Congress during this winter has given some welcome 
relief from the State usury laws. And it has been of some help to farm 
credit lenders as well, but it is only partial relief and it is a temporary 
measure at best. It will expire in June 1981 if not sooner. 

It applies only to loans over $25,000 made after the effective date of 
the law. As of January :}], that left almost three-quarters — 74 per- 
cent — of the Arkansas PCA's loan volume still at 10 percent while all 
of their borrowings cost 11.09 percent. The next tiay the cost went to 
11.36 percent. For March, the cost is 11.82 percent. Even with a portion 
of their loans at higher rates permitted by the temporary law, during 
February there were associations still losing more than $1,000 per day. 

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This obviously was not intemled under the 1971 Farm Credit Act. 
I don't think the farm credit system was put in business as a depend- 
able credit source, only to diy up when money Kets tight. The problem, 
though, is that with the high stakes involved, the language of the 1971 
act just was not clear enough on the point to wanl on challenges from 
borrower's counsel. 

In a system as large as this, the consequence of misguided challengje 
to our usuary exemption could be disastrous. So, I am asking this 
Congress to enact this clarifying amendment to remove even the 
slightest possible doubt that interest rates of system institutions are 
established under the Farm Credit Act and ore not to be limited by 
State law. 

As an ongoing source of credit for farmers and their cooperatives, 
this farm credit system is no more dependable than its ability to pay 
the market rate for funds and to lend them at a self-sustaining maigin 
above that cost. 

It is not just the farmers who borrow directly from thLs system who 
rely upon it as a dependable source of credit. We rural bankers and 
our farmer-borrowers need PCA's and FLB's a.-* dependable buyers of 
our overlines on agricultural loans. This old bill had some things in it 
that would do this, but the new bill is going to greatly enhance the 

fiarticipation factors of the small country banks. This bill would 
acihtate PCA and FLB participation in these loans by permitting 
the banks to purchase and hold in their o\\'n name the required 
investment in participation certificates of PCA or FLB. 

I think very few realize how important it is for small, rural banks 
to be able to participate in loans with the local PCA's. Most country 
banks have loan limits that are too low to provide adequate financing 
to their farm customers. In the past, and at present — not much at 
present — we have depended on our larce city oanks for this source, 
and it is a very, very fickle source of money. It is only available 
whenever there is ample money. It is in times such as today that it is 
not available. When the supply becomes tight, funds become extremely 
hard to obtain as the city correspondents understandably serve their 
large commercial customers first. 

In rural areas we are beginning to participate with local PCA's in 
the overlines of agricultural credit, because so far PCA's have had a 
supply of money regardless of monetary conditions. We country 
bajikers are very interested in this feature of H.R. 4782 and consider 
PCA and FLB participations as another source of dependable money 
to further finance agriculture. 

Now, let me shift to a third amendment that I believe is appropriate 
to the farm credit system and consistent with the will of Congress. 

Fanning in 1980 is a business — ^big business. Farm credit is ousiness 
credit. In 1974 Congress recognized this fact by partially lifting the 
burden of the truth-in-lending law from agricultural loans of over 
$25,000. Still, the tnith-in-Iending law never did and still does not 
apply to any other business loans, regardless of amount. 

As a farmer, a Farm director and borrower, and as a country 
banker, let me say that this truth-in-lending law has no justifiable 
application to agricultural credit. It is a costly waste of time and a 
frustration for both the borrower and the lender. 

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With variable interest rates floating with the unk^o^\1l5 of the 
money market, with both the dates and amounts of operating loan 
disbursements being unknown, the useless exercise of completing a 
trutli-in-lending disclosure for the borrower is nothing short of a 
farce that only reduces respect for the government that requires it. 

I am pleased that in this Congress there is legislation that would, 
at last, totally exempt all agricultural loans from the burden of 
tnith-in-lending. Our concern is that enactment of this l^islation 
could perhaps even worsen the plight of our farm credit banks if, 
upon exclusion of agricultural credit from the Federal truth-in-lending 
laws, each of the States were to impose its own peculiar version. 

Not only would the burden of frustration of meaningless truth-in- 
lending compliance be continued over Congress will, the cost of 
complying to not just one but to many and varied requirements of 
numerous States would only have been increased. And in this cooper- 
ative farm credit system, these costs like all others are borne by the 
farmers who own and use the system. 

In the event Congress acts favorably to exempt agricultural credit 
from truth-in-lending, section 403 of these amendments would assure 
that this federally chartered farm credit system is not then saddled 
with varying State truth-in-lending requirements. 

Mr. Chairman and members oi this subcommittee, I am glad to 
support of H.R. 4782. I am familiar with each of its 28 provisions. I 
support the bill in its entirety. As a rural banker, I know what the 
production credit associations, the Federal Land bank, and the banks 
tor cooperatives have done for our Arkansas delta country, for Arkan- 
sas, and our Nation. These amendments are good for farmers and that 
means they are good for country bankers too. The need for this inter- 
est rate clarification provision is urgent and it is critical to the unique 
farm credit system. 

I urge your swift enactment of H.R. 4782 as introduced. 

I wUl be happy to answer your questions, and have asked Mr. 
Keith K. Kennedy, who is here with me today, to help me. 

Mr. Jones of Tennessee. Thank you, Mr. Gibson. 

We have one more panel, and then we will call you back for 

Mr, Kennedy? 

Mr. Kennedy. I am Keith Kennedy, president of the credit bank 
in St. Louis. I have already filed with the committee a statement. I 
would simply like to add to that that the farmers and ranchers and 
their cooperatives, which own and use and depend upon the farm 
cre<lit system, are really depending upon nil of you to help us get this 
charter updated. 

Specifically, as president of a bank that supervises and funds farm 
credit associations in one of our States where the usury problem is 
a difficult one for us, we believe it is vitally important that the sys- 
tem's long-held usury exemption be clarified in this proposed piece of 

Mr. Jones of Tennessee, Thank you, Mr. Kennedy. 

At this time, Mr, Kennedy, without objection, your entire prepared 
statement will he made a part of the record. Then we will hear from 
Mr. Miller. 

[The prepared statements of Messrs. Kennedy and Miller appear 
on p. 219.] 

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Mr. Jones of Tennessee. Thank you, Mr. Miller. 

We will call you gentlemen back for questions. 

The Chair will now call Mr. Larry J. Amaud of Amaudsville, La. He 
is accompanied by Mr. Cletus Home, president, Federal Land Bank 
and Federal Intermediate Credit Bank of Columbia, S.C, and Mr. 
E^I Bullington, Canithersville, Mo. 

We welcome you, gentlemen. 


Mr. Arnaud. Thank you, Mr. Chairman. 

My name is Larry Amaud. I am from Amaudsville, La, I am a soy- 
bean grower in St. Landry Parish, La. I belong to the Opelousas Pro- 
duction Credit Association located in Opelousas, La. I have been a 
member of the association for 15 years, and I have served on the board 
for the past 6 years. 

I am also a member of the advisory committee to the Fifth District 
Federal Intermediate Credit Bank. 

As a user and owner of the farm credit system, I am very much 
interested in the legislative bill we are discussing today, H.R. 47S2. 

Mr. Chairman and members of the subcommittee, I appreciate the 
opportunity to present to you a farmer's point of view concerning the 
bill, better known as the Farm Credit Act Amendments of 1679. 

As a user of the farm credit system, I am in a position to tell you 
that farm credit has a unique sensitivity to the farmer's needs. The 
l^islation, as introduced, is an example of the utilizii^ of this unique 
sensitivity to help fanners help themselves. 

In addition to using the credit services provided by my PCA, I am 
also enrolled in their insurance program, both because of the conven- 
ience factor and the competitive pricing. Just knowing that PCA 
personnel are handling my insurance needs gives me great piece of 
mind because they know my business, and they know it better than 
anybody else. 

Gentlemen, being the 10th child in a family of 13, reared on 40 acres 
of land, I don't have to tell you that my dad did not set me up in 
farming. That credit has to be given to the PCA organization. They 
believed in me and provided the financing for my present success. My 
heartfelt thanks goes out to the people, your colleagues, who had the 
wisdom and foresight to establish PCA's as they are today. 

The fanner's plight today can better be exemplified as a man going 
around in a perpetual whirlpool, never really going down except maybe 
sometimes he sucks under and then has already had the ability to 
resurface and come back to the top. 

Gentlemen, the very existence of the family farm today is in serious 
jeopardy. If we are going to see that he continues to survive, then we 
are going to have to provide him every possible tool we can give him. 
ftxjperty insurance is one of those tools. 

How will property insurance benefit me in my farmii^ operation? 
Well, the oi^anization will derive revenues through a profit-sharing 
program. These revenues will be followed back into the system that 
we own and help to defray our costs of operation. In the long run this 
could help to reduce the mterest rates which PCA is chaining. 

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Property insurance enrollment at the PCA at Opelousas is presently 
in its thira year of operation. The response we have gotten leaves a lot 
to be desired, but we are making headway. 

Mr. Chairman, I have submitted a wntten report to this subcom- 
mittee which will provide you with a more detailed testimonial. 

Mr. Chairman, I have also hand-carried approximately 70 letters 
from members within the fifth district who support this l^islation as 
introduced. Please let this be part of the recora. 

I thank you very much, Mr. Chairman. 

Mr. Jones of Tennessee. Thank you very much. 

Without objection, your entire prepared statement will be inserted 
in the record and the record will remain open for the purpose of insert- 
ing the additional material referred to by Mr. Amaud. 

[The letters referred to above are held in the committee files.] 

(The prepared statement submitted by Mr. Amaud appears on 
p. 239.1 

Mr. Jones of Tennessee. Mr, Home, if you would please proceed as 
you wish. 


Mr. HoRNE. Thank you, Mr. Chairman. I do have one or two re- 
marks I would like to make. 

May I say, Brst of all, that any statements I might make on the 
property insurance issue would be totally supportive of what Mr. 
Amaud has said. 

I have, through the Farm Credit Administration, supplied a state- 
ment for the record, so I will not pursue that further. 

I have a couple of items that surfaced in the morning discussion 
that I would like to address myself to very briefly. 

First, with reference to the truth-in-lending issue, there is a pro- 
vision in the Federal Tmth-in-Lending Act, as you are probably well 
aware, that would permit a State to exempt itself from the provisions 
of that bill by adopting, in effect, a pro forma bill of its own. In truth, 
some of the States that have sought to gain such exemption have not 
really qualified by virtue of havmg adopted a bill that is somewhat 
different from the Federal bill which would subject farm credit in- 
stitutions to possible double disclosure requirements. That is one of 
the reasons for the provision in our bill not to take farm credit out of 
truth in lending in its entirety but merely to exempt it from the 
State truth-in-lending bill, which might not be precisely the same as 
the Federal bill. 

With reference now to the eligibility of borrowers from the farm 
credit system, I feel that should be explored a bit further, because 
there is more to be determined in a loan transaction than merely the 
eligibility of a prospective borrower. Having passed that first mile- 
stone as to eligibility, you would next look at the eligibility of loan 
purpose ; an otherwise eligible borrower might be seeking a loan for 
what is an ineligible purpose. Having passed that second milestone, 
you would then nave to consider what we in the system refer to as the 
scope-of-lendiog policy. This simply means, in the short run, that as 

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& person's ptincipal source of iDcoma aod his business shift from the 
farming arena to some other — professional or perhaps congressional 
salary, if you will — the amount of money that ne might otherwise be 
eligible to borrow from the system would be reduced so that his loan 
would remain essentially an agricultural loan, r^ardless of what his 
principal occupation might be. 

That is what I have to say, Mr, Chairman. 

Mr. Jones of Tennessee. Thank you. Without objection, your en- 
tireprepared statement will be placed in the record. 

iTne prepared statement of Mr. Home appears on p. 244.| 


Mr. BULLtNGTON. Mr. Chairman, I have a statement that I would 
like to submit for the record. 

Mr. Jones of Tennessee. Without objection, your entire prepared 
statement will be inserted in the record, after you complete your 
brief remarks. 

Mr. BuLLiNGTON. If I may, I would like to talk about what was 
said this morning. I would like to briefly touch on those points. 

This morning it was mentioned about the coercion of borrowers. 

I might add that I am president of the Camthersville PCA which 
is just across the river from your district, Mr. Chaiiman. We have 
been in business for nearlv 4 years now. We think we have a handle 
on the program, and we think that we can answer these chaises with 

The chaise of coercing borrowers to take insurance is a charge that 
has never been made by any farmer that I know of. One of the local 
insurance companies has been brought into the area and has questioned 
our members who have left their oi^anization and come with our 

Erogram. I am sure if there has been any coercion, you would probably 
ave the name by now. They have been unable to find anyone up to 
this time, and they won't. 

There has been some coercion, Mr. Chairman, hut it has not been 
on our part. We have had numerous members who have wanted to 
take our program, but they come back in and tell us that the local 
insurance agent who carries their business said that if they were 
going to move their farm insurance down to PCA, they had better 
find a place to insure their automobiles — they don't want those. 

As you know, the Farm Credit Act of 1971 prohibited the PCA's 
from writing any insiu-ance on automobiles. 

There is a second charge which is that there is no need for PCA's 
to be in the business because there are plenty of agents out there to 
serve the program. 

I will agree that there are a lot of insurance agents. I will be quick 
to say that they are not servicing the farm insurance program. 

Eithty-five percent of the members that we have wntten are grossly 
underinsured. This is by no accident. Farm machinery, as you prob- 
ably know, went up four times last year. If an agent doesn't keep 
pretty close tabs on his farm clients, he is going to let them get 

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We think we are in the best position to keep up «ith the farmers' 
insurance business of iinyone. 

There is a third chaise that was mentioQed, and that is that someone 
has said that we are a fjovemment agency. 1 want to say that that is 
the farthest thing from the truth. Our association paid a considerable 
amount of income tax last year. I know of no tax advantage that the 

Another chaise is that the PCA employees are not properly trained. 
Every person that we have as an a^ent passes the same test that any 
insurance agent passes. He is specialized m one insurance program, and 
that is farm insurance. He knows the farmers' needs. The people that 
we hire were raised on farms. We like for them to nave farm 

The average agent down the street probably sells a dozen dfferent 
types of insurance. 

Another charge that has been made is that we get commissions for 
selling. Certainly this would be the fastest way a PCA employee could 
lose his job. 

The regulations prohibit PC A's from receivii^ any type of commission 
or uny type of gifts or any favors from the insurance people. This is the 
additional service we offer. 

In our area, Mr. Chairman, we offer a farm macbineiy leasing 
program. We have never had any complaints from the insurance 
agents about our leasing program. 

Another point that was raised this morning was this. Someone 
talked about writing insurance on only the item being financed. The 
biggest insurance mess that we ever ran into in multiple insurance 
lolicies. Many of our members have had as high as a half dozen policies 
•ecause of this type of insuring. One individual had six policies. We 
got to lookii^ at them, and the major insurance policv for the ma- 
chinery had been expired for 3 or 4 months, and he did not know it. 

If we were allowed to write only on the particular item financed that 
<lay, we would compound this problem. This would be a disservice to 
the farmer. 

Another charge that was made is this: Under credit regulations you 
know that we cannot deviate from credit being our primary purpose. 
Someone has said that if we get too deeply into the insurance business 
we are going to forget about credit and sell insurance. 

This IS absolutely impossible. This is what we were designed for and 
geared for, and what we are continuing to do, give credit ; that is our 
hrst line. 

We have been in the credit life insurance business in our association 
for nearly 30 years. We have been in the crop hail insurance business 
for II years. We have been in the collateral insurance business for 
nearly 4 years. The only one of those policies that is written with a loan 
closing is important, and that is credit life. No one complains about 

We do not have one policy, collateral policy, that is closed when the 
loan is closed, so I think this thing of coercion is wrong. Most of the 
borrowers we find can buy and sell me four or five times, so I don't 
think I am going to coerce them into taking our insurance business. 

They can do whatever they want to. Practically all of our loans, or 
90 percent of them, are classified good acceptable loans, and if we 
tried to coerce someone, be could find a credit source somewhere else. 


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There is do coercioD. If there had been, you would already have 
the names. 

We are going to service credit first. We found very quickly, Mr. 
Chairman, that the collateral insurance business is a complex thing, 
so we put a different person entirely in charge of our collateral insur- 
ance program. This keeps the credit man from having to get involved 
in it. This keeps the two separated. I think it works very wSl that way. 

The thing that I think we have all overlooked here is that the 
person who benefits on the collateral insurance program, from our 
presence in it, is the farmers. We can already see it. We have only 
Deeu in business for 4 years, but I can assure you that the other 
insurance agents are doing a much, much better job. 

The fanners that we wrote would not average seeing their insurance 
man once every 3 years. Now they are making more frequent visits. 
They are updating their insurance. They are insuring to values. I 
think they can all write more insurance if they want to look at 
their business. 

These are some points that were brought up this morning, Mr. 
Chairman, and I wanted to make this response. 

I want to thank you for this opportunity to appear here this morning 

[The prepared statement and attachments thereto of Mr. Bullington 
appear on p. 249.] 

Mr. Jones of Tennessee. You have done a good job at handling the 
subject. We appreciate that very much. 

That concludes the witness list, unless there is somebody we have 

Is there anybody else here who has a statement of any sort be 
would like to make? 

If not, we will proceed with questions. We will now ask all the 
witnesses to return to the witness table. 

Members of the subcommittee, if you do not mind, I will lead off 
with a question. 

Mr. Home, let me ask you a little bit more about truth-in-lending. 
My question to you is this. Why should not farm credit institutions 
fuDy disclose to borrowers the cost and the terms of credit? 

Mr. HoRNE. There is certainly no reason, Mr, Chairman, why this 
disclosure should not be made. I would point out that we think that 
it was an error initially in the passage oi the Federal Consumer Pro- 
tection Act to include agricultural loans as consumer loans. 

Many agricultural loans, as a matter of fact most of them, are 
clearly as complex as the typical business-type loan, so we think it 
was improperly classified from the beginning. Even so, there is no 
reason and no objection to disclosing all cost of credit associated with 
any loan. The provisions in this bill would merely exempt the farm 
credit institutions from having to disclose under Stat« laws — it would 
not take them out of the Federal laws. Other bills have been intro- 
duced in the Congress from time to time that would have the effect, 
that is, most of tnem had a similar goal, that of taking agricultural 
credit per se out from under the. truth-in-lending requirements. 

This particular bill does not do that. It simply says you do not have 
to comply with the State truth -in-lending which would be doubly 
burdensome if a farm credit institution was forced to comply, not 
only with the State disclosure law, but also with the Federal. I think 

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that there has been much evidence that that does add to the cost of 

Mr. Jones of Tennessee. Mr. Gibson, you mieht want to answer 
this for me. On the State usury law situation, I know your State is 
involved deeply in this problem. What is your response to the claim 
that an exemption from the State usury law should not be necessary 
in the first place? If credit were available at a reasonable cost — what 
about that? 

Mr. Gibson. I did not quite understand the first part of that 

Mr. Jones of Tennessee. I have a cold today. I apologize. 

The question is tliis: What is your response to the claim that an 
exemption from State usury laws should not be necessary in the first 

Mr. Gibbon. In the first place, the State usury law has provisions 
which exempt above $25,000. This does not do what the law was in- 
tended to do. The people who really need the money cannot get it 
because the majority of the loans are under the $25,000 figure. They 
still have to be done at 10 percent, so they are not getting any money 
in Arkansas at thepresent time. 

Mr. Jones of Tennessee. Is there any hope in your State with a 
correction to be made within the State? 

Mr. Gibson. I hope so; yes, sir. There are a lot of steps being made. 
We are gradually doing like the State of Tennessee. They passed their 

law. The small consumer and the car loan people, except for national 
banks, are not making any consumer loans. The State batiks aren't 
doing it. 

We hope that by time this thing comes to a vote in November 1980 
that it might pass. But Arkansas has one unique factor. 

Sixty percent of the votes in Arkansas, or 65 percent, are con- 
sidered in the big urban centers, like Fort Smith and Little Rock 
and Pine Bluff and a few others. We have quite a few consumer 
groups there who are fighting this thing. 

In the past they have been the people with the labor unions who 
have defeated this in Arkansas, but now they are, for the first time, 
beginning to really be hurt by this, and we are hoping that maybe 
this thing will turn around in November of this year. 

Mr. Jones of Tennessee. Have you already tried it once? 

Mr. Gibson. Yes. Two years ago it failed on a constitutional 
amendment. It failed that time. 

Mr. Jones of Tennessee. Good luck. I hope it works out. 

Mr. Gibson. Thank you. 

Mr. Jones of Tennessee. I yield to Mr, Huckahy for any questions. 

Mr. HucKABY. Thank you, Mr. Chairman. 

Mr. Amaud, in your testimony you point out the Opelousas PCA 
has approximately a 33-percent participation in the insurance pro- 
gram. I believe you state also that this is one of the higher participa- 
tion rates anywhere in the Nation. 

Let me ask you this. In the 2% years you have been offering in- 
surance, what percent of the equipment loans that you have financed 
did you also write the insurance on? 

Mr. Arnaud. Very little. I do not know the exact figure, but it is 
not tiiat much. 

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Mr. HtrcKABY. Correct me if this scenario is wrong. Someone goes 
out and they want to buy a combine for $65,000. Then they come to 
the PCA to get financing for $40,000 of the $65,000, and you write 
out the papers. Then I assume that the person processing the loon 
appUcation would point out to them that it would be necessary for 
hun to carry insurance as protection for the loan. 

At that time do they also point out the fact that, "We have in- 
surance that we could offer to you right now and save vou a trip. 
Also you will Bnd that our costs are lower than anyone else you can 

Mr. Arnaud. Yes, definitely. Usually the PCA will not require, 
if the man is fmancially strong, that he take full coverage. I hope I 
am getting to your question. 

Tney will usually offer the insurance, but it is also made known at 
the same time that it is offered to the farmer, or to the member, that 
he can also get this insurance from another agency if he prefers to. 

But I think your question is this. Would we recommend covering 
the full value of the combine? Is that your question? 

Mr. HucKABY. I want to know that also, but that is another 

Let's say he was paying $65,000 and was borrowing $40,000. 

Mr. Arnaud. That would depend on the repayment capacity of that 
individual and bow liquid he is. 

If he is in the vulnerable category in the loan, we would recommend 
full coverage. If he only wants to cover, let's say, 40 percent of it, or 
$40,000, then that would be good enough for us, if he has enough other 

Mr. HucKABT. In the 2}i years you have been operating this program, 
you say only a very small number of the people who have borrowed 
nave done this? 

Mr. Arnaud. You referred to the 33-percent participation. These 
are some individuals who have taken a portion of property insurance. 
It may be only on one tractor or one combine. 

However, of the 528 members in the Opelousas Production Credit 
we have had 175 members subscribe to some fonn of property insurance 
with us. If he only has one tractor or one combine under the property 
insurance prt^ram, then we consider this as a penetration. 

Mr. HocKABT. I see. 

Are you offering insurance at competitive rates, or less than the 

fling rate from independent agents? I realize they have a range. But 
am talking about the average. 

Mr. Arnaud. Mr. Huckaby, I was delighted when I found out that 
FCA's would be allowed to handle property insurance. 

If I have to seek out an indepenaent agent, I, as an individual, am 
at a tremendous disadvantage to obtain a good rate on insurance 

Whereas, I know that PCA is acting in a capacity of a group and 
can get group coverage with much cheaper rates than I am able to do. 

I also found out that the Farm Bureau insurance is a very good rate, 
but the PCA rates as good as or better in the price. 

Mr. HucKABT. Thank you. 

Mr. Home, could you give me an example of a State law as far as 
truth in lending is concerned that you have a problem in complying 

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Mr. HoRNE. In the State of South Carolina about 3 years ago, they 
were considering the consumer protectioD bill in that State. At the 
time this bill was under consideration by the State legislature, it 
became obvious that the bill in its then form would not be adequate 
to exempt the State from compliance under the Federal Consumer 
Credit Protection Act. 

We were successful in going before some committees of the South 
Carolina Legislature and havmg some changes mnde in the bill that 
was before them. Had we not been, we would have been in the positioD 
in that State of having to comply with the Federal truth-in-lendir^ 
law and also the South Carolina truth-in-leniling law. This would have 
mean double disclosure with much increased cost of delivering the 

Mr, HuCKABY. You are objecting then to having to fill out addi- 
tional forms? You don't know of any specific things that any State 
has on its statute today that is not required under the Fe<!eral truth- 
in-lending disclosure law? 

Mr. HoHNB, No, I cannot, and I cannot give you a specific State. 
South Carolina is the one I am familiar with. I am closely associated 
with the banks that I serve being situated in the capital city of that 

Mr. HucKABY, How many States have these types of laws today? 

Mr. HoHNE. I really cannot answer that. I would suspect a relatively 
low percentage— perhaps less than a fourth of the States have trutb- 

There is little incentive, in ray judgment. I would almost recom- 
mend that a State not bother to adopt it because there is a fair amount 
of cost associated with administering the law. If a State adopts its 
own statute, it must be in effect a pro forma version of the Iiederal 
law, so your law is going to be about the same as that already in 
existence, so why should a State assume the burden of administering 
its own law? 

Mr. HucKABY. I would assume that the cost in administering or 
carrying out the Federal law of truth-in-lending would be the same 
whether there is a SlOO loan or $100,000 loan; is this correct? 

Mr. HoRNB. That is substantially correct, yes. 

Mr. HucKABY, Approximately how much does that cost per loan? 

Mr. HoRNE. Mr. Huckaby, I am simply not in a position to give 
you a well-informed answer. 

We have worked up such statistics precisely in response to that, 
and I can supply them to you for the record. I would hesitate to do 
that from memory. It hsis been 3 or 4 years ago that we did that. 

Mr. HucKABY. We would like to have that. 

Mr. HoHNE. I would be happy to supply that for the record, Mr. 

Mr. HucKABT. Thank you, Mr. Chairman. I have no further 

Mr. Jones of Tennessee. Thank you. Mr. English? 

Mr. English. I have no further questions, Mr. Chairman, 

Mr. Jones of Tennessee. Mr. Hovendick, I have a question I would 
like to ask you. I am talking about the processing and marketing 

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I presume from what you said that there is sufficient evidence that 
commercial banks are not adequately meeting the need of the types 
of financing you need in this area. 

Mr. HovENDiCK. Sir, there is evidence that banks do not like to 
make this particular kind of loan. 

Our mam problem, however, with the lack of authority that we 
now experience is that we finance farmers in their production enter- 
prises up to the point where they become involved, or want to become 
mvolved, in a processing or marketing venture to carry that com- 
modity closer to the consumer and were unable to continue the 

At that point, it is a very difficult thing for us to arrange a handoff 
of the credit, so to speak, to get financing arranged with another 

So, the authority we ask would, we think, enable us to provide a 
continuity in the individual's credit and help him avoid having split- 
line credit which oftentimes reduces the amount that is available 
to him. 

We do not preceive, I might say, in the Midwest area an extremely 
heavy demand for this type of financing; but when it is sought it is, 
of course, sorely needed m the minds of the borrower. 

Mr. Jones of Tennessee. Does somebody else have something to 
add to that? Mr. Concklin? 

Mr. Concklin, Yes, Mr. Chairman. I would like to speak on that. 
In the Northeast, particularly in the Hudson Valley, credit for this 
kind of thing is extremely tight right now. This is particularly so in a 
roadside stand marketing business that a lot of fruit growers and 
vegetable growers find themselves in. They are finding that they have 
to move their operations nearer to population centers in order to 
maintain traffic in the g&s shortages, and so on. It is difficult inasumch 
OS they are already fmancing with Farm Credit, or somebody like 
that, to get the credit they need to start up these roadside marketing 
operations in an area where the people are m order to keep marketing 
that produce in a direct fashion. 

So, there is a very real need in our area, given the changing traffic 
patterns and changing population patterns with the fuel crisis and 
so forth. 

Mr. Jones of Tennessee. Does anyone else have a comment on this 
subject? Mr. Gibson? 

Mr. Gibson. Mr. Chairman, in our area we find that commercial 
banks are reluctant because of the fact that the agriculture producers 
land and other assets have a first security held by the land bank or 
the PCA. Therefore, they are reluctant because his wealth is not in 
his processing, and the collateral is as if he has a first mortgage. 

Another facet of the bill is that it will let fanners collectively go 
together and put in a processing and marketing thing for their products. 
That is very important in the agriculture industry because we are at 
the mercy of the marketplace in a lot of ways down there. You take 
a cotton gin. We cannot get credit on the cotton gin from Farm Credit. 
We need it bad. I am talking about Louisiana and southeast Arkansas. 

This would make it possible to where we can finance it over a period 
of time and where you could take a consolidated look at everything 

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without hiiTing to go outside to the people that have the lirst security 
mortgage on your property. 

Mr, Jones of Tennessee. I believe you are saying that it you hod 
this amendment you would not only hold what business you now have, 
but you would increase this business tremendously. 

Mr. Gibson, Yes, and it would make it a more profitable organiza- 
tion. Nowadays we need to hold on to this situation to derive a profit. 
We don't like to have to sell in an emergency in the fall. Now you can 
hold your stuff until May or March; it makes an added profit for the 

Mr. Jones of Tennessee. Are there any other comments in this 
regard? This is an important consideration for the form credit to be 

Mr. Mirarchi, I have a question I would like to ask you. This field 
is rather new to me. I do not know much about the aquatic financing. 

What has the system's loss been in aquatic situations? 

Mr, Mirarchi. I have been unable to provide any specific long> 
term figures on this. It is relatively new to the farm credit system. I 
have come up with some rather fragmented figures. 

In 1977 and 1978, the loss experience in bom years was less than 1 
percent. It was 0.87 percent in 1977 and 0.33 in 1978. 

Mr. Jones of Tennessee. Being less than 1 percent, let me ask the 
Governor about this. This is about the average loss. 

Mr. Wilkinson. The figures given are h^her than the whole 
overall svstem for agricultural loans. I think, as Frank indicated, it is 
very probably because it is such a new program. 

Mr. Jones of Tennessee. What impact would you expect these 
proposals to have on the commercial fisning industry and on the U.S. 
oalance of payments? 

Mr. Mirarchi. Mr Chairman, I think thev have a substantial 
impact. The reason is complex, and if you will bear with me, I will 
try and make it as brief as possible. 

Under the Federal Fisheries and Conservation Act, commonly 
known as the 200-inile limit, the Federal Government gave pref- 
erential status to U.S. fishermen to develop the fishery resources 
within the fisheries conservation zone, ^^'ith a tremendous amount of 
fieet development that accompanied the enactment of this law. 

Some of the primary sources of financing were the fishing vessel 
obligation guarantee program and the capital construction fund 
program, wnich are administered by the National Marine Fisheries 
Service as well as the farm credit system. 

The primary impact of the two programs that are administered by 
the National Marme Fisheries Service wa» directed toward the ad- 
dition of vessels to the fishing fieet. We have had perhaps as much as 
40 to 50 percent, but the fi^ires are not precise. It is m that order, 
however. It is an increase in the number of vessels in the New England 
fleet. This is since the enactment of the 200-mile limit law. 

There has not been a corresponding increase in the amount of 
moneys available for the development olshore facilities and marketing 
and processing facilities. 

As a consequence, there has been a substantial increase in the 
amount of fish landed and the amount of vessels that are demanding 
the opportunities to use the shore facilities. 

The results has been severe overcrowding of port facilities and over- 
taxing of transportation and marketing facilities. 

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One of the results has been a reduction in the vessel price of fish in 
the last year. This has had a very severe impact on the fishing vessels 
because of the corresponding increase in operating costs that have 
occurred this year. 

So, I think that these amendments will give the farm credit system 
an opportunity to finance some sorely needed and neglected aspects 
in the development of our fisheries. 

Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. So, from what you are saying, the move- 
ment was made in that direction somewhat. Would you say 2 or 3 
years ago? That is, the movement made in the financing of aquatic 
vessels was a good move? 

Mr. MiRARCHi. It was a good move, but it was not the totality that 
was needed to implement the intent of Congress when the Fisheries 
Conservation and Management Act was enacted. 

Mr. HoRNE. Mr. Chairman, I would like to speak on that, 

Mr. Jones of Tennessee. Go right ahead. 

Mr. HoRNB, We recently invited some of the leading fishermen from 
our district, the third farm credit district, which includes the two 
Carolinas, Georgia, and Florida. We invited them up to the bank to 
talk about how best we might serve the aquatic industry with our 
lending purchases. 

We told them about the pending legislation. They were very 
enthused about it. They pointed out to me that in the last 20 years 
there had been no new processing facilities built on the coastline of 
either Carolina, Georgia, or Florida. This bill, in permitting the Fed- 
eral land bank to finance that sort of an operation, would be of great 
benefit to them. 

They come right in with the catches and, due to the limited proce^- 
ing facilities, have to sell their fish much, Mr. Gibson, as the farmer 
has to sell his crops sometimes. He has no place to store them. It is 
a loss to him unless he sells them as soon as he makes port. With 
proper processing, packaging, and freezing of the product, they felt 
that they could get a much better income realized from their endeavors. 

Mr. Jones of Tennessee. Mr. Davis? 

Mr, Davis, In Washington and Oregon, we are involved in the 
fishing business. Also there is the State of Alaska with a tremendous 
amount of coastline. 

We have seen the foreign processing vessels that for years and years 
have been doing the processing. They have taken the catch of some of 
our domestic fishery people, processii^ them. The vacuum is there. 
It is a terrific need for financing of these very expensive boats. These 
are processing boats. 

We are getting the bottom fish now. They have not been highly 
involved until recently. With the passage of the Management Act, 
we are going to see a tremendous need for dollars to buUd and con- 
struct processing boats, 

Mr. Jones of Tennessee, If there are no further comments from 
you, gentlemen, we want to thank all of you for the contribution you 
motle today. We have had a good set of hearings. 

The subcommittee will stand in recess until tomorrow at 10 o'clock. 

[Whereupon at 3:10 p.m., the subcommittee was adjourned.] 

[The bUl H.R. 4782, the report from the Office of Personnel Manage- 
ment and prepared statements submitted follow :) 

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To amend further the Farm Credit Act o! 1971 to permit Farm Credit System 
19 to improve their services to borrowers, and for other pmposes. 


JULT 13, 1979 
Ur. JONBS of Tennessee (hy rei)ueit) introduced the following bill; «hic] 
referred to the Committee on Agriculture 


To amend further the Farm Credit Act of 1971 to permit Farm 
Credit System institutions to improve their services to bor- 
rowers, and for other purposes, 

1 Be it enacted by the Senate and House of Representa- 

2 lives of the United Slates of America in Congress assembled, 

3 That this Act may be cited as the "Farm Credit Act Amend- 

4 ments of 1979". 



7 Sec. 101. Section 1.4 is amended — . 

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1 (ft) in paragraph (6), by itriking out after the word 

2 "Make" the words "loans and" and inBerting in lieu 

3 thereof the words "and participate in loans, make"; 

4 (b) in paragraph (12), by inserting before the 

5 period at the end thereof the words "; participate with 

6 one or more other Farm Credit System institutions in 

7 loans made under this title or other titles of this Act 

8 on the basis prescribed in section 4.18; and participate 

9 with lenders which are not Farm Credit System insti- 

10 tutions in loans that the bank is authorized to moke 

11 under this title"; 

12 (c) in paragraph (15), by changing the second 

13 comma to a semicolon, by striking out before the 

14 period at the end thereof the words "and make such 

15 other investments as may be authorized by the Farm 

16 Credit Administration", and by inserting in lieu thereof 

17 the words "and, as may be authonted by its board of 

18 directors and approved by the Farm Credit Administra- 

19 tion, (i) sell to lenders which are not Farm Credit 

20 System institutions interests in loans, (ii) buy from and 

21 sell to Farm Credit System institutions interests in 

22 loans and in other financial assistance extended and 

23 nonvoting stock, and (iii) make other investments"; 

24 (d) by adding a paragraph (22) as follows: 

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1 "(22) Accept contributions to its capital from Federal 

2 land bank associations and account therefor as authorized by 

3 theFarmCredit Administration."; and 

4 (e) by adding a para^aph (23) as follows: 

5 "(23) Agree with other Farm Credit System institutions 

6 to share loan and other losses, whether to protect against 

7 capital impurment or for any other purpose, as may be au- 

8 thorized in regulations of the Farm Credit Administration.". 

9 Sec. 102. Section 1.5 is amended — 

10 (a) in subsection (b), by striking out the word "hy- 

11 potheticated" and inserting in lieu thereof the word 

12 "hypothecated"; 

13 (b) in subsection (d), in the fu'st sentence, before 

14 the words "and may also be issued" by inserting the 

15 words "to borrowers as patronage refunds," and before 

16 the period at the end thereof, by striking out the words 

17 "farmers or ranchers" and inserting in lieu thereof the 

18 words "fanners, ranchers, and producers or harvesters 

19 of aquatic products"; 

20 (c) in subsection (d), by inserting the following 

21 new sentence between the first and second sentences 

22 thereof: "Nonvoting stock also may be issued to and 

23 shall be retired for other Farm Credit System institu- 

24 tions as may be authorized by its board of directors 

25 and approved by the Farm Credit Administration."; 

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1 (d) by adding a subsecUon <f) as follows: 

2 "(0 Patronage refunds may be pud in nonvoting stock, 

3 participation certificates, allocated surplus, and other equities 

4 of the bank, or cash, or in both equities and cash, as deter- 

5 mined by the board of the bank, to borrowers of the fiscal 

6 year for which such patronage refunds are distributed. All 

7 patronage refunds shall be paid in the proportion that the 

8 amount of mterest on the loans to each borrower during the 

9 year bears to the interest on the loans of all borrowers during 

10 the year or on such other proportionate patronage basis as 

1 1 the Farm Credit Administration may approve."; and 

12 (e) by adding a subsection (g) as follows: 

13 "(g) Equities to evidence contributions to capital may be 

14 issued to Federal land bank associations when the bylaws of 

15 the bank so provide.". 

16 Sec. 103. Section 1.6 is amended to read as follows; 

17 "Sec. 1.6. Real Estate Mobtoaoe Loans.— The 

18 Federal land banks are authorized to make or participate 

19 with other lenders in long-term real estate mortgage loans in 

20 areas defmed by the Farm Credit Administration, and make 

21 continuing commitments to make such loans under specified 

22 circumstances, or extend other fmancial assistance of a simi- 

23 lar nature to eligible borrowers, for a term of not less than 

24 five nor more than forty years.". 

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1 Sec. 104. Section 1.7 is amended by inserting before 

2 the period at the end of the first sentence the words "as 

3 provided in section 4.17". 

4 Sec. 105. Section 1.8 is amended by striking out in 

5 clause (1) the words "and ranchers" and inserting in lieu 

6 thereof the words ", ranchers, or producers or harvesters of 

7 aquatic products". 

8 Sec. 106. Section 1.9 is amended by striking out the 

9 first sentence and inserting in lieu thereof the following sen- 

10 tence: "loans originated by a Federal land bank or in which it 

1 1 participates with a lender which is not a Farm Credit System 

12 institution shall not exceed 85 per centum of the appraised 

13 value of the real estate security, or such greater amount as 

14 may be authorized in regulations of the Farm Credit Admin- 

15 istration for loans guaranteed by FederaJ, State, or other 

16 governmental agencies, and shall be secured by first liens on 

17 interest in real estate of such classes as may be approvedby 
IS the Farm Credit Administration,". 

19 Sec. 107. Section 1. 10 is amended by striking out the 

20 flrst sentence and inserting in lieu thereof the following sen- 

21 tence: "Loans made by the Federal land hanks to fanners 

22 and ranchers uid producers or harvesters of aquatic products 

23 may be for any agricultural or aquatic purpose and other 

24 credit needs of the applicant, including financing for basic 

25 processing and marketing directly related to the applicant's 

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1 operations and those of other eligible farmera, ranchers, and 

2 producers or harvesters of aquatic products: Provided, That 

3 the applicant's operations shall supply at least the percentage 

4 of total processing or marketing for which financing is ex- 

5 tended that is required by the board of directors of the bank 

6 under regulations of the Farm Credit Administration.". 

7 Sec. 108. Section 1.11 is amended by striking out the 

8 words "on-farm operations" and inserting in lieu thereof the 

9 words "on-farm and aquatic operations". 

10 Sec. 109. Section 1.13 is amended by striking out the 

11 designation "(a)" preceding the text. 

12 Sec. 110. Section 1.15 is amended — 

13 (a) in paragraph (13), by striking out the word 

14 "shall"; 

15 (b) in paragraph (14), before the words "make 

16 such other charges for services as may be approved by 

17 the bank." by striking out the word "may"; and 

18 (c) by adding a paragraph (21) as follows: 

19 "(21) Contribute to the capital of the bank.". 

20 Sec. 111. Section 1.16 is amended— 

21 (a) in subsection (a), before the words "book 

22 value" in the sixth sentence, by striking out the word 

23 "fair"; and 

24 (b) by adding a subsection (c) as follows; 

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1 "(o) Notwitlist&n^g the provisiom of subsecUon (a), 

2 the purchase of stock need not be required with respect to 

3 that part of any loan (1) made by a Federal land bank which 

4 it sells to a lender which is not a Farm Credit System institu- 

5 tion, or (2) which such lender retains or acquires in partici- 

6 paling in the loan with a Federal land bank.". 

7 Sec. 112. SecUon 1.17 is amended — 

8 (a) in subsection (a), by striking out in the last 

9 sentence the word "exess" and inserting in lieu thereof 

10 the word "excess"; and 

11 (b) in subsection (b), by inserting before the words 

12 "out of the whole or any part of net earnings" the 

13 words ", and pay patronage refunds, or do any of 

14 them, as provided in its bylaws,", and by striking out 

15 the word "with" at the beginning of clause (3) and in- 

16 sorting in lieu thereof the word "the". 

17 Sec. 113. Section 1.18 is amended by striking out sub- 

18 section (b) and inserting in lieu thereof a new subsection (b) 

19 as follows: 

20 "(b) Any association may declare a dividend or divi- 

21 dends and pay patronage refunds, or do any of them, as pro- 

22 vided in its bylaws, out of the whole or any part of its net ' 

23 earnings available therefor which remain after (1) mainte- 

24 nance of the reserve required in subsection ^a) hereof and (Zf 

25 bank approval: AS patronage refunds shall be paid on the ' 

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1 proportionate patronage basis approved b; the bank. Divi- 

2 dends shall be noncumulative, and the rate of dividends may 
S be different between different classes and issues of stock and 

4 participation certificates on the basis of the comparative cod- 

5 tributions of the holders thereof to the capital or earnings of 

6 the Federal land bank by such classes and issues, but other- 

7 wise dividends shall be without preference,". 

8 Sec. 114. Section 1.19 is amended by adding the fol- 

9 lowing sentence at the end thereof: "Associations also may 
10 enter into agreements with other Farm Credit System insti- 
ll tutions to share loan and other tosses, whether to protect 

12 against capital impwment or for any other purpose, as may 

13 be authorized by the bank in accordance with regulations of 

14 the Farm Credit Administration.". 

15 Sec. 115. Section 1.20 is amended by inserting after 

16 the word "stock" the second time it appears the words "or 

17 participation certiHcates," and by inserting after the words 

18 "Farm Credit Administration" the words "or other Farm 

19 Credit System institutions". 




23 Sec. 201. Section 2.1 is amended— 

24 (a) in paragraph (13), by striking out the words 

25 "and make such other investments as may be author- 

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1 ized by the Farm Credit Administration" and inserting 

2 in lieu thereof the words "; and, as may be authorized 

3 by its board of directors and approved by the Farm 

4 Credit Administration, (i) buy from and sell to Farm 

5 Credit System institutions interests in loans and in 

6 other financial assistance extended and nonvoting 

7 stock, and (ii) make other investments"; 

8 (b) by striking out paragraph (18) and inserting in 

9 lieu thereof a new paragraph (18) as follows: 

10 "(18) Agree with other Farm Credit System institutions 

11 to share loan or other losses, whether to protect against capi- 

12 tal impairment or for any other purpose, as may be author- 

13 ized by its board of directors and approved by the Farm 

14 Credit Administration."; and 

15 (c) in paragraph (20), before the period at the end 

16 thereof by inserting the following: ", and participate 

17 with one or more other Farm Credit System institu- 

18 tions in loans made under this title or other titles of 

19 this Act on the basis prescribed in section 4.18". 

20 Sec. 202. Section 2.2 is amended— 

21 (a) in subsection (d), before the period at the end 

22 of the first sentence by inserting the following: ", and 

23 may be issued to and, notwithstanding the provisions of 

24 subsection (g), shall be retired for other Farm Credit 

25 System institutions as may be authorized by its board 

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1 of directors and approved by the Farm Credit Adminis- 

2 tration"; 

3 (b) in subsection (g), in the last sentence of the 

4 second paragraph, and in the last sentence of the 

5 fourth paragraph before the words "book value" by 

6 striking out the word "fair"; 

7 (c) in subsection (h), before the words "held by 

8 the Governor" by inserting the words "or participation 

9 certificates" and before the first comma by inserting 

10 the words "or other Farm Credit System institutions"; 

11 and 

12 (d) in subsection (i), before the words "book 

13 value" by striking out the word "fair". 

14 Sec. 203. Section 2.3 is amended— 

15 (a) by striking out subsection (b) and inserting in 

16 lieu thereof a new subsection (b) as follows: 

17 "(b) The Federal intermediate credit banks are author- 

18 ized to discount for, or purchase from, any national bank, 

19 State bank, trust company, agricultural credit corporation, 

20 incorporated livestock loan company, savings institution, 

21 credit union, association of agricultural producers engaged in 

22 the making of loans to farmers and ranchers, and any corpo- 

23 ration engaged in the making of loans to producers or har- 

24 vesters of aquatic products, with its endorsement or guar- 

25 anty, any note, draft, or other obligation the proceeds of 

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1 which have been advanced or used in the first instance for 

2 any agricultural purpose, including the breeding, raising, fat- 

3 tening, or marketing of livestock, or for the production or 

4 harvesting of aquatic products; and to make loans and ad- 

5 vances to any such financing institution secured by such col- 

6 lateral as may be approved by the Farm Credit Administra- 

7 tion: Provided, That no such loan or advance shall be made 

8 upon the security of collateral other than notes or other such 

9 obligations of farmers and ranchers and producers or harvest- 

10 ers of aquatic products eligible for discount or purchase under 

1 1 the provisions of this section, unless such loan or advance is 

12 made to enable the financing institution to make or carry 

13 loans for any agricultural purpose or for the production or 

14 harvesting of aquatic products."; and 

15 (b) in subsection (c), by inserting in the second 

16 sentence before the words "if the amount of such 

17 paper" the words "or for the production or harvestmg 

18 of aquatic products,". 

19 Sec. 204. Section 2.4 is amended by inserting in the 

20 first sentence after the words "Farm Credit Administration" 

21 and before the comma, the words "as provided in section 

22 4.17". 

23 Sec. 205. Section 2.5 is amended by inserting between 

24 the words "on-farm" and "operations" the words "and 

25 aquatic". 

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1 Sec. 206. Section 2.6(c) is amended by inserting in the 

2 second sentence before the words "25 per centum" the words 

3 "or more than". 

4 Sec. 207. Section 2.10 is amended by striking out the 

5 comma after the words "United States" in the first sentence 

6 and inserting a period in lieu thereof. 

7 Sec. 208. Section 2.12 is amended— 

6 (a) in paragraph (11), by inserting before the 

9 period at the end thereof the words "and buy from and 

10 sell to such banks interests in loans and in other fman- 

11 cial assistance extended and nonvoting stock, as may 

12 be authorized by the Federal intermediate credit bank 

13 in accordance with regulations of the Farm Credit Ad- 

14 ministration"; 

15 (b) in paragraph (13), by inserting before the 

16 period at the end thereof the following: "and when au- 

17 thorized by the bank participate with one or more 

18 other Farm Credit System institutions in loans made 

19 under this title or other titles of this Act on the basis 

20 prescribed in section 4.18"; and 

21 (c) by striking out paragraph (15) and inserting in 

22 lieu thereof a new paragraph (15) as follows: 

23 "(15) Agree with other Farm Credit System institutions 

24 to share loan or other losses, whether to protect against capi- 

25 tal impairment or for any other purpose, as may be autbor- 

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1 ized by the Federal intermediate credit bank in accordance 

2 witli regulations of the Farm Credit Administration.". 

3 Sec. 209. Section 2.13 is amended— 

i (a) in subsection (e), before the period at the end 

5 thereof by inserting the words "or in lieu of nonvoting 

6 stock"; 

7 (b) in subsection (f), in the first sentence before 

8 the words "book value" by striking out the word 

9 "fair"; 

10 (c) in subsection (0, by striking out the last sen- 

11 tence and inser^g in lieu thereof the following sen- 

12 tence: "Notwithstanding any other provisions of this 

13 section, for a loan in which an association participates 

14 with a commercial bank or other financial institution 

15 other than a Farm Credit System institution, nonvoting 

16 stock or participation certificates may be issued to the 

17 commercial bank or other fmancial institution in satis- 
IB faction of the requirement that the borrower own stock 

19 or participation certificates, which requirement shall 

20 Apply only to the portion of the loan which is retuned 

21 by the association."; 

22 (d) in subsection (g), in the first sentence before 
33 the words "book value" by striking out the word 
24 "fair"; 

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1 (e) in subsection (])> before the words "held by the 

2 Governor" by inserting the words "or participation 

3 certificates", and before the first comma by inserting 

4 the words "or other Farm Credit System institutions"; 

5 and 

6 (f) b subsection (k), before the words "book 

7 value" by striking out the word "fur". 

8 Sec. 210. Section 2.15 is amended — 

9 (a) in subsection (a), in the first sentence by strik- 

10 ing out clause (1) and inserting in lieu thereof the fol- 

11 lowing clause (1): "(1) bona Hde farmers and ranchers 

12 and the producers or harvesters of aquatic products, for 

13 agricultural or aquatic purposes and other requirements 

14 of such borrowers, including Knancing for basic proc- 

15 essing and marketing directly related to the borrower's 

16 operations and those of other eligible farmers, ranch- 

17 era, and producers or harvesters of aquatic products: 

18 Provided, That the borrower's operations shall supply 

19 at least the percentage of total processing or marketing 

20 for which financing is extended that is required by the 

21 supervising bank under regulations of the Farm Credit 

22 Administration,"; and 

23 (b) in subsection (b), by inserting in the first sen- 

24 tence before the first comma the words "as provided in 

25 section 4.17". 

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1 Sec. 211. Section 2.16 is amended by inserting be- 

2 tween the words "on-farm" and "operations" the words 

3 "and aquatic". 


5 Sec. 301. Section 3.1 is amended — 

6 (a) in paragraph (11), by inserting before the 

7 period at the end thereof the following: ", and partici- 

8 pate with one or more other Farm Credit System insti- 

9 tutions in loans made under this title or other titles of 

10 this Act on the basis prescribed in section 4.18"; 

11 (b) in paragraph (12), before the comma in the 

12 first sentence by inserting the words "or any other fi- 

13 nancial organization, domestic or foreign, as may be 

14 authorized by its board of directors and approved by 

15 the Farm Credit Administration"; 

16 (c) by striking out paragraph (13) and inserting in 

17 lieu thereof a new paragraph (13) as follows: 

18 "(13)(A) Buy and sell— 

19 "fi) obligations of or insured by the United States 

20 or of any agency thereof, or securities backed by the 

21 full faith and credit of any such agency; 

22 "(ii) bankers acceptance which are obligations of 

23 any member bank of the Federal Reserre System; 

24 "(iii) as may be authorized by its board of direc- 

25 tors and approved by the Farm Credit Administration, 

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1 other obligations which, for purposes of this paragraph, 

2 shall include but not be limited to drafts, notes, checks, 

3 loans, acceptances, accounts, currencies, or obligations 

4 payable in recognized currencies, ori^ating in the or- 

5 dinary course of transactions which the bank may fi- 

6 nance under section 3.7. 

7 "(B) As may be authorized by its board of directors and 

8 approved by the Farm Credit Administration, (i) buy from 

9 and sell to Farm Credit System institutions interests in loans 

10 and in other fmancial assistance extended and nonvoting 

11 stock, and (iD make other investments. 

12 "(C) As may he authorized by its board of directors and 

13 approved by the Farm Credit Administration, invest in own- 

14 ership Interests in business entities, foreign or domestic, to 

15 facilitate obtaining credit information and performing loan 

16 servicing and financial services related to international trans- 

17 actions."; 

18 (d) by adding a paragraph (18) as follows: 

19 "(18) As authorized by the board of directors and ap- 

20 proved by the Farm Credit Administration, maintain credit 

21 balances and pay or receive fees or interest thereon, for the 
\22 purpose of assisting in the transfer of funds to or from parties 

23^^ to transactions authorized by this titie.III."; and 

24 (e) by ad^g a paragraph (19) as follows: 

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1 "(19) Agree with other Farm Credit System institutions 

2 to share loan or other losses, whether to protect against capi- 

3 tal impfurment or (or any other purpose, as may be author- 

4 ized by its board of directors and approved by the Farm 

5 Credit Administration.". 

6 Sec. 302. Section 3.3 is amended by adding a subsec- 

7 lion (f) as follows: 

8 "(D Participation certificates may be issued to parties to 

9 whom voting stock may not be issued.". 

10 Sec. 303. Section 3.5 is amended— 

11 (a) by striking out the Hrst three sentences and in- 

12 serting in lieu thereof the following sentences: "Any 

13 nonvoting stock held by the Governor of the Farm 

14 Credit Administration shaU be retired to the extent re- 

15 quired by section 4.0(b) before any other outstanding 

16 voting or nonvoting stock or participation cerdflcatea 

17 shall be retired except as may be otherwise authorized 

18 by the Farm Credit Administration. When those re- 

19 quirements have been satisfied, nonvoting mvestment 

20 stock and participation certificates may be called for 

21 retirement at par. With the approval of the issuing 

22 bank, the holder may elect not to have the called stock 

23 or participation certificates retired in response to a 

24 call, reserving the right to have- such stock or partici- 

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1 pation certificates included in the next call for retire- 

2 ment."; and 

3 (b) in the fourth sentence, by striking out the 

4 words "tair book value not exceeding". 

5 Sec. 304. Section 3.7 is amended — 

6 (a) by adding the designation "(a)" before the 

7 text; 

8 (b) in the now-designated subsection (a), in the 

9 first sentence before the words "collateral custody" by 

10 inserting the words "currency exchange,"; 

11 (c) by adding a subsection (b) as follows: 

12 "(b) A bank for cooperatives is authorized, in connection 

13 with transactions of an association which is a voting Btock- 

14 holder, to make or participate in loans and commitments to a 

15 domestic or foreign party in which such association has at 

16 least the minimum ownership interest approved in accord- 

17 ance with regulations of the Farm Credit Administration, or 

18 which engages in transactions with such association for the 

19 purchase, sale, or exchange of agricultural conunodities, farm 

20 supplies, or aquatic products or the lease of real or personal 

21 property and extend to such domestic or foreign party other 

22 technical and financial assistance if a bank for cooperativeB 

23 determines, pursuant to such regulaUons, that the voting 

24 stockholder will benefit substantially as a result of such loan, 

25 commitment, or assistance."; and 

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1 (d) by adding a subsection (c) as follows: 

2 "(c) Loans, commitments, and assistance authorized by 

3 subsection (b) of this section shall be extended in accordance 

4 with policies adopted by the board of directors of the bank 

5 and approved by the Farm Credit Administration.". 

6 Sec. 305. Section 3.8 is amended — 

7 (a) in the text precedes subsection (a), by striking 

8 out the comma before the words "or harvesters of 

9 aquatic products", and by inserting the words "or 

10 aquatic" before the words "business services or serv- 

1 1 ices to eligible cooperatives"; 

12 (b) in subsection (c), by striking out the words "or 

13 farm business sen'ices", and inserting in lieu thereof 

14 the words "farm or aquatic business 8er\-ice8, or serv- 

15 ices to eligible cooperatives"; and 

16 (c) in subsection (d), by striking out the words 

17 "not less than 80 per centum (70 per centum in the 

18 case of rural electric, telephone, and public utility co- 

19 operatives)" and inserting in lieu thereof the words 

20 "not less than 60 per centum". 

21 Sec. 306. Section 3.9(a) is amended by striking out the 

22 first sentence and inserting in lieu thereof the follo^wing sen- 

23 tence: "Each borrower entitled to hold voting stock shall, at 

24 the time a loan is made by a bank for cooperatives, on-u at 

25 least one share of voting stock and shall be required by the 

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1 bank with the approval of the Farm Credit Administration to 

2 invest in additional vodng stock or nonvotmg investment 

3 stock at that time, or from time to time, as the lending bank 

4 may determine, but the requirement for investment in stock 

5 at the time the loan is closed shall not exceed an amount 

6 equal to 10 per centum of the face amount of the loan.". 

7 Sec. 307. Section 3.10 \b amended — 

8 (a) in subsection (a), before the period at the end 

9 of the first sentence by inserting the words "as pro- 

10 vided in section 4.17"; 

11 (b) in subsection (d), in the first sentence, by strik- 

12 ing out the word "book" and inserting in lieu thereof 

13 the word "market", and by adding a second sentence 

14 as follows: "In no event shall the bank's equities be 

15 retired or canceled if the retirement or cancellation 

16 would adversely affect the bank's capital structure, as 

17 determined by the Farm Credit Administration". 

18 Sec. 308. Section 3. 1 1 is amended— 

19 (a) in subsection (b) by striking out in the second 

20 sentence the words "less than 25 per centum" and in- 

21 serting in lieu thereof the words "less than or more 

22 than 25 per centum"; and 

23 (b) in subsection (c), by striking out the first sen- 

24 tence and inserting in lieu thereof the following aeo- 

25 tence; "The net savings of each district bank for co- 

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1 operatives, after the earnings for the fiscal year have 

2 been applied in accordance with aubscction (a) or (b) of 

3 this section whichever is applicable, shall be paid in 

4 stock, participation certificates, or cash, or in any of 

5 them, as determined by the board, as patronage re- 

6 funds to borrowers to whom such refunds are payable 

7 who are borrowers of the fiscal year for which such 

8 patronage refunds are distributed.". 




12 Sec. 401. Section 4.5 is amended — 

13 (a) in the first sentence, by striking out the word 

14 "presidents" and inserting in lieu thereof the word 

15 "president" and by inserting before the period at the 

16 end thereof the words "or his designee"; and 

17 (b) in the third sentence, before the words "or 

18 representatives ihereor' by striking out the word "sub- 

19 committee's" and inserting in lieu thereof the word 

20 "subcommittees". 

21 Sec. 402. Section 4.10 is amended by striking out 

22 before the words "title of this Act" the word "name" and 

23 inserting in lieu thereof the word "same". 

24 Sec. 403. Title IV is amended by adding at the end 

25 thereof new sections 4.17, 4.18, and 4.19 as follows: 

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1 "Sec. 4.17. Intehest Rates. — In order that lending: 

2 can continue on a seU-sustaitiing basis, interest rates on loans 

3 made by institutions o[ the Farm Credit System shall be de- 

4 termined with the approval of the Farm Credit Administra- 

5 tion as provided in this Act, notwithstanding any interest 

6 rate limitation imposed by any State constitution or statute 

7 or other law(s) which are hereby preempted for purposes of 

8 this Act. 

9 "Sec. 4.18. Pabticipation Loans. — Notwithstand- 

10 ing any other provisions of this Act, the terms of any loan 

11 participated in by two or more Farm Credit System institu- 

12 tions operating under different titles of this Act, including 

13 provision for capitalizaUon of the portion of the loan partici- 

14 pBted in by each institution, shall be as may be agreed upon 

15 among such institutions and authorized by the Farm Credit 

16 Administration, except that for purposes of determining bor- 

17 rower eligibility, membership, term, amount, loan security, 

18 and purchase of stock or participation certificates by the bor- 

19 rower, the provisions of law applicable to the loan shall be 

20 the provisions in the title under which the institution that 

21 originates the loan operates. 

22 "Sec. 4.19. Teuth in Lending. — The provisions of 

23 any State statute or any other law or regulation which 

24 impose, with regard to a credit transaction, any duty or re- 

25 quirement that had been imposed by the Truth in Lending 

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1 Act (83 Stat. 146) prior to any amendment thereto shall not 

2 be applicable to credit transactions of Farm Credit System 

3 institutions.". 

4 Sec. 404. Title IV is amended by adding at the end 

5 thereof a new part D as follows: 

6 "Pabt D — Seevice Oboanizations 

7 "Sec. 4.25. Establishment. — Any bank of the Farm 

8 Credit System, or two or more of such banks acting together, 

9 may organize a corporation or corporations for the purpose of 

10 performing functions and services for or on behalf of the or- 

11 ganizing bank or banks, other than the extension of credit, 

12 which said bank or banks may perform pursuant to this Act. 

13 A corporation so organized shall have no greater authority 

14 with respect to such functions or services than the organizing 

15 bank or banks possess under this Act. The organizing bank 

16 or banks shall apply for a Federal charter for the corporation 

17 by forwarding to the Governor of the Farm Credit Admiois- 

18 tratiou a statement concerning the need for the corporation 

19 and proposed articles specifying in general terms the objects 

20 for which the corporation is formed, the powers to be exer- 

21 cised by it in carrying out the functions and services, and Uie 

22 territory it is to serve. The Oovemor for good cause may 

23 deny the charter applied for. Upon (he approval of articles by 

24 the Governor and the issuance oi -a aharter, the corporation 

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1 shall become as of such date a federally chartered body cor- 

2 porat« and an instrumentality of the United States. 

3 "Sec. 4.26. Powees of the Govebnoe. — The Gov- 

4 emor shall have power, under rules and regulations pre- 

5 scribed by him or by prescribing In the terms of the charter 

6 or by approval of the bylaws of the corporation, to provide 

7 for the organization of any corporation chartered under this 

8 part and the territory within which its operations may be 

9 carried on, and to direct at any time such changes in its 

10 charter as he finds necessary for the accomplishment of the 

11 purposes of this Act. The powers of the Governor to provide 

12 for the organization of any corporation chartered under this 

13 part include, but are not limited to approval of — 

14 "(1) Corporate dtle. 

15 "(2) General corporate powers, 

16 "(3) Eligibility for membership on, and the 

17 powers, composition, selection, terms, and compensa- 

18 tion of the board of directors. 

19 "(4) Classes, issuance, value, and retirement of 

20 stock. 

21 "(5) Sources of operating funds. 

22 "(6) Dissolution, liquidation, and distribution of 

23 assets on liquidation. 

24 "(7) Application and distribution of earnings. 

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1 "Sec. 4.27. Supebvision and Examination. — The 

2 corporations organized pursuant to this part shall be InBtitu- 

3 tions ot the Farm Credit System and shall be subject to the 

4 same supervision and examination by the Farm Credit Ad- 

5 ministration as are the organizing bank or banks under this 

6 Act.". 



9 Sec. 501. Section 5.2 is amended — 

10 (a) in subsection (b), in the last sentence thereof 

11 striking out the word "three" and inserting; in lieu 

12 thereof the word "two"; and 

13 (b) in subsection (c), in the first sentence thereof 

14 by striking out the word "three" and inserting in lieu 

15 thereof the word "two", 

16 Sec. 502. Section 5.8(b) is amended, in the first sen- 

17 tence thereof by striking out the words "the sum ot $100 a 
IS day" and inserting in lieu thereof the words "compensation 

19 at a rate equal to the daily equivalent of the rate prescribed 

20 for grade GS-18 under section 5332 of title 5, United States 

21 Code". 

22 Sec. 503. Section 5.11 is amended — 

23 (a) in the first sentence by striking out the words 

24 "in the Executive Pay Schedule" and inserting in lieu 

25 thereof the words "by the Federal Farm Credit Board 

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1 but not to exceed the maximum rate of basic pay in 

2 the Executive Schedule (5 U.S.C. chapter 53, sub- 

3 chapter II)"; 

4 (b) by striking out the second sentence and iusert- 

5 ing in lieu thereof the foUowing sentence: "The Board 

6 shall fix allowances, or per diem in heu thereof, for 

7 necessary travel and subsistence expenses of the Qov- 

8 emor while traveling on official business."; and 

9 (c) by inserting at the end thereof the following 

10 new sentence: "In addition, the Board may fix (1) the 

11 allowances, or per diem in lieu thereof, for necessary 

12 travel, relocation, and subsistence expenses of a person 

13 newly appointed as Governor and the immediate family 

14 of such person, and (2) allowances for necessary travel 

15 and subsistence expenses of persons under considera- 

16 tion for appomtment to the position of Governor in- 

17 curred in connection with interviews requested by the 

18 Board.". 

19 Sec. 504. Section 5.27 is amended by striking out sub- 

20 section (a) and inserting in lieu thereof the following: 

21 "(a) The Executive Schedule of basic pay (80 Stat. 485; 

22 5 U.S.C. 5311-5317), as amended, is further amended by 

23 striking from positions at level HI the position '(57) Gover- 

24 nor of the Farm Credit Administration'. (5 U.S.O. 5314)." 

25 Sec. 505. Section 5.13 is amended to read as follows: 

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1 "Sec. 5.13. Fabm Credit Osoanization.— The 

2 Governor of the Farm Credit Administration is authorized, in 

3 carrying out the powers and duties now or hereafter vested in 

4 him by this Act and Acts supplementary thereto, to establish 

5 and fix the powers and duties of such divisions and instni- 

6 mentalities and to appoint such number of Deputy Governors 

7 as he may deem necessary to the efficient functioning of the 
6 Farm Credit Administration and the successful execution of 
9 the powers and duties so vested in the Governor and the 

10 Farm Credit Administration. The salary for the positions of 

11 Deputy Governor shall be at the rate or rates fixed by the 

12 Federal Farm Credit Board but not to exceed the maximum 

13 rate of basic pay in the Executive Schedule (5 U.S.C. chap- 

14 ter 53, subchapter 11). The Governor is further authorized, 

15 without re^rd to the provisions of the competitive civil serv> 

16 ice and classification statutes and regulations issued thereun- 

17 der, to establish, determine the level of responsibilities of, 

18 make appointments to, and fix in advance salaries for, such 

19 other positions in the Fann Credit Administration as may be 

20 necessary to cany out its functions: Provided, That the 

21 salary for any such position may not exceed the annual rate 

22 of basic pay for positions at level V of the Executive Sched- 

23 u!e. With the approval of the Federal Farm Credit Board, 

24 the Governor may fix without regard to the provisions of 

25 chapter 57, title 5 of the United States Code (1) allowances. 

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1 or per diem in lieu thereof, for oeceasary travel and subast- 

2 ence expenses of offlcers and employees of the Farm Credit 

3 Administration while traveling on official business, (2) 

4 allowancea, or per diem in lieu thereof, for necessary travel, 

5 relocation, and subsistence expenses of new appointees, and 

6 of officers and employees of the Farm Credit Administration 

7 who are transferred in the interest of the Farm Credit Ad- 

8 ministration from one ofOclal station to another for perma- 

9 nent duty, and their immediate families, and (3) allowances 

10 for necessary travel and subsistence expenses of applicants 

11 for employment with the Farm Credit Administration in- 

12 curred in connection with preemployment interviews.". 

13 Sec. 506. Section 5.15 is amended — 

14 (a) in the first sentence after the second comma 

15 and before the words "make necessary expenditures", 

16 by inserting the words "and without regard to the pro- 

17 visions of law relating to the acquisition of property 

18 and services by the Government of the United 

19 States,"; and 

20 (b) by adding at the end thereof the following new 

21 sentence: "The Farm Credit Administration may dis- 

22 pose of property so acquired without regard to the pro- 
2S visions of law relating to the disposal of Government 

24 property, and any amounts collected from the disposi- 

25 tion of such property shall be deposited in the special 

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1 fund provided for in section 5.16(b) and shall be avula- 

2 ble to said Administration in the same manner and for 

3 the same purposes as the funds collected under section 

4 5.16(a).". 

5 Sec. 507. Section B332 of title 5 of the United States 

6 Code is amended in subsection (b) — 

7 (a) by striking out the word "and" after the aemi- 

8 colon in para^aph (8); 

9 (b) by striking out the period at the end of para- 

10 graph (9) and inserting in lieu thereof "; and" and by 

11 inserting after paragraph (9) a paragraph (10) aa fol> 

12 lows: 

13 "(10) service in the employment of a Farm Credit 

14 System mstitution which is not otherwise included as 

15 service under this subsection if he later becomes aub- 

16 ject to the provisions of this subchapter."; 

17 (c) by inserting before the words "For the purpose 

18 of this paragraph (5)" a new sentence as follows: "The 

19 Office of Personnel Management shall accept the certi- 

20 (ication of the Governor of the Farm Credit Admims- 

21 tration or his designee concerning service for the pur- 

22 pose of this subchapter of the type perfonned by an 

23 employee named by paragraph (10) of this subsec- 

24 tion."; and 

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1 (d) by inserting at the end thereof a new sentence 

2 as follows: "ScTvicc referred to in paragraph (10) is al- 

3 lowable only in the case of persons who are subject to 

4 this subchapter on, or become subject thereto after, the 

5 effective date of the Farm Credit Act Amendments of 

6 1979.". 

7 Sec. 508. Section 8339 of title 5 of the United States 

8 Code is amended in subsection (i) by inserting at the end 

9 thereof a new sentence as follows: "With respect to an annu- 

10 ity which is based upon service credited under section 

11 8332{b)(10) of this title, unless the employee or Member 

12 elects to eliminate the service involved for the purpose of the 

13 annuity computation, the annuity is further reduced by an 

14 amount equal to that portion of any retirement benefit pay- 

15 able to the annuitant for the year under a Farm Credit 

16 System institution retirement plan which is allocable to such 

17 service, or where there has been a lump-sum payment under 

18 the plan to the annuitant, by an amount which the Office of 

19 Personnel Management determines would have been payable 

20 to annuitant for the year and allocable to the service if the 

21 lump-sum payment had not been made.". 

22 Sec. 509. Section 6308 of title 5 of the United States 

23 Code is amended in the first sentence by inserting "or" 

24 before "(vi)", and by striking out ", or (vii)". 

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United Slales of America 

Office of 
Personnel Management wuhi^on. □ c 20415 

'HoDonble TboBU S. Fola; 
Chalmn, CoanitCH on 

Houae of B«p[««BtMtins 

Th> OffU* of Fanomial t(aia|cmeac wiahss to advls* Che CoisiltCM Ml 
Agilcultur* of lU vim ea H.R. «7S2, the 'Tub Credit Act AaeadDcncs 
of 1979." We 
of Che bill. 

DGiAen of Chs 

e no objection Co this chimgi 
M KI3, 5W, <mr1 503 ifould m 

congly to tl 
ovlde an eqi 
■Itlona thir 

:able uid rstlonal pay atnctiiie for the 

tie EKporc-Iaport Bank, 
Forn Credit Adnlnlat 

rve Chslnao 
r Unit on the 

Digitized by Google 

Ha alM b*ll«r* It wduU b* luppropclsta Co nmora tlia GS-IB ealllns M 
Cb* nithoTlCjF at th* P*Tm Credit Adalatdfatlan ta Cli th* lalaty of tb* 
Deputy Covamari. ThMa poaltlou ar* boh In tlia Sanlar Exaeutlva Sarvlca, 
with potanclal 1st aubitaDtlally tactaaaad cg^anaallan thiouih parfois- 
aata nl rail avarda, and than ■■_• to ba no cleai latlonala lor looval 
of tb* ealllns. 

la addition to raaovlni tha CS-IB llhltaciia oa pay for Daputy Cotfanurar 
tba bill would autherlia tba Covarnor of tha ran Ciadlt Adalnlatratlon 
to appoint and fls Cba fij ol Ita aaplaraa* vltliout raaard to tha laara 
govamlns Fadaral aaployaant , but vltb paj llaltad to Cba rata [at laval V 
of tba EMcuiln Schodula. 

U« ual 

t abjact to 1 

thl. pravl 

sloB. Dndar aact: 

Lou iU 

ll(c)(l*) of tltla S. 


, oployau who aca 

paid fee. 000, 

.ppropvialed funda ai 

idula clui 

lis uoaar wh 


il 'gai 

«!«''''«"'« Iha 

L Dapoalc [ni 

■ utSDce Ct 

and th« 


ot Cov.roora of tba 

uctpted ( 

.1 Schaduta and ata 

chua abla to fix p: 

■T adainti 



in i IG of ha Fan 

Cod IE 

Act .wld c 


to opaii 

Lhout >pp cop I La Cad 

■ng that C. 

liai ea 

Wlnently cho««n 

to lin< 

law and i| 


lly ,p, 

jtuprlati fund for 

thi adi 



of [h. Fa, 



cctcd 1 

. for . 

>di< Sy.ii.. 

. (Saa, 

uanpla. Tltla V of 


law 95-*«8. 
A. longaa 

Ottobat J 

•or tha 1 
, raqulr. 

1 tha ] 

yaat 1979 approprla- 

Jar thr .{ 


.ns proei 

vould 1 

J. approprU' 

.V. thla ai 

m tha 


Tha Fara Ciadlt AdstDlat ration baa arguad that tbaaa ancaptlona froa tb* 
notital Fcdtia anploynanc lam aia saadad lo facLl lata hiring atv 
«i^loyaea at ratca abova tha nlniauB of the grade ulthoui DPH diaraocc 
jiod to lalaa aalailu Co a la>*l co^iatltlva xlth tha facn Cradlt Syataa. 

provldad for tha dalagaclon of -advoocad iD-bliK.g riic appinvat at GS-ll 

flaaJblllty ahould provlda consldarabU aailxlaaca CD cha Fan Credit 
' 'O He oota that cha Fan Crt^Iit Adaiolat . . . .v^t 

■clal higlitr racaa ot p«y for oecupatlona lo aceaa vhara 
■... I'ny rates algnlflcantly !■ ...^jnt'a 

. ahould alio h*lp in racruiL, a[ higher levelg. Ultb . 

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approved Ar« so hlsb t' 
BcAcr luBtlcutiana to 

Slallarlj, we nuc obj' 

Ion of I 

an7 BCafflsg <leUya 
pToccii for four of 

e bellsve 
n Ccedlc , 


■atly relieve 

Specinl Eiiimlnlng Ui 

:tons, Bubjecc Co OPH BupervlBion7 

The Tam Credit Am would be further amended to auttiorlie the Bo>[d to 
pay travel, telocatton, and subalstence expenses of a newly-appointed 

juld alBD 1>e eicE 

portability of r 

□nnel prDgrao. designed to Encoutage «i 

We src; sympatkeLlc to the probleBS of r 

faced by the Fan Ctedlt AdnlnlstratlDn 

■a thoa* faced by the Federal Government geneislly ^enev. 

from outiide Its own ranka. In fact, the issue of retirei 

parttbllUy that a 

Digitized by Google 

Is a najoi piDblm fei (ll 

eiq>loysrs in our eco 


TC la b 

cauae t 


pTobla la BO gueral that 

two national atudy g 

the Pre 


Coa-lsBlon ■» ?.n«loo Pali 


ge Study 

Group a 

1 consld 

r, .Ion 

Hlth Bthec aatcat*, the m 

ire area of poccabtlity. 

He b el lev 

e that 

would he undealtable to na 

e any changea in thl 

e findlngB 

o( thoa* tuo acudy bodlas 

Section 509 la Intended, » 

believe, to authocl 

le le 

ve balan 

es earn 


under the 7an Credit Syaten to he tranaEeriad 

Hmcver, the hill ai draft 

d would not accoBpll 

ah Ch 

s. The t 



leave authorliatlaii In aac 

ion 6308 of tltla S. 


applies to Che tranafer of 

ent Federal le. 

ve sysc 

and h» no application to 

ayateu to Che Federal gys 

en. The aientlnn of 

f Far. 

Credit System Inaclcutlona 

In S U.S.C. £101(2) 


and the 



dating troB the period bef 

re the 1959 Ace when 



actually Federal employees 

chej ha 

Federal enployeca, and hav 

not net the deflnlc 

" employ 

e" in 

S U.S.C. 630ia). Therelo 

as propo 

ed In 

B purpuB 

it weCB redrafted, houevec 

we would object str 


CO this 

Aecepdng t ran a 1 erred leav 

uld be 

costly, and ve believe It 



d Budget advises Cha 

t en. 

cmenc of 



Digitized b, Google 

Ob lahkll at th* hn Cn«it l^aLatstraclaa 

Cradlt MklalatruLoa — tha tiiiifniiliai MJanl ■•Mcy <*lek wjalaf 
<^ aHparrlHa lb* eoorarattaa rara badit Itiub. t ■■ han ta^r to 
•Vcaaa cha fall loppati a( tha Far* Oadlc Malalatratlaa far I.B. 47ai 
— IIM ran Cradlt Het ^laiainta sf 197» UU. 

nia lafUUtlea asJoT* ^^ laataM •affOTC at cba (Manl Fan Cn<It 
loard, u evldaKal hf OUlnaa taatln'a pnaaasa, ud hM baM Mdaraad 

Molt tar Coofacaclna. !k. Ohalnaa. Cbaw iianrracleallr alaetad 
beard* ha** coacludad, afEar bdcs chaa > aonth* a( canfol dcllkaiailaa, 
that cha pcapoaad aaaateaata Co tha Fara Cndlt *et of 1971 muU aaka an 
.aat eoatrlbBttaa to tha wKan of Jtaattca* ■(ttcallan, rural 
« a^ tha latlaa aa a vhola. Tba FaTB Cradtt MHlalatraclaa (all^ 
'a alth thl( cooclualea amd raapactCullr raco^nda tbM Co fou tor 
fom cBoaldamlm. IC 1* our ballat chat thu la(laUtloa irfll aaabU 
tha fan Crailt Sracaa to da a baltat Joh la ••cirlot tt» berraaai aaabara 
aod tlHlr eoepaiaclaaa. tad, of couTM, It alU ba abla ca da a battar 
job Hlchout aaT additional axpandltorai bjr cha U.S. taifHrar aloca as tai 
dollar la lovolnd la cha faadloi of ru ar tha Fan Cradlt Srataa. 

CoaacaM parloraad a raal aarvlca to kaarlcaa agrleiilCura b^ aaactlos tha 
Fan Cradle MC of 1971. It La hard to ISMto* lAat tha Fara Ctadlt Sya- 
[■a Miuld ba Ilka todar K tt had ut baaa for thla landHth latltlacloo. 
Tha «ec of 1971 *>uhll*had a la(al fiaHwct for a amw Fara CrwIK 
Irataa which had anlrad ilaca Ita lacaptloa la 1916. ta a aard, tha 
rata Cradlt Act of 1971 eoattltatad a aaw ehartac (or a coaplatalr 

Jtaarlcaa a|rleultuta. Tha Act bcoadaoad tha U(al aathorltlaa ol tha 
Sfataa ulthout ehaailaa Ita hUtorlc atailea — uhlch la to provlda 
taarlcaa airleutcural producara vlth • raltahla aaarta at endlt taltorad 

Digitized b, Google 

Hr. Chalrun, Clw la|tal*Itsa tefon ;raur (ubeoaalttaa Coda; oould coa- 
CloiH Eh* nork bagna br Cbc 1971 Fara Cradlt Act. Tin pcepeaad (raaiul- 
MBK caataload In B.K. 4'a2 ifould uc coaatltuca ■ aan Ttrm Cradtt Mc. 
No radtraeclan la [ha htacorU ■laatoa of tha Firm Cradle S/ttaa la 
prapSMd ar coutaaplalad. laataad, ■■ ar* raeo— ndlai fat yoax caoatd- 
atatlaa that tlia I9ri tec ba aodlflad aad updacad, Ua baltan thaaa 
aadlflcaUeni (ta aaadad to aaabla tha Smtas to aoca afractlnlT tutllll 

I balla** that *tx broad propoaal* concalMd la H.t. *7S2 daaarv* apaelal 

Flrac, iDwaTlDi cha fanaar-aaab a r allflbtlltj raqultaaant for bank 
for cwparacin (Inanely to 60 paccant of ttm Totlns Baabara, or 

Sacoad, altawlai FadanI land banka to aaka loaa* tor aori tb«a 85 
patcaat of cha appraLaad nlua of fan T*al aatata abaa Cbaaa loan 
an tuaraaeaad bF a Fadaral, Stata at caslooal tovaniaaatal unit. 

Tblrd, authorlilni tha Fadaral Und banka and production cradlt 

toi aettvlctaa of bona flda fanara. 

Fourth, authorlitng cha banka (or eoopcratln* to flaanca tha 
eipoctlog and lapoctlns acctvlctaa of U.S. farwr eosparatlvaa. 

Fifth, aipandlnt. In thraa dlaclncc wiya, cha 

Stith, proddlni for iraatat cooparatlon bacman Facw Cradlt 1 

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Tha flt*l M}ac prspoaal — dHltii< vlth eoepantl** altaUllltJ — la 
roa»d 1b tarn at tb* ujsr Ingsraphii ehu(« lAleb hM* ¥••■ taUos 
pUca la nnl tanUa «uilat tka paac Hnnl ;aa». At praaaat. ninl 
alaetcte a^ athar uttlltr Go-ap* an ra^atrad M hat* at laaat 70 pat- 
cant at thalr totlni itsek to tha biadi at faraara, U ordac to ba 
all|tbla (or bank for coopat»t«a floaBclnl. Sapplj aad aarkatlaa u-op« 
an laqulrad vklaT ptaaaat Uw to haw M parcaat fatan <attii« eoacnl. 
Tha laftalatlaa bafora ;«i today wuld loMt itia alalaua ntlflg eoatnl 
TaqaliaBiai to iO parcaat (oi aackatlBi, aupplr, aad uttlltj co-op*. Tha 
bill alao pnnldaa that aach fan Cradlt dtatrlet aay aatabllah • hlihar 
Toclot raqulraoant fot It* owi r«|lai<. 

The populatleo of rural itaarlca baa baaa diaii|I>t> 1* ehanalot, *ad ittll 
coatiaua to chanta In tha lutata. raiaara and ranehan ara iBccaaalBflr 
(tadlB( nan aonfaca aat(hbor«, la aaay parta ol tha latloa, fataar 
lahabltaata of cltial and toww ara riBdla( rural Ufa a prafarrad aoda 
oC altttaaca, la aoM uaT'i o( coaraa, thll la a mleoM *l(i< 'or rural 
taarlca. Tat thi* nan daaographlc pattirn hai ptacad aoaa faraar co-op* 
In an avkuard pealtloo, Tika rural alactrlc ca~opa, foe uaapl*. Tha 
raculatloa* al asat Scata public Hnlca co^ilMtoM raqulra that UC* 
aad talaphona co-op* aarva airaryoaa locacad In tbalT tarrltorr. Uao, 
ragulatlDW ol the Rural ElactrlCicatloa UalBlatratloa raqulra that all 
lutal olllit)' cooparacln uaara hava ch* rt|ht Co nla la th« aflalr* of 
th*lc rural alacCTlc cooparacln, ta a raaulc of thla 'area concaia 
tula." uClllCj' cooparattva* hava ao coatrol orat vho la and who la net a 
■aab«r of thalr otganiiaclea aad caanot raatrlct Tocla) rlghta to a|[l- 
cultiiral producer*. Tat, the** co-op* beeoa* Inatlglbla to raealv* 
coapailttvaly priced credit iToa tha bank* lor eaoparatlna whaa oaa 
aaabal aor* thaa 30 parcaac of tha aeAetahlp 1* not a laraar or a 

electric teaaraclng and ttaaaai»loa co-^p* ara iBcraaalnt, a aourc* 
cTOdiC 1* batng thiaataaad due to deaotraphie factor* bafood thalr 
control. Th* builia fot cooparaclva* provldad 79 ucilltr co-opa vtch 
altlion U tha /ear andlng Dacaabar 31, 1179. Uhlla Cbt* r«pre**al* 

Digitized by Google 

draaatle IncTMH iihm cnpared to Cb> aaouac lotnad bj BC* Iha pn<lav* 
)FUT, cIh pslDC li chat the bull* (or eoftpcraclm could ha*« proddad 
avao man credit to aora RECa laat f*x, U th* •llgtbltltr raqulrcaaac 
had b««a aac at 60 parcaat rachar than 70 peiconc. To put Cha Mttac 
blunclr, ualeaa tha allllbllltj laqulraHOC La adjiutod to th* d*ao- 
graphlc taalLttea e( rural taarlca today, Cha nwbar o( utility eo-epa 
(hac atll ba unabla Co caka advaocaga of BC crodlt can only locroaaa la 
tho yvara ahaad, 

Theco aro alallac eligibility ptoblaaa facial aupply and aarkaclns co- 

uclllcy co-opa, aloca tha nllng cancral raqulraaanc for aaTkacliis and 
aupplj co-opa la aac at M paccant, racbMt Chan ac 70 parcaac, aod 
bacauae tha REA 'araa covaraga rule' doat oat apply to cbaa. Tac, cha 
aaaa baalc dllaaaa axlaca. Daaographle Faccora bayoad cbalr coocrol ara 
aaklng Ic dlfflcuLc for aany npply and aarkaclng cs-opa Co aalncaln all- 
glblllcy for BC Iloancloi. Tha dtactlct Far* CradU baoka tall ua chac a 
aubataadal Duabac of aupply and narkatlng eo-epa ara noii, or aooa will 
ba, Inallglbla If cha proaenc ratio! control raquttaiMaC la not lovarad. 
Thla U th* raaaoo vhy U»y and wa hava raeo^Modad to you that th* alnl- 
Buii •Iltlblltcy raqulMiaaac ha aac ac 6D paccant. 

tuc, bafora laavlDg thla topic, I laac Co a^haalia chac soChlna la chl* 
propoaal tnuld *lclata, la ai? way, Cha lont chactthtd prloelpl* of 
facaat ceotrol of chair coopatatlvaa. Nr. OUlraan, than la aodlalft- 
l>h*d aupporc wlchln cha Farm Credit Syataa to totaln (araac control a* a 
gutdlni prlKlple of cha Syacaa. All chat tha Systa* aod FCA are propoa- 
Ing la to (Dnnlat* th* pclaclpla of fanar control In Bca taallaclc 
taraa. If wa fall to aake the required adjuaCMnta In thla teraila, aany 
fanar* and caochat*, •■ wall aa other* In rural ta*tle*, vlll lo**, 
althar now or la cha oaac fucura, cha vital banaflt of aecaaa Co tlnan- 
clnt (ro* th* bank* Cor cooparaclraa. 

Th* •■cond Mjor propoaal wold alloii Che redetal land b*ak* Co aaka 
loaaa In enet* st SS p*re*ac of cba appcalaad nlu* a( th* real aataca 
aacurlty whan chaaa loan* at* guaraacaad by Federal oT Scata govaraHatal 

Digitized by Google 

aalM. Thli propoul la daalinad U ea«bl* Ch* land banlu ts eoatlUM 
protldtai endlt ts Teuo) and IsH-aqutV (araiH, In cha paat, tha TLl* 
hava raachad Chata barra«» *r coaparactai with Ch* ranwta Bow Malit- 
latracloa bj saau ot ChM ai'Dcr'a JolDC and aub«rdla«t*d loan protnaa. 
Ilila cooparact** »tlott an tha pare sf tba Farsara Boaa AdBlalatcaclaa 
■Bd tfaa land baoka ha* fcaita to ba hiihlr auccaatful. Han thaa Jl 
blllloB aaa loanad ts aliaoaC 23.000 lanaca Ln cha 19r4-l9Ja period aa a 
ranlt a( thla cooparaclv* •ftort. Hiiiao*ar, eta proina'a loaa racord 
haa baad idalnbl/ la*. 

Tha naad (OI Ch* propoaad aHodnnc bafot* you codaj, ailaaa Cr<m « 
changa la tha dlraecloa of FaBA low piogcaM vtty tiom dlnct loan* to 
loan fuaraaCaa*. ta you know, thla nan approach In FaU pTotEaaa ataaa 
fna lb* ti'lcultural Cndlt Act of l>7a IP.U 9S-344]. Uhlla thla 

caqulraatnt* of food public policy. It dM* aaaa that Cha laad banka will 
ba uoabla to aotira youni and lov-aqulty (amiia irltb tha aaalacaau of 
cha twBA JolDt and tubordloacad loan ptogTaat, aloes thaaa ptatraas ars 
dltacc loan pcograu. At cbs aa« tlaa, tha Und banks wlU ba unabU Co 
roach Cha a a aa nuaibar ot youDf aod lov-o^ulty farasra chrough Cha FbHA 
■uacaatood loaa proinaa unlo** tho Farm Cradlt Act o( 1171 la ndaod. 

Under currant lav, FU loan* canooc onsod SI parcont o( Chs appralasd 
nlua ot cha rsat aacaca aacurlcy. A luccbar raacralnlof fsccsr Is cho 
roqulroBut to praaant Uv th«c cha borcoinr Irnrsat Is chs acock of his 
Fadscal land bank saaectaclon 1* tha asount of bsciMaa S sad 10 poccoat 
of his loan. Ths nst sffsct of thaaa Cm caatrletlooa on loan aiaount Is 
chac naoy youog and low-oqulcy faraara vlll ba unabis to taka advancafa 
ot FU Iloaitclai, ovsn i( thay could itusllFy tor an FnBA or othor 
guaiaDCao, Tha propoaad aaandaanc muld aaka tt posalbls lor ths 8S 
psrcaot lUtt to ba mlvod ubaa it U dowiBaccacod to tha landlof afflcar 
that othsE CMdlt tsctocs uacraoc Cha llatt baln« sacoadsd. For suapls, 
a loan tuarancaad by cha FaKA of up to 90 porcaat of appralasd mlua 
■t(hc ba aads Co an applicant If hU oaralna potsntlal aad [Opaywnt 
eapsetty sr* partlculsrly prsalalni. In oChst mrds, thla pcoposal maid 
■DSbls tho Fsdonl Isad bsnka to baao thslc daelsloa about yoiraa fatasrs 

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on ■ >ra«i»r (a^a of cr*<tt facMt* Omtb U ■■■ poaalbU iJT oimM 

Ua. t ball»* cha aavUkU lOM neort of M» Ua4 baaka — akaat .00* 

ptreaat a( Isaaa aoEataadl^ •• of Jww 10, l«r« — pravldaa anrj naaaa 

tor balla*las that thar alll aaa chU locraaaad ftaatbllltT la ■ ifiml 
aad c«a*tnicEt*a (aihloa. 

Tha Chtcd wjar ptapoaal aauld bnadaa cha auchorltlaa that cha flM aad 
KM aaw hava ts (loanca Iha procaailai and aarkaclat actldtlaa of a 
•p^leaat'a fan, caaeh oe aquatic spatatton, utt ttnaa of sthac boaa 
tlda tacana, raaehoia —4 afuatU produeara. U praaaat, TLta aad PCAa 
■ra aoclwiiaad hr Iha Fan CcadlC *cl of 1971 ISaetloaa 1. 10 aad t.I5) ta 
pEsvida loaaa ts (araaia, ranchara aad aqtiattc producaca for tiMaa 
purpOMa. But thora la a atrlet Halt oa thla (ora at flaaaciB). Tha 
applicant aiut pio*ld« aora Chaa 30 paccaat of tha EhTsii|hp<at procaaaad 
ot HIkatad In otdat to to (IKlbla for a loan froa a PC4 or laad baak. 
Tha bill bafata jmi todaj »uld raaon thla Halt and alio* aaeb dlatrlct 
boaid to aat It* on tbiaufhput laqulrawnC — ao leaa aa chara 1* a 
doaoaattatad ralatloaahlp bacmaa tha total procaaalog and acrkatlat 
actlTlClal and Ih* apptleaat'a oim ptoductloa. 

Iha sblaetln of thla propoaal t* ta batcar aqnlp tha radarat land bank* 
aad KAa to halp faraiT*, tanchot* and aquatic ptoducara to Lncraaaa 
thalr iaeoaa. FaraaT* aia lactoutnflji anfatad la thaaa aetlTltlaa la 
otdac to obtain a hlfhar (aluca ftoa thalt ptoduction. kecsrdlnt to tha 
1174 AgrlcoltuEal Canaoa, aota than 40 parcaot of faraata Eacaln lacoaa 
ftoa parfoFBtai aoaa t^pa of cuatoa aarvlca fee otbar fanai*. Thla 
davalopaanc la, la tha ayaa s( aaaj abaarrara, aa tMdtabla coaaaquanea 
of tha pEaaaat asdn of fatalnf la Iha Unltad Stacaa. Htar othara ha*a 
polatad out that thla la a highly dattrabla eonaaquaaca, iihaa >laif*d w a 
aaaaa of IncToatlai fata Iaeoaa. 

It daaatna to ba aaphaaltod Cbac tht* ptopeaal muld aol aolhotlia FLt* 
and POta to (luaea a aa* claaa of boiroMF. Only thoaa MCtealtural 
pEodocat* aha aia na« all|lbla tor a FC* at Und baak Uaa wxitd ba 
allglbla for thla tjp* of IlBanelnc. In addltlaa, aaeh dlaltlcE baaEd 
■mid ba coqultad ta aatabliah a thioughput nquliaaant, riileb wuld 

Digitized by Google 

fona la I17f en mttaatai kr ite Bi 

110 mtUlam tou. U teUu tr 

— ■ )It Mlllo* MrylM of asrlcUnnl c^ocu owe ■crte«lnnl 

Tte fstan ef D.t. •■Tl'dtBnl >varu bUI, U put, fcf ■< •■ tha 
akllttr •( AhcIcu tmnan Es atcmatolir aukM ttelc p n lncu An^. 
It amft^i^, the aHri (or thK Es «e ■« va Vito Mslicakahlr cIht Vt 

C.S. acrUaltan uhm 4*r«' "■ "V alntla fanl«B e —trr u Hm M 
II* vnrHM Mrkct lat mtf tmt ot Its |ral» e t». MbtIub fanan aaaJ 
u ka*« a ntltj at faral^ aarkata aad a nrlatr o» aaaaa (or affac- 

Iha K «i»9rE propaMl ta baaad « tha pTMlaa ibat am caa ba daaa bf 
•).f. fataan Ehaaaalna to •xr«t EhaU aw pnteeta aad that tha aaaaa 
ttt thi* *at(lclp«tlaa !■ ckrooita fanar-oMad cooparatlvaa, 1W lalaat 
MD* (UtlaElea abw that caeparaEliaa aceaoat f« abost 10 paceaal e( 
all U.f. fara aipar». Caofaratlna ara al(&l(leaat axpartaca of traah 
clcra*, aata aa< taUtaJ pradoeta, prsca(*«« fralta, aad cacCaU (aad 
(ralH. rarwra, aDrklna [hiaa«b tbait coopatatlva*, Hat u pUr a 
traatar (ola in azforl (rada. 

Digitized by Google 

Th« luthsrltLca amlUbl* ca banka lor caaperattna art chaa* apaciri- 
»llx gruud CO tham bjr Congraaa, and thoaa ui*d Co Itaaoca iBCaru- 
tloiul trad* ara noc locludad ac chla clH, *a a naulc, (an eoopan- 
clvca ancaslot 'n IntarBatlonal ciada hava baan abla ca uaa cba bank* (oc 

Coopacaclna, threush fanar-aaabar coaaltCHi and b|> Individual coatacC, 
ban cafuaated Che auchorlclaa of tha banka foe cooparatlvaa ba btaadanad 
CO aact cbcaa (Inanclna oeada dlnctljr. Iha coopcratl*a* ballan chU la 
a laaaoaabla sad aqulcable ratiuaac, aapaclally uhao cha U.S. brancha* of 
laralp baiAa alraady ban cha eapaclCy Co rcndar a greaCat caOfa of 
ftnaoclal aarvtcaa Chan Choaa m balni sou|hC by the banka for coopara- 

Tha laglatacLoB baton jrou codaf maid enabla cha banka foi eooparatlvM 
ca pcevlda Cbaaa latanuttantl (Inanetng aacvlea* far D.3. faraar ceop- 
■ratlnai apacltlcallr, H.R. 4782 muld anabla tha BCa Co vka dapealla 
In folalgn baoka, buj and aall haokara aceapcancaa, puTcbaaa claa drafca 

payable by (ocetgn buyai* of agctculcural product!, angaga In currency 
anhange, finance trading facltlClee uhlch are Jotndy owiad by a U.S. 
coopcracln and a (oralga cooperative, and InveaC la foreign financial 
Inactcuctsaa or aarvlclng aparaclaaa ralacad ca axparc erode. 

To underacand uhy Che banka (or cooparatlvaa need tbaea autborltlea, Ic 

caanodlCy aicbanga Cranaactlon. In tntarnaclonat traaaactlaa*, the 
■aller'a bank generally provldea Che cradle Co the buyer. ThU U the 
naraal arrangaaaac prlaarlly baeauaa tha aallar aay boC know cha buyer 
and baeauaa of tha need to deal la aar* than aaa eurraocy. tatanucioaal 
co^ndlcy cranaactloaa ara alaoat olwaya aborC-Cem and lalf llquldatlag. 
That la, the credit le typically for 60 to IflO. day* and 1* paid far out 
of cha pracaada ot cha aalaa af cha ceaaodltl** rhaaaalaea, riiich, by 
Chair Datura, ate aovad quickly lata tha dlacrlbuclaa atraaa. Such 
credit ia afcaa aitandad through baakara accaptaocaa, lAich ha** bacooa 
an Integral flaaDcIng faacure of cha anporc Crada. tacldsacally, accap- 

Digitized b, Google 

tal*«ill, U ~: ■*i]wr>1r ■ 

■lU kBlf M lapTBia tkc l i mi^ ■ l ml ■■ » eaafaraUidf p 

«. B (bU b tte Mm^ ^rtfultia* k»ta^ C«r 

lErdDc If i^> tI>M. b &ct, m oBiwiBi ■ ^■el»T TBI iii»i^n i 'Ijal— 
t^vel liPili^ H Wrt n i wi » t> *I»c— 4« tbIb tta Ite ■■ ill yl^ I> 
open fmaclaa ^ ^u M^nlavr ib^— IMltTJM ICft ■asU hMB If 
&.&. im iB s^ci^ laCB iMm. * taw LiM.lBlii that Cta bHkib rf 

ita fUA M)K fBBfj vbU -b«*»<— Hv f«n cnau lyif e 

Digitized by Google 

prodKt*. TUa hr«l prcfl eoMtau o( thna dlattocl aMatnau M 
tb* 1971 r*n Cradlt tec. Ooa ■■■nfcmt niOd nitlwctM tb* P*4*rat 
lB»ra>41*M endu baoka cs dlicouat ch* w|iHtle la*M of athtt 
ftiMoelil iMtlEutloBs [OFU]. Tb* RcoAd Ksuld cUrlfr tlut cAopora- 
tln* iDlalr •■■■•■•' la funlahlat aquaiis bualaau Mcirteaa an altitbl* 
to baTTOf fnn tha bank* for coeparaElTaa. Tba cblrd Mi ni a m t wuld 
alls* fadaral land baaka M aaba looc-tan laaaa te pndiKara and 
baivaataca af a^uaete vn^acta* 

intaa la cha csadLCtoa af Iha O.S. FUMof 
irr ba<a occurr*! alaeo Ch* paaaafi of tt>a l*TI 'arm CradtC Mi, Oo 
lad, tba 200-alU Ilalt haa o^aad up nat, nan opportuottla* fat 
raa ftahanaa. On tba otbar haad, aaceaaabil axploltatlsa sf Chaa* 
:aa icaacac capital tanaCMOt. laeatBlalBS cU* 
aetad In l9Jt to span up a vital eradlt aourc* Cs 
\ by paaatas tba Allaa-Uaanr Itll. TfaU Utlalatlsa 
lad tba tan of Kk Isaa* ts prodmcata and harraataTa 
(»• 7 to 1} raara. Tbt* ralaclnlr Blaor cbanfa la 
had (D liwadUCa i^iact on flshlaf eOBUDlctaa la eoaatal araaa. 
:hla 1* prsvtdad whan ana eoapacaa anaual PU aquatic 
:ba r*«T andlni Hair }l. I)7a — lAlch U 
:ad Into lav — char* mia I, MO •qtiacle 

(P.L. 9i-**Jl an< 
of aquatic prodi 

loan *oluM (CaCK 
about Hhaa tha bll 

loaoa oucaundlot tot abouE )101 atllloa. SlDCa UMa, a diaaactc 

Inc. M of Dacanbar 11, 1>T», 1,5*7 aquatic loana wrs outatandli^ 

H.R. 47B2 utll, w faal carcaln, conclnu* (ha good «tk altaady ball 
dona aa a taault af cha Allaa-Uaavat Ace. 

Tha alith aajot piopoaal vould 

■anta ara ptspoaad Co accoapllah thla 
auchstlas cha Fadaral land banka eg •*] 

laad coopaiatloD btcnaaa Sy- 
icloa cha (rcHlni ctsdlt nasda 
roducata. Two apaclflc aMnd- 
'bjsetlva. Ona aaandaaat nuld 
loana to, and parttelpaca Id 
TIh aacond asandiaaac would 

Koitizedb, Google 

■uChorlM PCA* t 

• part lelpac Ion cartttteatH 

ding etnllc. 

■[■trwd bj 

Tha fine piopoHd aaaiidaint uoaU pcavid* Cb* F«I*»I Und hanlca with 

th« UB* bulc luthattcy ahleh PCAi doh posHM ts parclclpaca with othar 

Uadst* la •iklng cradit avallabla to (ataaca. Ttia aacond 'paitlclpatlan 

cartlFlcata" HMndsaat muld ravlaa and atraaalln 

FCM Guccantlr partlclpata with noo-Syataa landan 

The ptoccaa would ba atreaallaad bjr reBovlng a raqulraaanc 

tag* a( tha sppottuntty to paTClclpata with PCA>. At praaao 
atock In FCAl, aqull to not laaa thia 3 parcant of [he loan 
the PCAi, Mac be puichaaad In connection with each loan par 
Th* Act of 1971 requLiea that auch aooinitlDg atoek ba latoed to tha 
borcowar, *a a taault, tha PC* baceaaa a vlathl* third party In tha Imd 
traaaacdon atlh the borrowec. The pcopoaed aiaendHot would taaove PCAa 
aa tha Tlalbla third party fraa tha ttaoaaetlaa by allowlai aaaoclattou 
to laaiN aoniotloa atack dltaetly to th* eooaatctal hank, Coaaaretal 
bankara han told ua Ehay will be ooce likely Co pactlctpata with t)u 
PCAa If tha currant authority can ba alaplLfled aid atraa^lnad In th* 

credit a**d* al tarHr* tha coablnad allarta of all *(rleuttut*l leader* 
will he rmulrad. 

Thta la eapaclalLy trua today whan 
liquidity pcobleaa. Theae two aean 
attallhtfotwatd Baana at laaaenlng 

intry hank* (te aipatlanclng Hva 
inta, than, pTovlde alapla aad 
■ liquidity problaM of ce^rcla 

■eClnf tha enpaadlnf credit ne«d* of Aaarlcan a|Clcul- 

In *Mltloa to thaaa alic bcaad prapoeala ei 
alao like to touch on two prspoaala about ■ 
aKpraaaad apocial Incereal. Tba ftcat ol i 
coatataed ta H.R. *7a2 aa ptaaancly dufta< 

talsad In H.I. iJK, I weuld 

Icb yaa. Mc. Cbalraan. ten 

aa* propoaala la aoc actually 

Ihi* prapoaal eancaro* 

anteadiat th* ttntth o( PCA 1< 

■ fioa 7 te to y 

Digitized by Google 

Slae* Ctan U a (alt iHd tor utaallni tha aatuiltr sf PC4 loau la 
aoH dlatrlcca ^ ast la stbaia. IW Tan Cndlt MBlalitnlloa ww 
fa<»tl laelu41*t U l.l. 47n aa adilttloBal aMa Ja aac abieh ihiIiI allaa 
dutrlet ran Cradlt bcwrdi lo rti Itia Can af KA Imu baroad / ud up 
CO 10 jaars. If It la awla cUat that thU aMtttauI auclwclcr Mould aat 
b* lataadad or utlllaad cs aapaad cha aeopa s( KA Undlnl. m* 
approacb Co tha ^iwatlaa la eoaalaEant ifltk oaa ot tha aala chroaca ot 
tha ll?l Act, lAleli la to pndda aa audi dacaatralliatloa la tha spara- 
tloaa ot tha Fan Cradti Syacaa at ta coaatatoac with pntdant aaoaia- 

A aaeoad propoaal iihlch, I chlok, d 

which would provlda [ha radical Fil 

to fli tha aalatlaa ud athacwlii 

AdalBla tea clem. Thla pcepoHl, which coaildi i 

■ddraaaaa cha ptoblaaa PCA new apaclaoeat la li 

ratala aapIajTHa with tho ihllla aad qualtttaa ■ 

I. All si thaaa alic 
ilofla ptopoaad aaaadaaot 
which 1* oF Ch« ttaacaae laportaaca ts tha •Cfaccln funcctoalnt ol FCA, 
It WMld ba tha «• which allow* lai lapcovad poctabllltir of ratlraaaot 
banallta hoiwaaa tha Syataa aad tha A(aac|r. 

that which aow cilata hacwaaa tha radatal laaarva laard aad Cha Fadanl 
Raaam Sracaa. Jutt a* tha Fad naad* an atiaa|***Bt auch aa thla la 
oEdai to racralt tnm tha Fadoral taaotva Sracoa, ao FCA aaoda thla 
—■ '"— to obtain aiparlaocad profaaatOMl •aplojrsa* tioa tha Fan 

FtaallFi It daaarvaa to ba notad Chac cha Syacas la one ukinf Chac 
■ppcspTlatad fuoda ba uaad ce paj cha eoac ot racniltlni and catalnln| 
cha callbat of pataonoal ooadad bF th* Fan Cradlt Adalnlattatlon. Tha 
coat ol anaetlnf thaaa adHndaanca will ba bona not bj tha U.S. tax- 
payaT, but br tha banka aad uaoclacUoa ol tha Fan Cradlt Sratas. 

I wltl aac covanC on *U of tha naalnli« pnpoaala. Hanjr ot thaaa, I 
think, apaak lot cha«alna. But I do with Co aair aoHChlni ahlch I hopa 

Digitized by Google 

Digitized b, Google 

Scacaaenl of 
Ralph H. Aiwtln, ran 
■Dd Oiairun, Federal Fara CiadlC Board 

r-calf yaaillng >pT*ad - 
' today not only aa a 
lit loaid. SpcaklDg on 
.0 chank you not oaly lot 
iT the aaalitanca 

The U.S. Covet 

Hy Daae la Kalph H. Auitln. I ovn and opeial 
Rocky Hountaina of Colorado, which Includaa i 
SOO cow hard plua yaarlins*- 1 *■ appaarlng 
lanchcf, but •■ ChalTBan of the Fadeiat Fan Cti 
behalf of the Federal Fara Credit Board, I wi 
the oppottunity to appear here today, but all 
Congtaaa bai ptovldad cb* faiaaii' cooparatli 

Tha Fata Credit Syitaa la a ctaature of Contiei 
provided the Syatea aoat of Its Initial aeed ci 
eooaldatabl* aaomt of encouragamant over tha year*. Tbia ha* proved to 
be a Bagnlflceat partnerihlp betueen the U.S. Coverniient and a aaRsent of 
it* people — the fatBar* of taaitca. Although aaalatlng cbea* tataera 
Inttially, the U.S. Goveraaent peiaitted the fatBara, through atock 
InveatBent, to retire the Coverment'* capital Inveitaent. Aa of 
DaceBbet 31, 1968, the Fara Credit Syites 1* entirely faraer owned and 
oparated. In tha piocaaa, not only did the U.S. Covernaant daalgn a 
vehicle by which the faraeta could help theaaelvea but, at the aaae tlH, 
the faraera have gained conilderable iklll and knowledge on the proper 
oae of credit and of owning and operating their own credit 

It I* al*o pertinent to point out the fact that tha cooparatlve Fam 
Credit Syttaa waa build by a bipartiaan affort and operate* under the 
blpartiaan laadeiahlp provided by Congre**, aa ixeapllflad hare today. 
Tha cooperative Fara Credit SyaEea operatea under authoritlaa concatnad 
in tha Fan Credit Act of 1971, F.L. 92-ISl, a* aaended. foday, tha 
cooparaclve Fara Credit Syatea provlda* credit and doaely related 
■arvlcea aaountlDg to naarly $60 billion to faraer*, ranchera, producer* 
■Dd hcivaatata of aquatic product*, agriculture and quantity 

Digitized by Google 

coopcTac Ivaa , rural hoaunnuri, and caitain bualnaiaa* providing fanwri 
with acivlcaa taaantlal to thalr onfata oparatlng needa. 

As you knou, tha Fain Credit Syacea doaa not land Covernacnt Boney. A* > 
iutt«T of fact, If you had to aelact tha moat l^ioitant function It 
parforaa Col Iti farnera, ■(■beta ifould undoubtadly lay It would b* It* 
role of aeivlng a* a vehicle foi >ovln( eepitat~whlch tends to aove to 
uiben araaa In our cconony— Into rural America. Ihli la accoapllihed 
through tha operation by the Syatan of a Fiaca'l Agency located In New 
York City. The Fiacal Agency 1* looethlng of a 'cooperative's 
cooperative.' Fioa the faraera' point of view. It can be deacrlbed aa a 
pool. Specifically, the Fiical Agency pool* the aaseti of farBcii aa 
cottateral to back the Fara Credit banka' aecuritiea, uhich are sold to 
Invcatoi* throughout tha Nation and the world to obtain their funda. 
Laat year, the Flacal Agency aold bonds and dtacount notaa saountlng to 
$62.4 billion. 

In abort, the cooperative Fara Credit Syatea has aide flrat-clasa credit 
eititeos out of (araer* by providing thaa with a dependable source of 
credit at a laaaooable cost, at rates coaparable to thoaa provided to 
other bualnessaaa. It has bssn of untold aaalatance In bringing the 
faraara of Aaerlca through the agricultural revolution period. It baa 
helped aakc posslbls the aost sfflclent and productive agricultural 
industry in the world. 

piovldlng this credit, of course. Is s big Job and that }ob changes. 

Ihus, II soaetlaes beeoaes necessary for the Fkia Credit Systaa sod tba 
Fara Credit Adainistretlon to coae before Congress and ask for changes. 
This does not happen often. It is our policy to 'stick to our own 
knitting' snd only coaa before Congress when we feel that we have soae 
genuine need to do so. 

In 1971, we had a total change In our enabling legislation — a new cherter 
act. This tlae, we are seekin* only relatively alooi changes which we 

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feel Hill help ch* ST*t«B to continue to li 
■iabii* and. In th* procaii, asiuie Che con 
fiber for th* Matloa. Ihe leglalatlon oe propot 
daecTlbad aa aoaethlng of ■ "Cune-up" not ■ 
caae xlth the Fara Ciadlt Act of 1971. Hsu 
leglalatloD lapOTtant, and again thank you 
early hearing. 

^ng supply of toot 
ilete overhaul ai 
I la opportunity 

We are quite excited about the posalbllltlea of our amendBent which would 
peralt the banki for coopaiattvaa to provide export financing for their 
cooperative barroKera. We are confidant Chat auch an authority would 
I) enhance the lale of U.S. grain, 2) Inciaaaa the ahare oblalned by U.S. 
fatBera. and 3) la the procaaa, tapiove out balance of paysenla, which 
would ba good for all Aaerlcans. 

1. Lowel the fariier-ellglblllty 
financing which would peralc the 
□eada of rural co-opa^ Including utll: 
tlH-honored principle of .f areer 

2. Allow Federal land bank! to i 

■ore fully aerve the credit 
co-ops, without abandoning out 

a exceaa of 85 percent of the 
■here GovecnKent guaranCaea 

Thla will enable t 

3. Broaden eligibility for financing by FLBa a 
pioceaslng of narketlng actlvlclea directly rel 
fare. Ulth proper safeguarda, which we fael ar 
Hill result In faraera luprovlng their Incowe o 

d PCAa to Include 

ted Co the appllcant'a 

Included tn the bill. 

Ihere are other propoiala, one of which would provide for Inter- and 
Incra-Fara Credit Syatea loaoa which muld provide aeana for aaklng ao 
efficient use of our equity capital- base. Another propoaal would enha 
cooperation between FCAa and the co^erclal banks In aaetlng faraaia' 

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Md« bjF paialcclng 

I bank* and othai landi 

o Isaue paitlclpatlon c 

0**r tb* jean, m h*v* baan adi 
li a conaanaoa aBong the faraeT- 
advanctng any laslilaclva prspoi 
that H.B. 47e2 anjoyi ! 
FaiB Cradle dlatilcts and cha Cantral 
all of tha propoiali of all of 
sln|la uslt 1b tha Syatea got i 
poalng capriaanta a coaaanaua i 
Fata Ciadtt Board haa andoiaad 
it to tha Co^lttii. 

CongraM to sake auie that tbare 
>f tha Farm Credit Syitas bafora 
BB particularly happy to raport 
. — Chat ii, the lupport of all 12 
ink for Cooperatlvei. Cartalaly 
IT botrowec-aeabcra are not Included. Ko 
that It wanted. Thua, nhat m aia pro- 
(aellog ulthin the Syitea. The Federal 
:ha laglalatlon unanliKualy aod hb eoisaad 

Aa I Indicated earlier, the Fara Credit Syati 
auatalnlng. In fact, the SyiEaa even paya fi 
auppllad by tha Fara Credit Adalnlitrallon. 
are aaaklng la S. U6S will be of no coat to 
ahould be oE benefit. There era no approprli 
that thla laglalatlon will gain your aupport 
ulll paralt the Syatem to devote Iti full tli 
af lupplylng llfeblood — capital — to Ita farai 
an abundance of food and fiber for a gioiring AaeTl 

n thl* aaae 

Btabera, theral 

Wa hop* 
.y paaaaga, 

■ala Job 

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Hr. OuliBan and MaBbara of tha Subcoaaltcaa, I ■■ Galen B. Brubakcr, 
■■■bat and I*aadlata past ehatraan «f Cha Fadatal Fara Cradle Board. Tha 
Fadaral Fara Cradlt Board la the policjrBaktng body for cba Fam Cradle 
Admlnlatratlon, an Indapaodant Agencj of the DalCtd State! Covetnaent. 
Ibla Aganc; la Teaponalhla for aupervlalng tha operations of tha baoka 
and aaaoclatlona of the Fata Credit Sratea uhlch not* have In excaaa of 
960 blllloD In loaiu outataodlng to faraara, flahersaD, and their cooper- 
atlvaa. Tbaaa banka and aaaoclatlooa aupplr about ona-thltd of all 
cradlt uaad iy faraara and tanchara and about tvo-thlrda of that utad by 
tllalr coaperaclvea. I appreciate the opportunity to praaant tha «la«B of 
tha Federal Fan Cradlt Board eoaearnlng H.R, 4782, the Fata Cradlt Act 
Aaandaent* of 1979, and to particular, thoae proTlalona relating to the 
Intanul oparatloaa of tha Para Credit Adoinlatratlon. 

I refer apaclflcally to aaendaenta iriilch would (I) authorlia the Fadsral 
Fara Credit Board to set tha aalarlaa of tha Governor and deputy gover* 
Dora of tha Para Cradlt Adnlnlatratlon within the aatlaf llalta of tha 
Sxacutlva Fay Schedule (currently $69,630 par anniM), (2) authoilca tha 
Fam Credit Adalniscracton to eatabllah Ita own aalary and claaalflcatlon 
ayataa for aaployaaa below deputy sovemor laval, aubjact to the celling 
of the General Schedule (currently 350,112.50), (3} authorlia tha Fara 
Credit AdolntstraCtoa to •■tabllah qualification raqulraaaota for poal- 
tlooa In tha Agency, (i) provide axaaptlooa to Para Cradlt AdalnletratlMt 
troM Federal ragulatlooa concarolng travel, ptocuteaent, end property, 
(S> provide for portability of retlteaent beoafita betweeo Fara Credit 
dlatrlct plana and tha Fara Credit Adninlatratlon, and (6) Increaae the 

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Federal Pam Ciadlt Board par dim to tha dally equivalent of the rate 
prescrlbad for Grade GS-18. 

I an in ay final year of a fr-year tern aa ■ miiber of tha Federal Fara 
Credit Board and will be leaving tha Board In 1980. It haa bean wj 
privilege and pleeaure to Mrvc In thla capacity, there have been eany 
changea In the Pam Credit Syatoa during sy tenure on the Board Including 
a greater decentralisation of declelonnaklng to baoka and aaioelatlona, 
rapid groHth In loana made and loans oucstandlng, adoption of Syateantlde 
■ecurttlea to replace Che old tingle benk eyatea aecurltlea, developaent 
of a Systeawlde lose protection plan, aa well aa other*. Thee* change* 
have not been acconpllahed without a good deal of effort, dtacuaelOQ, and 
debate within the Fara Credit Syatea and between the Syaten and the Fan 
Credit AdalolBCretlon. 

The Pars Credit Syatea and Fan Credit Adnlnlatrstlon can aipact continu- 
ing change. The growing deund for credit on the pert of feraera and 
ranchera and their coopcretlvea , the changing nature of fara and coopera- 
tive buatncaM*, and the changing character of capital narketa will 
require thet Para Credit be reaponalve to the** challengaa. The Fan 
Credit Act Aaendaenta of 1979, H.R. 4782, which you have under conaldara- 
tlon la Intended to addreaa at leaat a part of theae need*. 

A key to Pera Credit'* (uecee* In Meting theae challengaa, «i 
been In aeetlng hiatorlcal challengaa, will be It* ability to 
develop and retain aaployeea who have the ability to aake the 

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lacT9M»iaglj coBplex dccliloiu requlrad If farocra, E«Qcb«ra, and Chair 
cooperative! are Co be affecCtvely ••rvad. Tble la •■ crua ac Cba Fara 
CredlC AdalniscreCloa •■ IC ta ac Che bank and aaaoclaclon level. 
ConClmied affecClvenesa In aupaivlalon of Cbeae banka and asaoetactona 
and accouQCabillcy Eo the CoBnlCCee and oChera In Che Coagresa will 
tequlrc ChaC Che Farm Credlc AdalnlacradoQ ba staffed with highly 
conpecenc, well trained, and experienced personnel. 

Obaervatlons based on mj service on Che dlacrtcc board of dlcectora In 
the Baltlnore DlacrlcC, as well as ajr expeclence on Che Federal Board, 
lead m to conclude Chat banks and associations have salary and benefit 
progrsBS which ate sufficiently conpetltlve to attract eoapetanc, well 
trained eaployeee. Banka and asaoclaClona are not conaldarad to be 
Federal enployers and their personnel prograna can, and ara, callored Co 
local and regional coapetlttve conditions. The decenLrallzed daclaloa- 
maklng proceaa In Farn Credit and the recognition Chac lea huaan 
reaourcaa are the oast Important asset of Che Farn Credit Syatea ahould 
continue to ensure Che conclnuad conpecltlvenaee of district salary and 
benefit progreoa with local coapecltora. 

I have, on Che other hand, alao obaerved the difficulties experienced by 
Che Fara Credit AdalnlsCratlon in atcracclng and retaining highly coa- 
petenc atsfE. Tt» labor aarkat for agricultural lending and finance 
BpeclallBCs Is severely llaiced, and talented, highly qualified candi- 
dates are In short supply. FCA'a Office of Supervision has conslacencly 
run 10-lS percent under lea •uchorlsed screngch during ay 6 years so the 

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Fadatal Board. In •pit* of tha Agancy'a «xt«a*l«* rocruttlng afforts, 
iDcludlog tb« ^aratlon of a apadal «MMtnIog unit imdar dalagatad 
authority of tha Offica of Paiaoonal ManafaBant, axtanalTe Journal 
advactlalog and paraonal contact, thara are ooly four allglblea oa tha 
raglatar for poalttona In tha Offica of Suparvlalon at tha CS-12 through 
CS-U laval. 

Thla pcoblaa la further coapoundad hKbh tumovar la taken Into eonaldola- 
tloa. Tha averaga annual tumovar for the 3-jraar period froa 1976 
through 1978 waa 18 parcent for auperrlaor; offlcara In Uaahlngton and 16 
percent for bank and aaaoclatlon axaslnara. Turnovar haa baan axceptloo- 
ally heavy at the top- In ay 6 yeara on tha Federal Board, the Agency 
haa loat two govamora and eight deputy govemora. U preaant there are 
tw> deputy govamor poaltlona vacant aa mil aa the poaltlona of general 
eounael and deputy general counael. Tumovar elooa accounta for approxi- 
■ately 18 vecanclea per year In tha Office of Bsaalaatlon. Uban the 
effecta of high turnover are added to azlatlng vacanclea, it la apparent 
that thee* la an Inaufflciant aupply of qualified applicanta on the 
regiater. In addition, Federal eoapanaatioo regulatiooa have created a 
algnlficant diacrepaocy between the pay and baneflt levela of Para Credit 
Adolniatratlon officiala and tha aenlor offlcera of the banka under their 
aupervlalon. tor esaaple, the Covemor'a ealary of }55,387.50 and deputy 
governor ■bxImb of $SO,UI.S0 coaparea to the preaeot average aalary for 
Para Credit Syatea bank prealdanta of $85,115. Tha average ealary of 
GS-M and GS-t5 eaployaee In FCA la $40,120, coapared to an average of 
946,190 for bank aanlor offlcara. The avarega aalary of CS-12 and C9-13 

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Aganc; Baploytea la S^tiiS'^ which coapaEaa to tha avaiaga Juolor offlcar 
aalar? of $30,332. Tha net lalutt baa baan Cha craatlon of an acoooBlc 
Incentive for an outflow of aenior Fara Credit AdBlniatcation aaployaea 
to Sr«t«a aaaociatlona and bank* or to private bualneaa. An ezaBinatlon 
of Pera Cradit Adalnlatratloo aBployaant atatiatica will verify that 
fact. Since January 1976, 42 percent of the paapla leaving Para Credit 
Adalni at ration went Into tha Syetea. Theae ewloyaaa at* currently aam- 
Ing on tha average of 92,461 more per year than they would be if they had 
etayed at Para Cradit Admlnl at ration and received their regular within- 
gtada incraaaea. Tha Covemor and deputy goveraore who left Para Credit 
Adulniattatloa during that tlaa are now aaralng an average of $32,900 
■ore than their current aalery at FCA would be. 

tha Agency baa asperlencad elgniflcent problaM In raerulclng profee- 
alonala froa the Para Credit Syates, aa iivll aa froM otbar aourcae. 
loablllty to tailor atattlng aalary laveli to tha unique raqulraaance of 
highly qualified indlviduala, inability to aaka eBplayMant offare In a 
tlaaly faahion, high coat of living in Hatropolitan Haehlngton, dlfficul- 
tlee In fitting cradit and operationa profeaalonala Into axleting Paderal 
•alary and claeslf Icatlon atructuree, loae of retireaent or eick leave 
beneflte In tranaferrlng froM the Syetea to the Para Credit Mainletra- 
ttoQ, travel and par diea iagt(latlona which iapoaa financial hardahtp on 
profaaetonale In travel etetue end other raatrlctione have all contri- 
buted to thie recruiting difficulty. Slue* tha ataff of Para Credit 
Adalnlatration la eaall, It ia i^ortanc that indlviduala aalaccad for 

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profesilonal poaltlona have excelleilt quallflCBtlona and that vacant 
poaltlona be filled on ■ tineljr baala. 

Benefit prograBS In banka and saaociatlona at aenlar and upper >iddle 
■anageaeot ievele are alao aignlflcantl]' >ore attractive than for coa- 
parable levele In the Agency. Thla gap has developed a* banka and aaso- 
elattona have designed thetr personnel prograaa Co be •ffeccivaly 
conpetltlve tdth other eaplo/ers tn the regional and national aarkets for 
credit and operattons professionals. Host districts have ooncontrlbutoTjr 
reclreaent plans, free life ineursnce, loag-tcrs dlssbtlltjr insurance and 
thrift plana. Moreover, district retlrenant plana provide for portabil- 
ity of service ao there la no loss of benefit uhen an enploye* aoves froa 
one district to another. Because of the noncontclbutocy nature of 
district benefits prograas, the typical Systea eaployee earning $24,000 
tskSB boas 3516 aore per year than his or her FCA counterpart, and the 
SyBCea aaployee earning $36,000 takes hoae $1,344 aore per year than an 
FCA enployee earning the seae saount. It la anticipated that the 
benefits gap will widen over tlaa aa banks and aaaoclatlons strive to 
reaain coapetitlve. 

Historically, the Fara Credit Adulate t rat ion has been able to hire 
effective aaployeas In spits of Its coapetitlve diaadvantage. It has 
aatDtainsd its attractivsnssa aa an eoployer by offering a level of 
experience and axpoaure to national landing activitlaa to coapensate for 
Its rslstlvely restrictive and Halting salary and benefit prograas. 
Recruiting on this basis has been difficult and tlas consuatng and will 

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becoa* ralactvely lass affacclve aa cha financial gap widcoa. Ttta lapil- 
catlooa of anch futura Inablllcy to attract and rataln highly coBpetent 
aCaff at* of grava concam to ■• a* • faraat, aa a aeabat of cba Fata 
Ctadlt Syataa, and aa a dlractor of thla coaparatlve cradlt laatltutlon 
which haa auch a algnlflcanC record of aarvtca to faraara, tanehara, and 
chair cooparatlves. Paiaara, cooparativaa , and tha Congreaa ahould 
azpact tha aupervlaloa of tha Farn Credit Syate> to he In Che aoaC 
capabla of handal 

The aBendaanta undar coaaldaratton will not, of coursa, coaplataly raaove 
theaa dlfflculctas In atafflng aitd operating the Fara Cradle AdnlnlaCra- 
tion. Nor ahould thejr. Tha Para Cradtt Admlnlst radon aiaC retain Ita 
idanclty and unique reaponalbtlltlaa ■■ a auparvlaory Agency and ahould 
not ba aolded after the banka and aaaoclatlona in tha Faro Credit Syacea. 
Proper llnaa of raaponalblllty aod accountablllcy auaC ba aalnCalnad. 
Theae aaandaenta muld preserve appropriate accountability and restratnt 
by Halting aalaclea for the Governor and deputy goveraora to the ■axlnvia 
of tb« Executive Pay Schedule and staff Mlariaa to cha Italca of the 
General Schedule. Salary and claaaiflcatloa ayatea, qualification 
requlremenca, portability provlalona, and travel, procuraaent and prop- 
erty procedurea would all b« conducted on the baala of aound busloaaa 
practice. Hasc laportantly, the accountability of the Federal Para 
Credit Board and Para Credit AdnlnlaCrectoo to your Cooalccee and ochera 
in the Cangreaa will enaure the aoundneaa of the pracclcea. Uich theae 
reatralnCB, the requaated flexibllltlea will ba greatly advantageoua to 
the atafflng and oparatiooa of the Para Credit AdalnlatraCloD and, aoat 

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l*portaDtly, to tha farsarB, tanchara, and cooparatlraa tha Fara Credit 
Syacan ta dealsnad to aarve. Aa jou a» alraady aware, the Fan Credit 
Mmlalatracloo operacaa at no coat to the CoveniBant or tha tazpafara a» 
all coats are borne b? the beoka aad aaaoclatlona of tha FMra Cradtt 
Sracaa. Bance, aona of the alx Fara Credit Adalnlatratton ralacad 
propoaala vlll Involva an; coat to tha O.S. taspayara. 

It la mj uaderataadlDg that ataff of tha Far« Cradlt Adnlntatratlon haa 
(forked with Che Office of Peraonnel Hanagenent to utLllie aoae of the 
riaslbtlltlaa provided by the recent Ctvtl Servtca Reform Act. Uhila 
cooperation team Office of Petaonnal Nanageaant haa baea axcallent, tha 
flaxlbiltlaa do not adequately addraaa the apeclal oaada of tha Farm 
Credit Adniniatration. It ia wy futthat uaderatanding that each of the 
opportunitiea aaviaioned In tha Fata Credit Act Aaeodaenta of 1979 In 
tbeaa regarda ia aaaantially available at piaaant to one or aora Federal 

I wuld finally Ilka to conaent aa a retiring Federal Board Mabar oa the 
aaaadaent which would Inereaaa the par dlaa for tha Federal Fara Credit 
Board to the dally aqulvalaot of tha rata praacrlbad for Crada CS-18. 
Uhea the current per di«a of $100 per day for Federal Soerd aaabera ma 
aatabllahed In Auguat 1966, It me roughly equlTalanc to the dally equiv- 
alent of the then current rate of a GS~18. The par di«a haa not bean 
adjuatad alnce that ttae. Attaching the rata directly u the GS-18 
equivalent uould eatabllah that the level of daciaioaaaklDg required by 
the Federal Para Credit Board la at tba aoat aanior level of Covamaant 

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•«rvlc« and would do amy Hlth the oaad to periodically r«qua«t Coogreaa 
to Incraaaa eh* dollar aaount o( par dlaa. It la ^ undetatandlog that 
dlractora of aoaa othar alallar aganciaa are paid at the GS-IS rate. 

In auBBary, I aa grateful for tha opportunity to expreaa ay vlau on 
behalf of Che Federal Farn Credit Board before Chi* Coaalttee on the 
■attar of the propoaed Faro Credit Act Aneodnenca of 1979 (H.R. 4782), 
•pacifically related to (1) authority for the Federal Para Credit Board 
to eat the aalarlea of the Covemor and deputy governora of the Fara 
Credit Adslnlat ration wlthlo the limits of the Executive Pay Schedule, 
(2) auChoriaa Fara Credit Adalol at ration to eetabllah ita own salary and 
claaalflcatlon eyatea for enployeea below deputy governor level, aubject 
CO the calling of the General Schedule, (3) authorlie Fam Credit Adnln- 
latraclon to aatabllah qualification requirement for poeltlooa In the 

Agency, (4) provide axaoptlona to Farm Ci 
regulattoae concerning travel procurenenl 
portability of retliaaent benefits bati 
the Fara Credit Adalalatratlon and (6) li 
Board per dlea to the dally equivalent 

:edlt Adalntatratlon froa Federal 
end property, (S) provide for 
I Fara Credit dlatrlct plana and 
ireaae the Federal Fara Credit 
the rate preecrlbed for Grade 

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Mr. Oiilrnun and memberf of ihe SubcMTml ttee, I am W. W. 
Gafton, President of Gold KIst Inc., Atlanta, Georsla. As 
the Chief Executive Officer of a major farm supply and mar- 
ketlni cooperative, t represent one of th« cooperative 
ustri of the Farm Credit System. Gold KIst Is a long time 
borrower from the Columbia Sank for Cooporatlvot and the 
Central Bank for Cooptrattvei which participates In loans 
originated through Columbia. 

Gold KIst was organized In 1933 ai a cooperative to market 
cotton. Over the years it has grown and expanded Its opar- 
aiioni to nwet the needs of today's farmers and is serving 
over 250,000 farmer members. 

Gold KIst Is farmer owned and controlled with savings made 
In operations being returned to member) annually In propor- 
tion to the use each make) of the- operations services. 
Gold Kist ts one of the largest poultry processors In the 
nation, operating facilities which process and market 
broiler chickens and other poultry products. Feed mills 
and an egg processing plant are an Integral part of the 
poultry operation. Gold KIst operates plant food manufac- 
turing facilities and other production plants which serve 
the Input needs for Farmers Mutual Exchanges, of which 
there are over 130 In Georgia, Alabama, Florida, and South 

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Carolina. Many of theia local cooparatlv* ttarai (arv* at 

recalvlni polnti for peanut*, pccani, train, and loybaant 
from local fanner*. 

GoldKI*t operate) three toybean proceislni printi and 
leverat peanut fhellinf plant* and i* the larsest proce**or 
of peanut* In the world. 

In our moit recent operatlni year. Gold Klit had sate* In 
the amount of $1,700,000,000. Farmer member Inveilment In 
the cooperative is now approximately $130,000,000. ThI* 
Investment supports the borrowed capital required to oper- 
ate the diversified business of Gold Klii. tn eonnecilon 
with borrowfni from the Bank* for Cooperative*, Gold Ki*t 
ii an owner In the Farm Credit Sy*tem throu|h stock owned 
in the Columbia Bank for Cooperative*. As an owner in the 
cooperative banklns system, we constantly seek ways to bet- 
ter utilize our Investment. 

One method by vAlch use of this Investment can be furthered 
I* throu|h the entry of the Bank* for Cooperatives into the 
export financing field. The Farm Credit Act Amendments of 
1979 contain provision* which would enable Banks for 
Cooperative* to do Just this. If passed, this bill would 
have a far-ran|ln| impact on our cooperative and Its mem- 

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In rtfponi* to thv nead to cxitand markoti for agricultural 
producti for Iti intni6«r«. Gold Kfit hai boon an exporter 
for a number of yean. Our early expori concentration wai 
In cotton, poultry, and peanuti. In 1973, we eitablUhed 
an International Markettns 01vlil«n to concentrate our mar- 
keting expertlie In world trade. In recent years, our ex- 
port salei operationt have Increaied, Including the char- 
tering of veiteli for delivery of goodi to foreign deitlna- 
tleni. For our most recent operating year, a gross volume 
of export salts amounted to approximately $216,000,000, an 
Increaso of almost 10QK over tht marketing levels of ■ year 
earlier. Total export salts amounted to approximately 13% 
of tht buttntts that we did. To give you in exanvie of our 
growth In this area, less than S% of our total volume was 
In export tales as rtetntly as 1974. 

Our objective in the International Marketing Division Is to 
become ■ dtptndabit source of supply for ex|>ert cuitomtrs 
and thereby help maintain good outlets for the products we 
market en bthalf of our nMnfters. 

Sales made tarly in our expert efforts were on an f.e.b. 
point of shipment basis. However, as sales have expanded, 
different methods of selling and collecting have been uti- 
Dted in order to be competitive with othtr exporters and. 
In order to be of tht btst service to our export customers 
by providing dlfftrtnt terms of sale, we have been able to 

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•xpiiMl ear akport mirkatlnit. Thlt hii b*«n Importint to 
oar farimr tMitAori who have fauii4 Ihkt our ibllity to nnvo 
CMimodltlei Into oxport mkrkoti hat holpod in itabillzins 
4onMitlc prfco* and ha* provldod idditlenal torvico that 
Gold Kilt at a cooporatlvo can provldo to Iti mtmbort. 

Gold Klit'i dlvorilflcatlon refloctf tho divorilflod nataro 
of Southeaitern and Soathwettorn airiculturo. Our oxport 
markotlns of thoit conmodltlet producod on thouiandi of 
family farim It liktwli* a retult of ear dlvertif Uatlon 
•ffortf. Ovor 1100,000,000 worth of teybeani and their 
derivative producli, over $55,000,000 worth of peanati, and 
$20,000,000 of poultry oxperted lait year atttit to the 
(npertanc* of the expert trade to ear cooperative and Iti 
membori. Margin* made on the export portion of our buil- 
nets originated from member itockholder* are dlitrlbuted to 
our operating divltlon*. Thu*, the ultimal* member return 
for product* marketed throagh the cooperative li enhanced* 

Our plan* are to aggre*tlvely leek to expand eiport market- 
ing of our members' product*. Our Board of Director*, mada 
up of 13 farmer* who hall from *tate* all tho way from 
South Carolina to Oklahoma, feol* It li In the be*t Inter- 
eit of our immbori for Geld Klit to continue to be aggroi- 
ilve In werld trade. We are conrnltlng additional ro*earcei 
to this and. 

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Ai an •xanvl*. Gold Klit, alons with tix (J. S. cooparatlvtt 
hive jolntd four Europaan cooparatlvai In operating 
InTrada, Inc. Thli naw firm now owni 50% of a mafor 
European conmodlty trading company. 

Through cooperation, our goal li to maxlmlz* our joint of- 
orti In obtaining it favorable petition at peidble In ex- 
ert maricetlng. Thli goal arliei from the efforts ef U. S. 
■rm marketing cooperatlvei lo teek the best price pes- 
Ible for their farmer members. The Inflationary spiral ef 
igrlcultural Input costs leaves farmers with only two 
choices — increase production and attain economies of 
icale en their farms or obtain a larger share of the con- 
''s expenditure for food and fiber. 

Often cited are the statistics which reflect that farmer 
iratlves handle 44» of U. S. grain at the point of 
: sale, but they handle less than ION at the expert 
ale level. Our farmer members are asking us to do a bet- 
:er Job In this area; that it, they want us to Increase 
cooperative market shares closer to ultimate constiners. 

In this connection that we respectively submit to you 
'lews on the Farm Credit Act >inen4nentt ef 1979. The 
Banks for Cooperatives, given expanded legislative author- 

:y, can and will support Geld Kist and many other fanner 
cooperatives In expanding cooperatives' shares In expert 

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We f«et itronily thut the public (ntereit li *erved and our 
natlon'i policy of trade expinslon li lupported by favor- 
able coniidorat Ion belnf (Iven to the provl*lon* of the 
Farm Credit Act >mendnentt of 1979. The export financlni 
provliiont, which will be directly cooinented on later, are 
consistent with Ion| ftandlni coniref i lonal intention* that 
the Bankt for Cooperatlvei ihould lerve fully the credit 
and financially related needi of Anerlca'i farm supply and 
markatlni cooperative!. The Farm Credit Act of 1971 makes 
specific rsfBrence to the need to continue to update credit 
and other services of the Farm Credit System In order to 
meet the chan|ing needs of agriculture and the nation's 
airlcultural cooperatives. The Farm Credit Act >men(tnentt 
of 1979 provide a direct and positive step forward by 
allowtni members of cooperatives added access to a growing 
world market for agricultural product*. 

In Its 45 years of existence, the Banks for Cooperatives' 
System has built a strong experienced bale In dealing with 
ooperatlvet. Thete cooperative* are moving Into world 
rade to a greater extent each year. Effective banking 
ervica* and sound financial traniactlon* are a crucial 
art of profitable International trade. Delays and trant- 
of funds and similar problem* can reduce cooperatives' 
blllty 10 conpele effectively with other exporting firms. 
Our member owned banks can now carry our financing to the 

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point of •xport, but not bayend. It ii ■ p«ff«etly loiUil 
•xtenilon of the Banki for Cooperat I vol' larvicos to follow 
their member borrowert Into International trade with appro- 
priate financial icconmodat Ions to terve ipsclillzed need*. 

Farmert Inveit in cooperative! primarily through retained 
pitronas* illocatloni. Thit retained capital ii n«t avail- 
able to farmert to atilit In financinf their own opera- 
tloni. Llkewlie, the capital Inveited In Banki for 
Cooperat lavet by Iti member borrower* li coitly. Iti uie 
thoold be maximized. Cooperatlvei currently have invetted 
over 1800,000,000 In Bank* for Cooperatlvei. 

Why should we not gain further uie of our cooperati vai' 
Investment In the banki by t''nlng additional advantafot 
for our members and usini the banks' services to finance 
farm exports. W« at Gold Klst tee opportunl ties to moro 
rapidly expand Into world trade if the Farm Credit Act 
Anendnentf of 1979 are paiied. We feel secure in spoaklnt 
for other cooperatives engaged in the export marketing of 
«vof a dozen different U. 5. conmodltles to many different 
countries abroad ai wall. 

Specifically, while there are eight provlilont in the Farm 
Credit Act Amandnants of 1979 relating to export financing, 
each of which Is Invartant, wa wl 1 1 camnaftt only on lararal 
of the major I tarns. 

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To iiitt an effecttve iblllty to itilil [ti ntMnbert In f)~ 
nanclng ihclr traniacilon* In forelin trtd*. Bank* for 
Cooperatlvot neod the authority to oftabllih corres pondont 
relatlonihlpt vlth forolgn banki to •Kptdlato paynwntf and 
collectfoni. In the cifo of Gold Kilt, ai w« rapidly ex- 
pand ouf export lalei, the uio of our own cooperative bank- 
ln| tyttem to faellltate trantactloni will help ui manage 
our cath more effectively — with the ultimate boneffciary 
of Ihli being our farmer memberi. 

Gold KUt, In recent yoari, has found it very advantageoui 
to ufo banker! acceptancot at a key tool In our financial 
managenwnt and *o have other U. S. cooperatl vet< Clear 
itatutory authority Is needed by tlie Banki for Cooperatives 
to allow the purchase and sale of acceptances. 

Gold K)st and other dlveriified cooperative marketing firms 
have found that iho best amngenMnt for certain type* of 
ventures used to facilitate international trade may be 
through investment in subsidiaries or by establishing cer- 
tain trade reialionships* Presently, Sanki for 
Cooperatives are prohibited from assisting ihetr members in 
financing such arrangements although a clear and direct 
benefit from tlie irfangement runs to the cooperative. In 
those cases where subiiantlal benefits from the loan ariit 
to tiie cooperative, it seems to u* that Banks for. 

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Cooptrtt Ivat ' participation ihould be permltiad. Such 
authority would limply allow U> S. cooperative* to further 
utilize their own banidni tyitem. 

While we discuts here «ev«ral added authorltle* tousht by 
Sanici for Cooperatives, I would like to make the point that 
we feek for the Cooperative Banking Syttem no authorltioi 

to the comnerelal banklnf inilitutioni of the nation. 

The eiience of thii tettlnMny ii to leek from Congrois 
added flexibliity for the Bank* for Cooporalivei Syftem. 
The policy of Congreti, at eitabliihed in the Farni Credit 
Act of 1971, ii for uier direction of the Farm Credit 
System under the broad poilclei of the Federal Farm Credit 
Board with eupervition by the Farm Credit Adminlitrat Ion. 
Since that landnark lailsiation wat enacted, progreii has 
been tignlficant In the Farm Credit Bankt and As i oclat loni. 
However, the rapid changei in our operating environment 
called for expanded authorities to meet the needi of agri- 
culture and the nation'* firmtr cooperatives. 

A) one who hai devoted his working life to a major coopera- 
tive, I can speak firsthand as to the many benefits which 
have accrued to our farmer members from doing builnait with 
the Banks for Coaperativei. Looking ahead, we trust the 
Subcomnittee will see fit to approve the now authorities 

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n«ed«d by Banki for Cooparatlvti as th«y aiilit their mcm- 
beri who atttirpt to moot tht challoniet of operitlni In a 
world airlcultural econom/. 

Gold KItt Is gratoful for thli opportunity to oxproii Iti 
viewi boforo thli Subeomnl tteo on the FarmCrodlt Act 
>>inen(tnen t s of 1979 and wlihei to fo on rocord ai belni in 
favor of ihli proposod loglilatlon. 

I would bs plsaiod to roipond to any quoitloni. 

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SI/kttHtm OF 




Kr. ChalraaD and Biabari of tht eonoltt**. My n^a !■ lurs** Aadahl. I 
Mk praaldant of the St. Paul Bank for Cooparatlvaa, which la ownad by and 
aarvaa 747 agricultural eooparatlvea with an aatlaated 169,000 faracr 
■•■bara In the atataa of North Dakota, HlnnaaotB, Wlaconaln and Hlchlgan. 
Thai* coopatatlvaa bava an aqulCy lavaitaent of $119 ■llllon In thalr bank 
for eooparatlvaa and at ]«ar-aad had loana outatandlng totaling SI. 6 
billion to furnlah c^tltal for their long- and lnc«raadtat*-tar« naada. 

I an alao praaldant of the Fedtral Intttaadlata Credit Bank of St. Paul, 
which li owned by 46 production ctadlt aaeoclationa in the dlattlcc which 
•ervo 56,000 faraera through 271 part- and lull-ttae otflcea. The 
production credit aeaoctatlon* In our dlatrlct had total loana outatandlng 
to fanera for abort- and Interaadlatc-tetB cttdlt at year-and counting to 
SZ.6 billion. 

Tbaae ate two of the three Fata Credit Banka Id tha Seventh Dlatrlct. Tba 
third la tha Federal Land Bank of Saint Paul. It aarvaa 69,DD0 f araata 
through 72 tadaral land bank aaaoclatlon Bain office* and branehea. At 
year-end, loan voluaa outatandlng wt* $3.7 billion. 

Tha Fara Cradle Bank* of St. Paul had a coablnad loan voluaa outatandlng to 
(aiaara and thalr cooparatlvaa of eaarly $8 bllllOD ae of Dac^bar 31, 

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The board 01 director! of th* Faro Cradlt Banka of St< Paul aiqiporti all 28 

propoaad ravtaiona to th* Fara Cradlt Act of 1971 contained In H.R. 4782 

and raapactfully racsBManda your approval of tbaa in th* fota In iritich th«y 
hav* baen aulmlttad. 

In thla taatlBony, t will addraaa only two provision of tba lettalatlon, 
both of Mhlch affact aolaly the banka for cooparatlvaai allslblllty 
raqulra«anta for cooparatlva borrovara and provlalona for flnaoclng export 
and l^ott actlTltlaa ai cooparatlvaa. 

The leililatlon you have before you aeeka to reduce the retpilraaeati for 
all typai of cooperativea eligible to barrow frca the banka for 
cooperatlvea to thoae having a alnisuB of 60 percent faraera ai voting 

Under the Fan (kedit Act of 1971, Dtlllty cooperative* auat have at laaat 
70 percent far«era ae voting ■aabera to qualify to borrow, and lara aupply 
and aarketlng cooperatlvaa auat have at leaat BO parcant faraara aa voting 

The leglalatlon propoaa* a change In the allllbillty taqnlrMant becauaa «a 
ae* a change In the role fara ai9ply and aarvle* eoopcratlvea in particular 
are filling In rural jtaarlca. Markating eoopcratlvea are aot affected by 
propoaad ehangea In allglbllty reqnlreMeata becaaae they are 100 percent 
owned and controlled by fanMra. But, ■^bcrahlp la changing In fara 
■upply and aarvlc* cooparattvee aa rural Jtaarica ehangea, eo thalr banking 

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■ yttM auit alio cb«Dg« to continue to b* abla 

An axa^la of chii changing phenoaenon t« pttTol«(«, a ca^toiitj 
cocficratlvci hava auppllad to faraera for bot* than SO yaara. The 
aarkatlng pattern of thla product haa changed drnatlcally In only a feu 
reara. Since 1974 Id our diatilct, w have Wttneaeed either ttte reduction 
in aalee or total wtthdrawal froa rural areae of the following covanlea: 
Gulf Oil Corp., Union Oil Co. of ailfornla. Shall Oil Co., Sinray DX, and 
Atlantic Richfield Co. The followlns figurea, coeplled by the atate of 
Hlnnaaota for tax purpoaea, illuatrate thla trend of patroleia laportatlon 
into Hlnnaaotat 


a Blllloii of gallon*) 

Culf Oil Corp. 

Union Oil Co. et California 

Shell Oil Co. 

Sunrar DX <Sun Oil Co. Inc.) 


Hatlonallj, aajer oil co^aniea n 
power fuala used In rural Jtoerlee. 




■ •i^pl;' only ona-tblrd of the burnei and 
Independent reftnere aell aoaewhat laaa 
than another on^thlrd. Today, the eight cooperetlve reflnerle* In the 
United Statea provide alaoat 40 percent of cb* petroIeiB tor rural iaerlca 
— although, lo 1969, coopcratlvca aold only 2B percent} In 19S7, it «•■ 
an even aaller 19 percent. 

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Aa petroleuB Bi^pllera hav* left rural araai, coopatatlvaa •tflltatad In 
the St. Paul diatrlct vlth auch rtglonal cooperatlvea aa ?BTBera Union 
Central Exchange, Faraland Induattlea, GrowBark (taimtrlj FS Servlcea), 
Land O'Lakaa and Kldland Cooperatlvea aa well aa othar unatflllatad 
cooperative oil aaaoclatlona arc filling auch of thla void. Since 
cooperatlvea are local Ir-owned and local l]r-control led buelneiiea, faraera 
vho have Inveated In thcll cooperatlvea and have uaed their aervlcea for 
yeara generally have felt It their reaponalblllty to provide petrolaia to 
their nelghbora ; achool teachera, nuraea, trucker*, nechanlca, poatal 
workera and othera upon uhos they lely for gooda and aervlcea l^ortant to 
maintain the high <)uallty of lit* In their coanunltle*. 

TWO pblloaophlea exlat regarding uho ahould have voting rights In a fainer 
cooperative. One group bellevea, and reflect* tn tta bylawa, that only 
faraera ahould be allowed to vote. The other phlloaophy la that all 
cuatoera of a cooperative ahould be treated equally ao that evaryona 
ahould hav* voting rlghta. In the St. Faul district, we have a maber of 
cooperatlvea that eapouae the latter phlloaophy, particularly ainca 
noD-faraar cuatoaera make iqi a Bmall part of their total dollar volume at 
aalea and farmers still retain the majority of tha voting control of the 
cooperative. Some of theae cooperatives find thamaelves aarvlng mora 
townapaopla than aver, conaaquently they may find thsaaelvea In danger of 
loalng their eligibility to borrow from thalr bank tor eooparattvea under 
the eKlatlng raqulr^nt of BO percent farmer* with voting control. 

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Tha Tmim CTadlt ^stM >)•• worksd with thli •Itslblllt; tania loot *ai taxd 
to make aura Ita raquait for the 60 parcant f araac control raquirakant ti 
In tha ba«t tnteraat cf dgrlcultura. Tha ayataa leachad a aolld dacialon 
■ftat m»ay houra of dIacuitloD with cooparatlva laadara and tanMTt and 
ranchers vho nead the aarvlcai of cooparatlva ■• It ma coocludad that aa 
long ai 60 parcant of tha voting control of a cooparatlva la In tha handa 
of faraata, cooparatlvaa ahould have accaaa to cradjt froa thalr bank* for 

The proposed aaendawnt la designed to protect the ability of thaaa 
cooparatlvaa to contlnua to uae the bank In ehlch the; have Inveetad for 
■ore than 47 year*. 

Tha loandBent will not divert the purpoae of the banks for cooperatives 
auay fro* aarvlog agriculture, alnca tt altar* only one eligibility 
requlmant for borrowcra fro the bank. Otb*r raqulreBanta will taaaln In 
force •* followai 

Blgtbla cooperative* Include thoaa organliad for an agricultural 
purpoaa — engaged In Barkatlng, proceialog, or atoring products; 
purehaalng, BaDufacturlng, or distributing auppllasg or providing 

bualn*** aarvleaa. Including rural electric, talaphona, or utility 

To be allgtbla, a cooperative auat do at least 30 percent of Ita 
bualnaas with or for It* aaaber*. accepted fr<B tbi* requlTsaant 
la buslnes* don* with the United Stete* Govanaant and aiqipllas or 
•arvlcaa f urnlahad by the cooperative aa a public utility. 

Tha reduction <rf the eligibility raqulroent to the 60 percent level 
■dalttedly la aot being sought for all of the otmera of tha bank* for 

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cooperative*, but you ahould know that It 1« not being aought to create 
great hordaa of nev buaineaa either. The bank* for cooperatlvaa are 
aaeklDg chiefly to protect axlatlng borrowera' equity and Invaataanta and 
•ource* of credit and related « 

Id the St. Paul dlatrlct. He found that only 2B of 65 non-boirowlng fam 
•upply cooperatlvaa In an Infotaal aaapla were unable to meet currant 
eligibility requirements but uould be able to borrow froa the bank If the 
raqulr^ant Her* lowered to 60 percent. Theae cooperatlTei repreeent email 
•aaoclatlone whoae credit naede would have en Inalgnlf leant Impact on 
overall loan volime for the bank If they wtre to become eligible. However, 
we believe the bank vould ba able to provide valuable aarvlcae to tbeee 

Similar aituatloni exlat In other dtatrlcta. The Omaha diatrlct reporta 
four axlatlng borrowera are narglnally eligible and may have difficulty 
r^aining eligible In the near future. The Wichita dlatrlct r^orta 16 et 
the currant borrower! may experience ellflbtltty problem*. St. Loul* 
report* four farm aupply or service cooperetlvea have been rejected because 
they cannot meet current eligibility requirement*. 

In addition to being able to eerve currently ineligible cooperative*, under 
provlalon* of thla amendment the banka for cocperatlvea could wttneaa the 
formation of a limited niaber of new cooperatives organlted for •peclallted 
purpoaea. These apaclallaed aervlce cooperatlvea could have a m^barahlp 
fix comprleod of agricultural producera and non-agrlculCural argent eat tons. 

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For m^le, la ctw St. Paul dlatilct, we TMMtljr •(■Istad In faraliig the 
Agrlcultur«l Itaoiporution CooparatlT*, an ■••oclaclan of railroad 
ahl|>para to airport lehablllution of a Chicago and Worth ttoatern branch 
line to BccoBiodBte 100-ton hopper cara and unit tralna. Tha aaaoclatlon 
Involvoa sort than 20 ellglblt cooparatlvt borroucra aa well aa other 
•hlppara, irtilch ara not organlicd •• cooparatlvaa but are Involved In the 
rural coaaunltjr. Ihla d*« cooperative aeeta azlatlDC tllglblllty 
requlraaenta to borrow fr<B the bank bacauae nora than 80 parcanc of Ita 
voting atock ia In the handa of eligible cooparatlvaa and It doaa aore than 
SO percetTt of Ita voliaa with allgibla f aiaer cooperative a^bara. Vhlla 
thla aaaoclatiOD la eligible to borrow froa the bank. It la concalvabli! 
that other cooparatlv* anterprlaea could be fonaed, providing goods and 
•arvicea laporcant to fanera and lAlch their Fan Credit Syatca ahould be 
able to finance, aa long aa control of the organisation reated with at 
laaat 60 percent fanara or faracr cooperatlvea. 

Utility cooperative borrower* alao are affected b; the eligibility laaua. 
While the banka for cooperatlvea ara not conaidarad aajor f Inancata of 
rural electric projecta, they have aatved an lapottant role ea a 
auppleaentary provider of fond*, for ezaaple aa a aource of front'-end 
financing before new generation and tran^Iaaion project! baeoao eligible 
tor certain other type* of loana. 

The St. Paul Bank for Cooperatlvea aade ita flrat rural electric 
cooperative loan Id 197(. On Deceaber 31, 1979, voluae of loana 
outitandlng and loan coaaltMot* to utility cooperative* wa* 5404 nllllon. 

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lepresentlng 15 perc«nc of th« St. Paul Bank for Cooperaclvst' total 
voluK of loan* and coaalCBaiita. Utlllt? cooperatlvaa have an Inveatsent 
of S20 Million In tht equity of thla bank. 

While fara aupply cooperaclvas' anbeis sake a choice about uhoa they grant 
voting rights, thli Is not the case for rural electric cooperatives. 
Regulations of the Ihiral Electrification Adalnlitratlon require that all 
rural utility cooperative users have the right to vote In the affairs of 
their rural electric cocfieratlve. Rirtheraore, state public service 
eoonleslon* require then to eerve everyone located In their territories. 
As a result of these two factor*, utility cooperatives have no control over 
who Bay and who may not be a oenber of their organlcatlon and cannot 
restrict voting rights only to agricultural producers. Yet these 
cooperatives becoae Ineligible to receive co^etltlvely-prlced credit troa 
the banks for cooperative* when one Hcaber aore than 30 percent of the 
neibeTship la not a faraer or rancher- 
Utility cooperatives aleo face changing deaographlc patterns: Bore 
non-faraers are chooelng to live In rural covgunltles as industries are 
encouraged to locate there, and, total nuabers of fataers are declining* 
It Is apparent that utility cooperatives will face Increasing difficulty 
■sctlng ezlstlog eligibility requlreaenta to borrow fron the banks for 
coopers tivee. 

In the Spokane district, IB of 76 rural electric cooperatives arc 
Ineligible to borrow but at least 10 of thea would becoM eligible If 

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raqulr^cnta vere lowared to 60 percent faiacra. If the change !■ not 
■ade. It 1* eetlaatad that 30 cooperatives nou barely allglble would loie 
that itatua due to changing rural population trendti In the Wchlta 
dietrict, IB rural electric cooperatives are Ineligible, with eeveral now 
eligible facing probleaa In the near future. St, Icule he* rejected 10 
rural electric cooperatives as borrovera becauae the; do not aeet current 
eligibility requlrwenta, but aoac of than would becoae eligible if the 
requlreaent were reduced. 

The proviaion of adequate and reliable aouTcea of electrical power is 
eaaential to farsera aa well aa to the other coniuaera who benefit froo 
cooperative ownership of rural utilities. If 60 percent of the voting 
control T^elna in the hands of faraere and aa long aa theae cooperatlvea 
ceo Beet other eligibility requlreaenta , the banka for cooperatlvea should 
be able to continue to serve then. We have established long-tera 
reletionahipa vith th^ and they have aignlficant Inveetaeote In the bank* 
for cooperatives. 

Aa econoaic trends and d^ographlca change In rural areas, so Bust 
operating procaduree of leodera serving agriculture. Director* of the Fara 
Credit syat^ are ^hatic that the •yste* and the cooperative* It aervea 
resain (arser controlled. The propoaed leglelatlon seet* the neede of 
providing eerviee for rural taericen* while ■alDtalalag far«ar control ef 
the Para Credit ayataa. 

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So far In thli ttni^oaj, X hav« addreaaad 011I7 Cm tn>«* of cooparatlveB 
that serra faTacni aupply and aarrlca coopatatlvaa. I alao Monld like to 
endorae a propotad fBCDdaaDt to tha Fan Credit Act of 1971 that would 
affect another category of cooperatlvaa as wall — narketlng cooparativeB> 

I would uraa your favorabla conatderatlon and aupport of the proposal to 
autborlie the banks for cooperatives to angag* In floanclBg ciport and 
lapOTt tranaactlona of scaber-borrouerB, Tin need to Incraaa* agricultural 
exports la a Batter of utnosc concern to avary Marlcan. It ti one of our 
nation'a f«v aaana of bolstering our balance of paynents In an era when 
rising coats of anargy aod other laports are straining the strength of the 
U.S. dollar. 

Since I preaented testlaony on Chla portion of the legislation before thla 
anbcCBBlttea at Ita field bearing In Oia^aign, Illinois, on Hovaaber 10, 
1979, I vill not dwell at length on tha aubjact but would Ilka to offer you 
a faw axa^lae of bow I bellare we could asalat out cooperetiTaa nndei tba 
authorities aought In thia bill. 

The St. Paul Bank for Co^aratlvaa aerraa aoae of the largaat and sliest 
cooperatives In tha United Statea that are involved In export and laport 
tranaectloni. It wae partially a atudy In 1976 of the needs of these 
cooperatlvaa and other borrowara of tha banks for cooparaclves ayetaa that 
brought about tha aaaateant no* under conalderatlon by chla aubcsealttaa. 
In total, tba St. Fanl Bank for OonparaClvas haa 13 borrowara that export 

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product! abroad. Ihvjr own one-third of tbe Aqulty of tba bank. Dollar 
Toliva of th«lr direct a^ort* currantljr excaada $100 ■Illlon and dollar 
voluB* of Indirect exports azcaeda $300 «llllon. 

Included In that flgura are nmea of cooparatlvea you tmuld racognlie, auch 
as "Land O'Lakaa' and "Grain Teialnsl Aiaoclatlon,' both of which have 
taatlfled before this aubcoBalttae about the verlta of thla propoaal. But 
WE have laall- and Interned Is te-al ted cooperattvea at well for lAleh export 
financing aerrlcaa also arc needed. Klnn-Dak Growers at Grand Forks, North 
Dakota, la an ax^le. The SJO-aaher growers cooperative export! 
2,000 netrlc tons of buckwhaat Co Kasho, Ltd., of Tokyo. Buckwhaat seed le 
used to Bake buckwheat noodles, a popular dish during th« New Year's 
holiday. Ttis Japanese even use the hull to aakc pillows. 

When Hlnn-Dak Growara undertook thla transaction last Tear, It looked to 
the St. Paul Bank for CoopareClves (or advice. He ware tbe laceiaedlar]' 
bank In thla tranaactlon, aaalatlng Id setting up papenark and Mrvtng as 
an advisor during the tlaa this cooperative oagotlatad Its contract with 
Che Tokyo fira. Us could not aaslac Cha borrower In the capacity of being 
e coaflT«lng bank, and, therefore, tbe peyaanta were delayed to our 
■io bar- borrower • 

Ckirrcntly, payaanta for cooperative aiport craaaactloiu auat flew through 
several layers of batiks, causing tl>a delaya and additional enerhead, 
Kinds flaw ralaclonahtpa bava not bean ascabllahad betwaen easMrcUl and 
cooperative banking structures. As the banks for cooparaclvei baccae 

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Involved la aipoTt and Import financing, «• b«li«va through tba banking 
ralatlonahipa aaong th« 12 district bank* fot cooparativaa and tlia Ctntral 
tank for Ooopciatlvca, that collactlon iflort* can b« apaadad i^ Co aave 
tba (arMar* aonejr. 

The St. Paul Bank for CooperaClvea aerves aa tha sajor lander to thr«« 
■ugar beat growers' cooparatlvaa. Birope la a traditional market and Japan 
haa emerged aa a major market for beat pulp during the 1970a. These 
growera' cooperative* now aall beet pulp to foreign markata mostly through 
domestic brokers. 

Currently on all export sales, payment la received at tbi time the pulp 
either la shipped from the processing plant or at the time It Is loaded 
onto a vessel for shipment overseas. We believe we would be able to 
Improve aalea of beet pulp If wt could offer our sugar cooparatlvas credit 
to finance receivables for overseas buyers. He believe we could provide 
saslstance In making new sales IE wa could supply cooperstlves with credit 
Information on additional foreign buyers. The bank for cooperatives Is in 
s good position to help these borromrs In such aress as satensioo of 
credit overseas becauae we are their primary lender. 

He have a vested Interest to see that these and other cooperative 
participate In cKport snd l^ort sales on a sound basis baesuse It affects 
all of our lines of credit. For example, one of our cooperatives recently 
has bad trouble collecting for a aale of canned fruit because of a quality 

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dispute with tb* terctgn buy*i. T» data, thla borrowar bti not b««n paid 
for that dallvarr. Sine* tha St. Fiul Bank for Cooparatlva* tlnanctB tba 
procaaalng md handling cf the fruit, th« bank ultlaately could itand to 
■uffer In clrcusitance* Ilk* Chl( bacauH that lost would b« raflactod In 
Che coopatatlva' ■ ovarall balanca ibaat. Tha bank for cooparaclvai would 
b< batter Infonod about tba risks Its borrowers fsca If it also wer* 
Involved in flnancini tha sale of thalr products overaaas. Ha would be 
abla to detatwloe It Che proper docwentetlon, such as Inauranca, ware in 
order. He aa; be able to assist In waking collections for aslee. 

Another valuable feature we would be able to offer cooperetives If tbie 
provision of the leglslsclon Is adoptad would ha Co provide banker* 
accaptsneea. These ere e weans of feclllcstlng Intsroatlonal cransacclone. 
Once an export eale 1* wade, we eould discount racelvablas Into a bankers 
acc^tanca, providing the cooperative borrowers with an additional source 
of funding at cowpatlclve rates. Hhlla bsnkere •ccapcaoces are available 
through eoaaerclal banks, t would ask idiy a borrmMr should go to anocbar 

Uhj should ownars of the bsake tor cooperetlvee be llwltad to these 
doaeatlc shorelinesf The average famer has iovasced wore than S5,000 In 
hie cooperative. And cooperatives. In turn, have an tflOO wllllon 
iDvaacaant In tbelr banks for eooparsclves. htwars are aaklng tbatr 
cooparacives and eooperatlvea la turn are asking tba banking sr'ta thajt 
own to proTlde tbM with financial asslacanca In tba International 

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«ark«tplac«> Faracr* sliould bsvc tht right to bantflt froa tha dlract m1« 
of their product! abroad and to racalva Baxlna proceada trtm thoaa aalaa 
through thalr own coaparatlve aarkctlng and banking ayatoia. 

A recent axaaple of lAat thla tn>* of trade can naan took place In our 
dtatrlct laac aontb and Involved a ntaber of the borrowars fron tha 
St. Paul gank for CDOperatlvea. A group of Michigan cooperatlvea 
participated In putting together the lergeat export Bale In the edible dry 
bean Induatry, Involving 2.1 ■llllon bundr«d«*lght of plnto, red, and black 
turtle aoup bean varieties bound for Mexico. Klehlgan faiaera are already 
contracting vlth thalr Michigan cooperative* to grou tbeee beans, 
converting corn and eojrbaan acreage to growing colored beans at a price 
assured to l^rova thalr cash flowa. 

The cooparstlvea Involved In this venture would like to rel; upon their 
bank for cooperatlvea to provide aervtcea naceaaary in ecttlng up auch 
tranBacttong. But, In order to do ao, the banka for cooperatlvea need 
congresalonol adoption of the autborltlas provided In the bill currently 
before this aubcsBBlttee. 

The St. Paul Bsnk for Cooperatives Is the prlaary lender to each one of the 
cooperatives Involved In thle sale. This beak, aa well aa production 
credit eeeoclatlons and federal land bank aaaoclations that finance Che 
growers Involved, need to know If International trade egreaaants such aa 
tbl* one are sound. The bast way the banka have of knowing la to 
participate In these transactions with Ite «e«ber-ownera. 

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Today In thi* country, the production [ran one out of tn»rj thraa acrea l* 
exportad. Sobc acoooaiatB hava ■■tlaated that by 1990, agileultural 
export* vlll Bora than ttlfla to $100 blllloo, Ac vltneaaed by tha partial 
grain tabargo to the Soviet Union on January 4 of thI* year, tha Banbers of 
hli BubcoBBlttee do not need any object leasona In learning how 
nternatlonal trade affecta the prlcaa fataera receive for their grain and 
Iveatock. The prices of agricultural eeonodltlai, like ao many other 
o^odltlae, are dctaralnad In the International arena. And, atnce today'* 
aiaera are highly (peclallEed producera, they are Bueh aore vulnerable to 
larket awlnge than they ever hava been before. 

tn buckuheat, beef, beet pulp, end beana — all of theae cooperative 

Hera have becoae Involved In the export narket since the Fara Credit 
tet of 1971 NBi pasied. When It was urltten, there vai no nay to 
nclclpate the Bagnltude of groirth of agricultural exports, the need for 
ivolvcBcnt of faracrt and their cooperatlvea, and the need for thli type 
of larvlcc froa the banka for cooparatlvaa. 

Our opponent* a*k, l*ii't e^ort and laport flnaoctag too risky a bualne** 
for faraera, their cooperatives and their banka? 

The faiaer haa alaaya bean and continue* to be * ri*k taker and one of the 
beet •anagera of using sad aaaesdng rlak thet can be found In thla 
country. Peraare already handle the riak* of bad i«eatbar and falling 

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prtcea. Fatatra luva tb* right to taka Elaka with thalr own coital and 
tha tight to put tbalT cooparatlv* ajattm togathar Into • p«ck«|« that will 
h«v« poaltlva iffacta in tha world BarkaC. 

If anyoaa ahould bava a right to banaflt froa aallliig hla product* In tha 
Intamatlonal Hrkatplaca, It abould b« tha fatBcra. Harketlng 
cooparatlve* ~ totally ownad and eontrollad by faiaara — ara the 
alaplaat. Boat ditact Maana to gat BaxlnB raturna fro* a^ort aalei Into 
the hand! of far^eTB. 

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U.K. Harding 

□n behalf of 

Central Bank for Cooperaclvea, Deavei, Colorado 

before the 

Subcomlttee on Conservation and Credit 

of the 

Bouae Cooaittee on Agriculture 

regarding the 

Fan Cradlt Act ABcndaents of 1979 

Harch 5, 1980 

Mr. Chalrnan and solierB of the Subcomlttee, I am W.H. Harding, Preildent 
of the Central Bank for Cooperative* in Denver, Colorado. The Central Bank 
for Cooperatives la a bank of participation, owned by the 12 district Banka 
for Cooperatives, that partldpatea ulth the dlatrlct banka in financing 
regional famar cooperative*. In the past year, the Central Bank loaned over 
$9. 7 billion to farmer coopeiative* and currently has loana outatandlng of 
t3.7 billion. 

The Banka for Cooperative* were chartered by the Congress In 1933 to 
■eet the special financial needs of faner cooperatives. Orginally 

established with Govemaeot "seed ooney", all Federal t 
in 1968. Today, the Banka for Cooperatives are totall) 
cooperaclvea thet they finance. In the year that endec 
they loaned $1R.9 billion toaore than 3,300 farncr coe] 
the Central Bank provided $9. 7 billion. This represent 

unds Here repaid 
' nroed by the fa 

Koitizedb, Google 

It, Id It 

bers of Che SubcoaUttae ar* «>«Ta, agricultural coasoditles 
the keyatone o{ our naclon'i export bualnaas. Va have found 
cent BonchB, farsara bciobb the nation alnilarly have developed 
B of tha laportanec of world marketa for their product*. Thay 
are concluding they should take B aore active, direct role In selling thalr 
products to foTclsn buyers. They are calling on their narketlng cooperative 
Co be Bore active end sore effective In telling their products around the 

A recent eurvey by a regional cooperative llluatraCes farmer interest 
In eiq)u;CB. The cooperative surveyed its faraer director 

of loc 

cooperacivea on laaues facing the cooperative 
Borc thm five thousand dlTectora cooplaced qu< 
faraera vete asked hw their cooperative shoulc 
coning yeata, the nuidieT one priority waa "grai 

It la clear that cooperatives, under the 
elected bosrda of directors, are seeking to li 
of fara products. As the prlnlclpal lender ti 

for Cooperatives must 
services that vlll fadll 

But to establish eft 
the Banka for Coopei 
aBcndaeata to the Fi 

Thla leglalatlc 
Agricultural Export 
approved a year ago . 

in the future. In the survey, 
leatlonnalrea. When these 
Ld allocate Ita reaources in 
iln exporting". 

direction of their fsroer 
icreosa their foreign sales 
3 cooperatives, the Banks 
I eatablishlng financial 

irglrd this effor 

:ate the international transactions of our 

icclve, efficient International banking aervlces, 
I need authorization fron Che Congreaa through 
idle Act Ansodments Bill, H.R. 4782 
in direct support of and conalsteot vlth the 

Expansion Act of 1978 that Concrsas 

the proposed authorities. It vould be the objective 

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of Che Banks for Cooperative! 
through OUT Faner CooperativeB and to 
hla fair ahare of Che econoalc beneflti 
ao auce^s^fully for world mi 

intcnutlDnal banking Hcrvlcea far their 
Cooperatives ace ezpoctlog agrlculti 
approxtnatelir $S.5 bllliOD. Nearly half 
aold ac Che dock of a U.S. port, often to 
Such aalea do noc aluaja provide the beat 
■ore proficable If Che farm product la de! 
uaer than If Che foreign buyer Is requlrcc 
country or rely on ttlddlcnen 
hove experience In arranging and handling 

collections 1 


r couattla. 

Hoat are 

available for 


cnntr.cta f 

or the aala 

councrlaa wit 

n una 

sable rlak. 

Afl coop.era 

export bualnei 

8, they will aee<i 


Cheae apeciallted r 


In addition to 

being able 

to unaga t 

aelea. cooper 


need floan 

lal aarvlce 

■ore coepetit 


Foreign buye 

ra of agrlc 

delay paywnt 



until they 

product to Che cona 

laer. Thla 

require* er 



foster Che expansion of agrlculcural exports 

the food and fiber he pcoducea 
The authorities we request are the 
iBve In order to provide 

il cowmdlcles this year valued aC 
^ this, is being sold Indlreccly - 
Inceinattonal trading coopanies. 
return for faraera. tc »k) be 
Lvered abroad to the ulclsate 
to pick up the produce in Chla 
■hlpaent. Only a few cooperaclvaa 
!Xporc cransaetlons that require 
Kit foBlIlar with the Bechanlama 
of farm pToducta to other 
:lvee seek to Incceaae their 
aervlccs carefully tailored to 

:he financial risk of foreign 

It will make their products 

-ulcuraj ahlpaenCa ofCen need to 

have processed and sold the 

redlc arrangaaenta that the 
len bidding for the sale. 

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TfalaujiconBlac of Elnanclng of cbc foreign buyec'a Invaitorr and tha- 

Theae are tcadlclonal credit arranseiwnts cooDon In Incernatlonal trade. 
They are Che financial arrangenenta pcoaoted and Insured by the Export- InporE 
tank to stlnulate U.S. exporta. This financing la for Bpeclflc tTansactloDs. 
secured by title docuBenta on the ahlpnoit, and la self-llquldatlng. 
Cooperatives have had only United aucceaa In offering trade-credit' alternatives 
to prospaclCva buyers because they are unfaalllar or unsure of the*. Financial 
Institutions nou assisting cooperatives Id trsde trsnssctlons often are 
uofsnlllar vith cooperatives. The Banks for Cooperatives have been unable 
to offer cooperatlvea thla Ijqiortant credit service- 
Cooperatives need specialized financial aervlces to effectively 
fsdlltats Chelr export salea. Host coaperatlvcs' aalea of agricultural 
co^Kidlttes are large In else. It Is essential, therefore, that the 
transactions be handled expeditiously, Kith a Blnlma of delay, because 
delay la costly to the cooperative and, therefore, the faraer. Many 
exporting cooperatives have stated that delays In receipt of funds frm 
export sales arc one of their aaln ptobloas. Aa an exsaple, Indiana Fam 
Bureau Cooperative Aasoclatlon, Inc., Plains Cotton Cooperative Association 
and Texas Cltrua Exchange hsve sxperlaace such delsys from 1 to 7 days. 
It would be our objective to provide international banking services Chat 
ellBlnates delays to nlnlsilze the cost of the tranaactlon and thereby 
SBBure the greatest return to the faraer. 

The Kanka for Cooperatives, therefore, need the authority to develop 
an effective International financing capability for the fallowing reasonat 
1. 7aTaer cooperatives require the knoHledge snd assistance 
of their prlnaiy lender to help Baxlalic retuma on their 
foreign sales of agricultural coiModlElea. 

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To b* caapcttclva In IntemattOBal Barfcacs, U.S. caapcratlvaa 
need financing alcecnatlvaa for handling p^mentB by forelsn 

Cooperatives requlTc specialized banking services tailored to 
their agricultural export business. 

Devclopatnt of export services Co cooperatives is a logical 
excantloD of the BC Syac^ needed to further support developaenc 
of cooperative in coaing years as directed In the Fam Credit 

I uould like to .ciaMynt briefly on each of the bbJot authorisations 
requested by the Banks for Cooperatives to estsbllsh sn ef faitlv^ efficient 
iDtemstloosl banking service for cooperatives. 

1, Permit the Banks for Cooperatives to aske deposits In foreign 
banks . A key eleasnt in Intematlonsl bsnking is establishing 
correspondent relations with Banks in foreign countries. The 
Bsnks for Cooperatives presently are llBlted to aalntalnlng 
bank deposit relations with aert>er banks of the Fsderel 
Keserve Syst^. To eicabllsh correspondent relstlons, however, 
banks tradlttooally exchange deposits and, theridiy, open accounts 
in each others bank. These deposits would be noalnsl In ^wunt 
only to open such accounts which are essential to Baking payaenta 
and collections in an expeditious, efficient ■snner. 

Koitizedb, Google 

tba Bank tot CoopantlvM Syata will raljr for audi of it* 
latcrbank aaada la lAtaraaC iooal V»ifc«in oa O.S. banks Uiat 
htfi* affaetlve norlwida aatmrka of branch** and office*. In 
sow artaa of Ch* worU, hoxavar, correapondent. lalaCloiH vltb 
foTel|Q banks would offar tha aoat coat afflcianc aacbod of 
accoavliahina collacttcma and pajaaata. Corraapoadaac Talaclona 
alao would provtda an livortant sourca of ciadlt and aaikat 
Infoiaatlan foi tha BC Syatea. Craat caution mniU ba axarclaad 
by tha Banks for Coopaiatlvaa, of couraa. In aalactlng foraign 
ettrraapondaat baoka glvlni dua ingard to both political and 

2, tybla tha Banka for Cooprativ— to racaiva and hold cradlt 
balapcaa Itim baoka and borrowara . 

To traiafar funda aoat afficlaatly. It will ba aaaantial 
for tha Banka for Cooparattvaa to accapt funda froa bortomra 
and fcoa finaocUl inatlCutlona- Ibia ■uthocitr would ba uaad 
to aftlclcntly tranafct funda for Intamatlonal traoaactlona of 
faraac cooparativaa- This authority would not paialt tha Banka 
to accapt dapoaita froa tha public or froa other untalatad 

Holding dapoaita of focelgn banka la tha sacood pate of 
astabllahlog corraapondanc ralationa with foreign bnka. Tha 
authority would pantt tha aacbanga of dapoaita to open reciprocal 
acGoonta that la the normal beats of establishing correspondent 
nlationa between banks in differsnc countrias. 

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Th« purpose for thi 
foreign banks wid coopei 
of tranaf erring funds 
Is to reduce the tlJM 
tine possible, and, th< 
cooperatives and bsxIbIi 
Authorize the Banks fi 

poiKT to hold credit balances at both 
itlves Is to nlnlaiie the tl>e and cost 
In internstlonal transactions. The goal 
involved in such trsnafers to the shortest 
efore, reduce transaction costs to 



This proposal would 
■for Cooperatives t 

J give clear authorliBtlon for the 
3 buy and sell banker's acceptances that 
are obligations of banks whldi are nenberB of Che Federal Reeerv 
Systes] and would require FCA authorization to buy and sell 
acceptancea .which ars abllgations of banks that are not maabers 
of Che Federal Reserve Systeo. 

Banker's acceptances are an Inportaot aoney -market 
instriaent. Due to their credit quality and their liquidity 
charactettstlca, they make excellent inveatoents for managing 
liquidity reserve*. 

Acceptances are increasingly used by coonerlcal banks to 
finance Inventory loans on agricultural cooaodltlei. Often it 
la advantageous to purchase acceptance drafts draun on an Inport 
bank under an export financing aceoonodatlon. 

Banker's acceptances are a ccoBon tool In International 
banking that are an eaaential element of such services for 

Koitizedb, Google 


MlthorlM tin t«8k. tez CoopwatlvM 
■ iKht nrMl lint dmfii dtjvn b1 cooptr 

iclri B a n d fjclllftlm 

mllectlon tai tiipori . 

This provlslan HOuld «n«bla ch* Banha (ol Cooparulvaa 
CO furthar aaatac coopcrativaa by facllltacini collactlon 
■Dd payaant tat asporta and lapotM and pcovlda floanclnc to 
tba cooparativa. Ihla proeadura la aquivalaac to provldlni 
cba axpoTtloB cooparativa ulth accouota-rccalvabla financing 
OD tha CBioJltlaa aold In axpoit tranaactlona. 

rinanclng a coopaTatlva'a racclvablaa Itob export aalaa >b]p 
ba with oT nichout Tecoutaa Co the cooperative. Notr-recourae 
linaoclng haa bacoaa coiBon today owlog to the availability of 
Govenacnt proiraaa that Inaura tandara agalnat coaaarclal and 
political Tlak. Evan though rccouraa to Che coopeiative la 
raaovad, noraally there la recouraa to tha buyer, hla bank and 
to the Inaurer of the credit. 
Authorite the Banka tor Cooperatlvea Co engant 1 

The tanka for Cooperatlvea aaad chla authority to purchaae 
and aell curraaclaa for tha accounca of their cooperatlvea. 
Uhlle the Bajority of export craoaactlona are denoainated In 
dollara, a buyer >ay vlah to sake payaent In hla oun currency. 
Tha ability of ■ cooperative to accept thta condition of aale 
■ay aaao the difference batneen Baking the eale or not. 

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9if* Mit all profit aacfln foe cte apncdjis cooriantl'f^. 
Satb foimlfa — "'■"Br flneciBtlm. of saarma, cmb ba '•— *||— ' 
"fonMrdf* Is tte focncaa t*^*— T* "*t^ fur amof cumadas. 

M.d) tba auchorlCT cbe BaikB far C uu pa iM ClTM ■aald ba Ala to 
provlii* eoopacad*^ slcli nmicr acbonga chat Is aa atral^t 
foEwaCd and afflctaot as poaslbl*. In nbUtlon, tba tmatm for 
CoaparatlTaa vould ha ibla to coodMl and s°l<'* ^* npardns 
cooparatlTa to halp mlnlMlxt Ita cmrrancy aaetiaas* risk •spoaara. 
Iba of thia anthorltT br th* bnriu voold bo for tha purpoaa of 
bail's ""^ aalltoi oxnaadu to aaae eoDvctvloo niaJi to covar 
•paclfte iranaactlona ad vonld ant ba I ill ■ luJtA for ttatflai cinraaclaa 
•■ ■ profit Bifclai acUTltr. 

AathOTltm tha Banfca for CwroaratlTaa to Mta lonna to aaaoelatad 
partlaa vhara thara will ha aufcatanttal b^Mftt Co l il ia r 

Tha piopoaad laslalatlon would (lie tba Banfca for Coopatatlvaa 
aothorlty to aafca loana and |l«c other tadmlcal aod flaandal 
aaalatanca to paitlaa tbat ara rclatad to cooparatlvaa throi^ 
omwTsUp atflllntlaa or trada relallooa where thara wMtld ba 
aifcataatlal banaflt to aa elUIblc coopcratlva. laaaa to aatltlaa 
wfcara tbara la Bwaarahlp affiliation will ba Ualted to the parcaataxa 
af awBcrablp of obt cooparatlvc aa^era. Laana to aaaoelatad 

Koitizedb, Google 

paitlu will b« tor spMiflc crnMctton auch a* iMat^ aa4 
llalcad to th* «at«at of cb* diract b«B«flt tacalvod by out 
■i^ar cooparatlva. 

To aarkot thalr produces affactlvaly, cooparatlvea • 
■ust eoapaCa la foralta aatkata through bualnaaa atructuraa chat 
BTB dlffarenc than thoaa daacrtbad tn Tltla III of tha ?aTB Cradlt 
Act. Aa cooparatlvaa Incraaa* thalT bualnaaa outalda of tha United 
Gtacaa, It bacoaaa difficult for tha Banka for Caoparativca to 
pTovlda full, tonatrucclve financing for «xpartlng cooparatlvea 
within tha conacralnta of Tltla 111. 

Thla authority alao would paralt tha Baoka for Cooparatlvaa 
to flnanca auch aaaoclatad partlaa tot tha purpoas of facllltatlni 
laaalag to cooparatlvaa. I,aaBlng can bs aapaclallr advantagaoua to' 
cooparatlvaa undar cartatn clrciaatancaa. Tha authorltT to 
purchaac aortgagaa and notaa with ralatad aacurltj frca laaaora 
leaalng to cooparatlvaa aaatat paabara Id ratalnlng tha advantaga 
of BC financing through thalr bank vlthout loalng tha advantaga of 
laaatng. Thla advantaga can ba very iHpottant to exporting 
cooperative*. It can ba utilised to provide the capital lotenaa 
•xpoct faclllttas auch aa tranaporcatlon, atoraga, and handling 
equlpaant without the Initial capital outlay normally required 
for puTchaaa of tuch tadlltlaa. 

The Banka for Cooparatlvaa have not bean peralttad to sacand 
•uch financial aaalatanca to their Btabera although coaaerclal 

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banks and othar lenders have had chla authority for offering auch 
■arvlce to their eiutoaera. Tanier cooperative! need the 
availability of such financing arrangenentB. Thla proposal la 
intended to enable the Banka for Cooperatives to provide the 
range of financial servicea required by cooperatives. 
Aut horlie the BanliB for CooperatlveH to participate in oanerahip 

of forelun HRenclea 

n many foi 

:elgn markets 

reaely difficult to hsodle 
aasistance of forelgo 
cal trading conpanies. Traditionally, U.S. banks 
lllied these finis on a fee basis or Joined together 
ks to establish "locallied" agencies staffed by 

These agencies usually are limited scale operatic 
I highly qualified professionals and a supporting staff. 
cal capital InveaCment In auch firms usually la DodeaC. Using 
the unique resources of native residents, these agencies are able 
to collect excellent financial InfomaEion about Importera and 
local econoaic condltlona. Also, they can rapidly expedite 
legal and financial cranaactlona necesaary to coBplece export/ 
liqiort aalea and finance. 

Thif authority would permit the Banks for Cooperatives to 
make equity investments In export oriented agencies and financial 
institutions, thereby, enhancing cooperative exports. Ve would 
have greater access to services and information that would b* 
beneficial to our cooperative exports and eliminate 
duplication of International financial servlcea. 

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Afllll«CtoD with auch tnedcutlonB would be a catalyat c 
brlns together foreign laporters of agricultural pcoducta and 
cooperative enpoiteTB. Equity ownership would assure 
foreign affiliate agency would service cooperative d 
channel potential cuatomers for agricultural products to our 
D.S. Cooparatlvee. This authority would promote a note efficient 
cooperative export markatlng aysteti, enhance our ability t 
a4]uBC to changing Darkets for U.S. agricultural product 
create a Bore poeitive dound for Amerlcaa comoditles. 
Mr. Chalraan, the Bank* for Cooperatives were created A6 yea 
the CongTeas snacted the Fam Credit Act of 1933. The purpoae of these 
bants in the beginning waB. as It la today, to Improve the income and 
well-belog of Aaetlcan farmers and ranchers by furnishing their coopetatlvea 
aound, adequate, and constructive credit and closely related servlcei. 

Through the yeara, the Banks for Cooperatives have been successful in 
this endeavor. They have developed Into highly respected financial 
Institutions in out country that have a solid record of bold but prudent 
finsactng for these esaenttal farmer-owned businesses. 

Throu^ the years, the Congress has modified our charter act to enable 
the Banks tor Cooperatives to grow In aeetlng the changing financial needs 
of cooperative buBlneBses. Slnllarlly, Che proposals In this Bill sre In 

response to changing needs 
a vital eloent for Americ 
directions of their fainei 
businesB to sssure famera 
■ale of their fans product 

of farmer cooperatives. Exports have becoiw 
in agriculture. Cooperatives responding to the 
directotB are launching out into the export 
that they receive their fair return from the 
I around the world. The Banks for Cooperatives, 

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lo order to cootlnu* to conatrucclvsly flnsnca the buatnes* oparacloiM of 
cooperatlvaa , aust btov and dcvali^ In Chli area of laternatlonal finance. 

Out caqucst, cbcccfore. Is to enable the Bank* for Cooperative! Sjpstca 
to continue Its grovth and devalopnent for the purpose of ■dequatalj' serving 
cooperatlvea, }uat as the Congress envisioned nearly a half century ago. 
We reapecEfulIy requeit the approval of this aubce«ad.ttee and the CongreBB 
for these international banking authorlElee so that ve nay support cooperative 
in this neu area and, thereby, enable the Fan Credit SystHi to becona 
participants In Marketing our D.S. agricultural co^KxIltiea abroad. Ha 
believe the international banking authorltlea for the Banks tor CooperetlTes 
In ItR&7S2 are in the best Interest of fenera, their cooperative buslDuses. 
our balance of trade. and the Nation's econoay. Ue urge your approval. 

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Stetart PfaCE 

on beh«lf of Che 

Spokane Bank for Cooperatives 

Mr. ChairaaD and Heabera of Che Comalttae, ay naae 1* Stewart FEaff. I 
farn 1,200 acres near Carfleld In EaaCam Waahlngton. Presaotly, I as a 
director and past prealdent of the Uashlngton Aasoctation of Dry Pea and 
Lentil Produceta, an altetnate diiector of the Foreign Council of Dry 
Peas and Lentils, a Bcober of the Northwest Dealers and Gtoueis 
Association, Inland Enplre Pea Crouera, Oakesdale Grain Growers, Roaalla 
Producera, and Palouse Producers. 

In Eastern Washington and Western Idaho, In an area called the Palouse 
Country, we grow 95 percent of this country's dry peas and lentils over 
500,000 acres, noat of which have slopes of 30 Co 45 percent. He have 
been faralng chla area just under 100 years and have lose over 40 percent 
of Che topaoil to erosion and ic takes 250 years Co build an Inch of 
topaoll barring all eroaion. This loss of precious Copsoll has brought 
about recOBBendattona that amner fallow wheat rotacloas be prohibited In 
areas of IS Inches of rainfall or Bore per year, and a continuous 
cropping practice of peas and lentils on alcernate years with Nheac be 
Instituted. These recOBMndatlons cans about froai the Hater Quality Act 
208 and the Beaource Conaervatlon Act which makea peas and lentils an 
absolute necessity In our crop rotation. 

Out of necessity, we foraed an asaoclaClon, a co^aaion and a council to 
develop and expand doaesclc and forel^i aarkeCa wlCh soae degree of 

>s. We export eoae 70 percent of our crop to SO different countries 
need and require a continuous supply of protein in Chelr dlec, but we 
recently found soae very real conpecltlon froo Canada and the 

Digitized by Google 


European Commii BiTkec. We have also lose eoae nallcet* Id the paat due 
CO low quality and ll^t weight* and were unable to Identify the 
producera after several brokers traded the products. Pataere have had 
very little Influence In Che way their products have been aold in the 
paat or In the condition that they have been delivered. Hany Cloes they 
have been downgraded by blending to alnlaui standards, watered down In 
the nase of duat control, aold and retold on paper, and far too often, 
delivered In lower quality and quantity standarda than when they left the 

Recently, Mexico expreaaed a desire to purchase 250,000 oetrlc tone of 
beans over the next two yeare, aoae of which could be supplied froo the 
Pacific Horthweat. Hr. Gutlecrei of the Heilcan Enbaaay in Waahtngton, 
D.C. , stated that Haxlco would like to contract directly with faraers or 
faraer cooperatives to eliainste al (understandings and i 
paperwork and reduce the cost and tlae involved. A dire 
faraer cooperactves would be beneficial cost-wise and create better 
understanding between natlona. Profit* could be allocated back to the 
faner through the cooperatives and the Banks for Cooperatlvea tAm vould 
offer the aarvlcea. 

The Pacific Northwest produces aome 120 ■llllon buahels of wheat 
annually, 80 percent of which nust be exported to foreign countries. 
Ueetem Uhcat Assoclstes have spent years and hundreds of thousands of 
dollars of tsrasrs' soney to develop many of these aarkets and now we 
need to atreaalina our aacketing systaa to Insure our ability to keep and 
expand the sales of our northwest crops. 

Koitizedb, Google 


The Barketplace la changing as foreign counCTtea begin Co deaand a higher 
qualltr and widtr variety of producta. CuBCooara nou mnt apeclal 
colora, flavola, alzcs, and other characttclactca which our pcoducera and 
■hlpp«ra Biat reapood to. Our Batketlng ayacea nuat change to aeec theae 

So, I think the tlae haa arrived for fanaera to have a choice In how 
their cropa are finally oarketed — throu^ exlatlng channela and 
faiaer-OHned cooperatlvea. If cooperatlvea can finance and export cropa 
directly, the proflta fron perforalng theae aervlcea would Increaae farm 
iDcoae and help preaerve Che family fara. 

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BouUL. ■»— «tck 

eababalf ef ch* 

in Cndlt lalu of O^hi 

• CMdtc tank e( Owbi mud OmIimb at tba mtdau 
CoBlttH of tha Fan Ciadlt taak« a( OmIw. Iba Tan Cndlt luA« ol CHaha una 
■ppTOKlHCalT (5,000 Tadaral Lad Buk bsmwHS, ZS.MO ru bsmv««, and 465 farm 
cocpaiatlna witk loaaa euucaoUnt sf aprmdaacalj K.I ktlUoa. Ika Am Cndlt 
tank* of OHha a«va tha atataa a( I«i», . laknaka, .touth Dakota, mat HyoalBi. A* • 
tepiasanuLln a( tka Van Cndic ladu at Oaaba, I appnelU* tka omeitualtr ts 
praanl our vlawa oa BtrA7t3, tha ran Cndlt Act AnadaaBta sf 1979. 

Thla laitalatloB lapiaaaata tka csaunna affect of tka aoClta hn Cradlt Bya- 

V Cndlt Act 

of 1»7>, BI-«TBI, la a inttlad pnduct of tha 
of thla laalalatim aa It iKa (atnducail> and 

. laacban I9 Fnductlsa Cndlt Ai 
ra Cndlt Act af 19T1 pnrldaa, 1 

IT ctadlt aa ada at tka appllca 
Ion Cradlt Aaa«iatlDiia to >^ 

u aad radanl Uod lanka. 
t A, loGtloa 1.10, lai Fadard 
T any aATlcidtutal putpaaaa sad 
OD 2.1s (1), pnddaa for rn- 

1 Lav" raeafnliad t1 

■y dolnt ao, tka o] 

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iDB Bpd ■■rkAtlntf la db* VIid pTOducaa Haad con. Va w ^ ^b^— te pvDduMloi Qff 
hi* own iMBi but, iB ordn Co precHa Ma a« tsuad. ha davalsps ■ Hat con plan 

^Ul°l and aal* «f tht pioduct* 

■ansllr. Id ndar Co nvpaR tha Iwwn— t >■ tlia plane tha aaad sam pn>- 
ducar Htll antata, laidat eeanacE, atbac fanan Co |irDd>>ca aUleloaal aaad eocii 
mirtnn far Ua. Thla la aaiaUr dona vltb adttcloDal Incvitlvaa ahlch laenaaa 

■ TEOdoellsn Cradlt AnDclsttaa and 1( tha pcodactlaa et etfaar 

allflhl* tar (Inaodnt br tha Aauclattan. 

Mh(T azazplaa of bualaaai ananalBna o( lanar* Into prDeaaalat ■■d/or aarkac- 
Inl mm a uttla (aadar pracaaala( hti em laad feraiUa, l.a.. Ihreu^ a flaklni 
plant, iilKi aaj pnirida tha aairlu (or othar laadara; • trapa It aiiar iilia aaj pncaaa 
« porcbaaa otbai prodncaia' ciapa ca aarkat indar hla labal; alfalfa dahjdratloo) 
tvrtar or ehlcliao procaaalai aad aaTkaEIac adlbla bwaa. ate. 

Ha ballara tha Para Cradlt Act iaandwau ef 1*79, ahlch pmldaa far tha flaaae- 
lat of procaaato) md/or ■aikatlBt bvaloaaaaa of taiaara and rancbara. wuld clarlfj 
tha siiilaal lataat ef Coniraaa. Ba ballav* It vBuld rkllava tha hurdana aoa placad 
so tha faiaar aad ranchar lAa, la bDrrawlni fzaa hta aw cooparatln cradlt Inatltgtlci 
Bod ohe la (uccaHfcl and anhaDeaa hla oparvtlDn bsroad tha latttal farm pToduciloD 
Btata. flnda blaaalf io tita psalclsn of set havlBt cradlt aralUbla fros aaeb loatltif 
tlon for hla hb prveaaaloi or aartatlni bualnaaa actlvltp. la sht eplaloa tbla 1> 

proia tha Incena aad mll-balal et JtaaTlcaa faraara aad raaehan bj fnralahlai aeundi 
ada^uata and cDaatTUEttva credit te Iba for tha followlDi Tsaaona: 

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(1) na.pnduut 1« forced to aMk «Wlt tram n 

Jta ■ KHult ha mimt d*al lAIb ne Indan. TbU can lud u lau 
el landar mapmitmBct and, aouqaaatlT. esntlaaltr la hli opuatlsu. 

■■Ikatlnf InCaruu Triarl prt>4uctlsa iDEnut* eouU lud ta Inida- 
quKI cndle (dt alllm th* tan « tha pncaaatns e( ■ackallBf, Di 
bath, hacausa of tfaa dUucloa af Henrlcr baEaHB na laadaia and 
dlff«rlD( loan a Ji d nl at rat Ion , aaoirityi or loan Tepajvant dtaaoda^ 
<3) Tha iBabUlcj of fanara aad TaBchtra to |aln tha advanta|a ot ob- 
tainlnf a broadar covaraca of ccadlt chnu^ cbalr Produccfoo Cradtt 
Aaaoclatlcma or Tadaral Latid Baplta for production and procaailnt and 

llKlcatloaa tbat pravast aa axeaaaln ablfl at flnanelBi b:r tbalr rroduettsn 

laoelatloaa aad Fadaral Laad Banka to prscaaalof and Barkatlnc. 

I ia daoa tbnuih tba AnandaaaE by TaqulTlnt aacb Fara Ctadlt Dlatrlct Board 

.*a FaiM Cradle Srataa, to datandaa tba pareantaaa o( a taraai'a and 
I ova productloa lapota tAieb ■uit ba bandlad la tha proeaaala^ and aarkat- 
lalona Bf hla bualoaaa. Tba Hnandaant racataliaa tbat naada ata aad vlll 
ant acmaa tha Goimtty aad, tbaiafgra, provldaa tbat thoaa doaaat to tha 

I la procaaalDi aad oatkatlof , iditch dllutaa tba farBlni or raachlai Intar- 
m of "aldallna licvaata^t" ratbar than a vlabla part and axtaoaloa of a 

Digitized b, Google 

r* balivf* tb* sddltisa ol tlH — -n-V— ' aUch rill allw tha tarHn' aad 

rTeducttnB Cndlt AMadatlOB* ud tiM r«4- 
thdl HBbUa' pneualnt and/at Mlkattnt 

I iflll contcUiuu poaltivalir ts aaaura 

ABOthar laatura st HR-tlSl 
h ti ^TcaaE laadlAi 

■ral Uml »Bik( ts aaka loana In ancaaa o( 93 parcanc s( tha appialaad valua 
ravUad br tova L imaatal uoita ara : 
valvadp Such Buarancaaa could ba aiitcndcd bj tfaa FaraftEi Hobi JhlBlnlatratlaD CFi 

Thia FTopoaad aEandaaDt la being Introduced aa a raaulc of rba baavy chanfa In tl 
dlcactlon of IjMA loan fiBfcMMm-Mvmj.tiem.iUtet loaoa u loan ■u>Taca«a..a cbai 
aaodattd br C(iii(T*» IB tba Jkfrlcultun Ccadlt Act at 197>. This chaaia la dlra 
■aan* tbat clw TlMm sill ba voabla to aam rouni asd low-atulty (aiaara vltli tl 

vlU ba unaUa to taka ai 

■ financial, aran If tbay can quallfT far 

tlonad bUan. if t 

tahllab a tuatanlaad l«aa prottaa. la mm 
ni tba Fadanl Land lank veuld ba abla ti 

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vsik wltli ttimal aaBclH. H Mil ■• itata aawlH. IM Uud iHika km ■ u*- 

wa muU b* In a *■)■ kutwr padtioi Co honciT chli tpMlr—ir. 

Furthar. I ■Dvld Ilk* w dlaciua ■ thrau ca ma of su wrtwlm wub«ltUa 

a Syai^ 1* praauelr oltarliit. It Ii ax undatitudiiit that than adtht taaiikly 

K ttarUmi bj tb> ran Cndlt SjrataB 

Inaaraiica aftand tif • Fan Ccadte Aaaaciatloa paj ba furcbaaad oalj br ^nbar 
bDTf»«f . ' ~ia tba amlt ioagiaiica !• ra^ulrad ac a Isaa ceadltloni tha MiAar baa 

ablt lanitba ts aaaura optloaallc^ to tba borrcnian. 

Iba uat* at faralai, aa 1b asr biulnaa*. ban IncnaaWI dcaaatlcallr nvai tba 
T»ra. Fiudaat flnanctal ■anafiiaat apfillcabla to bualnaaa, Induatlr, gawTiiiaBt. 
and| af caurat, faimlaci dlctataa tba aaad for a^ibara to axaalaa all boaliKaa riaba. 
Id aaaBiatDt inaurahla riikai daclalou auit ba aada ratardiaf iriiat la tha prababU- 

Wtrm Cradlt DlatTlet aaalat vai^ara vltb tbalr riak aaaafaaant prsBiava bj offarln^ 
CTtdlt 111*, BBTIiata pTstaetlan, Maablllcy, aa< e»r bail Inaaraaca pieinaa. 
tba tBauruea pntraaa BTa banaltetal to tba x* 

Koitizedb, Google 

•ratM !■ Mkn «va. iMHil 1*^ — <mi A* Mak at !—■■■ to tto ma CnMt 
adUBlsintioB 11m. latu Mi ja of Im* Immi wfce— U* eou at cndlt «nr 
silKT Bi^laT tcrro— H . Ma •^la^M* Txalw Mr la—lMlim tToa, aar la tkalc 

Mu, Ina acB aataUa tha Van C»41t tjratsa, aa ka*a U«aatl«ata4 thMa (av 
iMtaacaa i**n a tenal aa^lalat haa kaan Iliad. Mlai rlaenoa laraatUatlDii 

■lata that ne ch«ta hu am toan (ubatantiatai. 

Iha laauranca vrsfrua otttni tqr tha Tan Ciadlt lyam bava lad te ■nataT 
ceapatlclea la Iha loaaiaaca ladualrr- Katlaaalty, (ha eiadlt Ufa aal cradle dla- 
abtllcy pTOttaaa an i^ d an tlttan b; ■!•■■> laawanea caiTlata. Cn» hall laaotaaea 
1* vidanirtttaii hr tuMj-Hia laananca cattlan. thaaa rtotcaaa an la eaa^tl- 
tlea vlth tha acaae; loicaa ef thaaa aan eairlaia- Iha (ecal palat el tha 

u riavlda aneallaat aanlu. CVpuItlsa ta tha rata Ciadlt lyataa'a laauiaaea pio- 
(lan la erpaaltloa te tha aylilt of fiaa aataipilaa — tha backbana of tha i«tt 
faiAdatlsa af asi aaiaitiT. 

Bn-tni, tha ran Ciadlt Act teaodnaea at l«4. dew aot eeatala aoj pmlaloni 
lataidloi tha eiadlt-nlatad aairlcaa etlaiad by eha Tan Ciadlt Sjatan. Than U 
aa Inlaat, altbai lapllelt ei ai^llcll, te airanl tha ulallaa lawiianca aanlu 
authBiltf nM authoiiud by CDa(iaH, undai tba Tan Ciadlt Ait of 1*TI. ThanCsia, 

laauianca aanrlcaa ta saAai bainvaia aa an aptlanal baali b^ paaalas HR'4m 
vlibeut ai9 tban^aa ai aaandasata. 

Tha raim Ciadlt laaka rt Oaaha aia (lalatul tai tha erpaituoltj to npiaia 

Koitizedb, Google 

i to Testlaony on R.S. 47B2 before the Houoe SubcoMiltCee 

and Credit preeented by Donald Havendlck, Frealdent of 

Federal Intaraedlate Credit Baak of Ooaha on March 5 

At the heart of the Faia Cmdit Syste>'s business is the basic function 
of faiB financial managenent, includins both the asset and debt sides of 
the financial stateaent, in two woTds: risk nanageDent. 

The S/stCB has developed over the years a nu^er of risk nanageaent 
prograns that serve as aadels for the entire fara finance IndustT]'. Each 
progTBB case about as the result of faraer-owner perceived needs. 

In the Omaha District this package of credit and financially related 
risk nanageaent service includes: 

1. Loans - short-terB for seasonal production expenses, intemediate 
tern for capital purchases, long-teia for land financing, and 
loans of various kinds for faraer coopeiatives • 

2. Financial counselling services, tnteivoven throughout the entire 

3. Insurance for far^rs, including credit life, disability, and 
crop-hail to protect against loss of life, health, and crops. 
Soae districts provide insurance on other kinds of property to 
further >iniaiie risk to the faraer and his collateral. 

4. A fam re cord- keeping progTaa, AGRIFAX, to provide business 
analyses, tax nanagenent, and overall profit enhanceaent. 

Koitizedb, Google 


5. Estate planning to preserve assets end facilitate their passage 
tram one leneration to the next. 

lliose who question or attack the involveaent of the Para Credit Systen in 
activities other than basic loan prOETaas do not understand the concept of 
overall risk managenent, nor do they understand fully the risk nanageBant 
needs and requirements of farmers. 

The Systea has repeatedly denonstrated its ability to aeet the needs of 
its fBraer-oxners in the area of risk Banageaent. Motivated by cooperative 
service principles and not by profit, the Pars Credit Systea will continue 
to use its authorities to act in the best interests of the general public, 
and in particular, those of the Aaerican fanlly fanneT. 

Digitized b, Google 




Konornbla Bd Jonas, Ch»lfn 

Houa* Acrloulturol SubeosBlttaa on 

Consarvktlon knd Cradlt 

Unltad Stataa Houaa of Rapraaantatlvaa 

W*ahln(ton, D.C, 

Mr. CholrMU), Manbara of tha««, 

Ploaaa allow aa to prafaca my raanrk* by oxpraaalnc 
mr tbanka for thla opportunltT to ahara with yon aoaM of 
tha raaaona why I aupport tha Fara Cradlt Act aaondaont* 

Hy naaa la Frank Nirarchl. I raalda at 6? Craalaaa 
Drlva In North Settuata, Naaaaohuaatts. I am warrlod and 
tha rathar of two aona. 

I as an lodapandant co^narelal flaharaan and taava 
baan ao aMployad alnoa mr (raduation fro* eolloco In 1963. 
Praaantly I own and oparata tha "Chrlatophar-Andra**, a 
•tsty-tw« foot atam Or^tgrnr, froa tha port of Scltuato 

I haw* baan aotlwaly Involwad In varlooa arfuila to 
tapi-oT* tha rtshinc bttalnaaa for a maAar of yoara. I aa 
a foundlnc ■■■bir of tha Naaaaelmaatta Xnahora Ikracc*'^a»** 
Aaaoclaclon and haw* aarvad aa Ita pr*aldant atae* 1977* 
I haw* baan cbalraan of tb* Maaaachoaatta Marina Plaharlaa 
Advisory Co^alssioa sine* >97t> In nr eaaaanlty* 1 ha la 

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of Sa 



-nd r 



n Witt 












ly •> 


tha a 


or th 


In 19 

ti to 

oltlaan'a (roups daslcnktad by the loeal 
;t>an to aaak waya to iBpritva our harbor 

I hkva fraquantly t< 
Dry haarln^a concarntng fj 
■hlns Involvaa not OT 
Ifa. I taopa tbat niy 
y as I to puraua an bi 

ly bacana * 

1 which I ownad 
th tha compa 
araat In und< 
flahlns buatnaaa thai 

finuioa tha < 

tha ' til 
itiva r«l 

I want 

ad at laciatativa 
bary nattara. Ny 

a llvlihood but 
<na wilt hava tha 
inorabla and worth- 

in 1975 


and iapraaoi 

tha Fara Croi! 

if my praac 

finanea install 

.IfioatloD to th* propuli 

alaetronie squlpBai 

Slnca than I hava ratumad 1 
of a najor anarcy aavinf BOdl 
syataa and to upgrada tha boi 

Fishinf has baan an inportant industry In ny t 
Early recorda indicata that tha Men of Kant vara ■ 
fishlns at Scituata Ilarbor tan yaars aftar 1 
landed at FtyBoutb. Today tha local industry aaplo) 
ninety fiaharnan, making It th* town's alngl* lar^a* 
govarruient *aployar. In 1978, fish landed in Scitu* 
■ dockaide value of alooat two nillion dollar*. 

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I onoo ■•« Hftsaaohuaatta r«farr*d to Ba tha 'Banclmdaah 
of Amarlca' ainca •■ • atata wa «rs not aalf auffloaiant ^g 
th« production of food. In fkct In 1978 «a Inportad an 
•stlBKtad aixty to aavanty par cent of our fobd. Growlos 
inflation and anarcv ralatad tranaportatlon coata twva 
burdanad our conauaara with hlfhar than avara^a food prloaa . 

On* bright apot eontinuaa to ba our aurplua poaitlon in 
tha production of fiah. In 1978 . for axampla, our flahaman 
land*d 377 Hilllon pounda of fiah with worth of tlSStOOOiOOO.OO 
at dockaido. Thla placad ua nationally fourth in tama 
of value and alxth in tana of walfht . 

Nationally ws still hava a aubatantial opportunity for 
■rawtb in our productlva capacity. Rafarring to 1g7B tha 
landad valua of doaaatically oaucht fiah waa } .B5k billion 
dollara whila laporta totalled 2.27S billion. Undar tha 
Fiaharioa Conaarvation and Manacanant Act (PKCA) of1976, 
Unitad Stataa flaharaan ara (ivan a prafarantial atatua ovar 
foraifnsra in tha 200 alia Piahariea Conaarvatton Zona (FCZ). 
As our produotiva oapaoity (rowa tha Unitad Stataa nay 
ultisataly baoosa aalf auffioiant in many araaa and a not 
sxportar of fiah produeta. 

Tha FHCA wtiilo affording an atsoaphara eonduoivo t« 
axpanatan did not of itaalf provida any naw aaans of infualng 
capital into tha flahlng induatry. Two priaMry aouroaa 

Koitizedb, Google 

havB baan th* Capital Construetion Fund program acUnlnlstarad 
by th* National Marina Fiaharlaa Sarviea (nnfs) undar 
authority of tha Marchant Marina Aet of 1970 And tha 
Piahlnc Vaasal Obllsation Ouarantao profraB adninlatarod 
•sain by NMF3 undar tha Fadaral Ship Financing Act of 1972. 
It should ba notad that both of thasa pracraasara for 
funding vaaaela onlr, no proviaion boing nada for ahoro 

Prasantly Fam Cradlt'a involvanant in thia araa haa 
also baan alnoat axclusivaly concamad with voBaala. Aa 
of tha eloaa of 1979 tha ayataa'a total aquatic voIub* 1 
1278, '•96,000,00 whlla that of tha Sprlngftald Dlatrlct 
which Borvleoa tha Naw England atataa plua Naw York and 
Haw Joraay totallad >2I ,'•33,000.00 In ordar to praaarvi 
ordarly and balanced growth In tha industry tha paaaaga 
tha aquatie landing propoaala (itaaa 11-13) which S 
allow for dlvaraif icatlon into financing of ahora 1 
and cooparativa Bartceting ia noat inportant. 

Aa an axanpla of what haa happanad in Maaaachuaataa, I 
aatlaata that thara haa baan approalmataly a Wo^ growth in 
tha nunbar of vaasala aaaking groundflah ainca aarly 1977, 
Thli ia not a praclaa figura aa it Includaa tranafara froa 
othar flaharlaa and othar araaa aa wall aa naw construction. 

In By hona port tba groundfiah flaat has grown fros six 
to thirtaan vassals sinea 1977. Thla raprasenta a growtb 



Digitized by Google 

of on* hundrvd ••v«at>«n per oant In thraa yaara< Adjaeant 
ports twva axparlancad alDllar srovth pkttama. 

It t* Inaufflclant to alnply look 
▼aaaals without alao eonaldarinf tha: 
powar. To By knowlafa fisuraa to pra< 
this pbanonanon ara not avallabla but. 
tranda In naw boat daalfna, thla lncr< 
■ubatantlBl. Poaaibly ■ nMaaura of tha loeraaai 
•iza, aophlatlcation and coat : 
the aquatic loan activity of tha flra' 
Thla Indlcataa that at tha ba(lnnln( 
loan anovint waa S3l,7B7.0O whila at 
It had rlaan to SS2.278.0O. 

Thla drasatlc (rowth In both vaaa< 
powar haa placed aerioua atreaaaa on 
practlcea, Theaa aay be fToupad Intt 


1 oua and 


:tad in a aunoiary of 
Fara Credit dlatrtet. 
■ 1977 tha avaraea 
:h« end of January, 19S0 

nuabara and catching 
onal flahlng 
canaraj araaa r 

1 )ZncreBsed effort 

towards tha nore popular flah 

etocka which are praaently aubjectad 1 
2) Periodic over aupply of traditional 
with ahortagea reaulting froB oloi 
attalnaent of quarterly quotas, 3)lncri 
llBlted dockage, unlo*din( faeilitlea, 
parkinf, tr*naportation and other ahori 

The flaheraan's rasponae to th< 
far been Indecisive. This la due 
or tha fiahing business and the absence < 

rlct catch tiiiits , 
3iaa alternating 
Lggared by prsBaCurs 

luppllsa, fuel, 

la has thus 
fragnantsd nature 

any eantrallied 

Digitized by Google 

C and shora faoilltiai 
by tha InvaatBant 

I bafinnlnc to aiaarc* 
I quo which Indieata 
Eha nawlr provldad 
tkbla devalopaanta Are, 
it ohtng, jjroca a a ing 

Z would Ilka 

which, dua 1 

Ed ralata 

planning for tha upirradtng of aarkat 
to acoOBpany tha (rowth atlnulatad t 
producing of tha I970'a. 

Enoouracinsly, cartaln tranda ara 
froa tha praTSllinfly chaotic at 
thftt fraa antarprlaa la rititxg 1 
opportunltlaa. Two of tha aioat 
in ay aatiaation, tha intaraat i 
and Barkatlng of 'undar utillsad* flal 
davolopaant of badly naadad docking, i 
procaaalnc faoilitiaa by flahan 
to you my paraonal axparianoaa i 

Undar utilisad flah ara apaelaa i 
or difficulty in handling, prooaaalng or aarkatlng hava not 
baan haavlly axploitad. Facad with incraaaing oparating 
coata, raatriotira catch Halt* and dacllnlng ground flah 
prioaa, I hava baoona intaraatad in fiahing for aoaa of 
thaaa, notably aquld and dogflah during ralativaly non prod- 
uctlva tinaa. In doing ao Z aa confrontad with two prob- 
laaai Ooatohing thaaa fish effioiantly, and 2) dalivaring 
thaa in good condtion to a aarkat whara thay can ba aold 
for a fair prlca, 

Solvlns thaaa problaaa raqulraa naw tachniquaa which naturally 
coat aonay. Solving tha catching problaa ia ralativaly aaay 
•a it involvaa iaprovaaonta to Juat ay own boat, Aa aantlonad 
abova thaaa iaprovaaanta hava alraady baan aeoaapliahad. In 

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part throu(b Far> Cradlt rinaaoios. 

Solving ths Transportation and prellBlnary prooeaaing 
problsB !• anoth«r story. Dim to tb« aBall aoal* of wf 
buslnsB* It la iBpractleal to conaldsr buying tha naadad 
aqulpBwnt alona. Not wishing to sxtsnd ayaalf Into an un- 
rsaillar businass I aa raluotant to buy the equlpaant 
with ths nscsasltr of sslllng part of Its ssrvloss to othsrs. 
Tha obvious solution Is cooparatlva ownarshlp of the naadad 
aqulpaant aa thara ara anough otbar fisbaraan intaraatad In 
this typa of antarprlss to saka It viable. Presently 
Pam Credit cannot participate in this typs of operation. 
It would be of trasMndous advantage to aa as wall as to 
Bsny other •iKllarly sindad flsbenan to have the expertise 
of Pan Credit Service behind us. 

Tha problaB of crowded shore facilitiaa is even aore 
vexing. Here again tha econoalca of seals dlctata against 
an individual providing his own facilitiaa. Conpoundlng 
this problsB Is the fact that In Southern New England 
thara is littls waterfront property available at any price. 
Horeovert havlngt spent two frustrating years trying to up- 
grada our local town plar. I havs cobs to realise that 
fiscal constraints ara going to liait the aMount of aid that 
wa can expect froB govemaent under existing prograias. 

Long tara financing by tba Federal Land Bank for a 
cooperatively owned or leassd shars facility seaas to offer 
tha bast solution to this oomplax and widesprsad problea. 

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Hara «(>ln wa auinot raaalva kid froa thla aourc* iml«*a 
tha aaBandnant pKCkasa la paaaad. 

I do not wlah to ropraaant tba fishing Induatry In 

■alclnx for handouta . Ve tiava a proud harltaca 
■nd aalf rallanoo. Tha paaaac* of tbla bill i 
uB to aora affactlvaly adapt to rapidly cl 
which Taw Of u* could hava snvialonad. Hith t 

Inda pandanc a 


of orsanlzBl 
dsiDonatrata thai 
world Incraaali 
H.R. I>782 repr< 
parfoni this ti 
Ths Fara Crat 

Ilka FBra Cradlt Sarvlca I ra< 
fraa antarprlse Is still coapi 
Ir drawn ta cantraltsad nanagai 

lanta an laportant tool which * 


t Banks of Sprlnfflald and I ara grataful 
for tha opportunity to addrais this •ubeoaalttaa. Z would 
ba plaaaad to rsapond to any quastlona. 

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StatoMit of 

P«tar R. Condclln 

on bthalf of tbs 

Hudson Vt11«y Production Credit tesodatlon 

mi the 
Hudson Vallay Ftdsral Lwd B«k Association 

Mr. Chalraan and MBban of the SiiieoMrtttM, wv num Is 
P«ta Concklln and I la hare representing the Hucbon Valley Praductlon 
Credit and Federal Und Bank Associations. At the year's and In 
T978, these asaodatlons had 1,108 loans outstanding with a total 
loan volUM of {55,666,690. Our assodatlont serve agriculture 
In the loMr Hudson Vallay froa ColuAla County couth to Uastdtester 
County, on tha east shore of the Hudson River. 

I wait to state at the outset, that I sin>ort fully, the entire 
package of ai » an <h wn ts of the Fam Credtt Act of 1979 (MR 4762). 
hoMver, I a> going to restrict *y coaasnts to the aaaenikants M^di 
apply specifically to the extended financing of grcHer ouned aer- 
ketlng and processing facilities. 

I operate In partnership tdth tv ftther, aother. brother, and 
sister a fnrit aid vegetable fane wMch encoivastes 100 acres In 
Rockland Coin^y wd 450 acres In Co1urt>1a County. We are your bona 
Ada faatly fans type operation. % faatly starUd In the fnrit 
business In Rockland Couity In 1712. 1^ Dad returned to Rockland 
Coiiity to take over the faerlly fan In 1939. after mrtlng for the 
Faraer's Hoae AcMnlstritlon for several yeara In i^tate New York. 
In the late 1940's, he started sailing direct to the local consuMre 
at the raad side. In T9S0. he butlt his fint readslda stand to 
accoMDdate this eivandlng portion of his business. His pHaary 
ala was to sell aore of his hoae grown apples and peaches direct 
to the consuaer. He soon learned that In order to attract aore 
people into his roadside stand, he had to cany a broader range of 
products and services. He started his am garden and soon fttaid 

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thit he htd to sin>lMwit that with producs ht purchuad fnM hit 
ntighbon for resal* In ordBr to koep his mlt oveHisad cost Iom 
«nd to kaep tht pMpI* coalng In. With the tdvmt of olMost yoar 
nxnd apple r*t«111ng dun to ccntrolled atwnphtr* stongts. ht 
fbifid that ht could attract Mr* ptopln Into his stand to bigr nrt 
apples If he went to the nearty product nrkats In the Mtropolltan 
New York City area to purchase produce froM Callftmla and Florida 
during the off seasons. Concurrently, ht contlnutd hit vertlcit 
Integration by Installing his (am dder Mking operation. Throu)^- 
out all of this, his privry titi was to stil Born of his apples and 
ptachts In a Mricet where he had better control of pricing and ho 
obtalntd a grtater shart of tht final dollar's sate to the eonsuaar. 
In 1960. ht built a naw ratall optratlon adjacont to his old stand 
with 2400 squart feat of soiling space. He mb, at this point, peck- 
ing his am fruit, aarlceting nost of his production nd bujring local 
products from hit ntighbon In-season and fro* the produce mricets 
out -of -season. Ha was also carrying a line of convenience groceries 
such as eggs. ellk. bread, honey, -Ice creaa. and private labeled 
Jans and Jtltlts. His idiolesale business was also prospering. He 
was operating several leased fruit farac. and the salts of his aun 
products was a najer portion of his total business. At the saae tin, 
he had Increased hit storage capacity froa 3.000 boxes to 17.000 boxes 
of apples. In ig64. we built our am CA storages and by eontrolltng 
when the CA roosB were opened, we tbtrtfiy Inproved the aarketlng 
flow of our fruit. Prior to that tiM, we leased CA storage space 
froM other gnwers i^ttatt and were held to their opening detet sf 

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CA ttorigts rather than ahtt wss best for our mrketing flow. In 
1966, I Joined wv Dad In his buslntss. 

In the lata sixties, Rodclwd Co«nty was In a state of veiy 
rapid real estate dawlopeaent. Ha wore starting to lose Mny of 
our rented faras. So in 1968 we started looking i^tate for a fruit 
ftm to biv, in order to nintain our production base. He still 
CMSiderad ourselves fruit farMsrs and needed to lalntaln our pro- 
ductive capacity. In 1969, we started operating a 450 acre fruit 
ftni near Hudson, New Voric, just south of Albany. In 1979, we 
harvested 74,000 bushels of apples and about 1,500 bushels of poaches, 
1,000 bushels of pears. «id 6,000 biahels of various kinds of vege- 
tal les sudi is toHtoes, peppers, eggplmt Ind cucud>ers. 

In the 197G's, the nature of our builneii has changeii. Us are 
now a Mjor factor In the retail produce business In Rockland Coui^. 
Sales of our fans products, both retail nd wholesale, are SIX of 
our total volna. He also have a bakeiy operation, whidi was started 
to Mfce better use of our elder nd Golden OellcloiB production. The 
bakery began by nking apple ddar dniuts, to have a hl^r T«tum 
on our ddir apples. (Hw wholesale dder sarket In the early sev- 
enties was very weak.) An added benefit was realized because the 
bakery Incraastd our sales per custo«er and, therefore, reduced the 
cost of our front-end operations on a per lailt sold basis. Uhen the 
processing Mrtet went to pieces In the early soMntlas, we started 
having our Golden DbIIcIous and Horthani spy processing apples sliced 
end frozen, and we began selling our own hoan mde apple pies. This 
further tncrvasad our soles per ciatoaar and reduced our lailt overtMad 

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In 1979, M Mdo 32.000 applt pies Md ifaoat 11,000 othsr fnrtt pits. 
Our Mjor sales thrust mains the salt of hongrxnm fnrits and vag- 
ttibltt, but the Mtd to attract wd hold enou)^ ctstaaars to continue . 
to Mrictt • slffiincant portion of our fnrit crop directly to the 
coRsuMr has caised us to carry a broader nuiga of products than 

The futur* of the roadsldt ■eritating business Is bright, but It 
la dianglns. Given the enerv crisis and tho h1^ cost of gasoline. 
consuaers are audi less willing to drive long distances to a spedaTty 
store to biqr one or bra products. They are going to Mant to aaka 
fewer stops and get vr« of their needs filled at a reduced niHbtr of 
stores, and secondly ttiay are not going to bt willing to drive long 
distances to tht cemtTy to biv their produce. The first applies 
directly to wff business In Rodttand and tht second applies to ^^ ■ 
neighbor's roadside stands In Colurtila Cowity. 

First, we art finding It li^tntlvo to expand our product lines 
in order to mlntaln our nertet shan. Our stmd Is in a pradoarinantly 
smb urban area. The bulk of our business has shifted fron handling 
tnnslent conai— rs on a weekend In the couitry to serving a large re- 
sident population. During the gas shortages In the Md-seMntles and 
again last year, we lost a large percentage of our business volian. 
During the actual shortage nonths, business was off ip to 25X. He 
found that we could Increase tnffic In tht store during these poriodt 
by handling spedalty cheeses, nut and other products, but this 
would put us at a ditadmtage credit wist. He would haw to see 
another lenAr for c^iltal If we added these products on a penament 

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basis, ntll our mm ordur* cib Into bvcring ta Imovk* o«r 
4ip1« praductlon M aqiul wourt. Curmtljr, Hm products m 
SIX of our wImb, lAlIo our pnduei pvrdiaMd for nsolo Is 23a; 
bikary Is 12X ad coiMBtMco gnarlM ara 141. This p«ts m Is 
a Aiidtit blsd. Our ovartioad Is wiy M^ bocaiM M haw iiwii 
tntad on p1«t1ng mm ordtardi, aid Uh cumat out Is about 
$3,500. par acrt (Mt Includlog iMd) to plat ad briuf lato 
btarint a nm ordiard. CaMoqiwrtljr, our drilt coital canylat 
coste ara qirito h1^ m a alt bals. In enkr to alotala those 
owrtiaad costs at • ■aasaiblt lavcl , ua autt badit aoro alts. 
That aans. for tbo short nai. biy ad rosoll. Forthor, Um 
don't axpad our product Una it rttatl, to anintain our trtfflc 
lanl. peopla win sottio for idiat tfc«r ea gat at a chain storo, 
la ordar to savo gM. So our wlwo Is furthar roducud ad oar 
alt cost of oarliaad skjrrodwts. In ordar to Mintatn our pro- 
fftabtllty ad tharaforo our viability, w uat bo ibl* to upad 
our product linos ad total baloass volaa. Ua also hm to ca»- 
sldar that tha omswar Is bacoartng ara ad aera prico casdONS. 
Ho ca't pass tkrou^ tha Incroasod owrhead costs by raising prlOM 
IndHcrialnatly. Ha arv coavottng dlmctty with chalo storts for 
tha Goasoaars* faod dollar. PaopI* vant good qwUtr at a raaun- 
iblo prla. A parol lol problaa Is rapidly rising Intarost ntos 
Md Inflattm. All of thoso factors aoa that w aust Incroa* wlwa 
to alntaln cumot alt ovorhaad cat lawls. ad atll oar bale 
fara prodoctla oi^adi. tha only a awa opa to a Is tha rout* of 
purdws* for rasalo. 

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t fItxIMIIty Is tModwr pnbtMi«h1di Is affteted 
by tlw sn llaltatlan. Ik haw had scrlots prab1«B Hlntaliitag 
oar proflUbllltr « tha vafitAlas w grw. Hi an not MgitabU 
gnnien, m art fnrit gnwars. Hi Ma4 to drop vegatiblt prodac- 
tloR tnm our ftni oparotlom. HcMavar. w awt hava thasa wga- 
Ublastosall. Horaallyw weald bivtlioso fraa oar Ml^ibors. 
win an la that buslnass. llBaogroMi wgatAlos an camiitly 3> 
of oor gnss. JIa jroa cm mo. wa an la a roal Mad. Ha Mst dnp 
vegatAles tnm our pnductlon pngraa to liv''*** wr ovorall pnfit 
potltten, but wa bacdM lMl1«lb1o fOr furthor oporotlag wd capf- 
ul ffandng witli Fan Cndit ff wo Ai. 

Tha lipact of tha sacond aapact of tfea ■■iiiihaiiT t« tba Fan 
Cndtt Act doallag wltk groMr ownad aarfcatlng Hid prodHSfng fad* 
Iftlos bocMi tpparont last yoar In Ce1u*1a Cawty. kHth tha 
gaiallna shortaga last siaaar, fawar vrbn diallan vacatlenad 
ipitata. Consaqnantly, tha sales dnppad drMotlcally for tlw 
- roa<k1di aartatan la Coliabia County. I baard nperts of 25 - 301 
Hd oecasslonally ava* mn. It looks u titotti this ndocod wIihi 
Is apt to bo long tars. Tm of w wl^dion ban takan rattar 
talquB staps to coAtt this, aid both of thaso aovat could affkek 
thatr ibillty to gat OMnll fliUKliig tnm Fan Cndit In tha 
fvtan, should this aMNntant fall to pass. 

Ona MR ntlctpatad tha ndoctlon In his volwa nd raspONdod 
by purchssliig sanni nail trucks. Thaaa wan loadid wItJi bis owa 
produca and sont Into tho Haw Toit MtnpolltM aroa to partldptta 
la tba finan Nartats than, ikiathar fHand of afao fna PanMylvanla 
did tfeo SMD thing last yaar. Both fanars wan dbla to aalnuln 

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nd tvan Ibctwc tlittr volim by tliat MchwItB, hoMwr. thau 
■trt both off prMfslt Mricttlng «pproKhM nd I doi^t that Itmy 
would igialf fy fbr Fani Cradit flnaidng should that bvcoM mcBtsaiy. 

Tho othar nal^fibor am to v to talk about raadilda Hrtatlng 
In siAurtai araai. Ho Is pinning to purchaso praporty ntar 
Pou^katpsla, a njor urbai contar south of ColuAla Couitir. Ho 
Mants to gat Into tha roadildn nrtotlng builnoss for tm nasons. 
Both of hts sens want to ntum to tha fara and It Isn't big ononis 
to support tha throo ft^Ilai. mi ha wantad to stdblllzt his mr- 
kotlng an4 pricing structuras by wrtlcally Intargratlng. In nklng 
his pins* bo ncoipilzod two crucial points to tht succass of this 
tntorpriso. Fint, than an an* standi par cvlta In Coli^la 
Cow^ now than can survlva. and sacond, tha only w«y to haw a 
good anou^ shot at raaching hl^^ anou^^ traffic tavals was to locato 
whara tlia poopla an. Undtr tha cunrant 1m. Fan Cradit cannot 
financn that ontarpriso bacana it would not ba located on tho fkra. 
I faal that In tins of ftal shortagas. tho roadsldt opantors Mho 
ara loeatad whara tha paopla ara, will survlva nd tboso who aran't 
will baraly axist. 

In Ulklng diout tho fruit buslnass In tho Horthaast. wt ant 
consldnr tha wholasala gnwars as wall as tha ratall or roadslda 
nricot gnwon. Tho Horthaast It a dnfldt aarlcat. By that I non 
thora ara far nra cnsnan of applas bora thn thtra ara appla 
gnwors. Couplt that with tha rapidly Incraasing tmsportatlm 
costs and «a bava a'ftomila for succass In growing md nrtatlng 
apples In tha Morthont.. Tho Host Cont nd tba South will bo at 

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• covttltlvo 4iM*wita|i Mtm mtr fnilti mi vtgttiblM an In 
Mnan. Howvtr, thay Inn am Mjor advMUg* tmr m. Bacaia* 
«f tlMlr iHsUnca frea ■tricati, tbqr Ium dad t* ortMln lata 
Una packing and Mttatfag argwIzatlOM. Thw haw wa4 both 
tht cooparatf w ad pnpHitorshlp apprvadw. Slaca wa mn so 
naar owr MriwCt, mb nmar had t« do this. Comaquntly, m eannst 
pravldo altbar tha wliM nor tha Mlltom padtofla that todv's chain 
stora biyan nood. So tha not1 Indlvldul groMn an at a cob- 
patttfw ditadvantap. Thara ara tbiva mvi to rane^r that situa- 
tion. First, M cinld fOni coopantlva Mntiir«s. That vpnach 
was triad In Coli^la Cotartjr In tha oarly sixtlas mi It fallad. 
ftr variOM raasms. Mian It Mlad, It hurt a lot of tnll srOHOrs 
wiy sariously Md Itft a lot of 111 irill tonardi that typa of 
oparatlen. Tha soeond Is to contract with a lar^a ca— rclal out- 
fit to stora, nartat, and salli and this approadi Is usad hara. 
Howvar, Mnjr fronan doiM that those coMticlal Intarasts will 
always act In tha gnwor's host Intamt or undorstMd tha grewar's 
probloM. Tha third approodi Is fOr a Mdfwi slsad groMor to start 
his own storaga and packing eparatlcns wd do saaa storing and 
packing for his nal^*ors. Thora ara tM outfits sat i^ that way 
In Colirtia Comtar. Ihn grawan who h«*o dnalt with all throo 
anrkoting lyitoan sar that thay gat tha bast ntunis by ftr fftm 
tha last systaai, and this Is good! Howowr. whan thoso far«ir« grt 
so big that tfcair oun fruit nkas i* lass Uim SOX of thalr toUl 
w1aW( thoy cw't ftuMcn mfman aiywion thrau^ Fara Cradtt. 
PliB. nmt tpantloM, can't gtt startod fbr tha smd rvason. It Is 
axtrvMly dtfTlcult to accuaulata anou^ capital to build. 

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Accorrftag to t rtcMt stu^r doM by fiirild Milta of tbt 
DqMrtant of Agiinltiml Eeonoalcs of CenMll UAIvanlty. tlit 
cunwt awragt InvottMOt (1977-1978) In bolltfliig a U ttongt 
fKtllty Is S3.n - $4.14 pir buMtol opKltar pin tbtut tl.OO p«r 
bwhol for tiotlUfy Investncnts such m lottflng dodcc «d corrldon 
or MchiM ilwdt. On lanor opoivttflM Uw b«ilc cost par bwlial 
won't <hM9i, but tho coit ptr bislwl of aiKlltiT InvottMnts wd 
of packing Una would drep slgnlflcMtly. Om of v friondt In 
tho buifntu told m ha had about $250,000. tlod « In tho build- 
ing, hydra-dw^r. washar. waaar, sizars, ratuni flow baits, bag- 
gan, Hd othar aqulpaant idildk nada up his padctng oparatlan. 
Tha only way ha can Mto that lavastMnt pay Is by packing for othar 
growan as wall as hlM«1f. Tha slza of tha lavastMiit would not 
chwga vary draastleally as tha fnrit wliae lacraasod, so his 
oast par buihal drops consldaraBly as his valiaa haidlad Incraosos. 
Tha h1^ cast of sotting i^ a pacfclag oparatlan doasa't saaa vaiy 
l^wrtwt, iBitll you eoRSldar that according to a racant traa plait- 
ing sumy by Coli^la Ceimty Coopontlva Ixtanslon agsnt David Ophart 
shOMOd that oMr SOO acm of now appio plantlnga ha«« baan «ds 
In tha Int thraa yaars. That aum that, with tha now orchard 
■nagsBMit tadmlquas. production la Colirtia Coiaity will prabaltly 
Incraasa by ibovt 500,000. bushals in tha next S yoan. That's 
SOX man thin wa ara new producing. Tha only paopio wha can Moat 
tha Incraasad noad for padiing and stongi fadlltlai ara tha caa- 
nardal opontors. Tha fanar-packon and tha woald ba faraar- 
pacfcars CM't possibly aecuwIaU that Mod of capital wlttWNt 
Fan Cndit, aid aidar tha curront law Paia Crodlt cai't holp tha 
bast aarkotlng altamatlw davalopa. 

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In iioMtlon, gMttwn. It Is l^wratlM to ttw futurt vt 
tht fnilt tad Mgetibi* Industry In tte Morthiut, thnt Fnra Cradit 
bt allaMd to finwct fanar OHocd wrtttlng aid proasslHg fadlltlas 
even If tho fanar's om idIihk Is Ims than SOX of gross. Tht 
reasons are as fbllon: 

1.1 Fannrs Motild bo d>1o to oxpnd product 11ms to contlnui 
to attract a high anough traffic wliaa to sail aoro of his oun 
produco. This would allat hla to coiaitoract tht advana affkcta of 
fuBl costs aid ava11*111ty. 

2. Faraers would haw tht aaiagaaant flexibility to ollalnato 
iBipnffltablo lines withont fkar of adwrsely affkctlog thtir Allfty 
to obtain adequate financing froa Fan Credit (idilch Is ant of the 
fiM financial sourett loft In tht Horthaast.) 

3. FarMr* ant bt iblt to Incrtaso nlwa to raduct or Mtn- 
taln current lailt cost levels Iter eveitiead costs In these Inflatlon- 
aiy tins. 

4. Famn aist bt iblato stnietun their minting streteglts 
to aeet the nnA of today's consner. Che of these Is that fanwn 
■uit bt able to take thtir products to the coisner since the current 
enrgr situation has stopped tht consunr fnm going to tht famr. 

5. Fanars in the Northeast aust bt In ■ position to c«1ta- 
ttze on their coipetetlve advantage of being located In a dtfldt 
nrkat. They won't have to pay the high transportation costs that 
famrs fron other regions would. To do this, those who want to. 
ant be ihte to oxpnd packing nd storaga facllltlas to accoaodatt 
their own nttds plus those of their saaller ntghbors. 

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6. Thou f«rMrs vho wait to txpnd wt to italt to do so In 
o Mnnor that iIIom Umk to ttko advintagi of tconovlts of suit. 
Even If thilr mm curmt productton donn't warrait It. 

7. Fani Crtdit In tht Nortlwast matt to In a position to afd 
thi agricultural Induitiy Mko tbo diangos fn Markating stnicturos, 
and strataglts, whldi will anAlt fannn to taka tho groatost 
advMitago of ths dinging MHcat condltlani. 

ta It ttandi iMH. Tim Crtdit In tht Horthttit Is stMrtly 
rtstricttd In Its Utility to itspond to this dunging natd. Tht 
prapostd uaan^anU to the Fara Credit Act of 1971 dealing trith 
chnglng tht percentage of tht farters own produce rKi'li'^Mnt aid 
allaring off-fam terlcatlng activities would acccMpllsh that edalribly. 

GsntloMn* I urge your support mi pnMpt passage of tht Fara 
Credit Act JlatMidtttnts of 1979. and I wait to thank yon vtiy audi 
for this opportiiilty to discuss tf vIohs with you. 

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MARCH 5, 19B0 

Mr. Chairaan, ■/ nue is K«lth Kenned]'. I m president d£ 
the Federal Interaediate Credit Bank of St. Louis and aenber 
of the Presidents Coaaittee for the three Fara Credit Banks 
of St. Louis. Together the FICB of St. Louis and the produc- 
tion credit associations under our supervision and the other 
financing institutions to which we lend, loaned aore than tZ.4 
billion to soae 37,000 faraers in Arkansas, Illinois, and 
Missouri during 1979. As of Deceaber 31, our loans aaounted 
to nore than Jl.4 billion outstanding. 

We're proud of our record of service to agriculture and the 
econoaies of these three states that aake up the Sixth Para 
Credit District. 

I'b especially grateful for the chance to appear before this 
Coamittee to speak in support of the Fara Credit Act Amend- 
aents that we in the Sixth Fara Credit District believe are 
so crucial if we are to continue to provide the type of 
dependable credit our faraers and ranchers will require in 
the 1980's and beyond. 

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Just as farm production cycles cannot bt switched on and off 
like an assembly line, neither can farmers forego their need 
for operating capital in times of high interest rates. Their 
need for credit Is ongoing, and providing an ongoing and 
dependable source of credit for agriculture is the purpose 
for which this Farm Credit System was created. 

Specifically, we in the St. Louis district are especially 
interested in five related sections of the bill that would 
help assure that dependable credit source in times of both 
high and low money costs. 

Section 403 and related Sections 104, 204, ZIO, and 307 of 
the bill would resolve any possible doubt that interest rates 
chaged by institutions of the Farm Credit System are to be 
established in accord with provisions of the Farm Credit Act 
"...notwithstanding any Interest rate limitation imposed by 
any state constitution, statute or other law.,,." This would 
not be a change from present law. Rather, these sections would 
expressly reaffirm the System's long-standing exemption from 
state usury laws and, thus, allay any concern that its clarity 
may have been unintentionally diluted by language of the Para 
Credit Act Of 1971. 

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In ■BSSBbllag what wt aow know of ic tho fsra Credit Sxstaa 
CenfrtM has r«pa«ta4l7 raceinizod capital as a kty ingrodi- 
ont to our nation's prosporous and productive agriculture and 
the need to assure an ongoing and dependable credit source 
for agriculture. The Cengressts that fouadtd the Systea night 
have chosen to fill that aetd through a prograa of direct gov- 
ernnent lending of treasury funds. But they didn't. Instead, 
In 1916 with the creation of the Federal Und Banks (FLBs), 
in 1923 with creation of Federal Intenediate Credit Banks 
(FICBs), and in 1933 with the creation of production credit 
associations (PCAsI and Banks for Cooperatives (BCs), those 
Congresses chose to: 

"...provide stinulus in the fom of governnent cap- 
ital and supervision to the estabtlshnent of local 
institutions in which famers are participants and 
owners and through which necessary credit nay be 
provided on a safe business basis and at reasonable 
cost." Senate Connittee on Banking and Currencyi 
S. Rep. No. 124, 73rd Cong., 1st Sess. [19331. 

These federally chartered, now neaber-owned, credit cooper- 
atives have for soae 63 years functioned as a aechanlsa by 
which capital has been funnelled froa the investing public. 

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through th« H«H York bond Btrk«t to faraors, rcnchers, snd 
th«ir cooperatives and ultiaately to their rural coaaunitias 
on an ongoing basis. The phenoaenal growth o£ the Fam Credit 
Systea to Its present JSO billion size Is testlaony to the 
wlsdoa of that scheae. Yet, within the scope of their Halted 
purposes and authorities, these Institutions aust operate on 
a sound business-like and self-sustaining basis. 

Their funding sources are Halted. These institutions have 
no authority to obtain capital through deposits. Apart froa 
their own capital and surplus, and short-tera borrowings to 
aeet interia cash needs, the Institutions of the Fan Credit 
Systea have since their creation obtained their lending cap- 
ital alaost exclusively through the sale of their securities 
at prevailing aarket rates. 

While the aarglns necessary to pay operating expenses end aeet 
necessary earnings requireaents vary aaong banks and uiong 
associations, the rates paid by the borrower/ users of the Fara 
Credit Systea are aost directly a function of the average cost 
of bonds froa tlae to tiae outstanding froa the particular 
district bank through which the loan funds flow. 

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la accord with tht Fara Credit Act of 1971, Intartst rttts 
ar« thoso which ar* nacassary to: 

"...providfl the types of credit needed by allgibla 
borrowers, at the lowest reasonable cost on a sound 
business basis, taking Into account the cost of 
Honay to the association, necessary reserves and 
expenses of tha association, and services provided 
to borrowers and ■eabers." Fara Credit Act of 1971, 
Sec. 2.15[b], IZ U.S.C. Z0S6(b) (1971). 

In the case of the Federal Inteniadiate Credit Banks (FICBs), 
at the end of each aonth each FICB figures its avarage rata 
of interest on all of its outstanding bonds for th« coalng 
■onth and adds to that average cost a fraction of a percent 
(approved by the Fara Credit Adalnlstratlon) to pay its cost 
of operations and to build necessary reserves and surplus. 
The resulting interest rata Is what PCAs who borrow froa the 
respective banks Bust pay on all the aoney they have owing 
to FICB for the eoaing aonth. Since the FICBs are only "whole- 
salers" of credit to the PCAs, however, each PCA adds to its 
cost of funds a differential (or spread) to cover its costs 
of funds, operating expenses, and necessary reserves and sur- 
plus. In a siallar way, as direct lenders, each Federal Land 

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Bank and Bank for Cooperatives determines its rate of interest 
on loans to its borrowers subject to Fara Credit Adainistra- 
tion approval. 

But just as Systea funding source* are liaited, so are Systea 
alternatives for use of those funds. As liaited purpose lend- 
ers, lending by each bank anf association is confined to 
eligible borrowers operating within its assigned geographical 
territory — which with isolated exceptions, do not (in the case 
of FCAs and Federal Land Bank Associations) cross state bound- 
aries. Thus, if lending by a PCA were to be restricted by 
usury rates of its hone Jurisdiction, it would not have the 
option of lending or even investing those funds in another 
aore peraissive jurisdiction at a higher rate for the duration 
until rates come down. The application of state interest 
liaits to PCA lending could, thus, effectively preclude its 
lending at self-sustaining rates of interest to its only law- 
ful borrowers in tiaes of high noney costs. 

Nith capital and surplus deteriorating froa operating losses, 
the iaaediate effect would likely be the iaposition of higher 
credit standards in an effort to ainiaisa exposure to possible 
loan losses. Ultiaately, if high interest rates persisted, 
the lending would have to cease. 

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Obviousljr, Mlth • single source o£ funding dependent upon 
fluctuations in the none/ asrlcet, the Systes institutions 
could not operate as ongoing institutions if, by epplicatlon 
of state usury lawSt they were unable to pass on these costs 
to their cooperative aenber /borrowers. 

On the strength of these arguments and the prior expressions 
of congressional intent, the Fan Credit Adalnl strati on has 
consistently aaintained that, as a natter of federal suprea- 
acy, interest rates of Fara Credit Systen loans are subject 
only to approvals required by the Earn Credit Act and are not 
subject to Interest liaitations laposed by state law. 

This was the concern of the Systea and of Congress in 1967 
when the 90th Congress aaended the Federal Fara Loan Act and 
the Fara Credit Act of 1S3S: 

" reaove the 6 per centua interest rate liai- 
tatlons tbortln on loans asde by Federal land banks 
and banks for cooperatives; and to perait inter- 
est rates on such loans and on loans aade by pro- 
duction credit associations to be deterained as 
provided in such Acts of Congress to cover the cost 
of loan funds and other expenses and reserves so 

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that th« Iflnding ■«/ continue on a s«lf- sustaining 
basis." Act o£ DecMber 15, 1967, Pub. L. Ho. 90- 
204, II Stat. 612, se« House Coaalttee on Agricul- 
tura, H.R. Rap. No. 971, 90th Cong., 1st Sass. (1967). 

Accordingly, tha Systen has generally operated independent 
of state interest llaitations as necessary to assure that lend- 
ing nay continue on a "self-sustaining basis." 

Subsequent to the '67 Act, FICB bond prices rose to a then 
all-tine high of B.90t in January of 1970. Hith Interest 
rates of up to lit and higher in aany associations, interest 
earnings on PCA loans during 1970 averaged more than the then 
generally applicable usury Units of Bl in some 20 states. 

Perhaps it Is because of Congress's clear expression of Intent 
In aaendlng the Para Credit Act in 1967 and the consistent 
position of the Para Credit Adalnistratlon that its draftsaen 
apparently felt no need to aore clearly express the Systea 
usury exeaption in the Fara Credit Act o£ 1971. 

In the case of PCAs, the '71 Act siaply provides; 

"2.1S{b) Loans authorised in subsection (a] hereof 
shall bear such rate or rates of interest as are 

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deterainsd under regulations prescribed by the 
botrd o£ the bank with the approval of the Fara 
Credit Adniniitration, and shall be aade upon such 
teras, conditions, and upon such securityi If any, 
as shall be authorized in such regulations. In 
setting rates and charges, it shall be the objec- 
tive to provide the types of credit needed by 
eligible borrowers, at the lowest reasonable cost 
on a sound business basis, taking into account the 
cost of aoney to the association, necessary 
reserves and expenses o£ the association, and ser- 
vices provided to borrowers and aeabers...." Fara 
Credit Act of 1971, Sec. 2.15(b), 12 U.S.C. 2096(b) 

With higher bond costs in the '70s and the resulting rates 
of interest more frequently at levels greater than rates gen- 
erally permitted by laws of aany states on agricultural loans, 
challenges to the Systea usury exeaption have becoae aore fre- 
quent. Although to date, every such challenge has been sue- 
cessfully defended by the Systea, there is still only one 
reported appellate level decision to cite under the Act. 
Despite the lack of any intent by Congress or the Systea to 
alter the aanner in which interest rates were to be estab- 
lished and approved under the '71 Act, there is concern that 

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because the '71 Act did not carry forward the precise language 
o£ the 1967 aaendaents and with no clear expression of the 
usury exeaption in the face of the statute the usury chal- 
lenges will continue. 

Section 405 and the related sections of H.R. 4782 would relieve 
the Systea of the burden, frustration, delay, and expense of 
repeated litigation of an Issue that is raised and pursued 
because the System usury exeaption is not clearly expressed 
in the statute but is instead obscured in the legislative 
history and congressional objectives behind the Systea's very 

Even beyond'the Systeawide need for a clear reafflraation of 
the usury exeaption, however, this issue is especially iapor- 
tant to us in the Sixth Fara Credit District. Our district 
includes the state of Arkansas where the penalty for exceeding 
its lot usury law is forfeiture of the loan — interest and 

With the exception of one aonth, during 1979 prices of Federal 
Fara Credit Bank Consolidated Systeawide Bonds of 6 and 9-aonth 
■aturities have exceeded 101 with costs ranging froa 10.201 
to the Hoveaber 1, 1979, 6-aonth issue with a cost of 14.S0t. 
The cost of bonds sold Harch 1, 1980, reached new record highs 
of 15.40t and 15.451 for G and 9-aonth issues respectively. 

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Daspit* Msurances o£ ths Far> Credit Adminittratton, with 
■ore than $1 billion in Systea loans at stake in ArkansaSi 
counsel have consistently advised against lending there at 
rates over lOt in reliance upon the Systes usury exeaption. 
Without an opinion of counsel to rely on, local £araer boards 
o£ directors are understandably reluctant to lend at rates 
over lot — despite the cost. Today the cost of funds to Arkansas 
FCAs is ll.azt and hat exceeded lOt for every aonth since Hay 
1979. With the additional costs o£ operations, the result 
is that losses on lending operations In 8 of 14 Arkansas PCAs 
totaled $878, ISO. SB for the year ended Deceaber 31, 1979. 

While borrower-elected PCA boards of directors have continued 
to aake credit available to their aeabers even at a loss, the 
short-tera lapact of their dlleioaa was already apparent froa 
aid-year results in 1979. Faced with the certainty of losses 
on lending operations, lending activity aaong Arkansas PCAs 
slowed considerably — loan voluae as of June 30, 1979, was up 
only Z.8t over the saae date in 1978 as coapsred with a 20.31 
increase in Missouri, 18.01 Increase In Illinois, and a 17.31 
increase in loan voluae of PCAs nationwide over the saae period. 

of loans froa Arkansas PCAs statewide in 1979. 

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Th« longer-tera impact will b«, *t b«st, a weakened financial 
condition and reduced ability to withstand loan losses in the 
future and (depending on how long interest rates persist at 
current or higher levels] at worst, the eventual liquidation 
of Arkansas PCAs one hy one as their surplus is eroded and 
is ultiaately exhausted. In Arkansas, where PCAs loaned 1674 
Billion In 1979 (approxiaately one-half the operating credit 
used by Arkansas farners) the inpact would be near catastrophic. 

With usury rates of 101 or less generally applicable to agri- 
cultural lending in at least 10 other states, the PCAs of 
Arkansas present a graphic exaapla of the crippling effect 
that state interest llaltations could have upon ouch of the 
Para Credit Systea if, through a aisguided challenge, it were 
to lose its usury exeaptlon for lack of clarity. 

These Fara Credit Act Aaendaants are proposed to update and 
to "fine tune" the provisions of the '71 Act — to fill in the 
hidden gaps that have surfaced with 8 years of experience. 

That '71 Act was a auch needed blueprint for what is now a 
$S0 billion systea. I subalt that for an institution of that 
size, even the least of design flaws must not be overlooked 
where public and investor confidence is involved. 

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To arase any possibility for ev«n tha slightest concern that 
intorest rates charged by Institutions of the Farn Credit 
Systea sight be Halted by general interest rate limitations 
laposed by Arkansas or any other state, I ask this Congress 
not to change the law but to expressly reaffirm the System 
usury exemption in the very clearest of terms by enacting 
H.R. 4782 as introduced. 

As a credit source for our nation's farmers, ranchers, and 
their cooperatives, the Farm Credit System can only be as 
dependable as the ability of its institutions to pay the market 
rate for borrowed funds and their authority to lend those funds 
at a self-sustaining rate of interest. 

Mr. Chairman, thank you and I sincerely appreciate having had 
the opportunity to present these views before your subcommittee. 

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: THE 

Mr. Chaicaan and mmubmxm ol th« Suboomlttee , I an Rob«xt L. 
Miller, an Oklahoaa fozmar, lagialator, and chalnDan of tha 
board of the Muakogaa Production Credit Aaaociation of Kuakogee, 
Oklationa. My Aaaociation haa $13 Million in assata in a pra- 
dominataly agricultural coaaunity in aaatam Oklahoaa. I have 
bean involved in faming for a number of yeara and for tbe paat 
several years have been a nembar of the Huakogae Production 
Cradit Aaaociation. I an familiar with the Farm Credit System 
aa a result of ay Production Credit Aaaociation experience, and 
I am aomewhet acquainted with the Truth- in- Lending legislation 
because I am a nambar of the Oklahoma Senate. 

Aa a famar and aa chairnan of the board of the Muskogee Pro- 
duction Credit Association, I em pleased to naka this statement 
on bahalf of the Ninth Para Credit District. I believe that my 

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comnents aro reprsaantBtiv* of tha poaltlon of the Fam Credit 
Syatea. I appraciata thia opportunity to ahar* my thoughta 
with your aubcoBolttea , urging your support of Saction 403 of 
HK 4782 of th« proposed fam Credit Act amandnents irttlch would 
amend titlo IV of tha Pana Crodlt Act of 1971 to stata aa 

'Saction 4.19. IRCnH-IN-LEHDING.- — Tha provisions Of 

any Stata statute or any other law oc regulation which 
iapose, with ragard to a credit transaction, any duty or 
requiraaant that had baan ia^oaad by tha Truth- in-Landing 
Act (82 Stat. 146) prior to any amendment thereto shall 
not be applicable to credit transactions of Parm Credit 
System institutions.* 

nie purpose of tha propoaad amendment ia to insure that if the 
federal Truth- in- Lending Act ia amended to sxaipt agricultural 
credit from ita coverage, agricultural loan transactions of Fam 
Credit inatitutions would not thereafter be made subject to 
aimilar atate-inposad requiramants . For instance, in Oklahoma 
we have a atate Truth- in-Lending statute whi^ governs consumer 
lending disclosures. Without this proposed anendment, loans 
made by production credit aasociationa and tha Federal Land Bank 
in our state would continue to be subject to Truth- in- Lending at 
the state level even if the federal Truth- in-Lending Act is 
amended to exa^t auch loans. 

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Factual DlacuBBJon 

Th« amendnent under consideration ia on* of several being con- 
sidered to the Farm Credit Act of 1971 which ia the lagialative 
authority for the nation's largest agricultural lender — the Fazn 
Credit Systam. The System currently has SS7 billion in loans 
outstanding to naarly 1,000,000 individual borrowers and 3,500 
agricultural cooperatives. An understanding of the Systcsi ia 
helpful in considering my views about Truth- in- Lending legisla- 
tion. The System is covprlsed of three groups of lending 
institutions. The 425 Production Credit Associations throu^out 
the nation and about 120 Other Financing Institutions provide 
short and intermediate term credit to tamers, ranchers, and 
conniercial fishermen. There are 12 Federal Intermediate Credit 
Banks throughout the nation which provide funds and supervision 
to the Production Credit Associations. Long tens loans to 
faraers and rangers are provided nationwide by 12 Federal Land 
Banks and their 500 Federal Land Bank Aasoclstions. niirtaen 
Banks for Cooperatives make loans of all kinds to agricultural, 
aquatic, and rural electric cooperatives. 

The Farm Credit System ia a cooperative system owned by its 
borrowers and regulated by the Farm Credit Administration, all 
in accordance with the Farm Credit Act of 1971, as amended, nie 
nature of a cooperative inatltution where directors are elected 
at annual meetings to direct the affairs of the cooperative 

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provides th* owmr control of tlw busineas. Bacause providing 
owner-usara with a reliabla aource of cxadit at tha loveat 
rasaonablB coat is tha congraaslonally-BtandatBd objective of 
ttta Syatm, rythar than being profit oriented, the aafeguarda 
intanded by Truth- In-Lttndlng laglalation ara not appropriate to 
our SyateM. Ttt* history and auccass record of the Fan Credit 
Syatem has denonatzated that the owner-uaara have adequately 
conducted their affairs without the necessity of Truth- In- Lending 
legislation, nie Federal Land Banka were founded in 1916, the 
Federal Intenaedlate Credit Banks In 1923, and production credit 
associationa and the Banka for Cooperatives in 1933, and today 
they finance one-third of all far* debt. I believe that the 
abuses sought to be remedied by Truth- in-Lending legislation are 
not found In the Farm Credit SystoM. nius, the expense and burden 
of cosplying with Truth- In-Lending requireaents are unwarranted 
in that they do not furnish CMBensuzate benefits to its appll- 
canta or borrowers who themselves are owners and users of their 
credit Instltutiona . 

I aleo believe that agricultural credit should be exenipt tron 
Truth- in-Lending legislation because it is essentially business 
credit, rather than consumer credit. The original federal 
Truth- in-Lending legialatlon applied to agricultural credit 
extended to natural persona In whldi the saount financed was 

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either (11 $2S,000 or l«ss, or [21 macursd by raal property 
regardlcas of amount; at th« sane tine, bualnesa credit in any 
amount waa axenpt from the Act. In Oklahoma, we obtained an 
exemption from the federal discloaure requirements by enacting 
our own version of the federal regulation. As experience was 
gained with the operation of the federal Truth- in-Lending law, 
many felt that agriculture was being discriminated agalnat and 
Congress amended the Truth- in-Lending Act in 1974 to exempt all 
agricultural credit exceeding 525,000. However, Oklahoma did 
not change their legislation to provide a similar exesfition tor 
agricultural credit over 525,000 when a security interest in 
real estate is taken. The result is that Oklahoma disclosure 
requirements are greater than the present federal Truth-in- 
Lending requirements. In the Ninth Farm Credit District, tAich 
consists of Oklahoma, Kansas, New Mexico, and Colorado, an 
exBiption from Truth- in-Lending at the federal level without 
a similar exemption from atate legislation would result in a 
'hodge-podge' of required disclosures at the stats level. 

The loans that our association makea are buaineas loans to 
farmers and randiers, and agriculture is big busineaa in the 
Ninth Farm Credit District where the average production credit 
asaocistion loan exceeds 5100,000. you can see that it takes 
a lot of short term capital to finance agriculture, and this 
type of credit la not, in my Judgment, the kind of credit 
Congreas had in mind when writing the Truth- In- Lending Act for 
r protection. 


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Aa a practical natter, it la aifficult if not iMpossibl* to 
disclose a projected Interest accrual on nany of the loans which 
WB make because the funds are dispersed as they are needed and 
repaid aa livestock and grain ar« sold. Still, we ara required 
to project total interest cost as If the loan was to be funded 
and used for the duration of th* note. The additional work 
required in the disclosures is expensive, with such increased 
costs necessarily being passed on to our borrowers with no 
comnensurate benefits to then. 


• The abuses sought to be remedied by Truth- in-Lending 
legislation are not found in the Farm Credit System 
because it la an owner-user system. The congressionally- 
nandated objective of this System Is to provide a 
reliable source of credit to farmers and ranchers at 
the lowest reasonable cost, rather than being primarily 
profit oriented. 

• Mithout this anendnent, an exenption from the federal 
Truth- in-Lending Act for all agricultural credit would 
likely subject System institutions to a "hodge-podge* 
of disclosures at the state level. 

• The loans which we make are essentially business loans and 
should be exempt fron Truth -In -Lending disclosures. 

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■ The Truth- in- Lending discloBures which we are presently 
required to nteke are expensive and not meaningful. 

I an grateful for thie opportunity to present this stateiient In 
support of Section 403 of the proposed Farm Credit Act amend- 
ments of 1979 [HR 4782} . 

Respectfully submitted, 
Robert L. Miller 

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Hy nue ti Larry Arnaud. I ftra 1200 icrei of iDybMns, corn and rtca In 
ry PiTish. Louliiinm. 1 hive b«n ■ mtwr of tht Optlouiii PCA for IS 
d ( BeBbcT cf Ihc Botrd of DirKtcn for the put >li years. I <■ currtntly 
•tabtr of the Advitory CoHittee to the Fifth District Federal Inter- 
I have I Haitar's Detree in Agriculture froa Uuliiana State 


T and OMier cf th* Far* Credit Syitea, I an very interested in 
(Fara Credit Act AwndMnts of 19T9}. Mr. ChalrBBn and Mabers of 

. t ippreciatt the opportunity to pteient A FARMER'S vievs eoncernini 
a Credit Act Aaendaenis of 1979]. 

cojt the Aaerlcsn taipajier one dollar, 
user of the Fan Credit S^sKa, I can tell you t 
ivlti' to firaer needs. The lefislatlcn, as inlroduced, is 
is unique sensitivity to help fanwri help theaselves, b; 
Act. There should be no change! to th* legislation, as 
tn addition to using the credit service provided by ay PCA, I 
its insurance services because of both the convenience factor and 
pricing, as well as the fact that the Fan Credit people linoo my 

n to the Inaurance services provided by Faia Cre 
underslind it, the opposition to Fata Credit Ins 
pet iters in the insurance business. Fear of coapeiitlon froa Fanv Credit 
to be the reason for the opposition. 
One of the fears eipreiied Is that because Fara Credit lends money, they 

■ill force borrovers to b 

d for 

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Tiie F*ra Credit Act of 1971, The Iw uuUr HhUh th« Fan Cnilt S^tM 
apcralei. cleirly prescribes that ill finwciilljr reined lenrieei (tncludlni H^cr 
isurwice lenricei) are to be offered it^ ihe i^Hon of Btabers. F»r» Cradit repila- 
iDni, iihich lupplesenl the lio, are very specific In requirini optionillt)'. For a 
ira Credit eaploye* lo use coercion or inilaldation in order to sell insurance, that 
iployaa Mwld violeie federal laa and rejuliiioni. 

Fan Credit insurance Is offered onlr to Far* Credit BcaherA. Fara Credit 
!Bb«TS owl and control the Fan Credit Systea. (These owners nuld not tolerate 
larcion oithln the Syitaa thai they oim.) I. a* a Maber of Iha Opatousas PCA toard 
' Directors, would cartainly not tolerate FCA personnel uiing coercion In approvini 
loan if that aeaber did not want Pn^rty insurance throuih the PCA or|aniiatton. 
ira Credit caployeei iiho offer Insuruice are not coHilssionad and do not recaive 

based on 
As of 


ifter JS yei 

ved by Ihe Property in: 
hardly bt claisll 
:eniaie, by the 

volidie of insurance Ihay sell. 

end of I9T9, after years of offerlnf insurance lervicas to aaabers. 
coaplaints that had ever been received froa aeaberi that coercion 
been used to sell insurance. 
iiqile, there are S2I ellilble stockholders in the Opelousas PCA and, 
ifferlnj Property insurance, only 175 of Ihaie aeabers are preiently 
profraa. This represents il\ enrollaent. This can 
on the part of tha PCA. This PCA's ennltaent per- 
>e hifhesl in penetration in the whole [>islrict. 

e Faia Ci 

t appear 

!dlt Systaa has the vehli 
faar eipresied li that I 
lovemaent in the insurance bi 
la truth la that tha Fara Credit 
lyilea. The Systea has no govema 
oparatlnf funds. Die govemaant do«> not fuarantae 

s fictitious "issue" is aare laagincd than 
o properly control coercion. 
Credit offering insurance to Beyers 

Syite* operates as a free enterprise 
for its capital requlraaants or for its 
r atharwlsa stand behind the 

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Llliea dollirs of fisidi which tha Syitca obtains froi inmton in 

h jrair. The total operatlni axpcnH of th* F«ri Credit Adainl 
s luptrvisory igincy. 1> , lid Kith the ttimcT'i menty, not 

s froa ally on* lourct — the fiiMi 
unnu coviraga It uidenlTttHi bjr 
- not bx th> lovemBant. 
■ no ny In which the Fan Credit Syal 
I can tM conllnwd al "lovemBal 
•aienti concernlnj "fovem^nt jettinj 
signed to BiilnfOis end confuie. Plai 

for capital 1 tat Ion and for 

leB'a lending profraa 
Itng" or "govemaant 

r fear which hai been eiprrsied ti thai 

e Fan Credit insurance servlca 

a Credit Hill alio 

have planted a daatructlv* 

tall itart aagglng tha dog, like ai 

n thai Insurance through Fan Credit aill 

TTili itateaent iaplie 
e so bij that it will avarshidow credit. 

Fan Credit iniuranc* alii grow became It li aeeting a drastic need of 
ers. But we sane only Fara Credit aeabers — with a Fan Credit loan 

In order to qualifj' for insurance through Fan Credit, tha aeaber Bust 
a fan Credit loan relet Itn ship. In addition, a person cannot "buy a share of 
" or "take a token loan" in order to qualif)> for iniurance. 

Fan Credit exists to serve faiaers, rancher* and produceri of aquatic 

Under these regulations, how can "th* tail start wagging the dog?" 

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Tlioic ire onlr lamt at the fears txproiMd. AppiTcntly, th« fear Of cn- 
pctiilon hai l*d the oppniition to btliavi ■ ayth. Thlt airth It that thttc Is ac 
need for Fan Credit to offer Iniuranc* to iti ■art er*. 

Tha ■aJoTtt}' of fenari do not feel that Ih*]' have Itm to ihop for 
nee eovenge. R* have found hindredt of faiseri ■ilhout adequile Insunnce 
cavcraga. Many ef theia farscra have teceu to Independent aienls and Bajer Intur- 

Hooever, the uniil eaee ii that mmny ((ent* do not contact the fataer fre- 
iientl)' anou|h or uidaritand the farver'i needs endufh to be nira the fanMT'i iniur- 
nce needs are pn^erly updated. 

In (iBost all of theie caiei, the Iniurance afent la "at cloi* as the 
anKr'i telephone", but the farmer's tnaurance coverage mually reaatni tnadequatel 

In the noraal courae of business. Fan Credit has frequent contact olth 
he faracr on his fan. Fan Credit knows the faragr't builness. Includlni knowini 

Jildinf. Farm Credit Is ware of fan values In the area, Including the islue of 
■ra dnelUnts. 

At FCA, in ■»! cases inauranca coverafe can be initiated or adalniitered 

t the ttae of purchase or nhen loans are processed, ssvint both ttae and enerty on 

1 aa disturbed iihen I hear that people oho do not have a sensitlvHy to 
araer needs, are trylni to sake Fars Credit lell famers they hIII have to look 
elseohere for insurance covers|e. 

The faner has special Insurance needs. Mio Is iain| to fill those needs? 
Sefore Fan Credit started to offer Froperty insurance, the efforts to fill this 
need have been non-existant or pathetic. Certainly it nould benefit the fsraer to 
have icvenl coapetltWe sourcei, includlnf Fan Credit. 

The property Insurmce proiraB la the nanst service uhlch ay PCA oftari 
and it it one of the finest services uhlch has been >adi svtiltble to the fan coa- 
Bunity since the establithaent of the FTOduciion Credit Association itself In 1911. 

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myoBt oppoilni thii cxcipt to pr*v«nt h*vini aorc 
. Thii It an unhcdtky itlitud* ind I tannot 

c (h( i< 

ned by the pcopiv Hho K 

' have 111 the csmpetiti 

labia to ihaa todaji. So 1 ur|a jrwr lupport in rtlalnini 

niw liven to Producilon Credit Asioctationi by cit: 

to pasa Ehla Itfiilatlon ai it ni intioduetd 

present nithorlt)' froa the PCA. If you mre to do II 

you oculd b* huitlnt the falser. 

Ihanli you, Mr. Chairman and iwBbers of the Subc omit tee. 

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C. W. S. HUME 

On bthalf of the 


and the 


Nr. Chalnun. ind Benbert of the lubcoMlttee, I n C. W. S. Home. 
Prtsldint of the Federal Land Sank of Coluirbia and the Federal 
InUnnediate Credit Bank of ColMbU. These two banks along with 
the Colwibia Bank for Cooperatives are the Fam Credit Banks of the 
Third Fani Credit Dlitrict. He ttm the farMrs, ranchers and 
aquatic producers ef the Carolinas. Georgia and Florida. The coablned 
loans outstanding of the banks tn the Third Fam Credit District are 
in excess ef S-H billion dollars, being part ef the apprexlaately SO 
bittion dollars provided by the Fam Credit Systca nationwide. The 
purpose of ay appearance here today Is to share with you our bank's 
view on our related services programs. Related services are those 
allied services which we provide In connection with the extension 
ef credit. Aaong these services are some insurance programs which 
will be the focal point of ny discussion. 

He began a credit life and mrtgage life program in our district over 
2S ytart age. Our crop hall program has bean Mrketed for over 10 
years and our collateral program for about 4. The response fron our 
a««bcrt to all our related services has been gratifying. For exaivle, 
during I97B, over GliOOO credit policies were purchased by our Production 
Credit Mitters. Alaott 22,000 Land Sank nortgaga life policies were 
purchased by our Land Bank merten. At the end of 197B. the aggregate 
oHunt of Insurance In force was tn excess of ^-k billion dollars. 
Survivor benefit payments on behalf ef our Miters during the last 3 
years Mre ilaost 19 ■illion dollars, as 1,337 of eur Insured Mwbers 
died. SoM of these families would have been unable to continue their 
far* operations without these paywents. 

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During 197S, approxinately 4,40Q nembcrs participated In our crop hall 
progriH. One group opposing our Involvcnwnt tn Rolated Services, the 
Fera Bureau Iniurance Conpany* alto narkets crop hall insurance. There 
If, hoMver, one Mjor difference. The product that is aurketed through 
our associations protects the fanner from loss caused by wind. Farm 
Bureau end laost other carriers still do not offer this protection. How 
can Far* Bureau, tdio claims to represent the interest and welfare of 
Jteerica's feniers and ranchers, oppose a progran that Is decidedly superior 
to their product? Could It be that their principal Interest Is to promote 
their Insurance conpany rather than to promte the interest of the 
famers they purport to serve? 

Our fine property (collateral) insurance prograa has been in existence 
for about 4 years and was euthorlzed by the Fara Credit Act of 1971. 
Our opponents, (various fan* organizations that also Mrket Insurance, 
■nd the Independent agents) have forawd an orgsniied, well financed, 
unified' front attcapting. by various Kthods. to eliminate fera credit 
■s coipetitlon. DespiU this Incessant opposition, our oMbcrs hive . 
shown confidence In this service as evidenced by the participation 
of over 10,000 members. 

Our opponents have during recent years vigorously pursued the enactment 
of state laws that would preclude the sale of aiv type insurance by 
lending institutions. These politically active associations have used 
the tactics of dividing the opposition and have. In uny Instances, been 
quite successful. They have sold the proposition that lending Institutions 
represent a nassive threat to the Independent agency systea, that the 
preservation of the present system is essential to the public welfare. 
and that the public Interest is best served by building further pro* 
tactlonist barriers to competition. However vigorously these Issues 
may be pursued, our activities pose no threat to any organization. 
The public Interest requires a close look at our opponent's arguwnts. 

*Df SouEb Carolina 

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since our intry Into the fani property nrfcet. our opponcnU hive raised 
many objections to our Involvwent. Tht vit coMionly heard eonpUInt 
it that of coercion - the power of credit to coerce the aeiber Into 
purchatlns Insurance fro« our asioclattont. To our knowledge, Utere 
has been no docwKnted case Involving coercion In our district, nor 
attfwhere else In the nation for that Htter. Credit is, and mIII always 
be, our principal business and under no circuastances would our people bring 
pressure on a Mabcr to writt hts Insurance at the risk of losing 
the opportunity to serve his credit needs. He attenpt to develop and 
retain long-tcra custoaer relationships. Ai^y attetftt to exploit a 
Manber in the sale of an anclHary service such as Insurance, risks 
losing substantially nore than could possibly be gained. Our 
association personnel, while licensed "Independent agents.' receive 
no comlssion or income from the sale of Insurance. They have nothing 
to gain by using undue pressure. In addition, a11 icabers who 
participate In our collateral Insurance program arc required to sign 
an 'optlonallty' form advising then that the program Is optional and 
can be purchased fron whatever source they desire. We feel that 
every possible safeguard Is being used to guard against coercion. 

Another Misleading argwnent advanced by certain organliations Is that 
of "Free enterprise vs. a Governmntal Agency.* Quoting 'the Captlal 
Report • Georgia Association of Independent Insurance Agents' February 
19, 197S issue. 'Action Needed - To Prevent Dnpleyces of the Fann 
Credit Systea (U.S.'OepartMnt of Agriculture) Froa Acting as Insurance 
Agents." Further quoting, 'The Tax-users (governaient and It's eaftloyees) 
have no business taking business from taxpayers. It's as sli^le as that.* 
Either these people are grossly uninfonaed or they are Intentionally 
Misleading their elected officials. 

Another coinon allegation Is that our people are not properly 
trained to provide these insurance services. All personnel Involved 
with Insurance have taken and passed all licensing requirenents of 
the various states. The products we are selling are Halted to 
four lines, HoaMomers. Faraowncrs. Standard Fire and inland Karlnc. 

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Our 'agents* arc as coovetent In these areas is ire my other Incjstry 
representatives mrketing similar services. 

Stnce ogr entry Into the Property-Casualty field, we have found that 
our mnbers were not previously served nearly as well as opponents 
would lead one to believe. He have found and have documented cases 
of the existence of the following conditions: 

A. No property Insurance on any buildings 

B. Underinsurance of property at policy inception 

C. Insufficient or no liability coverage 

0. Full tine fanners. that utrt sold homeowners policies that 

exclude farm liability* 
E. Henbers whose insurance values were not updated on a regular 

basis although inflation t>as driving property values upward 

at an alaraing rate. 

The Mythical 'personalized service' so highly touted In the expensive 
advertising prograas of various agent's organizations seens hardly 
Justified In view of our findings. Neglect In any one of the above 
areas puts our Kinber In a vulnerable position In which fie stands 
to lose a significant portion of his assets. 

Since our entry Into the eiarket place, we have seen some direct 
benefits, as well as some peripheral benefits. The wind coverage 
on crop hall policies has been very beneficial to our members. There 
was no collapse coverage available (n North Carolina until we developed 
a group program for our metubers. Now. most carriers are offering 
this coverage. Our entry has provided conpetltion for other farm 
writers. This has help Hke certain carriers «ore cognizant of their 
responsibilities and has resulted in iifiroved service to all segments 
of the agricultural coanunlty, not to Just our mentiers. 

We have In many cases provided savings to our amnbers by offering 
the sane coverage at a reduced cost and in some cases have provided 
increased coverage with no increase in cost. Chr association employees 
are In a better position to keep insurance needs current. He are nonuUy 

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on ■ MMber't fani Mvent ttMs ytarly and are contUntly updating 
■ppralialt of assets » mil as hts Insurance needs. There are obvious 
Indications that the Independent Agency systt* of selling personal 
pr^rty • caiutlty Inturanca ti sloHly beconing obsolete. Direct 
writing coevanles and miss aarketlng techniques ha<re rapidly increased 
their Hrfcet share. There MSt be a reason. Coutd It be better service 
at a MH-e reasonable price? 

The arguaents used by our opponents are self-serving. Their objective 
Is to protect thenselves from ceipetUlon. Tfwlr course. If approved. 
Mil) uttiHtely undenelne coopetltion In the Hrket place, thereby 
Increasing prices and reducing the altemetlves available to cuitoners. 
These persons have atteapted to mislead the public and Congress, stating 
that the Issue Is one of service end unfair coavetitlon. Their real 
objective Is to elialnate convetitlon so as to Increase their 1nco«e. 
The true distinction Is that Fara Credit desires to serve Its neiRbers 
whereas the agents desira personal gain. Ve feel the responsible 
course for public policy Is not to adopt narroM protectionist proposals 
. such as those urged by our. opponents, but rather to protect and promte 

ficntleaen, in the final analysis It botls down to this: Our charge 
fnm Congress wis to 'I^irove the 1nco« and Mll-being of taerlcan 
Feraers end Ranchers*, s charge we do not talte lightly. Our <nvo1ve«ent 
as previously nntloned, unveiled several inidequscles In the Job 
that was heretofore being done by others. I contend that our 
position es an extender of credit Is not and will not be detrlnntil 
to the Hnmr. Rather, our unique position lends Itself to our 
having i highly efficient delivery systcn, highlighted by frequent 
contact, thereby assuring built-in service and thus, iMproving the 
incoaa and well being of that taerlcan fara«r and rancher for whon 
we are ulttMtely concerned. 

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Statement of 


on behilf of the 


Mr. Chairmen and iwnbers of 1 
enc of Che Caruthersvl Me Prodi 
ri , lervlng Penilicot end Dunki I 
^tr from Dyertburg, Tennesiee, end ju»t nor 

erning HR 47S2, the Farm Credit Act 

We have followed closely the progress of 

nlttee, I am Earl Bulllngton, 
n Credit Aisoclatlon, CarutherivM 1e, 
I being ju*t acrots 
rth of BIytheville, Arkansas. 
hersvitle PCA'i views con- 

because we believe It is a good piece of legislation for the farmer. Parti of 
[he bill will certainly benefit the marketing co-op* by allowing them to offer 
financial services that will facilitate international trade. 

In the interest of time, I would like to address the rest of my remarks 
to a most serious issue that hes been raited by the independent insurance agents. 
Farm Bureau and others; that Is the basic right of the Farm Credit System to 
offer Insurance services to tit mn^ers. 

In I37G, when Che collateral Insurance program wai Introduced In the 
Sixth Farm Credit District, I requested that the Caruthersvl I le PCA be approved 
et one of the pilot eisoclatlons offering the program. On Hay 1, 1976, we wrote 
the first collateral insurance policy Itsucd In the Sixth Farm Credit District. 
We now have epproxlmately one fourth of our nambers covered under this program. 
During the nearly four years we have been In the progran, we have had several 
charges made by the Farm Bureau agents and other Independent insurance agants. 
I am going to outline the charges that have been made and I am going to answer 
these charges with facts that we can back up. 

1. PCAs coerce borrowers to take their Insurance by virtue of Che 
fact that they control their loens- 

2. By law, PCAs can sell Insurance only where there is a need for It 

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tufficlent rumber of [ 

PCAj V. 
any of idese charges have come f 

e position they h 

I Tel 

iJ Exhib 

(ten bY C.R. (Dick) Johnson, 
D the president of our Feder 
uly 25, 1975, In which he de 

e PCA C 

ral Ini 

that Farm Bureau had the fir 

Bureau Fedei 
Credit Bank, In St. Louis 
offer made to Farm Bureau to i 

underorlte this Insun 
take the charges that han 

Charge Wo. 1 . The charge of coercing borrowers to take our Insurance 
in made bv any farmer. Farm Bureau ha* sent men 
-owers and trying to find tome substance fo> 
I charge. They have been unable to do so. Ther* probably has been some 
rclon - but not on the part of PCA. We have had many of our mambars tell i 
t they were told by their Insurance agents that, If they ware going to 

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ctunj* thctr fanii in*uranca busine(» to PCA, they had bsttar find lomaone to 
Insure thalr vahlcUi. Th* Iniuranca agents know the Farm Cradlt Act of 197I 
prohibits us from writing Iniuranca on any 1 1 cans ad vehicle. Thli reitrtctton 
wBi put in the law at the Insistence of the various Insurance groups in aHchange 
for us having the authority to write the collateral Insurance we now write. 
We now find that our not being permitted to write the vehicle Insurance Is 
Insufficient; they alio do not want us to write the collateral Insurance. 

Charge We. 2. The second charge Is that there Is no need for PCA to be 
In the business because there are plenty of Insurance agents around. I wM I 
agree that there are sufficient agents out there to handle the business b 
records indicate that the majority of them are doing a very poor job of s 
Ing the farm Insurance business. I am submitting material to back up thi 

t the farmers had I 

naintalned records of the cov 
new coverages written by PCA. 
than half the necessary 


their old policies. I am submitting adc 
Involving several cases of inefficiency, 
on the part of local Insurance agents, 
covered with a $2S0,0OO blanket eiachlnei 
at his business, we found that he needed 
ery properly Insured. Hany of the farm 
under our program say they haven't seen 
and. In some cases, It has been longer, 
can be properly serviced with a visit 01 
Charge Wo. 3- The third charge 

had a PCA member 

ional information fr 
r maybe professional 

lExhiblt 3). One agent 
policy and, whan he 

SG6Z,000 coverage to 

agents for at least three year 

/ery three years. 
itloned Is that wi 

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ment agcncV' Thli Ii the farthest thing fron the truth, ■* you all wall knoo. 
Yei, we were chartered by federal law to do builneis but tha CarutbertvM la 
Production Credit Aifoctatlon paid off the lait govemiMnt capital In 1955 
and, thli pa«l year, we paid nearly f40,000 In *tate and federal Income taxes. 

Charge Mo. *!- Tht fourth charge Is that PCA eaployeei aren't properly 
trained. All tha men In our attoclatlon arc properly licenced and paiied the 
sane State Insurance test that any Hissc 
permitted by law to sell only farm collateral 
members . We are more qualified to determine t 
than most agents in tha bustneit. 

Charge Mo. 5. We have been charged with getting eomnlssions for sell- 
ing Insurance. This would be the fastest way 
The regulations prohibit PCA employees fron receiving any type of c 

e offer - like fai 
Charge Wo, 

being financed, I 
our loans are un; 
Bcnt of the loan 
protected by Insi 
his Insurance net 
with as many dlffei 
that his farm machl 
Mara alloxied to wrl 
H* would just add 

6. On the question of 

isurance agent passes. We are 

to only PCA borrowing 
ce needs of the farmer 

» just 

Itlonal ) 

inly t 

difficult for am to 

red and, although we have no security It 
<1d be considered to be Tn Jeopardy If si 
ce. Recently, when talking with one of c 
we found that he had over a half dozen 
nt expiration dates. In (his confusion, we discovered 
nary policy had been eHplred for several months. If PCAs 
te Insurance on only the particular Item being financed, 
lis confusion. 

onlng. Som of 
irest, the rapay- 

dlfferent polk 

r of the o 

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would b* absolu 
lnsur«nc« than 
bu»lne»t for ne 
contumtng and raqi 

to h«a<l and 

our crop ha I 
handled by i 


Farm Cradtt rsgulallons. Under our cradit regulations, it 
y tmpotslble for PCAt to bacon* more tntere»led in writing 
loaning money. Having baen in the collaterai Inturuice 
V four vur* now, I would agree that tite program is time 
clal atlentlon; tiMrefora, it sltould be required 

■tering tlte collatei 
different grou 

rwlng era getting b 

They're ma 

wlact a person, fuil time, 
our collateral program. 

reasons why we should be permitted 
■va not nentloned the most important 
1 from our presence In the Inturance 

I it « 

to our local government. Is on con 
hard for me to understand why we'r 
il* program. There's no doubt that 
- program but many of those we're 


■ much better Job. 
Itentlon to updating the 
d be. Regardless of who 
on the part of the in- 

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. Farm Bur 

? nia 

from offering insurwicc to their manibcrs . They have charged that It isn't 
right for a lending agency to offer Insurance; however, thli iime organization 
feeli thai It'i all right for an Insurance agency to offer credit. Exhibit It 
the Farm Bureau envelope on which you see the wording. 

Is the back side 

"Hay We Finance Your Next Carl' 

Farm Bureau offers mori 

Last year, they 


jal ! 


Farm Bureau Finance Cc»pany 



F.m Broadcasting. Inc. 


Farm Bu 

Farm Bureau Federation 


«au Services. Inc. 


Farm 8u 

eau Town and Country Iniurance Company 


Farm Bu 

..uH.rch«,dlsln9. Inc. 


Farm Bu 

eau Life Insurance Company 


see, we' 

As you can 

« talking about eight different Farm Bureau organ liatloni. 

ranging fr 

om the Ml 

sour] Farm Bureau Financing Conpany to the Missouri Fane 

Bureau Herchandlsin 

Company. It'* very difficult for me to understand how an 

organ Izatl 

on that's 

engaged In everything from telling tirel to financing cari 

for anyone 

that wal 

s through it* doors can complain about PCAs offering in- 

suranee to 

only the 

r borrowing member,. 


>«uld Ilk 

to emphasize a point here that Farm Bureau, a* well a* thi 

other Insu co^ 

anies, has access to lOOt of the total insurance market. 

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By law, PCA* ara limll 

e Sl2 m 

>tles (th« sraa wa i«ri 

>ciatlon got to wrfw < 

jt no More than St of the li 

tct because you need to keep In mini 

;d on our other insurance profiranii. 

Baiad on tha last census for 
, there are approximately 15.0 

than 3t of the 

Ion - not when in'ri 

I [nturance man's compcti 

Ion of the iiarket. Let me re-amphail; 

ince only to members who borrow ■oney 

known fact to everyone, InelLidIng our competl 
is a local Farm Bureau ad that simply enphasl 
agents are specifically trained to understand 

'his i: 

n. I offer Exhibit 
the feet that Farm 
a needs of al I fanning people- 
When an agency can offer Its services to every Individual that walks through 
Its doors, wltethar It be a farmer or a factory worker, I find It difficult to 
understand why they expect us to be prohibited from writing Insurance coverage 
for Che select few we have mentioned. 

I fail to tee anything unlawful Or limioral about a group of farmers 

I think the basic difference we're talking about I* singly Ci't PCAs are 
offering Insurance to their menbers as an additional service and for the satis- 
faction of knowing that the collateral they hold Is properly covered. Farm 
Bureau and the independent Insurance agents receive a coiwni ss ion from their 

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Is th« rfJ reason ihe Insurance agents are conplalning that PCA it unfair 

Let «e remind you that, at PCA, the Insurance Is entirely optional. 
Any laeiiiber wanting tlie Insurance must sign at least two docunents ecknowledg- 
Ing that the Insurance Is optional. In this particular area, we are probably 
more regulated than th* poltal department. 

ir there Is • fear on the part of this conmitte of too nieh of the credit 
men's time being devoted to insurance, this can be handled by the Farm Credit M- 
mlnlstratlon regulations, rather than an amendment to the law. Dur major en- 
phalli has always been and will continue to be on credit. As I mentioned 
earlier, special services such as tha Insurance progran we'r* talking about 
should be directed by an Individual other than stMeone involved In credit. Ulth 
this requirement, the member will continue to receive the service he expects froa 
his credit man and will also receive the same caliber of service from his insur- 

summary, let ma address some recommendations that have been made 

various Insurance groups. Our Insun 

written in Hay, of 1976, wl U prove, beyond an^ 

, based on tha terms of cost and quality. Thi 

avBllabillty of insurance Is not a problen In 
willing to pay the price and don't mind seeing your insur 
r so. Ue agree there should be a determlnat 
this determination should be made by the few people who c 
and not by the local Insurance agents. Congres' 
to take out a new Insurance policy every time he purchased e piece of equipmer 
This Is what would happen If the recommendations of the independent insurance 

doubt, the need for 
should be the ques- 

of need; however. 

Intend for the farmer 

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■9*nts war* foHoHad. Far* Iniuranc* Is difficult enough to underitand and 
kaap up with when avarythlng Is covarad jnder ona pol icy. Vou can [magln* 
what It Mould ba Ilka with sevaral poltcias. 

Tha various Insuranca groups say It Isn't fair for PCAi to lower 
Interest ratal Iwcaute th«y aide money on their Insurance programs. They call 
this "rebating". Our Menbars call It "trying to cut cait". I know of Insur- 
ance agents who, qulta frequently, wtne and dine their clients and buy an 
occasional gift. They do not call this "rebating"; theycall it "good business" 

if our members are disallowed access to the collateral program they now 
have, they will be demanding some answers from someone. I do not believe our 
■embers will accept the answers now being offered by Farm Bureau and tha inde- 
pendent Iniurence groups. 

I have outlined the reasons why t think the Farai Credit System should 
retain its present authority to offer related Insurance services. I have sub- 
mitted documented proof of its benefits to the farmers, t hope you will review 
the supporting Material and, if there is any part you don't understand or on 
which you wish additional Information or clarification, I will be happy to 
respond . 

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y^i^^g' /:>^^i/£^ 

Mc. T. R KcGulre. Presmeiit 

H13 Olive E:rcBl, P. O. Box 'It 
St. i™ij. KO 63168 

Tba Hibjiiat of tout orgaDlutkin's «iilry IdId trrn casuslQ' Isiurinca Held win diioused it 
fT«t length It oar July board nicedXE. V: vii th< luanlmaut optalan e[ our board tint thf 

Inj iiiIn;oIW* bj" timwrl, nod that other tiirni-ortftnled orjnnliatlon*' oiiterlr.c i^e lie 111 

h«ad nf the lompantiiB the;- arc now lUKiortlns! 

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EiOilblt 2 











SI .139 































ll91 ,000 














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CASE f h 





1 Furntihad Upon MquMt) 

SO. 000 Blank* 


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That's why our Farm Bureau Insurance agents 
ore specifically trained to understand the 
needs of ^LL tarming people. 

Petistei) Cesiity Fanst Bureau 

137 Wast Third Str««t 
Coruth«rsvill«. Me. 

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Tils mudMCB o£ tba Naclonal Cactlainan'i Asiociaclon hava 
inftruccad chac tha hsaoclacion auppoct tb* proposed amandBanea co 
the Fara Caradlt Act o£ 1971 contained In B.K. *782. At_tha racant . 
Annual Builnaaa Haecing of ctie Asaociatton on January 24, 19S0, ch« 
following caiolueion waa adopted by tba maBbarahip body: 


HHBREAS, TtM continoin? vitality of tha O.S. cattl* 
indoatry ia dapandant upon cha availability of sound 
f inancing ; and 

HHBBEASi TIM demand* upon the total D.S. banking 
Industry for aortgaTa and operating funda ara growing 
exponentially I and 

NHEREAS/ The FaTB Credit Systao is playing an avar- 
growing role in providing sound financing for Agri- 

TR£I)£FOS£, BE IT RESOLVED, That the HCA supports Che 
auggeated asandBants (HR 47Si and 3 146S) to the Farm 
Credit Act of 1971 to allow tha syatam to more ada- 
quataly maat Agriculture's financial needs of the 

Reduction in Farmer Voting Control 

One of the major proviaions of the bill is to allow Che 
reduction of farmer voting concrol from 80 percent (TO percant for 
rural ucllicy cooperacivaa) to 60 percant. 

In this connaccion, the HCA supports retention of the proviso 
giving district boards tha authority to establish ■ higher percentage. 

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Loaai In Exe»a> of 85 Parcant et Aepr«H*d ValiM 

Thcra ars no doubt lostuieai In which relaxing tb* 85 p«ccant 
loan linitation, whan loanl sea guaxaneaad by a qovaciUMntal aqwicy 
[radaral. Staca or Local), will aaiiac young paopla to gat atartad 
in farming or candUjlg. 

financing Baale ii«fk»fcl,n q and Procaailn^ 

Oiangaa wblch «c« taking placa in tha livaatock and aaat 
indnatry aaka tha Boandaanta containad in Sactiona 107 and 210 (a1 
of B.R. 4782 aapacially laportant to cattlaaan at thia tiaa. 
Tbaaa anandaanta peovid* loan authority tor Padaral Land Banka and 
Production Cradit Aaaociatlona to flnanca baaic proeaaaing and 
markating aetivitiaa toe bona fida famara, which ara diractly 
ralatad to thair oparations. 

Thara ara aavaral araaa in tha Nation at praaaat wbara packar* 
hava run into financial difficulty and/or whara potantial aarkat 
outlata and buyara ara lialtad for othar raaacna. Particularly in 
thaaa araaa, cattlaaan ara finding it aora and nora nacaaaary to 
bacona involvad to a graatar axtant in aarkating and procaaalng. 
In tha caaa of both alaughtar and faadar cattla. 

In addition to nacaaaity, thara ara otbar raaaona why cattla- 
aan Bay find it advantagaoua to 'integrata forward,' ao to apaak, 
in tha aarkating chain. Proainant aaong tha factors pro^tlng 
cattlanan to aaak waya to apraad tttale rlak, such as Intagrating 
forward, is tha vary high invaataant raqulrad undar today's 
conditions and tha volatility of tha cattla aarkat. 

Thar* ara oftan otbar aconoalc banaflta to ba galnad by 
ratainlng titla and control of thair product as it aovaa into 
ptocaasing and distribution, alao. In addition, tha oparational 
BOphiaticatlon of tha day calls tor nora rafinad data and infor- 
nation to ba fad into the dac is ion -making hoppar, with raipact to 
both live animal parformanca and in-tha-maat information. 

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It i* Doac cacGBinly logical for Fadaral Land Bank and 
Production Cradit Aiiociation loan auchoricy to axtand Into 
nacketlng and procaaaing aetivitiaa vhlch ars dicacCly connsctad 
with tha (arm/tanch operation. 

Flnancinn Export Traniaetlona 

Tha national Cattlaman'a Aaaoclation !■ Intanaaly .iDtara*ta4._ 
In axpandlng th« asporta oE baaf and othar cattla producta and 
by-produeta, in tha Intaraat of both tha cattla Industry and tba 
Ration aa a «hol«. 

Autboriaing Banks foe Cooparativaa to fiaanca such tcana- 
actiona and to provida othar financial aervicaa In connaction 
with foreign aalas. aa provided in tha propoaed logialaCioni 
will naka a poaiciva contribution to thla effort. 

Most certainly, tha large negative balance of paymenta 
situation is one of the nost preaalng problema facing the United 
State a today. 

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tht7bsdat, kabcr 6, 1680 

House of Repbesbntatives, 
Subcommittee on Conservation and Cbedit 

OF tbb Committee on AoiucDLTtiBE, 

Washington, B.C. 

The subcommittee met, pun^uaat to recess, at 10K)5 a.m., in room 
1302, Longworth House Office BuildiiiJ^, Hon. f>l Jones of Tennessee 
(chairman of the subcommittee) presitTmg. 

Present: Representatives Harkin, Hance, Baldus, Bedell, Panetta, 
Mudigan, Coleman, and Hopkins. 

Also present: Representatives de la Garza and Anthony of the full 

Staff present: Robert T. Loweree and J. Robert Franks, associate 
counsels; PefTgy L- Pecore, clerk; Robert A. Cashdollar, James W. 
Johnson, Jr., Wayne A. Fletcher, and Frank Winston. 

Mr. JoNBH of Tennessee. The Subcommittee on Conservation and 
Credit u-ill come to order. 

We are here today to continue the hearings we had yesterday on 
H.R. 4782 on the Farm Credit Act Amendments of 1979. 

Yesterday we heard members of the Farm Credit Administration, 
and today we will hear others who are interested in the legislation, 
such as farmers, employees of organizations and agencies, and others. 

We have a full sche<lule which is going to have to be changed 
somewhat from the way it Ls laid out on the witness list because of 
two emergencies that exist for people who are from out of the city. 

I hate to do this to some of tne people who live here, but I will ask 
you to please allow me to put two witnesses on who are scheduled 
for the afternoon. Then we will resume the regular schedule. 

Mr. McGranagan is the first witness. I will ask him to st«p aside in 
order that we can hear Mr. Bob Hendrix, a member and officer of the 
Dyersburg Production Credit Association. He is a director of the Farm 
Credit Board and the Farm Credit Bank, as well as the Bonk for 

Mr. Hendrix is a farmer and has an emergency at home in terms of 
farming. For that reason, I will ask him to be our first witness this 

Bob, welcome, we are delighted you are here. 

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Mr. Hendrix. Thank you, Mr. ChBinnan. 

Mr. Chairman and members of the subcommittee, I am Bob Hen- 
drix, a farmer from Dyer County ^Tenn. I am a member of the Federal 
Land Bank and a member of the Dyersburg PCA and have served as a 
PCA director for 18 years. 

I am also a director of the farm credit banks of Louisville. The 
Federal Intermediate Credit Bank, along with the Federal Land Bank 
of Louisville, and the Louisville Bank for Cooperatives, comprise the 
fourth farm credit district, which includes the States of Ohio, Indiana, 
Kentucky, and Tennessee. 

These three fourth district banks have slightly in excess of $7 billion 
in loans outstanding to more than 150,000 farmers and other eligible 
borrowers in the four-State area. 

As part of the $50 billion nationwide farm credit system, these 
banks provide approximately 40 percent of the total agricultural 
credit provided in the area they serve. 

I appreciate this opportunity to present my vievra concerning the 
Farm Credit Act Amendments of 1979. 

Since passage of the 1971 Farm Credit Act, many changes have 
taken place in my community as well as other areas in the district 
and the Nation. These changes are reflected in the credit needs of the 
farmers and their cooperatives. 

Loan volume has increased in the fourth district since the passage of 
the 1971 act from a volume of approximately $2 billion to the S7 
billion level I mentioned earlier. This growth trend has been nationwide. 

While the capital requirements of agriculture have ballooned during 
the past 8 years, the net income necessary to repay this indebtedness 
has not kept pace. As a result, it becomes even more imperative that 
farmers and their organizations have every possible tool available to 
permit them to operate in the most effective and efficient manner. 

I feel the proposed amendments will be another step forward as we 
seek to fulfill the objectives of the Farm Credit Act of 1971. 

I, as a member and director of the farm credit institutions, fully sup- 
port fjl of the proposed farm credit amendments. I feel the amend- 
ments, as stated, will enhance the system's ability to bett«r tailor its 
lending programs to provide maximum responsiveness in serving the 
Nation's agricultural credit needs. 

I would like to qow direct my remaite specifically on behalf of cer- 
tain amendments contained in the Farm Credit Act Amendments of 

I turn first to amendment 3. 

Part B, section 2.15(1) of the Farm Credit Act of 1971 provides for 
production credit associations to make loans to "bona-fide fanners and 
ranchers and producers or harvestors of aquatic products for agricul- 
tural purposes and other requirements of such borrowers." 

This provision, as it presently exists, makes it possible for a member 
to finance facilities to market and/or process his production. 

In addition, it provides that he can also process an amount equal 
to his own — this amount being produced by other farmers of the area. 

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I can use a grain producer to illustrate this provision. For example, 
a cash-grain farmer may be able to produce 50,000 bushels of com on 
his own farming operation. The provision would enable the farmer, 
providing that ne is creditworthy, to finance an additional 60,000 
bushels to be processed and marketed through his own facility. 

This provision has been widely used in our district and has generated 
a very positive reaction from the farming community. It results in 
providing to some of the smaller farmers an additional market and also 
makes it possible for the larger fanner, who has made an investment 
in grain-handling facilities, to make more efficient use of those 

The fourth district is a mixture of very large fanners and thousands 
of small or part-time farmers. The lai^e operator, in many cases, does 
use his own marketing and/or processing facilities to further enhance 
the returns on not only his fanning investment but abo his investment 
in marketing facilities. 

At the same time, he provides a very needed service to the smaller 
farmer in the community whose operational size makes it not feasible 
to provide this type of facility for himself. 

I feel such operations have as8ist«d farmers to have more competi- 
tive markets and, therefore, improve their net farm income. 

I do feel, however, that the limitation on the amount of through-put 
that is stated in the 1971 law limits the effectiveness of this type of 
lending program for the following reasons: 

One, if the producer chooses to process more than his production, 
plus a like amount produced by other farmers, he is forced to seek 
credit from an additional lender. 

As a result, he must deal with two lenders. This can lead to loss of 
lender experience and, consequently, continuity in his operations. 

Two, tne present requirement to seek another lender when process- 
ing and/or marketing interests exceed production interest could lead 
to inadequate credit for either the farm, the processing or marketing, 
or both because of the dilution of security between two lenders and 
differing loan administration, security, or loan payment demands. 

Three, the inabihty of farmers and ranchers to gain the advantage 
of obtaining a broader credit coverage through their production credit 
associations or Federal land banks can, for the reasons stated above, 
limit competitive forces at processing or marketing points, resulting 
in lower prices for producers. 

The Farm Credit Act Amendments of 1979, while lifting the 50- 
percent limitation, do provide controls that would prevent an excessive 
shift of financing by PCA's or Federal land banks to processing and 

The amendment will require each farm credit district board whose 
members are elected by the fanners and ranchers to determine the 

Eercentage of the producer's own production inputs which must be 
andled m the processing and marketing extensions of his business. 
These boards ore in a position to reccwnize the needs of the farming 
communities and to establish hmits which will be fair and provide 
effective financing for the farmer-producer as well as the farmer 
cooperatives in the district. 

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The farm credit amendment No. 3 will broaden eligibility for financ- 
ing by PCA's and Federal land banks to include processing and 
marketing activities directly related to the applicants farm, ranch, 
or aquatic operation, and wose of other bona nde fanners, ranchers, 
or aquatic producers. 

Each district board will have the authority to set specific limits on 
this authority subject to the approval of FCA. 

I believe that in the fourth district, agriculture will benefit from the 
expansion of the scope of services provided in the processing and 
marketing areas. 

I think it will assist fanners in having available to them stronger, 
more competitive markets which, in the loi^ run, will improve net 
income of the area. 

As for amendment 19, production credit associations are currently 
authorized to participate in loans with commercial banks and other 

A commercial bank wishing to extend a loan exceeding its lending 
limit may do so by participating in a portion of that loan with a 
production credit association. 

From the borrower's standpoint, however, the credit relationship 
exists with only one leudii^ mstitution, specifically the commercial 
bank. Loan participation is strictly a lender-to-lender transaction 
which does not affect the borrower's relationship with the originating 
lending institution. 

Due to the borrower-owner structure of the farm credit system, 
nonvoting shares of stock in the production credit association must be 
purchased in connection with each loan. 

Nonvoting stock on an amount equal to not less than 5 percent of 
the loan participation is issued. Under the existing provisions of the 
Farm Credit Act of 1971, such nonvoting stock must be issued to the 

Many commercial bankers find this requirement to be extremely 
awkward inasmuch as it introduces a third party into the bank-to- 
borrower relationship. 

The purpose of amendment 19 is to authorize production credit 
association to issue nonvoting stock directly to the commercial bank 
or other lending institution that is originating the participation loan 
rather than to the farmer-borrower receiving tne loan. 

This more direct relationship with the participating lender removes 
an impediment to loan participations and enhances the commercial 
banks ability to provide adequate credit to those eligibile borrowers 
exceeding the bank's lending limit. 

This proposal does not expand the eligibility or scope of financing 
permitted under current authority. Borrowers obtaining agricultural 
credit from a commercial bank or other lender whose loans are partici- 
pated by a production credit association must still meet the same 
credit eligibility and scope of financing requirements as exist today. 

Neither does this proposal compromise or weaken the principle of 
borrower control on which the farm credit system is founded. It simply 
makes the lender-to-lender transactions involve<i in loan participation 
more rational and streamlined. 

Amendment 19 facilitates participation loan pr<^rams with com- 
mercial banks and other lenders by allowing nonvoting stock to be 
issued directly to the originating lenders. 

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This proposal especially benefiUi small, rural banks by enhancing 
their ability to proviile ilependable credit to farmer-borrowers having 
credit nee<ls exceeding the bank's legal lending limit while still adhering 
to sound business practices and controlling the risk exposure on such 

I turn now to amendment 4. 

I strongly support this amendment, which authorizes the banks for 
cooperatives to finance agricultural export transactions in which a 
U.b. cooperative and its farmer members are the primary beneficiaries. 

As we are all aware, agricultural exports are very important and 
contribute substantially to the Nation's balance of payments. 

We recognize that foreign grain buyers want a dependable source 
of grain which is uniform and of gowl ({uality. 

Certainly, our agricultural cooperatives are in a goo*! position to 
supply this grain to foreign buyers, provided the necessary financial 
assistance and other serviceii are available to the cooperative. 

If I might deviate from my prepared statement for a moment, you 
know most of the major gram marketing companies in this country 
today are owned by foreign interests, or a large part of them are. 

I think it behooves us to have an avenue to market our overseas 
grains through the cooperative system in order that it might be kept 
m the handti of the American farmer and producer. 

Local grain cooperatives initiallv receive about 40 percent of the 
grain when it is first sold by the farmer. However, the cooperatives 
only export approximately 10 percent of the total amount of grain 
sold in the export markets. 

Farmers have developed an awareness of the importance of world 
markets for their products. They believe they should take a more 
active and direct role in selling their products to foreign buyers. 

Consequently, these farmers through their grain marketing coop- 
eratives are requesting the banks for cooperatives to provide the 
necessary financing and other services to facilitate the sale of grain 
to foreign buyers. 

I believe the banks for cooperatives can most appropriately provide 
this financing and other required services. Since the banks for coop- 
eratives were chartered in 1933, they have ha^l an excellent track 
record in working with anil providing financing and other services for 
their member borrowers. 

In order for cooperatives to increase their export business, which is 
in the best interest of the Nation and in the best interest of the farmers, 
they will need to have available certain specialized financial services. 

To establish effective, efficient international banking services, the 
banks for cooperatives need authorization from Congress as provided 
for in the Farm Credit Amendments of 1979, H.R. 4782. 

These are the same general authorities available to commercial 
banks to provide international banking services for their customers. 

I feel the banks for cooperatives need the authority to develop an 
effective international financial capability for the following reasons: 

One, farmer cooperatives require the knowledge and assistance of 
their primary lender to help maximize returns on their foreign sales of 
agricultural commodities. 

It is cumbersome nnd less than optimally efficient to deal with one 
lender for domestic purposes and another for international purposes. 

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Two, to be competitiTe in international markets, U.S. cooperatives 
need financing alternatives for handling payments by foreign buyers. 

Three, cooperatives require specializ»l banking services tailored 
to their acricultural export business. 

Four, development of export services to cooperatives is a logical 
extension of the BC system needed to further support development 
of cooperatives in coming years as mandated by Congress in the Farm 
Credit Act of 1971. 

The provisions of amendment number 4 will enable the BC'a to fill 
the void in cooperative financing and, thereby, enable them to provide 
an additionfU, valuable service to their members and to the agricul- 
tural community. 

I turn now to amendment No. 2. 

I strongly favor this amendment which would allow FLB's to make 
loans in excess of 85 percent of the appraised value of the real estate 
security where guarantees provided by governmental units are 

Inasmuch as agriculture has become such a capital intensive 
industry, it becomes increasingly difficult for a farm family to accumu- 
late the resources needed to establish an economical unit. 

The credit needs of young farmers, other individuals who desire to 
begin farming, and established low -equity fanners, frequently exceed 
the lending capabilities of existing credit sources. 

Some lenders may not have sufficient loan funds available when 
they are needed. Others may be restricted by policy regardless of the 
amount of money available for loans and the creditworthiness of the 

The Federal laud banks, for example, are presently limited by law 
to an 85-percent gross loan. This percentage is appliea to the appraised 
value of the farm security involved. 

When the membership stock of 5 percent is deducted, that leaves 
a maximum net to the borrower of 80 percent of the value of the 
security. This, of course, means that the borrower has to have at 
least 20 percent of the purchase price of the farm up front, plus 
operating capital. 

Such cash requirement has, in many cases, made it impossible for 
deserving young farmers to get started in farming. Quite often the 
supplementary source that has been relief upon is the participation 
loan from the Fanners Home Administration. 

As you are aware, the FmHA has historically provided credit to 
the low equity farmer. Presently, FmHA, is shifting from participating 
with private lenders to guaranteeing loans made by private lenders. 

Many of the FLB's nave been heavily involved in the FmHA 
participating loan prt^ram, especially as a means of providing credit 
to young farmers. 

Inasmuch as most FmHA applicants would require credit in excess 
of the 85-percent limit, FLB's would be quite restricted on the number 
of farmers they could assist. 

This amemlment, removing the 86-percent limitation, would 
certainly create an enviroment in which the FmHA and the FLB, 
working together, could more effectively finance the young or tow 
equity Tanner. 

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I would like to address an area of need that has not been dealt with 
in the current l^islation. You have, no doubt, heard much testimony 
concerning the changes that have occurred in agriculture since 1971. 

We have felt the effect of those changes very acutely in Tennessee 
and throughout the fourth district. We have seen the capital required 
to operate an efficient operation grow at paces that are hard to 

We have seen serious cash Sow problems develop. We have seen net 
farm income fail to grow at a rate that would provide funds for orderly 
reduction of inter-mediat« term debts. 

As a result of such changes, I feel careful consideration should be 
given to an amendment that would provide more flexibility to the 
districts in determining the term of loam to repay intermediate-type 

A professional farm management employee presented testimony at 
the Memphis field hearing that does a good job of summarizing 
the intermediate debt paying problems of our farmers. 

I would like this to be placed in the record. 

Mr. Jones of Tennessee. We would be pleased to. 

[The testimony of Earl Taute, Glasgow, Ky., appears on p. 463, 
Serial No. 96-MM, part 1, of the subcommittee heanng.] 

Mr. Hendbix. I would like to comment briefly on some of the points 
illustrated in that report. 

Farmers have had a problem in maintainii^ profit margins. The 
profit mai^in has steadily diminished due in part to resource costs, 
such as land, which have mstorically been priced so that cash return is 
less than current cash cost. 

Inflationary expectations are routinely bid into resource cost. Prices 
paid for capital items other thaji real estate, such as heavy equipment, 
improvements, and so forth, must be repaid from net farm income. 

The inflated costs of such items make repayment in 7 years, as 
permitted under current law, almost impossible. It would seem that 
we are facing several more years of double digit inflation, which 
certainly will further compound the existing problem. 

You know, the Farm Credit Act has only been updated about every 
9 or 10 years. As we look at the inflation costs, let us say in 5 years 
from now, it is astounding to think what a big combine or a big tractor 
might cost. 

If you look 5 years down the road, it might be unbelievable. 

In the past, I think it has been a consideration that we should look 

We are all aware of the recent trend that has led to the consolida- 
tions of many smaller units into more efficient commercial farm 
operations. Other farm families have attempted to expand current 
operations by intensifying and modernizing livestock operations. 

These e:cpansions require heavy outlays of capital immediately. Our 
records inmcate that frequently there is a timelag of 2 to 3 years 
between the initiation of the expansion program and the time the 
expansion reaches nonnal income expectations. 

This lag would, under current law, reduce repayment time to 4 to 5 

Gentlemen, such capital indebtedness cannot be repaid on these 

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very bene 

fourtb district if the current law could be amended to allow each dis- 
trict farm credit board to extend the term of PCA loans up to 10 years 
when needed. 

Mr. Chairman, I am grateful to the subcommittee for this oppor- 
tunity to express my views. I wish to thank the chairman of the sub- 
committee for the privilege of having served with him for 9 years prior 
to his coming to Congress on a local PCA Board. 

I know that he will understand the needs of fanners in the district. 

I will respond to any questions you might have. 

Mr. JoNEB of Tennessee. Thank you very much. 

Because of time, I think we will change the order of asking questions. 
We will hear the witnesses first. 

If your travel plans do not cause you to leave eariy, we will call you 
back for questions. We appreciate the testimony you have given us 

I yield to Mr. de la Garza for the purposes of an introduction. 

Nlr. DE LA Garza. Thank you very much, Mr. Chairman, for 
allowing me to introduce one of my most valued constituents and a 
very good friend. 

He is James McCarthy of Rio Hondo, Tex. 

He is a director of the Valley Production Credit Association. He is 
a farmer who plants cotton and grain and raises cattle and a few 
vegetables. He otherwise helps his friends. 

Mr. Jones of Tennessee. We are delighted you are here, Mr. 

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Statsaani of 
■ McCarthy, Taxes fiTBer 

on behalf of 
c Dlscclct of the Fara Cradle Systea 

Hr. Chalraan and uabera of the Co^ttei 
a ■eabeT of the Board of Dlraceora of Va: 
Aaaociatlon. Hy PCA Is locatad In tha Ti 

vhleh last year provided aoic thao SZ bi; 
faraara and ranchers. I as also a farmei 

I. I a> Jaaca A. McCarthy. 
.ley Production Credit 
lUB Fara Credit District 
.lion to finance Tens 

of Tea 

today ■ 

aaly concerned about agrt 

In the Rio Grande Valley of Teua, 1 grow cotton, grain, cattle and 
vegetables, t as exiieBely appreelatlve of the fact that for 29 
years Valley Production Credit Aaaociatlon haa been a dependable 
source of credit. 1 an not, houever, appreciative of the fact that 
recently I have becone very aware Chat ny Production Credit Aaaoclatlo 
Hhlch has financed ae theae uny, aany yeara, is not able to help In 

The FiTB Credit Act 

ny present situation. 

like to point out that 

coDprlaed of auggestloni 

of 1971 by useri 

now standing sos 

and ranchers, la aolldl; 

of 1979, H. R. 4782, offers I 
before I tell ay personal story, 
:he legislation that nov pends befori 
made since psaeage of the Fam Cref 
[era of the Syatea. The Fara Credll 
lllon plua strong In tenaa of loans 
the anendoentB we propose. 

lit Act 

As I see It, whether or not to paaa the Farm Credit Act Asendmen 
of 1979 Is a BlBple question. And, the sinple answer is "yea." 
for no reason other than the fact that our legislation will not 

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the taxpa7«t on« •Ingl* ctnt, probably lOBethlng unique In legislative 

But than, not coating thr taxpajar one ilnfle cent li Faia Ccedit'i 
vay of doini biulnaaa. Aa jrou, Hr. DialTman, aod Btabera of 70UE 
Co^ttcc knov, Cha FaiB Cradtt Syataa la one GoveciBent pEOiraB that 
HOTliad. Ue paid back aany jaara ago cvaT? cent of the oilglnal 
capital govemaent had laveatcd. Our total cost Is borne by those 
faraers and laochera tUto borrow fios us. 

Even ouE Buparviaory agency hare In Waahington, D.C.. the Fars Credit 
Adainist ration, la aupportad totally by finda aaaaaaad fToa the II 
Fars Credit Dlatricta. Jiiat last year, the tenth District uhlch la 
the Taxaa Diatrict, gave around one-half Billion dollars to fund the 
activitiea of this organisation. 

So you asa, wa sra not Baking for aoney. We are only asking for the 
opportunity through our eurreat laglslstloD to do an even better job 
than we have In tha past of financing faTsera and ranchera. Thla, 
ue think, ia reaaon enough to vote for our proposed legislation. 

But. If that is not reason enough, I have aore. The Far* Credit Syataa 
UBS issued the challenge by Congreaa aany, aany yeara ago to finance 
faiaara and ranchera throughout our grant country. The Fara Credit 
Systta has taken this charge aarloualy. Tha legialation that panda 
bafora you today, sa I aald, la aa esaapla. It la an attsapt on our 
part to atay sbreaat of the rapid and aoamfaat trauaatlc changea 
taking place In agrlculcura. 

In ay aany years In the Fara Credit Syataa and even aora yeara aa a 
faraer in tha Valley, 1 have seen agricultural productivity iaprovad 

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dTasatlcally. Tlixouih farMi-ranchar Initiative, acate UDlveTilty 
rcaeaceh and crcdlton' financial aislacanca, rialda arc bllhcr and 
aoie conalscmt, fetfer Ban-hoiiTa are needad and tha quality la batter- 
But, while producdoD tecbnlquaa have ahoim condiuiad IsproveBent , 
our maTketing Bethoda have changed alowly. FarBera and raachers contlnu 
to take their products to tha Barkat and aek "vhat will 7011 give aeT" 

Ae a grain fe»cr in Che Valley, I found eoBC yeata ago It advleablc 
to try to gat a better hold on tha aarket. t Tecognlce, aa do faTBars 
and rancher* everywheTC, that If I ■■ to >ekc a profit I mat have 
%amt control over the procaaalng and marketing action Involving my 
produeta. That'a why I chose to put a group of farmera together and 
acquire a grain alavator. 

C edieit I 

HBB iurprlead w 
find that I dl 

I started looking for aoney to ftnenca 
t qualify tor financing from tha Farm 

Five of us Valley faraers own 75 percent of Che elevator. We 

.11 are 

bone fide farmers and rancheti financed by FCA. Howevei, the 

law, aa 

it now Btaods, requltaa that tha ownet provide at leaat 50 per 

cent of 

the total products going through the grain elevator. We ware 

Dot able 

1 lostttution 

where I was Boat conforteble end the piece where I had been do 

log busineas 

Other Iteaa to cooaldar In this stsb concern the avetlablllCy of credit 
froB other sources and the coat of thla credit. I^ poaltlon concerning 
the availability of crmdit la chat PCAa in Che Farm Credit SyeCsa ere 

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expert* at tlaanelng acrlculture 
of hlatOTT wmI ic la a proven oa 

PCAa hava aora t 

n a half ceotuT? 

These Fara Ctadit S]r*tea expeits have Jiut ■■ Buch confidence In the 
vlablllt)' of a Hell-thought out aarketlnc, procaaaini facllltj as they 
do Id a good faimlng or ranching oporatlon. 

Thl* confidence and our proven hlatory of providing a service, I hope. 
Hill help convince you chat the FaiB Credit Sjitca la worthy of thle 
nau latltade. 


long history of iDteresc rat 
lOBies and nlnlalaed overhee 
are probably aware . Froductl 
corporate Incoaa ta>aa. Out 

Production Credit Aasoclatlons have a 
IS which are coapetltlve. We have Halted 
I, thereby reaalnlng conpetlclva. As you 
in Credit Is a cooperative, but we do pay 
only profit Botlvea ara to help davalop 

reserves for lossaa and build a healthy capital structure 

Aa I hevt 
expertise aubi 

1 here, far>ers a 
tandally beyond th* production stags of agriculture. 

1 personally have experienced that credit f 

■ the place whara I chooia 

- Production Credit - is not availabla tor the operator 
rt a Barkaclog or procesaing facility- 

Mr. Chaltw 
the Fars Ci 

a of th* Co^tttee, 

AHDdaentB of 1979 1 

It and personal experience. This 
■■endHDt which would allow the Bank for 
cooperative ■wtars to preaot* the axpanalon of U.S. agricultural azport 
■arksta and share In the banafits of this t 

as vitally interest 
■ through their 

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Kacantlj, TacogDlilns th« &e*d for iBTlculcursI pToduets, luch as red 
■eats, poultTTi eggs, nllk and ticih fruits and vegatables In Vcnciuela, 
I uorkad up In CDOsldeisble detail * proposal to provlda thess products 
by all freight directly froa the Valley to Venezuela. The organlEatloB 
which I hop«d to start Involved two corporate flras. 0ns would ba an 
air freight firm; the second a doseatlc International sales corporation 
which would act as a sales agency and freight forwsrdar. Total coat of 
the package I proposed wsa soaewhere In excess of $25 Billion. 

Knowing sonethlng about the bualneas and political chains, I spent 
eeveral days In Washington visiting with various govemnental agenclea 
that could have bobc Interest and knowledge concelnlng what I proposed 
to do. All agreed ir was a good Idea ulch nerlt. I ended ny Washington 
vlalt Hlth the Ezport-Iaport Bank, aharlng By thoughts and Ideas with 
then snd asking If financing were available. 

Theli answer was that If I would lorn a foreign corporation, the 
Export-lap ort Bank could finance ay proposed bualneas. Otherwise, I 
was told, It was alaost totally Ispoaslble to get the type financing 

I heard for the "upteenth" time that ny Idea was a good one. The 
probleo was that 1 did not qualify for financing. 

We, In the United Statea, have so long been concerned with lapotts that 
we have not kept pace with the export potential of agricultural products. 
I think you will agree that It'a tine we began to think "export," because, 
this Indeed, la on* of our only hopas In keeping the U.S. dollar sound 
m world trade. H. R. 47S2, the Fan Credit Act Aaendwnta of 1979, 
would allow the Bank tor Cooperatives to finance the farser cooperatives 
that have exporting in mind. 

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Mr. CbaliBB, Badwrs of tb* ru^llli i . I iBidaTstaiid tbara ar* aaJOT 
orfanliatloo* la thla eaatrj hIu oppoaa tha auCbDrlc; Braatad br tba 
FaTB Cradlt Act of 1971 lAlch alletra our Aaaoclatlooa to provlda 
Inaucaaca to tbclr bonomra. Thla oppoaltloa puailaa ■■. 

H7 Aaaoclation la the Valley offers credit life InsuTmce to borronts 
HtM vant It. 

S<NM othai Aaaoclatlooa lo tha t«aa Matrict provide crop hall inauTaaca 
Again, thle la at the rcqaeac of the bonomr. Although sjr Aaaoclation 
haa not cboaen to otfar crop hall, I do not tblsk thoae PCA borrotfcra 
wbo request thla aarvlcc ahould be denied It. 

Another tblns that concema aa. and puialaa mu, la 1A7 Coogtaaa would 
grant ua authority and than conaldar taking It anay. I aak the 
quaatloa: "Hhy cannot fatvera vbo oin their FCA offar an Inaaraaee 
aervlce to th^elvea through their own cooperatlvaaT" A* I see It, 
ananitaent of our bill Co aiclud* the InauraDce authority la affect 
would, go agalnat the Aaarlcan principle of free antarprlse. 

Hi. Chalraan, ve thank you and other aaadiers of the Co^Ctao for tha 
opportunity and privilege of preaantlng taatlaooy concamlng tha Fan 
Cradle Act AaandBanta of 1979 and related laauaa. I urge you to report 
B. K. 4782 out of Coaalttae with no changes or aaandaenti and to uae 
your full authority and lafluaace to praacivc tha current authority 
of the Fara Credit Syataa. 

The Teiaa Fara Credit District and all the Fan Credit Dlatrlcta of 
thla great nation are 100 percent behind thla legislation, aa I 
Indicated previously. Feu vould argue with the fact that the Para 
Credit STataa baa dona Its Job end done It veil, accepting to the 
fulleat extent the aandat* provided by Congraaa aora than a half 
cantury ago. We only hope you will allow ua to continue In thla 
C baa helped ua wrlta tha aucceaaful hlatory of 

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Mr. JoNKs of TennessM. Thank you vety much, Mr. McCarthy, 
for a good statement. We appreciate your attendance. 

I understand you have a close traveling schedule. Therefore, if you 
can, we would like to have you come back for questions. Otherwise, 
we will excuse you now. 

Now we will get back on our witness list and call Jerome McGrau^- 
han, Washington counsel, National Association of Mutual Insurance 
Companies in Washington, D.C 

Please accept my apologies for putting you down the list a bit, but 
I am sure you will understand, 


Mr. McGranaohan. Thank you, Mr. Chairman. 

My name is Jerome P. McGranaghan. I am Washington counsel 
for toe National Association of Mutual Insurance Companies, com- 
monly referred to as NAMIC, headquartered in Indianapolis, Ind. 

I am a partner in the firm of Bolton and McGranaghan, 1120 
Connecticut Avenue, NW., Suite 310, Washington, D.C., and ad- 
mitted to practice in the District of Columbia, the State of New York, 
and before the IT.S. Supreme Court. 

The National Association of Mutual Insurance Companies is made 
up of 1,117 member companies, the vast majority of which write 
property and casualty risks. About two-thirds of these companies are 
quite small and rural in nature. The age of many exceeds 100 years. 

They are spread throughout 41 States and mutual in nature; they 
comprise the original consumer movement. We also have in our mem- 
bership compames that write insurance on growing crops. 

I am here today to ask this subcommittee to use the bill before it 
as a vehicle to redirect the lending agencies operating under the 
umbrella of the Farm Credit Act of 1971 back toward tne intent of 
Congress concerning the marketing of insurance in connection with 
farm loans extended; namely, as outlined in the conference conmiittee 
Report 92-679 of that year, only those coverages "necessary and 
incident" to the loan. 

Further, to return these agencies to the policy of the Federal Farm 
Credit Board— section 618-8010, February 1974—" • • • these services 
should be imdertaken only when there is evidence of lack of availability 
as to convenience, quality or cost and there is sufficient interest ***.'' 

Although it vanes from area to area across the country, all too 
often these lending institutions violate the spirit, if not the letter of 
the law, by engaging in sales of insurance on collateral and on non- 
collateral property, to members and nonmembers, despite the ade- 
quate supply of these coverages in the local market. 

At times there is even subUe pressure to buy your insurance where 
you get your loan. We think this is an abuse of the privil^es bestowed 
upon these leading agencies by Congress and the people, and should 
be stopped, specincaUy by deleting m Its entirety section 404 of the 
bill which would add a new part D to title IV ot the law, permitted 
Federal chartering of corporations to sell insurance and conduct other 
noncredit extension activities. 

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We would request instead that the committee consider incorporating 
language reemphasizing the intent of Congress to restrict insurance 
marketmg to the instance where local capacity is inadequate, with the 
burden of demonstrated need fully to be met by the lender. 

We do not consider this request to be a plea for special protection ; 
rather, we see it as a petition for equity. 

These lending institutions have a number of advantages not pos- 
sessed by our private companies and agents; there is exemption and 
special treatment in the area of corporate income tax; interest on 
revenue raising notes is classified tax-exempt, thereby simplifying cap- 
ital acquisition; money borrowed by PCA's for relending is itself ob- 
tained from tax exempt intennediate credit banks. 

There is then a pattern of taxpayer support and subsidy woven into 
the fabric of PCA operations. 

We, therefore, see it as unseemly that agencies should be using some 
of our own tax dollars plus tie-in sales that are questionable by any 
objective measurement, to take insureds away from the private sector. 

If they want to compete head to head, Sne, but first they should 
be made to cash in the olue chip tax advantages that they enjoy and 
submit to full taxation and State regulation along with the rest of us. 

The coverages necessary to protect the collateral and life upon which 
the loan is issued is readily available in almost all instances in local 
areas at a fair price. 

To institutionalize an unfair digression from what should be the 
main business at hand for these lending agencies — the extension of 
credit — by creating federally chartered corporations is both unneces- 
sary and unfair, and we call upon you to reject this encroachment 
upon the private sector. 

Mr. Chairman, we thank the subcommittee for its time and at- 
tention. I will be happy to answer any questions you may have. 

Mr. JoNKs of Tennessee. Thank you very much, Mr. McGranaghan, 
for a good statement. We appreciate your being here. If you can 
remain, we will call you back a little later for questions. 

Our next witness is Mr. Dan Morrissey of Lohman Brothers, 
Geneseo, 111. 

He is accompanied by Jeff Yates, general counsel. Independent 
Insurance Agents of America. Mr. Morrissey, we welcome you, 
please proceed. 


Mr. MoRRiBSBT. Thank you, Mr. Chairman. 

Mr. Chairman, my name is Daniel J. Morrissey. I um an inde- 
pendent insurance agent with I^ohman Bros, and am responsible for 
my agency's farm department that produces annually about one-half 
million dollars in premium value. 

I am also farm consultant to the Independrait Insurance Agents of 
America, and have testified in that capacity at Senate and House 
hearings on both Federal crop insurance legislation and the farm 
credit system. 

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With me todvf is Mr. Jeffrey Yates, general counsel to IIAA. 

To save time, I will present this morning ti summary of my prepared 
remai^, and ask that the full text of my written stiitement be in- 
cludetl in the subcommittee's hearing record. 

Mr. JoNEB of Tennessee. Without objection, your prepared state- 
ment will be placed in the record after we hear your summary. 

Mr. MoRRiBSEY. Mr. Chairman, I am here today to ask the sub- 
committee to amend the Farm Credit Act so that the restrictions on 
production cre<lit association and Federal Inml bank association 
insurance activities included in the 1971 Farm Credit Act conference 
report will be observed by the farm credit system. 

My association will be prepared to submit proposetl amendment 
language within the next few days. 

In considering these amendments, you will have the benefit of a 
detailed and precise legislative history in support of explicit restric- 
tions on PCA and FLBA insurance activities. 

Additionally, you will be able to review the d^ree to which present 
farm credit system insurance activities have exceedetl by for earlier 
Congress intended limits. 

The major elements of the legislative history may be briefly stated, 
but I urge you to review the detailed documentation contained in 
my written statement. 

The insurance issue was central to the debate of the 1971 Farm 
Credit Act Amendments. House and Senate conferees took care to 
include in their conference report language limits on the types of 
insurance PCA's and FLBA's could oner their loan customers, and 
on the circumstances under which the Farm Credit Administration 
would be permitted to authorise these limite<l insurance activities. 

In addition to the conference report language, documents from the 
Commission on Agricultural Credit, the federal Farm Credit Board, 
and the Form Cre<iit Administration reinforced the understanding 
that insurance activities, if pursued at all, would be conducted in a 
restrictive context. 

Thus, the recurrent themes in these documents include: 

One, that insurance would be limited to credit life insurance and 
insurance on collateral used to secure a specific loan; 

Two, that insurance activities would oe based on a demonstrated 
need for them; 

Three, that credit-related services such as insurance would be 
pursued on the basis of their benefits to members in using and extend- 
ing credit, and not for remuneration to the institution ; and. 

Four, that competetent credit-related services in the community 
outside the farm credit system would be utilited and promoted by 
form credit institutions. 

.These documents contributed to a prudent and deliberate effort by 
Congress to compensate for the built-in competitive advantages 
farm credit institutions enjoy — advantages Congress correctly un- 
derstood could have profound adverse effects on unaflUiated businesses 
of many kinds, including insurance agents. These unequal competi- 
tive advantages include: 

One, the power of credit. 

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PCA's power of credit will inAuence the boirower'a purchase of 
insurance. This can be done overtly, by requiring the purchase of 
insurance as a condition for a loan, or indirectly because the borrowe r 
will perceive hia chances for loan approval wifl be improved by per- 
chasing insurance from the PCA. 

Two, access to insurance expirations. 

Loan customers are required to submit detailed financial and insur- 
ance profiles to PCA's for loan approval. PCA's can use this informa- 
tion to solicit insurance, or to suggest insurance coverages based on 
privileged information. 

Three, tax advantages. 

Farm Credit System banks and associations enjoy State and local 
tax exemptions. Federal Intermediate Credit Banks, which provide 
loan capital to Farm Credit System institutions, are exempt from 
Federal income tax. 

Loan interest rate reductions is fourth. 

PCA's can promise farmers that if they pruchase insurance from 
them, this commission income will be used to reduce their future loan 

Unaffihated agents cannot offer the same incentive. The result is 
that farmers purchase insurance not because it is the best insurimce 
package, but to reduce loan costs. 

The problem is that in spite of the report of the Commission on 
Agricultural Credit, the will of Congress as expressed in the conference 
report, and the Farm Credit Admmistration s own regulations, PCA 
and FLBA insurance programs have been authorized with absolutely 
no showing that comparable insurance services are not b^ng ade- 
quately provided by unaffiliated businesses in the community in which 
a particular PCA or FLBA operates. 

Moreover, despite our repeated protests, the Farm Credit Adminis- 
tration has shown absolutely no mclination to adopt procedures to 
assure that there is an objective determination of need before author- 
izing an insurance service in a particular community. 

We, therefore, believe that H.R. 4782 should be amended specifically 
to require that before the Farm Credit Administration can authorize 
a farm credit institution to offer insurance as a financially related 
service, that institution would have to make application to ei^age in 
such activity. 

On the basis of that application, after due notice and opportunity 
for hearing on the record by interested parties, including potential 
competitors, the Farm Credit Administration would have to moke a 
numoer of specific findings, most especially that similar service is not 
being provided adequately in terms of cost, quality, or availability by 
others in the particular community served by the farm credit 

The statute would also require that notice of each such appUcation 
be published in the Federal Roister and in at least the principal news- 
paper having general circulation in each of the trade areas in which the 
particular association does business. 

We also believe the statute should be amended to reflect the agree- 
ment of the conferees in 1971 not to permit the sale of liability cover- 
ages and to limit the sale of property coverages to the collateral that 
is the formal security interest granted in connection with the secured 

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The wholesale entry of PCA's and FIjBA's into the insurance agency 
business would be against the best interests of this Nation's farmers 
for several reasons: 

First, the promise of growing income from expanded insurance 
uctivities will divert associations from their primary function of 
extending farm credit, thereby potentially jeopardizing the solvency of 
particular cooperatives and frustrating the goals of H.R. 4782 to build 
n strong farm credit system. 

This danger is very real because the cooperatives are already 
marketing these insurance programs as moneymakers for the coopera- 
tives; not out of a demonstrated member need for the service. 

Second, as a general rule, farmers will not receive the same pro- 
fessional counseling and service when purchasing insurance from a 
PCA or FLBA employee sho sells insurance as a sideline to his lendii^ 

In contrast, the independent agent's primary business is selling 
insurance, and he depends upon a satisfied insured to stay in business. 

Third, farmers will purchase insurance from the PdA to protect 
their loan relationship with the bank, not because of the merits of 
the insurance transaction, and thus the farmers' freedom of choice in 
purchasing insurance will be destroyed. 

Mr. Chairman, by offering our amendments, we do not intend to 
infringe in any way on the laudable credit services of the farm credit 
system, but only by amending the act will the long-term interests of 
the farmers of this Nation m served and unfair competition with 
unaffiliated insurance agents be avoided. 

Thank you. 

[The prepared statement of Mr. Morrissey appears on p. 340.] 

Mr. Jones of Tennessee. Thank you very much. 

Mr. Yates, would you like to make a statement? 

Mr. Yates. No, sir. I was just here to support Mr. Morrissey. 

Mr. Jones of Tennessee. We thank you for your presence. We will 
call you back for questions later. 

Our next witness is Mr. C. R. Johnston, president, Missouri Farm 
Bureau Federation who is here for the American Farm Bureau 

He is accompanied by Mr. John Datt. John, we welcome you. We 
see you a lot. 

Mr. Johnston, please proceed. 

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Pcesentod by 
C.R. Johnston, pcealdenC, Missouri Farn Bureau Pedecatlon 

March 6, 1980 

Me appreciate the cppoituniCy to appeac before the ConEervatton 
and Credit Subccnnittee to present this statenent, on behalf of over 3 
million Far> Bureau member families, with regard to amendments to the 
FBI" Credit Act of 1971. 

Farm Bureau has been a steadfast supporter of the cooperative 
Fain credit System since its creation. Many Farm Bureau leaders 
serve or have served as leaders in the Farm Credit Syaten. 
Therefore, we believe that our eomsents here today should be justi- 
fiably construed to be constructive eonuDents aimed at improving the 
capability of the PBrn Credit System to fulfill Its stated purpose, 
which is to provide a stable supply oC credit to fainers and ranchers 
and their cooperative businesses. 

he package of proposed amendments to the Farm Credit Act of 1971 
h lengthy and complex. Many of the amendments are technical in 
and will not directly Impact farm and ranch families. Others, 
e new export financing authciity amendment and the amendment 
g the Farm Credit System to Incorporate systen-wlde services, 
the scope and role of the system. 

the most recent annual meeting of the American Farm Bureau 
ion in Phoenix, Arizona, the voting delegates of the Mmber 
arm Huceaii^ adapted the following policy as it specifically 

to Che ptcipojii-i^i package of Farm Credit Act Amendments: 

ecognizing the needs of the farming industry tor additional 
of the proposed legis- 
irovlded that) 

(1) The authority Co perform functions and services (other 
han the extension of credit). Including the authority to 
[ganize service corporations Is limited by b ' 
1st of such functions and servlceai and 

t should be closely s 
^vantage of, and will 


The Board of Directors of the American Pars 
carefully examined all the proposed amendment* a 

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Pacn Bureau believes that the ' Incocporation of systen services 
ainendment was intended to be used to incorporate the Systen's Fiscal 
Agency in »ew YorK and the Syatem's Farm Bank Services headquarEered 
in the Central Bank Eot Cooperatives In Denver Rather than restrict 
thl:s authority to thESe two functions, we cecommend new language n 
the first sentence In Title IV, Part D Sec, 4 23 which would specify 
that under no clrcunstances could this authority be used to incorporate 
a Farm Credit Systea Insurance Coapany. That sentence would then read 

■Sec. 4.2S. ESTABLISHMENT— ft ny I 
two or mote o£ Euch banks acting tog< 
or corporations Eot the purpose of perforaing f 

for ot On behalf of the otqaniiing bank or banks, ocner cnan cne exten- 
sion of credit ot the writing of insurance, which said bank or banks 
may perforn pursuant to this act." 

one of the proposals would authorize all Para Credit system 
institutions to enter nto general "loss sharing agreements" with 
other Farm Credit System institutions He believe that loss sharing 
agreements could Increase the possibility that Ind Vldual institu- 
tions might make risky loans The proposed amendments to authorize 
loss sharing agreements between and among nst tutions in the Tarn 
Credit System would distribute the risk over the entire system. This 
could Bean that. If the export financing amendment is adopted, the 
risks Involved in th a activity would be reflected in the costs of 
borrowing farm operating and ownership capital. This "averaging' of 
risks and the costs of ntoney associated with risks would likely lower 
the cost of money to some segments of the Farm Credit System and raise 
the cost of money to others. Therefore, we oppose the inclusion o£ bh« 
loss sharing amendment 

He believe that the amendaents to expand export financing 
authority should be nodified to exclude authority for the Banks Of 
Cooperatives to serve as monetary exchange agents, to Invest in 
foreign financial lust tutions oE servicing operations related to 
export trade and to directly finance equity Investors. He are concerned 
that these activities would unnecessarily increase the risk of tbe 
Farm Credit System w thout materially enhancing the capability of U.S. 
cooperatives to expand exports. 

All of these functions are adequately provided by comaercial 
banks which have developed considerable expertise and experience. 
Therefore, ue believe that the farmers and ranchers who Own the Fat« 
Credit System will be better served by restricting th authority of the 
System to those export f nancing activities which will most directly 
enhance cooperative export sales without unnecessarily incurring undue 
risks. We also believe that It is prudent to limit the expansion of 
export sales financing activity until the Farm Credit administration 
and the various Banks o£ Cooperatives and the Central Bank foe 
Cooperative^ can demonstrate the capability to manage and supervise 
this new expanded authority. 

Hhen the 1971 Farm Credit Act was adopted, authority was granted 
to the Federal I.and Banks [P.L. 92-181, Title I, Sec. 1.11) and to the 
Federal intermediate Credit Banks [P.L. 92-181, Title TI, Sec. 2.5) to 
'provide technical assistance to bocrowers, aeabera and applicants and 

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nay nake available to then at theti option such finuiclally-ralated 
servlcea a[ipropi:late to tbeiir on-farn operations as dateialnvd to be 
feasible by the board of directors of each dlBtrlct bank, under regula- 
tions of the Farm Credit AdBinlstration.* 

According to the conference report, wbich accoapanied this 
legieljitlon, thete was considerable dialogue sBOng the confsreen and 
the Taca Ccedit Adniinistration regarding the extent to which the 
Systeat could engage in the Bale of certain types of ini 

'The conferees dlscuoserj a 

services that could be pre 
borrower*. It is felt thd 
and any insurance on passe 
and incident' to the funct 
but that they should be at 
be necessary to protect tti 
ance could be sold in an e 
ment of the loan, and insi 
Becur 119 a loan could be E 
"It is, of eoi: 

1 the scope of Insurance 

utomobUeB, is 
f the lending i 

not necessary 


sell such Insur 


appropriate to 
against loss Ol 
r the full valu 

insure repay- 
any collateral 
e of such 



of buying the i 

it they so wist 

:ance necessarily be purchased through 
Lender These lenders should 
! borrowers that they possess the option 
needed tO secure the loan elsewhere 


1 the < 

redit system Banks tt 
Ir statutory authorit 

t 1971 Act. 

?ered pilot collateral 
;rop fire and hall have 
■ broadly than was sat 

He have mtt with the Parn Credit Adniniat 
tatives of the various Farn Credit districts, 
tlcipatlng in the collateral Inourance pilot 
unable to find any ustirication for tbetr in 
1 of need, which we understand was 
latablishnent of the prograa. 

gtlon and represen- 
nlch have been par- 
3gcmm», We have been 

The re 1 
Title I, s< 
insurance I 

borrower int 

, we urge this 

1.11, and Tltl 
t can be sold by Federal Land E 
and Federal intersedlate Credit Banks and Production 
otiona is credit life insurance, 

>e our anendoent will elininate the poealblllty of 
lidatlon, unnecesaery duplication of private insurance 
iBproper uClliiation of Fara Credit SyaCaa personnel. 

> recomnend t 

irporate Fara Credit 

thorlty for Banks for Cooperatives to serve as 
inge agents, to invest in foreign financial Institutions 
operations, and to directly finance equity investors. 

.ude authority for loss sharing agceenents. 

sales authority 

edit life iasurance. 

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Mr. JoNBB of Tennessee. Thajik you very much for your statement. 

We Eippreciate your attraidance, along mth Mr. Miller and Mr. 
Datt. If you can stand by, we will caU you back. 

Our next witness is Mr, Robert Tyler, vice president, Old Republic 
Insurance Co., Chicago, HI. 

Mr. Tyler, you may bring someone along with you, if you like. 

We appreciate your takine the time to be with us here today. 

I might announce that Uie House is in sesEdon at 11 o'clock this 
momi^. There may, therefore, be some interruptions from time to 
time. We will do our liest to keep it on track. 

Mr. Tyler, welcome. Vou may proceed. 


Aim cotnrsEL, old eepublic life ihsueahce go., chicaoo, 


Mr. Ttlbr. Thank you, Mr. Chairman, 

My name is Robert N. Tyler, vice president, secretary, and counsel 
for Old Republic Life Insurance Co., Chic^o, 111. With me today is 
R. Bluid Lee, vice president, Old Republic Idfe Insurance Co., who is 
responsible for our farm credit pn^ams. 

We appear today on behalf of the Old Republic Life Insurance Co., 
and its affiliated companies. We offer insurance to members of pro- 
duction credit associations and Federal land bank associations through 
one or more of our companies in all of the United States, Canada, and 

My written statement mistakiugly indicates that PCA's and FLB's 
operate in Canada. I would like to declare that I intended to imply that 
the Old Republic operates in Canada, Please forgive my mistake. 

The various Old Republic Co., write insurance, and recently, on a 
somewhat more limited oasis, what is referred to as collateral insurance. 

For nearly 30 years we have served members of PCA's and FLBA's 
with various of our insurance programs and currently approidmately 
150,000 to 300,000 farmer-rancner members of the farm credit system 
have one or more of our coverages. 

I would like to digress from my written statement and say that we 
started writing tie credit life insurance coverage in the early 1950'b 
and more recently in the iiud-1960's we came in with crop hail 

It has been very recent that we are into the collateral insurance 
in the test areas. 

Old Republic favors the proposed amendments to the Farm Credit 
Act. We beheve that the farm credit svstem has been of tremendous 
benefit to farmers and ranchers tbrou^out the Nation and that the 
amendments to the act that are here proposed will improve the farm 
credit system. 

It is notable, and I know that I am reiterating what other witnesses 
have said, but I think it should be emphasized that this most worth- 
while program for American agriculture is carried on without the 
involvement of any Federal funds whatsoever. 

Interesting testunony has previously been given to your subcom- 
mittee. We have heard testimony which counsels that the act should 
be further amended to restrict farmers and FLBA's. 

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To bolster these suggeatuns, it luis been imi^ied that tbera is sune 
hideous, unfair competititm involved because the PCA's and the 
FLBA's are beneficiaries of sfsne kind of Federal subsid^r. Of comse, 
you know and we know that this is not a fact. 

Special interests suKg^ts that there is a potential for coercicHi erf 
fanners by PCA's andFLBA's, but there is no evidence to support 
this concern. I have been immersed in this business lor neuiy 15 
years and have seen most of the c<Mnplaints that have come to oar 
company about our hanHling of insureds, not just the faim credit 
people, but insureds in general. 

I have never seen a complaint by an insured farm member of either 
a PCA or an FLBA alWing that there was any coercion whatsoever 
on the part of PCA or FLB personnel with r^ard to any <tf Uie insur- 
ance programs. 

It ma^ sense that there would not be any complaints <rf this ami. 
Farmers and ranchers are small business people with a great deal of 
savvy and not at all the type of people to allow theu^elves to be 
coerced into taking unwanted insurance by the lending arms of their 

Through their election of boards of directors the members indirectly 
control such practices by the operators of the associations. Even if 
that were not so, it does not moke any sense to believe that the PCA's 
or FLBA's would coerce their members to take undesired insurance 
because soon the members would seek other avenues of credit. 

It seems obvious to us that the associations cannot maltreat their 
membership or soon they will be out of business for all practical 

Eurposes because the "repeat" business of those members is tiieir 
feblood, and the lifeblood of any lending institution. 

Allegations of coercive practice have never been accompanied by 
any documentary evidence or proof by the special interest. Please 
note that fanners and ranchers themselves have never made any 
such allegations; they only come from the special interest, as far as we 

Old Kepublic is very much in favor of strong competition in this 
insurance marketplace. Making available to farmers and rancheis the 
broadest possible selection of coverages and companies is the way to 
reaUv assure competition for insurance in American agriculture. 

We think the experience of all cooperative farm supply and market- 
ing oi^anizations that extend credit and insurance to farmers and 
ranchers should be considered. 

Cooperative farm organizations, such as farm bureaus, the Fanners 
Union, and the Grange, commenced in the 1930'a to offer insurance 
products along with the credit that was available to their members. 

The entrance of these organizations into the farm-oriented insurance 
market substantially improved the insurance products available to 
the farmers and ranchers in many States. Their record demonstrates 
that better and better insurance products for farmers and ranchets 
evolved from continued competition. 

These oi^anizations should be conmemded for their fine service in 
bettering insurance service for the agricultural community. 

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In sum, we think that broadened competition for these insurances 
gives farmer and rancher members of production credit associations 
and Federal land bank associations a broader and more desirable 
list of companies from which to choose. 

But, we Delieve that insurance services are secondary to the financial 
services offered by these organizations; it is sort of like the tail and the 

Since insurance services must be considered as a secondary service, 
we do not believe that they will ever take precedence over the tending 
activities of the association. 

Since the farmers themselves elect the board of directors, should the 
insurance service become unsatisfactory, we do not believe that the 
farmers and ranchers will long allow the tail to wag the d(^. 

The simple fact is that Amencan agriculture is better served through 
promoting broad insurance competition, not by restricting it. 

I would like to add, Mr. Chairman, before I close this, it has been 
impHed that in the collateral insurance program in the test area, 
there may be some idea on the part of the farmers applying for the 
insurance that they must take it in order to get their loan. 

I have here a certification that is signed b^ the borrower in the 
North and South Carolina area which makes it very clear t^at they 
are under no compunction to take the insurance from the association, 
l^ey can buy it wherever they want to, and they read the statement. 
They sign it to be certain they know they have the option. 

I would like to include this in the record, if that is according to 
committee procedure. 

Mr. Jones of Tennessee. Without objection, that will become part of 
the record. 

{The certificate referred to above follows:] 

FoRU RsQuutBD BT Policy in the PCA's and FLBA's in the Carounab 


(Name of Association) 

ability of collateral insuraaoe through the assooiatiOD offices. This is to further 
certify that I fully understand the insurance services through the association are 
offered to members only on an optional basis, and that I am perfectly free to obtain 
this insurance from any other available source. 

(Signature of Borrower) 


Mr. Jongs of Tennessee. That is one of the test areas where col- 
lateral insurance is being sold in today; is that right? 

Mr. Tyler. Yes, sir; that is correct. 

Mr. JoNBS of Tenneeeee. Thank you very much. 

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W« hope that you will be able to remain for questions later. 

Our next witness is Mr. Edward Andersen, the National (h^iige, 
Wadiington, D.C. 

Mr. Andersen, we are glad to haveyou. 

Mr. Fbbdebics. Thank you, Mr. (Jnaimian. 

Mr. Andersen was called to North Carolina to attoid the funeral of 
a champion of the cooperatives and of the farm credit system, Harry 
B. CaldweU. 

Mr. Caldwell hod been very much interested in this piece of l^psla- 
tion, as he was in the 1971 act. He has been our pilot with r^ud to 
the positions we have taken therein. 

I am pleased to present the views of the National Grange on the 
Farm Credit Act amendments as contained in H.R. 4782 Iwfore this 
distinguished subcommittee. 

I will summarize and ask that my testimony be induded in the 

Mr. Jones of Tennessee. Without objection, so ordered. The pre- 
pared statement of the National Grange will be placed in the record 
after you summarize. 


Mr. Fbbdhbick. In general, the National Orange supports H.R 
4782 with several amendments that we will propose. 

I think it is good that we review the history for a bit on the gene»s 
of the act of 1971. You will remember that there was a commiauon 
appointed in 1969 by the governor of the Farm Credit Board, com- 
praed of 27 members, half of which came from the system and half 
irom ihe outside system. Thev met many times and came up with a 
set of recoromendations to channel the new direction of the Farm 
Credit Administration. 

The combination of that effort was the Credit Act of 1971. 

I think it is good that we review and keep in mind the recommenda- 
tions of that farmer system study commission as we judge the merits 
and the objectives of the act before us, that is, the bul before us. 

We were honored to have Mr. John W. Scott, the inmiediate past 
master of the National Grange, serve on that conmiission. 

The National Grange, at its last annual meeting in November 1979, 
passed a resolution directing the Grange, so far as policy was con- 
cerned, on the amendments before this committee. 

Basically there were several major objections. One is the provisions 
to allow establishments in the farm credit system to form corporations 
which is closely tied to the insurance question. We are oi^osing the 
further extension, or rather the continued extension of the farm credit 
system to be able to sell and service insurance other than credit life. 

The second is the area of the increased authority for the PCA's and 
the Federal land banks to offer loans to eligible borrowers for the 
marketing and processing facilities. 

In that resolution there are some minor objections, but those are 
the major ones and the ones that we would ask the bill be amended to 

First, title IV, section 404, part D, service oi^ganizations. 

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This broutfldos the authority of FCA banks to organiu one or more 
corporations : 

For the purpose of performing functions and Mrvloea for or on behaJf of the 
org&nizing bank or banks, other than the extension of credit, which said bank or 
bulks majr perform peraUAnt to thia act. 

This section does not mention insurance. I believe it can and will 
be interpreted to broaden FCA's authority to fonn an insurance com- 
pany. The Grange is strongly opposed to extension of economic 
power of lending mstitutions. The entiy ot the farm credit into the 
msurance business has been of deep concern to the Grange. 

The study commission debated the insurance issue long and hard. 
The general fann organizations represented on the commission 
stron^y opposed the farm credit system entering the general insur&ace 

We agree there were sound reasons for, and no objections to, the 
banks writing credit life for the amounts to cover the loan, but the 
commission was opposed to the writing of other life insurance and 
property and casualty insurance. 

As you know, as this moved through the Congress in 1971, there 
was the difference of opinion between Uie House position and the Sen- 
ate position in conference. The Senate provision prevailed. 

From that they are taking the authority to write other forms of 
life instirance other than oreait life. 

An extension of financial institutions, bank holding companies, and 
the Farm Credit Administration and so forth, into the activities of 
this kind is another stej) in the concentration of economic power in the 
bands of financial institutions. 

In our opinion, this should be avoided. 

It is unfair competition for institutions that have been given special 
privil^e powers over the availability of money and credit to use 
their eanungs to compete with private business in this manner. 

It is also anticompetitive for such institutions which have the 
privilege power to grant loans to sell a related service that the credit 
client may interpret as being a prerequisite to the granting of the 

We are aware of the fact that the present Governor of the Farm 
Credit Administration, Donald Wilkmson, has, on two separate 
occasions, and again yesterday before this committee, given assur- 
ances that the proposal would not authorize the incorporation of the 
farm credit system insurance companv. 

We have the greatest respect ana admiration for the Governor. 
He is doing an excellent job. We do not agree with the Governor's 

We do agree with what he has privately told the Grange that neither 
he nor the Farm Credit Board mtend to organize an msurance cor- 
poration within the farm credit system. 

However, as you know, Mr. Chairman, the farm credit boards and 
Governors change, and with change the assurance can also change. 

It is our interpretation that part D, service organizations, section 
4.26, establishment, would authorize a bank or banks to oi^anize a 
corporation or corporations to perform services on behalf oia bank 
or banks, which said bank or banks may perform pursuant to this act. 

If the selling of insurance is a service banks may perform pursuant 
to this act, then that service may be organized mto a corporation. 

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To ai^e otherwise that their proposal would not authorize the 
incorporation of the farm credit systua in the insurance company ia 
to ai^e that the selling of insurance is not a service that need be 
provided pursuant to thia act. 

We have bem informed by the Farm Credit Administration that 
they have the legal authority to sell insurance under the Farm Credit 
Act of 1971. 

Therefore, to make it clear that the system cannot form a corpora- 
tion to sell insurance, we strongly reconmiend that H.R. 4782 be 
amended to prohibit the FCA from ora-anizing insurance companies. 

We suggest that section 4.25, part B, shomd be amended oy in- 
serting "or the writing of insurance" immediately following "other than 
the extension of credit." 

That part of section 4.25 would then read: 

Any b&nlc of the Farm Credit STstem, or two or more of sueh banks acting 
together, maj^ organise a corporation or corporationB for the purpose of p«r- 
forminK funotioua and services for or on behau of the organising bank or banks, 
other tbaa the extension of credit or the writing of insurance, which said bank or 
banks may perform pursuant to this sot. 

This would prevent the FCA from organizing property and 
casualty insurance companies, but it would not correct the act of 1971 
so that they may not act as agents in the sale of property and 
casualty insurance. 

The Farm Credit Administration has been selling "credit life" 
insurance to cover the amount of a loan and we have no quarrel with 
their continuing to provide credit life insurance. 

We do, however, question the selling of property and casualty 
insurance and woidd recommend that language be added to sees. 
1.11, 1.15(15), 2.5, and 2.16 of Public Law 92-181 to prohibit the 
system from selling insurance, other than credit life. 

This was the position taken by the House conferees on the 1971 
act, but, as we pointed out earlier in this statement, the Senate in- 
terpretation prevailed in the conference report. 

This can be accomplished by excluding the writing of property and 
casu^ty insurance as a financially related service. 

We would surest that the committee exercise its oversight respon- 
sibiUty and investigate the need for farm credit banks acting as 
agents for the sale ofinsurance as three districts are presently doing. 

We would like to know what distribution is being made of anyiees 
that banks are collecting on the sale of insurance. 

Are the funds being returned to producer members? If so, in what 
form; reduced interest on the loan or a cash rebate, or is it staying in 
the bank's general operating fund? 

The second major concern of the Orange regarding H.R. 4782 is 
found in section 210, which amends section 2.15 of the Farm Credit 
Act of 1971. 

The proposed amendment to this section would broaden the au- 
thority of the FCA's and the FLB's to finance processing and market- 
ing enterprises which would be a part of farming, ranching, and 
aquatic operations of eligible applicants and borrowers. 

While we understand that this amendment would not open up a new 
class of borrowers, we question the real need for such increased lending 

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As we understand the proposal, an individual eligible producer could 
borrow from PCA's or FLB's to establish a marketing or processing 
facility directly related to their own farming operation, such as a fruit 
or vegetable packinghouse, cotton gin, peanut sheller, cattle feedlot, 
or confined hog feedmg operation. 

At the present time, such operations can be and are financed through 
the bank for cooperatives in each Farm Credit Administration district. 

The Orange, credited with starting the cooperative movement in the 
United States, feels very strongly that producers should continue to or- 
ganize as cooperatives and not set up marketing and processing estab- 
fishments as proprietorahips. 

Once again, I believe that we must refer to the recommendations of 
the Farm Cradit Study Commission. The commission gave strong sup- 
port to the financing of selected ofif-farm related businesses that per- 
form on-fann services, such as custom harvesting, spraying, and so 
forth, to serve the total needs of cooperatives which help meet farmers' 
supply, marketing, and processing needs. 

The amendments to the 1971 act provided the lending authority 
to meet these two objectives, but now we find in the June 21, 1979, 
Federal Register that the Farm Credit Administration proposes to 
change the regulations pertaining to the establishment of businesses off- 
farm that penonn on-fann services. 

The proposed changes would permit the financii^ of farm-related 
businesses providing off-farm services and waive the concurrence of the 
bank for cooperatives, which is presently required when such loans 
are made. 

Our concern is that such new loan authority, after once being grant«d 
by Congress, may, by administrative changes, be used to provide credit 
to establishments that will be in direct competition with family farms 
that are providing aU their own on-farm services, or that it will be 
used to finance an establishment that is directly in competition with a 
bank for cooperatives — ^financed, farmer-owned cooperative. 

The basic question is whether the objective of the farm credit sys- 
tem is to meet the credit needs of family farmers and ranchers or be 
expanded to meet the credit needs of integrated agriculture. 

We would urge this conunittee and Congress to consider ve^ care- 
fully the expansion of the lending authority of the FCA's and FLB's to 
include the financing of marketing and processing facilities of eligible 
applicants and borrowers. 

The farm credit system, through its lending authority, is an archi- 
tect of farm structure. By the extension of credit for processing and 
marketing, the system can foster integrated agriculture to the detri- 
ment of mmily farms. 

We would recommend the present authority of PCA's and FLB's in 
regard to financing, processing, and marketing activities of bona fide 
farmers, ranchers, producers, and harvesters of aquatic products to 
be retained and that no new lending authority -be grant«d. 

We thank you for this opportumty to express our opinion. 

She prepared statement of Edward R. Andersen appears on p. 349.] 
r. Jones of Tennessee. Thank you, Mr. FredencK. We hope you 
can remain for a while. 

We will have to recess for a few moments to vote on the floor of the 

[Recess taken.] 

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Mr. Jones of Tennessee. The subcommittee will resume its sitting. 

Our next witness is Mr. Patrick Healy. Instead of Mr. Healy, we 
will have Lynn Stalbaum, legislative representative for the National 
Milk Producers Federation. 

Mr. Stalbaum, welcome. You may proceed. 


Mr. Stalbaum. Thank you, Mr. Chairman. 

My name is Lynn Stalbaum. I am the legislative representative for 
the National Milk Producers Federation. It is a pleasure for us to 
appear as an organization this morning in support oi the basic concept 
of H.R. 4782, the Farm Credit Act Amendments of 1979. 

We in the dairy industry represent, of course, the cooperatives and 
the farmers who own those cooperatives. We have always hwa in- 
terested in the farm financing structure in America. 

We definitely feel this legi^ation broadens their ability to meet the 
financial needs of agriculture and that agriculture is certainly going to 
be facing now and m the future. 

There is one element of the bill that I want to focus on this morning, 
Mr. Chairman, and that is the matter of extending the authority for 
lending for processing and marketing operations that are directly 
related to a borrower's operations. 

This is an area which other witnesses have also touched on. These 
ore found in sections 107 and 210 of the bill. 

The concern we have, as I want to express it here this morning, is 
slightly different than theirs. It relates to producer-handlers under a 
Federal milk marketing order. 

A producer-handler is a farmer who produces milk and mai^ets the 
milk of his own production directly to consumers, either through farm 
stores or similar outlets, or via muk routes. 

The Agricultural Marketing Agreement Act, which is the law 
which provides for the milk marketing orders, provides that producer- 
handlers can be regulated, but this has never come to be. They woidd 
then be included under the provisions of the market orders and be 
covered under classified pricing and pooling of returns and all the 
other features of the milk market order provisions. 

Administratively, however, producer-handlers have been exempt 
from these provisions and market orders so long as their markets are 
confined to their own production. 

Through the years, and even as far back as 1965 whm it was my 
privil^e to serve on the House Agriculture Committee, requests 
were made by the dairy industry to have them; that is^ have these 
changed so that the administrative provisions would require that they 
be covered. 

The committee and the Congress have alwa^ rejected these. 

If we remove the provisions of milk marketing orders which cover 
producer-handlers, we, that is, they would get status which they do not 
now have. 

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We are fearful, Mr. ChairmaD, that if this is not recognized in this 
legislation, they might use this as a means to achieve status under the 
Federal milk marketing orders. This, of course, would have the effect 
of decreasing returns if the>[ were exempt to the vast majority of dairy 
fanners who have their milk priced by those provisions. Therefore, 
we have asked that there be special language in the conunittee report. 

We are not asking, Mr. Chairman, for anything in the bill itself, 
but special language in the report which is printed on. page 3 of our 

We recommend that the report contain language that there is no 
change in their status under the milk marketing ordera as a result of 
this l^ialation. 

This has been a standoff through the years because the cooperatives 
have been fearful that if they a^ieve status, they would be exempt 
and, conversely, the producer-handlers have been fearful that if this 
language was taiken out, they would be fully regulated. 

So, we ask that this language be included. 

I quote from my statement as it appears on page 3. 

107 o 

for the finAncIng of buic prooOHBing and marketing directly related to the bor- 
rower's operatlona and those of other eligible farmers, ranchere, and produoere or 
harvesters of aquatic products shall in any way be construed to alter or revise the 
view token by the Congrena toward the leaal status of producer-handlers of milk 
undM' the proviaions of the Agricultural Adjustment Act, as reenact«d and 
amended by the Agricultural Marketing Agreement Act of 1937, as amenided. 

I would like to point out, Mr. Chairman, that we have discussed this 
matter with the governor of the Farm Credit Administration and his 

They have indicated their willingness to accept this report language 
aa a clarifying provision. 

I want to point out that it does not, in any way diminish or interfere 
with their lending authority in H.R. 4782, but it does clarify a position 
that could spill over from this into the Agricultural Marketing Agree- 
ment Act. We want to make sure it does not happen. 

Those are my remarks, Mr. Chairman. 

Incidentally, Mr. Chairman, I would like my entire statement to 
appear in the record. 

Mr. Jones of Tennessee. Without objection, so ordered. 

[The prepared statement of Mr. Stalbaum appears on p. 362.] 

Mr. Jones of Tenneesee. Thank you veiy much. 

We appreciate your appearance. 

If you can stay around, we may bring vou back for questions. 
We will try to conclude the morning agenda nefore we have the ques- 
tions, however. 

Our neiEt witness is Mr. Jim Billington of Altus, Okla., vice presi- 
dent of the National Association of Wheat Growers. 

We welcome you. You may proceed, and if you have anybody witii 
you, bring them up to the table. 

I apologize for the shorta^ge of subcommittee members this morning, 
but tnere are so many things going on around here, they are all m 
different places. 

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Mr. BiLLiNOTON, Thank you, Mr. Chaiiman. 

I have with me Carl Schwensea, the executive vice presideiit of the 
National Association of Wheat Growers. 

My name is Jim Billington, vice president of the National Associa^ 
tion of Wheat Growers, and I am a lull-time farmer and rancher from 
Altus, Okla. 

I feel qualified to discuss H.R. 4782 because I spent 8 years as 
president of a large production credit association in Oklahoma and 
prior to that time was a credit examiner for the Federal Intermediate 
Credit Bank in Wichita. 

I have been a borrower member of a Federal land bank association 
and a production credit association, but I presently have a zero 
balance with both o^anizations. I am a director of the Farmers 
Cooperative of Blair, Okla., which presently has a loan with the Bank 
for Cooperatives of Wichita and has had for years. 

My purpose here today is to represent the National Association of 
Wheat Growers ing iving the full support of our organization to the 
passf^e of H.E. 4782. 

The following resolution was unanimously passed by our farm 

Erognuns conunittee and subsequently adopted^ by the association's 
oajd of directors at our convention in Phoenix m January of this 

The NAWG supports the amendmenta proposed by the f&rro oredit system 
to the Farm Credit Act of 1971. These smendments will enable the farm oredit 
Bvst«ii], through the Bank for Cooperatives, to become more active In meeting 
ttie financial needs of co-ops In international marketing activities. 

The NAWG encourages a continued, strong farmer-rancher voice in the opera- 
tion and control of this successful system of credit. The NAWO also recogniies 
the importance of maintaining competition for the farmers' business and opposes 
any amendment to pending legislation which would restrict farm credit authorittee 
In the areas of Insurance and credit related services. 

Wheat growers, through the National Association of Wheat Growers, 
have always supported strong cooperative activities that will benefit 
our industry. This legislation will certainly enhance the Bank for 
Cooperatives' ability to totally finance the acquisition and export 
of farm commodities, thus realizing the profits from this trade to the 
benefit of cooperatives and their members. 

There is every reason to believe that farm exports will continue to 
increase so the Bank for Cooperatives, export proposal is in the best 
interests of wheat farmers. 

The greatest criticism of this measure has been that it deab with a 
highly specialised fiiianciug that requires an expertise which is not 
currently available within the farm credit avstem. 

A Bimilar lack of expertise was certainly a criticism during the 
1933-34 crisis when the farm credit system, as we know it today, be- 

fan the slow process of assisting agriculture in financially recovering 
rom the depression. 

The same institutions, which were then so heavily criUcized, are 
now experts in farm credit. 

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My point is that the Bank for Cooperatives and the Central Bank of 
Cooperatives do have qualified people to develop this expertise and, 
the Danks and cooperatives involved in exports, with Form Credit 
Administration oversight, axe going to be cautious until a successful 
track record is established. 

A strong farmer-rancher voice in the operation and control of 
the successful farm credit system is not comprised anywhere in this 

It is probably enhanced by the Bank for Cooperatives' export 
proposal; the removal of the 85-percent apparised value stipulation 
on Federal land bank loans where guaranteed ; authorization of ad- 
ditional financing for the processing and marketing activities of 
farmers; and promoting greater cooperation between farm credit 
institutions and commerciu banks. Farmers will have a strong voice 
in how these new auUiorities are to be implemented. 

The members of the National Association of Wheat Growers rec- 
ognize the importance of maintaining competition for the farmers' 
business and the NAWG will oppose any additional amendment to 
this legislation which would restrict farm credit authorities in the 
area of insurance and credit related services. 

During my tenure as production credit association president at 
Woodwud, Okla., I probably created more insurance business for 
independent agents than any other person in the area. Local insurance 
agents had less expensive credit and term insurance policies for 
particular age groups than did the FCA, and we alwajra explained 
this to our meinbers. 

At no time did I, or any other employee in the Woodward PCA, 
ever coerce any member to purchase our credit life or crop hail policies . 

^ttduction credit associations continue to give infonnation to 
farmers on life insurance programs, wills and estote planning, retire- 
ment planning, and other financial related services. 

^ every case, we also recommended that, prior to deciding on any 
action, the farmers consult their attorney. Many production credit 
associations are also the first to alert theu* membership to improper 
financial schemes that could prove catastrophic to a farmer. 

I wish to conclude by saying that the farm families of America 
have and continue to put great faith in the farm credit system. Their 
reliance upon a dependable supply of adequate credit is best expressed 
by the approximately $58 billion that is now outstanding. 

Mr. Jones of Tennessee. Thank you vary much. We appreciate 
that statement. 

You will note that the bells have run^. We will have to recess again. 

I would like to ask Mr. Hassebrook if he could appear at 2 o'dock 
this afternoon instead of right now? 

Mr. Hassebrook. Yes, sir, Mr. Chairman. I could come back this 

Mr. Jones of Tennessee. Let me apologize to you people who have 
been heard. We are going to have to forego questions at the present 
time. We will have to give them to you in writing and have you 
respond that way. We are running a little bit behind. 

Let me ask some of you questions, we can get to you without any 
trouble that way. We appreciate your being here. 

Mr. Hassebrook will be our first witness of the afternoon. 

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We will resume at 2 p.m. 
[Recess taken.] 


Mr. JoNHS of Tennessee. The Subcommittee on Conservation and 
Credit will come to order. 

Our first witness is one who was carried over from this morning, 
Mr. Chuck Hassebrook, Center for Rural Affairs, Walthill, Nebr. 

We welcome you. We are delighted to have you here. You may 
proceed in any way you see fit. 


Mr. Hassebrook, My name is Chuck Hassebrook. I am representine 
the Center for Rural ^airs. We are a nonprofit unaffiliated resear^ 
and advocacy group based in Walthill, Nebr. 

I wiU speak today not primarily to the specific amendments, but 
rather I want to taix. more about the general direction that the farm 
credit system is going todav. 

In particular, I would like to talk about the deemphasis of young 
farmer financing that we have seen in the national omce, that is, the 
Farm Credit Administration. 

I would also like to talk on the way the system has broadened its 
cUentele now to include a lot of investor-types in corporate farming. 

It appears, and possibly beyond the congressional mandate, that 
the system was given to finance bona fide farmers. 

Before going on, I want to stress that we do support in principle the 
Farm Credit Administration, its founding principles of cooperation 
and self-help. I think it has had a lot of good achievement. Nonethe- 
less, we think it is important at this time to look closely at the direction 
it is going. 

When this Congress heard the systems amendm«its in 1971, one 
of the most recurring themes that we heard over and over from the 
Congress was the neM that the system make credit available to young 
hw inpip g fanners. 

The system responded. The Farm Credit Administration, the Wash- 
ington office, make a very concerted effort to encourage the member 
banks and local associations to develop special programs to reach out 
a little bit further to the low equity oib^inning fanners who, before, 
often were not able to acquire credit. 

Let me stress that it was not an intersubsidy prcKram. It was simply 
a program to open the door a httle wider to make credit and eauol 
rates available to more people who had the ability, but simply lacked 
the wealth to get started. 

The program was limited in the volume it could take in order to 

{irevent it m)m having a major impact in the event of a f ulure of these 
ow equity loans, so it would not nave a major impact on the interest 
rates that the borrowers paid. 

But that program has been deactivated. Talking with officials in 
Washington, they tell us that the young farmer program is not needed 
anymore because they can finance young farmers by drawing on their 
families' collateral. 

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It is not realty a low equity program in finaQcint; young farmers bo 
lo^as they can use the collateral of the famihett* wealth. 

We think that indicates that the syst«m is delineated as ite clientele. 
The young farmers who have had adequate family backing to get 
started in agricultural have never had problems in gettii^ access to 

If you have a strong family backing with a lot of lan<l or wealth to 
get you started, you olwaya could get credit from any of a number of 
commercial sources. 

We do not know if the deactivation of the young farmer program on 
a national level ha.s resulted in local associations making less credit 
available to young farmers. 

We think it raises enough questions that it might be advisable for 
this committee to a-tk the General Accounting C^ce to take a close 
look ut that question and find if the sytem is stiU trying to reach out 
to those low equity beginning farmers. 

As a whole, we concede that the clientele of the farm credit system is 
not your struggling beginning farmer. The statistics the system made 
available for 1978 for Federal land bank borroweis shows an average 
net worth of over $400,000 and an average yearly income of t64,D00. 

The thing most disturbing is that we are not just talking here about 
well-established family farmers. Oftentimes we are talking about 
investors and corport* farmers. 

I think we see the farm credit system supporting the trend toward 
that industrial model where you have certain groups of investors and a 
group of managers and groups of hired labor. Tnis Ls the industrial 
model and not the family farm model. 

The system has been a leader in bringing that sort of agriculture 
about, particularly in the hog industry where we see trends moving 
rapidly away from the small unit of hog producers and into corporate 

USDA is saying they will lose 80 percent of their hog producers in 
20 years. In Nebraska we already have one-fourth of our feeder pig 
crop producing a few large corporate h<^ factories. They are operated 
by nired labor. 

The farm credit system has financed 50 to 100 of these units in the 
Omaha district. We were told by the Omaha district officials that was 
the case. 

That is the lai^est involvement of any single credit source in financ- 
ing the corporate hog factories. 

I want to stress that, they were first lat^e farmers who invested in 
these corporate productions to expand their involvement in agriculture 
and into the other end. 

Last year over half of the corporate hc^ factories built in Nebraska 
were owned primarily by investors. The farm credit system has been 
involved in financing the investor-owned hog factories as well. 

A particularly pointed example, I think, is the Tysons food opera- 
tion in North Carolina, and in several States in the South. Tysons is 
one of the Nation's largest poultry integrators. 

They are moving into hog production now. They have a 28,000 sow 
herd. That takes up a pretty good share of loans with that one com- 
pany of Nebraska's entu-e pig crop. They received financing to expand 
their land base and to expand their hog production from the Federal 
land bank. 

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I want to point out that if the fann credit system is allowed to 
broaden its finiuicii^ of processing and marketing activities, that is 
going to mean they are going to be able to provide further financing 
to vertical integrators, like Tyson, whether it oe to build a new packing 
plant or whatever. 

I think the immediate question we had to ask was if the system 
directed to finance bona fide fanners and ranchers. 

Then are absentee investors and corporate fanners bona fide farmers 
and ranchers? The General Accountmg Office says that oftentimes 
the faxm credit system is financing people that they do not consider to 
he bona fide farmers and ranchers. 

The General Accounting Office found that over half of the Federal 
land bank borrowers were people who got leas than 10 percent of 
their income from agriculture. Only about 29 percent got half their 
income from agriculture. 

Oftentimes you are talking about hobby farmers and investors. 
The reason is m the way the 8yst«m defines bona fide farmers. They 
are directed by Congress to finance bona fide farmers. Congress 
left them with the responsibility of defining what is a bona fide 

Thev decided that virtually any individual who wants to invest in 
agriculture is a bona fide farmer. Any corporation whose primary 
business is agriculture can receive financing. 

Subsidiaries of any corporation can receive financing if system 
officials decide that it is not jeopardizing nonnal farming operations. 

The farm credit system, I think has been very open about their 
attitudes to the type of agriculture we should have. We have seen sys- 
tems criticizing Congress perpetuating the myth of the small family 
farm. One of the Deputy Governors has been going around the country 
telling everyone that what agriculture needs is more outside invest- 

In interviewing one of the Deputy Governors about financing in- 
vestors, I was told that doctors, lawyers, and what have you are such 
and that a farmer is a farmer is a farmer. 

I do not know if that is the type of agriculture that you think the 
farm credit system should foster. If not, I think it is going to be neces- 
sary for Congress to define who should be the clientele for the farm 
credit system. 

Should the people thev are financing be actively engaged farmers 
who are involved m the day-to-day labor management of their opera- 

I do not think I am talking about turning this into a social pro- 
-am, but I think we do have to recognize that the farm credit system 
la not a neutral institution in regard to the farm structure. 

What they do has an enormous impact on the structure of agricul- 
ture. They are a public instrumentality. They say themselves, in 
their han(u>ook on amendments, that the farm credit system is a public 
instrumentality created by Congress to further pubhc purposes. 

So, I think it is time that those public purposes be considered. 

The questions are: What type of agnculture should the system 
foster? What type of agriculture should it use its competitive aldvan- 
tage, that it was grantwl by the Congress, to foster and to perpetuate 
the system of small family farms, or aid tjie growth of a system of 
investor and corporate type farms. 

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Thank you, Mr. Chainnau. 

I have a written statement and would ask that it be made a part 
of the record. 

Mr. Jones of Tennessee. Without objection, so ordered. 

She prepared statement of Mr. Hassebrook appears on p. 365.] 
r. cK)NEB of Tennessee. Thank you very much for your statement. 
As I said, we will call you back later for questions. 

Our next witness is Mr. Paul Weller, vice president for public 

affairs, National Council of Farmer Cocroeratives, m Washington, D.C. 

Paul is a familiar face around here. We appreciate him ve^ much. 

We are always glad he could take the tune to come. Vou may 


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»r. chalmn. My oum it Paul S. w*ll«r. and I wa vie* F^aaldant tor 
Public Aftsira of tha Hatloual Council ol Farmar Cooparatlva*. Oura 
is * nstlonulda aaaociation of coopacatlva bualnaaaaa ohich aca ovnad 
anil -controllad by facBara. Hanbaca of tha National Council proTlda 
auppllaa and cradit aarvicaa to Caniara. and narkat thair food and 

repraaanta 119 raglonal iMrkatlng and taim aupply 
ca counclla at (annac coopaEativea, and tha IT 
Clva Pam Cradit Syatan. thaaa f iiniiar-own«3 and 

iind Che world, and furnlah auppli-aa and -credit to 
and patrona Flva out o( all U. 3. farmerB *c* 

1 cooblnsd manibarihlp of aona 2.S ralliion famar*. 

■d to hava a* oui naobaci. tha 37 banka of tha Fara 
twaa invaator owned and controlled fam cradit banka 
Mrlcan faraac and hi* cooparatlva oroaDiiatlona for 

neiB and ranchari hava a ready aupply of aound. adequate. 
credxt and financial aarvicaa. It la for that raaaon 
a aakad ma to appear before 

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■••d ■ooay. tb* Sysua proap«cad ao that i 

IBDadt«taly following tha Sratam'a payoMat of all fadaral Invaatoant. 
It became obvious that saw laglalatlon Hoold be neaded to eoatloua to 
maat th« Doada o£ Asarican fanara and thalc coopsratlvas. Thla gava 
birth to the landmarX Fara crkdtt Act of 1971, the statute that govarDs 
the Sistem today Only tulca alnca 1971 has tha Syatan cooa to Congraa 
Hlth a request toe changaa Id tha Act. Those uece motfe than tw> yaara 
•go. And those requests uara Blnor. But Aaartca'a agElcultural InduBt 
Lma apparent that a package of 

Ciadlt Syataa have vorked to ptepei 
1971 Act. Tha iS-point leglalatlve package that la bafoca you today 
in tha fom of BB-47S1 contains those revisions that have baan accepted 
by aaeh ona of tha nation's 13 Tana Crsdlt Dlstrlcta. coaprlaiog Banks 
for cooparatlvaa . Padaral iDCacmadlaCe Cradit Banka, and Federal Land 

The National Council of Faraar Cooparatlvaa ia plaaaad Co aupport thia 
lagiilative paekaga, and to aak that thia ctmoitttaa accept it. and report 
it out In the foin developad by the Farm Cradit Baoka and patrona. and 
approved by the Federal Fern Credit Board. 

Many of tha proiwaala are houaeksaping in Datura, and hava baaa raquaatad 
by tha Fam Cradit Syatan to "fine-tune" adminlatrative and regulatory 
proceducaa. Ha support their neada in theae araaa, and eak Chat thia 
consnitcee provide than with tha fleitbllity that they request in thasa 

There are aavaral major proposala of this laglslatlva package to 

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which wa would Ilk* t 
wLCh th* propoaal Co 

f Inane 1 DQ. 

Tha Farm Credit Sratem propoias that tha famar-mantbar aliglbillt; 
caqutcanant ha lowarad (ron Its currant BO parcant/70 peccant 
coDiblnatton, to to percent for both rural electric and tacmar 
cooperatives. He (upport this proposal. Many communities, aapacially 

eomplsxion. Such a proposal will enable cooperative! to bettar aecva 

from tha Banks (or Coopacativas ■ Such a proposal will ititl ensure 
that farmers will retain control of their cooperatives, a stipulation 
that tha National Council firmly supports. It should be noted here 
that tha 60 parcant allgibillty raqutcamant will ba a national ininlmum. 
Each of tha 12 Farm Credit Districts will have the option to raise 
tha eligibility, or to kaap it at its present levels. They would 
not have tha option to lower It below tha GO percent level. 

The Federal Land Banlcs currently have tha authority to make loans 
up to B5 percent of the appralsad value of raal aetata security. 
This now requires a considerable cash equity posltloe. which can 
work against young farmars and ranchars in the establiahnent phase 
of their career. The Farm Credit System would Ilka to have authority 
to go beyond tha 85 percent level, in cases where the loan* would 
ba guaranteed by state or federal government agencies. This would 
conplafliant the current direction of tha Farmars Home kdninistration. 
Ma support such increased landing f lenibillty. 


All of us have followed tha trends of U. S. Agriculture. Family 

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f»ciii units hava grown In lize and acopa — (od lnv««tB«nt. Th« f 
of an inflatad econcoy demand a new look ac Cradiclonal model of 
liDanciDg nodern fenUng operaclons. Thii provision addraases th 

Am famllr farming operatloni have grown more sophisticated, many 
have turned to nelghborLng farmers to Join In joint ventures we hava 
apaciflc examples of poultiy farmeis, who have EotuBd Joint ventyres 
to finance egg grading and parl^ing operatlona; of diversified farmers, 
who have Joined with neighbors to build a cold ■tocaga facility; 
and of family farm iinlta who add to thalr annual income by working 
with naighbora on a caamnmlty ■■imill. invaitnient. 

Haratofora, tha traditional lender to theae faming opecationa. the 

m their scope o£ financial services. For axample the farmer-applicant 
must provide 51 percent ac mora of the throughput th-*t la processed nf 
marketed. This legislative proposal would allow the Farm Credit S/stem 
to ramova the SI percent limit, and to parmit each District board to aat 
Its own throughput limit — ■■ long as that limit denonatcflted a 
relationship between tha farmer -applicant and tha process ing/marfcetlng 
operation- Thla legislative proposal would assist tr^e fimter Ir. 
processing and marl^eting his and his neighbors produce — « right enjoyed 
hy tha Farm Credit System prior to tnactment or the Farm Credit Act 

There has been some concern by farmer cooparatlves that sueh retrlev 

of a bonefida cooparatlve organization. Ha ahace thli concern. 

However, we have been assured by the Farm Credit Administration that 
flexibility In the Farm Credit Act is not Intended to causa undue 
competition in areas served by cooperatives, nor is it designed to mi 
Federal Land Banks or Productior, Credit Associations into financial 
areas currently served by the Banks for Cooperatives. Improved feci 
and services could well Improve farm income, and we support such an 

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H* h«v« alao b**o ■■•ur*d by th* Para Ccadit Administratioa Clwt Chaa* 

Cradle SyataB, and Chat -guidelines vill probably be established requiring 

borrowars' own production. This would prevent the financing of outside 

national guidelines. The lotent Is Co dacentraliie the Fain CradtC 
Systeni. so as to allow individual Farm Cradit Dlatricts to eatabllsh 
their own nUnlmuna Tliasa individual disEcicts would have full authorltr 
to raiaa eligibility abova the 20 peccant guldeUBa. 

Let me add that such aiqwiaion of laoding authority would ba hanful 
and even unacceptable to the major nacketing and naD-cE*dlt supply 
cooperatives, l£ it were used to encourage small sparatlona a* a 

an Incentive lor farmers to drop meirbership In a ccoparative antacpEtsa. 

support of this provision i 
that tbay do not encourage 

Federal ram Cr«dit Board 


■hare of mai 
19 conditioned 

[e have full eoDfidanca t^hat the taat 
of this lagialatlon. and urge this 

Mo aspect of U. S. Agriculture la mora laipartant to the DBtlOD as a 
whole, than tb* positive trade balance earned through coaHodity sales 
to ovaraaaa cuatoaiers. nearly $40 billion will be sold abroad during 
this marketing year. coDtiibuting heavily coward payment of the 
$60 billion cost of Imported ecuda oil. These agrtculnural exports 
are ana ot tne raw brignt spots in the u. u. nelance oi traoa ledger. 

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n tltla Co his grain and 
cMtar dollar return on 
do this through hli alEaady 

But tha faniBc coof 

BBBiBtance of tha U 

Pamar cooparativaa hava had ■ 
hava had to antar a flarcaly c 
a faw large, wall-deva 

irt in axporc trading, and tbar 
IB mariut alceady dominated by 
sal trading coopaniea. 

Tha fladging coopacatlv* axpoct*.'! antarad the international arana 
well pceparad to eopa with the logistics oC collecting and placing 

in tha band* of foreign cuatomers. Their 
port Eacilitiaa aca axcallant. aiiualtDg Cboaa of their caopetiton 
But ID latagral part of eooparativaa ' foralgo tcadtng li misalng 
the Einaneial aarvleai naeasaary to being tocalgn aaXaa to a full and 
■wift complatloD. 

It makaa good •ana* chat authority for tha 

enlarged to eoable participation in menberi 
only (hould thair authority be expaTided to 
foreign aalaa. it should also include the t 
tar handling o( the** connodities The Ah 
tltla to hla coiKKOdities 4t the local level 
bargain for a battar prlca on world narkata. 

tjroposal before y 

art aetlvitiaa. It 
.ocluda the aarviclng o 
Ing of foreign fac 
faniar ahould not 

trading conpanl**}" This 

n afflcmattva anawar 

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to thaaa question*. 

II anactod. thl* ptoviiion would pcmlc B*ciki for CoopocatlVBi Co 
being Dor* conpaclElon to Che market by offering the saiiie floancla 
■ervlcea now being offered by Bome commer<zial banka. They iniuLd b 
able to Bake dapoalta in foreign bsnXs receive and hold credit 
baiancea Iraa iforaign banka, purehaae foreign drafta ^nd enqage 
in orelgn fiitrrani^v exchange, to naae a Eev. the reauli: vould be 

a of f 

» both Earraers and C 

do DOC >ea aueh Sanka for coopsracivaa' 
authority aa being detrlDantal to exlatlog ralacionshlps with 
cosunercial banKs- Hathac. wa aea aueh euChoclty providing for 
5up[>leiDental aniS complamancary transactlona, while bringing Che 
same environmanc of conpatition that haa long banefited producer* 
> alike. 

We aak this coranlttee to conalder this provia 
most ImporCsnt and far-reaching laaues. and C 
positive step in expanding our export trade. 


Credit Board 

ca Credit Adalnlatcat 
bacauaa of orcificla 
1 DBDdace. Mo alngla 

Farm Credit Syit 

resident make* > 

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llttla OB tin Goveriu 
■upacvlsorr official ovar tha 
Crsdlt AdmlnlatratlOQ has had 

the PacB Cradit AdmlDlatraclon. eh* 

tha Systaoi. At tha aama tlna, tha T 

log difficulty In hiring 

Tha National Council bellevaB 
an eEfectjve maDagaiHDt (tatf. 

s Cradit Adnlni 

Che .System ii coaplataly E 
irm private sources there Kould be no cost to tha U. S. Trsaau 
Sorrowers Icom the Farm Credit System vould pay any and all « 
and bav* agraad to do lo. Thay nasd only Che authority to do ■ 

Anothai proposal would authoriia tha Farm Credit Admlnis 

There have been Infeiencec that juch incorporation authority uou 

rise to the chartering ot an Insurance company to provide colla 

and credit life insurance to Farm Credit System borrower*, 

not the intent of this provksicn Indeed, this bill would not allow 

the Tacm Cradle Administration to Charter an entity which perfonnad 

a sarvice not already ■authori.zed by ;:ongirB5a. But let ma 

Farm Credit Sys-cem already has authot-ity to ina-ure Its Loans and lender 

under the 1S71 Act. Thla insurance authority has been used 

over the past aeversl years in three of the 12 Farm Credit 

on a teat baala to determlna both need and feasibility. 

Farm Cradit Systems surveys have Indicated that aany famars 
under -Inaur ad; that very few have other than minimal liability p 
In several test Ca^Es where the Taxin crsdlt system has provldad 

address the Insurance l 

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■ccopipt Co limit ac pcohlblt tlM Fam Cradlt took* team iDiurlog thalr 
lo«Da and borrowars. To do ao would b» to Jaopacdiie tt» loan aacurlty 
of looa Fam cradlt portColloa, a* wall as raduce the banaflta of 
eoBpatltloD that hava long eharactarlaad cooparattvaa and chair pcogcana. 
It ahould also ba nocad hara chat any Incooa darlvad ficD tha BackatlD? 
of inaucanea la appllad to rsduelng oparatiooal axpanaea. uhlch tn aoaa 
eaaaa diractly raducas tha famaci' coat ol bocrowiBg. 

Hr. Chairmn, tha aDandnanC pacliaga batora Chia cooailctaa to Cba Coca 
af [01-4783, IB tha produce of axtanalva dellbaraclou aod cooiproDtaa 
by the menbac boards and banka of Che rami Credit Syaten. It la 
critically needed by this pclveCely owned and funded aysten. It 
la andoriad by all DlsEclct boerda of the Syataai. It will cost 
tha U. S. taxpayer Bot ana cant. It desaEvai your conaldecatlon and 
auppoit. Ha luge ita paaaaqe. 

Thank you foe thia opportunity Co appear before Chia dlaClDguiebed 

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Mr. Jones of Tenneesee. Thank you very much. 

We appreciate your time and your statement. If you have time, stay 
around and we will call you ba^ for questions. 

I yield to my colleague on the Agriculture Committee, Mr. Anthony 
of Arkansas, for the purposes of an introduction. 

Mr. Antuont. Thank you very much, Mr. Chairman. 

It gives me a great deal of pleasure to introduce to the subcommittee 
today a constitutent from toe State of Arkansas. He does not reside 
withm my Fourth Congressional District, but he does reside within 
Mr. Bill Alexander's congressional district. 

Mr. Marliu D. Jackson is president of the Security Bank of Para- 
gould. Ark. 

It gives me a great deal of pleasure to introduce him. For the record, 
he has an outstanding reputation in the State of Arkansas for his 
ability in the banking mdustry. 

Mr. Jackson, we look forward to your testimony. 


Mr. Jackson. Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. We appreciate your being here, Mr. 
Jackson. Before you begin, let me say to Mr. Minger, who is with you, 
that LeoQ Panetta, a member of the subcommittee, did his best to be 
here to present you, but he is involved with the budget. He told me 
to express to you his wishes and to apologize for not being able to 
make it. 

Mr. Jackson. I particularly give thanks for Congressman Anthony. 
I find myself in a peculiar situation in that Bill Alexander, by l^al 
definition of law and boundary, is my Congressman in the First 
Congressional District. 

Across the river, I have as my Congressman our chairman today. 
Congressman Jones, and just south of me I have Ooogreesman 
Anthony. Therefore, I am wdl blessed with Congressmen. I appreciate 
the opportunity to appear here today. 

We nave prepared and submitted, Mr. Chairman, for consideration 
of the staff and the committee, statements outlining the American 
Bankers Association's position. 

Mr. Chairman, I have an addendum to that that addresses the issue 
of the taxation and exemptions made for taxation. I would like to 
make that a part of the record. 

Mr. Jones of Tennessee. Without objection, so ordered. Your 
prepared statement with addendums will be placed in the record after 
your sunmiary. 

Mr. Jackson. I am going to give you an Arkansas Reader's Digest 
condensation, or simimary. 

I first will express my appreciation on behalf of the Bankers As- 
sociation to you. Chairman Jones, for the diligent work you have done. 
Recently, as you know, vour subcommittee and the House Committee 
on Agriculture reportea out an important piece of legislation in the 
Federal Farm Crop Iiuurance bill. 

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We are very appreciative of your efforts. We understand the com- 
plexity of this legislative process and the importance of it. We know 
that it is important. 

The fact that we have a Paragould, Arkansan in the capital is some- 
what of a shocking thing. I am somewhat awed by the national shrines. 
So if I am a bit frightened and a bit nervous, please forgive me. 

In the beginning, let me say this as a farmer and as an agricultural 
banker from a small country bank and a very small country town 
in Paragould, Ark., that I strongly support the farm credit system and 
its various agencies. 

They are good customers, and I think they provide an urgent 
service. It is not the intent or purpose of the American Bankers 
Association to detract in any way from their ability to continue the 
historic role that they have provided in this intently needed service. 

There are 14,000 commercial banks that are members, or roughly 
that much, of the American Bankers Association. There are approxi- 
mately 6,800 of those banks that are in towns of 5,000 or less and 
are defined by the Federal Reserve or the FDIC as being agricultui^ 

It is that division that I am honored to serve as chairman and that 
I come speaking on behalf of. 

The first question that we would like to raise, Mr. Chairman, is 
to look carefully at the good lob that has been done under the 1971 
and preceding legislation by the Farm Credit Administration. 

The first question that arises in our mind is whether or not there is 
any legitimacy for the need of any legislation other than the true 
housekeeping provisions of this bill. 

Those provisions that would permit the farm credit system to 
attract, hire, and schedule salaries and make other internal house- 
keeping adjustments is what I am talking about. 

We support that part of the bill enthusiastically. We support the 
historic role of providing credit to agriculture in concert with the 
private sector. 

However, we think the first question that must be addressed is this. 
Given the fact that the percentage of the market for nonagricultural 
loons on the part of the farm credit system has increased dramatically 
in the last 4 years, and has increased significantly in the last 20 years, 
and given the fact that they have done an extraordinarily good job 
under the present legislation, then where is their justification for a 
greatlv expanded bill such as before the subcommittee today? 

If the answer to this should happen to be yes, then we ask, ui^e, 
and plead, that any legislation considered hy this committee and 
passed out of this committee be fair and that it be fair to all of the 
participants in the arena of providing finance to agriculture and agri- 
cultural products and exports and imports. 

Most importantly, sir, it should be in the best interest of the farm 
constituents of the country banks and of the production credit asao- 
ciation of the Federal land bank and that it oe in the best interest 
ultimately of the American public, that is, the consumer. 

Any increase in cost or any disadvantage of one part of the system 
versus the other can and mil inevitably add to the inflation fuels, 
that is, the inflation fires that bum rampant and increase the coat ol 
the consumer. 

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The things that concern us are unique provisions which would 
exempt the farm credit system agencies from State statutes, from 
certain Federal laws, but which ignore the need for exemption for the 
private sector. 

We contend, sir, that there is a delicate balance between the private 
sector, like the commercial banks and insurance companies, and the 
Farm Credit Administration system. 

Any disruption or any disturbance of that very delicate balance in 
any significant way could very well lead — and probably would lead in 
a short period of time^to a system where there was only one main 
provider of agricultural credit. 

That is not in the best interest of the American people. 

Therefore, we plead for equity and fair play. If exemptions for State 
usury laws are to be made for agencies of the farm credit system, then 
there is no reason under the Sun that the same exemption could not 
be afforded OFI's to commercial banks and to other providers of credit. 

If the truth -in-1 end ii^ exemption under State laws or under the 
Federal truth-in-iending law is to be extended to the farm credit sys- 
tem, there is no justification for not extendii^ that exemption to com- 
mercial banks and to the OFI's. 

With these brief comments, Mr. Chairman, I would like to defer 
now to Walt Minger, senior vice president of the Bank of America, a 
former chairman of the agriculture division and let him address the 
parts of the bill that relate specifically to import-export financing. 

Mr. Jones of Tennessee. We are pleased to have you, Mr. \fii^er. 
You may go right ahead. 


Mr. MiNQBR. Thank you, Mr, Chairman, 

Before I get into the aspects of export activities that would be per- 
mitted were this act to be enacted, let me touch on some of the existit^ 
problems and the disadvantages or advantages as a maker in the com- 
mercial banking field versus tne farm credit system. 

Commercial banks are externally controlled and regulated. This is by 
a number of entities, like the Federal Reserve System, the Comptroller 
of the Currency, the State banking commissioners. They were obligated 
to comply with State civil codes. 

Mr. Jackson mentioned the truth-in-lending and usury laws. 

The farm credit system, by and laige, is impacted by none of those 
controls, but is self-governed and self-audited and has operated that 
way since its organization began. 

Speaking for a moment, then, on the export activities, let me say 
this. The act proposes that a rather full-blown export-import bank be 
set up in the farm credit system, specifically in the banks for coopera- 
tives, which ostensibly would increase the volume of exports. 

In the immediate future, Mr. Chairman, it is unlikely that setting 
up such a bank or an international bank or in the bank for cooperatives 
would have that kind of impact on exports. 

After all, our U.S. exports are basic agricultural commodities and 
have, in relatively few years, grown about fourfold. This activity has 
been readily financed by the commercial banking system. 

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I believe that the inhibitor in having, let us say, cooperatives in- 
crease their share of markets overseas in their direct lending is not 
because of the lack of financing, but because of the lack of distribution 
and intelhgence systems that the proprietary companies have 

There is a certain expertise that needs to be developed over time and 
simply setting up an intemationat financing oi^anization in the banks 
for cooperatives will not further that. 

I believe that individual cooperatives which are handling groin and 
who are merchandising grain, albeit modestly in international fields, 
need to undertake their own systems of distribution and intelligence 
so that they can more readilv compete with the proprietary companies 
who have a lion's share of the husmess today. 

The bill is really rather loosely written, either by design or not. It 
would permit the banks for cooperatives to engage in a number of 
services. These services are not speciBcally outlined in the act. 

For example, surrounding the ordinary grain transaction ore a num- 
ber of services, including freight forwarding, brokerage, warehousing, 
insurance of commodities, insurance of vessels, ana certain foreign 
exchange transactions, and letters of credit financing, and so on. There 
is transfer of money also. 

At present, commercial banks can only undertake a modest number 
of those services. These are letter of credit financing, escrow, exchange 
of credit information, foreign exchange transactions, transfer of money, 
and so on. 

That covers what we are able to do. 

We have no great problem with seeing legislation that would permit 
the banks for cooperatives to do trade financii^ and engage m the 
things that commercial banks ore presently able to engage m. 

We cannot, for example, make equity investments in foreign coun- 
tries. We cannot incorporate services that are needed in completely 
handling a trade transaction. 

This Bill would provide the farm credit system, that is, being able to 
engage in those activities. Our suggestion would be that if this was the 
desire of the farm credit system to get into international transactions, 
they be allowed to do this, but on the same basis that commercial 
banks are allowed to do these activities. 

We think it should be under the same kinds of supervision and con- 
trols. On another matter, let me say this. There is the desire for the 
bonks for cooperatives to create banks for acceptances. These are not 
that frequently used in trade transactions, but they are used domes- 
tically to carry seasonal inventories held by the large groin handlers. 

However, be that as it may, there are no limits to the amount of 
bankers' acceptances that the farm system could create. 

We, in turn, in the commercial bonking system have very definite 
limits as to the omount of bankers acceptances that we can cony on 
our balance sheet at any one time. 

Here again, there is no external control. There are no limits set to 
the generation of acceptances. I think that possibly is on oversight. 

I think some of the committee members might It^cally ask: Why 
all the concern about some of the amendments m this act? 

Just for a couple of minutes let me discuss whot has happened in 
France. In France, there is a cooperative farmer-owned bank known 

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as Credit Agricide. This bank was organized in 1894 and, originally, 
one of the great benefits that it gained was to be tax-exempt. 

Those tax exemptions have fueled the Credit Agricole which, mitil 
today, is probably the third commercial bank in the world. 

There have been some other benefits legislated by the French 
Government. Today, Credit Agricole operates a bond investment 
house and an insurance company and housing subsidiaiy financii^ 
both farm and nonfanu housmg. 

It is responsible for all kinds of credit in communities of 12,000 or 
less. It probably has over 90 percent of the farm credit activity in 
France. It runs a travel service. It has international subsidiaries and 
it makes investments in foreign banks as well as providing off-shore 
equities in agribusiness. 

I believe that if one looks ahead and if it is the intent of Congress 
not to maintain a competitive stance in our agricultural financing 
so that the farm credit system can service its chentele and the com- 
munity bilkers can service their clientele, and the insurance com- 
panies, theirs, and so on, then if legislation is enacted which contains 
as many additional benefits or inequities for the commercial bankers 
that this bill does, that we are likely to see an increased trend and 
shift of market shares from the commercial banks to the farm credit 

Mr. Chairman, that concludes my oral testimony. 

Thank you votv much. 

Mr. Jones of Tennessee. Thimk you very much, Mr. Minger and 
Mr. Jackson. 

We appreciate the time that you have taken to be here. 

Mr. Fanetta has arrived. Leon, I explained to Mr. Minger why 
you were delayed. Take over right now, ii you would like to say a few 

Mr. Fanetta. Thank you, Mr, Chairman. 

I appreciate that. We are working full time on the budget process 
right now. We are talking about various reductions for everybody. 

I apoligize for being late. I wanted to introduce Mr. Minger to the 
subcommittee because he heads up an area of the Bank of America 
that, in fact, provides the bulk of private agricultural loans in 

They are very active. The farmers are very dependent on what the 
bank does. We are very appreciative of Mr. Minger's sensitivities 
toward agriculture. 

The California agriculture is high investment agriculture. It in- 
volves a tremendous investment and involves tremendous capital 

If it were not for banks like the Bank of America and Mr. Minger, 
then it would be very difficult to continue California's position in 

Therefore, I commend you and the bank and commend his testimony 
to the members of the subcommittee, Mr. Chairman. 

Mr. Jones of Tennessee. Thank vou. 

Mr. Minger, if you have a little infiuence with Mr. Fanetta, I 
wish you would talk with him this afternoon about the budget as it 
pertains to the Agriculture Committee. 

Mr. MiNGEB. All right, I will. [Laughter.] 

Let me make one comment. 

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In fairness to the farm credit system, about a year and a half ago 
in California the FCA's and the FiCB's became the singlemost im- 
portant lenders to fanning in California. 

Our bank happens to be in second position with a substantial market 
share, which ia 3 1 percent, but I would like to remind the subcommittee 
of the great success the farm credit system has had under its existii^ 
style of operation. 

In 1946, the farm credit system had $9 million, including FICB's 
which made it $10 million in seasonal loans to fanners. We had $70 
million, which represented a dO-percent market share. 

Over the intervening 34 years, the farm credit systems' outstandings 
have gone from $10 million to $1.4 billion. 

Ours has gone up to $1.1 billion from the original $70 million. 

Therefore, Mr. Fanetta, I appreciate your kind comments but, in 
fairness, I had to mention that they have succeeded us as the major 
single lender to seasonal agriculture in California. They are doing & 

We do not take anvthing away from them. 

Mr. Fanetta. So far as the banking loans that go on in this area, 
you come in first; do you not? 

Mr. MiNGBR. Yes, by far. 

[The prepared statements of Mr. Jackson and Mr. Minger appear 
on p. 373. The attachments are held in the file.] 

Mr. Jones of Tennessee. Gentlemen, we will excuse you now. 

We will have to declare a short recess for a vote on the floor. 

[Recess taken.] 

Mr. Jones of Tennessee. The subcommittee will resume its sitting. 

We will call now Mr. Charles Pratt, National Live Stock Producers 
Association, Denver, Colo. 

Mr. Pratt is accompanied by Geoige Benson, McDermott, Well & 
Emery of Chicago, 111. 

Gentlemen, we are delighted that you are here. We apologize for 
some of the delay that we have had. We will do our best. 

Let me say to any person here who has testified today that I will 
not ask you to stay for questioning. If you need to go, then please go 
because we have a busy schedule on the floor of the House. 

Of course, you are not responsible for that. There is not much I can 
do about that. That is the reason we have an absence of members here 

So, if there is any particular question that we need answered, we 
certainly can vrrOe to you and get your response. 


Mr. Fratt. Thank you, Mr. Chairman. 

The National Live Stock Producers Association is a federation of 
13 regional livestock marketing cooperatives and six affiliated live- 
stock credit corporations. 

I have attached to my statement a listing of our member associa- 
tions and affiliates and would request that it be inserted in the record. 

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National Live Stock is the country's largest cooperative livestock 
marketing association. It has just completea its 58th year of services 
to the livestock industry. The member regional livestock marketing 
associations and the credit affihates serve nearly 250,000 farm ana 
ranch livestock producers and feeder members. 

We operate nearly 160 livestock markets and a number of finance 
offices located across the country. In 1978, our member marketing 
associations handled over 10 mil&on head of livestock valued at $2.2 

In 1978, our affiliated credit corporations extended more than $415 
million in livestock loans to producers. It is estimated that for the 
year 1979, they will lend close to $500 million. 

The six Hvestock credit corporations which are affiliated with us 
are required by their articles of incorporation and bylaws to operate 
for the sole purpose of financing the ordinary crop operations of the 
members of the cooperatives which make up National Live Stock 
Producers Association and the ordinary crop operations of other 
agricultural producers. The bulk of their loans to agricultural pro- 
ducers are hvestock related, for beef cattle, dairy cattle, swine, and 

Our affiliated livestock credit corporations have a long history. 
Their present form of organization dates from the early 1930's. They 
predate some of the important institutions of the present farm credit 
system, including the banks for cooperatives, the production credit 
associations — PCA's — and the Farm Credit Administration itself. 

Several related and important Federal statutes passed in the late 
1920's provided the impetus and basis for our credit corporations. In 
1922, the Capper Volstead Cooperative Marketing Act opened the 
way for organization of marketing cooperatives by exempting associar 
tions of producers for marketing purposes from the antitrust laws. In 
1929, Congress enacted the Agncultural Marketing Act of 1929. The 
purpose oi this act was "to promote the effective merchandising of 
agncultural commodities in interestate and foreign commerce, ana to 
place agriculture on a basis of economic equality with other industries." 

The act authorized the establishment of the Federal Farm Board, 
the predecessor of the Farm Credit Administration, and established 
a revolving fund of $500 million to be loaned to cooperatives and to 
farmers to finance crop production through the Federal Farm Board. 

This Board immediately initiated steps to channel these funds into 
the agricultural community. In the livestock industry, steps were 
taken to organize a national livestock marketing association which 
would be affiliated with regional livestock marketing associations 
which operated as cooperatives meeting the requirements of the Capper 
Volstead Act. 

At a meeting in Chicago October 24, 1929, a plan of organization for 
a national livestock marketing organization was proposed and adopted. 
This plan called for the formation of credit corporations. The initial 
capital for the enterprise was to be provided by a $5 million loan from 
the revolving fund administ«red by the Federal Farm Board. 

On May 6, 1930, the Federal Farm Board called a meeting attended 
by 16 livestock cooperatives, which voted to accept the Govern- 
ment's plan. National Live Stock was formed May 10, 1930, with the 
16 regional livestock marketing associations as members. The credit 
affiliates were formed shortly thereafter. 

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As is apparent from this brief discussion, the orieinBl impetus for 
organizing our credit affiliates canie from the Federal Govemment, and 
the form of our organization was developed by the Federal Farm 
Board within a framework of legislation designed to support our 

From the first, our credit affiliates were closely integrated into, and 
dependent upon, the farm credit system. The Federal Intermediat* 
Credit Banks (FICB's) served then, as they still do today, as the 
major som^e of loan funds for our affiliated livestock credit corpora- 
tions. Over the years, the farm credit system has evolved considerably 
and expanded greatly. 

The Farm Credit Act of 1933 established the framework for the 
system that still exists today. It transferred and consolidated jurisdic- 
tion for farm credit to the Farm Credit Administration. It created the 
banks for cooperatives. Finally, it authorized creation of FCA's which, 
like our affiliated livestock credit corporations, are organized to make 
short-term production loans directly to producers. 

The PCA's were, in many important respecta, modeled after our 
affiliates, and, like them, looked to the FICB's as their major source 
of loan funds. 

Executive Order No. 6084, March 27, 1933, reoi^anizing the agri- 
cultural credit agencies of the United States, transferred the general 
t'urisdiction of the Federal Farm Board related to our affiUates to the 
i'arm Credit Administration. 

The present Farm Credit Act authorizes FICB's to make lotms and 
extend financial assistance to production credit associations. 

In addition, FICB's are authorized to discount notes of certain other 
financial institutions, OFI's, where the proceeds of such notes were 
advanced or used in the first instance for any agricultural purpose. 

Our credit affiliates qualify as OFI's, and since they lend funds only 
to producers for agriculturaf purposes, they are able to discount notes 
witn the FICB's within the limits set by the Farm Credit Act. 

Most OFI's do not have the history of dependence on and close 
affiliation with the farm credit system that our credit corporations 

The purpose of the FICB's is to assure the availability of credit for 
producers and they do so, in part, by extending the discount privily 
to financial institutions not devoted solely to making agnculutral 

The extent of our credit affiliates' involvement with the FIBC's is 
graphically shown by exhibit B, which shows the investment in the 
district FICB's with which they deal. 

I would like to ask that exhibit B be inserted in the record. 

In the FICB's with which they deal, they are either the primary or 
one of the primary OFI's. 

Approximately 95 percent of ihe loans of our credit affiliates are 
discounted with the FICB's. 

Because of their relationship with the FICB's, our affiliates are sub- 
ject to periodic audits and reviews at least annually by the FICB's and 
to close supervision by them. 

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Because of our affiliates' dependeDce upon the farm credit system, 
we are keenly interested in tnose sections of the Farm Credit Act 
which affect OFI's either directly or indirectly. Id addition, because 
of our history and the role that we play in extending credit to pro- 
ducers, we believe that we are an important part of the farm credit 

The Farm Credit Act provisions affect our ability to make credit 
available to the producers that we serve. 

We support the proposed Farm Credit Act Amendments of 1979 
and believe that the farm credit system has over the years performed 
its purpose well. However, one aspect of the proposed Farm Credit 
Act Amendments of 1979 causes us concern. 

We are concerned that the language of the provisions relating to 
exemption from State usury and truth-in-leudiug laws will be con- 
strued not to extend to our affiliated credit corporations even thoi^h 
they perform a function and act in a manner closely similar to a PCA. 
We bfllieve this problem can be remedied by minor additions to these 

These exemptions are covered in two new sections to the Farm 
Credit Act in the proposed Farm Credit Act Amendments of 1979. 

Section 4.17 would exempt institutions of the farm credit system 
from State interest rat« limitations. 

Section 4.19 would exempt farm credit system institutions from 
the requirements of State truth-in-lending laws to the extent that 
they are inconsistent with the Federal Truth-in-Lending Act. 

We are concerned that these exemptions will be narrowly construed 
to exclude the affiliated livestock credit corporations from their 
coverage, even though the corporations are identical to FCA's in 
the role that they play in providing credit to producers and in their 
dependence upon the FICB's for loan funds. 

Earlier in this testimony, we briefly described the history of our 
affiliated livestock credit corporations. They were originally formed 
at the ui^ing and in accordance with a plan formulatea by the pred- 
ecessor of the Farm Credit Administration. 

They were oi^anized in a manner that integrated them into, and 
made them dependent upon, the farm credit system as their source of 
loan fimds. 

Because of this history, we believe that we are in many respects ■ 
as much a part of the farm credit system as the PCA's and that the 
exemption that is being extended to them should be extended to us 
as well. 

Certain other features of the manner of oi^anization of our affiliates 
should be not«d. The credit corporations were organized in a manner 
that assures them they were and would remain producer controlled. 

Their object is to provide producers with credit on the best terms 
possible. Any net income that they have is used to expand their 
capital base to permit them to increase the vohmie of lofms they 
extend to members. 

In these important respects, our affiliated livestock credit corpo- 
rations are closely similar to the farm credit system banks. The 
reasons for exempting farm credit banks from State usury and truth- 
in-lending laws apply equally to our affiliates. 

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We believe that ext«Ddiag the exemption to us is vital to our con- 
tinued ability to meet the credit needs of livestock producers who 
depend upon us for their credit needs. 

There is no sound reason for exempting PCA's from State usuiy 
and truth-in-lendiog laws and not exempting our affiliated credit 
corporations. Since we extend credit to the same types of livestock 
producers on similar terms, this could result in favoring some insti- 
tutions in the farm credit system at the expense of others. 

The following additions to proposed sections 4.17 and 4.19 would 
serve to make certain that equal treatment is extended to our affihat«3. 

Sec. 4.17. Interest Rates. — In order that lending can contiDue oa a seU-HUstain~ 
ing basis, interest rates on loans made by institutions of the Farm Credit System 
shall be determined with the approval of the Farm Credit Administration as pro- 
vided in this Act, notwithstanding any interest rate limitation imposed by any 
State constitution or statute or other law(s) which are hereby preempted for 
purposes of this Act." 

We suggest adding: 

Similarly, interest rates on loans made by agricultural credit corporations 
organized in conjunction with cooperative associations for the purpose of nnancing 
the ordinary crop operations of the members of such associations or other pro- 
ducers and eligible to discount with the Federal Intermediate Credit Banks pur- 
suant to Section 2.3 of this Act shall be exempt from any interest rate limitation 
imposed by any State constitution or statute or other law(s) which are hereby 
preempted for purposes of this Act. 

The next section is section 4.19. 

Section 4.19. Truth in Lending. — The provisions of any State statute or any 
other law or regulation which impose, with regard to a credit transaction, any 
duty or requirement that had been imposed by the Truth In Lending Act (83 
Stat. 146) prior to any amendment thereto shall not be applicable to credit 
transactions of Farm Credit System institutions. 

We suggest adding: 

* * * and asricultural credit corporations organised in conjunction with co- 
operative assocTatioiis for the purpose of financing the ordinary crop operationa 
of the members of such associations or other producers and eligible to discount 
with the Federal Intermediate Credit Banks pursuant to Section 2.3 of this Act. 

We appreciate the opportunity to comment upon the proposed 
amendments to the Farm Credit Act. 

If this testimony raises any questions which you would like to 
discuss further, or if we can be of any further assistance to you, 
please do not hesitat« to give me a call. 

Mr. Jones of Tennessee. Thank you. 

We appreciate very much your time and patience in being here 
today. We will give serious consideration to your recommendations. 

[The exhibits follow:] 

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icion. Ro^u 3. Box &B, Baraboo, 

k As»acls[lon, 1705 V*Bt Luthy Driva, Paorla, 
lliuola B1B1« 

Michigan Live Scock ExchaDfa, P. O. Bos 35, tlanch»c«, Klcblgaa 4SI5B 

Hl»l(>lppl Livestock Troducers ABseclxCloa, P.O. Box 4797, Fondrea SEaclon 
Jackaon, Mississippi 39216 

national Livestock Canunlasian AaSDclBCioo, U5 LlvasEock ExctiaBga Bids-, 
OklahoK CIC/, Oklatioma 73108 

Producers CoisBisslon Asaoclaclon, Llveatock Exchange Building, Sioux City, 
loua 51107 

.IveaCnck Exchanga Bldg., Indlanapolla. 
isoclatlon, 328 Livascock Exchaage Sldg., 

•.0. Box 4558, FOrc Worth, Texas 76106 

Tennassaa Livestock Produceta, Inc., Box 313, Colucibla, Tennessee 38401 

*f filiated Credit Corporations 

Producers Llveatock Cradle Carporation, 307 Livestock Exchange Building, 
Denver, Colorado S0216 

Naclonal Finance Cradlt Corporation of Texas, P.O. Box 45SS, Fort Uorth, 

National Llv* Stock Ctedic Coiporatlon. 125 Livestock Exchange Building, 
Oklahona City, Oklahou 73108 

Producers Live Stock Cradle Corporation, 2700 Keslinger Road, Geneva, 
Illltmls 60134 

PruducecB Livestock Loan Cospany, 501 Dcaeret Building, Salt LakB City, 
Utah 84111 

Tri-State Livestock Credit Corporation, 351 Calitomia Street, San Francisco, 

Producers Lives 

. 68107 

Producers Livas 

cock Haclu 

.ting / 

Producers Lives 
Utah 84054 

.took Hark. 


Pcodusera Matke 
Indiana 46221 

ting Asso. 

^»«"itrs^""i"n« "" 

Texaa Livestock 

, Harketin 

g Assoc 

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I.) Participation Cecllficscea 
2.) Allocated Legal Reserves 



1.) Participation CertlClcaces 
2.) Allocated Legal Reserves 




1.) Participation Certlficac 
and Legal Reserves 



1.) Participation CertiEicaces 
2.) Allocated Lef^l Rese^^Fes 



1.) Participation Certifit 
2.} Allocated Legal Reser> 

:cB - ST. Loms 


I.) Participation Certificates 
2.) Allocated Legal Eesetves 









CEASD TOTAL $11.601.247.31 

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Mr. Jones of Tennessee. Our next witness is Paul N. Tetherow, 
assistant manager of the Pennsylvania Rural Electric Cooperative of 
Hamsburg, Pa. 

We want to thank you for coming. You may proceed. 


Mr. Tbthbrow. Primarily, Mr. Chairman, we are concerned with 
the eligibility requirements for the rural electric cooperatives. We feel 
that electric cooperatives should be exempted completely from 
membership requirements because they serve the same rural areas 
today that the Farm Credit Administration has always served. We 
must serve the people in our area. 

We have no choice about whom we serve and whom we do not serve. 

It is more particularily important that we borrow money at the 
lowest cost possible, especially for short-term money for the geoeratioQ 
and transmission cooperatives because the interest cost is flowed on to 
the ratepayer immediately. 

We thiiut that the fires of inflation are probably the major battle 
that this Nation faces. 

I would like to emphasize that, Mr. Chairman. The ratepayers 
today, the average utihty ratepayer today, is extremely upset over the 
cost of electricity. 

One of my duties is to accept calls which come in on the Governor's 
hotline when people cannot pay their electric bill. It is awfuUy difficult 
to tell the average ratepayer that we are not eligible to borrow from the 
banks for cooperatives, which is the lowest cost source of short-term 
financing. They cannot understand why we are excluded. It is difficult 
to explam that to the average member, especially if be belongs to the 
production credit association and if he knows about the farm credit 

Our national association is just now concluding its annual meeting. 
One of their resolutions which is being proposed and which is supposed 
to be voted upon this morning was a resolution to lower the member- 
ship requirements for rural electric cooperatives. 

DO, our national association is in favor of this. 

I would like to talk also a little bit about what is good for agricul- 
ture. A lot of witnesses have been talking about what is good for them. 

I just think this. America's farmers and ranchers are something. I 
grew up on a ranch. They are about the only segment of our total 
economy that buys everything at retail and selb it wholesale. It is just 
the opposite of most parts of our economy today. 

I feel there is nothing wrong with Amencan agriculture ownii^ their 
own credit system. There is no reason, that I can understand, why 
farmers cannot own their own insurance company also. 

If the American newspapers can own Associated Press, then it looks 
to me like farmers could own their own insurance companies as well as 
their own credit institutions. 

We hope that the Congress and your committee, Mr. Chairman, will 
take note of the fact that these amendments will modernize the act 
because America's rural population is in a constant state of change. 
It is changing every day. 

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The rural makeup is different than what it was. We heartily support 
these amendments. 

Thank you, Mr. Chairman. 

I would like to have my prepared statement inserted in the record. 

Mr. Jones of Temiessee. Without objection, so ordered. 

[The prepared statement of Mr. Tetherow appears on p. 393.| 

Mr. Jones of Tennessee. Thank you very much. 

We appreciate your statement veir much. 

Our next witnesses make iip a panel. 

We have Richard A. McDouglas, Mr. A. M. Feland, Mr. William 
S. May, Mr, Wilmer Smith, and Mr. Frank Naylor. 

Gentlemen, we welcome you. We are delighted to have this group 

Mv record shows that this concludes our witnesses today when this 
panel is completed. 

Please proceed. 


Mr. McDouOAL. Thank you, Mr. Chainnan. 

Mr. Chairman, I would like to introduce the gentlemen here with 

On my right is Mr. Frank Naylor, vice president of the Farm Credit 
Bank Services in Sacramento, Calif. We have Bill May, who ispresi- 
dent of the Federal Lan<l Bank in Wichita, Rans. Next we have Wilmer 
Smith, who is a farmer and on the board of directors of the Houston 
board, and Mr. Armiatead Feland, who is a farmer in the Arkansas 

For the sake of trying to expedite the hearings here, Mr, Chairman, 
we would like to keep our remarks as brief as we possibly can, but I 
would like to comment that we sincerely appreciate your assistance in 
providing leadership in carrying this legislation for the farm credit 
system. We are indebted to you for that service to us. 

We are proud also of the fact that we are part of what can only be 
modestly described as a fantastic agricultural system. It is probably 
the most effective and efficient agricultural system that has ever 
existed in the history of man, here in the United States. 

Probably much of that success has been due to the abiUty of the 
farm credit system and those people who preceded us here in the 
development of that system way back when, m about 1917, it was first 

Without a doubt, since that time the farm credit system has at- 
tempted and has been successful in trying to respond to the farmers' 

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Certainly, that is our motivatioa here this year. We are attempting 
aeain to respond to those newly defined needs that the farmers find 
themselves faced with today, 

I have personally submitted a prepared statement, Mr. Chairman, 
and would ask that it be includea in the hearing record. 

Mr. Feland, Mr. Mav, and Mr. Smith also have written statements, 
and I would aak that all these be placed in the record. 

Mr. Jones of Tennessee. Without objection, so ordered. 

Mr. Jones of Tennessee. Let me ask you this. 

Will the other gentlemen make testimony? 

Mr. McDouGAL. They wUl make brief comments in specific areas. 

Mr. Jones of Tennessee. Very well. You may proceed as you wish. 

Mr. McDouQAL. Thank you. 

We want to briefly make some comments on some areas of concern 
which have been raised during these past 2 days of hearings. 

Certainly the charter of the farm credit system is to serve the 
fanners' agricultural credit needs. We hold that up high as the mission 
that we are faced with. 

We are proud of that system. We have all grown up with it. Cer- 
tainly we do not want to do anything that will destroy that system 
which has been almost 63 years in existence. 

All of what has come forth in H.R. 4782 has been developed by 
farmers. Some have alluded to the fact that they question whether 
the farmers have had a part in the development of this legislation. 

Let me assure you and let me assure the entire conmiittee that it is 
a bill and a set of amendments that were developed and are agreed to 
by all the farmers in the system. 

Some comments today and yesterday — but particularly today — 
have shown a lack of understanding as to what the ba^c motives are 
in our attempt to amend the farm credit legislation. 

I think it is probably appropriate that we spend a few moments 
re^nding to those points. 

We are going to attempt to put into perspective some of the areas 
that the lost witness pointed out when he suggested that some of the 
people who have testified have been testifying to their own interest 
rather than to the farmers' interests. 

I think that one point has to be kept up front all the time. What 
is the base of the farm credit system and the act in the first place? 
Why are we here? 

It certainly is to attempt to upgrade the act and not to do anything 
beyond that. 

Without further comments at this time, I would like to ask Mr. 
Frank Naylor to comment on about two or three areas of concern 
that were raised here earlier. 

Mr. Naylor. Thank you, Mr. Chairman. 

Mr. Chairman, you, perhaps better than anyone in the room, have 
a long and strong history as a supporter in working on behalf of the 
farmer and his best interest and Iwst concerns. 

Certainly, it is fundamental in this legislation that our principal 
concern is working for the benefit to enhance our farmer's and ranchers* 
ability to produce and continue to have an economically viable opera- 
tion in the agricultural community. 

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There have been some comments to the effect that perhaps unfair 
competition will change the relationship between tne traditiooal 
sup^iers of credit as a result of this bill. 

1 would suggest, on the contrary, the changes which are repre- 
sented in this act and which are proposed in these revisions simply 
bring the farm credit system up to dat« with its commercial 

It is being brought up to date in being able to provide the services 
needed by our farmers under modem farming conditions. 

There were two items which were specifically mentioned a little 
earlier this afternoon which are of great concern to the entire banking 
community and that is the question of usury and the question of the 
truth-in-lending provisions. 

As you well know, Mr. Chairman, the Banking and Currency 
Committee is currently dealing in conference with Utese two precise 

It has always been the practice of this committee — and we hope it 
shall always continue to be because of your knowledge of our needs — to 
deal with the same matters in your committee as it relates to the 
farm credit system. 

Certainly these changes are very much needed by our producers 
to insure that a safe and reliable source of credit continues to be 
available during a period of very vulnerable economic conditions and 
sources of funds in this countrv, which we are facing right now. 

Similarly, I believe that tne competitiveness that has resulted 
because of our ability to access the major money markets in New 
York, along with our commercial banking friends, has served to hold 
interest rates to our farmers and ranchers in this country at a level 
which has made it possible for them to produce and to produce very 

It has prevented the unwarranted erosion of equity of their real 
estate value in order to keep the operations going on a viable basis. 

Without the competitiveness of the farm credit system, most of 
the rates paid in the commercial sector would be substantially higher. 

In closing, Mr. Chairman, let me say that I believe the same prin- 
ciple applies to the insurance question because we are not seeking to 
expand authority that is already existing. 

We simply seek to continue that which has already been granted 
wisely by this committee, and more clearly defined that responsibility. 

In so doing, this will provide insurance services where they are 
appropriate and needed by our producer-owners. 

In that way, we can beet serve the needs of our farmers and can 
continue to do the basic charge which this committee has so wisely 
given us to maintain a reliable and reasonably priced source of credit 
to meet the needs of our producers. 

Thank you, Mr. Chairman. 

Mr. Jones of Tennessee. Thank you. 

Mr. McDouoAL. I will ask Mr. May to respond to a point that 
Mr. Harkin raised yesterday. I am pleased to see Mr. Harkin here so 
we can respond directly. 

That is the area of uie GAO report where Mr. Haikin pointed out 
that possibly there had been some loans made that were inappropriate. 
That was tied in to whether we might be abusing that privilege if we 
extended beyond the 85 percent. 

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So, I would ask Mr. May to respond at this time. 

Mr. May. I am William S. May, president of the Federal Land 
Bank of Wichita, Kans. It was the first among the 12 banks and it is 
a typical land bank. 

First, let me commend the wisdom of the Congress in originfdly 
creating the farm credit system some 64 years ago. It was crea^d out 
of necessity. 

That necessity would exist today, in my opinion, even more critically 
were it not for the periodic up-dating of the system through this 
egislative process. 

Mr. Chairman, I would like to personally commend you for the 
di^ence you have shown over the years in being aware of, and per- 
ticipatiog in, the up-datii^ of this system to keep it contemporary 
with changing times. 

I want to allude particularly to the usefulness of this removal of 
the 85 percent in the helping of the beginning fanner, or the young 
farmer. I speak from 38 years of experience in the system, having 
personallv appraised for Federal land oank loans, thousands of farms 
and ranches. I personally have lent millions of dollars. I have a per- 
sonal interest in the young farmers. 

I have worked for them constantly. 

In 1073, that is, between 1973 and 1978, by working closely with 
the Farm Credit Administration under its then-programs, we closed 
more than 25,000 Federal land bank loans for over $1.25 billion. 

These were companion-type loans made with the Farm Home 
Administration to the younger people. 

Many of these people were under 35 years of ^e. As a matter of 
fact, just this past year in our own land bank where we have closed 
more than 10,000 new loans, over 20 percent of those loans were made 
to people under 35 years of age. 

Therefore, we have a definite respect for this young farmer and his 
desire and abihty and usefulness and dedication to get into the pro- 
fession. It is getting harder for him to get into the profession all the 

Just since we last deliberated on the 1071 act in a mere 10 years, 
remember that land values have tripled in this Nation. The number 
of farms has declined about 20 percent. We have lost 620,000 farms 
in that 10 years. 

That is a concern of mine. 

The average size of the farm has gone up 20 percent. 
'These are some of the changes that make it mandatorv that we join 
what we think is the intent of Congress in trying to nelp this new 
generation to get into fanning. 

Land values tripled in 10 years. They went up in this Nation 16 

EBicent this last year. If it continues, in 5 years it will double again, 
and constitutes 75 percent of all the investment in ^riculture. 
That young man wants to gets into this profession. He has a tre- 
mendous investment to make. We are dedicated to trying to help him 
get into that. 

In my early days as an appraiser and with the system, I remember 
when we committed loans under the act. Fifty percent of the appraised 
agricultural value, plus 20 percent of the value of the buildings was 
the system. 

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Later od. Congress raised that to where we could lend 65 percent of 
the normal agricultural value. Then that was moved up to a httle 
more than 88 percent to accommodate the 5 percent stock required. 
It was still at the normal agricultural value. 

That was insufficient, so in 1971 Congress saw fit to raise it to S5 
percent, not of the normal agricultural value, but of a fair market 
value. This was all an attempt as this system matured to better serve 
that young man coming into fanning. 

We tried to do this and still stay within the standards that we have 
because we have to answer to those people who buy our bonds. 

Our reputation for int^^rity in credit is at stake. We find that this 
man has youth and vigor and ambition, but he may be short on col- 
lateral. This is where we would like to help him with the removal of 
the 85 percent. 

This is only in those cases where there is a guarantee bv tiie 
Farmers Home Administration or by some guarantee througn the 
Small Business Administration or through a State. There are two 
States who guarantee loans now, Alabama and Minnesota, I believe. 
Texas is making a survey now. We would like to continue that. 

Under the 1978 Agriculture Credit Act, farm credit diverted from 
makingthese joint loans with us to a policy of insuring loans that were 
made. Therefore, we could not go above the 85 percent. 

Of course, 5 percent of that comes out for stock. Therefore, in these 
particular instances, we would like to remove the 86 percent as the 
limitation so that with the guarantee we could go on up. 

Let me correct an impression that might have been left yesterday 
by someone about the 90 percent figure. If we remove the 85 percent, 
this gives us the privilege of lendii^ 100 percent of the fair market 
value. Only 90 percent of that is the insured part by the Fanners Home 

We are willing and able to take that kind of calculated risk because 
we think there are people who are creditworthy and yet who do not 
have the collateral. We have dealt with many of these. We have seen 
these young farmers succeed. We have many of them in collaboration 
with our loans in the past with the Farmers Home Administration who 
have succeeded. We think it is the intent of Congress to help in this 

It is very difficult to pass this lan<l down to the next generation 
when it is tripling in value in 10 years and going up at the rate it is. 
It is very difficult to pass it from one generation to the next with the 
inflation. We would like, based upon our experience, to take this 
kind of calculated risk. We think that we have in our system the 
expertise in credit analysis and in reserves that we can judiciously 
manage a program like this. 

It will not win in every case. There will be some of them who will 
give up and some who will have misfortune, but there will be many 
who will succeed. We think it is the intent of Congress and we would 
like to go along with this sort of a program in nelping the young 

Maybe the b^inning fanner or the younger fanner or another 
farmer who does not have the collateral can get started. We have this 
day-toHlay of lai^er investments into ^riculture. We have to con- 
sider that. 

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Let me say that we are human. We do make some mistakes. But, 
as president of a very lare;e bank of $3.25 billion, with 54,000 indi- 
vidual loans out there ana serving lots of people, we will make some 

However, one of the tenants of the 1971 act was that we take the 
decisionmakioe; on credit as near as we could to the borrower. We 
decentralized that. We do this with supervision and training. We think 
the people at the local level, who are making this many loans and 
knowing the agriculture, are able to make these credit decisions under 
our supervision with a minimum number of inadvertent bad decisions 
in this respect. 

Thank you for this privilege to testify. Again, we thank you for the 
diligence you have shown not only in handling the field hearings, but 
this hearing today. 

Mr. Jones of Tennessee. Thank you very much. 

That is a fine statement. That is a very constructive one. We will 
certainly look at the recommendations that you have brought forward. 

Now, Mr. Smith. We are glad to have you. 


Mr. Smith. Thank you, Mr. Chairman. 

It is a pleasure to be here. 

As you may remember in the Farm Credit Act of 1971 the Houston 
district opposed changing the voting from 90 percent to 80 percent. 
Today we are supporting the package as it is presented. So, I felt we 
should at least give you an explanation for a change in the position 
during this 9-year period of time. 

The basic belief of our board has always been that the farm credit 
system should remain in the hands of bona fide agriculture producers 
and ranchers. However, in the changing world, we have created 
fundamental changes in the approach to agriculture finance. It is for 
that reason that we are taking a new look and have changed the 
position we have taken over the years. 

We recognize that many of our small cooperatives would fail to 
succeed if they did not have the membership of small villages and 
small towns wnose population is not primarily agricultural people or 
farmers, per se, but who are agriculture-oriented people who need 
heating oQ. 

We nave the energy crisis, of course. So far as we can see in the 
foreseeable future, this will be a problem to cities primarily in the 

It has not been a problem in Texas. It was not then and it is not 
now because we are primarily marketing cooperatives. 

In the marketii^ cooperative area, tne membership has to be 100 
percent. You cannot market for people who are not farmers. They 
have to be producers. 

However, basically we believe that in order to keep the true farmers 
supplied with the essentials that he needs, that we need to keep a 
thnving industry going even though we might have nonfarm members 
who are voting members in the local cooperatives. 

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There is aDOtherproblem that we see and that is in the federated- 
type cooperative. With the present 80 percent, if you had a federated 
cooperative of 100 members, then only 21 of them would have to lose 
their ability to borrow from the bank m order to destroy the ability of 
the federated cooperative to borrow. 

So, we have looked at it and changed our mind a little bit. 

I felt it would be better for us to eiqilain it than to let it have to 
come out in questioning. 

We thank you for the opportunity to testify. 

Mr. JoNBB of Tennessee. Thank you. I appreciate that clarifica- 
tion that you have made. However, we understood that Houston 
had changed their minds on ^at they proposed in 1971. I was here 
when we passed that bill. 

Mr. Feland? 


Mr. Feland. Mr. Chairman, I am Armstead Feland from Cabot, 
Ark. I serve on the bofmis of two commercial banks in the State of 
Arkansas and on the district board of the Farm Credit Banks of St. 

I manage a farmer-cooperative. 

I have been somewhat shocked by the testimony I have heard 
inasmuch as we have worked so hard in the system to really do a good 
housekeeping job with these amendments and have tried to better 
improve the service to farmers and ranchers and their cooperatives. 

We seem to have found other concerns that we are trying to de- 
velop new authorities, and so on, which is quite far from our concern. 

Let me speak briefly to three areas. 

Mention was made of the amendments that would better facilitate 
the operation of FCA. Concern was expressed about the salaiy 

There would not be over a half dozen employees of FCA might 
receive modestly improved salaries if the chai^^ were made. 

If you figure the possibility of maybe spending (50,000 more a year 
against a (60 billion business, I do not think it will burden the farmers 
and cooperatives who borrow from the System too much to take 
that on. 

What it would obviously do, however, is that it would improve the 
salary administration and it would certainly make it much easier for 
Farm Credit to attract and to keep the kind of people that are neceseaiy 
to do the job that has been vested in them by the Congress. 

I have nothing but praise for the performance of FCA in super- 
vision and exammation. It just happens that over the years I have 
worked closely with them. 

Sometimes we have controversy, but most times it is in agreement, 
but always in respect. They do an outstanding job. 

The System, up and down the country, ia great. 

It deserves nothing but respect for its penormance. FCA deeerres 
a lot of credit for doing a good job. 

The Farm Credit System would, itself fund the contributions to 
retirement and the employees would make theirs. This is not some- 
thing burdensome to the taxpayer. 

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It is merely asking for authority to do a better job in the employ- 
ment and recruitment field than we presently can do. It still leaves 
much to be desired. 

But it would be an improvement. 

In the area of export financii^, I almost believe we have to be 
protected from ourselves from some of the testimony that has been 

{tresented here. It must be recognized that a bank for cooperatives 
ooks first at the credit-worthiness and the debt service capability of 
a borrower before any thought of credit extension is made. 

In the arena of export financing, the PC's would be in a position to 
follow the borrowers activities overseas. This continuity of the credit 
extension would be most beneficial for the banks for cooperatives. 

In the case of the cooperative I work for, it would not have survived 
without direct intervention and assistance from the bank for coopera- 
tives. They have been of invaluable help to many organizations, but 
they need to be in a position to follow the credit extension into overseas 
activities in order to prevent the kind of thing that some people seem 
to be concerned about from happening. 

I think we can provide the continued excellent track record if PC's 
can follow their borrowers. 

It must be remembered that when you begin to think of possible 
losses, that the first place the loss to the bank would come from, that 
is, the loss from any loan would come from, would be the borrower 

The banks are very conservative in their lending. They are not 
taking great risks. 

Then again the net worth of the bank is owned by the borrowers. If 
the borrower should not be able to stand the losses, they are going to 
go back to the integrity of the PC. That, again, belongs to the bor- 
rowers collectively. 

As a borrower, I would not like to see our bank for cooperatives 
engage in something that is not in the long-range best interest of all 
borrowers. I do not think any other director would. I do not think 
there is any reason for concern here. 

We are going to be extremely cautious. And, again, only the co- 
operative member-borrower will be served by this authority. 

We are not tiying to reach out and do harm to others. We ore trying 
to help the service to our own borrowers. 

There has been some concern expressed about netting of losses. 
Already it is well recc^fnized that in the event of losses, the entire Farm 
Credit System stands back of the investmg public's confidence and 

All we are talking about is an orderly and legal arrangement so that 
this can be properly handled and recognized. 

But it is not providing anything new that would not already be 

The ability to help farmer cooperatives work overseas in a more 
effective fashion is going to produce something for the formers' net 
income, which is forecast to be so disastrous in the year we ore in now. 

It wdl certainly do something for foreign trade balance. We, in the 
cooperatives, would like to do what we can to improve the lot of the 
farmer and his cooperative. 

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I was grateful to you yesterday for coming back to the question of 
usury because those of us in Arkansas have suffered long and hard. 
Some do not seem to realize that farm credit has always considered 
itself to be exempt. 

Back in 1967, this committee of Congress clearly spoke to that and 
provided such a law that there was no doubt about preemption. 

But in the 1971 act it is not as clear. With over $1 bilUion at stake 
in Arkansas, the best counsel in the State have advised against risking 
that law for fear that the law, as passed in 1971, was not clear enough. 

So, again this is of a housekeeping nature. This will set-aside any 
doubts and avoid the litigation and to go ahead and do business as we 

The sixth district is handicapped because there is about $6 billion 
outstanding. All of it is handicapped. What it does by virtue of the 
Arkansas situation is something. It is one that is hurting all three 
banks. AU of the system there is beme hurt. 

It is one that needs to be dealt with. 

Just last week the issues that were sold, the 6 months and the 9 
months, were sold at a net cost to the bonks of 15.40 and 15.45. With 
the 10-percent State limit, it does not take a smart person to see the 

Congress has plainly spelled out where we go for funds and how we 

fet funds. We do not get them from deposits or some other source. 
fe lend them at some reasonable cost of doing it, or we are taken out 
of the market. 

So, we have lived with this under a very difficiilt period of time. 
Congress has been helpful with the Borrower's Belief Act, but over 
two-thirds of the PGA loons in Arkonsas are less than $25,000. They 
ore not even benefited from the present oct which would expire, based 
on the present law, in June 1981. 

Mr. McDouQAL. Mr. Chairman, I would like to make one more 

If I hod my wish, I would wish that the last line in the hearing 
record would show, or reaffirm one point — this is a member-borrower 
system. It is owned by the farmers who borrow money. It is owned by 
the formers if they choose to purchase credit life insurance or anything 
like that from the system. 

The success that this country has today as a world powrr, without 
doubt, is probably predicated upon the great agricultural system 
that exists in this country. We are port of thot. We are dedicated to 
keeping it that way. 

Certainly we hope and pray that whatever we come forth with and 
whatever you finally pass judgment on will make us better able to 
serve the farmers in tne future, and hence, build up our country as 

Mr. Jones of Tennessee. Gentlemen, we want to thank you all. 

Let me soy that this panel has done a splendid job of displaying the 
entire philosophy of the Farm Credit Administration. It has brought 
to our attention the problems that exist. 

I must admit to you that I am in sympathy with many of the things 
that you have talked about. 

I might want to talk with you about a few of them, but a majority 
of them I con support without any protdem. 

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[The prepared statements of Messrs. McDougal, Feland, May, and 
Smith appear on p. 398.] 

Mr. JoNEB of Tennessee. Mr. Harkin, if you have some questions, 
we will entertain them right now. 

I did release everybody who testified previously because of the 
length of the day. I do not know who is here, but some might still be 

We will invite all of those witnesses still remaining to come to the 
witness table. 

Mr. Harkin [acting chairman]. Could you identify yourself for the 


Mr. Taktle. My name is Joseph Taetle. I am tax counsel for the 
American Bankers Association. 

Mr. Harkin. Mr. Taetle, I wonder if you could briefly outline what 
you see the tax advantages as being that the Farm Credit Adminis- 
tration enjoys that the commercial banking institutions do not. 

Mr. Taetle. The taxation of the farm credit system is a mixed bag 
basically within the system itself to the institutions, the PCA's, and 
the banks for cooperatives, are taxable institutions, while there is a 
full exemption from both Federal, State, and local taxation, accorded 
the Federal land banks and land bank associations and the Federal 
intermediate credit banks. 

What we were proposing basically is that this exemption be removed 
and that the credit banks, or the Federal land banks and land bank 
associations be taxed in the same way the hanks for cooperatives and 

he pro 

. Hahkin. Are there any privileges or other types of exemptions 
that the PCA's or the banks for cooperatives enjoy that commercial 
banks do not? 

Mr. Tabtlb. As I said, to those institutions that are exemiit, the 
exemption itself runs basically to the Federal land hanks, that is, the 
three institutions exempt. The exemption is accorded both to Federal 
income taxes, as well as any State or local income taxes that would be 
imposed upon any other financial institution that would be doing 
business within the particular jurisdiction, or for Federal income tax 

Iriere are also some exemptions from State recordation taxes as well 
for real estate transfers and mortgage rates recordation taxes. 

They also are available to all institutions. 

Mr. Harkin. So far as the PAC's and the banks for cooperatives 
are concerned; how about that? 

Mr. Taetle. They are taxable under the special code provisions of 
the Internal Revenue Code which r^ulate the taxation tne same way 
as an agricultural cooperative, for instance, is taxed. 

Mr. Harkin. Do tney have an advantage over the private sector? 

Mr. Taetle. Obviously they pay a low level of taxes. We are not 
questioning the level of taxes that are being paid by the taxable 
institutions, but basically the Internal Revenue Code itself reflects 
the cooperative form of ownership and recognizes it as unique. There 

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is interrelation between the borrower and lender and that it is entitled 
to special treatment, just as any other type of cooperative is in a dual 
situation as a seller to the cooperative and a purchaser from it. 

The Tax Code does refiect those unique situations that aiise from 
the cooperative form of ownership. 

In oUier words, the cooperatives are treated basically as doing 
business with themselves. They pay a very low level of taxation, 
recognizing the cooperative form. Banks, for instance, pay tax at the 
corporate level on their income; then when they distribute dividends 
to their shareholders, for instance, the tax would be paid by their 
shareholders on the dividends through their personal income tax. 

Mr. Hakkin. Thank you. 

Let me ask the panel members this question. 

As for the ABA's testimony, it stated this: 

The American Baoker's Association believes the current proposed package of 
amendmenta would give the cooperative farm credit Bjst«m further authority to 
provide financial resources outside the farm sector and would be an additional 
encroachment on the private sector, including the commercial l>anking sjrstem. 

Acy comments? If you disagree, why do you dbagree? 

Mr. McDoDGAL. \faybe Mr. Naylor could best respond. 

Mr. Natloh. Mr. Harkin, are you speaking of the Qnacially related 

Mr. Harkin. I am quoting from the testimony of the American 
Bankers Association when they said these propcraed packages would 
give further authority to provide financial resources outside the farm 
sector and would be an additional encroachment on the private sector 
including the commercial banking system. 

Mr. Natlok. Mr. Harkin, I do not believe that outside of the export 
financing area, which is dealt with and which has been discussed 
at some length, that there are any extended authorities that do not, 
in essence, in some form at the present, exist within the system with 
regard to who we may serve and who we may not serve. 

In nil instances, we continue under the proposed amendments to 
serve bona fide farmers and their cooperatives. We do not have any 
new constituency that is being derived from this change, nor do we 
seek any. 

I think perhaps what the American Bankers Association may have 
been alluding to was what they refer to as financially related services, 
which do vary among various types of institutions, and are reflected in 
some other services that we presently provide to help our farmers 
develop farm plans and to develop their own financial planning capa- 
bility to better manage their finances. 

We do provide some of those kinds of services because of our 
unique relationship to the agricultural community. 

Mr. Harkin. ^y other comments on that? 

If not, let me move on to a couple of other areas. 

If we do, in fact, do away with the 85-percent limit, should we also 
perhaps limit it somehow in terms of who would be eligible by taking 
away the 86-percent requirement? 

Do we, in fact, invite in for more loan applications lai^er farmen 
and more diverse interests, plus the taking away of the requirement 
that 80 percent have to be fanners and then reduce that down to 
60 percent? 

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Do ^ou invite in outside interesta and increase the outside interests 
in agncultuTs? I am talking about rather than trying to help the young 

We all talk about the 85 percent helping the young fanner. Would 
you not be opening the flood gates, ttamnning that you also reduce the 
80-percent requirement down to the 60 percent? Would not outside 
interests move in? 

Mr. Mat. Mr. Harkin, I would like to speak to that. 

The removal of the 8S-percent limitation has only to do with the 
Federal land bank loans. It does not relate to the 60 percent on the 
bonk for cooperatives. There is no relationship there. 

Mr. Harkin. I see. All right, I will take that ba(^. 

Let us take away the 8S-percent requirement. Without any further 
clarification of what a bona fide farmer is, do you not invite in a lot 
of outside interests? 

Mr. Mat. No, sir, I do not think so. Our supervisory agents in the 
Farm Credit Administration are here. We have our own boards com- 
mitted to this. Our boards are dedicated to serving bona fide farmen. 
They are hesitant about those who are not. 

The removal of the 85-percent limitation would only apply to those 
loans which would be guaranteed under a Federal or a State agency 
of some kind. There are very few, actually. 

It would not be exercised very much. We would be called upon, 
I think, to exercise it a great deal in the case of marginal young fanners. 
We would have to be sound and we would have to see a great deal of 
determination on their part and a possibili^ of them coosumating 
this loan successfully and payii^ it back. We simply would not go 
into it otherwise. 

It just gives UB a little more margin of credit there where the col- 
lateral might not be quite sufficient. 

This is particularly true when they have relatives behind them in the 
farming business and they are descendants of one, two, or three genera- 
tions of farmers. They are dedicated. They have their feet on the 
ground. It is just they do not have a lot of collateral to meet that 85- 
percent limitation that we have. 

It would allow us to extend on up a little more. Of course, the 5- 
percent stock still comes out of that. This would be to help those 
pe^le get a start. 

We can judiciously take a kind of risk. We see it as no avenue what- 
soever for expanding into larger type fanners or city farmers or people 
of that kind or investment-type farmers. Not at all. 

Mr. Hahkin. Mr. Feland? 

Mr. Feland. We have already proven our track record. We were 
able to participate with Farmers Home with the 85 percent. The rest 
of it was coming from Farmers Home. 

Now they have gone to guaranteed loans. We have already been 
picking the young former and qualifying him and workii^ with nim. 

The program works beautifully. It is just that the change in funding 
from Farmers Home has occasioned a different set of rules to work 
with the same people. 

We have already proven our ability to do it well. We have helped 
many young farmers and the losses have been minimal. 

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But now the Farmers Home no longer uses appropriated funds. It 
uses fund guarantees. You can see why you need to change the 
approach to this same individual. 

You are not qualifying another group of people ; you are going to 
handle the loan differently. That is what it is. You would, in ^ect, be 
lending 100 percent of ^aranteed loans oply. 

Mr. Naylor, Mr. Harkin, the amendment involved here specifically 
speaks to such loans exceeding the 85-percent limitation and that they 
must have a Federal or State guarantee. 

This speaks most specifically to the Farmers Home Administration. 

The Federal guaranteed program under the Farmers Home Ad- 
ministration, which was passed oy this committee and has been care- 
fully scrutinized by this committee, speaks most directly to conditions 
which are required for a guaranteed loan. 

Speciiically, those are tai^eted at young and low equity farmers 
who are bona fide farmers or who are farmers or youn^ people or 
individuals trying to move into a full-time farming situation. 

That program, as a basis, has a thrust of helping more people move 
onto the farm. By those veiy restrictions which your comnutt«e has 
put into the law with the Farmers Home legality, then the thing 
you are concerned about is fully addressed and certainly covered 
through those specific amendments. 

We are talking about guarantees and requirements. 

Mr. Hakkin. They would have to qualify with the Fanners 
Home first? 

Mr. Natlor. They would have to qualify for the guarantee in 
order for it to be given to the farm credit system. To qualify for the 
guarantee, they have to meet the Fanners Home requirements. 

This is to be a hona fide former. It is directed at their even being 
young farmer, a new farmer, or a low equity farmer who essentially 
16 unable to get funding from any other source. 

The guarantee is simply extended as a new source of funds to make 
it available through the form credit system or through the commercial 

Mr. Haekin. Thank you, Mr. Chairman. 

Mr. JoNBS of Tennessee. Mr. Harkin, thank you. 

In view of the time, I will not pose questions. Instead I will write 
you directly and we will put the responses in the record. 

Mr. Haikin, I have a letter here that Mr. Marlenee aaked that we 
insert in the record. We will do so at this point. 

[The letter submitted by Mr. Marlenee follows:] 

Montana Fakuebs Union, 
Ortat Pallt, Mont., February 25, 1980. 
CoDgresBinan Ron Marlenbe, 
Cannon House Offitx Building, 
Watkinglon, D.C. 

Dear Ron: I am writing to you in regard to the proposed new Sec. 4.17 oF 
TiUe IV of the Fsnn Credit Act of 1971. 

From time to time we lieep hearing from farmers who are borrowers from the 
Federal Land Banks or PCA s who feel they have been unduly pressured to pur- 
chase insurance from that agency — ineuranoe they don't want or would rather 
buy from another company. 

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Oertainlj, our organization is opposed to UiIb practice. It's a poor situation 
which is perhaps natural when these lending inatitutions get tied into the In- 
-surance business. 

Please consider the proposed amendments very carefully. 

Terry Murphy, 


Mr. Jones of Tennessee. I want to thank all of you who are here 
for a spendid amount of testimony that has been given today and 
yesterday also. 

I think there has been some clarification of some of the problems. I 
think we have heard from people who are most dedicated and well 
informed about the needs for credit. 

We have heard from all sectors, not only the Farm Credit Admin- 
istration, but from the banks and from other sources as well. 

We do appreciate very much the interest shown here as well as in 
the field when we were having the field hearings. 

With that, we will adjourn the meeting. We will see you later. 

Thank you very much. 

[Whereupon, at 4:05 p.m., the subcommittee was adjourned.] 

[Prepared statements of witnesses and additional material submitted 
follow i] 

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HR 07S2 

My name is Daniel 3. Morrissey; 1 am an independent proper ly-casualty 
insurance agent affiliated with Lohman Brothers, located in Ceneseo, Illinois, and 
have responsibility within that agency for a farm department that generates 
approximately one-half million dollars annually in premium volume. 

I appear before you today as the farm consultant to the Independent 
Insurance Agents of America, Inc. (IIAA), a national association representing 
approximately 126,000 licensed independent property-casualty agents, and 210,000 
insurance persons located in virtually every community in the United States — 
including just about every rural and farming district in the country. BAA'S 
member agents are small businesssmen who take great pride in the personal 
insurance counselling and service they provide to this nation's farmers and rural 

Accompanying me today is Jeffrey M. Yates, llAA's General Counsel. 

On the occasion of your consideration of the amendments contained in HR 
ft782, designed to Improve the operation of the Farm Credit System, it is 
appropriate to take a close look at one aspect of the program, entirely unrelated 
to credit, where Congressional intent as embodied in the Farm Credit Act of 1971 
has not been carried out; and where 11 current initiatives continue, the long-term 
interests of this nation's farmers will not be served, and unaffiliated small 
businesses will continue to be faced with unfair competition from government 
tracked Farm Credit lending institutions. The programs are the Production Credit 
Association (PCA) and Federal Land Bank Association (FLBA) crop^ail and 
collateral insurance programs under which Farm Credit institutions in certain 
districts have been authoriied to sell virtually every type of property-casualty 

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farm insurance coverage, with the exception of automobile, despite clearly 
expressed Congressional intent in 1971 that these coverages be strictly limited, 
and only offered when (imliar service is not being provided adequately in terms of 
cost, quality, and availability by unaffiliated businesses in the community. 

Congress hotly debated the sections of the Farm Credit Act of 1971 that 
v/ould permit PCAs and FLBAs to sell insurance as a "financially related" service. 
In an effort to reach on accommodation on the issue, the conferees agreed to 
limit strictly the lines of insurance that PCAs and FLBAs could sell, because of 
the competitive advantages these institutions would have over unalfiliaied small 
businesses, and because of the conferees' fear that these institutions would be 
diverted from their primary function of extending agricultural credit. The 
conferees concluded thati 

"...the sale of liability insurance, and any insurance on 
passenger automobiles, is not "necessary and incident" to 
the functions of the lending institutions) but that they 
should be able to sell such insurance as may be necessary 
to protect the loan. Thus, credit life insurance could be 
sold in an amount appropriate to insure repayment of the 
loan, and insurance against loss of any collateral securmn 
a loan could be sold for the fuU value of such collateral."! 

In spite of this Conference Report language, PCAs and FLBAs have been 
authorized to offer liability coverages as a part of farmowners and homeowners 
packages and have read the "collateral" restriction out of the report language by 
defining "collateral" to be any asset where " repayment reasonably may be 
considered to be jeopardized if such assets are not protected by ir 

Conference Report No. 92-679, 92d Congress, 1st Session 50, 54, » (1971). 
(Emphasis added) 

FCA letter of approval and instruction to pilot district banks regarding collateral 

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Further, before reaching this compromise, the 1971 conferees were assired 
by the then Governor of the Farm Credit System in a letter to Senator Talmadge, 
dated November 3, 1971 that the Farm Credit System would not enter the 

insurance business unless unaffiliated businesses were not adequately providing 
the service in a particular community: 

"The need factor has been evaluated at the local district 
and Federal Board levels. This approval procedure should 
reassure the committee that the system is only concerned 
with providing services where member owners have 
determined that real needs exist."} 

The requirement to demonstrate need for the particular service before 
authorizing it reflected the conclusions of the Commission on AgricultutaJ Credit, 
the proposals of which ultimately emerged as the Farm Credit Act ol 1971: 

"(1) The term "credit related" should mean such business 
services as recordkeeping, Credit life insurance, and 
estate [danning. The term does not include services 
relating to the physical farming operation. 

(2) Credit related services should be undertaken only 
when a substantial number of members^ on an Association 
or district-wide basis, have a need for the -System to 
provide such services. 

(3) The primary consideration in offering any service 
should be the benefit It provides members and the lender 
in using and extending credit, and not 
whid) may accrue to the Banks or Associations. 

Conference Report No. 92-679, 9Zd Congress, 1st Session, P. 53 (1971) 

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w ■ 

of competent servic 

es through 



: provided at reasonable cost, the 

System should not- 

develop competing se 

:rvices but 


t members in 

the profitable use 

of such 

the Farm Credit Administration's regulations condition approval for an 
to olfer a financially related service upon four criteria, one of which 

"(I) Need lor the service based on persuasive evidence 
that membership need for and interest in the proposed 
service is sufficient to insure that a quality service can be 
provided at reasonable cost and that similar service is not 
being provided ade<^uately (cost, quality .availability) by 
others in the community ."5 (Emphasis added) 

The Farm Credit System in the 70's at 21 . (Emphasis added) 

(Section 618.8010) The Fe<teral Farm Credit Board Policy Statement on 
Financially Related Services, formulated ar>d approved by the Board in February, 

l3Tt, contains the same requirement ; 

"...The primary consideration in offering any service 
should be The benelit it provides members and the 
lenders rather than the remurteration which may 
accrue to the banks or associations. Consistent with 
the policy of the law, these services should be 
undertaken only when there is evidence of lack of 
availability as to convenience, quality, or cost and 
there is sufficient interest on an association or 
district-wide basis to assure that the service will be 
at least self-sustaining..." 

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The problem is that in spite of the Report o( the Commission on Agricultural 
Credit, the will of Congress as expressed in the Conference Report, and the Farm 
Credit Administration's own regulations, PCA and FLBA insurance programs have 
been authorized with absolutely no showing that comparable insurance services 
are not being adequately provided by unalliliaied businesses in the community in 
which the particular PCA and FLBA operates. 

We believe that HR 47S2 should be amended specifically to require that 
before the Farm Credit Administration can authorize a Farm Credit institution to 
offer insurance as a financially related service, that institution would have to 
make application to engage in such activity. On the basis of that application, 
after due notice and opportunity for hearing on the record by interested parties, 
including potential competitors, the Farm Credit Administration would have to 
make a number of specific findings, most especially that similar service is not 
being provided adequately in terms of cost, quality, or availability by others in the 
particular community served by the farm credit institution. The statute would 
also require that notice of each such application be published in the Federal 
Register and in at least the principal newspaper having general circulation in each 
of the trade areas in which the particular association does business. 

Continuation of Footnote 5 

"...When request for approval ol a service is made, the 
request shall be supported by an in-depth study 
determining the feasibility of the service and the contri- 
bution it provides in meeting the objective trf the System. 
The submission should document the nature of the 
program, those to whom it will be offered, and the basis 
on which the service is judged to meet the tests set forth 
in Section 8010 of the Farm Credit Administration 

"Farm Credit Adminsitration approval shall be based on 
the determination that legal authority to olter the service 
exists, an administrative determination that the proposed 
service can be authorized, and that the submission 
establishes the need for the service to be offered." 

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Such procedures would assure that the Farm Credit Administration's own 
regulations are carried out and that the decision to authorize a particular 
insurance service is based on credible evidence as to what is available in the 
insurance markets in the particular community. The eiiablishment of meaningful 
procedures to make the need determination has been IIAA's central goal in 
comments submitted to the Farm Credit Administration in April 12, 1972 and 
February 9, 1976, and continuing correspondence with the Governor of the Farm 
Credit System sirtce those formal comments. The Farm Credit AAninistratlon has 
shown absolutely no Inclination to adc^ Oiese or equivalent procedures to assire 
that there is an objective determination of need before authorizing an insurance 
service in a particular community. 

We also believe the statute should be amended to reflect the agreement of 
the conferees in 1971 not to permit the sale of liability coverages and to limit the 
sale of property coverages to the collateral that is the formal security interest 
granted in cwmection with the secured loan. 

Unless Congress acts now to carry out the original intent of the Commission 
on Agricultural Credit and the 1971 conferees. Farm Credit insurance programs 
are likely to expand on a wholesale basis because of the promise of extra income 
to the cooperatives. Section »0» of HR t782 would directly facilitate the 
expansion of these insurance programs by authorizing the establishment of service 
corporations for the specific purpose of performing financially related services 
for Farm Credit institutions. 

We believe wholesale entry of PCAs artd FLBAs into the insurance agency 
business would be against the best interests of this nation's farmers lor several 
reasons. First, the promise ot growing income frwn expanded insurance activities 
will divert associations from their primary function of extending farm credit, 
thereby potentially jeopardizing the solvency of particular cooperatives and 
frustrating the goals of HR 47S2 to build a stronger Farm Credit System. This 
danger is very real because the cooperatives are already marketing these 
. insurance programs as moncymakera for the cooperstive; not out of a 
demonstrated member need for the service. 

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Second, as a generaJ rule, larmers will not receive the same professional 
counselling and service when purchasing insurance from a PCA or FLBA employee 
who sells insurance as a sideline to his lending responsibility. In contrast, the 
independent agent's primary business is selling insurance, and he depends upon a 
satisfied insured to stay in business. 

Third, whenever insurance is sold in connection with the lending of money, 
there is the danger that the borrower's freedom to 'choose the insurance of his 
choice will be compromised whether through the subtle suggestions of the loan 
officer or his own perception that he will stand a better chance of procuring the 
loan Irom the institution if he buys his insurance there. The fact that PCAs and 
FLBAs are cooperatives, and the borrower is part owner, is irrelevant; what is 
relevant is the particular borrower's situation — how badly he needs credit and the 
risk that the cooperative will deny the loan. The greater the need or risk, tiie 
more inevitable the tying effect. Not only is this tying effect contrary to the 
best interests of the farmer, who buys hU insurance from the cooperative to 
facilitate getting his loan, rather than because it is the best product; it is unfair 
to the unaffiliated agent. 

The 1971 conferees were keenly aware of the potential (or unfair competition 
from wholesale entry of Farm Credit institutions into the insurance business. This 
awareness was a large reason for the restrictions placed on these insurance 
activities by Congress. En presenting the Conference Report to the House, 
Congressman Poage reflected this concern; 

"I shall not take the time of the House to elaborate on the 
substance of the conference agreement. The details are 
included in the statement of managers. I would only 
mention that there was considerable controversy over 
House report language dealing with the insurance services 
which should be rendered by Farm Credit System lenders 
to their members. The House report language was quite 
e while the Senate report was silent on the isstie. 

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In conference, wc worked out repon language which we 
feel will permit the Farm Credit System lo adequaieiy 
serve its borrowers without endangering ICRitimate 
igents and companies with unfair 

Consider the following substantial competitive advantages PCAs and FLBAs 
have over unaffiliated agencies: 

1. The likelihood that the purchase of insurance will be 
tied to the lending of money as discussed above; 

2. The ability to "dangle the carrot" of using commission 
income to reduce future interest rates; unaffiliated 
agents are prohibited by the anti-rebate laws from 
offering any similar incentive or discount; 

3. Access 10 confidential poti*cy inlormation submitted in 
connection with loans, including dates of expiration, 
premium amounts, coverages, and coverage amounts. 
This is an incredible advantage, unavailable to the 
unaffiliated agent, which enables the cooperative to quote 
selectively on risks it knows it can beat. The use of 
expiration information submitted in connection with a 
loan by cooperatives to pursue their insio'ance activities 
should be strictly prohibited by statute; and 

4. While FLBAs and PCAs have repaid their indebtedness 
to the government, they still derive important advantages 
in being able to call upon the resources of the other 
institutions in the Farm Credit System. In addition, 
FLBAs are exempt from federal income tax and ^e 
interest on the notes that both FLBAs and PCAs issue to 
raise money are exempt from state and local taxation 
making them extremely attractive 

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Thus, these institutions have substantial 
capital at their disposal to finance their insurance 
activities that unaffiliated agencies do not. 

There is no way to neutralize the competitive advantages that PCAs and 
FLBAs have over unaffiliated insurance agencies. Ttiis is why the conferees in 
1971 strictly limited the types of insurance these institutions could s«ll and 
limited such sales to those communities where similar services were not being 
provided by unaffiliated businesses. We ask that HR it7S2 be amended to carry • 
-out the congressional intent expressed in the Farm Credit Act of 1971. Only in 
this way will the long-term interests of the farmers of this nation be served, and 
unfair competition with unaffiliated independent small businessmen be avoided. 

Respectfully submitted. 

Dartiel J. Morrisaey 

HAA Farm Consultant 

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Mr. ChalTBsn and Haabarj of tha SubcaBBitt«e: 

I ■■ BdwkTd AndaTian, Mastar o£ th« National Grants, headquartored 
at 1616 U Streot, N. H., Hashlngton, D. C. 

I u plaa*«d to have this opportunity to pratent the vlaw* of 
the National Grange on the Para Credit Act Aaendaents as contained 
m H.R. 4782 before thl* distintuished Coaalttee. Before being elected 
Master of the National Grang«, I operated a 700-acre livestock and 
grain farm in eattsrn Nebraska and was a borrower froa the Para Credit 

The Grange is a general fara organisation, represontlng faraer 
a«abers In 41 of our SO itates. However, our aeabershlp does eabrace 
residents of rural-urban areas that have aaintained an Interest in 
the econoalc well-being of today's coaaercial faall)r fara. It also 
includes other residents of rural-urban coaaunitles who understand the 
iaportance of a healthy, strong, viable agricultural econoay as the 
wellspring of rural coaaunlty developaent. 

The word "Grange" Is alaost synonyaous with "fara credit". The 
Grange was one of the first organisations to recognise the need of 
better credit facilities for faraert, and when the foraatlon of loan- 
ing associations with lowered interest rates was being advocated, the 
National Grange at Its session of 1891 recoaaended extensive discussion 
of the subject aaong Granges. 

Froa this beginning and in the years preceding the passage of 
the Federal Fara Loan Act in 1916, the Grange pressed the subject of 
farners' financial needs until the actual establlshnent of the Fara 
Credit Adalnlstration in 1933. 

Since then It has constantly reaffiraed its position In support 
of the cooperative credit systea based on sound business principles. 

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under tbe ownership and control of faraer borroHcn. FedersI super- 
vision is reco(Diied as necessary to assure that tbe provisions of 
Congress are coaplied with, and the Grange has taken a detcrained stand 
in favor of having aajor responsibilities for such operations vested in 
tbe boards of directors of the cooperative Institutions in the field. 

The Grange continues to be a strong advocate of the coopemtlTs 
credit syste>s: The Production Credit Associations which provide 
faraers with operating capital. Federal Lajid Bant Associations which 
provide real estate loans, and the District Buks for Cooperatives 
which serve tbe credit needs of farver-oned coopar»tives. 

The Grange was honored to have John N. Scott, '— — 'i-*- Past 
Master of the National Grange, serve on the study coaaission appointed 
by the Federal Fara Credit Board in 1969. Their task oas to study the 
present operations and structure of tbe systea, the potential future, 
kinds of agriculture, the evolving needs of the agriculture to be 
served in the foresseable future and to make recoaaendations which 
would insure Fata Credit's relevancy and ability to serve the chang- 
ing credit needs of Aaerican agriculture to the ■"*■■— and in the 
aost efficient fashion. 

The coaaission was coaposed of 27 aeabars, half selected froa 
various areas of the Farm Credit Systea and half froa the general 
far* organization leadership outside of Fara Credit. 

The study by the coaaission laid the groundwork for the first 
aajor overhaul of the Fara Credit Systea in recent years and was 
consuaaated by the enactaant of the Fara Credit Act of 1971. 

Ha now have before Congress legislation that would further expand 
the lending authority of the Fara Credit Systea and aake soae long- 
overdue adainistrative changes throughout the systea. 

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The present package being considered by this Connittee Is not the 
result of a slallar study coiHlssion coaposed of aenbers froa the sys- 
tea and agricultural IsMlers outside the systea. Therefore, I believe 
it Mould be beneficial to review the coaalsslon's re conn end at ions and 
judge the present legislative proposal accordingly. 

The coaaission recoaaended the fallowing objective for the Fara 
Credit Systea which was adoptad by the Federal Fara Credit Board at 
the June aeetlng in 1970, a* follows: 

"Recogniilng that a prosperous agriculture is essential to a free 
Nation, It is the abjective of the faraer-owned cooperative Fara Credit 
Systea to iaprove the incoae and well-being of Aaarican faraers tnd 
ranchers by furnishing adequate and constructive credit and closely 
related services to thea, their cooperatives and selected fara-related 
businesses necessary for efficient fara operation." 

Ha conaand thea for adopting such a far-reaching objective and 
for bringing to the attantloo of all the following potential goals as 
a basis for attaining the objective. Those goals are: 

"1. On a sound credit bails extend ta faraers credit adequate to 
aeet their total needs; 

"2. On a sound credit basla provide greater opportunity for coa- 
petent young faraers to obtain an adequate anount of credit; 

"3, Serve the total needs of cooperatives which help aeet faraers' 
supply, aarketlng and processing needs; 

"4. Provide credit to selected fara-related businesses providing 
services directly to faraers; 

"S. Eaploy credit standards peraltting recognition of aanageaent 
ability and earnings potential to aaxlaize availability of credit; 

"6. Assure availability to aeaber borrowers of essential credit- 

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"7. Utilize the aost reliable 
"8. A close cooperetive woTking relationship of fara credit unit* 
should be encouraged to Insure the best quality credit service; 

"9, Maintain sensitive hoards of directors cognizant of s changing 
agricultural econoBy and aware of fsTBer credit needs; 

"10. Fern Credit Systen should develop and' proaote the strongest 
possible farn credit organization i 

"11. Maintain external coBBunicatlon with others concerned with 
financing Anerican agriculture." 

He feel very strongly that final •Jetenlnation of any changes 
in the Para Credit Act that effect lending authority or eligibility 
requlreaents should be vested in the local cooperative credit govern- 
ing boards. 

The National Grange, at its 113th Annual Meeting adopted the 
folloving resolution regarding the aaendaents to the Fer« Credit Act 
of 1971 that are pending before this Coaalttee: 

(hnBcaetnry M>lbc 

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Id line with Grange policy and with the reconuendatlons of the 
1971 study coaalssioD, I would like to turn to H.R. 4TS2 and coamaiit 
on some of the specific changes in credit policies and eligibility. 

First : Title IV, Sec. 404, Part D--Service Organ Itat ions, broad- 
ens the authority of FCA banks to OTganiie one or aore corporations 
"for the purpose of perforalng functions and services for or on behalf 
of the organiting bank or banks, other than the extension of credit, 
which said bank or banks aay perfora pursuant to this act." 

While this section does not aentlon Insurance, 1 believe that it 
can and Hill be interpreted to broaden the FCA authority to form an 
insurance coapany. The Grange is strongly opposed to the extension 
of the econoalc power of lending Institutions, 

The entry of the Farm Credit Systea Into the insurance business 
has been of deep concern to the Grange, The study coaalsslon debated 
the insurajice issue long and hard, with the general fara organisations 
represented on the coaaisslon strongly opposed to the Fara Credit 

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Systen antarlng the (sneral insurance businass. We (.iraad ttwt 
there were sound reasons for--and no abjection to--tlie b«nks wTlting 
"credit life" in anounts to cover the loan, but we ware opposed to 
the writing of other life insurance and property and casualty In- 

However, the aaendsants passed in 1971 have been interpreted by 

the Fam Credit AdalnistratlOD a* giving then the authority to write 

Insurance other than "credit life". The House and Senate conferees 

on the Fara Credit Act of 1971 disagreed on the report language 

concerning Sec. 2.16. The House Agriculture CoBBlttee indicated that they 

Intended thl* language to neon that the various agencies o£ the Fara 

Credit Systea should not be allowed to write or sell any fora of 

insurance except "credit life". The Senate Agriculture Conalttee 

disagreed and in the end the legislative history contain* tba following: 

"The conferees discussed at length the scope of Insurance 
services that should properly be nada available to eligible 
borrowers. It Is felt that the sale of liablli*- ' 

and any Insurance on passengei 
and incident' to the functions of the lending institutions; 
but that they should be able to sell such insurance as nay 
be necessary to protect the loan. Thus credit life Insurance 
could be sold in an anount appropriate to Insure repaynenr 
of the loan, and Insurance against loss of any collateral 
securing a loan could be sola for the full value of such 
collateral. It Is of course not the intent of the conferees 
that the borrowers' insurance necessarily be purchased 
through the Fans Credit Svstsn lender. These lenders should 
appropriately notify the borrowers that they possess the 
option of buying the Insurance needed to secure the loan 
elsaHhere if they ao wish." 

I seriously question the extension of FCA Into the insurance agency 
business. The extension of financial Institutions (bank holding com- 
panies, FCA, etc.) Into activities of this kind Is another step la 
the concentration of aconoalc power In the hand* of financial insti- 
tutions and, in our opinion, should be avoided. It 1* unfair coapetl- 
tlon for Institution* that have been given special privileged powers 
over the availability of aoney and credit to use their earning* to 

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coBpat* Hlth prtvat* buttntii U tbli Mwur. It i$ atio uttl-caap*t- 
itlv* for luch liMtltutlaw, ablch hav« th« prlvllagad pow«r to grut 
loani^ to tall ■ T*lat«d larvlc* tbat tha cradlt ctlant may intarprat 
■s baing ■ praraquiilta to tba irantlDf «f th« laan. 

Tba axteniion of iba autltorlty to tba FCA to act ai Iniuranca 
Biaata, and qow to orfaalta tltolr on laiuraaea coapanr, will not 
raduca iniuTiBca ratal for tbalr borroaari. Thar cannot sail laturaaca 
at discount rata*, nor can thay laially rabata aiancy coaaliiton* la 
■oit ttatas acrosa tha nation. Slnca thoro li no ovldonce of unMt 
naadi to bo *atiiflad. thora t* llttto. If any, Juitlflcatloa for 
their doclilon to Inrado tblt flold. 

Tho Crania 1* opposed to the concentration of oconoalc power in 
financial initltutioni, not only raiardlng tba FCA but alio ai it 
ralatet to bank hotdlnf ceapanlaa. No hara oppoiad for tha pait tls 
yaari the grantini of tba authority for bank holding coapaniai to act 
as insurance agantt. This poiltlon wni adopted by tba dalegatea of 
the National Grange at tbalr Annual Heating in NovaAar, 1BT4, when 
we sought legtalatioB to preirent financial inititutlon* froa engaging 
in unrolatod bualnai* activitle* (aaa page 13 >) 

Hore apacifically. In Novaaber of 1979 , tha delegate body of tba 
National Grange adopted a raaotutlon regarding bank balding conpanlea 
acting ai Inauranca agent* in towns of las* than 5,000 population. 
This Is an extension of our opposition to tha concentration of econoaic 
poHBr in tba hand* of financial Institution* Md our continued opposi- 
tion to Bonopolias. (Sea page 13.) 

He all are aware of tba fact that tha preieat Gevarnor of the 
Fara Credit Adninistratlon, Donald Wilkinson, ha* on two *eparBta 
occasion*, given assurance that the proposal would not autboriia tho 
incorporation of a Fan Credit Systan insurance ceqiaay. We liatre the 

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greatest raspact uid adairatioii for tha Governor. He it doing an 
excallant Job. But we do not agrae with the Governor** assurances, 
Na do agree with what he privatalr has told tha Gr«a|e--that aeithar 
he nor the Far> Credit Board intend to organlia ao Insurance corpor- 
ation within tha Fam Credit Systen. However, as you know, Kr. 
Chairaan, Farm Credit Governors and Board* change and with Chang* 
the assurance can also change. 

It Is our interpretation that Part D--Servlce Organliatlons, 
Sec. 4.2S--BstablishNent , would authorlte a bank or banks to organlie 
a corporation or corporations to perfora services on behalf of a bank 
or banks, which said bank or banks nay perform pursuant to thl* Act. 
If tha sailing of insurance Is a service banks may perform pursuant 
to this Act, then that service may be organised Into * corporation. 
To argue otherwise, that the proposal would not authorize tha incor- 
poration of a Farm Credit System Insurance c<»pany, is to argue that 
the selling of insurance 1* not a service they may provide pursuant 
to th* Act. Ha hare bean Informed by the FCA that they have the legal 
authority to sell such Iniurance imder the Farm Credit Act of 1971. 

Therefore, to make It clear that the Sy*tem cannot form a cor- 
poration to sell insurance, we atrongly recommend that H.R. 47S1 be 
•mended to prohibit the FCA from organising insurance companies. We 
would suggest that Sac. 4.2S, Part D, should be amended by Inserting 
"or tha wrltlni of laeuraoce" laaedlately following "other than the 
extension of credit." That part of Sec. 4.25 would then read; "Any 
bank of the Farm Credit System, or two or more of such banks acting 
together, may organise a corporation or corporations for tha purpose 
of performing functions and services for or on behalf of the organli- 
Ing bank or banks, other than the extension of credit or the wrltlaa 
of Insurance , which said bank or bank* may perform pursuant to thl* Act. 

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Thlt would prav^t tba PCA turn orfutltiBg property and caiualty 
lB»uruca coap«nta*, but It would not c«rract tho Act of 1971 to tbst 
they m»y mot act u agonti ia tho tale of propartjr and canialtir In* 

Tka Fara Cradlt AdalAt at ratios haa b««a sallUi "cradit life" 
iBsuraaco to cavar tba aammt of a loan «ad wa havo na quarral with 
thsir coatlnulnt to provtdo cradle Ufa taturaaca. Wa da, kowavor, 
quaitloB tka sellimg of proparty and caaualty laauranca and would 
racovand that lanfuaga ba addad to Sac.'i 1.11, I.IS(IS), 1,5. and 
Z.16 of P. L. 91-1I1 to prohibit tha Syataa frsa aallln| in*uranca, 
othar tltaa cradlt Ufa. Thli wai tiM poaltloa talMa by tha Houia con- 
feraai an tha '71 Act but, ai wo palatad out aarllar ia tbii stataaant, 
tba Sanate intarpratatian pravallad in the conference report. Thii 
can be accoapliibad by excludlB| tha writini of property and caaualty 
insurance ai a financially- related tervica. 

lie would augiait that tha Coaalttaa aaarciie It* oversi|bt re- 
iponiibility and Invattlfata the naad for Para Credit banks actlnf as 
•lonts for tha sale af Insurance ai three districts are presently 
doiaa. We would like to know what distribution ii balng aada of 
any fees that banks ara collactiBi on the sals of Insurance. Are tba 
funds being returned to prodttcar asBbarst If so, in what for* •■ 
reduced interest on tba loan or • cash rebate, or is It stayiBg In 
tha bank's lenaral operating fundi 

The secaad aajor concern of tha firangs regarding H.R. 4T8I is 
found in Sac. 210, which aaeads Sac. 2. IS of the Faia Credit Act of 
1971. Tha proposed a — ndaaat to this section would broaden the au- 
thority of the PCA's and tha PLB'i to finance processisg and aarket- 
Ing enterprises wblcb would ba a part of faralng, ranching, or aquatic 
operations of aligible applicants and borrowers. 

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while w* understand that this aaendBent would not open up a Dew 
class of boTTowers, wa question the real need for such incraa*«d lend* 
tng authority. As »• understand tha proposal, an individual oligible 
producer could borrow froa PCA's or FLB's to establish a Barketing 
or procsssing facility directly related to their own farming operation, 
such as a fruit or vegetable packing house, cotton gin, peanut shellor, 
cattle faadlot or confined hog feeding operation. 

At the present tine, such operations can be and. are financed 
through the Bank for Cooperatives in each Fara Credit Adninlstration 
district. The Grange, credited with starting the cooperative nove- 
■ent in the United States, feels very strongly that producers should 
continue to organize as cooperatives and not set up aarketing and pro- 
cessing establishaents as proprietorships. 

Once again, I believe that we must refer to the recoHNendations 
of the Farm Credit Study Comlssion. The cowiission gave strong 
support to the financing of selected off-fan related businesses 
that perfora on-farn services, such as custon harvesting, spraying, 
etc. and to serve the total needs of cooperatives which help aeet 
faraers' supply, aarketing and processing needs. 

The aaandaents to the 1971 Act provided the lending authority 
to aeet these two objectives, but now wo find in the June 21, 1979 
Federal Register that tha Fara Credit Adalnlstratlon propose* to 
change the regulations pertaining to the establishaent of businesses 
off-fara that perfora on-fsra sarvtcas. The proposed changes would 
peralt the financing of fara-relaced businesses providing off-fen 
services end waive the concurrence of tha Bank for Cooperatlvaa, which 
Is presently required when such loans are aade. 

Our concern is that such new loan authority, after once being 
granted by Congress, aay, by adalnlstratlva changes, be used to provide 

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credit to ettabllihBcnt* that Hill be In dlract coapatltlon with 
fully faiBi that at* providing all thair on on-fara service*, or 
that it Dill be uiad to financo aa establlihaent that is directly 
in coHpetitloD with a Bank for Cooperativa>-f insDced, faraer-owned 
coaperative. Th* basic question Is Hhether the objective of the Fara 
Credit Systea Is to aeet the credit needs of faally faraers and ranch- 
ers or be expanded to aeet the credit needs of Integrated agriculture. 

He would urgo this Coaaittee and Congress to consider very care- 
fully the expansion of the landing euthority of the PCA's and FLB's 
to include the financing of aarkating and processing facilities of 
eligible applicants and borroiiers. 

The Fara Credit Systea, through its lending authority, is the 
architect of fara structure. By the extension of credit for pro- 
cessing and aarketlng, the tysten can foster integrated agriculture 
to the detrlaent of faaily faras. He would recoaaend the present 
authority of PCA's and FLB's In regard to financing processing and 
aarketing activities of bona fide faraers, ranchers, producers and 
harvesters of aquatic products to be retained and that no new lending 
authority be granted. 

However, if such increased authority is granted, then the National 
Grange would racoaaend that the legislation set forth the criteria 
under which such loans are to be granted and that before such loans 
are approved the PCA and FLB aust have the concurrence of the 
Bank for Cooperatives in that District. 

The third concern of the Grange is that H.R. 47az would lower the 
percentage of faraer aeabers of cooperatives borrowing froa BC's froa 
ao percent to 60 percent. The Grange understands the unique position 
of rural electric cooperatives and will support lowering of the aeaber- 
ship eligibility requireaent for such co-ops, but believes that it is 

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in tha long-Tknge bast inteiest of faner cooperatlvss to ■■i&tain 
the 80 percent faraer BeBbersblp requirenent toi all other coopera- 

The «o*t iaportant new lending authorit)' provided In H.R. 4782 
is the financing through the Baolt for Cooperatives of agricultural 
export* by faraeT-owned cooperatives. This new authorit)' would 
allow BC's to aaka at least two basic kinds of transactions: (1) 
letters of credit, and (2) financing of foreign subildiaries. 

The National Grange, at its 112th Annual Heetlng, held In Hovaa- 
ber, 1978, adopted a policy position in favor of further developKont 
of cooperative export aarketing (sea page 13.) Therefore, He 
support extending export financing authoiity to the BC't. However, 

t urge the Coaaittee to give consideration to the iapact of this 
change on the Fara Credit Systea and the availabilit/ of funds to 

t the credit needs of production agriculture before granting the ne 
lority for export financing. 
Ha also would encourage the Coaaittee to liait the financing of 
foreign subsidiaries by the BC's to those jointly owned with foreign 
raer-owned cooperatives. 

In conclusion, the National Grange, with these few exceptions, 
in general support of H.R. 4782. We would urge the Coaaittee to use 
s wlsdoa in extending new lending authority to the Fara Credit 
Systea, keeping In aind that the eaphasis throughout the systea aust 
3 continue to fulfill the credit needs of faraers and ranchers 
yaly engaged in the production of agricultural coaaodities. We 
ion against prograas that will unduly enhance other services pro- 
vided by the systea that are not related directly to production of 
agricultural coaaodities. 

■a thank you for this opportunity to present the views of the 

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Hatloital Granja «■ thli iB^itaat lagitlatloa, I vltt ba glad to 
ratpond to any qua*tioas you or tbo Moabari of tha Subceaatttaa aay 
hava raiardini our poiltlon. 



pnMH biik baMfci i n f '- — "— - ■- 


nrf ^BMihW 

RiaOLVID, IM *i NMlHd CtMai aMtftti •• 

cooroATTVR KxroKT MAMwnNC 

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The Katloaal Hllk FroducerB Fedeiadon U ■ national farn coMBdlCy 
oTgaDiiacloD repiesenting dairy fanaers and the dairy cooperative aarkeclng 

A sajoc concern of 
petatlona and through cheii 
vallablllty of adequat 
o underwrite Che nadei 
Ive Industry ■ 

The a 


he Earn Credit Act la a 
haa provided agrlculti 
needed credit. Tlil» . 
have Hltaeaaed in agrlcul 
finance land Isproveaeni 
illltlea aa well as the . 
: Banks of Cooperatlvea, 

o obtain the financing ne> 
iglng aacket and to adji 

Ulthouc thl 

We h 

> hai 

cat thl 

■a Credit Syi 
o Beet the nceda of agrl 
rill penile the syaten C( 

' deaand* placed on it. 

itlv. ..rketlng efl 

Chla legislation t 

of the Fam Credit Ac 

B throughout the United Scatea. 

m'a dairy famera, both In their farm 

to finance their 
needed to nalntal 

rong and conpetl- 

been able 

been able 

toped under the authority of 
elenent of American agriculture 
ability to aaaure themaelvca 

ivlty. Faraera have 
.ocka Inproved equip 
nd oeceasary for their operations, 
belt Barketlng oTgenlistlor 

t to the changing deoands of their acabers. 

t Ceraa which would aerloualy reduce the 

nlty to exoDlne H.X. 47Bi. the Fara Credit 
the propoaed changas In authority for the 
Ide a strengthening of the ■ystea's ability 
ture In the years ahead. Tbe leglalatioa 
nctlon Bore aa a conqilete systcD in aeecing 
t will be valuable to a large segaent of 
ovlng [heir ability to carry their coop- 
to the export arena. The goala aet forth 
alnly In keeping with the initial intent 
re reaponalve to the changing nature of 

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There Is one eleaent of Che expanded lending juthorlty provided 
the Federal Lend Bank AssiK Ut lona and the Production Crsdll 
tlons tp which we direct specific co^i 
H.R. 4782 provide expanded authority foi 

basic praceaalng and narkeclng operatloos related directly 
borrouet's operations and those of other ellglbl 

This provision raises questions Eoi 
cooperatives as It might relate to the E 

of Milk under Federal Hllk Harketlng Orders- As the Coanlti 
a producer-chandler is a farner who produces mill 
of bis own production directly Co consul 


■Ilk t 

The Agricultural Harketlng Agi 
ederal Milk Harketlng Orders provl 
andlers as handlers of milk. Thli 

the Coi 

e been exeunt from these 

■ Congress have rejec 

he authi 
cgulatloQ ol 

:o vis ions of 
Bilk of I 

claim s 

these operations froa the provisions of milk market ordi 
the effect of permitting those wfao c< 
equitable sharing of Che costs of mal 
for the market so that consumcTS can 
tines. Exemption of prodi 

210 of 
o the 




9 the 


to establish producer-handli 
of their own productlor 

laured of their needs at all 
-handlers would have the effect of decrees 
of dairy famers supplying Federal order 

Islons of Sections 107 and 210 la that 

Istcr dale to argue that Congress indeed 
arketing operetlons and Chat cboae able 
status, whether on the basis of msrketlngs 

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In addressing thla quesElon ■■ part of gancral faca laBialatlon 

Including the Food and Agrlcultura Ace of 1977, xtalch apaclflcally 
scatea Chat the legal status of producer-hand lara undar Barkaclng 
orders (hall not be changed by the provlalons of the legislation at 

reco^nd that the Co^ttee Report on H.R. 4782 contain a 
directive to nake clear that no change Is Intended or Inferred 
leglalatlon. Toward thla end. we suggest the following language: 
authority e 

Federal Ian 
Associations by 5 

thp financin 
related to t 
eligible far 

■nka by Sec 

n 210 o 

1 107 o 

n Credit 
ke Ing directly 

of the Agricultural Adjustment Act, SB re-enacted and 
saended by ths AgrlculturAl Marketing Agreenent Act of 
1917, aa anended." 

Va have discussed this qusatlon with the Goramor of cha Faia 
Crsdit AdalDlstratlon and hla ataff and thay hna indicstad willlnsDaas 
to accept this report languaga as a clarifying proivlslon. It da«s not. 
In any uay, dlainlsh or Interfere Kith the landing authority andslonad 
In the leglalatlon. 

Hs appreciate this opportunity to expreas our support for Isgla- 
lation strengtheulng the Faia Crsdit Syst^. It has semd agrlcoltara 
wall. The proposad chsngsa will perait It to conttnus thla aervte*. 

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J r^.ly r.r» .lU. l.r,.. inve. 

■Ml cuiwvivadi saoparattaa. 

•1 ■■.- i>rtiir Iwlv >Aat ■■ hop* • 

fyjdrrilwfd «« bflinf uppoB« 

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..Xw.„t luan ruiKl helJ 
t ur oeriuuo nnwicial 

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rCA ufricinlH, Uwt. ■^any KiU and 

link —II f*™" 

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H npiTiiil itniuttniliun Tiir itervielnt. Ualssi tas eliantalc aliiu in- 
IM ii4Uil.y bcgiiwinii fansn, Uis ayiitM U doini littla aon Uun 

> upiKTiwxiir ill uiti-ivuUiini. 

vdll AuL vJ' In?! <ii- during Uta vnaclAcnl of tho Yuung Fanhor prugraBp 

HKjaiu u|ip>.riMii ly f 

^.Md aiij Uiu 7«» of LhM aliu bad orr-fan incgM avan 

iHil Hiaply ■mh: uI' fan Bias. It is true that 
iial bi|U(vi' rana in thu United KUtaai' iut that 
ul' ■ Bun rundiiii4Hilal trmiirarMtiun taking plaoa 

iiid upuiviud tfy hipwj mrkan. Thi iaaua ahioh 
kiiiiK III thv ns rains in irhat publio purpun ahsuld 
lip III UiiH nlrugglc uvar uontrul of U.S. (grlvul- 

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V pruilui;«l in n luUHlful uf unit! Ul^ 

Uml iKsrlf wK-^wrUr uf Uh pi|t> ia tt« aUts l 
>iu( Tiivt.M ivi., up rna TS ill I8T4 iitiaii M fir»t ii 

y uf Ui. rurly lavosLxn won prinrily larto fam 
lai-(t.'ly •Miiuil by nuii-rarKi'E ahu nily on rsdanl ii 

.> by TyBun Vuuda, 

"urr fan" cMnLuii ici-vicei, includinc cuatcia caltla 
III); liO|t» in Lualia lula ia un* uf Ihg nw fpualiVM 

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LibmCc wiUiiri Liu p^Jiu pMTpOB* irfhici 

*:!-, Aiid Lhv ^iubbidmry of ■ AuiquMlkryinf piartiKt 

Us Uvnei'iil Aooounlini orfics 
D luui to ■ boM ftdi ramtr 
rt, Ihu Ura "teoi-Uiiui-rul 1- 
nl.D mWHlur. UU'Iuni fniwr. 

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u nipvrt. ovur una half of Ui* CLK tmim bvrr< 

il by Jiling II luan Ji|)plicsliun ■ 

1 faaily raraiikc i.; 
lun uf yirt anuUMr 

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B piAlic pulpoKi for Hhid 

Unatv' pr<-cuKHiiii>iin(i urkuiinu nil I allui ihi 

Hhyrine butwiiii rcS twnhH in pnitwnoil lu aliaiiuLi difriauUiM in Bukini 
loan- lu» U'nu r^r ui>u HHOouiatiuii Lu ursly huidU. 

ial b 

■lira I b 

HI Ki. vt'-y li'MHi , HI' iH^l.gvg iiMiKmnH nhuulil not hijihur ■tandanli uf 
fiuw ■(iriciii lu™. unv nvaiw c.r doing hu xuuld be to dir«t tha Secretary of 

Tha CiHiKi-uitH nhould iilHo ruquiiat Lhu U.A.U. tu luidit FCS lwKlin| pnc- 
Utbh III dL-rcriiiiK: MheUiurlhay l^ill'i J I UonitreaeianBl intont that atruggiing 
hvKJiining raiiH^i'H bu avrvud by Uiv K'S. 

■»ii; ■■(, li.«u«:r. irroapuulivo of hui Uic CoMittaa diapeaoa . 
i.r t\,t: ii |ii.q»i:i>id iiauiiidHcjii :. I BBud I u 1 1.' >> licruru U, Uio Caagraaa ahould 
(.lurify iliii Muiiinii of iliv lura "bunu I'idvl'amir" and liait the klnda of 

llial ia unablu In taku Itii' rcHponHibU i ly uf dDfining till* OFuDial policy 

■uckary 111' Mil- iiiiw and ul Uir t;iiin(r«»>i. ConLml in auuh a dafinitiun 

Lorn uapiLnl agneulLuru. II ■■ a redorally ohartcred, i;aupei-aLively 

Lhu uhangiiic Hlruulura ul aKnoullure deaorvoa ipaoial atteatioa, and apeolal 
^■rctLiwi fiua Lhc publtv niapwuiblD for derinint ita pidilio purpwu 

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Ht. OtflrBm ud H^an of tha Co^tCH, I ■■ MtrllB D. JufcMa, 
PmldnC of CtH MearlCT >>>>k. Paratould, Arkanaaa and Chalraao ef cha 
Aaarlcao Bankaia Aaaoclatlon'i A(ileul.cur«l KaBkar* DlvlaloB. Hf bank haa $60 
■llllcm Id aaaat* and 1* In a pndoalDanclT afiiculniral coaaimltT of 10,000 
paopla. Appaarlng vlth a* Coday t* W«lt*r W. Hlntar, Sanloc Vlca Praaldanc, Sank o 
fUMTlca, San Pranelaco, a CoraaE Chaliaan of tba Atrlcultural Baokart Dlvlalon. 
Tha Marlcaa Bankar* Aaioclaclan 1* a crada aaaoclaclon vlch a aobarahlp aim- 
pclalot <rr*t 901 et tb* nation's 14,500 full-aarrlca banks, laeludlng nora anall 
bank! than an; oChar trad* Maeelaclon. 

Ua apptaclat* tbla apportunitj to praaanc cha Aaaoelaclon'a vlaii* aa a 
nuAar of laauaa and prnvlalona ralatad to H.R. t7SZ, a bill to aMnd Cha Fan 
CndlC Act el 1971. mut wa hava bafora ua la a altntfleaat plac* of laflalatlon. 
During the congraaalooal haarins* of 1971, JUU atraaaad tha point applicabla 
today; that cha lav chat aaariiaa olll bava an lapartant baarlng on ohacbar tha 
fanai of iha (uCbt*, Itka tha farvac of codar, will bar* Wo or aora typa* of 
BCrang financial laatltutlon* bidding TltoioaalT foi Ua cradil buainaa*. Thla 
lagtalatloB could faan a profound I^acC on tha coapacltlva dliwca chat vlll 
pravall for agricultural laadlnt In tb* tutun. 

Tb* Aaatlcan Bankaca Aaaociacion balln** cha currant propoaad packaga of 
aaaadBCDCs would tlva cha Cooparaclva Fan Cradle Syaca (CFCS) furthac aulbortty 
to provide fioanciil raaourcaa outalda cba fim aactor and would ba an additional 
■DcroachnvDC on cha prtvaca aaccor iacludlng tha coi^rdal banki n g ajataa. Tba 
aaandBaaca alao aipand tha loaqultiaa alraad^ axlaCing batman tha aparationa 

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of private l*nd«n and Cba CFCS. Ihatcbr radudat ch* co^xtltlsn batman 
CFCS and ocbaT laodara. Thua tha iaaticaa Baakara Aaaoclattim broadly aod 
baaleallr oppoaaa thoaa ^Mnteanta irtiteb iiould nault la Crc$ CBCToacbaant 
Into noa-fan laodlst actlTltlaa. 

Savaral laglalatora hava elaarlr Indlsatad Cha ballaf chat fraa Intaua 
eeapatltloa doaa tha bait Jab af allaeatlnt eradli. tankara vanld actually ba 
tha flraC to attaa aa Ions aa all Inalltuciona coapaca on aqual gnninda. 

Dot puipoaa today la to dlacuaa apaeltlc dltlleultia* va aaa in tha pro- 
poaad aaanteanca. Obrleualr, Cbla haarlng covara an asEcnalva ranga of coplca 
•AodylBS a aarlaa of coaplai iaauaa. Soaa of cbaaa toplca lonlva latai- 
talatad Isauaa wfalla ochara ara Indapaodant aubjacEa. In ordac to aapadlta tha 
praaaatatloQ, and to aaka tha vlava of tha Jkaaricaa Kankara laaoclatlon Boat 
claar, I wlah to eoBwnt oa aach aubjaet la turn bailnninc vlth tha k«»H"| 
Induatry Imolvaaant la tba atcr tiowlag atrleultural Indaatry. 

BaiAlot aod <«riealtuta 

AfTlcultura la Marlea'a alagla largaat IndaatTT. vltb aaaata totallat 
ttm blllloa, aqulvalant to apptoxlaataly 60X of all capital aaaaCa of aanu- 
facturlB) eoTpoiatloaa la tha Uoltad Staca*. All phaaaa of a(rlciiltura atlll 
•aploy Ch* laciaat oiaAai of paapla of all ladaatrtai. and a|Tlcultura la tba 
ceuBtry'a BOaC affaeClTa craalar of aaw malth. Banka ara daaply lacaraatad la 
tba BgrleultaTal aaetor, ao auch ao that bank* bold erar tl6.S billion of fata 
. dabca - in of tha Cofal aatlutad to ba 1131 blUloD. Tuo-Uilrdi of tba 
satloa'a full-aaTrtea banka ara In eo^nnltlaa af la» thas 13.000 peopla. In 
tact, half of Chaaa banka ara la towaa with fawac than S.OOO raaldanCa. Accocdlnt 
to tha lataat aallnataa, naailr 601 of thaaa co^ninltjr banka llatad atclcaltuta 
aa tha alagla aost Inportant aoulea of IncoH for thali coHunltlaa. 

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The binklni en— iinl ty raeetoliu due Uw CKS pl«TS an laporunt 
a provldlag aiilculCuTal cradit. Ha aupport, u m did in 1971, chosa . 
cnu vhlch Bodanlu CFCS aatbed* and procaduraa •nabllng IC to Hrva tl 
•adi of a cbu(tat ajrlcaltura. Banner, va oppoa* Cha oaw autbocldaa 
•tlilacloo would grant that prorlda nan Jltaetlona uhll* apaelal traata 
ndcT tha ptaicnc law t«wIb«. Tbua our taatlBDnr will b* llaltad ta th 
acodacaia w* batlcv* voiild raduce eeapatltlon vlch tha prlnta lactoc fr 
tanClng undua co^wtlttva adiantagaa sf CFCS aaabar Inalitnclona. 

!• CfloparattTa Eltalbllltr . The pcepo**d laglalatlon would raduca ! 

601 the laqulr^wnt that ntlng aaahara of coopatatlvaa benowlat (rga Baoka 
foi Cooparaclvaa (BCa) ba fatmata. BcrwmT, tb* l*ti*UC10D baCola ua doaa 
not atata cha crltarla uacd to qualtlT ona ■■ a fa»«. U>, IharafoT*. 
Caal that the word "tanHr" ahould ba proparljr daflnad In tba laniuaga 
of tha bill. Varloui publlcatlont, auch aa the UnlEad Stacas Dapattaant 
of Aiclculcuia Statlatlcal Bullatln Ho. 609 of Juljr 197B, acata that 
■any faraaia aam a high paieaat8(( of thalr aiuiual laeaaa troa a(f-taTB 
aouicoa. Hr. Cfaalratn, iloca ch* Fats Ci*dtt Adainlstiatlon daaaa it 
dMlrabla, and wa asraa, that "faiaara" coDtinua to control alttlbla 
coopccatlvas, a el*ar-cul daflnltlaa of whs a faiaar la would ba nacaasary. 

Tha cootlnalnt aroalon in tha ntBbar of tull-tlna lalaaia haa lad to 
lavar faraai* ruonlat blgiac oparatloaa aach tmt. Ttala propoaal would 
broadan tha allgibility crltacla foe rural alaetrlc and othtr eoDpcraClvaa 
to enable tha ICa to aarv* an nor vldar ranta of credit neada la rural 
and auburbaa AHrlca. Ua baliave iheia ahould ba no furthar llbaraliiatlon 
of the faiaer-MAer alltlbllity raqulrtaent for financing. Tb* praaant 801 
atandard (70Z for rural electric cooperailvaa) allow* a cooperative 

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«tl|lbla for BCi flaaBclng to hna ■ aubacuclal oisbar af lea aaabar- 
■htp aappoctad hj son-faEm iBcoBa. althci aa part-Ctaa or soB'taTBar 
■B^aia. It la our ballaf that If SB airleuttural ta—jnUy tnily 
BHda a coopatatlva, thaca otll ba aBauth fam coBaCituaDta avallabl* 
to aurport It DO It* eunenc bua of fan to Bon-fan BaBbarahipB. 

Flaaaelai of Procaa»lB» aBd Markatlna ActlTltlaa of Bona FIda Pii»«r» 

Thla propoBBl wuld parmlt Fadaral Laod fiaska [FUla] aad FroductloB 
Credit Aaaoelallona (PUt) to floanca pcocaailni and aaTkatlni actlvlclai 
for faCBara. Althouih m uodaraland thla authorltr la BOt iBiandad Co 
quality any n«v boitowar*. It doaa prorlda nau authority to floaocc 
aff-fant bmlneaiaa lo Hhleb a aubataatlal portion of Uw product pro- 
CMaed aBd/oE aarkatad la aot that producad by tba bomnHt. Id 1971, 
Contrua wtaoly llattad aueh atrlbualnM* floaDClni to on-faEB aetlTltlaa. 
Vt ballna thla fuldalloa should ba coBClBuad alnca It provldea • rMBOO- 
•bla CBBCrel ■■ to a quallflad bornnrai. Ocharvlaa. thara la ^n(ai of 
op«alat tha door ta serleua vlolatlsoa of the iBtant of tha lav. For 
•laapla, thara ara nany larta proeaaaor* and BOTkatora, auch •« la 
California, vbo aia alao grovata. Altbouth lovolvad In fara production, 
thalr bbIq actlvltlaa hara Blvaya baan procaaalnc and BarkaclBf. 
ProcaaalB) and Barkatlag actlvltla* of such aTganliaclDni ahould not ba 
■BCldad to PC* and FU flBaBclBf. Ha ballna piocaaalB( and Barkatlni 
Baa4a ara balB( Mt adaquataty through wilatlB| aatvlcaa proildad through 
tha proaont highly c 

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Unfci for Coopwitlv*. E xport Flmneln. . Oni of th« Bajor twul- 
■mt» propotad wmld auchorln iha IC* to handla th* fliuiiclsi mod 
rklacad ••irteloi (unctlau of fanai eoepanclna' dlraet fotalr) 
Ml** of co^wdltlM, ot pnrehuaa tros toralta •«»«• of lt*u nacdad 
to condaet tbtlr own coopantlTa* apocatiooa. To aceo^llah chla vUl 
laqnlra tha aacabllalaMBC of corraBpoadant nlatlonahlpa vlth appioprl- 
Bla foral^ ba^a. U.S. baidu. aod/or Ibalr fotalin branchaa. Raelp- 
neal afraaaBCa In Uaaaa eoTTaapon4aiit ralatlonriilpa would eovac tha 
laananca, raealpt, and tuaraneaa of lattar* of cradle, bankara' accapc- 
aaeaa, claa dcafUi also obcalnlac eradlt rapoica on bujara aatarlat Inu 
ennrancT aKchuga traaaaetlona , and achat aarvteaa. 

FraaklTi wa ha*a difftcultjr godacatandtsi cha naad tor thl* oav 
auclwrltr- It aaaaa to ua that chaa* tTanaactlnu can b* haodlad 
attlctantly and affactlvaly ij 0.3. mntir Gancar and ragloiial cOBarclal 
banka. Ha maid wast Eo aaa juacltlcadon aa Co iihT> If lattata of 
ecadlt ara lapotcaDt, a anaatclal baak could not pnirlda thas. Indaad. 
tha onaarElal baaklat ayataa, Iseludlni doaaattc U.S. banka and thali 
doBaatlc and foialtn eorraapoadanc*, bava had no problaaa In handlloi 
tha laccar of eradlt naada of coaaodlcr buyara and aallara. Tha 
ptaaa&t axport eradlt Byatai haa fullr aupportad tha rapid loeraaa* Id 
faia coModltT axporta Itmm $S b 1111 an to $32 blllloQ ataea I9T1) 
anjoyad b<r thl* eomttr. 

ForthatBra, Tltla HI of th* bill inuld panit cha BCa to aaka Invaac- 
WBCa 1b foTalfo antlclaa Chat ara iBTolvad In ttadlBf xranaactloBs vich 
U.S. eoopantlvaa. D.S. eoBBaretal banks han only a nrj llaltad suthOT- 
1C7 to BBka iBTaicaaeta la cwo-bank-ownad ancltlaa. Thl* la anothar 

Digitized b, Google 

•Miipl* oi ttw unfair eonpaclttv* advantas* being profldad to cha 
CFCS, and Ha caco^wid etiaaa proTlaloDa be atrlckan from cha bill. 

Mr. Cbalniaa. <>• tutiaat that CIm aaphaal* In cha propaaad chan^a 
aboold ba Co panic a baCCar InCeicatiori of fuDctlena bataaen cha BCa 
and U.S. coaaareial bank* Tachac than to add additional flnasclal 
aarricaa aach aa In c b mat Ions 1 ecadlt. BsnavaT, If Intaroatloaal 
flaanca poiiata an ttaaCod Co Bank* tor Caoporaclvaa, auch aetlvlclaa 
aboutd b« aobjact Co tba aaaa ragulatorr unatrainci a* chaaa lapoaad 
b7 cha Fadatal goran^nc upon baoka. 

Intareat Ra«a . H.H. 4782 wnld aia^tt cha CFCS [loa aCaca-I^Hiaad 
Intaiaat cat* llaltattona; that la, uaucy law*. Thl* la a snaa laequlcy 
for ochai InaClcuClonal landera, pardcuLaclT In parloda of hlsh IntaraaC 
cataa auch aa wa ara ne« axpaitanelni • In choaa atataa havlni taacrlc- 
ClTa iiaury raCaa, Cha praaant anvlronaanc would panlt tba panatraclon 
Into tha agrlenltuial loan uikat by cha CFCS iilthaut bbt co^aclcln 
ablllCr on cha pact of prlvaca landara Co aan* Cha aatkat and iMuld 
pamlt « windfall Inciaaa* In ttta ahaia of aackat fat CFCS. Coaaarclal 
banka or any achat prlvata taadai can not pcetltably Bale* loaoa wban tha 
oaury calling la nndai cha aackat raca. 

In aany parti of rural taarlea, tha CFCS affnetlvalr aaca tha eellln(a 
OB tan cradle |TanCad by InatlCuClonal landara In cba araa. In parloda 
auch aa Cha praaant, vlth banka' eeat of fundi rlalag, ottaa aueb hlfhar 
Chan Cha local uaury raCa and landlnt racaa of local CFCS unlCa, tha 
local banka find chair aourcaa of dapoalca drying up bacauaa of eoapatl- 
tlv* aoBay aarkat tacaa for alcamativa InvaatMnt*. Thla eoapacltlon 
for local funda ia axacarbacad by cha ona-tiuarcar pareanc dlftarantlal 
that Cha aavlnga and loan InatltuCiona anjoy. 

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Addltt<n>liri with oar •]>•(■> at i ii^mli ■! Iiim ud iBforBaCleB, 
•van local poiaaclal dapoaltora h«T* aee**! to aDBar asTkau io thm 
■DMT cancar*, aBd capital ofiao flam mimj fna tha iBall ee^amlcr 
to tha Miaar canuii. All thla raaulci In a (taBTiaaa ef capital 
anllabla u tha local banka. fhan thla la Mi«la4 vlth caatTlettv* 
uautT tatu aod tha ' e e^atltlon tnm tha CFCS (tAIeli ballara* Itaalf 
to ba asHpc Iraa naory raeaa md haa tha abiltcy ta fiad iu oin 
to^ulraaaata oa a faistalila baala tnm nactoaal ■onay aearcaa) It 
bacDMa astrawlT dlfllcale toi local baka to cowaca. Ha ballara 
the CTCS (hould ]o1b banklo* aad aaak rallaf In thla araa tax all 
lasdara aad not aaak tta om apaclal asaaptloaa. 
S. Truth- 1B-Landln« . R.I. 4781 as^ta CTCS froa acaca truth- In-Laadtot 
Ian. Such ucavtlou for CTCS M^ar InatlCutlOB* aUov apaclal 
adrantataa, and contrlbuta to tha eovalltlTa li*alsKa vlth baofclnc 
and othar laadara. A|ala, va ballava tha CFCl ahould join basklai and 
aaak rallaf la thla araa for all landara and not laah ita o« apaclal a» 
tlooa. iay auch tallaf for tha CFCS ahould ba eouflad to atallax rallaf 
for alt othar laadara, Isdudtai cri»ircUl ha^a. 

toatlcutloaa In tha CICl carraBUT hold a vary aubacaatlal prapartlon 
of tha total a^nmt of farm eradtt mtataadlni. Tha CICS, Is a Fabnc 
ary *. 1980 amn ralaaaa, raporcad )3T bUlloa to Isbu cutitaadlBi 
to aaarlr 1 Bllltoa ladlvldual borrowara and 3,300 eoeparativaa . 
With tha propoaad ehaajaa lo tha Fara Cradlt Act of 1»71. tha rola 
ot thaaa laallcuclona la llkaly to furthar a^Bid. Ilowavar, thaaa 
loatltuclona eurrantlr oar lltd* or no fadaral IncOM taxaa, which 
aahancai chair abllltr to co^ace ulth coaHrelal hanka tod othar 

■l-**0 - t 

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■gilcnltBtal laadan. Tbara fp»»r» to bm ec corraat tuwla far contla- 
olnc thla pT«*«at Ms adrMiui* to tbasa icmiit and lUUa Inatl cat loos. 
AIM, tb* CrcS •taould makm ■ lawBubla conCTlbBtlnii to cha cuit of 

TIw Ux •tnweora of tha CKS la qulu caaplu. TLIa, FUAi, aad FlOa 
ira cnnaBtlT iii^il fna radaral Ineaa* U>m. PCla ua canbla at cunant 

far pmvlalona for loao leaaaa Dhleh ban no lalatlonahlp to actaal sr 
BBtlGlpatad loaaa*. BCs ara aublact ta fadaral jncaaa M>. bat pay a 
no«lBal earparata laenai ta> daa to tha eoegaeatlva fata of arsanlia- 
tlOB dbleh •llem a daduscton fat "qoaliflad" patioaafa xafunda. Thaa* 
•ra tafmda In Iba fata af caah <ac taut 20 parcant), aUacacton of 
aamlasa, aad (tack paid ta thalr aiabar eooparatlvaa ■ Tha tas on Cbaaa 
diTldanda ara paid by aaatar cooparatlm or la turn paiMd oo to tlaalE 

OCbar aquicabla eoaoldaratlona voold call for a tarslaaltoB of tb* 
•naptlOBi acGordad ta TUt. TLMa aad Flda. Fadaial Tiiraiaadlan 
Cradlt laolu EarristlT oparaca sa ■ eoopaEatlT* bull and tha prepoaad 

latUlatlea maid e: 
rafuDda. If thaaa loatti 
that ihalE patnna|a rafi 
Ai > raaalt, FUa, rUAa 

tai. If tba tax as 

Iwtttutleaa Boat qiiall(< 
abla fat fadacal laeoaa 

tha povat ef PUa and FtUa ta 

da do nac qnallf; foT as Ineoaa tn da da etlan. 
and ncia can nalia payaaBt of tun-quallltlng 
: BMbar* opon atalch tbay do not hava ta pay 

odar tba Intaraal Kavanua Coda to ba daduct' 
: purpBaao. Thta wnld raault In tha aanmc 

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at Clw panonaia rifimd balii| caubl* altlMT to Um FLB, TLt*., tB4 tb* 
no ST lu ■■■tir» — UwtAt par*ll*llB( tha tnauant ef baafc* (or 

CorraBtlr. KA'a ar* raqnlrad Co trnwtai •aralofi aqual to .5 of 
1 pncBBI to leou ooutodlDa at tha aad of cba flical r*ar to valu- 
ation raairvaa until *seh TMarvaa tqual 3.9 parcaat of loana ouuta&dlii|. 
Tbua proTliIoBi far loan tesiu ira aececdad a dadsetloa tor Fadaial 
iQcaac tax porpoaaa. Cartantlr, eo^irelal baifta ara parBltMd to aaka 
•ddlelooa to aalatalB a Taaarr* (or loan laaaai aqual to 1.1 parcaat of 
alldbla loana, aubjact to nductloD to .6 parcanC 1b 19BZ. In 1»U, 
addttloaa to banka' taaarvaa fill ba baaad on actual loaa axparlanca. 
It la ranjMiudad chat PCia, aa wall aa ru*. rUAa. and nCla. tf 
taxabla, b* allamd ta daduet as addition to bad dabt taaarvaa eoaputad 
tn tha aaaa BannaT aa coBpaclni eo^HrclAl banka. 

Incorporation of grataa Sarrlca Intltlaa . H.R. *78I pamta tbo fan 
Cradlt A^nlBcratlon to ehartar cotporallona lAlch partora oChar Iban 
ctadlt aarrlcaa (or CTCS Inacltutlona. Than ara a a^bai of fara 
aorrlcaa auch aa: fatp Banataaant tniata, ■arkatln^brokaraga. aamei- 
itr/hadilnt, cotvutal aarvlcaa, antatprlaa accoimtlni, parroll aarvlca. 
aceounta racalvabla and aecoimta parabla aarvlcaa, aacurltjF aiaocy 
aarrlcaa that csvld poaalbly bn aatabllabad bjr CFCS and chaitarad aa 
aaparata aatltlna mdar thla laalalacloa. Inauraoea to pnvlda vartoua 
klnda' of covaraga could alao ba prorldod aa a aarvlea and cbartacad 

Tba CFCS oaa not 

aatabllahad to aall 


Tha porpoaa 

annnal fan Cradlt 

Act waa to ptovlda 

cradlt fc 

It airlcultura. 

Digitized b, Google 

pnpo««l llb«itll7 J«fla«i th* ponsra ol such corporaM mtlti**, p«i- 
BltElBg tbm pnfanuc* of a wUa rofa sf mttIcm. It Ii dltflcnlt 
to aralMt* tbla laMral anUBTltT, but It eouU ba tatarpntad to 
■Ban tba CFCI could om aad oparata BBBr typaa o( aoo-taiB bualoaaaaa. 
Thla mold b« ao BmaTxantad aneToielawnt lato Um piliaca aaccar by 
coTpoiatlooa baaafttln) tram apadal tiaa ta tha fadaral l oiar ia aat. 

• - iDcraaa* lo . FTJi 851 U«n V»lg> UnJlni UmittcloTi . Thla propoaal 
uaali alio* FUa ta mka raal aatata leaaa la axcaaa af SH at tha 
■ppralaad valna of tha pTDportj aacsrlnc tba loaa vban tuarmtaaa aia 
provldad bj lojar a— at •■•oclaa. Baakara ondaiataod tba raaaona for 
thla prnpoaad Gbaiit*> allonirit TLBa thioutb tovanaast luanncaa loana 
te aaalat low aqvltr bomwan. Ba ara coBcaTsad that abuaa coold 
raaolt In axcMalTa anaaaloiia of erodlt, caoalnt loat tax* caab (law 
probl^u fat boirowaca. Thaaa elreiaataneaa Huld uotrlbuta u larloua 
iDflatloBarr ptaaaaiaa oa land pTlcaa. Ha, thatatora, raco^Mod that 
TOTy tl|ht llBttatioaa ba placad oa tba autbotltf alloalBt laaa/valoa 
Indtnt In anaaa of SSt. 

9. t qaalltr let Othar riaaaelal laatltutloaa (on'a ). Tba FlCIa Data 
oi(aaliad In 1913 aa tan loan dtaeanac faellltlaa ptlaclpaU; for 
eoaaarelal banka aaid Ona. FC&a data OTianiwd 1b 1933 and alnea than 
hat* baeoaa tba pTiaarr banafactar of cba RCBa dlacountlai faellltlaa. 
Today, m at tha ncia tlS.S blUloo la loan dlacounta ata with FUa. 
Ib thla anvltowaat, banka and DTI* ara tlndlag It dtffleolt to obtain 
aceaaa ta FIO* dlaeouat aarrlcaa aa oiltloallr lataodad. Thla dla- 

Koitizedb, Google 

eouBtlBt tadllty ■«■■ to b* adalBlitand dlflarntly la ttM vutou* 
FlCb raglou. Ua 1w11>t« It la appiopilata for Conirua to natora 
Um OTltlaal purpoaa of FICIa by raqulrlng Id tba law aqual tiaataant 
for OFIa. 

Iba a^ aervlcaa, on tba uaa taiaa, to both FCAi and OFIa. Ni]oi 

araaa that naad atCantlon to achlava aqualltr ara: 

1. Trpaa of loau alltlbla for dlacomc (Spaclfleally allowlns 

agrl-bualnaaa loasa to ba dlacomtad tor OFIa . ) ; 

Isas aaeuEltlaa; 

Individual landlni lladCa; 

Capital to loan ratio; 

Loan data procaaalni aarvlcaa; 

d OTtm 

a FICBa boarda. 

He. Chalraaa, m atrootlT uc(* that tbaaa raen— indatlena b« loeludad In th« 
ravlaad Fan Ciadtt Act. and br doing lo, raiTa tha praaant trand of OFI* bacos- 
Ing a noT* dlitaot "atap child" of tha CrCS. Tbl* nonld latum OFI* to tha 
ralatlonahlp Intandad wfaaa flCBa it9TU originally cbartarad. 

I irtab to caai^haalia, tba AU doa* not oppoaa tha '%Huakaaplng* prorltlana 
lo Cha pcopoaad latlalatloa ifhlch an daalgnad to anabla tha rapidly Innrlng CFCS 
to aaat Ita changing oaada. ta fact, two ptopoaala atrangthaa tha opportunity for 
baaka to mrk Jointly with tba CFCS In aarvtng tanwra: prsvldlng aulborlcy for 
Fadaral Land Banka Co paicldpata In [ara loana vlth eoHcclal banka, and aulhor- 
lilng Production Cradlt Aaaoclatlona to laaua participation cartlflcataa to 
iBiairclal banka and othar landara. 

Digitized b, Google 

U* ballera tlut full coBpctttloa. ao looa u It 1* fair asd aqultalila, la tba 
bait itar M aaanra that tanact vlll coactoua to tacalT* qualltr financial aar- 
vlcu and that eooaumn vlll raealv* good ptodueta at tha lovaat prlcaa. 

Bank* anppoctad tha fonatloa of tba CFCS durlai tha auly part of thla 
tratuxj. Indaad, tha bankloi laduatcy hu nicouratail tba [(paraant of tarariBant 
capital br tba Syalan and baa not oppoand chanftoa In CFCS lam wblch vara raqulcad 
fron tina to tina. Hovwar, v* ballara tha CTCS haa protraaiad In scopa far 
biTond tba Intantlona tot whleb It iMa ecaacad. 

In fact, tba paaaafa of chla laglalatlDD vltbout aaasdaanti tnuld ratult la 
ctaa Cooparatlva Fam Cradlt S^atai batng tranaforabd Into a aatlonwlda financial 
antltr vlcb povaca and apaelal ptlvllasaa uBparallalad In tbla eountrj. It noiild 
ba abla to pool capital anong unlca, anabllng aubacantlal Incraaaaa In IndlTldoal 
In loan pactldpatlona and loan loaaaa on a ■jat^i' 
o taatrlctlona on otbar financial Inatttuclona natab- 
lav. Tha CFCS vould alao ba ana^e titm 010x7 raattlc- 
atatutaa, and Fadaral taxation In wMOf caaaa. Tha 
kind of an anvlTOBaant, baalcatlr oppoiaa thoaa pcovlilon* 
lAleh mild raault In tha CFCS aDrlBi fuctbar fnia Ita fata landing raapooalbllltlaa 
Into DOD-faia aell«ltlM, and at tha aaaa tlaa, Ineraaalni Ita Inaqultabla eoapatl- 

Hi. Chalraan, wa tharatora raqnaat and ballara It la l^orlant for tout 
Comlttaa, a* rou finalli* work on chli taglalatlon, es fullr eonaldar tba tan 
anandaanta balng raco^Hndad by cha banking co^nmltr. Thaaa Man! nan la addraaa 
tha conetRi* dlacuaaad In tbla atataaant and aca attaehad for tha CoMilttaa'a 

n tba faca of thla 

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An MwndKnc to Ttuln tha vord "cural" to IdanilCr tb* 
(Htraphlcal anu In «Uch FLB'( can uki loos-un rul 
Mtau aDTtgaR* loao*. 

... to applT uaut7 lav aa^^cion aquallr to bankat 
agEtcuIcural eradlt eoEpeiaclona, and aBanelu of tha 
Coopaiacln fan Cradlt Sfita. 

... to aitabllih aquallcj on loan to appralaal valua* 
uaad by Fadaral Land ftaaka and national banka. 
... to raaova tb* tax inf tleo atatac of FU'a, 
TLBA'a, and FICB'a. 

... to placa Banka for Cooparativaa txpozt flBanciog 
aetlvltlaa uodar tba aiBa tagalatoTy EaqulEaaaata a* 
l^KHad br tba FadacBl Cevamaant upon eoNWTClal bank*. 
... to maintain tba praaaat 801 laral of fat—r aa ^ aiahl 
Taquinaant (701 for nral clactrlc coopaiatlvea) foe a 
eooparatlTa ellglbla for Bank Cot Cooparativaa flaancln|. 
... to aaa^t all atrleultural ecadlt traiuaetlaiu 
troa all Iruth-la-Laodlag dlielaaun laqulrastnt (or 
aU landan. 

... to problblt Fadctal cbacciat of aarrlea OTiantia- 
tlona by tba Cooparatlva Farm Cradit Syatca. 
... to Tcatriet landing autboclCy of TlB't and FCA'a to 
piocaaalai ud •atkatlng aetivltlM dtcactly ralatad to 
tba on-fan> sparatlona of eliglbla borrouara. 
... to aaiabllih aqiiallty in FICB dlacountlng and othai 

ABA 1* grataCul foe 
mil pamlt Mr. Ilogar to 
Hill be pLeaied to rsapond 

Digitized b, Google 


Ky uaa 1« Walur w. Mill* 
Sm Franciico, m bank having aMm 
porifolla of loans to agrlculcur 

today, homnt, a* a fi 
of tha Aaarleaa Sankar: 
attlculiural tiaokliig ci 

I as Senior Vlca Pnsldant, Bank ot AMTl 
■ o( $106 blllloB iBclvdlnt a «iA*taatlal 

a DlTlalon 

ar cbalraan of tha *|Tlcultur. 

uoelatlon and apuklnt of aaiat eouEara* tha 

uiltT ha* tataidlng vailoua prorlalona and propoaala 

Mud tba ran Cradlt Act of 1S71. 
paralaalen, I would Ilka to su^url 

la B.R. *7S2, • bill 
Ulth tha Chain 

I aaauaa It la tha Intant of Con|iaaa to utlllia Ita povara to piovld* 
■ raaaooably (qultabl* anvlrcaaaDt to tboaa Innlnd in Baking aiallabla 
financial aarvlcca to U. S. agrlcDltuEa. Tha mad* of (araaT* and eoBawwTI 

a liaat aarvad iifaaa 

ataa hav* aecaa* t 

Inn at thla no 

aaoBg ottaac thlaga, tba : 

a blgbly co^atltln agr 
at. tba antltlaa that na 


do not CBjoy parity in thslc i 
oucllna a ni^wr of tha diaadvantagaa tba pcln 
ocgaBiilot cha caaouccaa naadad to aaat tha n 
bortOMr. Thia litany of dlaadvantagaa la ont 
facad by tba bankar a* cmtTaatad to u absaiiE 
by a cradlt offlar In tha Coopaiallva Fan Cn 
Tba aequiaitioa of (unda la an ugolng ai 
baokar. Particularly during parlnda Hbaa int< 

iTlBclpala In our U. S- food 

lultural end It dalivaiy ayataa. 

I up tha coimtry'a agricultural 
illiclaa to <:ov*ta. Ut aa 

{Elcultural bankar faeaa In 
lulraaants ot tba pnaaot day 
that co^araa tha diaadTaalagaa 

of aucb dlaadvantagai facad 

t Syatn. 

cancan of tha eoimliy 
■taa for all aonay Hrkat 

lalBg rapidly, tha oall- and ■adiua'altad banka ha* difficulty 
abla funda. Ooa of tha aajor datarranta to purcbaaing funda 

Koitizedb, Google 


fna Um IBVMM* Bukat U ■■gBUtln* Q, an* of tha mm t^srUM nsoUttoaa 
Inuad br Uw IM«ntI B«i«n«. TUa rlacM M lauraat tat* ""'"| on «hac 
b«i>ka can paj to atCcacE fuate. pattteBlacl; cbaaa chat und cs acar lo • 
dapaalcor? loalltatlaa omt a parlod of tlaa, auch aa paaaboak aarla^a', aod 
It alas aaca low lalaraac rataa <a aodaat alaad canlflcataa of dapoall. 
tacaatly, aoaa cattlflcaMa aad oUmt aooaj aattat loalnaaata han b«aa aad* 
Bora aicraccl**, thl* haa baaa aeeii^lliliaJ kjp paralttlMS hl^ai cataa te b* 
paid to atccact Ivnaton. UdttlaaallT, Bitnal fiada ha*a baB oT(a&iiad that 
paralt aavan wltb loaxf f le lant fmd* to buy a lacta dnioalnaHaa cartlflcata 
of dapealt, bj poolloc finda with ocbar iBraatora la Ilka alcuatloaa. KoMTat, 
Ihaaa fiBda acqulrad at aiaaatlalljr acm»j aatltat rata* an miy hi|h la eo*t- 
BaDka auat aalatalB raaarvaa aialaat dapoalta, a csat not aaaoclatad tdch cha 
crcs'a louiea o( fiaid*. 

Oa Iba loaa aid*, haafca aia oblliacad to co^lf with atata uaut? lawa 
la ihoaa atataa wbara thar ata chaitand and oparat*. Qaorr lawa, of eouc**. 
llBit cha Mtiait at lataraat a laadat eaa charj* a borrowai lat loana auch aa 
tboaa co^Hmly takaa br faraaTB and raBcbara' On tba oaa haod, banka bava an 
laablltty to acqulia tba lowar caal* loaoabl* fund*, wfalla oe tha otbar hand, 
If ona vara to alcracc loaaabla fiada at aarkat rataa, tba uaur? lawa In aaar 
atatdia would pioblbtE cbaiglo) an ada^uata Islataat rata to paiBlt paring tba 
prlci for tba Isaaabl* fvndi that auat b* caquitad te aaka tha loan tn tba 
tltat plau. 

Tba "Pan Ccadit Act kBaateaata of 19T9" would paratc ualta of tha Fats 
CiadlC 9r*caB to »yn cloaar Co tba (acharlng of dapoalc-llka ttaida. Tat 
H.l. 4782 would alio aa^t tha Fan Cradlt Srataa from all uaui? lawa and. 
la addition, voald axa^t tha STacaa fna all ataca Tnich In Landlni lawa. 

Koitizedb, Google 

CoBplliBca wlch Truth in L*sdlD| lam alaply add* ■ooch*! coat Co tha bank'a 
CDit a( dalni bualnaia, which Cha Faia Cradle Srataa would net (affar If CM* 
bill la paiaad wlchout aDdlflcaclDn. Baaka mmt Mlnuln Taaarraa and pa; tha 
coat CO loaura Chair dapoalca vltb (ha Fadacal Dapaalc toaoranca Corpacatlon 
(FStC). Tbaia la no ta^ulra— it fat laaarvaa or for dapoalt Inaiuanca aada oa 
Cba rara Cradlt Sjacaa b; tha laatuaia la B.I. 47S2. 

iBOthar faatiua at banli aetlTltlai la that of rafulaclon. laska ara 
raculatad by tha Tadatal Baaania Srataa, tha Co^tiollac of cha CuTTaacr. 
tha varloua, atata bankloi co^^ilonar* or ilsllar authoiltlai, tha mc. 
and oChai ratulatorr aiaacla*. Vhanvar aa laaonclvi baah daalra* to aogafa 
la a oaw aarrlca. It auat obtain tba approval of cha appropclata auChorltrla) 
to an|a|a la aoeh activity. Ron^baak ratacad aarvlca* eaanot ba aotagad la by 
■tata or fadaially eharcarad baaka. Tba llalta of aarvleaa ata proacTlbad by 
tha rafulacsra aad baaka hava llctla traadoa Co ehaofa Chair oparaclooa or thalt 
producta to aaac cha chaaglag naada of iha aarkitplaca. thua, E.K. 4781 propoau 
that a aiabat of addttlooal aarvlcaa ba uadactakaa by Cha Far* Cradlt Syataa. 
Tha laaiuasa of tha bill la (uch that chara ari fav afftcclva lUdta on tba klodi 
of aarvleaB that eoald ba undartakaa aad lacorporatad . Thla la la aharp coatraa 
■ich Cba Maaar In lAleb baaka can auiMat thalr ■ 

Tha eo^KTdal baaklai ayataa la tha aoat raadlly avallabU aahlela to 
Cba Fadaral Raaarv* Syacaa for Inplaaaatlai BOaatary eoatroX prO|raaa. Aa ha* 
happaaad racancly, CO fight latlacloa cha laciaaaa la cha raaarvaa raqulrad to 
ba kapc by baaka agalaac thalr dapoalca aod Cha Incraaaa Id cha dlaeauac rata 
hava bocb had a draoacle affact oa-tbi aupply of loanabla funda aod/or tha coac 
ofauch fuada co baaka. Tha Far* Ciadlt Sracaa la not dlraecly iapaecad by tha 

Digitized by Google 

accl<rlttM of tba Pa4at*l «««» i t« loard. Md 1( chla aMinri la pauad, than U 
BO raquliaant tkat tha Mia Cndlt Irataa ba aiAJaat ca aar n»am laquli^HBCa. 

I.l. *7U piayaaaa thmt cba larloua bHka la tha tnm Cndlt trataa - tha 
•Mka for CeopnaUvM. Mdaral Intanadiata Cradle iwika, aod Um hdaral Laad 
Kaaka, aoc oolT pool thatr eavltal u Ucnwa tba ajar^lila lean IImIci, bac 
IE alao pTvildaa that thay ahan thalr loaoa and tbalc laaa leaaaa- 

Iban la abaolutalr aa ability bb tha part of co^Bielal baaka to pool 
capital, to pool aaaata aucb aa fara laaw, to abaia loaaaa la a oaj that nould 
dlaparaa aaooi aaaj baaka' rlah aad loaa. aad thara la do ability to lAcraaaa 
iBdlTldual baak laadlac llalti by peollaa ariaosa^ta. CovarcUl baaka eaa 
aall. Kith or without racoaraa, portlaaa of thalr laaaa to otbai banka. 
Thata la na toiaat profxaa paralialbla vltbla tha banklni eo^aailtT to aatch 
tha abllltlaa of tha rats Cradlt lyataa la tbla ratard. Ihara ara la|al 
unatralata far baaka ta orgialaa aocb a ayataa. laaha hara oalj lialcad 
accaaa to tha Fadaral Baaarva dlacomt oladoii. Ibaa* ptlTllaiaa aia ooly aataadad 
to tuoka that ara aaahari of tha Fadaral laaara lyacaa aad thm than ara 
latbar atilcc nqulcaaanta to qualify tha loan papat that 1* illilbla to praaant 
to tha rU'i dlacoiBt wlodav. thara U ■ (aaaoaat dKeaistUf pTlillaM anllabla 
to CDtaitry baaka foi ralatlvaly ahort pailoda nhan cbali aaaaoaal agilcultutal 
laadlot actlirlty paaka. (to tha othar hand, thara ara praaauraa as tha each 
poaltioaa of tha aaallar coiatry baaka durlag tbaaa bl^ bonwliit parloda. 
In coBtraat, thara la an oBfolDt aad raadlly avallabla aouica a( fmda (or rCAa 
■ad rUA'a tE» Fadanl Intataadlata Ciadlt Baaka, «d Padaral Land Baaka 
taapactlvaly. Orl(liially, baaka aad othar flDaaelal Inatltutlona (OFIa) waia 
to ban ready accaaa to tha dlacoimtlni aarrlcaa of tba nCBa. Ovar tha yaata, 
tha raactloe by tha nrloua rl(3 dlatrlcta to raquaata (or approval et OFI 

Koitizedb, Google 

not baan imtfoialy and taadlly cvallabl* Co bask*. 

Tba bank Tasulator* atid Cba vatlou* Ian* havtua C9 do wltb controlllnt 
banking actlvltlai prohibit, far cka Boac part, bank* Croa antaslna to canain 
flnanftal aarrleca, auch aa Inauriaea, brokarai*. fucuraa contract tradlot- 
Tba propoaad latlalaclcs would (MialC, If anlj bacanaa of cha looaa Don-dafliiltlva 
languaga In cha bill, tlm Fan Cradit SytfM te anga(* in a vlda-Tani* of MT«te«a 
lalatad lo fatmlDt, eoiBmllt; axportlnt, wacahoualni, and concaliablj inclnda 
(•Hint vatloua kind* of Inauranca aueh aa caanaltT. Teaaal, eo^BdlCr, aad 
P«t(oraanc* tnauranc*. Tha Mrvlcu that night ba organlud could IniraLva 
fralght foTnTding, tha bu7lnf and ••lllnf of nonaj narkat Inatrinasca, tha 
danlopaant and •aehasca of narkat nawa iofonatim, eolloetloaa of funda and 
accounca racalvabla, Cha (nthailng and diaaaalnatlon of eradlc Infomaclon, 
coBpucaE-baaed aeeountlnt, aaoataaanc CBnaoItlag, and •oaltorlni larvleaa. 

Eanka aa of now can anfaga In foral^ axcban|a, aacrowa, cellaecloaa, ctadlt 
iBfonacloD gacharlng and axchania, nooar tiaoafar larvlcaa, flnaaclni of foTalgn 

BankJ for CooparaClna to orgnnlia a coBplata focalfn or Incanactonal banking 
ayacaa olth th* poirai* to angag* In ■ mat*x of tarvtcaa, loana, and aqulcy 
iBTaacwnc* that aia not avallabla to banka. In addltloo, tha dapoaita cakan 
{dapoalc* could alao bo aada vlcb othan) would ooc laqnlia cha aalncananca of 
raoatraa co procaet Cha dapoalcer In cha araoC aacaaalva ■<— -~'' waca nada on 
tha banka (or ulchdrawal of dapaalc*. 

of H.K. tin without ■odlflcacloD. 

tha quaacloB la talaad wbathnr In fact Chat* voold ba aa aroaloa la Cba 
coapatlttr* aqualttr of tb* two aoac laportant pcovldara of a|rleulCiiral ctadlc; 

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aavlT, thm pilnca taoks' ibllit/ to co^«u will) cbt fm Cndlc Sjcub. Mhb 
cba Fua Cndlt Syius in* MUbUtfwd, cban van alrodj ■ ni^u sf cBopanclH 
fazaKr-onnad baslu !■ Zarat* >Bd tba f*>tiiiaa of tbna biaks war* gsad to ^am^gp 
Uw Far* Cradle Iraum la thim cnrntir. GBa bbb*!*, la Cradtt Itrlesla Is nanea. 
Thla trnzamr-amat cooparatlva cxadlt bank laa ori^ilzad la Clw lata IMO't and 
■aa offordad fomabla (as txaatant Is a ■aMaar alallac te ttaa u. s, Faia Cradit 
■raus. la a» latarMOlfif r>Bn, Cndit AsrUnla hoa aagacad Is a Ursa 

sparocLoaa, endlt and dapsaltBcy fwctlsna. tmiialm loaaa o( aU kloda. 
flnanrlng of crada traaaactlaoa aad bnalaaaa nlacad (and wralatad) Co 
afrlcnlciira. Cradle A|ilB>Ia haaalaoat aoLa liaii> [in clftaca ta tba aMllar 
co^HBltloa In Franca. Ilia Fraacli eaaaaTdal banka^ rola hara lacfalj boan 
llaltad to flHoelat aajor eorpsratlaoa aod ^iiaal |iiiaiiiBaal Ion tic ue Inu- 
la 191t, Cradle Atriula had avproxlMCalT WI e( tba aaibat ahara at tha 
acileultttcal ftsaoclnf bnalaaoa Is rraaea. U that faar, Cradlt Acrlcala 
•aa aora prtifltALa than all tba eoaaarelal b^ika la Franca coablsad. Tba iioittb 
aad iha donlnaac poalclsfl la airleiiltuTal ftnaaclni bj Cradlt Acrlcola caaa abouc 
aa a raault of Iba favorabla taaturaa that vara lailalatad on Ita babalf. 

Ibara la soa wjor dlKaranca In cba inifiiiMiiT of Franca aad Chat ol 
Iba Doltad Scstaa ralatt*a t« tbalr acrlcultaral cradlt dallniy arataaa. 
In Franca, cba coasarelal baoka aarl;r oo abdtcatad a rola In fln^ulng taiaars 
aad ranchaca. la Ebla coimCr?, the co^Hrdal baaklat ayataa baa atatad clsa 
aad atala of Lta daalra to partlclpata aetlTal; aa a conpatltln landar far tba 
cradlt oaada of 0. S. (araera and raacbara. It la a vondai prlvaia baoka ba*a 
nalatalaad aa |0«d a Bsrkac abara la atrlculCura aaaaooal floaBClnt. alnca Cba 
eo^HTclal banka bava oparated at a Eospaclclva d 

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Th> puaata aad lapltatalaclm et th* Farm Ciadli Ace t mma im m f et 1979 
vould b> ■ ■Bjoi ttap to aeeoivllBhlns th* uma ihlft In Indlni seclvlclu 
from Cb* co^TClsI buka Co th» Fan Cndlt STitn tn ChU eavatTj u liu 
oecimad la Fraac*. If It ia th* Incuc ot Conirua to Ml n ta l n ■ eradlt 
dallnry ajrataa that 1* lahanatlT eovatltlv* aaoni Its aajoi taodan tli*B 
B.K. t7SZ a^uld ba iBaddad to panlt tha coaaarelal banfca and tha Farm Ccadlt 
Syacaa to oparata ladar baalcallT tha aaaa mlaa. I taeogDlia that an oMndad 
H.K. iTtt, would not eoiraet all tha laaqultlaa laidai Hfaleh cha co^HrelAl 
banklBt ayataa has auffarad tex a niabar of yaaia. Bovavat, If Con|iaaa falla 
CO TacogBlia tha pocantlal fat taaim to tha aalntaDaaea of a coa^titln cradlt 
anrlTODBaot that aarva* tha b«at lotaraata of cba faiaar and of cha D. S. 
cooauaaT (Incacaata iihleli abauld aasdata ■■andlnt H.K. *7S2 to panic iraacai 
aqulcy bacmaa tha vailoua principal landara to a(Eleulcura} chas Ic Hill ba 
andoiaiikg tha Idaa of a aln|la aajsr landai to a. S, a|cteultuiai tha Faim 
Cradle Syacaa. Hhleb will aaaantlallr ba or|aaliad aa a aaclonvlda »— -n-g 
•yacaa with tba abUltT to eoapata with Intainatlooal bank* aa vail. 

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Ny Damm i* Paul N. TetJieEow. I ut Asflistant Gwi«r*l 
Nanaqac of tlw Tmaaaylvmait Rural Electric AasociAtloar 212 
Locust Stxeeti BarEiabuzg, Psnnaylvania, 17101. I •■ bare 
today to •peak on betwlf of tlia 650,000 faxB and rural 
people who are aecved by Pennsylvania * ■ rural alactric 
cooperatives. Tbsse cooperatives, owned by ttie people 
they serve, provide electricity in 47 of the Cc^aonwealth's 
67 counties . 

The nenber/conauDara of Pennsylvania 'a rural electric 
cooperatives si^port the 1980 anendawnts to the Pan Credit 
Act aa enbodied in Bouse Bill 47S2. He particularly support 
the proposed amandnient which would reduce the number of 
farmers who must be nenbers of cooperatives that receive 
financing under the Act. By decreasing this number, More 
rural electric cooperatlvea can take advantage of the low 
cost capital available fro» the Bank for Cooperatives. 

A limited oaiount of capital exists in our econoaoy and 
only a very small portion is available at low interest rates. 
Tremandoua competition for this low cost capital exists. He 
believe it ie the responsibility of government to make this 
low cost capital available to those entarprisas that meet the 
aocial commitments aet by society and the govemnient which 
represents it. 

During the 1930'Si our Nation established the coenltment 
of supplying the benefits of electricity to rural koerica. 
In return for being granted the exclusive right to supply a 

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given area with •lactriclty, cooparativan have been required 
to serve everyone In thalr area who has requested service. 
Cooperatives have had to supply service without regard to 
the costs involved, no isatter how great they nay have been. 
This, coupled with the high unit cost of aupplyinq electricity 
which has been caused by the small number of aeaber/consiwers 
per mile of line, has made the rural electric program ■ costly 
one from the beginning. 

Originally, the construction of rural electric systems 
was financed by low cost loans from the federal government 
provided through the Rural Electrification Administration. 
The covenant made between the federal government and the 
people who have received the benefits of the rural electrification 
program has been honored. Loans financing rural electric 
systems have been repaid on an on-going baaia. The record of 
financial success of the program has been unparalleled. 

But as rural electrification loana have been repaid, new 
loans have been arranged to expand and improve the ayatema. 
The demanda on rural electric systems in Pennsylvania and 
the Kation are growing. 

I should say, at this point, that thia growth is not 
because of waste. Rural electric cooperativea have an out- 
standing record in the field of energy conservation. 
Nationally, rural electric cooperatives have made algnlftcant 
reductions in the rate of growth of their systems. 

Moat of the growth we see on rural electric systems is 
real growth. Growth caused by new people moving into rural 

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•raks and naw t*chnele«i«> b«in9 put te u«« by Mariea's Canan 

and eh* induatrlaa that auppert tb«B. An l^mtaat polst to 
I Mill! la that far aaoli (anar la tba flaUi thara ara aany 
■or* non-fan paopla vbo Bupoly all of tha Itaaa a aadara 
tara laquitaa for ita oparatlon and thoaa «be procaaa and 
cxanaport tha food and (Ibar preducad by taiaara. 

Tha fact that aanir aon-fara paepla ara balag attractad 

to rural Aaarlca aany of thaa to aupport a^rlcaltural 

entarprlasa la tha kay raaaon why wa support lowaring 

tha raqulrad niadwr of cooparatlva aaaibara who auat ba 
farattra In ordar to qualify a cooparatlva to borrow troai tha 
Bank for cooparatlvaa. Tba Bank Cor Cooparatlvaa la aa 
i^iortant aourca of capital for tha Natlon'a rural alaetrla 
coooaracivaa . Bvary Indication anqgaata that It will tiBeaii 
avan aora iaportant aa tha dacada of tha lllO'a unfolda. Thara 
are thrae prlaary raaaona why tha daaMnd (or capital for tha 
rural alactrlflcation prograa will contlnua and ineraaaa in tha 

Firat. aa I indicatad aarliar, although kaarlea'a rural 
Blectric cooparatlvaa hava aatabllahad a vary poaltlva racord 
in tha field of anargy conaarvatlon, tha growth of our rural 
population ia creating naw daatand for rural alactric ayataaw. 

Sacond. consuaara ara turning away froai a dapandanca on 
oil, natural gaa, and othar auch tuala in favor of alaotrlcity. 

Third. In racant yaara, thoaa rural alactric cooparatlvaa 
who have not had thalr own ganaratlng capacity hava launehad 
programa daaignad to davalop that capacity. 

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HtMn «lectrialty firat cum to cural tawtloa. it <nta 
a curiosity; a luxury. Today, It !• a n«c«Bsity. Baoausa 
alectrlcity plays suoh a larga rola In oux llv«a. It 1> 
important that elactrloity ba auppllad to conauaara at tha 
lowaat poaalbla coat. 

Tha coat of anargy h«a a diract influence on tha rata 
of Inflation. Hhan anargy ia axpanalva, tha upward spiral 
of inflation tanda to grov at an even faater rate than it 
would otbarviae. Thia is why Aaarica'a rural electric coopera- 
tive* believe accaas to low interest financlngt like that 
available through the Bank for Cooperatives, ie asaantial. 
Tha wnendBents being considered today will help asaure that 
thia important source of capital will continue to ba available. 

The high cost of energy has a diract, negative inpact on 
productivity. Thia is espaclally the case with agriculture 
because agriculture is so anargy intensive. Maintaining high 
levels of agricultural production is a national priority. 
Agriculture la the Hatlon'a largaat single businasa, with 
expenditure reaching $114 billion in 1979. Beyond providing 
adequate supplies of reasonably- priced food for dosttstic 
conaumptlon. American agriculture makes a najor positive 
contribution to the Nation's balance of trade. Traditionally > 
agricultural products have constituted about 30 percent of 
our total exports. In fiscal year 1979-1979, the latest 
year for which figures are available, American trade in 
agricultural products showed a SIG Billion surplus while 
trade in nan- agricultural products showed a $39 billion datioit. 

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nie agricultural product* trad* aurplu* la axpected to incrsaa« 
to $19 billion in fiscal year 1979-19B0. Thia record of auccea* 
would not be poaaible if adequate suppliea of low coat energy 
vera not available. 

In concluaion, Pannsylvania's rural electric cooperativea 
atrongly aupport the 1980 Farm Credit Act amandnanta. He do 
ao: Firatt because we believe the lew coat capital available 
to society ahould first be used to finance th* social goals 
and coanitments that hava baen made by aociaty. Second, because 
we believe that rural electric cooperativea ahould be easily 
able to qualify for financing frm the Bank for Cooperativea. 
And Thirdi realizing that energy Is so important to our Bconoaqr> 
we believe that energy should be able to be supplied by rural 
electric coopecatlves at tha lowest possible coat. 

Mhen tba Comnittaa convletes its work on thaaa amendments, 
we strongly urge that you conalder further lowering the 
farmer membership requirement for cooperativea to qualify 
for Bank for Cooperativea financing. Mora and mora non-fan 
people are moving to tha country. S^ne are people who work 
for agriculture-related Induatrlea. Others are former city 
residents who have become fed up with city life. As the 
non-farm population of an area grows, cooperatives which 
serve farmers should not suffer because of their popular 

Thank you. 

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OB btlulf of Ch* 

of th* ran Cradlt SfatH 

Hr. ChalraiD, ht oaa* 1* Dick He DbusU of Lovoloek, Jtaiada, I ^ ao 
oparaclBt rancher and tmrmtz, and Mrvad In 197S aa ptaoldoat of tkt 
National Catclawo'a AaaacUUon. I aa pTaaaatlr a dltaccor of tba 
Uanath ran Cradlt DtaCrlct locatad In Sacrananto, Callfarala, aardnt 
Eha Stataa of MIcona, California, Mnda, Utah and Haoall. 

I iiant to oiptaa* ay approclatlon for th* opportunllr to appaai bafora 
thl* Subco^Uttoa to dlacuaa the ptopoaod T»im Cradlt Act AaandBanti of 

Our ran Cradlt Sratam la cuRwd hf naaclT ana Billion taarlcaa faraar* 
and *,00l] of thalr aarkatlnt aupply and bualDoaa aorvico cooporatl***. 
It uaa daaliMd and haa auccaaafullr pioTldad a rallabla aooTca of cndlt 
tallorod to fit OUT hl^lj apaclallaad naada ctarou^ut th* couotty. 

Itaa propoaad aaandBOaCa vhlch an uodat conatdacatlon by tout co^ttoa 
today capraaaot an anlutloBaiy piocaaa which la continually at mik 
ttlEhIa our Syataa. 

In th* last dacada, |r*ac toehmloiical adoaaca* have boan aado In 
airlcultur* for our cauntTj. Iha typ* and cnplailly of fanint and 

ha*a (volvod aod doTolopod within out Syaiaa In Taapooaa to tba ctian|ln| 
naad* of taarlcoo farsac*. With thaa, m will b* abla to eootloiM to 
fully BHt lb* cradlt naoda of our producaia. 

Ihata ara obuloualy dlraraa afrleultural Innraata acroaa thl* »r*at 
couotry of oura, and thla bill rapnaanta th* llTa and tak* at tbaaa 
ndoii* Intsraau to pTo4uc* aouad racDaBandattOM for Uportant etaaoiaa 
MOdod to aarno th* ecodlt laqulraHOta of tauleaa asrlculCun. 

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Hi an alia pTond, In a tlac nbao our caaatrr facu tvuaimj iDflattM a 
cctttctaa at axpaodlag OonnHnc pcotraH, thac our Sram doaa aec u* 
or raqulr* oa« unpayar'a dollar. Tha rara Cradle Srataa la full; *alf 
aupportloc. E«*n Eh* eaat ot eparatloaa for tha Fara Cradlt Adalalacn 
tloo ar* paid (oc by lea uaara. 

Thla propoaad laililatlon ha* raeatnd tba naolBooa aDdoraaBant ol tha 

Tha 28 aa*adB*BCa uhleh ara Incotporatad In thla propoaad lailalatlaa 
ara, foe tha vat part, cachnleal In natura, Intaodad to (Dhatkca our 
abllItT to oparata aora afltelaatlT for our samara. 

Tbara ara, boMvar, aaiaral aaandiaanta uhleh Hill aaka ■ alfitlfleaDI 
eoDtrlbutloB to tba Srataa'a abllltf to aaac eurraat and futara oparatlng 
raqulrawnta ot faraara, rancbara, >ad tbalr eospatatlvai. 

Ttaa Pats Cradlt S]r*taa haa froa tta ha|lnala(i baan aoccaiaful bacaoM ot 
Ita abllltT to anluaU and aiuod rallabla afrlcultural cndlt. Dnr 
tba yaar*. In tha cooparatlTo aplrlt and In naponaa to Of Mail ot «r 
acocUwldara, tb* Syataa baa prsildad a llaltad miabaT of eollaMral 
aupporclog aarTlcaa, Prloelpal aAonf Ebaaa baa baan tha abllltr to 
proTlda crop ball and cradlt Ufa aad dlaabllltx iBauranea Id cboaa araaa 
iihara It 1* approprlata to do ao. Othar collalacal aarvlcaa atalch aaalat 
prodncara In Mktot aouad floaaclal plana ara alao laportaol In •xcaBdlB4 
(oood cradlt. 

Tbla Srataa haa not and doaa not Ughllr taka Ita raaponalbllltlaa to 
earatully aualoa and tullr aupport each addttlaaal aarrlca provldad ta 
light of tha aaada of our prodncara. For thla rM*aa, m racoaHod thaC 
conttmiad dlaeratleo ba tlvan to tha Sralaa to dataralaa lAleh aanlcaa 
ara aoat Madad hr our atocMMldaca to full]' aaac tbalr oparatloi aaada. 

Ua do not ballaTa that our Sjracaa aajara anr cowacltlTa advantata la 
offallnl aoM loauranca aanlcaa In araaa iibara It la approprlata 10 do 

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I daralcip* ■ hulchr coap 

Than bu bwa eouldtnbl* dlseuaaln HlchlB Ui* SjltM ud tiam frttad* 
wtald* OUT SjiEH that than 1* ■ BMd to ehcBg* Eh* taotth af tan la 
■hlch K* laana ht bt oHacad. Hhlla cha (Mt HjaTity of Um Sr'ta 
doaa oat faal thli addlttooia authoitty la uadsd, ■■ undatitand chat 
ctMTa 1( a latlClMt* dlffataoca of splolan and faalloi on thla pattl- 
cular quaitlM bacaoaa at dlCIarancaa la faraln| B^tatlau In nctoua 

tba tana of FCA loaoo. It ahouU ptovtda tor Cbt* authorltr to ha 
opttooal and dlacrottooary vtth tndlTtdual dlattlct beaTda iiho an Id cba 
baaC poaltlon to anluaca Cba oaada ol chail palClcuUc dlaCilcca. Ha 
baltava Chac vlcb Cbla dtacraCloa, Cba aCElculCnral aaada of aacb ana 
can ba asEa appropclatalT "ac. 

Osa of cba aon laportanc ■■aafcanCa la tha Hccloo ablcb daala with 
aipOTC ftaanclat. la oiu dtatrUl la 19T9, aoco than tl-I/2 blllisB of 
eo^Ddltlaa aaia axpottad to toTal|a aackota. la 197(, tba taat fullj 
nportad raat, Geoparacliaa la tha llavanch Fara Cradlt Dlatctct had 
axport Mto( onaodloi }M>0 ■IIIIob, Tha axpoic of a|tlcultunl soaanlt- 
Claa tl vtCal to Iho auccaaa of Cb* fanat ood taochar la cbla niloo of 
out eounCTf. IC la baeoiilnl an tact«a*la|lr vlcal pare of our oacloa'a 
fotalta palte^, Tba aiport flaanclnf aaandaanca HtU panlt Cba Sjratan'* 
GBOpatatln bank* Co ptoTlda aouad and nllabla flnaiKlnl and nUtad 
aarvlcaa Co our aaabaca to aahanca ud lacraaaa cbalt capablllcj In 
davaloplag and aKpaodlD^ aiiport aarkaCfli 

Ha ballaTB It la taportaat to aadaracaDd tba coaplultj of axporc Mloi 
la tba atclealtural araa. ilattculCutal txfcti product aalaa ara ci^bac- 
•OM aod difficult flaanclal tiaaaactloaa. Tb*r tanl*a product Idaatl- 
ftcatton, docoMOtatloa, dall*«rr, and flnaoctaa aloaf a loaf cbala Ca 
Cba alClMCa nclptOBC. 

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at balUn d»« 1* ■ wmmi U tgnamlralj mtftmt ami l a tft M twwm' 
■ttaru to nfMl tkati opoR aokau. Tkla U tta Omt to mim ■«>■«- 
■Inlr ta uka afuMUc* a< ■«■ aaJ SR»1^ autau nkleh sn Jaialaplia 
iB BV ka7 rvu b' t^ imrU. 

Ul alM WlUn It U larofu to iMtetacaad chM Iha ilik (ra chla 
cypa of U^l^ la ralatloa ca asnal *■——'-■ laWIi^ la lao. Ibaa, 
■hlla cte abilttj ts pnrtda c^an flaiM-l^ alll fill aa linrranr M*d 
lar au (arMia ml nuebara. It alll aac, la au arlalaa, JaofardlM du 
ftaaacUl itiaastk •a4 nr«uu«« of tk* Faia Cradtt Ijataa. (acuaa of 
tbua uaaldancloBa, tba EUvaach Fan Ctadlt DlatrUc and Iba (aman 
■sd raacbiTi 1b oar ataa, aa kalian, ilrooilr aadsCM aal uxt* tiM tally 
paaaac* st thaaa lapoTtaDC carlalaaa. 

it Intreducad In cba Coniraaa, tiM Fan Cradtl Act taaadaaata of 197* 
ha(* aannl aaaaaMata lAleli aanld pravid* tka aatbsrltT far tka Fadaial 
Fan Cradlt loaril aad tiM SF*C*a'* Cannat Co hara laenaaad flailblllcj 
to laaan that tba Fan Ctadlt ^UWnlaCtatloa U ablo to fully aaat Ita 
oblltatleaa idth tha floaat pacaoonal availabla. 

Tha Fan Cradlt it^lalatntloo, lUcli U Oia [■■ulalocr aod policy 
•atcloi body tor tha 37 baaka In tW Fan Cradlt Syataa, aanraa a eclti' 
cal and kay role to tiM Mpordoton aod latafrlty of thla Syataa. Ha 
ballai* It U <1C«1 to «r baat Intacaat and to that of tattlcu asrlcal- 
tun that cba ir*(ulaCory *iaaey ba abla to hlia and ntalD tha Uthaot 
quallfUd ataff to carry ovC tbtlr eo^lai nod dtffleult naponalblllty. 

It la laporcaot to point osc that thaaa propoHd chaata* do nsc Innlva 
Cba BddLcloa of sna UHbla dollar, in la tha uaa lot our anclco 
Syataa, tba aapooM* dr* paid (oc In full by our noar*. 

Than ara a ai^Mr of ocbar kay aaaodHBta In thla prspoaal obtch htm 
baan addraaMd ((tonalialy doclnt th«*« haarlnia. It la oat Jadaaaot 
that Cbaaa uandMata will anbanca aad add to tha endlblllty of our 

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Srtt**'* eoaaleacat to r"''U< wiud aailcultutal ccsdlc. It li oui 
caaTlctlaB that thaw wiiJ— mi iflll atnngthn tbt coBtidwic* at C 
giiHial public, tha iBwatora In eur Sr*tM> and tha ttimatn and tan 

ha d*p«nd upon 
aaponalbla etad 

BplatoB* oa tbaaa 
■alccaa tha opporl 

of our T**«ln to proilda ■ 

ppracLata thla oppartuattf ta aipnu out faallota and 
lapoTtaat laauaa bafor* <mui Subcoaalttaa. u* iilll 
untly to aoavat ao^ quaatloa* wbtch you or tba aaabar* 
mat ha*a and taqoait that thaa* capiat a ba aabaltiod 

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Mr. Chmirman and aaBbtrs «f tiM Subco^ltt**, I ■■ Arait«*d 
M. Falud, III, of Cabot, Ark«niai, Bxacutiva Vlco Praaldant 
and Ganaral Kaaagar of Southarn Faraara Aaaoclatlena of North 
Llttla Rock, Arkaaaaa. I aa alio a Mabar of tha board of 
diroctoD of tha Fara Crodlt Saaka of St. Louia which aorva 
the thraa-atata district of Arkaaaaa, Hiaaourl, and IIIIdoU, 
foraar chalraan of the Flacal A|«ncr Coaalttaa and the National 
Council of Farmer Cooporatlvea. Aa part of the ISO billion 
Fara Cradlt Syatea, wa provide over ona-thlrd of the total 
agricultural cradlt In tha territory we lerve. 

I appreciate thii opportunity to aipand on the viewa of the 
Southern Faraara Aaaociatlon and of the Para Credit Board of 
St. Louli and, thua, on behalf of The Federal Land Bank of 
St. Loulf, the Federal Intaraadlate Credit Bank of St. Louia, 
and the St. Louia Bank for Cooperativea. Flaaaa refer to ay 
earlier tettiaony at tha field hearing of your Subcoaalttae 
held at Meaphli, Tenneatee, on October S, I9T9, wherein I 
addreaaed intereat rate clarification, cooperative allgibU- 
Ity, and export financing In aoae detail. 

Flrat, I want to reeaphaaita that tha Southern Paraera Aaao- 
ciatlon and the Sixth (St. Louia) Fara Credit District fully 
support all of the propoaed aaendaanta to the Fara Credit Act 
of 1971 aa written In H.R. 4712. I will, howevar. Halt ay 
specific coaaenta to those propoaalt with which I aa or have 
been aost directly involved. 

Interest Rate Clarification 

The thrust of Sections 403 and related sections of K.R. 47S2 

la to raaova any possible doubt about tha fact tha loans aade 

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under the Fara Credit Act of 1971 Bre not subject to may lial- 
taiions iaposod by states on the rate of Interest which Bay 
be charged borroHer/aeabers by Banks for Cooperatives, produc- 
tion credit associations, and federal, land banks through the 
federal land bank associations. 

FroB the beginning, loans aade by units of the Fara Credit 
Systea have been considered to be SKeapt froa the provisions 
of state "usury" laws, and the courts have consistently so 
held in the few reported cases decided at different tiaes 
under different provisions of state and federal law. Unfor- 
tunately, the Fara Credit Act of 1971 which updated and consoli- 
dated all prior Fara Credit legislation inadvertently oaltted 
any reference to the Syitea exeaption. By and large, the 
Systea has felt so confident of its continued exeapt status 
that it has continued to lend without regard to state law, 
except in unusual ctrcuastances such as that which exists in 
ay own state of Arkansas which has an "all or nothing" con- 
stitutional provision In which the lender loses everything — 
both principal and interest — If he goes over the lOt llaita- 
tlon by even the saallest fraction. 

While recently enacted federal legislation has afforded soae 
measure of relief for our banks and associations, it does not 
apply to many of our loans and will, in any case, expire on 
July 1, 1981, at the latest. 

As the chief executive officer of a borrower fro* the St. Louis 
Bank for Cooperatives and a aeabar of the board of directors 
of that bank, I aa quite faailiar with its financial data and 
know that, with the present cost of new aoney, the bank cannot 
lend at lOt and stay in business. It was operating at a loss 
the aonth prior to the enactaent of H.R. 2S1S. 

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As a borrower representitive, I wnt the B«iik for Cooporativct 
to be able to charge wlwte»«r r«t« Ja nBcea»»ry for It to 
reaaln « vlible lending org«nir«tloii able to fill the cr>dit 
needi of the Southern Paraera A»soctation ind other coopera- 
tires . I feel the taae way about the federal land banks and 
production credit asaociations for the reasona aet out in My 
testlBony of October S, 19T9. 

There is bo governaent capital in the Para Credit Systen. 
Ife lend no public funds and hare no goreriwent guaranteea. 
Ne have no deposit accounta. Our only practical aource of 
funds Is through the sale of consolidated Fara Credit Systea 
bonds which reflect the going cost of money. To that Bust 
be added the cost of dalirery plus enough aore to build the 
required capital and raserres. As present conditions Illustrate 
so draaatically, that can be a lot aore than lOt. 

The Southern Faraers Association serves farM«rs, aany of whoa 
are PCA and Federal Land Bank borrowers. SFA, which had 
annual sales of 1141.6 Billion in the past fiscal year, needs 
Fan Credit Systea aoney to operate and so do the faraers who 
buy our supplies and for whoa we exist. A sound and continu- 
ing source of credit is iaperatlve. Wo know Congress intended 
we should have it regardless of state law. He ask the Con- 
gress to aake its intent aore clear through these provisions 
of H.R. 4782. 

Export Financing 

Faraers want to increase their share of th« asport aarket, 
sell through cooperative channels, and have their own Bank 
for Cooperatives be able to participate in International 
financial tranaactiona. Banka for Cooperatives do not pres- 
ently have that authority and are precluded froB financing 
■uch of their own aeaber cooperatives' axport transactions. 

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Southern Fmraers Association (which is not involved In exports) 
has had a long snd beneficial relationship with the St. Louis 
Bank for Cooperatives. It has been nore than just a lender. 
It has been an advisor and counselor in tines of need. It 
has coae to our aid because o£ bank officers' knowledge of 
our business and its objectives. This sane counseling role 
should be available to exporting cooperatives by their prinBry 
lender to help thea aanage their risks better. The Banks for 
Cooperatives have the resources and expertise to develop sound 
prograas In support of coaaerclal exporting services. 

My belief Is that a real need exists and that the passage of 
H.R. 47S2 will provide the authority to neet that need. As 
a Fara Credit District Director, I pledge ay best efforts to 
cause that authority to be ntlliied in a sound and sensible 
aanner . 

Federal Land Bank 851 of Appraised Value Lialtatioii 
The obvious reason for having an BSI of appraised value IlaitB' 
tion on Federal Land Bank loans on fata real estate is for 
the protection of the Federal Land Banks and their stockholders. 
No such reason exists to any significant degree in the case 
of governaent guaranteed loans. Making the exception for such 
guaranteed loans would be of real benefit in keeping other- 
wise qualified applicants of aodest net worth to enter fam- 
ing — a serious problea for Aaerican agriculture at present 
price levels, especially. This is particularly true of aost 
young faraers who are frequently faced with an investaant of 
a quarter of a Billion dollars or aore. Hith the Faraers Hoaa 
Adainlstration going aore and aore to the guaranteed loan 
approach, this Fara Credit Act aaendaent is especially neces- 
sary for the federal land banks to work with FaHA to help 
young people enter faralng. Other lenders are not so Halted. 
Why should Aaerlca's nuaber ona fara lender baT Bank officers 

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will be jDSt as alndful of asset protection Nith the SSt 
liaitation reaoved for guSTSnteed loans as tb«y are now with- 
out it. There appears to be no logical basis for not granting 
the exception, and overwbelaing reasons for doing so. 

Loan Participations 

There are several parts to this proposal and, while the detail 
■ay seea a bit confusing, the overriding purpose is siaple — 
to BaxiBiie Farm Credit SystMi lending potential by crossing 
Systea lines, and by joining with others outside the Systea 
in the case of the Federal Land Banks which do not now hav« 
such authority. There is also a technical provision which 
would aake it easier for coaaercial banks and PCAs to partici- 
pate in fara loans originated by coaaercial banks. This sub- 
ject has been developed aore fully by others before your Coaaittee, 
but let ae give a brief illustration. Presently, the St. Louis 
Bank for Cooperatives can participate with coaaercial banks 
and other banks for cooperatives on large loans. It cannot 
participate with The Federal Land Bank of St. Louis. This 
option should be available. And it is only that — an option. 
Each Federal Land Bank would still retain the power to decide 
whether or not it wants to participate in any given case, or 
not at all. As a Para Credit District Board aeaber and a 
board aeaber of a coaaercial bank, these proposals aake a lot 
of sense and I urge their passage. 

PCA Related Proposals 

As background to a proper understanding, it should be eaphasized 
that the Fatn Credit Adaini strati on has been given a unique 
regulatory role in that it has, in effect, been charged with 
an affiraative duty to aid in accoaplishing the Congressional 
■andate as contrasted with the typical regulatory agency 
charge which tends to be essentially that of a pollceaan. 
To accoaplish this aission, the Fara Credit Adainistratlon 

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needs people Mho understand district, bank, and association 
operations. ClBarly, the best way to learn this is by obtain- 
ing first-hand experittnce in Systaa operations, and than 
transferring to FCA. But FCA is a governaent agency subject 
to all of the personnel policies and practices applicable to 
U.S. Governaant eaployees generally. This has made It extreaely 
difficult for FCA to recruit highly qualified people fro* the 
field and to hold the* after they do hire the*. The rate of 
turnover at high-level positions is alaraingly high and the 
potential adverse lapact on this ISO billion Systea alHOSt 
frightening. The adoption of the proposed recoHaendatlons 
would go far in helping to solve a severe huaan resource 
problea at the Fara Credit Adainistratlen. As others have 
pointed out in acre detailed testiaony, there is adequate 
precedent for such legislation. 

In conclusion, I urge the Congress to pass H.R. 4T8Z as 

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SUtOHIlt of 

Vm. S. Hay 

Ob behalf of the 

Fcdaral Land Bank of Vlchita 

of tba 

Farm Credit System 

Mr. Chairman and membsrs of the subcomnlttee , I am 
William S. Hay, president of the Federal Land Bank of 
Wichita \riiich services 54,000 long term farm real es- 
tate loans totaling $3.25 billion in the Hlntb Farm 
Credit District compriaing Kansas, Oklahoma, Colorado 
and Now Mexico. This was the first of the 12 Federal 
Land Banks chartered 63 years ago. It now holds 40 
percent of the total farm mortgage debt in the heart of 
the nation's wheat and livestock belt. I welcome and 
appreciate this opportunity to express my views and those 
of the Federal Land Bank of Wichita In support of the 
Farm Credit Act Amendments of 1979 (H.R. 4782). 

I should like first to point out and commend the vision 
and wisdom of the Congress over a long period of years 
in creating and nurturing the very successful Farm Credit 
System; and secondly to eo^haslze that this proposed up- 
dating of the 1971 Farm Credit Act will be in the best 
interest of the public and at no cost to the U.S. Treasury 
or taxpayer. 

The Ninth Farm Credit District fully supports all of the 
amendments Included in the Farm Credit Act Amendments of 
1979 (H.R. 4732}, and I should like to comment Just 
briefly on a few of the amendments having special signi- 
ficance to us . 

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W« vsry Bcich favor tlia ansiutant co Sacelon 106 of thm 
Farm Credit Act of 1971 co pcralt Federal Land Bank loana 
to axcaad 85 parcant of tba appralaad valua of tha raal 
aataca sacurltr «rtiaD tha loan la guazantaad bj Fadaral, 
State or other govenmental agaoclea. . 

Beginning with the Farm Credit Act of 1971, the Federal 
Land Bank of Wichita through Joint and participation 
lending with tha Faznara Home Administration (PoHA) made 
btmdreda of helpful farm real aetata loana each year to 
low equity and higher rlak borrowera, primarily to young 
farmera entering or expanding agricultural antarprlaee. 
Thua, 29.6 percent of loena made by tba Wichita Land 
Bank were co borrowera under 35 yeara of age. Other 
banka of the 7am Credit Syatem have had similar good 
experience . 

Recently, however, la attempting to contain federal 
spending in this reepect, the FmHA shifted away from 
such participation loana in deference to guaranteeing 
loana made by private lendera. Consequently, Federal 
Land Bank credit requirements, and a lending llmic not 
to exceed 85 percent of appralaad value, preclude the 
serving aa heretofore the uaual high credit needs of 
many beginning and deserving young farmers and ranchers. 

This proposed legialatlve amendment would enable Federal 
Land Banks to continue serving many of them by permtt- 

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ting loan* tn azuas of 83 pcrcant of appralctd valtM 
of r««L aacat* aacurlcj In aalaetad caaaa iriiara guaran* 
taaa ara pirovldad by govaiiiaaiHal units. Such guarantaaa 
could ba axtandad by FaxBara Hoaa A^lnlatration, Saall 
Bualnaaa Adalalacraclon and eartaln at«ca govanvantal 
aganclas. Tha guarancaa Caacura in affaet would auppla- 
■ant cha low collacccal aqulty of httfiar rlak jrat worthy 
borrowara wlcbeuc laplnglns on Syacaa landing acaadarda 
or diluting bond eollataral which occupy high priorltioa 
in our Syataa. V* baliava thla would ba within congraaa- 
lonal policy raapacting faslLy tmxm atrucCura, and would 
ba prudantly and nodarataly adnlnlatarad to avoid con- 
tributing to abusa of cradit or inflating of land valuaa. 

Cooparativa Eligibility: Thla flna twiing proposal 
broadana tha sarvlca of Banks for Cooparativas (BCa) 
by lowarlng tha Famar-aaabar aliglbillcy raquiremont 
to 60 parcant froa tha peasant 80 parcant (70 parcant 
la cha casa of rural alacCrlc cooparatlves.) Each dis- 
trict board would ratain tha option to sac a hlghar par- 
cantage. This would aohanca rtaal deve lopmant in our 
district by maklog allglbla for BC loana nora of tha 
rural alactric cooparativas whosa raanbarships ara crand- 
ing toward a lassor majority of fanaars In viaw of in- 
craaaisg QUrt>ars of rural rasidants who ara not faraars. 

t7-*m - 10 - 

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Frocaising and Marketing Activities: Thla snendment 
would broaden ellgibilltr of bona fid* famwrs for 
flnanclag by Federal Land Banks and Production Credit 
Asaoclatlooa to Include procssalng and marketing activi- 
ties directly related to applicants' operations and 
those of other bona fide producers. Again, each 
district board would have the authority to specify 
policies for iny 1 ementa ti on to avoid incrsasing co»- 
paCitlon in araas served by cooperatives . Expanding 
Che scope of this lending by the Syaten in our Hinth 
Farm Credit District could well result in farmers having 
better, mora efficient processing and marketing factli- 
tlas thereby Improving net Income. 

Banks for Cooperatives Eicport Financing: Ue urge the 
enactment of this proposal authorizing Banks for Co- 
operativaa to finance agricultural export transactions 
where a U.S. cooperative la a primary beneficiary. Ve 
believe the time li ripe for the American farmer to 
promote and share mora abundantly in the benefits de- 
rived from our expanding and vital exports, and that 
this can bast be accomplished by parmltcing his Bank 
for Cooperatives to offer financial services to facili- 
tate incemaclonal trade. 

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V* bssrtily racowMOd thli propoaal u a logicAl vtap 
cow«rd brlDClns ch« Aaarieaa producer, tbcougb hi* 
coopsraclT* •yctaa, clevsr to th« £or«t(B purchasar 
of hla product* to offact a aora efflclant and proCitabI* 
cbamal of trada. 

FCA Ralacad Proposals: Aa ona «rtio sarvad for aavaral 
yeara on the Uaahlaston, D.C., staff of cba Fars Cradlt 
Adnlnlscratloa, I vmdarstaad fully th« absolute nacasslty 
7ec racognlzs cha (raat dlfflcultr, la racrulclng and 
maincainlng top quality laadarsblp and supervisory 
parsonnal on tba Farm Cradit staff bara In Washington. 
It la fitting that thla laadarahtp ahould gravltata up- 
ward from aaong tba 12 district antltlaa of tha Farm 
Cradlt Syatam; bovavar that Is vlrCuxlly pracludad by 
tha salary' callings, travsX and personal raqulramants 
loposad undar existing laws and regulations. Proposals 
under the Farm Credit Act AnandMnta of 1979, (H.R. 4782), 
would ralleva this near critical situation, and would 
entail no cost to the U. S. Treasury, since all of tha 
expenses ultimately ere paid by the System's borrowers 
racber than by U. S. tezpeyers. 

Periodically the cooperative Farm Credit System has ax- 
pressed the need for, end the Congress has responded with 
Legislative amandnenta end fine tuning to keep abreast of 
changing conditions. My 38 yaara' experience directly in 

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cha Fam Credit SyatMB, oeci^>7liig aumarous poalclona 
serving rural p«opl«, paraonallj making hundrada of 
farm and raneb appralaala, and coonltclng nillLona of 
dollara in loans an rouca to tha prasldancy of ona of 
the Syatan'a great agricultural banks provide tha back- 
ground and experience leading to njr support of this 

I beliave tha proposals In the Fara Credit Act Anend- 
ments of 1979 (H. R. 4782) are ideas uhosa time haa 
now coma, and I endorse tham In total and racommend 
them to you as being in the bast Interest of the 
public end conducive to the welfare and continuing 
success of American agrtcultura. 

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■^ca^ItM M CMMTTStlM ud ttadlt 

Ihahl^tM. D.C. MSIS 

t M wUbot lun, MtM* twsn tram Lrai OMaty, tW iMth riataa of 
Juu, aai • iwlliT of th* tan* hca Ckailt Ian*, t la ipnirtt tttar 
la Wwlt at tiM Imt4 af U»cMra at tk* Itatk ftn Cl«41t Matrlcl. 

Ih, U th* II MatrUU ml tk* hca Cralll AtelmlatraltM, i^Mt atoat 
c«D raaii rraaaatlaa Uaaa tiMI ■• aach ha< niitcli ilMald (o Inle lb* 
ptayoaal laclilatlaa. Oat at tb* *ait aatet af ckaa^aa, aa cjm ■« vlth 
tha T«c ■■■alitlqa af II poUta irvaa ahlck a* coaU all aaia*. to a 
laaall a( tUa loas italjr rarlal, a« Baarl, tha Itaaa hra Cradlt laatd, 
ka* aelal ta •avpoit all af tk* ralata that ara laelatal la tba UIl. 
All el ibaaa ^lata aara a(raa< ^aa aftat aaaaarlac tha affacta aa tha 
(aiaata aa< laachara, aal alackballara, la aor Hatrtct, aad tBaalaanalT 
arptaaa4 trj oar loaid* 

Ikara ai* cae palata la tha rrofomat Ull that I aeal4 araetftcallr Itta 
to addraaa ta^j, 1fr« Chaliaaa* Iha first la aapart flnaaclat* 

Vb aia altallr Utataatad u tha aaport flaaaclac aactlaa af thl* ull. 
Faraat* aai tbalr eaepaiatlvaa an eallloi <v«* tka laaki fac 
Caeraratlaaa ta rtmUu tha aaij haala aal hlghlr lafwtaat latataatloaal 
baAlag aatatcaa lafalTai ta facllltata thali avport ovaTatlaaa. 
i va>T larattaat llah ta thati aaport actlTltlaa la tha flaaMtal taala 
that alll ha MM aaallaUa ta tha thrsicb tkatt caapatatlaa ba^a alth 
tha paaaata al thl* laglalatlaa. 

I faraaoallr hari vlaltad alth MMCata af agilcoltara aarartlot 
caapaiattna atth latta aMban af ■Bhai-faraaia la m Hitilct af 
taiaa. Hltbaut awsaptlaa, tka; ballaaa tha; ata rtaaantly lobtbltal (tea 
eppsitoaltlaa that ^dsabtadlr eaa baaaflt tha airteallara pTadacai, 
atilcollBta la (anaral, aad lafiara and anbaaca dliaci aatiT lata tba 
latataatloaal aaTkatvIaca and tharabr lapreTlas faTaai locoaa vltbsat 
coat to tha aaarlcaa eoaaiaai. 

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o ahlch IB ara praMtl]r 

It eoiMipendnl tilatlouhlpa with f«alta banlu at* utabllabad, vital 
COMuleatlsa* attli lataraalad (oralgB buran 111 f tonolatad a*< B«t 

•aikat* ondaBbtadlj >111 ba opaaad. U.S. and foral|D csepatatlna will 
haaa aoaa biii* opyoitiiattT to cos* totathai In aivaiHlal karkatlnt 
lalatloaaUpa and (artbar raduea on natlsnal balanea of trada dafldt. 
Tba aacBBd lia that I wlih u addraaa la tha loHTlaa af tb* tercaat^a 
an tba ntlBS aadla. Tba loaid of tba taiaa Fan Cradlt laidu Ml 
appeaad In tha Ifll *ct to tba lamlB) ef tha aadu tram *0 paieant to 
aO faiUBt. Th* leaTd at thai tlM did aapfaa* appealtlaa, laalloi that 
It Ml Dot oiadad. k baalc fmidwiatal ballal o[ tbl* >Bard haa alaaya 
baan that tba Fata Ciadlt tyat^ laaato la tba baada el haoa fid* 
asrlcaltaral produeaia aad laaehan. ■anarti, a chaatlal mrld bai 
etaaiad clteiBataacaa that taqutra aaaa (laidaaaatal ctaaasaa la tha 
apptsach of a(tleultixal (Inanea. 

lo aa avar daoraaalns faxa populatlen, mmbj aiipplr sooparatlTaa 1b 
rural Aaarlea flad It naoaaaarr to do businaaa Kith paopla wbo ti» 
nan fuaar yt lira Id an acrloultural toim-araa and vnTlronasBt. 
Thla bualnaaa is aaoaaau^ far tha aur*lnl -af tha eooparalln and 
■ar ha tha -only aranua of bbttIc* lor tha Don faiaar of tha torn. 
lat thla SOB fan taualnaaa proMMta tha casparaClva froa financing 
■lUi th* cooparatlT* bank. Br having tha largar voluaa of bualnaaa. 
hon*«r, th* ooopaitttlf* la battar ahla to aarra tlw fmara aba wakm 
up tha ■ajorlt]' ot thalr ■aahariMp. 

line* thla part of tha 4ct aaold te •pllooal to tha HatileU. aalr tboa* 
■fa* had apMtftc ■■*« for It wBld Ma It. II* 4o aat ballava II aonld 
b* Mad la 1*iu* In tha iBadUta falat* anapt fef aaafa In atUlt; 
caepatatlVM ami far tba paatlbllttj af uanapaiuilon eaopatatl***. 

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ABOinoMU. mnuu suwittd 

TO TH nw oiniT ut <r ilTi 

Hr. Ctulnwl, t V Fatar Mlraehtald af Daltu, Taus, Mcand 
• Kacrlraa Calton SMp^r* Aaaoclatloa and ChalraaB af lEi C^ 
falri. AppHitDi vltb aa today la ll«t F. Clllaa el Waahlngtoa 

ttsa Bhlppara Aaaoclatloa aaa toundad to 191* and la haaleall; 
■tea, ahlppar* and aMpoitara of Iwu coiipb idKi ai( Mafcara of 
rlatlooa, localad la ■l«a«i atacaa thraughiiut tba cotcan kalti 

tton Trad* Maaclatlo 

n CottsB Sblppar* Maoclatloa 

vlch produca 

Toupa national and Intatnatlenal atan 
outhout lb* cotioa ball In lomulattB 




ton narchania haia ■ dual (unctloa or buying aod Mllln* cnlton, Ineludlot 
laptlon of lb* tlM, ^ualltir and prira rlaka. Tha wlchant* purehaaa and 
• ■ItUena or Individual balaa or cotton orrarad lor aala by appronlaatalr 

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"'*"■" >■ 

Uty ■ 


..pi. l.n 


nd hlTVH 

tlHi dual 

ly f.<:«.t 

DT and 


■ct« Int 





n|. ov 




<ili' |>i.-J«.>hJ 
inlth. (due [□ Eh. v.rli 
:lat practice*) ■ Tba ■•■ 

m la aoU to tantlU i 
m durliiR Eh> mIdt har*. 

type* at aaad, aoll. 

n of cha ■•■. |Tad*. atapla 

la in aplimara' 

ipot cotton Includlnc t 

threoih th. U.S. D.patti 
by Eh« Cc— a il lty Cradlt 

akla to a|Tlculcut(l p 
prlvata baaklnf coBun 

■ na^mEa of Iba coIIOTi lodiMttT 
Tbaa* unltad arfoita 

I AsTlcDliura In parEtcular tb* prasiaaa atelslalarad 

1 d( tha tradltloaal aathoda ot wUna ciadlt avall- 
• and «■ racognlia th* n**d tot lapTvnaant. Tha 
tha Parm Cradlt ayataa baa an Dutatandlaa ncord of 

of H.R. 4TS2 vhlch ci 

cnad cradlt facilitlaa, iM do mc mpport that 
apactal npott >y>t*B fat th* mclualM u*a of 

t ha avalUbU Eo th* *nttl* U.S. 

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imon AW> cfMB CM c«dit nocMtt 

TINT* 1* Be BMd ret ■ ipKlal h»kln( iratia avatUbl* imlT Co cMTaricli**. 
Miat ■• Msdrd — 1> an tMrrwHl (Bd npaodad ■KTlcultural nporl credit pTOtl^ 
■uch ■• llwl dlKUIHd aa lapia^ar Itth by Dr. Kall|r naTTIaan, DlfKIOT, Oftle* 
at r.«wral» Kinniirr, irSFU. Co iha Aarltulluri SuhcaaBltlt* of th* Prtaldmt'a 

Dr. lUrrlada ofeMmt that (luetutlBs CCC mport eradlt larala Is Iha DtD* 
biid(*t Hy tm« hiri Iha ptatTH. baeauH CCC outlaja (ar uaKfdltT aaMOrt pra- 
triBM laeraaaa In yaara lAm ccaaadltT file** ata lav and thHa CCC ao«t fmda 
alKlalt r»f«tleaat«lr. ■airlaM MU lb* aubcfi^UCH that DIM oaa dlacwal^ 
a ptefeaal that would tmvn taratt etadlt fiaa tba CCC iBbfdla and craata ■ 
Ml[-avatalBl«s fund. 

Ha aadoFH •ncti a aalf-auataiolBa faod and aup9«t tha racDMialittaa at tha 
(ahcoHltta* oa Aarleultura et tha riaaUant-a Export Caoncll that: 

aid achat (aitaial hud|at coaaUatatlao* h*«a taaulcod In vlda 
(luctuationa In CCC axport cradlt pTogiaa foodlDl lorala and 
■H-rluuil* ri'JiH-f.l lia arrKtlwnv» ,■■ -x ■■■rkt-t di-vcluiwni 
iMl. (Ttw rr 1474 preiraM haa bran cut Ib half to (MO 
allllon IB n 1910.) Tha 3iibea_lttaa tacoBrnda that foad- 
ln( for tha FT I»0 CCC ptectaa ba Incioaaad to C(ha adv*Bta|* 

thla ptoblaa, th* lubcc^lti** i*ceaBrBd* ilut th* *i*cutli* 
and l*(Ula[W* branch** coaaUat tha aatabllahMat of a ta- 

>*ld*t Inatood a (ubataatUI 

tH dalat* th* axpott ptapoaala of M.t. 4Tt2 
mpiBBleB at ih* aRlatla) and ptoraa crodit 

ItiB* *t(lel*atl|i and *tt*ctiHlT MBaiad by Ch* CjMuilty Cradlt CaiporatlOB. 

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American Farm Bureau Federation 

Bonocabla Ed Jonai, Cha 
Subcoaslttta on Consaiv 

ra>p«ct(ully raquasC that Chs mcloiBd docusantB b* 
ttarlrig record of HaEch €, I9&0 In connection with Fi 
I taatlBony on H.R. 478Z, tha bill to asand tha Farm 

:ola at the Fam CcedlC SyataB 1( paicalved by 
> of the «yat» to M Much bioadac than 
:onIttea has authotlMd ot Intandad vlth lagai 
[y, casualty and liability ' 

HE halp Hill be appEC 

•Ittaa to claclfy thla autboElty in 

■ Fara Buiaau Fedacatloo 
HaEOld Staala, tlllnol* hqcicultuEal Association 
V*Enia R. Slasson, A>aiic«n FaEB BuEaau padaiatlon 

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Hi knM rau ira caiwUntlf CfHicsmd ibsut •Tirmint tor rraHV. 
W> wll nallu Lh> eoit of twliir* r>r~ln| oprriLkon Hlth lew farm 
prlc** anit trip hiRh ceit af -iTirrtMnc jm biijr. Thi* !■ Ju>t sn« ef 

■ln( imi e»t the H 

uch IwtUr CO?' riff 
t m ■ i^nnjr for i 

CjUtunCtSVILlX Rk 

I *eorit or C<»r>n]F __ 

HichtneiT _ 
ramLlnbtllljr _ 

I wild UN k PC* ro[ir»»rt«tl« look vrer wv prtHitt eo»er«coi. I.» 

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August 31, 1979 

Hr. Donalct E. Ullkinson. Governor 
Fira Credit AdolnlstratJon 
t9Q L'Enfant ?Ui» SU 
Uashlngton DC ZDS7B 

Dear Dan: 

Tw ntters have cm 

disturb H. I have obtain 

National Cmtmlltee Recomnendation 
Items 4 and 5 that the Coimiittee recomnerds Fjra Credit System study the 
faasihi ty of forraing its own fniurancc company. Und^r tCeniNo. S they 
also request that the pilot status of the toHateral Insurance progrla be 
reanved and that all districts b« given the option to offer the prograa. 

"As for fomlng a Systen o«n Insurance coavany, it Is ovr belief that 
tilling ts not right for undertak ng such a study. The System s 
currently under a substantial amount nf pressure, part cularly. fro« 
the independent Insurance agents and some fa™ organizations for 
cuisttng Insurance activity. It Is our view that a study of this 
nature Houtd Intensify the concerns of these groups at a particularly 
sensitive tine.* 

In our discussion In Memphis, Tennessee, earlier this year you 
specifically stated that the Fa™ Crcd t System could not establish nsurance 
toeipan es. Tour statement was i\ response to wy Inquiry re atl/ig to pr«- 
j»sed changes in the Fa™ Credit Act. I do not understand the differences 
In thi response to your own people HltMn the systen and your response to Be 
earlier. I Muld very mch appreciate an explanation. 

While In Heoiphis Lhe nuestioTi of cost to the Fan Credit Systea 
borrower was discussed rather extensively ^nd stitemnts were aade that 
It was not expensive to ™ve Into this type of operation. In your response 
Ho. 5 of the April minutes, you state: 

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solicit bdtinesi but i 

idsh ta >ni1 TliBii 111 of tte serirlcK. 

I attKli for ymr inforiMtlon « [:op)i of < v^iraMtw fm the Italtertaro 
Office of tte Fedeni Land Bank Assoclitioa of Ibltertoro to ■■ Swsmrd of 
tte SDUtk Cerollni Farw tureM Insurance Covaiiin. giving cn > efa g e qdvtatiMB 
for four Miiante pollcic* and indicating that tlie abm* pr^aa is ai esti^te 
by tte AssoclatlDB. It Is Inaic that this guotc arrived it tte iasored's 
hcac unsolicited just prior to tte roieiNl date of tte policy Chen la force. 
J su99ett tn ytn that due dit«s ir« being eatracted froa Assoclatloa files 
and that solicitations are teing aide, and ttet Fars Credit has once again 
o««ntept>ed the guidellnM uttlcfe are siip|»sed to yraem c«1lat«r«l tnmranc e . 


cc: Mr. Oetus Hpme 
nr. AIIM Grwt 
nr. Jote Oatt 

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Ihe connllU.e 

fori-, jtronaly 

y; '-■ 

t S»sl™ lo (al r 

offer tHe progra 

BeoBraphte Olstrl 

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The Federal Board evaluates its paltcir til this area on o oontinuat 
baala and did 30 aa rooofltly aa tho April 1979 Doaicl nccttnQ. Uo 
conrriir -Ith IhH JJall^al Conltteo that the oslstlnc pulley of re- 
spondlno only to thoas laBiicj wliiiit) mv ■Ih-i-otly rglolcd to. the Sys- 

. future appetntcd leglslntlve 

In developing Uie eurrent Icaislntli* pachnga, the Fcilprnl Board c 
carerul oonsidaratlon to rccomcnlatlona lUde to tlic ItonnI by tlt.j 

3. The coialttce aupporta the (ttvupt of tlio recently oitoptetl F«IH-rCA 
McnoranduB of' UndcrataniUng and encouraijca Further crrorta to osrura 

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e to 

my ili3 

trlct uhlch 


It i« 

OUT. 1 

e Sys 



a :iubs 


tiMr can- 

■-«*» • 

a pn 




I should Iw etw tho 

r that tuo of ths three dlstrleta orforlna th« provB tav* 
atM clearly th« oapaolty to arfgr the ■errlc*- This ttpe- 
rovldea >i>-e basis for rroovlns eolUteral Inaurance Ovm ■ 
otus. HowKr, the Systca's luthorlty to ofrer eoll'atoral 

1 FC« should reevDluate scofraphle diatrt< 
BTlos /roo the atandpolnt of a eimaen boimdarj for all thi 
opcratlnB In the district to the best Intoroata of Uw ■ 

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s^itiif ici'c 

pMt. . 

t'ixr^^i*u^_^ '™ 


Kj IrtJ^'k;^ f*r yoa 




,ril» oi-Juit Bln.^ > ;^11 w M9^1»U Md .V 

.AU6 14\!B!' 

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.'ttw'-abBV«prMlW'lV-an-»*ti(»ta quon by the Aiiaclatlon, tinal pr< 

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ftbniMTf 10. 1980 

Honoribto Ed Jona. ChalriMn 

SubcoMBltMa on ConnrNntlon and CradK 

CoaMltta* on Agrteultur* 

U. 5. Hmih of R^ranntativu 

1301 Longworth HouM Offlo* Building 

Waihlngton. 0. C. lOSlS 

DMr Chalraan Jonst; 

The National Convantion of Farman Unbn will tw held In Danvar, 
Colorado, March 3 through March i. During this tina, ma noto that tha 
Conaarvation and Cradtt Subcomnlttaa olll contlnua public haarlnga on 
H. R. «U. ThU bIJI l> tcnoiin aa tha 'Fam Cradit Act Amendinant*.' 
Tha lagldation would laaka loma rathar axtanalva changaa In tha Farm 
Cradit Act which waa ravlaMl by Congraa* In 1977. 

On faahalf of tha dalogata body of Fanaart Union, taatlnnny waa 
praaantad In aavaral fMd haarlnga of tha Conaarvation and Cradit Sub- 
coBualttaa. For your Infermatlon, I am ancloalng a ilatvaant pr aa anta d by 
tha undanlgnad at a haaring In Mamphia, Tannauaa, on Octobar <, 1971. 
I Invlta your caraful ravlaw. 

In * (ubaaquant ictfcin, tha National Farman Union Policy Drafting 
Comnlttaa, aftar caraful oonaldaratlon of tha Fam Cradit Act AitandnMnta, 
haa (akan action to support tha aawndnanti wKh quallflcatloni aa fbtlowa: 

authorlia chartarlng of corpora- 

tiona to axtand tha tarvica and financial riaictlona of FCA 
aqanelaa do not I ncluda author! latlon lor aatablUhlno 
Inauranca bualnaaa antltlaa. and axpanilon Into non"^redlt 
ralatad actlvlilaa and bualnaaaaa" 

■I, That th a Farw Crodit Act of H7T la amandad to prohibit 
tha KA frxwi anqaalnq In Inauranca aetMtlaa, apaclflcally 
to prohibit tha writing or lala of eaaualty inauranca ; 

"3, That anandaianta to tha baak atatutaa do not aMainpt Farm 
Cradit aqanelaa trow tha prpvlalona of tha Truth-ln-Landlng 
Act; an<f 

"*. That tha authority to axtand loan maldno to lyicaaalrMi and 
SiarkatlrM antararlia* ba llmltad to diract landing to fanaara 
anoaqad In production agrlcultura .' 

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Honorabia Ed Jonn, Chaiman 
Subcomalttaa on ConMrvatlon and Cradlt 
HouM Conialttaa on Agrlcultura 
WaahlngUn. 0. C. 
Fabruary 10. 1M0 

The PoJIcy Drafting CoimlttM apKiflcaily afflraMd that ' tha lupport 
of Itia Fanaari Union ftir tha propoaad FCA amf>dwant» ji c«>ntlr>qant upon 
Iha Congraaa laklnq acUon to anand tha pandlnq laqlatatlon to awura tfiff " 
tha abova raqulrawanti ara awt .* 

Diractar of Laglalatlva 5arvlc«a 

All Maoibw* of tha SubcoauKtaa 
on Conaarvatlon and Cradit 
All NtaMbar* «f th« Houaa Agrlcul- 

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Chalman Ed Jones 

A Bill to Anand the Fans Credit Act of 1971 
Henphlfl I Tannasflae 

Mr. Chairman and Mcmben of the Subcoimlttee : 

I an Reuben L. Johnson, 
National Faxmars Union. 
H.H. , Hashlngton. D. C. 20005. 

Farmers Union has a long history oC support for the credit 
agencies authorized by the Fazm Credit Act of 19 IG. Famers 
today know these agenciaa as Production Credit Associations 
which provide operating credit, Federal Land Bank Associations 
which provide real estate loana, and the District Bonks for 
Cooperatives which service the credit needs of farmer coopera- 
tives. The original intent of Congress in establishing these 
cooperative credit institutions was to give farmers a more 
sBtiafBctory meana of st^plying thaniBalvas with credit. 

The attached excerpt from the 1979 atatomont Of Policy Of 
National Farmers Union further amplifies the attitude of our 
iitambera toward the Farm Credit Administration and its agencies. 

How I would like to turn to H.B. 47S2 with conownt* On 
its specific changas in credit policies and structure of the 
credit institutions under the Jurisdiction of the Farm Credit 
Administration . 

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First, w« would like to conosnt on the proposed (UMndnant 
to the Faro Credit Act of L9T1 which would authoriie tbe FCA 
to cftarter CSirporatiOnB to perform aervico and finencial func- 
tions Under present law district ' ' "-- ■" '" 


Lt Adminiat 

such authority 

undertakings between district* in pr 

Currently, such services relate to record'lteepinq, equip- 
ment leasing real estate appraisal service, and the sals of 
casualty and liability insurance, credit life insurance, end 
crop, fire, and hail insurance. 

As you will note from the Policy Statement aentloned above, 
our delegates hav* expressed strong disapproval of the FCK 
agencies engaging in the sale of insurance except for credit 
life insurance. It would be in order, therefore, for questions 
to be raised concerning this proposed aaendoant to the Farm 
Credit Act. 

For example, would aittension of such authority to thn Farm 
:ration result In the astadlishment of an insur- 
: coopanies and expansion into other businesaes? 
) Subcommittee seriously question the need for 
Ithat are the long-range implications Of eitiow- 
ering the fCA to charter corporations for the purpose of ex- 
tending services to borrowers which are not related to the 
direct lending operations? 

Second , we vould like to coanent on the proposed aaendswht 
vhioh exempts the FCA agencies tron the Truth- in-Lending Act. 
For several years, spokesmen for the agency have urged Congress 
to exeapc agricultural credit from the provisions of the Truth- 
in-Lending Act. This has been the case in spite of the fact 
that the Farm Credit institutions provide only about one-third 
of the credit used by the Nation's farm families. We have 
Strongly resisted the proposed change and, on one OiiCtSion, de- 
bated an FCA spokesman in a public Senate hearing, cnsking trtiat 
we think is a sound case for retaining full disclosure under 
the Truth- in-lending Act for loans made to Carosrs by Fam 
Credit Administration agencies 

Ke, th*r*far«, urge th« Comittee to giv* careful examina- 
tion to this proposed amendment. Certainly, the information 
called for by the Truth-in-Landing Act is readily available 
as loans are consummated and we see no reason why this infor- 
mation should not be made available to farmer borrowers. We 

I also be required 

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pcoc«aBln9 and urkatlng uitarpeia** which would ba a part 
of faming, ranching, or aquatic operations o£ eligible appli- 
cants and borrowari. Thars Aire several questions that wa 
would Ilka to raiaa concerning this amendment: 

1) Mould the making of (UCh loans which would re- 
quire addtcional capital in tlie syscao. in any way 
intarfera with the malting oC traditional loans avail- 
able through the FCA agencies? 

2} Would tb« authority which this anandasnt would 
axtsnd tesult ultimately m the Fam Credit agancias 
making loans to businesses fot processing and aar- 
keting, moving away from the fainar cliantala that 
it has traditionally 8ervBd7 

3) Mould the extension of such authority interfere 
with the lending operationa through tb« Bank of Coop- 
eratives which include loans to groups ot famar* for 
processing and marketing purpossST 

Fourth , another amendment sought by the Fan Ccadit Jtdain- 
istration would authoriie the flC's to finance oicport transactions, 
including allowing tha BC's to make deposits in foreign banks, 
ceceive and hold credit balances from banks from borrowers, buy 
tune drafts payable by foreign buyers, take part In currency 
exchanges and naka loans to facilitate transactions to foreign 

This a>andmant is parhapt tha most significant in taras at 
changing tha nature of tha landing oparatioos of tha Bank of 
Coo pa rati va a. 

International banking is a complicated buslnasa. 

, for axampla, that engage 
1 scale have a huge network ot 
oveiseas oriices. It IS, tnerefore, difficult to campretiead 

ativea' lending operations in a manner that would be authorlied 
by this amendment. Me urge the Committee to give consideration 
to the impact of this change and in this context to decide 
whether this authority is needed to give farmer cooperatives 
additional salea capabilltiea in international markets Certain- 
ly, if it would accomplish that purpose, it would ba a atap in 
the right direction. 

Fifth . a.R. 47BZ would lower the percentage of farmer mem- 
bers of cooperatives borrowing from EC's from 80 parceat to 
60 percent except tor rural electric cooperatives where the 
percentage of fanner meidsers of cooperatives would be 70 per- 
cent. This change has been considered within our membership 
ranks (or sonie time, and in the attached Policy Statement you 
will find that it baa tha support of our delegate body. 

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3i»th . U.R. 4782 would clarify and raaffim that landing 
by tba Fam Cradlt aystan la axanpt from stata uaury lam. It 
la obvious Chat such axoc^tlon doss anabl* the FCA aganciea to 
aaaura availability of cradlt for famera and ranchara in 
'tight noney* peciods. To the axtant that intereat rataa range 
above liDiitationa sat by tha uaury Law* of individual atataa, 
farmara and ranchara, of couraa, pay a prlca for tha malntan- 
anCB of axaaption. 

Tha pEOblan that wa sae with this amandmaat la that it 1* 
naadad In the flrat placa. It would obvloualy ba to the beat 
Intsrasta of farmer borrower* from FCA agenda* it the credit 
available were to be at a reasonabla coat, hopefully lower than 
other private credit sourcea. If auch wera the caae, the ques- 
tion of exemption from uaury law* would never have occurred. 

Seventh . H.B. 4782 would raqulre that only two noBinaea In 
each district be voted on In tha election proceaa for Dlatrlct 
Director, rather than thraa noBlneaa aa la required under pre- 
sent law. Tha caaa for thla amandmant, according to FCA apokea- 
men, relatea to tha fact that two nomlnsaa would assure that the 
elected District Director would receive a majority of tha votes 
caat. Very frankly, we sae relatively little merit in reducing 
tha number of nomlnaaa. Tha three-nocalnee procedure would aeem- 
ingly be in line with giving eligible voters additional lati- 
tude In the selection of a District Director. 

Eighth , H.R. 47B2 would amend existing law to remove FCA 
envloyes* team the ciaasificatlon raqulramants of the office 
of Personnel Hanaganent, but would continue the salary ceiling 
of the general schedule currently set at $47,000 annually. 

Furthsc, tha FCA would be an«bl«d under the proposed amend- 

I for qualification 

2) to aet salaries of the Farm Credit Administration 
Governor and Deputy Governors within the parlmaters 
of the executive schedulei 

4) to ba permitted portability of sick leave and re- 
tlrenent between Farm Credit aystan, district ratire- 
■ant plans, and Civil Service syttant and 

5) to increaae tha par dian of the nambers of the FCA 
Board to the daily equivalent of that prescribed for 

lliere appears to be some contradiction In theae amandrnt 

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SpokasBsn far tha Fam Ccedlt fLdnlnlatration have «xpraaaed 
conildarobla prida on occaalon on tba autonomy of tha aganclaa — 
tha fact that no Eadaral funda ara appropriatad to auatatn tha 
agencias' oparationa la oftan citad as a Ba]or acccoqillahmant 
of tha Fam Cradit Mminia teat ion. 

Tha conflict, as ve aae It, la baCwaan tba anendnanta that 
would furthsE sjEW^t FCX amployeas feon claaalflcation raqulra* 
nanta of tha Office of Pecsonnal Hanagament and to exenpC tha 
FCk fron othar faderal regulatlona, and tha aiaandnant to allow 
foE portability of sick laava and ratlramant between Farm Cre- 
dit district retlcanent plana and tha Civil Service rstlcanant 
systan. These anendnants nova in the opposite directions. The 
CoBBittee, therefore, nay vant to give consideration to pro- 
caduras in this connection which are eonalstent and, at the 
sane tlna, reflect sound aanagamant policy. 

H.K. 4792 providaa for othar changes In the operation of 
the FCA's cradit functions. Ns have attenpted to conmant on 
those wa think are of the greatest significance. There ace 
some Mashington observers who have characterised the changes 
In H.R. <TS2 aa aoving the Farm Credit Administration and its 
agencies In the direction of a multi- or full-secvice banking 
iDBtitution. Hhether this Is good for farmers depends on tha 
•stent to which these agencies depart fron the hlatoric tra- 
ditional mandata Of tha Congraaa directing thaa to serve tha 
direct credit naeds of the sation's farm famlllaa. Thia Is 
the yardstick that we urge the Comittee consider as it act* 
on tha coaprahaosiva changes that would be authorised by 
H.R. 47S3. 

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Adoptad by Mlsg*t«a 

to tba 

77tli JU>ntt«l Convaatlon 

R«nsaa City, Missouri 

Huch 11-14, 1979 

;a that ihii CDopmUn m 
toadt *ad u tbv iutdr na 

hwh rmtH of uitnaH Is Cuuily fuutn uid n 
Tbt Fun Cndtt buka iho^ dfnfav hI 

tbH* •nrtOa h tbf eOgbt In' 

idiJ navli of in CDOtMiitlm 
t Ufa Pnidaetion Cndil Am 

oaBUT u thi priBdpb nf (IH ompnUisa uhI 
■bridtai Iha (nailoin <tf clisio by funun and 
ruebn of tM* Luv>b» connf* ud gf th* 
(ntnl <kiB Dfvanluilsul ec rnwuJ ■mhattnw 
wUch *n I^BMly MmiKUUi wkh InntuK*. 

Tf» dOH nl*li«Hhlp (Iwl UKU bMWMB tb* 

tidinl (iinniBaU ud Uh Fim CiwUl ajvlam 
fnptiaff of fndti puiinUriT i>b)«rti«uliW. 

AoonliBilr, »• an • thtConiiaH a pnhfMl Ibi 
hJi of iDionnci bir Fum Cradil asnctM. 

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Harcb It, 19S0 

Honorable U Jones 
Home of Represeotativea 
Caooon Houte Office Buildint 
Waahingtoa, D.C. 20SIS 

Dear Mr. Jonea: 

I aa writing to you to eiprea* our concern about H.R.4782, 
a bill which would aaend the Fam Credit Act of 1971 in 
•uch a way aa to greatly expand the powers of the Fara 
Credit Syatea (FCS). I aai encloaing a copy of our 
poBitioD atatcMnt on thia legialation, highllghtiDg the 
•cope of operatioDB of the varioua inatitutioDa that sake 
up the FCS, especially lo California. 

Our conceroa, of course, arise froa tbe fact that theae 
agenciea coopete oD unequal teraa vlth private sector 
financial inititutiona , and the proposed legislation would 
enable thea to expand tbeaaelvei further into financial 
urketa. We are not convinced that tbeae aarketa are 
not being, or cannot be, adequately served by private 

We are opposed to the further broadening of the FCS both 
OD philosophical grounda and for reaaona of efficient, 
econoaic allocation of credit resources. In our opinion, 
there ia a substantial segaent of the Aaerican public 
that ia currently questioning the size and role of govem- 
aent, and auch expanaioniaa on the part of federally- 
sponsored institutions auy be particularly ill-tiaed 
and Inappropriate. 

We hope you will seriously consider the inforaatlon in 
the attached paper, and that you will oppose those 
portions of the legislation that would create further 
inequitable coapetitlon between the FCS and private 
lenders and perait further govemMent intruaion into 
the private aector. 


George F. Moody ^ 

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SBOjm t M QPic m naoL bmk 


Legislation has been inCroduoed to —nd the Psna Credit Act of 
1971 . The current bills ace S.146S and B.R.47B2, rcfKrcd to as Che 
Pam Credit Pet FM iii^ iil ■ cC 1979. ttiile the stated intent cC these 
bills Is to allow the Pbib Credit Syst^ (KS) iiwCitiiticn to i^;n>ve 
thelt seiTlces to borroHers, the legislatioi wuld per>it further 
intxusicn by FCS H^wrs into mrkets that are presently being serviced 
fay [rivat* I«nd*rs. RKtheiaore, this intrusion is et^ a nced by the 
oai^wtltiv* odvanta^M granted to the PCS ty the Para Credit Act ct 
1971. Brief apUnatione oC the prcpsBcd i n^infs are MtadMd. 

The liatltuticM that Eon the Para Credit 9ystai are Mjor factors 

in U.S. agricultural financing, ftc cnsvilc, nderal L^nd Banks (FU's) 
at the beglming ol 197S held nearly 30* of all faia real estate lo»s. 
31«ilarly> nearly 40t of non-real estate agricultural lam» vere held by 
the various other instltutlcztf cc^cising the PCS. 

Ibcusing en ogrlculturxl finandnq in the State cC California 
alone, as of January 1, 1979, PcoAKtlcn Crsdit JMsociotians (KA's) bad 
inrcatiMtely $1.25 billien in cutstondingi. Itiis aa^ans ifltb $2.29 
billion in non-rsal estate agricultival loons bf banks in Califocnla. 
landing by POL's aeoouitad for nearly 28% oC all financing foe the 
production at agricultural goo^ in Califocnla. 

As for fiMfidng of fan real estate in CaliCocnia, Federal Lnd 
Banks had SI. 54 biUioi in loans outstsilinq aa ai January I, 1979. 
This is nearly five tiass the aastmt at fara real estate -secured loans 
bald by California baf*s oi ths s«a date. 

Bairiu for Cocperatlves (BC's) had $626.7 aiUicn ai loans outstand- 
ing in California en January 1, 1979. Ihla ccsfiares to S248 ailllcn for 
the amK data in 1970. 

Beth Pa'a and RB's have been increasing their aarket share cpier 
the last ten years. Pa's boosted their 10. 7t 1969 ssrket ^baxm to ^ 
27.9% as at 1979. In ooapariaon, California banks haw lost a partite 
of that Hrket. In 1969, the tianks' share was S8.4t, Wiieh declined by 
1979. FU'S taiaed their share of nrket frcn 17. St in 1969 to 244 in 
1979. Pinanclng ai faia real estate by California banks decreased frts 
S.2% of that tntkat in 19G9, to M by 1979. 

Katicnally, POt's and PI£*3 enjoy tax advantages that are not ihar^ 
by ccnaerclal banks and other private lendsrs. According to our calcu- 
lations, based on data frcm the *44th Anrual Report of the Farm Credit 

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Uiinistratian «d the Cooperativ* Pam Ccadit SystMi*, PCA's wuld have 
paid an Mtlaeud $1S.2 aUllor in fedenl incOK tnes In 1977 if they 
had bMn n^jact to the smb tax l4tn as private lenden. In addition. 
FU's uDuld have p&id $72.1 ■lllioi In inocMe taxes during the Bans year 

Iteugh Uiete is no direct pc^out Eroa the D.S. Treasury to PCS 
instituticns. their tax excB^jt status is no leea of a sutaidy. Any 
dollar that i« not paid in taxes swat be ««de up by all other taxpayers. 
Su^ eubaidiesi of oourse, alwys carry the risk of diverting scarce 
reaourcea frcM other, potentially nore beneficial, creditHorthy uses. 

Heny of Uie 2B aae n etaents pcopoeed by the Fboii Credit Syst^ «ould 
give then further aithority to lend outside the fann sector and MDuld 
npresent an expanded encroadment czi the cczaercial banking systiaii. 
Security Pacific oppaeee audi aoendientiB oi the grounds that no clear 
evidence has been presented to indicate that these ■arhets are not being 
adequately served by private lenders «ri because the PCS has m unfair 
con^titive advantage arising froi its prlvlleqad taoc status. 

Referring to the attached descriptions of the prccnsed anenAisnts, 
t1 and t3> W)idi NOuld lower restrictions on oocperative eligibility and 
HDuld peoidt the financing of processiiq and oaifceting activities, 
regec t lvely, r^resent aCteapta by the PCS to expand itself into the 
wna aC non-faia lending activities. Proposal t* would permit BC's to 
engage in a variety of Intemational banking activities nlated to 
financing the oiport at agricultural goods. Qiis would be an intrusion 
into a narket currently beliq served bf nmeious {icivate organizations. 

Prcpooed anendnent t16 vould authorize the FCh to diarter corpora- 
tlcna tjiidi perfotn aecvice and finance fimctions fear institutions which 
are part of the Paon Credit System. A possible interpretation c^ this 
would mean that PCS institutions could own and operate non-fami businesses 
such as banks and insurance conpanles. In our opinion, this is a clearly 
kxtworranted eneroadment on the private sector. 

Proposed ane n ana nt #2) would allow for a differential dividend to 
be paid bo FI£ borrowers baaed on the aoount of intierest paid en their 
loans, nie result at this would be to lower the cost of borrowir^ to 
PI£ nBdxrs during periods of high intierest raties. Vila seou to us to 
be a blatant atteopt to insulate a portion of the agricultural sector of 
the econcry frcm the effects of nonetary policy^-clearly diluting the 
effectiveness of aiv passible restrictim neasures. 

Proposal 123 opens the door to exenpticn of the PCS instituticns 
fron Truth-In-Lending lam. It states that if the Federal Truth-in- 
Lending Act is oiended to relieve any burdens it iafuses on Fan Credit 
Syston institiutians, similar burdens nay not be In^oeed iqcn them by *"/ 
Static. Prcposal #24 would estiabllah clear exnpticn of the PCS fnao 
state usury laws. Both of these f^roposals are freedons that f^lvate 
lenders do not enjoy. We are not convinced that It is ^^jrcpriate or 
necessary for a pjblic agency to be In ooipetltion with the fwivate 

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In auimry. Security Pacific Natiowl Bank, as the third laigeat 
comercial bank agricultuiral lender in the U.S., is opposed to trif 
expansion aC the Parm Credit Systan into the ncn-fam sector of the 
financial mrket. Such expansion tiould further extend the readi of the 
inequitable coi^etitive advantages of the FCS. In addition, the special 
tax status of FCS institutions increases the biidens that nuat be bscne 
by all other taxpt^rs. SRC wculd support legislative actions that 
MDuld assure equal treabnsnt Cor FCS, naticctal banks and other private 

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Digitized by Google 




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Coop<T«tlv» eilttbllltir - Loner the finsr 
•mt tor K financing to *n p«Tcmt of »ot; 
p«TC*nt*(« » diiirict boardi ■■ 

Oadn fm—ut imi, M parcnit of tha voti 
(TO parcaot In Iha t*M of ruTit aiectrlc 
^•(■•t* in otdar for tha coopeutive la b 
tnf. By looarini iht nqulroeni to 60 p 
-la aorc AiUy sarva tha cndit naadi of r 

doninf Iha principla of faiaar control of ihc eligible co-op*. 
Horaovar. dltirict boardi nould ratain tha rifht to lat hithar 
farvaT-aaabar aligibility raqulraaants for cooparativa alittbtlity 
If thajr lo chooaa. 

ii ^arewit landini Ltaltaiion - Ftderil Liml lanki - Allow Fadtral 

tttratlon (SIA). or. 

Tha principal lapatu* for tha praiant proposal csms froa ■ ihtft 
in dlractlon of AHA loan protrua my fro* pirticipatlni '•ith 
prlvata landara In aakint loini to juiTuiteeini loans aade by 
prlvata landan. Many of tha land binlis have been heavily involvad 
in Iha FiiHA pantripatlni loan projru eipecii ly ai a aaant of 
providini crad i to VOUtit fanati. A vodification in tha law, 
alonf tha inti of the present proposal, it raquirad if tha Syita* 
to continue to reach borroxers it not tarva* undar tha FMA/FLB 
particlpatin) loan profraa. 

Hnanc. Pro. 

:eiilni and Marketlni Activities of Bona Tide Faraati 

<*>(lna and 

fira, ranch. 

, or aquatic operationi and thoie of other bona fide 

faraari rai 

icheri or aquatic produceri leaving to each dittrlcl 

boavd tha a< 

jihor tr to lat ipocific llalta on thU authority aub- 

Jact w the 

approv.] of FCA. 

The Syitaa baliavai that U. S. atrleultura aoold benefit froa tha 
land bank and production credit system! eipandin; ihe scope of thalr 
larvicai in procesilng and aarkating araai. Craater Syitea Involve- 
Bant could nail raiult In faraars ac^ilring batter proceiiing and 
aarkating facilitlai vhich, in turn, could contribute to iaprovad 
f*r« Incoaa. It t* not intended that FLBi and PCAi would finance 
cooperatlvei'or increase coapatltion in areas served by cooperatives. 

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IW«T th* pn>po«*d ■■iwfcia i . Uatrlct bond* awU ba MttkerlMd 

to fix (pKiru Maiti M Um ■utharitlti «f KAi and fLBi to 
lliMiicA pToctiilng B< MrkMlia utlvUlM. Tor *>«ivl*, ■ dli> 
trlct Mr rvquin that • cartala parcmiai* of th* uuunt procaaiad 
A* aiTtvtad 1m lUrlrad froa iha appllcint't ixni producilon. S«v«T«l 
dlilrtctt ha«« alNady pi«vld*d IMiciilani thai th*r all ntabllib 
a «lnla« "thnuclipiK" nqniraaMt If thii propoiad aaan^NM la 
•nactad Into !•■• 

. S. cooparatlva ti 

In OTdOT to pTflMt* tha aipaatlen of U. S. acricultuiil tiponi 

froB ;h(ne ;T«nt«ctloin ih« Si-H"* proDoin thai ftCi b* muippad to 

balnj offefed V t»V»f« cot«i*rclil hank*. Aw>n£ olhar thlnn thii 
would antal u>lhorliln| K» to (■! ink* dapoiiti Ln foT*i|n basks, 
ft) roealva nd >iold cradlt talancn tttm banki and borroosn. 
(c) buy and lal tonkari acopitncsi [d] puTchas* i>a drafti pajr- 
abla br forattn bvyari of *trlcuituril prixlucti and (a) anfat* in 
CUTTVncr iichang* Tlic aBcndHnt would ■uihoriia Ki to aaka loans 
to assoelitad partlo ahara thara Hill ba substantial banaflts to 
a Baabar cooperative. It vould also allov Ks to particlpata in 
ownanhlp of Initltutlons for tha purposa of collactlnt Infofaatlon 
•bout foralfB aarkat* and aipadltlni lagal and flnanelal t 


Authorita the Fadanl Fan Cradlt Board to sat tha salarlaa of tha 
Fira Cradit A^lnlstratloa's (FU'i) Covimor and Daputy Covamori 
within tha llaiti of the Executive Schedule. 

Tills propaSBl Is deilfnad to better enabti tha Afency to alltact and 
retain an executive staff of tha caliber required to carry out Its 
aisslon. An upper Malt on tha salaries of FCA's aiecutive staff 
would ba rFFiintd tlnCt the Federal BosTd xouM be prohibited froa 
sattlnl a iaiir' above ha aaxlata rata of basic pay in tha Eaacutive 
Schedule fcurrantly 166,000 par anma). This proposal, ai wall as 
all oihat FCA a^loyee proposals, would entail no cost to tha U. S. 
Traaturr, since the expenses of tha Afency are paid by tha Systaa's 
borrowers rather than by U. S. taxpayers. 

Authorlia FCA to set up In own salary and classification (ytlaa for 
eaployaes below the Deputy Covamor level, sidiject to the cailinf 

of the Ceneral Schedule. 

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TMi Muld antiil nnoviBi FCA implof*** trtm tlw elutlficatlon 
r*quln*Miti of tha Offlca af PanooM] Mwn|WMiit OmO. but vould 
continua tha cailinf of tha Gaiwral SchaAil* (earratitlr 147, SOO par 
•nmM). 11n pmpoia of tha propo*«I 1* to facilltat* placaaant of 
qualified candidatat without (WN claaranca for advaacod in-birisf 
ntai and to provida floxlbility br aakliit FCA lalariai cM^atitiva 
with thoaa In tha Pais Credit Syilsa 

■ OHn qualification rMiulraanti for 

This would antail axa^tlni FCA i^toyMs frsa co^ietitlv* ciaMln- 
ing rtquiraoencs of OM. A principal banaflt of tha proposal would 
ba to apaod up FCA's Tacruitaant pncssf. 

Eiaapt FCA froM Fadaral traval, procuraaant , and proparty rotulations. 

Tha objactlva of this pr^osal ii to astabliah oparations of tha 
Afaney on tha basis of food businass practical without tha constraint* 
of datailad procaduras iaposad by currant Fadaral rafulatlon*. 

Spacifically, tha proposal would allow for portability of «lck Uav< 
tni] retir*n«nt between Farn Cradlt Systaa district ratlraaant plans 
■nd the Civi Service KetlreBent systaa. ThU could be accoqillahed 
by providing cred t for all years of service under aiihir Civil 
Service or Fim Credit district retlrenent plans for both annalty 
calculations and vaitin|. 

the dally aqulvelant of the 

The currant par dien of HDD par day was established In Aufust 1966. 
At that tlaa, this aaount was roufhly equivalent to the daily rate 
payable to a CS-IS. Hence, this proposal would slaply brini Fadaral 
Board per dien ccapensatlon into line with the current reta of eo»- 
peniatlon for CS-lSs. 

f Aquatic Landing Fropoiali 

AuthoTlie FICBs to discount the aquatic loan* of other financial 
Institutions fOFIi). Under ailstini law, FI»* can discount OFl 
loan* to "faTsen and ranchtrs." This propasel would sinply provide 
equal treatnant for loans to producers and harvester* of aquatic 

Koitizedb, Google 

AllOH FLBi ind FUAi to aakv lon|-tai« loau to produMt* and h>T- 
V**t*ri of aquatic products. Ths propoial wDiild alloo tha land 
bank jyilra to provide iDni-tera, flril real estate aortfa(a loan* 
TO these boTToweri for the purpose of conitruciing docklnf and itor- 
a|« facUltlei u ■all u for other credit n*ad«. 

Loan Participation s - tothorlia lutltutlons of th* FaiB Ctadtt 
SystsB to invest and/or partlciptt* in loans of int»r- and Intra- ' 
Systes institutions. Also, with landari outslda tha S^staa vlth 
raiard to Fadarat land banks. 

m* pTopoial vould provide Systea institutions Kith tha aeaM far 
■aklBi Bora tfficimit us* of 'holr aqulty capital baa* and to mem 
fully >a«i tha crodit naads of crodlnrarthy borrowT*. 

Thii proposal vould paialt tha praildnt of a Fan Cradlt bank to 
deienine how tO Utllli* aOK affactivaly hli ttna and skills and 
those of other Miibars of his staff. 

District board) are enpovered, undar currait law, to authorlia afraa* 
nants batxean institutions within a district for the provision of 
loint sarvicas to borrover?. and batHsan districts for those lervices 
■hich can Bost affactivaly b« Bade available by the joint under- 
lakings of tha districts. However, present law does net provide for 
orporition of institutions other ihas tha types 
ig in the Systen. Thus, slthough the 19?! Act a 

I Isrni Credit Systen inititutions, it <lo«s no 

of a corporation to provide the services Tl 
even though the corporate fon Bay be the nost efficient or 
nlent for™ of organ! i-ati en for the purpose. The 
authority to incorporate service organiiacions in the Fam Credic 
Systea at laaat ona reason for th« prasant aoa-coTporata fora 
of FaiAtnk Sarvlcai. 

Digitized b, Google 

■Uoeited lurplus. 

Lo» Sh»Tln[ - Authorli* all Fsra Cndit liutltntions to aatar into 
(«n«Ttl IMI ihating igrtcBcnts clth other Fan Credit initltntioiu 
(■Ithmt T«f*Td to th* typ* of loii) and Fan Cndit banks ijntea* 
to antar tnta luch a|r>«amt vlth each athet. 

Capital preiarvation agrssBsnts ara an l^mrtant •ami of anhancini 
th« capital viability of the Sysian. Tlili propoial ifould sl^ly 
•Ipand tha lafal authority of Systea Inititutiana to antar Into 
sucli airteoent* vith ona anothar. 

:ial b 

Tbis propoiBl KDuld aaand Section 2.t](«) of the Faia Credit Act 
to authoriie PCAs to issue participation cert flcstes to coMtrclal 
banks and oihei tenderi to facl jtata participation loan pro|nas. 
T^a ailsllng authoriry i iiiitad to perioni allglbla to borrow 
-frofi an association. By pereitting a direct lender to lender 
relationship, this proposal say be expected to fenerata (raater 
Intersst on the pan of cometerclal bank* in the PCA-co^MTClal 
bank participation loan protraa. 

This proposal eould lii^ly aitend to FLBs and FLBAa tha taaa legal 

authority ahich production crodlt aisoclatloni and bank* far 
cooperatlvei aou poisass. Such legal authority vould enable the 
land bank systea to operate on a purely "cooperative" bt*l* (I.e. 
ntumini eaminfi to borrovars on the baalt of tntertat petd). 

Ditferrntui DtviJendi - Allow for a differential dividend to be 
paid 10 a fLB and FLBA borrOHer based on the aaount of Intanst 

This proposal vould (lv« the land bank syataa >on opanting flail- 
blllty. The authority soufht for tha land bank lyitaa is aiailar 
to authorities ohich PCAs and the Ks no* have. 

Redefine Equity - Aaend the Act of 19T1 to define "equity" In tha 
land bank syitaa a> capital stock and other claaae* of equity and 
surplus, as say be approved by tha Far* Credit Adainiatration. 

Koitizedb, Google 

CuTTmt In doas not Ipeciflcsll)' luthorli* land bnks to initltut* 
Ttcapitaliiitlon pn>(m* which Involv* tniuf«Ts froa uiociitlotu 
to buiki. n«i> tTMUfors ihould approprluely b« emuldarad "con- 
tributed" or "dooatod" capital and accountod for aa nich by th« land 

Thli proposal xould (Iv* cliar authority for auch accountlnf and thm 
facllltata th« d**lr«d racapita Illation er raatructurini of land 

bank dlttrlet capital. 

25. Truth- In-Laridlrn - Establiah that only Ftdaral truth- In- landltii !«■ 
appllai to Far» Cradit Syiton Imdint- 

This proposal vould ensura that. If the Federal Truth- in- Landing Act 
Is uiended to relieve any of the burden* it iapoies upon Fara Cradit 
Sysiea instlcutioni, siailar burdeni will not be iaposad upon the* 
by State Ian. 

14. Interest Rates • Clarify and reaffir* that iendinf by the Fara Credit 
Systea is exMpt froa Stale-laposed Interest rata ilaltatlons (I.e. 
usury laxs). 

The purpose of this proposal is to reaova any possible doubt that 
the Fira Credit Syiten is exenpt froa State usury laws. Clarify- 
ini the eiespt status of the Systaa will ensure the conttnuad avsll- 
abillty of new credit for faraers and ranchers In "ti^t aoney" 

2S. Election Proeajs - Require that the list of candidates for the posi- 
tion of elected dtjtrict director consists of two noainaes recalvini 
the hlfhest nuaber of vote* rather than three noalnee* a* 1* required 

E*tBblishing a two candidate list would ensure that a district dirac- 
tar Mill be elected by a aajority of the vote east In the election. 
Under present law, the candidate with the lariast maber of votes -- 
whether a alnorlty or aajority -- 1* elected. Hence, this proposal 
would bring the dlitrict director election process into line with 
the practice of aost elections in the U. S. 

(Three aaenttcnt* which are purely technical in nature) 

(■) "Soak value" In Section 2.2(i). 2.2(1). 2.11(f). ((). and 

(b) "Fair aarkat value" in Section I.ia(d). 

(c] "Par" In Section 3.S. 

Correct a technical i^arfectlon In Section S.B(c) of the Act reiard- 
in| cooperative eligibility. (Sarvteaa to eligible cooperatives 
and "fiffnishing fara or aquatic business sarvicas to allglbla 

Correct a mabar of typogra^ical e 

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(ChaBpalgn, 111., Nov. 10, 1979) 


Mr. A*B. Thmnk roo, Hr. Chunnui. 

I lum with ma Mr. Jeff Gkince. He ia exeentire director of Qvmin- 
■DOit RlatioiM at ASA, St. Louis. 

Hr. Chuimu, I am Allan Avea of Kiifcland, HL, and I appear hara 
todaj in 1117 role as a faimer an4 •• president of the Ajoerican Soybean 

liie Americaa Sqjbeui AaaodadoD ia an intematioDal oommodi^ 
organJMtinn organized to aaenn the opportunity of a profitaUe tOf- 
beu indmliT. . 

to elicit atrong Mq>port for 

it of Bo^bcana and aoTbean products and 
' effeetiTB ptogiama of naeatt^ and 

At pnaant, ASA haa (oniini oSoea in Madrid, Paris, Bmwih, 
Bambnrfr, Tiemia, Singapore, Seoul, Taipei, TtAyo, and Hezioe C^. 

Eadi of theae officee is staffed with spaeialiats cbirfted with the ab}eo> 
tire of ejqtanding forrign demand for soybean and soybean prodneta. 

Now, toon than arer, the Ameiican sojbeao producer is hMT^ de- 
pendant upon fimini mft^ets. This mar, Ameneao soTbeanprodooeia 
win barrcat a nemd crop of abont S.S billioa bushels of soybeans and' 
about 55 percent of that crop wiD be sold abroad. 

Sqybaana now i^HMtnt America's largest cash crwhtad ita largest 
agricultural axport commodity with ui expected 1979 to 1B80 export 
Tslbe of about V billion. > t 

The fiitnre points to even larger soybean crops and die need for 
eren larger foni^ mariceta. 

It is with this m mind that 

port of the American Spyba — ^ 

H.R. 47B2, the Farm Credit Act AmendmenU of 1979, wbidi woold 
peatlj enable fanner oooperatiree to maitet sgricoltunl oominodi- 
tieo abroad. 

As I have menUoned. American farman will, this year, prodnoa a 
record crop of about SJ billion buheli of soybekna. 

In 1 year, the United States haa tnor«ued its produotion of aoy- 
beans by en amount equaling the total production of Brasil, our duaf 

But prodncinft this huge crop i* not enongh to a«ure suooen for the 
fanner. The majority of the soybeans must be sold to cnstanere abroad 
at a price that will oover the fanner's production oosL And provide 
him with a reasonable profit. 

As U.S. loybean production rises in the fiitnre, e*«ry aveBue to 
iucnaae export saW must be utilised if we are to m»tii»jiw « yiable 

While I am here todav to expreas ASA'S lappart for „ , 

banks for oooperativea tne authority to help finance export programs 
for farmer cooperativea, I do not want to Mare the impnaaioa that 
ASA is not pleaaed witii efforts of our major private oport finna. 

On the oontixry, I think that the t«cord will sbow that uie private 
gT«in export finna are the most efficient maiket«n in the world. 

Koitizedb, Google 

Compuvd to Uw tifH.«Mi gnia marketing bcwrdB of Cmnadk aitd 
Amtnli*, tlw printo grtm compuuM hara pnnded AmBrioii fum- 
ets, on tbs whole, with j^i*tcmtnm from taeir prodneUoo u k naalt 
af tbur kmfc ezpemnce u tb« itidiutiT. 

The AmuicKii Sojbma Anodation nines Uw aerrioe pnmdcd W 
the priTmts grmin exportera, bnt we aho feel that ■"■^•'"g mora toob 
anilable to farmer cooperatirM to aaaiBt in their export nurketiiig 
actintiea can oolj henelit TT^- lojbeaii prodnc— 

arid, eepeciaU; the leenr 
devaloped et ' ' 

If thar an eiTta the avid aMotasce from the banks for eoc^Mra- 
tJna, it u likalj that fkrmer eoopentiTea will be able to aaikx enb- 
^itftfi' Mha in the expanding maibto and the result will nndonbt- 
«dlj be even oratfar U A axporta than if the ootqwratiTea had not 
co m peted for uhe maAefa. 

There have been Mane who have mmested the &nnen of (be farm 
credit administratioi never intended mr the miem la aanst fanner 
oooperatiTes to the disrae provided in ILR. 4782. Howeier, aa waa 
pointed oat bt Hr. W. W. Oaston, president of OokOut, bte^ during 
tcstimonj befonronr enboranmittae <ra October 4, 1979, tbe Farm 
Credit Act of 1071 makee niedfie reference to the need for the tma 
credit ^atem to expand the civdit and other sernecs pronded to 
farmer oocmeratiTes m order to allow them to better serve thair mirii- 
ben* needs m a changing ebonoo^. 

Stronger overseas markets are among Hwee needs, end in cwder to 
sustain ttuae markets, while financial tmb most be made avulable to 
aid the farmw in icdwdng his risk to wids flnetnatiaas inmaiket price. 

American agrkottare it tarel; not the MUM todaj ■• it was when the 
fsim credH s^tem was coaouved in 19IS. Nor is it the wnw as it was 
in 1071 when CoogitM pawed the Farm Credit AcL 
In 1916there wamtevm a fledgling sojbeanindnstiTj in the United 

States. I 

A little over half a ouiturr Utor, in lOTl, the United SUta produced 

almoat 1^ billion bushels of aoybeaiis and sold about JI8 percent of 

tboee to foreign cnsUnnera, J 

Now, only 8 years later, American farmers have atmost doubled 
1071 output and will sell ckae to two- thirds of that prodtietion abroad. 

What served American farmers and their oooperatitee in 1016 or 
19T1 will not necessarily serve them today. If Amencmn finnen depend 
upon intematitmal markets for their incomes, th^ have no alternative 
but to utilise international toading practices. : 

ThBrefore,Mr.Churman,fmbenalf of the American S^bean Asso- 
ciation, I ni^ yon to suppoK those sections of ILB. )T8S that will 
allow Banks for Cooperatives to better assist fanner oOOperatives in 
marketing agricultural products abroad. i 

The legislatioB can only help to meet the needs of the future. 

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IS paopl* -uhcn they in 

£0 ptT ctntst ■ 



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D- S. Bouat of Repre 
Rood 104, Cannon Bui 
Uuhlngtan. D. C. 20 

1 an HTltlDg to 

Subcomltcee cooslde 
Hsnugsr of cb> Bedfo 
Bedford Ruial Electi 
Electric Cooperative 

1 Co bava thla letter sul 
} Cbe Fan Credit Leglali 
d KuTol Electclc Cooperative la Bedford, Fee 

r wholesale bulk pover supplier) haadquai 
acttcallx no alt. 

when anyone is pi 

the Aaailcan people have 

Ansrican dollar 

I fron seeking alter 

Ue also believe that 
rces of credit due to >«iberah 
Ldds to be in effect, that 

a CD^lately dlffannt ballgan. 

a been repaid aod raatrlctions on i 

e viewed in a co^letelT different light. 

f chat one of the underlying causes of Inflate 

apical. These highac inteTssC race cad 
especially crue wlch niral 
ioduatry la one of the aosc highly capltal-ln 

catepayst at 

(the ultlaiate raCepaysr) tAty th 
f froB Che Fan CredlC Admlalitr 
catlva Heabersblp lesCItoClona a 

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Ftbruary 26, 1980 

Today alactrld 

ba awlc aval labia 

■U p«pla at tha 

can partially 

be achieved by 


I niral al 

actrli coopat 

tives to ba allBinaCad 

ally lower 

will be able to take 



of tha loM 

dally for 

tha short- ta 

ra botrowlDg fr« 

th* Auki 

for Coopar 

1 have a t 



th. C<mtte 


t that 

rural ana 


aa aar 

«d by tha 

an. Cradle ay.ta. 

Ha r. 

•pact fully 

aak th. Co—ltCM 

to allatnat. ■aabecsblp 

raqulrMMta for 

trie coop* 

c» mitt aarva 

all paopl. and today. 

grova and 

naloo wUl 

taka pla» 1 

rural areaa. Kural 


will Dot Bva int 

o tha bl( 

tlty araaa. t 

MreCore, there la 

■uat that th. aub<:a 

—let., -til Ha tha wl 

dOB of tw IMjOl 

hla 1*1 Isl 


maber ona. halplM 

tha Clraa 

[ latUtlont and o 

u-bar t*o 

hclplDi CO aalia aan e^ltal 


to rural ilMTica. 


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rS\ '&^'*' LANGFORD MLO. CO. 

JiJ^^^^ BOX 104 IIHA, MKt. It0*4 Ml «S4.M«I 


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Kmml Cttetfie e»$ptMt/n, /«c. 



Box 270 

r; ■■ ■- ^ ; 

Somerset, Pennsylvj 
Febniaiy 25, 1980 

Honorable Ed lOnes 

Member of CongresB 

104 Camion Houaa Office Building 

Washington, D. C. 20515 

Dear Congresamon Jones; 

II has come to my attention that you are the Chalnnan of the 
suboommlttae conEtdedng the Tarm Legislation. I am therefore wilting to 
you asking that this letter be submitted as testimony to the subcommittee. 

I am the Genenl Manager of the Somerset itural Electric Cooperative, 
Inc. , located in Somerset, Pennsylvania. As the Manager of Uils distribution 
cooperative, serving our member- owners with electricity In the retail level, 
I would like to urge the committee to consider seveittl Items. 

1 . More and more of our member-owners are concerned about 
their electric rates. This office spends more time explaining 
latss to members today than at any time in the history of 
the Cooperative. 

2 . More people tall me that they believe the number one 
cause of Inflation today Is the high Interest rates. More 
people tell me that some other solution has to be found 
other than lalslng Interest rates. 

3. Our rates are, to a large extent, dictated by the cost of 
wholesale power that we purchase &om our wholesale 
power supplier [Allegheny Electric Cooperative, Inc.). 
Allegheny is a generation and transmission Cooperative 
and Somerset Rural Electric Cooperative, Inc., la a member 

phone (814) 445-4106 

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Honorable Ed Jones 

Page 2 

February 25, 1980 

In reviewing REA Policy Bulletin 1-1 , we note tbat latereet 
on long-tenn debts ea a peicentago of operaUng revenue for s large 
G&T company In excess of 40X of total operating revenues. Therefor*, 
Interest rates place a vary significant roll In wholesale power rates. 

We think that Congraas should put a high priority on reducing 
Inflation and that Congress should put a high priority on providing 
more electric cooperatives the ability to be able to borrow funds from the 
banks for cooperatives ■ Allegheny Elsctrlc has infbrmed me that recently 
there was a 3 3/4X difference In short-term borrowing rates compared to 
rates from the banks for cooperatives. As you can Imagine, this has a 
tremertdous Impact when ycu borrow hundreds of mlUlons of dollars. 
Who makes up the difference — the rate payer at the end of the line (our 
member-owners) . 

We favor the support of the lowering of the membership requirements 
fOr rural electric cooperatives because we serve the same people that the 
Farm Credit Mmlnlstratlon serves . with all of the original government 
capital being repaid by the banks, there is no reason why there should be 
any restrictions flar rural electrics to be able to borrow at the lowest oost 


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419 Eaat Church SCre«c 
Indiana, Pennsylvania 15701 
March 3, 1980 

Honorable Ed Jones 
House of Represent selves 
ROOB 104 Cannon Office Building 
Haahlngton, D.C. 20S1S 

I understand that your SubcOKilttee on Conaervation and Credit 
Is considering House Bill 47B2, Che Bill chat would decrease Che number 
of famers who are required co be mosbeta of cooperaclves that receive 
loans from Che Bank for Cooperaclvas . 

I very strongly supporc this Bill, especially bacaua* of Its 
favorable InpacI: on our nation's rural electric cooperatives. 

Electrical energy is a very basic conmodiCy. Without it, we 
would not enjoy the high standard of living with which Mserlca has bean 
blessed. This standard of living haa been threatened by the high cost 
of energy. High cost energy fuels the fires of inflation which, in turn, 
cuts Into our standard of living. It Is important that rural electric 
cooperatives be able to improve and expand their systems by using the 
lowest cost capital available. 

By decreasing the number of famera who oust ba menbars of 
cooperatives that qualify for Bank for CooparaCive* financing, we are 
lecogniilng the changing character of America's rural population, Itiere 
are fewer actual fatmara today Chen Chere hsva avar been before in the 
history of our nation, While the mmber of farmers has decraaaed, 
the number of nonfarm people who live in rural srass and serve the 
agribusiness comnunlty has expanded many fold. Additionally, millions 
of people each year who have becone fed up with Ufa in Che cities are 

moving Co rural areas. Rural cooperatives especially rural electric 

cooperatives must, by low, serve everyone in their area; faiciers and 

nonfarmers alike. These cooperatives should not be penallied because of 
the popularity of their location. 

Tlie special history and comndtment of rural alactric cooperatives 
is the final reason why 1 believe they should have access to the low 
cost capital available frOD the Bank for Cooperatives. In the 1930'a, 

society acting through rural electric cooperatives made the 

coDsnltment to supply the benefice of electricity Co rural Anerlca. Thia 
has been a costly task. Cooperatlvea and their owner/cuscoowrs should 
rightly expect government to provide the lowest cost financing possibla 
to help Chem continue to meet the coeaitaent made by our society nearly 
a half century ago. 

For these reasons, I strongly urge you to support House Bill 4782, 

V«ry,tr«lv yours, 
nichjird S. f^ranae " 

Richard S. Orange 

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Fabniuy 2S, isao 

BoaoTibl* Id Jenci 

ROOB 104, CviDcn Offic* Buildiog 
WishingtGD, DC 20515 

t Laqlalation 1M7B3 

I ■> th* Canard Hanngac of tha h*> Entaipilaa Ruial Blaetrlc 
CoopanClva, Inc.. Han Entaiprlaa, Famuylvunls, 16M4. na Kan lotariirlaa 

to provida pwar at ■■ lav coat ■■ poaaibla to its aa^iar*. Hav BntaEpriaa 
Jural Slactric ia unlqua in that it haa navar bo r rowad any fmda trom 
tha Rural SlacUlticatlon AAiiniatratloo. aam-m. Nan Intwpriaa ItaEal 
Elactilc (cllon R 

caption of tha ran Co 

la aoonoay baa Qona thioogh a duaga. Thia aoaaDsic 

ant in rural Aaarlca. Blaculclty la a «lcal part a. 

Ha ara In favor and haartlly aufvort tba loaaring o( tha Baabarahlp 
laqulraBanta tor ivral alaotrlo eeovaiativaa to ba abla to bonon fro 
tlM varloua Bank* tar Cocf«iatlvaa aa euUlnad in KMTU. mral llaecrioa 

•ra tha vary aiaa aiaaa that all chraa banka al tha Par> Cradit J^ainiatratlOB 

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ha Banks for coopaatlvaa, it 1b meh non iufwiUnt that 
a ponr Buppllar, Ulaghany Elactric Cooptrativ* b« obla 
ndj trcai tha BAltlnon Bank of CoopacatlvH . mcantly. 

121,2B7.G7 La than mada part of a 35-y 
' oDiiai»ra will ham Co baai an addlti. 
Mch alum up In hlghar alsctxlc raMa 
ront-vid financljif by AlLaghany Elactz 

'a hopa that Congraaa haa put a high priority on raduclng 
. and thla laglalatlon la a hlg atap In Chat dliacCion. 
produca asipcrCBd la vary InportanC Co our nation in rvduclng oi 
<f paynainta. Thla lagla^ation will halp all of agrloultura. 

BenJaaCn H. Slleh. naniigar 

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aantuUan T^todutUoti &redit (Iii4ieiatton 

p. O. Boi 4M Pbnw 806/1X3-6462 

•,5a»4 790M 

PebTuaty 18, 19S0 

Uaihlngton, D. C. 70^5 
DesT Hr. Joneii 

Caudlan ProduccioD Ciadlt Aaaoclaclon scTvaa a ■Ix-councy araa 
Id Che nortbaascerD comer of the Texaa Paohandle. We ace required 
by lav (aa all PCA'a ace required) Co provide agricultural credit 
to faraers and ranchers at the lowest cost possible- 
Evidence of our co^llance to thia Mandate la the average Interest 
rate charged to our BBBber-borrowera during our 1979 fiscal year. 
Our avaraga rate during this period vas approilaately 9.70t- 

FarHca and lanchere In our a 

ting funds at ■ auch lower ra 

Had Canadian PCA been without 
progrsBS available to our bcb 
1979 fiscal year would have b 

Becauas of Che critical laportance of PCA Inaurance prograi 

passage of H. R. 47S2 vlll enable the Facn Credit Syatea t 
serving agriculture In a eoBprehenalve and efficient aanne 

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IT Tlx Equality (BCTB) Bppraciatas this iif>[icil:tiiiilty to 
■tat* our poiltioD on H.n. 47S2, a bill to sxpind Coc^sntin 'an Cndit Syatm IOCS 
landiji? authority. Tha Bankaia CoadttKe For Tax Bquallty is a apaoial 
canmlttes of the National Tax Bouality Kasoclatlon ttRBA) , and conalata of 
over 1400 conBrcial benka. The Banhera Ccoalttea advocatea equal taatioo and 
ngulatlon for ci^DereUl banlca, thrift inatltuticna, and coc^ieTativa bonks. 

The last fa« daoadaa have ultnasBad an nnpracadentsd govemaant-loaCared 
groHth of coo[iaratIfa bualnaaaaa. The vactnua gcmrnBtit aaiuna faToring 
cooperativo axpaEuion ha^ in 'laoat inatancaa been baaed on the ncognltion of the 
pertlcularly auitabla corpoiata torm ths ooiiiarativae offand laTsera Id BBIIcBtiBg 
or dlatributlng produce. Another ia^etua to coopBrativa privation haa bean tt« 
well-lntentlonad, but often alatatan viaw, that pclvata invaatoc-oHned boalneaaaa 
vara Incapable of affactlvely providing iwceBsary aervlcea. M last, lasa algnificent 
(actor, haa bean boatlllty on tta* part of aine In gove[i«ent tomirda profit Hkliig 
and psivata entarpclae In ^naral. Tha adbaronta of this view lae the ixaaotion of 
cooparativH* aa a way to anallorata 'exploitation' cauBad by 'BonopoUattc'' pKlvata 

Aa a raaolt of gonmnent polioy, a dual econcaiy ia gradually eaerging In tlia 
United eataa. One aaotoc, eu^uauJ of pcivate firaa, ia beset with conflsoetcey 
taxation and onaroua ngolatlon. The other aaetor, eonalating of cooperative 
buainesaea, la largely eaapt fra Isocoe taxation and pany regulatory burdana. 
Purtherw>re, tba coopaiatim aectoc la prorldad with a full array at anbaldltad 
credit facilitiae and gavamnant created tanka, auoh ee tha CFCS. 

R.R. 4782 vculd autboriaa the financing threu^ tha CTCS to expand and extaDl 
the unfair ccnpatltiai poaad by tax-asa^pt coc^sxative bualneaaaa. By Uberalijilag 
eligibility cagalraBants for acoBB* to Banka for Cooperativaa' credit facllitiaa, 
U.R. 47S3 Hill Bontributa to tha attenuation of prtvatii bualneaaaa. The proviaicna 
of tha bill that authcciaa Federal land Banka and Production Credit kaaoclatlona 

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Co flnano* iiarlating and pcooasalnj- imuld also nsult In ■ oorraspiindlng daaxvkaa 
of landing by eoaaarclAl banks, 

ht EKSMBt, to ba •liglbla te banw tiom Uia Banks foe Cooparatlm CBCal, 
a coopentln auat lava B votlHr **ab*rahip of which at laamt BM ara fanaza 
<7m for rural elaotclc oooiianitlvaa CREHs] ain) talaphona coopBratiisa) . B.It. 4781 
Hould Iwer tha fanar-iBabar eliqiUllty raqulmaiiE to eot. This voaU 
obviously accoaaodata a ^raat aiipinaion of BC landij^, and atlHulaca a flurtliar 
grcHth of oof^aiaciva .fLrpB and tha CFCB. id addltioo, a oIabe and praala* 
daflnltion of tha tam 'fuMr- la laoking, and la laportant Inamoh Ba ott-tKCm 
a^iloynHnE and jart-tiBa faming haa Imraaaad seoaUanbly in raoant yaara. 

Much of tha additional fnnda to ba lant by tha BCa would ba aaourad Irr 
attracting funda that oould atteraia* hava been availabla to (x^«tlK| Intarnartlai laa 
These funda, in tun. Hill ba astandad In loana that would tava baan provldad by 
other inatitutlona. Tbua the Inoiaasad landing poiiara cC tha BCa vill ct«a mlnly 
at the axpanaa of tha othar intErnndiKi^iea. Horeovar, tha prlaary raaaan ttia' SO 
uy cootpeta ao Bucaaaafully ia that thair aMective coat of capital la radnoad t^ 
thalr tan amotion. The oUiar antitiaa of th* CfCG aca alao largely liii mini 
and engaged in ocai^tltlon with ccHaamlal bank*. Bxpanding tba lairing powara at 
the CPCe can only put aoaaaralal banka «nd other (inncial Inititutinn nnlar 
IncrMaing ptaaaura. 

Xecording to aocSHHlo theory, capital will tend to flow to Ita iDBt profitable 
uee. l^irthezBore , aooBCBio anelyala atatas that aUocativa efficiency li iiairl»lait1 
whan the nrglnal lataa of return on imvatoant ara equal throughout tha aoonoiT- 
GovernaBnt tax policy distort* th* aarvinal ratusna on oapttal by is^aaing ooat* 
on soae f 3raa of Invastaant and axaaptlnq othaTa. This auat lead to a ■isaUooaUon 
of reioucas, and tharaby, to eocooalo waata. R,K. 47B1 would amoarlKta thl* pEoblta 
by eitenaing tha financing of cooperative buslnsaaas. 

The probleaa er**ted by the unfatT ocopatitlon of oooparatl*** la aapaelally 
apparent in tha elaetrie utility industry, whan th* IMAa are aapandtng vary npMly 

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crushing Uxatlon, and ovapontlng liquidity nny innotm^-cHnad uCllItlaB 
■Ea ••ning oot to RBfts, 

Vht BanVari Comnlttee fully supports tian and fair coKFetltlon batman 
flnBDCial InstltutlonB, meaning that all businaBBSs should oonpeta on tha 
saoa basla ifith no spaclal prlvllagas aoaordad to any. Fair cosq^tltion 
imcludsi a gtmirniiiBnt policy oE bias and favorltlm. It ccofetltlon la to 
be truly equltahls, the CPCS and other coopentlTe bualneaaas nuat be willing 
to accept the saaa raBponalbllltlaa and obllgationa as thalr tupevlDg -eovatltoca. 

Ha baliAva tha polioy ot proaotlng Cha groHth of ooopaiatims baa gene 

o the vitality of ptlvats buainasa. Tbecaton 
on of the famar-neeber HlJLglhlllty inquirementa 

Hith reapaot to atata luniry laws and 

BC tiEVeatiaant poHors In foreign bi 
the CFCG. rinally, we favor the I 

to retain apecial privileges, auch aa 
tha artiflolally Inflated loan loss reeerrss permitted as ■ deSuotion to Federal 

In addition, Cha fimctlon and aoopa ot CFCS activltiaa ahoold lanaln nstrletsd 
to providing agricultural credit. CFCG ehaold not be oupoverad to chactar, Gun, 

the bill would result In further anaroaohnnts on tha prlvata Mator. 

The position of tha Bankers Comittea on Uieaa Isaues is not darivad from any 
preooncelved nations of the merits or dimerits ot cooparativa corpoiatlons. Tha 
standpoint ot tha Bankara CooHlttee concerns only the concepts of tax equality and 
BdnlniBtrative faimaes. Dlacrlninatic: i against a certain fotn of bDSlnasa is not 

of tex equality nans only that ccnpating forns ot bualneas should be equal batora 
tha law. Ue are thanlctui for the opportunity to exprass our vioua on this proposal. 

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cotton gin buaLneai 

a Fedccil Land Bank htao 

Cradle Syatea and any laqislatlon tihlch iMuld aCfect ttL 

Ny paxtlcular murki Hill b* dlracMd tmrd the finui 

and uarkatlng actlvlti«» o( bona fide fanara. I appnclata thla oKortuolty 

to preaant ay vcIh to your coinltt«« conceminq Houae Bill 14782, tha Fan 

n tha allgiblllty foe 

to lo^rovA hlB iwC Incmw, T balleve the Pederal Land Baltic Aaaoelatj 
could contribute qreatly If illond to help with this financing. II 
intended chat tha FLBfia and PCKa aould finance cooperatives or incn 

I boltev* that U. S. agrlcultur* muld banaflC froa the Idnd 1 

acquiring better proceaaing and oarketing facllltlea. 

Our Federal I^nd Bonk Aaaociationj if given tha opfiortunlty ti 
the needa of agriculture and our coxuiniCy along the llnaa of procw 
and aarfcating activitiea, would render a much needed ■■rrica at thl: 

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Stacaaent of John J. Faland. Southara Stataa Cooparatlva, Inc. 

Mr. Chairman and membeiBof the Subcoranittee, my name 
is John J. Feland, Executive Vice President and General Manager 
of Southern States Cooperative, inc., a regional farm supply 
and marketing cooperative operating in the states of Kentucky, 
Virginia, Meat Virginia, Maryland and Delaware. Southern 
States has more than 330 thousand roenbera and its sales exceeded 
$508 million for the fiscal year ended June 30, 1979. I appre- 
ciate the opportunity to present the views of Southern States 
Cooperative, Inc. concerning HR 4782, the Farm Credit Act Amend- 
iwnts of 1979. 

Southern States believes that It Is in the best interest 
of farmers and the nation as a whole that the Banks for Coopera- 
tives Systen be authorized through HR 4782 to become involved in 
export financing. For the U. S. farmer, this authorization would 
add another dimension to the markets for his production, thereby 
potentially Increasing his on-the-farm net income. 

Higher net farm income as a result of increased export 
activity would also tend to reduce the level of agricultural 
price supports that are often necessary during periods of excess 
farm production supply. Even though increased export levels nay 
result in higher comiMsdity prices, duMatic food prices would 
not be dramatically affected. Nhile food prices have risen during 
a period of expansion In agricultural exports, the rising costs 
of food processing, transportation, and other marketing servicas 
have been the major causes. In many cases the fam value of the 
food product purchased by consumers accounts tor only a small 
portion of the cost of the and product. For example, there is 

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only about five cants worth of whoat In a loaf of bread. Thl* 
means that even a 60 cent per buahel increase in tha price of 
wheat would add leas than one cent to the cost of producing a 
loaf of bread. 

For the nation as a irtiole. It is no secret that agricul- 
tural exports have played a major role in reducing the serious 
international balance of payments problem. From a level of just 
slightly over $6 billion in 1968 to a projected level of $38 
billion for fiscal 1980, agricultural exports have been the 
single biggest offset to the trade balance deficit, nie Onlted 
States, in my opinion, needs to return to a trade surplus posi- 
tion as quickly as possible, and agricultural products provide 
us with one of our beat nsans of doing so. 

Participation by the Banks for Cooperatives System in 
export activity would not result in huge new extensions of credit. 
These banks already finance most of the cooperative -handled com- 
modities to the point of domestic seaport. The need ein^ily Is to 
extend the credit foe the additional tine that is needed to de- 
liver the commodity to its export destination. 

Closer to hofne. Farm Credit's participation would help 
the members of Southern States Cooperative, Inc. Our company 
entered the grain marketing business in a significant way last 
year and we will have Invested millions of dollars In grain 
storage facilities in our operating territory over the next 
several years. Hopefully, a cooperative-sponsored export fa- 
cility on the East Coast will also become a reality in the years 
to come. Participation by the Banks for Cooperatives System In 

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export activities will heighten the prospects of that event. 

In aiumary, passage of this legislation will benefit the 
U. S. farmer's net income and further improve agricultuce'a 
contribution to ouc national balance of trade deficit, without 
either dramatically increasing domestic food prices or andan- 
gering the soundness of the Farm Credit System as we know it 

Southern States Cooperative is grateful for the oppor- 
tunity to present its views on this legislation before the 

Subcommittee , 

-;\ ■' \ "1 

John J.^Feland 
Executive Vice President 
and General tlanager 
Southern States Cooperative> Inc. 
P. O. Box 26234 
Richmond, Virginia 23260 

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Slatnnt ef Philip K. rndarUk. Uvtabnrs, tt. 

laa wumciwTiinB 

n. CiMlnMB awt MBbfT* wt tha SiAnvlttta. I M PMllp t. 
Fndarlck. an vrlbMlMtMm, fatMrlr • 'IractOT af tk« Ontwi "■tl«Ml 
tank of Lnrlabarf , Pi—ylT—f. od pn*«atlr MrriM ■• 4 mAot sf 
tl« b«atl*« CflHlttM na tla CarpM««* BMtd tf tte CntMl CnntlM 
Bok U Stata CallvM, Pinurlnnli. TUB U ■ M^loB tlM MOO ainiW 
bank aarrlni affflcultara, baalaaaa aad InAnatrr In a flT* Mantf pr«- 
laBlnantlT ratal araa uf aantral Pmtarlvania. 

I ippradata bavtaf thta appartanltr ta aspnaa ay anppart trt 
paaM(a af tha Pan b«41« AM InanbaMa af 1971. An tnaantln, 
n«Klbla Pan Cradit Syataa la In tha baat Intanata af taarlcaii afrt. 
natara, tba rual caManltr, aid tba laatleaa paopla. Tan Cradlt halpa 
aaaara a tealtl^ rnnl ca^natttri It toinfi Baaay lata tha lacal *e«aaarr> 
and bflpa atrara ttat fanaia hava tta cradlt ta axfaart, aedanlaa, aad 
kaap tbali epaiatlana afflelant BMt pradnetlva. 

I anaU Ilka la dlaauaa wa parta af tba lavltlatlva paokafa alilah 
I faal will dlnotly banaf It aa and athaT eaantry bankata, Tba fttit 
af tbaaa la tha aaaadaant ta aatharlaa all Inatltnttana af tba Pan 
Cn^lt SyatM ta lavaat aad/ar partlclpata In laani vlth esaaaralal 
banka aad athaf lanSan. 

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Til* luthoiltr t* t«rftlelp*t« In loan* wtt}i ccbwtcIiI banks now cxlita 
for produotlon CTadlt ■saoclatlan* and for banki of caapaiitlTas bnt not far 
Federal land bankai thl« amanlnant vduU ntand partielpatlnn antharltr 
equally ta all caaponanta af tha Syktaa. 

Tha Aaanteaitt te grant paitlelpatlan auUiailtr t« P«d«ral lairf lianka 
vauld tanaflt both ceaaarelal banki and their fara eastoaara by pravUlnf 
anothar altarnatl** for ■■•tlaf tbalr naad far raat (stata era^lt. Ibl* 
tuthorltir mold allair a bank or ather InnSer ta sake • fara raal catata 
loan to Iti euatoaar and ta participate a oartlan af tha loan wia a Padarat 
land bank. Tbla altamatlva would ba sMd aaat often In eonneetlan with 
larffe laana where the faraer's credit needa cenld net be aet by the benk 
■lona. In arfeet, tba Bank wonl^ ba ^bla ta atratch Iti loanable fimdt 
while oalntalnlnA Itt cu««a««r talatlenabtp with the faraer. Brerybady 
beneflta • the bank fats to keep Ita caateaar, the faiaal |ata tha fall aaamt 
af real aetata credit he need*, and Vm Federal land bank contrlbutaa ta tba 
well belaf of tha fara c e— lu ilty by ohannallni It* fnada ta the faraer thioogh 
the coaaerdal bank. 

Tba laenrJ piece af leflalatlan which I urge yao ta eiiDpart la tha Aaaad- 
aant authorlaln) pradactlen credit aaaaclatlana to liena participation eattl- 
flcatea to eoiaerelal binfci and other lenders In connection with participation 
laana. Aa aantlonad earlier, production credit aaaaclatlana are already ao- 
thotlaad ta participate In loans vlth oniaarelal bank* and other landers, Vhen 
each loans ars nade, iwn-votlii( 'parti rlpatlen cortlflcataa" rapraaantlng aa 
Inveetaent In the Aseacletlsn ara Issaed. Oidar pravlatana of tha Tarn Credit 
Act ef 1971 these eertlf Icetea aly only be leeivd to fanaare and ather ellrlbla 
barronrs. This prc'acaa an awkward situation In the case ef partldpatlan 
loans becaoaa It Introduces a third party, the production credit asaaclatlen. 
Into the bank-nutoaar relatlanihlp. 

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I belle** ■ mch battar procadur* vsuU b* to hara tha partldpatian 
c«Ttmc«ta« i*t<Md flracUr to th* pirttclpattnc landing Imtltutlaa. 
Thli procadura would raaova m laporttnt laptdtaent to loan oartlclpatiMU 
and wmld strani^hcn and atraaallna th* ralatlanshlp batveen DTodaction 
credit ***oelatleiia and thalr local rural banks. Th* Aaanc'aent mnlft 
faellltata the flow ef fnndi fioa the Para Credit Srstn throuiFh caaaarelal 
banki and other Imdln^ Inatltnttoni. Thl* Aaindaent wauld carract a cra> 
eedaral laperfectlan In the currant authorltr. It daas not In anrwar 
change tha acep* af lending authorltlea nar weikan the principle af 
barrower-awnar control. Pertunatalf I can ipaak fros tha paint af parsonal 
experience Inaraoch •■ ooi Bank ha* had a participation loan with th* 
local production credit ■•■oclatlon. It would slaplr aake the pracail of 
lean participation aor* logical afd Bare efflclentl] 

V.I. Chalnan, thank yon for this apportimltf to preiant wf t1«wb te 
thl* SubcoBltt**. I believe firaett lod tha raral eaiaantt<r In ffanaial 
haire been banaftted greatlf fro tha Cooperatlre Fara Credit Sr>t«a. I 
bellcTF thtsa OHndaent* vtll h*lp *»uT* that thP ST«ta aalntalna tha 
authcrltr and flszlbillt<r to contlnu* to earrr out lt> cann*i*lenal Mn- 
data In an effoctlT* Mnner. 

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My oaie !• Roy Ouimarl. I mm and operate tm crawlera aad flah for shrlap 
and botto flah. I ma appointed by tha SecTetaiy of Co^erca aa a voting 
■MbcT Co Che Pacific Fishery Kanageaenc Council. I e> alio on the board of 
dlreccora for the Southern Oregon Production Credit Aasoclatlon. On October 
20, 1979, I teatlfled before thla SubcoBlttee' a field haarloi la Spokaoa. 
Uaahlngton. Aa ■ flaheraan, 1 apoke of our need for the prorlalona atated In 
the Fata Credit Act Aaandaenta of 1979. Bveots alnca that date have placed 
an even greater laportance on the need for thla updated piece of leglalatlon 
for flsheiven. 

Thla taatlaooy will not readdreaa thoae lasuaa, beeauae I aa eoovlaead that 
you ara Bennlnely concaraad vlth aupportlog our natloa'a young and growliig 
flahli^ Induatry. With leglalatlon aoch aa the Fata Credit Act Jtaenitaenca, 
we flaheiaen will be able to aucceaafully eaplcallie on the opportunltlea 
glvan to na by Congraaa whao It aapandad the flahlng boundarlaa to 200 Bllaa. 

Booevar, there la a topic deaarvlng eoaaent beeauae of the raalflcatlona chat 
Ic could have on flahanwn. That topic la reaclndlna carCaln PCA tnauraoca 
authorlclaa. Saveral apaclal Ictereet groupa would Ilka to llalt the Inauranca 
cholcaa chat aany fanHra. TaDcbara, and aquatic producera have by laglalAClnc 
away certain PCA Ineurance autturltlea. Thla dlaturba ne a great deal, aa I 
believe thla la notlvated by the aelf Intereat of thaae groupa, rather than a 

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Roy GuhtutI 
Harch 13. 1980 
Page 2 

nuch broader concern for the agricultural anil flahlng coanualtI«*. If Ch«i< 
groups were Interested In the geneTal iielfar« of th* fanilng and flihlng 
coDDualtlei, they muld encniTage coapetltlon. Conpetltlon vichln the free 

The FBm Credit SyBten and specifically Production Credit AaBoclatlona have 
shown th^elvea to be able conpelitors in the Inaurance iuiuatry. I can 
speak for ny Production Credit Association's excellent record In extending 
thosB Bervlces. Its Issn officers know the rlaks assoctatad with flihlng and 
faming and offer capable advice on Individual Insurance needs. Claims are 
paid promptly and each producer' a requlroienta are updated at leaat annually. 
AlsOt during ay tanurc on tba board of directors, do accusation has ever been 
made that a PCA B^ber has baen coerced into buying inaurance. 

Eicapt for crop-bail Inaurance, property and caaualty losurancB la not currently 
being offered In the Spokane district. However, there is a growing need for 
this type of inaurance for aquatics. A substantial cost for a fiahernan is 
the Insurance that he «uat purchase for his boat. As a busiaessaan 
thac Insurance coats are not neaaured by the amount of the proDluns 
more effectively measured by the coat paid because of poor service 
claims adjustment policies. I believe thai we in Che fishing Indus 
having to pay an excscdingly high cost by both meaaurcotents. Because 
PCA's record for delivering credit related aervlces, these costs coul 
algnlflcantly redocad If they were offerad through our ?CAs. 

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Soy Gunoarl 
Mtrch 13, 19S0 
Page 3 

: Is a natural development lor Che FCAa to offer Insuraace to protect their 
.ehenncD Bcvbera* and the Production Credit Aaaoclatloiu' Interevta. ^cy 
low the necessity for adequate Insurance coverage, not only to repay debts 
I case of a coaplete loas, but to protect the boat owner and hla crew In 
ise of accidents and Injuries. The PCA has acceas co infonatlon with which 
I develop and complete Insurance plana with the PCA mmober. The PCA can 
Lllor these Insurance plans to tuet a PCAmeaber's specific needs. This 
!Tvlc* is provided by few insurance agenta now. 

' all Insurance agenta could be as good and efficient as the top 20 percent, 
lera would be few probloiB for fishermen. Bowever, they are not; and we as 
.aherman need a dependable source of Insurance and a frame of reference with 
ilch to measure other Insurance companlea. The PCA has provided access to 
lependable sources of Insurance for other types of Insurance and has aloo 

that fr^H of reference. Ihe flahlag Industry needs that e^H help for 

The fishing Industry li In Ita Infancy. It needs good, effective and low 
coat Insurance to give It that edge to neet the challenges of the years 
ahead. If PCAs loss this sutborlty, flshcnsn will loss an Invaluabls potential 
Insursnce seTvlcing source. I sincerely hope that for the bcnaftc of the 
many flaharmen In the Horthweat, your ccoalttee does not allow any restrictive 
amendasnts to the Para Credit Act of 1971 pTohlbltlng insuran 
offering collataral and property Inaurance through the PCAa. 

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Sutnent of Young D. Buo, Soutlura Hicjlud Fan Credit A«»oct«tlim 

Hr. Cbalraan and ■iberm of tha Subcmwlttaa, wr naaa la Y. D. Hanca. 
I >B a BMbar of tba Southsm Maryland Faca Cradit kasociatloo and hava baan 
activa In agrleultura for a nunfcor of yeacB Including aarvlng aa tha firat 
Eacratary of Agrleultura for the Btata of Maryland. 

I antbualastlcally mippaxt HR-47S2, tha Fara Cradit Act KBHtteanta of 
1979. Riara hava baan aany changaa In tha fandng aactor and ita naada for 
cradit and credit- related aarricaa alnca 1971. I ballava tha Farm Cradit 
Act JUMDdBenta ara naadad to ka^ tba Eyataa apaca with thaae changaa. Thla 
proposad laglslativa packags axtanda to tba Syataa tba broadanad autboritl«a 
i^lch ara naadad to paralt the Syatan to caizy out Ita Biaalon to the tallaat 
axtant poaal^la. 

One aapMt of tba Bill la to claclfy and affliB that tba Fara Cradit 
^Btaa is exoopt frca stata-l^osad usury lam i^oalng limltatlcaa on 
intaxaat rataa charyad by Fam Cradit inatitotiona . nils la an axtraaely 
liciottant faatura o£ tha Bllli ona which could hava a traoandoua ii^iact en 
tha Syatan's ability to carry out its baaic Hlsslen of providing cradit to 

nie Fan Cradit Eyatin waa craated apaclflcally to aaaura that agri- 
culture bad accaas to a dependab le aource of adnipata credit) a aource of 
cradit durincf good tines and bad, iih«th«r the Bonay auc¥>ly mis adequate or 
tight, wheth«r Interest rates Here hl^ or low. Ihe Interest rates charged 
by Farm Credit insCitutlona ara datersined by the borrcwer-elacted boards 
of directors and approved by a Federal regulatory agency, tha Fara Credit 
Administration. Interest rates charged reflect tbe econcalc forces at 
mock in the nation's Ksiey aarketai they are the reault of eeonnlc reality - 

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Stata l^^sM intacMt calling! ahouU not be alloirad to iapad* 
■ccoBplialnunt of tha Systan's nlaaim to provid* sdaquat*, dapandabla 
ci«dit. Mara ataee usury lawa alloHed to i^»aa an iotaraat calling on 
FATB Credit landing oparatlCHis, It vould. In aflact, ahut dmn tha Byatio'i 
landing cpacations irttanavar tha nackac aatabliahad eoit of aenay axcaadad 
tha intaraat calling. Faxn Cxadit Initltutlona operata on a vary aiodaat 
■Bigln orar tha coat of ■cneyi but thay cannot oparata on a oaqativa 
■Bigln. Tlia ctiolca la batwaan credit at a pclca, or no credit at alll 

Paaaage of these ABandaenta, including affiT>ati(xi of the non- 
a[iplicabillty of state usury Ian, will help aaauca that the Farv Credit 
Syatan will cootiDUa to parfon ita niasian and contribute to tha accncalc 
wall^Ming of jhiarlcan agrtcultuia. I atrongly ucga you to support this 

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scatnent of Curgc A. HalCi, locklDgbM Poultry Hitluclng Coopc 

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I for dal 

In 13(8 to Jut 
I ona of the 

iady provides 

to becon* involvad 

Ugtilttlon will bt 
<> B-port activity. 

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statement By 

The National Association of 
Profeaaional InBur«nce Agents 

SubolECcd by RuhbcII A. Howaid, President 


R.R. 47B2, The Farm Credit Act Amendments of 1979 
Gutanitted To The 

Committee on Agriculture Subcommittee on Conservation and Credit 

Rouse of Representatives 
March 20, 1980 

This is a statement of position in regard to HS 4782( the 
Farm Credit Act Amendments of 1979, by the Professional Insueance 
Agents (PIA) . The Prof eesional Insurance Agents is a national 
association representing more than 33,000 independent property 
and casualty Insurance agents front each of the 50 states, The 
District of Columbia, Puerto Rico, Canada and the Virgin Islands. 

He direct our comments to Title IV, Section 404 of BR 4782. 
This section-which would add a new Part D to the Pam Credit Act 
of 1971, entitled Service Organizations - broadenda the authority 
of the Farm Credit Admin is trot ion banks to organize one or more 
service type corporations "for the purpose of performing 
functions and services for or on behalf of the organizing bank 

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or bankst other than th« extension of credit, which said bank 
or bank* nay perform pursuant to this act.' 

While the language of Section 404 does not specifically 
reference the selling of insurance, we believe it will be 
Interpreted as condoning an expansion in the sccpe of the fam 
credit aystem'a insurance practices by tacitly authorizing the 
chartering of insurance corporations by the Farm Credit 
Administration (PCA) . Under the 1971 Farm Credit Act, FCA is 
authorized to engaged in the sale ol certain limited forma of 
Insurance, i.e. credit life and other forms of insurance needed 
to protect collateral securing a loan. This authority to aall 
insurance - albiet limited - is clearly a "service" function 
of FCAi hence,under Section 404 of the bill, PCA would be 
permitted to organize this Iservice" into a corporation. 

In the opinion of this organization, the chartering of 
insurance companies ~ indeed the very sale of insurance other 
than that prescribed in the 71 Act -by FCA is totally contrary 
to the legislative intend of the 92nd Congress. The Hoiiae 
and Senate Conferees to the Farm Credit Act of 1971 debated 
at length those aections of the bill relating to the pertnisable 
"financially related' services of FCA, apecifically the extend 
to irtiich Production Credit Associations [PCA) and Farm Land 
Bank Associations (FLBA) would be permitted to engage in the 
sale of insurance. Because of a genuine concern with the 
competitive advantage that PCAa and PiAAs would have over 
unaffiliated insurance agencies and fear that these institutions 

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Rdght otherwia* b« dlr*et«d f ton thaiz pclaary function of 
•xtending agclcultural cr*dit, t)w conf«r*«s d«t«minad thati 

'the B«le of liability insurance, and any ineuranc* on 
paaaanger autanobil«s, is not 'neceaaary and incidont' 
to the functlona of the landing inatitutionsi but that 
they should be able to sell such insuranca aa naybe 
necasaary to protect the loan. Thus, credit life 
insurance could be sold in an anount appropriate to 
inaure repaySMnt of the loan, and inauronce against 
loM of any collsteial securing a loan could be sold 
for the full value of such collatenl.' {Conference 
Report 92-679) 

Further, it is veil documented both in the legislative 
history and FCA's own regulations that insurance servlcea 
should be undertaken only when there ia avldance of lack of 
availability as to convenience, quality or cost and where there 
is a demonstrated Interest On the part of member owners for 
■uch Insurance services. Notwithstanding the clear intend of 
the 92nd Congresa, PCAs and PLBAs have expanded their insurance 
services through pilot programs in selected areas around the 
country beginning in 1975. Rather than putting an end to this 
unauthorized practice. Section 404 of the bill will serve to 
institutionalite the aelling of inaurance on a grand scale by 
these institutions. 

The Professional Insurance Agents is opposed to the 
concentration of economic power by financial institutions, 
most particularly quasi -governmental financial institutions 

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raeh u FCAa aad FI.B)ls wSiicA enjo^ special *•»•» tre>tBen£ . . . 
« position which apparently «aa «bar«] by the conferees to 
t&c 1971 ram Credit Act. PIA ia farther opposed to tbe 
ability of institutions to tie the sale of insaraiice to 
«xt«itlaos of czsdit. Snch an ability ia actl-a^patitiv* 
In oatare and aavvMly lijiits tbs insBraoc* cobsts' fr— doi 
of cholca. 

In closing, the Professional Insorance Agents strongly 
urges that this saticoiwlttee siaply restate the clear 
intend of the 9ZDd Cmigress by I] strictly prohibiting the 
establiatMent of insurance service corporations by the fara 
Credit Adainistratlan, and 2) limiting the sale 
to Chose coverages that are 'necessary and incident' 

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Mr. Chairman and aenbars of th« Subcommittee, I am UMIiain T. Hurst, 
Jr., prasldent of Bryan Fishermen's Cooperative, Inc., Richmond Hill, 
Georgia. I reside In Bryan County and am engaged tn the seafood 
business owning a shrlnp trawler. 

Our cooperative Is coo^tosed of some twenty-two individual boat 
owners and operators. We have In recent years seen the need to 
for* this business to provide us with a way to market our product 
at a better price and to obtain a more dependable supply of Inputs 
used In our fishing operations. 

As the cost of our inputs Increases, we feel It Is going to be 
absolutely essential for us to Join together to buy In quantity and 
to try to save ooney every way possible. Our cooperative should 
help us, as a group of Independent fishermen, do this. 

With our cooperative Just getting started, we are using financial 
assistance from tiie Colkonbia BanV, far Cooperatives and the Coastal 
Plains Regional Commission to supplement cash money raised by our 
members to build our facilities. These facilities consist of dock 
space, shrimp packinghouse and an Ice plant. 

We are grateful to tite Coastal Plains Regions) Connlsslon for pro- 
viding badly needed help and to the Colupnbia Bank for Cooperatives 
which has assisted us in many ways, not only flnanciailva In the 
years we have been getting our business going. It has taken over 
eight years for us to put this project together. 

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We understand that the Farm Credit Act Amendments of 1979 contains 
provisions vrtilcli could. If the bill Is passed, allow us to receive 
financing from the bank for other services we might perform for 
our members. We need the flexibility to finance through the lend- 
ing Institution which we're already a member of, and, of course, 
tite Banks for Cooepratlves need the necessary authority to 
adequately serve our needs In all areas. 

We expect to be able to provide a growing list of services for our 
members and Other fishermen In our area as our cooperative grows. 
We will have a considerable stock Investment In the Columbia Bank 
for Cooperatives and would hope to fully utilize that Investment 
by receiving additional loans, the proceeds of which can be used 
to help pay for the cost of providing the cooperative with 
facilities necASsary to furnish added services. 

Our membership many of whom are members of the Dixie Production 
Credit Association, Statesboro, Is deeply committed, financially 
and otherwise, to the seafood business. As independent fishermen 
and as a small cooperative, we will need every economic advantage 
wa can obtain in the years ahead to coiq>ete with large corporate 
Interests and to try to stay ahead of Inflation. 

The Banks for Cooperatives offers us our best possibility in the 
years ahead to help finance our business. We strongly urge your 
favorable consideration for H. R. 4782. Certain provisions of this 
bill are very important to our fishing industry In Georgia, and I 
am sure this Is true all over the United States. Overall, It Is 

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a vital piece of legislation for those of ut In the food 


Thank you for this opportunity to express ny vIom before this 
Subcoonlttae on the Farm Credit Act Amendmnts of t979. 

I Mould pleased to respond to any questions. 

wniian> T. Hurst 


Bryan Fishermen's Cooperative, ln< 

Post. Office Box 609 

Richmond Hill GA 3132l| 


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Statement of John T. l^sley, Tanpa, Fla. 
Mr. Chairman and members of the Subcommittee, I am John T. 
Lesley of Tampa, Florida. Although now officially retired, 
I was associated for many years with different phases of 
the Florida citrus Industry and closely with Farm Credit 
System. I served as executive vice president and general 
manager of Seald-Sweet Growers, Inc. of Tampa (formerly 
the Florida Citrus Exchange) and was a member of the board 
of directors of the Central Bank for Cooperatives represent- 
ing the Columbia Farm Credit District and was a Colivnbta 
Farm Credit board member, t am presently chairman of the 
Florida Citrus Connlsslon's Trade Advisory Council and the 
Florida Citrus Packers' Export Conmittee. 

Seald-Sweet and many of Its affiliated cooperatives have 
used the services of the Columbia Bank for Cooperatives 
to assist In financing the growth of the Florida citrus 
marketing and processing industry over the years. 

The export of specialized agricultural commodities such 
as citrus continues to be of Increasing Importance to 
the maintenance of price stability for perishable products. 
Agricultural cooperatives and other agri-business firms 
have Invested considerable sums In developing markets 
overseas for fresh produce. Our firm, Seald-Sweet Growers, 
has taken a leadership position in the Florida citrus in^^' 
Industry In market development and In the promotion i 
Overseas of Increased use of fresh citrus fruit. 

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In recent years, Seald-Sweet Growers has exported citrus 
fruit valued at over $20 million. This has been done to 
the direct economic benefit of the some 3>500 Florida 
citrus growers who make up the cooperatives and other 
business which are meobers of Seald-Sweet Growers, inc. 
Our growers are acutely aware of the need for the con- 
tinued development of the markets overseas. They are 
desirous of their cooperatives doing s better Job in the 
overseas narket for them and expect us to Increase our 
market shares In the years ahead. 

It is In this regard that we are submitting our views 
to you on the Farm Credit Act Amendments of 1979- The 
Banks for Cooperatives, given legislative authority, 
can and will support Seald-Sweet Growers and many other 
farmer cooperatives In their efforts to expand the 
cooperatives' shares In export trade. 

) am convinced that the public interest Is served and 
that our nation's policy of trade expansion will be 
enhanced If favorable consideration Is given to the 
provisions of the Farm Credit Act of 1979- Export 
financing provisions of this blil are consistent with 
the long-standing Congressional Intentions that the 
Banks for Cooperatives should serve fully the credit 

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anrf financially-related needs of American's farm supply 
and marlcetlng cooperatives. 

The Farm Credit Act of 1971 specifically refers to tlie 
need for continued up-dating of credit and other services 
provided by the Farm Credit System in order to meet the 
changing needs of the nation's agriculture and its 
cooperatives. The Farm Credit Act Amendments of 1979 
provide a positive step forward by allowing members 
of cooperatives greater access to a growing world mar- 
ket for agricultural products. 

I have seen the Banks for Cooperatives system build a 
strong, experienced base In dealing with cooperatives. 
These cooperatives are moving Into world trade to a 
greater extent each year. Effective banking services 
and sound financial transactions are an Important 
part of profitable international trade. The member 
owned Banks for Cooperatives system can now carry 
financing only to the point of export but not beyond. 
Certainly, It is a logical extension of their services 
to follow their member- borrowers Into international 
trade with appropriate financial accommodations to 
serve the specialized needs of farmer cooperatives. 

Citrus growers have Invested In our Florida cooperatives 
primarily through capital retained from net proceeds due 

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growers from cooperatives' operations each year. This 
retained capital is not available to fanners to assist 
in financing their own operations. Likewise, tiie capital 
Invested In the Banks for Cooperatives by Its member- 
borrowers is costly and its use should be oiaximlzed. 
Cooperatives nationally have Invested over $800 miiilon 
in the Banks for Cooperatives, tt Is my belief we should 
permit further use of this Investment In the Banks for 
Cooperatives by authorizing them to provide for their 
. services to finance exports. 

Specifically, while there are 8 provisions in the Farm 
Credit Act Amendments of 1979 which relate to export 
financing, each of which Is important, I would like to 
comment on only two that I consider to be of primary 

Banks for Cooperatives need the authority to establish 
correspondent relationships with foreign banks to expe- 
dite payments and collections. This will help them gain 
an effective ability to assist cooperative borrowers In 
financing their transactions In foreign trade. As Seald- 
Sweet Growers and other Florida cooperatives expand export 
sales, we expect greater use of our own cooperative bank- 
ing system to facilitate transactions. This will help 
manage cash more effectively with the ultimate beneficiary. 

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of course, being the grower members of cooperatives. The 
Banks for Cooperatives need the legal authority to purcliase 
and sell Bankers Acceptances. This can be an effective 
tool in financial management as it relates to interna- 
tional trade. 

As we look ahead, we trust that the Subcommittee will see 
fit to approve the new authorities being sought by the - 
Banks for Cooperatives under the Farm Credit Act Amend- 
ments of 1979. We are discussing added flexibility for 
the Banks for Cooperatives system. Clearly It is the 
policy of Congress as established In the Farm Credit Act 
of 1971 for the Farm Credit System to be user directed. 

I appreciate very much this opportunity to express my 
personal views and the views of Seald-Sweet Growers, Inc. 
before this Subcommittee. 

I would be pleased to respond to any questions. 

John T. Lesley 

c/o Seald-Sweet Growers, Inc. 

Post Office Box 23^9 

Tampa FL 3360? 


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Hr. QuiTBan and MabcTS of tha Subcoaaittee, ^r mas is J. 
Esmieth HtcDooald, « fruit gnrntr mnd Mrkoter fro* Hutlnsburs, Vest 
Virginia. I hava bean In tha arch>rd buainus for aost of wf lifa, 

I finance i^ oparation through the Central Valle)r Fara Credit 
Msociation* in Hnchester, Virginia. Iliose people know the orchard 
busineis about as well as I do, and thejr have played ■ very iqiortant 
role in helping wf fsza operation grow and prosper. 

I strongl)' s^iport passage of the Para Credit Aaendaants of 1979. 
These Aacradaants will give the Faia Credit S)'stea the additional flexi- 
bilitjr it naads to keep its credit services iqi to date with changing 
tiaes and the growth of agriculture. I aa aspeciall)' In favor of the 
Aaendaent to broaden eliglbilltjr for financing processing and aarkating 
activities directly related to fataers' operations a* it will affect aa 
personally. Ke faiaers need to be able to process and market our own 
production rather than relying on atddleaen for tha prices we receive. 
Ihe aore we can do for ourselves, the aore control we will have over the 
prices received, and the better off we will ba. 

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The law presently llaits Fbtb Credit Systca flnincing of tt-imn*' 
sarkating >nd procassing •ctlvlties to those lituetlons lAere SOt of the 
'■pasethrou^" production ia pioduced fras the faiam* om operation. 
This la a llaltatian that raAices v flaxlbillor to flnance the stonia 
and pracesslng facilities located qd mf fant. In KMqr cases the ea^en** 
of building processing and aarkating facilities dictates that thejr be built 
and operated on ■ acale that greatly exceeds the faiaar's own production. 
The faiBor 1* then faced Kith a difficult <Aoiee; heaust either scale 
back the processing ntd aaifcetlng facility to Bset the SOt requlraaent, 
or he Bust go to another lender to erraaga the financing he needs, Fan 
Credit know* faialng and understands ^r operation. I need thaii expertise, 
dependability, and reasonable tenu to flnance qr Mhole operation. By 
forcing Be and other faraers to go to other lenders, the 5M llaltation 
unduly eoivllcates our financial Banagaaent, create* lnoin»«nlence and 
Increases n^ense. 

For these reasons I urge yon to pass thi* JIaendaent. Ke need to broaden 
the ellBlbllity for financing by federal land baA assodaticais and pro- 
duction cradlt associations to include processing and ■nfcatltig activities 
directly related to the faimer** eperatlcn and those of other bona fide 
faraers. Faia Credit "heeds this •ddltlonal flaxibitlty to aore cca^letely 
serve the credit need* of faraers and other eligible bomwers. I believe 
that the faraar's own cradlt Instltutlcns - the federal land banks and pro- 
duction credit assoclatians - can pnivlde credit for Mitiers* processing 
and aarketing activities better than anyone else. By allowing Faia Credit to 
do the co^lete Job, idiera processing and aarketing are Integrated with 
production, you will be proaotlng the econoalc health of feraers and the lural 

Thank you for the opportunity to aiprass ay views. 

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Hr. Chairman and members of the subconni ttee, t am J. D. Marshburn, 
executive vice president of Citrus World, Inc.. Lalce Wales, Florida. 
We are a federated cooperative association owned by eleven member 
firms who. In turn, are owned by and operated for the benefit of 
some 1,000 citrus growers In Florida. We have been In business since 
I93'ii evolving from a small citrus Juice canning plant Into a full- 
line citrus processor handling over 12 million boxes of citrus 
annually. We are presently one of the leading marketers of processed 
citrus products in Florida. 

The growth and development of Citrus World over the years has bean 
aided greatly by the debt capital provided through the Fan* Credit 
System by the Bantcs for Cooperatives. We were one of the earliest 
stockholders of the Columbia Bank for Cooperatives, Columbia, South 
Carolina, and now have a sizable Investment in that bank as a result 
of our continued use of their credit services. 

In recent years, we have expanded our plant and have opened new 
bottling and distribution facilities In market areas outside of 
Florida. We have recently Joined with several other U.S. and 
European cooperatives in an arrangement under which we have Invested 
In an international trading company. This Investment, we are con- 
vinced, will give us additional advantages In providing marketing 
opportunities for our members. 

As we expand our domestic and international marketing efforts, 
additional equipment and distribution facilities to serve our 

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members' needs wtl) be necessary. Passage of the Farm Credit Act 
Anendments of 1979 mII ) provide the Banlcs for Cooperatives more 
flexibility tn structuring loans to meet our additional financing 
requirements. Without this added flexlbtllty, cooperatives such as 
ours will be unable to obtain the type of credit services from our 
cooperative bank necessary for us to be competitive with proprietary 

The amendments as proposed will permit the Sanks to finance the 
needs of U.S. cooperatives which extend beyond the continental limits 
of the U.S. and will also permit thetr financing equipment and 
facilities controlled by their cooperative borrowers through leases 
and subsidiary corporations. 

Being In an Industry requiring substantial capital investment, we 
particularly coiwMnd to this subcommittee the section of the proposed 
legislation which would authorize the Banks for Cooperatives to 
provide credit through lessors to the extent of their leases to 
cooperative borrowers. 

Legal authority for Banks for Cooperatives to lend directly to 
lessors to the extent of their leases to eligible cooperative 
borrowers would reduce the cost of leasing to the cooperative and 
would help round out the range of financial services that Banks for 
Cooperatives may provide. The beneficiary of such services Is 
clearly the cooperative borrower which the Bank Is In business to 

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For • ni«4>er of sound business reasons, leasing of capital assets 
nay benefit a cooperative In sone Instances to a greater extent than 
MOuld direct ownership. We feel the Sanies for Cooperatives should 
have the flexibility to assist their nmbers In this type financing 
when It Is to the nmabers' advantage to do so. 

Ve are pleased to represent Citrus World and its grower neribers In 
the state of Florida at these hearings and urge passage of the Fsrn 
Credit Act Anendments of 1973- 

I Mill be pleased to answer any questions. 

J. D. Harshburn 
lixecutlve Vice President 
Citrus World, inc. 
Post Office Box nil 
Lake Wales FL 338S3 
(813) 676-Hll 

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I u John n. KUla, vie* Praaldant uid Diractor of tha Rictacnd Produetim 
Cradlt AaaoclaUon. Thla aaaoclation haa $11,948,472 in aaaata, aarvlng 878 
rural paopla In tha aaaoctatlon carritory. I hava baan a nnbar of thia 
aaaociation for aany yaara and a fanaz- for oraz- 30 yaara, cucrKitly oparatini 
a grain faia In Banovar County, Virginia, iiitti tha halp of 3 aona and a aon- 
In-lair. Ibia (qpacation conaiata of planting, growing and haxvaatlng 2,000 
accaa of grain. 

I would lika to otfac tha following atataianti on behalf of tha Pan Cradit 
Act AaandBBnta of 1979 (BR-47B1 and S-1465) ragazdlng tha naada tor axports 

1. It is noat ivportant to tha ovacall acoooaqr and wall^tiaing of 
our nation and ita paopla that wa hava a ■troog agricultural 
aconaqr to offaat othar waak araaa In tha aconcaqr* 

2. On* of tha baat waya to kaap a atrong agricultural acoooay la 
to find battar waya for mrkatlng our fara cwBdltl— , raeog- 
niaing that wa ara curraotly axporting ovar ooa-third of tba 
fara irodueta grown. I ballava iicirovaBanta in our aivorting 
facilltiaa through financing atorkating, ai^iorting facilitiaa by 
our Bank for Co^aratlvaa would land Itaalt graatly to a atrong 
agricultural aconeay- 

3. I baliava that it i* Boat aaaantlal that wa aa a nation do 
•irarythlng poaalbla to ivprova ojr balanca of payaant poaition 
aa a nation. Tha financing of ai^art facilltiaa by our Bank 
for Cooparativaa is ona of tha things which would cartainly 
land itaalf to aora eiqporta by our nation. 

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at our fax 

b«BBi matm lainrtuit to onr a«*EBll aconoav and balanoa o( 
p a y— n t position and wtam i^ottaat to tba H—tlnm fii— i . 
•vldanca nonld sbov that mtioua aa^panta of our aociaty oc 
inaticutiofu hna baao abla to taka adrantaga of thia naad and 
eapitallsa on it at tha avaoaa of tba Jlaaxlcan tazaac and, la 
•oM c«>««, aodatr a* a iitola. 

5. IB aaxkatlBg »atlj i ga vltb tba aD^arta, laoludiog (ocaivi 
b u y ai a, ona aajoc pioblia that aorfaeaa la tba quality of tba 
Aanrlcaa ^raln balng ahlppad or tba lack of quality. TUa baa 
hart ttM a x po rt aalaa of gcalna. Paraara ballara thla quality 
Mtiata irtMn It laavaa tba faraaca, bat la doMn gta dad by tboaa 
■aattitd to aaka an axtra pcotlt. A faxaar-amad aivcart faolllty 
aod aarkat wnld l^irtna tha quality of ooi grain baing -''♦rprrt 
and tba laaga abcoad of ow toarleai faraara aa wall aa thoaa 
Involvad In tba axpoctlng of aaid graina. 

6. Na axa ourrwitly aaxkatlng oox grain witb a local cooparativa 
and tm othar Indapandaot grain aarkata. C«Etalnly. a noil 
flnaanad aaiiort aariMt and tacllitlaa would b«a«tlt a* as faraotn 
in tba aaikat plaoa and stzwigtbaD tba orarall ai.ijni> at our 

In n^iaryi tba Fara Cradlt SyaCia aa a whola la cacogntaad 
axparts in thia country aa ona of tha aost luccaastul prtvats antarprlaaa 
davalofiad by tha paopla of our country. It currantly has tha asiata and 
axpartiae to asaiat that faraar in financing Uis axportatioa of hi* grain. 
So lat'a uaa thaa. Thank you for tba opportunity to praaant ny poaltion. 

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Htrch 5, 1980 

Hr. Chairman and mentiers of the Camlttee: 

Hy nan Is Robert 0. Partridge. I am executive vice president and general 
manaqer of the Natlcnsl Rural Electric Cooperative Association, the national 
service organization of nearly 1,000 rural electric systeMS Mhlch provide 
electricity to approximately Z5-Bllllon farmers and rural people In 2,600 of 
the nation's 3,100 counties. 

In 197! NRECA supported the Fam Credit Act, which strengthened end broadenei 
the ability of the Firn Credit System to meet farm and rural needs. AMwg other 
things, the 1971 act reduced the percentage of farraer-me«*ers of a cooperative 
to be eligible to borroo from Banks for Cooperatives from 90 to 80 per cent. 
In I97S NRECA supported a further reduction from 80 to 70 per cent limited to 
rural electric and rural telephone cooperatives. This was enacted Into ^m In 
1975. H. R. 4782 would lowr the farmer-meAer eligibility rtqulreatnt to 60 per 
cent. Me strongly support this provision. 

As a result of the 1971 and 1975 aaenikent) to the Fam Credit System legis- 
lation, additional credit has been made available to rural electric systems from 
Banks for Cooperatives In excess of $I.3-b1Illon. These loans have been made to 
both distribution systems and to generating and transmission cooperatives. They 
range from relatively modest amounts. Including unsecured short-term loans, to 
sizeable long-term loans made In conjunction with the Rural Electrification 
Adalnl strati on for paver generating projects. 

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Tlw crttfft HMdi of Am rurtt alactrlflettlon progrw irt continuing to 
upMd. ptrtlcultrly for tho gwwrotlng m«4 tronsalKlon ildt of tho progrw. 
NDtt of tM flMncIng will hOM to cow fr«> non-jovonwnt tourcM. For 
■iMpIs, in IMO ttM WCCA loMi Mrnoy •ttlHtot that finwicing In tho Mmnt of aor* 
Own K-bl11tan «i11 ba raqulrod. REA Hill b* llBltad to providing «bout 20 
per cant Of thii total with tha natlndor cMrtng froa piivota landing Institutions. 
In ttia dKi* of tht uaO'i m attlMta tlMt tpproxlMtaly $T5-biniBn hIII b« 
requlrod to build gonaroting copoelt)' mmI hMvy up dlitrlbution linos In ordtr 
to BMt am «Mr jroHlng dwifidi for aloctrlctty on ttw part of >111lan* of 
farsir and niri1 paofila sarvad by rural alactrlc coo^rattvas. lit ballavt 
that ttia Banks for Cooperatlvas can play an latrartant rolo In helping Met these 
trc«ndous neadx for capital. By loaarlng the present fair aa^ir r«qulr«- 
aents to 60 par cant, amy aora rural electric lyitaas sin be eligible to borriM 
frag Banks for Coopcretlvo). 

As *e arc sure you knw, rural araat art onca again experiencing population 
groHth Him tht algration of citr paople to rural areas. Froai 1970 to 197G 
rural areas had an Increase of 2.3 ■llllon In population, and this trend 
apparently alii continue. Nortovar, ovar tht last Mvor«1 decadas, the fana 
population has dicrcattd substaotlally. Bacaust of thesa daaographic changes, 
rural electric systeas ara noM serving a larger proportion of non-fara 
residents than was the ease in 1971. 

Lowering the requlraatnt to 60 per cant. In our opinion, will enable the 
Fana Credit Systea to batter aatt tht crtdit needs of both fara and non-fara 
rural pcoplt. At the saaa tiat. It hIII guarantee that ftraar control will bt 

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At the 1979 NRECA annual HHtlng, the oKAershIp unanlaoutly adopted the 

following rttolutton supporting the reduetlwi of the famer-Berter eligibility 

requfreiKnt fron 70 per cent to ai Ioh as 51 per cent: 

"He understand that the Farm Credit Syjteni Is 
considering naklng reconwendatlons to Congress 
for several alterations in the Farm Credit Act 
of 1971. Including a new look at the eligibility 
requirements to borroa fnm the Banks for 
Cooperatives. He support efforts by the Far* 
Credit Systea to further modernize their charter 
act as these organlMtions are vital to the nell 
being of agriculture, rural America, and cooperative 
organizations. He reconnend to Congress that as it 
considers any legislative package Hiat the farnr 
neitersMp required for eligibility to borroH froa 
a Bank for Cooperatives be reduced at least from 
the present 70 per cent to 51 per cent.' 

Our meifcership resolution MOutd go even further than the provision in H.R. 47BZ. 

In any case we strongly support the 60 per cent alnlBn In this bill. It is 

obvious to MS that rural electrics are golFvg to have to rely on several sources 

of credit for the billions of dollars that they aill have to invest in the 

years ahead to meet the energy needs of their service areas. 

KUCA fculjec I«co™»iuUtloo by BUI mrtt-J 

The Administration has proposed a ceiling on REA 
direct ("inaurad") loans of SI billion. Although this 
level would provide for necessary distribution construc- 
tion of most rural electric cooperatives, it would re- 
flect the third straight year of the same level of REA 
insured financing. During this period of double-digit 
Inflation, the co-op's dollar will be lilcely to purchase 
only about EE cents, or two-thirds, as uuoh by the end 
of the three year period. 

Thus, the ceiling on REA loans uill need to be 
raiaed in order to ensure adequate REA financing. A 
ceiling of S1.2S billion would provide the Administrator 
with the authority to insure loans at a level coimeti- 
surate with the potential need for financing. 

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OM aaair <w tbk 
suuiUBoi STUBS coonsftim - ncnoD, vaeimx 

Hc> Cluiraui ami wmbKca ol tha SulKoumittaa, I ■■ Kldiaxd r. fcica, 
grain and liT**taek pioAicar and alaetad dizaotor fioa Maryland on tb« 
Sciutban statas Cooparaeiva Boaxd of Dlxactora, loeatad In Rlctacsia, 
Virginia. SoothaEn Btataa la pradnwl nataly a matp^j and aaxkatlng cocV«E- 
atlva, OKsad and diraotad bjr far— ra In HaiylaDd, Mlairaza, Tliylnla, 
Haat Virginia and santueky. Na anjoy a aa^anHlp »f 310.9M ■W*»i«, 
axbibiting a total wltB* of t5M,600,000 daring ow Uat U MMtha, 
anding Juna 30, 1979. Much of ouE aooeau can ba Oiraot^ Bttrlbntad to 
tha Hocking lalationatiip with tha Balelaora aad lonaiTlU* Bnk* foe 
cooperativei. Aa tinaiiclag naads of our ooopazatiTaa grov. «• find tbst 
■ora than avac oa anat Ealy so ttaa Faia Czadlt SrataB* to pzorida tba 
oaoaaaary capital. For tUa raaaon, I appiaclata thia ofiportnBltr to 
praaant tba viava of Southam Btataa Coopacativa Mnoaming tM VazB.Cndit 
Act AMndamta of 1979 - BB 4792. 

My pxiawEY IntKaat in tMtt^lng la to wpriaa tba Co^ttaa that 

■arkating asptoaeh of tbalr pradncta. 

Aa fanMra, va ara prcud of cor production racocda. Unlika aany athar 
countriaa aronnd tha world, tha Cnitad stataa haa an abundaaca of food, 
paztlculacly lAaat and taad gralna. Naarly ooa oat of avary thcaa acraa of 
productioa la avallabla for mitott. 

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m CKdsr Eoc b> to fiuM o t * th* wgiiwtea of U.S. agEieultoral siporta. 
and to IncEoaao tbo fanMc'a alkura of tha b«a*fits dnrivad froai thosa txaai- 
aetioos, w* mia th* financial aacvicaa of tha Banka fox Coofwtativaa , whlcli 
if pa sad by tha Bonaa, tUa lagialatlsa aouU allov. MtlKngh auch of cur 
grain prodncad in our flva ataca araa ia fox doaiaatic uaa. amr Millimu of 
buatiala aza avallabla for axport. Ae cooaidarabla coat to our faraarai «• 
Miat praaantly aall cor ^rain thrcn^ aacood and third parciaa La tba aiqiort 

qr Bind, if cooparatlvaa could gat tba nacaasazy 
financing and banking naada that tha Para Crodit Act teanfcinta of 1979, 
BS 4T81, can provldai va mold banafit farBara and eoniTwara alika. Faraara 
would darlva aiMH-lonal baoafita txvm aapanilad aalaa and raducad coat. Om 
m Miii>^ would ba bolatarad froB tha incraaaad a^nrta and agricultur* would 
eontrlbut* aran wora to halp lowaz our daficit balanca of paywanta. rurtbar- 
aora, our oooooBiata tall ua that for aach tl.OO a^ortad, $2.00 of doaaatie 
aeonotic activity ia ganaratad. Additionally, incraaaad grain axporta will 
aignificaatly rtduca goramnt atoraga, aaving tajtpayara thooaanda of dollar* 
in agcloultuial prograa coata. 

Btatiatiea cavaal that 5 out of avary 6 faiaara uaa a ooaparattva in 
■ana way, whatbar it ba in ■arkatlng, aarvleaa or auppliaa. fliaaa aaaa 
figuraa go oa to point out that only about 9.3* of our axportad ^rain ia 
dlractly aaportad by caglonal coopsratlves. Kith tha paasaga of tba Para 
Cradit Act Aaandaanta of 1979, m 4783, wa ara confidant thara will ba 
tr«aandoua incraaaa in dtract cooparativaa axporting of graina. I aak 
that you conaidar thia itataaant aleng with othara and that you will glva a 
favorabla rapnrt to tha Faza Cradit Act Aaandwanta of 1979, BR 4781. 
SouUiarn Stataa Cooparativa of Kichnnd, Virginia and I, Ridiard F, Prlca, 
a faiaar, appraelate tha opportiuity to volca tha viawa ao atatad abova. 

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StatMant o< 

Paul s. ftuiBOB 
Ht. *, Box IJB, HonnM, La, 

I aa Paul 5. Ransoai a raaldant of Ouachita Pariah. Louisiana, 
located near Monroe, Iijulsiana. Since ny graduation froa collage In 
1948, I have been a full tiaa fanner, operating 3200 acres of land. 
My BBjor coaacdlties are nov cotton, soybeans, and cattle. I've been 
affiliated with the fam credit systea since the day I started farming. 
I'a a me^wr, borrower of the Federal Land Bank Association of 
Monroe, I^.; have secured ny crop financing through the local P.C.K.; 
serve on the board of a Co-op Cotton gin, and an a board nenber of a Ca-o( 
cotton seed oil mill serving Northeast Louisiana. 1 can say that along 
with my fellow farmers in Ouachita Parish, a farm credit system oriented 
towards comnerclal agriculture has stood out like a beacon In the fog of 
financial uncertainty over the past 30 years. 

I an very interested In the future well being of the overall farm 
credit system but my renarks will cover prlnarily the Federal Land Bank 
association and its service Co its Beid>er borrowers. I appreciate the 
opportunity to present my views on House Bill 14732, TJic Farm Credit Act 
of 1979. 

I have read with great Interest the proposed amendments and ration- 
alired in my own mind how essential they are to neet the future capital 
needs of the American fanner, particularly young farmers, with regard 
to the Federal Land Bank, I feel it is absolutely Imperative that they 
be allowed to nake loans in excess of BSt of the appraised value of the 
the real estate when guaranties provided by govamBsntal agencies are 
Involved. The guaranties I have reference to are: state governmental 

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». OMizm nd ■ib wi of tto SnbcoMittM. I tm Bvaard BpUb, • 
lifMiaa MBtKMu nd aqtiMlc hulMJiM £»■ SallalXBy. IkiTlBDd. 
FiAlng U «m l^ortaM ludutrr <M tiM Oalaam pMlMolk with a mi^ 
■tntUl iMTMtMBt i> boot*, «i|uliwt, nd etiMr fcellttlM mded t« 
—iBfta «ad lacTMM Ita ptoJoet l ylty «ad wlticimcr. 

The Coil(r««*, bf onactaart of tha Paia CroUt tet of 1971, racogniiad 
tha fi*Uii|''iidtutry'* contrlbvtloa to tha aatlon't food Rvply aaf Its 
neod for ace*** to an adequate and dqMndabla aoiirca of credit T«praMated 
hf tha FaiB Credit ^t«a. This act aotlioTlied pradaction credit aasoel* 
atlon* and bantia for cooperative to sake loans to producars and barreators 
of aquatic prodocts and thaix cooporative*. Bat the 1971 Act did not go 
far enauib; it aede Mailable te tha fiaherles Indoatrr only pert of tha 
cradtt qrat^ tdUch ha* been *o beneficial to fnrsert tad rancheri. 

The flaherlas i nduatr y should be placed on a par with other barrowers 
served br the FaiM Credit SjrstiB. There is no reason riqr we should not 
be given equal traatnam. The Fan Credit Act AMndnants of 1979 would 
extend to prodncers and harvostors of aquatic products the sane arr^ 
of Para Credit lending option* lAich are mm available to facaer* and 
ranchers. These include access to long-tom real estate aortgage loan* 
froa the Federal land banks for tha purpose of conatructing docking and 
storage facilities ai wall as for other credit need*; end bank for 
coc^erativet financing for those cooperatives engaged solely in fimlshing 
aquatic business services. The Baendnents would also authorite Federal 
interaedlate credit banks to discount loans aada by cc^erclal banks and 
other lenders to aquatic prodacers on tha saae basis as loans to faraera 
and ranchers. 

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"niese aamdaant* paiait the Far* Credit System to provld* ft ccaplete 
package of credit services end lending pragrsMi to Hset the vide rulge 
of credit needs of the fisheries industry. "Hie donestic fisheries 
industry is in a highly ctapetltive iiorld urket. It Bust be given every 
opportunity to IncrMse itf efficiency ind productivity if it la to r^uin 
viable and co^atltiva. ' Adequate credit to Bodemlze its production 
capacity will be crucial to the industry's ftitura success. Expanding the 
scope of lending authorities granted to the Fam Credit Systaa will be an 
liqioTtBnt step in that direction. It will represent a national cc^itaent 
to Baintalnlng the viability of our domtlc Industry. I believe that the 
fisheries industry is i^ortant to the Aaerican people and the Aaerican 
econoay. I believe that the continued and expanded presence of Fara 
Credit institutions as a dependable source of adequate credit to the industry 
■ill help kssur* that it riaalns vital and coapetltive. 

I aa grateful for this opportunity to express By views Ml this 
inportant aatter. 

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Statiaent of Rab«rt V. Souttnnrth, Soulhalde Electric Cooperative, Creve, Va. 
Mr. Chairman and Nenbers of the Subcommittee, I an Robert 
V. Southworth, General Manager of the Southaide Electric Coop- 
erative of Crev«, Virginia. Our Cooperative serves 2T,B91 
consmer-nenbera in IB counties in Southside Virginia, South 
and West of Richmond. Our electrical system has 5,355 miles 
of distribution line with a density of S.2 members per mile 
of lin*. During the 43 years of existence of the Cooperative, 
it has borroved $40,720,000 to build its electrical system, 
$24,000,000 of which has l>een borrowed in the last ten 110) 
years. Having several reliable sources of financing available 
to meet the increasing capital needs of the future is a critical 
concern for Southside Electric Cooperative. He are not now 
eligible to barrow from the Bank for Cooperatives serving 
our area because of the seventy percent (70%) farmer-member 
limitation in the eligibility requirements. Consequently, 
we are very much Interested in the enactment of HR 4782, the 
Parm Credit Act Amendments of 1979. 

We feel that the 70% requirement creates an extra burden 
on our meiiA>ers because it precludes our system's access to 
the favorable rates of the Ban)c for Cooperatives. A lowering 
of the requirement to sixty percent (601) or even lowering, 
as advocated by the National Rural Electric Cooperative Asso- 
ciation, would make It possible for Southside Electric Coop- 
erative to qualify for Bank for Cooperative loons. As the 
capital needs of the Cooperative increase, it is important 
that we have multiple sources of capital available to compen- 
sate for the validity of the money markets. 

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We find that many of our newer members -are people who 
were raised in rural areas, moved to the city, but have found 
they really prefer the lifestyle of rural living. They acquire 
small tracts of land which enable them to grow tobacco, tree 
farm or raise small crops. More importantly, they can augment 
their buying power by raising table foods. lAiese people add 
significantly to the total productivity of our national econoiv 
through their "small" farming activities. 

An increasingly larger component of the rates that our 
members pay for electricity is interest costs. If we were 
able to borrow from the Bank for Cooperatives, It would benefit 
our members through their electric bills. 

The enactment of HR 17B2 is especially in^iortant to all 
of the rural electric cooperatives in Virginia. If, through 
the lowering of the eligibility requirement the distribution 
systems could qualify for Bank for Cooperative loans, our 
power supply cooperative - Old Dominion Electric Cooperative - 
would be able to qualify also. Since 701 of our operating 
expenses dollar goes to wholesale power costs, lower interest 
rates for Old Dominion would also mean lower electrical rates 

Southside Electric Cooperative is grateful to be able 1 
present its views on this matter to this Subconmlttee . He 
urgently request favorable action upon the Farm Credit Act 
Amendments of 1979, HR 4782. 

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Kr. ChalnMii mu) Maaber* of the Subcowdttee, I •■ Bill Till*f«na, 
• grain ttxtm froa C«iit*r Crois. Virginia. Mf' brothers, &th«T, and t 
havB • large faia operation and are vitally tnteraated in the future 
needs of agriculture in our area and throughout the nation. Ma are Baabar 
borroxer* of the Rlchaond Production Credit Association and tha Fedaral 
Land Bank Association of Rlchaond. 

I si^^rt H.R. 4782, the Para Credit Act AwndMnts of 1979. Althei^ 
the tHentjr-eli^t Ajwodaants deal idtli a variety of issues, in sia, I beli«M 
they are in the beat Interest of the faraars and will enable the Para Credit 
Systaa to continue Its record of service. 

I Kould like to take thli opporttdiity to speak aore specifically to 
another issue that has been raised. Hie issue t« Hhlcb t refer is that of 
collateral insurance. The Fata Credit Associatiou is Virginia do not 
provide collateral insurance for awrfiera. Indeed, no plan Itas ever existed 
to even consider offering such a servica. But for tha last ten Maths, >a 
have engaged in a langthy and tiaa conataing debate over Hhether the leg- 
islature of Virginia should restrict our Associations by Ish tnm aver 
offering such services, Hie same groups that have spoken to you on this 
issue have sponsored and siqiportad this legislation in Virginia. Tha 
directors and aeabers of Fara Credit have fou^t hard against this legislation. 

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You ■>/ »sk why we are fighting so hard tMvn ws do not have or intend 
to have any such insurance prograa to offer. The reason that Fara Credit 
■enbers throughout Virginia have rallied to this cause is siqiljr because 
tie believe in our right to Join together to provide the services that ut ne* 
to successfully operate our fsiss. He could have very easily stood by and 
let this legislation be enacted in Virginia with little Imwdlate affect. 
But wB belleva that too often citizens and organizations fall to take a 
stand or position on issues that gradually close the door on their rt^ts. 
He do not Intend to ei^and insurance services to our aeaben in Virginia 
sli^ly because ve do not believe that a need exists today. But, we vlll 
fight with every ounce of our strength to defend our right and the rl^ts 
of our Beabers to provide that service should the need arise. 

A close review of the history of our nation reveals how effective 
people joining together to B«et a need can be. Indeed, g«netle«en, it is 
one reason that each of us are able to be here today. Fanaers and their 
cooperatives are peihaps the beat exsj^le of what cocperatlve efforts can 
produce in ter>s of personal success and auccess for our nation as a tdiole. 
Through their piocesslng, narketing, and service cooperatives, fantets 
banding together to provide services otherwise uaavalleble or too costly 
have provided agriculture with the strength to feed our nation and a good 
part of the world while raaainlng econoedcally viable. 

Para Credit is en excellent exanple of the cooperative spirit working 
in Aaerlca. It is and nust continue to be THE financial service organi- 
zation of Bgrlculture. If fameTS' need for coi^rehenslve collateral 
insurance is not being net efficiently, effecitvely, or econoalcally. 

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tlwn th«y (bould luva tlw rl^t to MM that SMd. Ha are not talking 
about aatablishlng an Ituuranca caqMiQ' or coqtanlai to ciapeta Hlth tha 
alraad/ aapla Inauranea Toaourcaa of our nation. Rathar, va ara talking 
about providing for tha dallyary of those sarvlces alraad/ avallabte in ■ 
■ore officiant and effoctiva aannar, tharaby radoctng tha coit and ia- 
provlng tha aarvica to tha comuaar. The aara fact that Faia Credit hai 
the potential to deliver theae service* to itt MidMrs Bean* that thoie 
organiiationa and Individual* currantl)' delivering tha tervlca hIII ba Bore 
Inclined to op*TKt» in a professional Banner to insure that Fstb Credit 
is not directed bjr its Barters to provide an alternative. 

I hope that you will support the Far* Credit Act AaandBants as a whole 
and tee fit not to restrict thia cooperative organltatlon frca having tha 
tool* that it needs to aarve agriculture in the cosing decades. Ihank yixi 
tor tha optKntunity to present mf position. 

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Hr. Chatrman and (nembers of the Subconni ttee, I am J. David Wasson, 
Jr., manager of Laurens Electric Cooperative of Laurens, S. C. Our 
business Is a rural cooperative, owned by those it serves with 
electricity and operated for their benefit. 

Ue serve approximately 17>S00 consunters In seven counties and now 
have invested In about $17 million in plant to serve our menibers. 
Plant Investment has increased considerably In the last few years 
due to growth of our system and the Inflated value of capital assets 
used. in our business. Thus, we have been faced with the need for 
large capital investments, as have other utilities. 

We are basically s system of farm and residential consumers, like 
most rural electric cooperatives. In addition to providing power 
for dairies, poultry production, etc., we serve thousands of part- 
time farm families. These families usually have two or more meinbers 
employed In local manufacturing plants as well as working on the farm. 

The Columbia Bank for Cooperatives provides us with the supplemental 
debt financing necessary to obtain REA loans. Fundi from these two 
sources are used for system improvements and expansion. As our sys- 
tem has grown and our need for capital increased, we have had to 
rely more heavily on debt financing to supplement the basic financ- 
ing of our system which is done by the members through retainage of 
their capital credits. The Banks for Cooperatives system Is able 
to meet our needs quite effectively as a supplemental lender. As 

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a stockholder of the bank and a user of Itt services. Me are 
supporting the Farm Credit Act Amendnents of 1973* Partlcuterly, 
we urge you to give favorable consideration to broadening the 
lending authority of the Banks for Cooperatives. The present 
requlreiDent titat at least 70% of tha voting stock of a rural utility 
cooperative be held by farmers could place rural elkctrlc coopera- 
tives using the Banks for Cooperatives In the position of not being 
able to know if the Banks can continue to serve then In the future. 
By law, electric cooperatives are required to serve anyone located 
tn their service area. Hany who locate In our area are now non- 
farm people. 

As the number of persons dependent on agriculture for a portion of 
their livelihood continues to decline, many electric cooperatives 
now able to borrow from the Banks for Cooperatives may have 
difficulty obtaining the capital they need not only to serve new 
consumers but to continue to adequately serve tho^e vriio have been 
nefflbers for many years. 

In our opinion, the Fan* Credit System was established by Congress 
to serve the rural population. Years ago, this population was 
largely made up only of farm families. Changes In the Farn Credit 
legislation over the years have been made In response to the recog- 
nition that the makeup of the rural population has changed. 

Updating of legislative authority Is needed again to provide that 
the Banks for Cooperatives can continue to assist rural electric 

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cooperatives by furnishing loans needed to meet a portion of thetr 
borrowing requirements. 

We respectively request favorable action by Congress on the Farm 
Credit Act Amendments of 1979- 

I will be pleased to respond to any questions. 

J. David Wasson, Jr. 


Laurens Electric Cooperatlvi 

Post Office Box 700 

Laurens SC 29360 

{803)682-31'il . 

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StataMnt of Jla BtfMll, P*d«ral Und Boik AaaaclatloD, Cullaan, Ala. 

Hr. Chaimn, I m Jia Bacmll of E^iire. Alabsa (Walker County) 
representing the redeni Land Bank Asaociation of CuUun, AlabHa. I m a 
full tiae farmer, operating 1.000 acrea of land, B''o«inB Bi^in, soybeana, 
beef cattle and 1200 am, feeder pig, finishing operation. I have been a 
borroMr of the Federal Land BaiA Aaaociation since 1S«0 and I aa interested 
in Its developaent and its servtce to our •eaber-borroxers. 1 an also 

and a borroHr of our local Production Credit Association. I as interested in 

by your Co^ittee concerning House Bill Ho. 47B2, the Fan Credit Act 
AaendBcnts of 1979. 

1 have reviewed all of the aaterial which has been Bade available to ae 
concerning the proposed iBendaents, and have discussed thia matter with 
association aanageaent. ay felloii directors and faraer-borrowers of the 
association. Mr. Chairaan, we urge passage of the legislation as suhaitted 

consiining public. 

I would like to coiuent on differential dividends which is a part of the 
proposed aaendaents being considered in the legislative package. Hlnety-three 
percent of Federal Land Bank loan voluae outstanding la on variable interest 
rates which are auch higher than fixed interest rates. With today's spiraling 

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interest rates, all the fixed loans of the Fed< 

ThereforD. the variable interest rate borrowen 

by paying higher interest rates. This proposed legislation of ' 

dividends" would persit Federal Land Bank Associations to diatri 

according to the contribution aade to these earnings. The flexi 

proposal Hould penDit Federal Land Bank Associations to pay divi 

to interest paid, thereby directly reducing that cost to borrom 

Bajik is a liability. 
■ake up the difference 
:ion of "differential 

ibility in this 

■ grateful and honored to be a part of the Legislative 
efore, huibly subait ay views for your Co«ittee. God Bless 

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•tlon of J*c 
s£ t 

iilppl r*pir«a 
■iDpl. I am ■ fu 

: FtdlT 

PCA I u ■ far 

■ and hav* b»n IntiTMEad In 
-.v,. I n aUo afCllKttd ul 
• Co-op aupply iCora. and aa 
•raat*d In Ih* antlrc Fara Cra 
al Land Bank. I appreciate th 
caa ■■ a Baobar- bar rower of Che 
11 No. 47B:, th* Fa™ Credit * 
1 ai the material which baa be 

t and Ita 

■ tlon 

. Chal 

:ulture, and Che contunlnf^ public, I h 
■ring, vhlch la a pact of the pro 
tJve package, 
e all Farm Credit Instltutl 

The Banks tor Coopers 
blllty of the ayateD 

t that lost sharing vould be 
d Banka. Federal Intemedlat 
tit* authority would clarify 

I funds froai 1 

discipline In 
in the Farm Ci 

developed through a 

philosophy snd u 

9 that I needed to achi 
ly. On behalf of the f 
He legislative effort i 

ful for the opportunity to 
mctee. The Federal Land 

eaa by fumlahlng ne the long 
he financial goals I sat 
1 Land Bank of Jackson. 
tubnlttad. and hope that H. 

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Federal [.and Bank Ass 

Mi-. Chairman, I am Eim 

ig Che Federal Land Bank Assi 

■Clred farmer «ho owna 4 

borrower of the Federal Lam 

tion of Rayville, Louisiana 
L. Brown of Rayvllle, Louisiana, tepreser 
lation of Rayvllle, Louisiana. I am a 
ei of crop land rented out. I have been 
Bank Aasociatlon of Rayvllle ^or 34 years 

In Che enCire Farm Credit Syatem, 
Land Bank. I appreciate this oppoc- 

■ House Bill No. ^ySJ, the Farm Credit 

owers. I am a famer Intereste 

unity to present wy viev 
Federal Land Bank con 
Amendments of 1979. 
I have -DvLewed all of the material uhtch has been made available 
o me concerning the proposed amendmentB. and have diacuaeed this legia- 
:lve effort with association manageiMnt , bank nanagement, other 

lirman, we urge passage of the legislation a* submitted to Congress, 
we feel It serves the best Interest of the fanners, agriculture, and 
: consuming public. I would particularly like to cooment on interest 
.es, which is a part of the proposed amendokenti being considered In 
his legislative package. 

Mr. Chairman, I am sure that you are aware of the capital requlre- 
lents of agriculture today. The capital requlraoents of owning and 
iperating a fans today is significantly higher than that of moat other 

n adequate source of production expense financing. I do not know of a 
ingle farmer In my area t^o is capable of financing production expense 

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#n fundi. 

All fa 

™er. .re re.ulr.d 

to borrow money to 

f.. For th 

sons tt is Imperat 

ve to Earnw 

, and 

, ».II .. 

to the 

cconony nt this c 

untry, that 

yo., support 

the propo 

..d F.r 

n Cr«dU Act AiMndtiitnts of 197 

, which 

fy aad ra 

■ ffira 

that Amarlcan agrl 

ultura aha! 

not be 

i, «rvlc 

•1 fro* 

the Farv Cradlt Syttao becaus 

of state r.t 

> limit 

•tlons. Our Farn 

redlt System must be 


and to 

ch«rge rate* whlc 

are bufElc 


to insure a contln 

led supply o 

funds . 

.lr«.n. 1 

an gri 

teful for th. oppo 

tiinlty to e 

press my 

-.0 and to 


of your Comnlttee 

The Feder 

1 Land Bank««nt. 

1 to.y 

financing progres 

by furnish 

ng ne the 

t«dit ne« 

d» that 

I needed to achle 

e the flnan 

tal goals 

>t for myself and my family. On behalf of the Federal Land B«nk 
xiatton of Rayvllle, we urge your support of the legislative ef 
lubnltted, and hope that H.R. 47S2 is favorably eonsldered. 

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t of Eug«* L. Cupball, FTMldauc, Fcdtr 

CaaCtMll, fuU-tiiH dairy [arMr (Eoa King Hllliu County, Virginia. I 
KB al«o prwldant of tha radaral Land Bank Kaaaelatlon of RichBcnd and 
a diractor of tba IttclMoad Production AiMclatloo. In addltloo, I hav* 
tkad a lonq aaaselaticn with aany Virginia fars organicacicna and mm 
cwrantly a wialiaL' of tha virgioiB Fan Buiaaa. iiaca iivsrUntlv, I 
hava. Cor aany yaara. b**n actln In local, eoimty, and Rata juiaiiiaiiit. 
inch tbla background, I vant to thank you for tha QK^oEtunity to apaak 
to you in eea^ata aujport a( tha aMiefcinta te tha Fan CXadlt ftet of 
19T1 aa praaantad. Tha borromr mmbnt of the Fan Cradlt Cocvantlna 
in Virginia atrcngly faal that thvaa AaandBanta ara naadad to anabla oux 
syatML to copa with a bunging and chaLlanglng futora- 

I lould like ta (paak ipaciClcally about ona faeat of thlt laglalatltn 
which la of panicular Intaraat to aa. That ia the lain ^ it to affira that 
only Fadaral truth- tn-Ianding lav ajipliaa to Pais Ciadlt SyatMi landing. 
Ka a bualneaaun and ditaetoE of tha RiclaDad Ptoduction Cradlt Aaaociatlon. 

burdan en the cv*r*tiona of Fan Cndlt inatituticna. i ballara that tha 
Fan Cradlt Syataa, dua to the natora of Ita landing opatatlona and b 
centrol, abould racalva rallaf frca truth -in- Landing ragulriaanta. 

In tha avant that Congraaa doaa aaa tit ta rallara Fan CrMlt inat 

tloni ft«B Fadaral tEuth-in* lending law, alallar raquiEiaanca ahould not 
re-t^poaad at tha etata level. A» ■ Fadaral Inltrunantalitr carEylng ou 

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tha will of Om^*** ta •eUara ■ mcIoobI puEpoaa, tba Ttrm Cradlt *rM*a 
■houU b* guUad «lr br PadMal Uw and nguUclon. 

runoatlly, 1 tml that all trutb-in-iandinq ravilatieB almld ba 
r — oT«J frOB agrleoltval laDdlng. I InEndacad ^wal( b|r aaylng that I va* 
a fai^K/'buainaaaBan. .*B aa, tha em iBCda ara ayncncaBiia. i oparata ■ 
e^BVeial dairy tna - b<nl»aM JnM lika any otbac boalsaaa. I>r bnalnaai 
pHTBtaaaa tapata, produea* a cnduct. It haa aaaata, ItabUltlaa, eaah fliw, 
a pajFTOll. Uka ottaac bualaaaaaa, it alao raqulris eradlt - ccadlt to buy 
••ad, tmttUlMM, tIMli credit tor llnatoek and aadilnarri eradlt fOr land 
and bolldlBf*. I aa aatota anaagh Co undaraund ccaplacaly tba eeat el a 

Ccnqraa* did not aaa (It to Inclada oChar fauatnaaaaa. tttf ds a^lcalcural 
boalnaaism aaad ipaclal pmCactloiT Aa a CaiBar/baalnaaaaan, tnth-ln- 
landlng glvaa aa 'pncaetlon' 1 do not naad and do not mantl Aa a diraetor 
of ■ iKOdBcttco eradlt aaaoclatlon, I aaa that truth- in -UBdlng cauaaa a 
lot of papar afauftltnq, a lot of inacaaaary rad ta|>a. It eraataa daLay, 
incraaaa coat, and praaanta an obatacla to tha affielant airtanaloQ of cradlt- 

1 ur9a yoo to giva favorabla coii^lilrrat ion to tha Farm Cradlt Act 
naaiiilaiiiia of MT9. Thla Ull will Hihanea tba Pan Oadlt tyatia-a ^Ulty 
to carrr out It* ulaalon (fflelantlr and •tfacltvotf, thanby l^iroring tba 
Incoaa and vall'balng of faraara and contributing to a haaltby farm aconoay. 

TlhBnJi you for tha opportunity to asiproaa vy vl# 

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statement of 

Dewltt Boy Carpenter 

on behalf of 

Federal Land Bank of Assooiatlon of Alexandia, Louisiana 

Mr. Chalraan, I m Dewitt Hoy Carpenter of JoneGvtIle, Louisiana represent- 
ing the Federal Land Bank Association of Alexandria, Louisiana. I an a full tlas 
farmer operating approximately 6450 acres of land. I am 2000 plus acres and 
lease approxlMately 4450 acres. (Z650 In culltvatlon and 1800 in mods) growing 
soybeans and cotton. I have been a borrower of the Federal Land Bank Association 
of Alexandia, Louisiana for a ninber of years and have been Interested In Its 
development and Its service to mmber-bor rowers. I am aUo affiliated with 
other Fam Credit Institutions, Including Hacon Ridge Co-op Supply Store, and 
as a borrower of the local PCA. I am a fanner Interested In the entire Fam 
Credit Systea, but particularly, with the Federal Land Bank. I appreciate this 
opportunity to present iny views to your Comlttee as a member-borrower of the 
Federal Land Bank concerning the House Bill No. 4782, the Fam Credit Act Anend- 
ments of 1979. 

1 have reviewed all of the material which has been Mde available to ae 
concerning the proposed amendments, and have discussed this legislative effort 
with association management, bank managcawnt, other association directors, and 
faraer- borrowers of the association. Hr. Chairman, we urge passage of the legis- 
lation as subailtted to Congress, as we feel It serves the best Interest of the 
farmers, agriculture, and the constmlng public. I would particularly like to 
conment on the Loss Sharing segment, which Is a part of the proposed aMandaents 
being considered In this legislative package. 1 feel that this proposal will 
help to insure more dependable funds as well as make our system more unlfom. 
Most Importantly, 1t will strengthen our position In the money market. 

Hr. Chalman, I am grateful for the opportunity to express my views to 
you and to MMbers of your Connlttee. The Federal Land Bank has been InstruNntal 
to my financing progress by furnishing me the long-tern credit needs that I 
needed to achieve the financial goals I set for myself and my f«i11y. On be- 
half of the Federal Land Bank Association of Alexandria, we urge your support 
of the legislative effort as subnitted, end hope that H. R. 4782 Is favorably 

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r*««*l Uai lofe Attelttim •t CallMd, AlakMS 

1 a Jata I. Cka»MB ■( CallaH, UakHi. I bu a^dtMd M rtMttM 
twf ■■ Am 1, IfW, f*tl*rtia ara^MtlM tnm Mlircialcjr •( AlMba* ma n 
*. ■. D^iM !■ l*ia mi mtU MciM ta 1«)0. AfMT vraetlslM In a ilMTt 
tlH ta NMt(tM(r, *1«»«M, I VM Mrlar« la trrll If31 kf 1W radnal Lu< 
tnk •[ tmw OtlMU w M laMcUta •ttanar !■ It* lifal 4*raTMHt ahn* t 
■anai ts awk eWMttji aitll OcUkai t, ItM. I kan viactlea4 ta CaLI^ 
ChbCt. AlabBa, fna Octokai t, IfM Htll tka pnaaat ttrnt, aaeart f« a 
pailaJ Urn 1441 ta l**i ahn I aarrad la Wmlft ItaMa la^ ta UIaati7i 
•It (aTca, M bIIIImUt ■Ttlllain caBtarUtalltiaaca (ac) iM aa ■■ ta> 
Taitt|>tlac Liwl««l«t< atttcaT la tha Clataa taTrtca. I ka*a baaa am tha 
aprnrai Hat of attanari af tka Fa4aial Laal (aak af Bav Oclaaaa, ataea 
coBlat to CallHB, Alak^ fna >Ba OclaaM. 

I a t^ latalaaJ attaianr af tka Padaral Laad laak Aiaaclatloa af CalliM. 
Oa JaaMiy 1, IMS, I fana4 a Mrtaaraklr attk mj aaa-la-Iaa, VIHIm KlekaaL 
Taaat, aad wr laafktaT, Itactka Ckaf aa TeaB(, a4 aa practtca aodar tka fin 
aiBa a( Cb ay aa , Tasa| amd tasa|, 

nia atatMwat la ■a4a vltk Talaraaca ts Saaaa 1111 la. 4Taf, Tttm CtUlt 
Act flwmfc.ntl of ItTt, ahlck la M>'1^ katan jan ti— Ittaa aad affaeta 
Falacal Land kaaka aed Faaatal Laad Baak Aaaaclttlsaa, aad tka avrllcakllltF 
af Tratk-lB-LaadlBs tkanta. 

(aalaaataa aia aacaftaJ ar au^tad ttaa tka C iaa^a r Prstacttaa Act, m* 
partlealatlr tta TTBth-la>LaB<lH piwlalaaa, ahtla atTlealtaral Uatltatloaa 

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•n Mt. It U lupwttatlr MliittU4 Uwt tctlalMn Is ■ >■■!»■ ■_ ni 
iB (UweUt ifitalMn r*4ml Imd •aka a> IMvkI t^ Ink UmtlmtSma 
«■ U TMlttr tUncl^ ■ taalHH. IkM I CM* ts WlMB 1> t«M d«n 
•u • Itia lUck M14 tittn vn TOM fan* U ttll^ ttnty, ■• ' i Im 
dHn ara lucar (OM kat faMr la atir. I» 1«M cMCaa a4 can waa A* 
clilif l»4aatiT. aav It li eklc^n ad ^(i- 1^ ■■^l rafaral l^ laA laM 
la 1*M ai 1«S7 aaa In IISM.M U 12.000.00' Ikl« «b« ta f laMi » en** w4 
bar iMdi n4 rlaaa. Ite aaaal Um mw U 110.000.00 M fM.OOO.OO m* MM 
1<MB« at* far Mwal fcMiril rt»ii«M< «*llaia. Ika Imu aaa ftaMca fmltn, 
c*ttl* or hoc afacatUB* ai ti^lanl«a« at aaaa. Om raattry kaaa* eaau akaat 
fUJ.OOO.OO, amt aaat (^aictMi ton M twttUta aata thaa mm kaaa*. Ae^ttlas, 
taaulltai —i aalatatal^ fan a«al|Mat li a kutaaia ta Itaalf. It la na- 
pacttallj aal^tMd tkat or Mil Alck dM aot o^t tka Pa«aT(l Lwl l^ka aad 
rateral Lm4 Bank AataclBtUaa lat tcaat icilcBlcan •• ■ >MlM »a al^t ka M- 
caattlMtlaaal. I( tka WII (laat** tlw aM^tlaa, t*ick I taat tkat raa vlU 
M"* tt ibMl*, tiM coDitltnilauI qMatiaa aaalJ a*t arlM. 

Onr tka raara 1 bn« afeaanad tka a^iatlMta af Tka ra4aial Laal Mak 
sf *a« Orlaaaa —t Tka radaial Lad laak AawKlatlsa al CalUaa. lack avaTataa 
IB Bccai^aaea irttk U(k atktcsl ataalaida, mad with •^aoaaai aad falTBaaa ta 
ksimat*. I maid aat aalr ka MTTrix'i tat aoald W iraattr dit^palatad, 
to llai tkat altkar Cb* laak or cb* Aataciatlaa ka« 4aaa imfthlat tkat aaald 
raflatt aa It* Utairltr. Alaa, tk*M ta«ttt«tl«ei at* (xaiUBad trtm t(H ta 
tlH k7 Isdapaadaat ai^laat*. Dadac Vkt itatatBty lat at Vkt karramri kar* 
« latnaat 1b tba Ajiactatlea m* tka Mivelatlaa k«* «■ lautait la tka laak. 
All than tkUc* ara MaUaaai ta raflact tkat oaUlBc ii ta (•!>•< kr ffllll>t 
ta aiwvt r*4«tal LiX tMfca mt radatal Umt Ivk Aaaaclittnu tnm amrlfta^ 
vitb tk* pTarlaleaa af tka C«»Ma r rrataetlea Act, ta4 paTtlcalfltlj Tndl- 

1 ihall apriaelata tka tmftvtt of jaar CuMlttaa fax aaaaa Ull Na. 


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on bahalf of 
F*d«ral LMd Bwik Asioclatlon of Monro*, Louisiana 
Mr. ChainMn, I am Laaar DOHlIng of SlalbOTO, Louisiana rapralanting 
! Fsdaral Land tank Aisoclatlon of Honroa Loulilana. I an a full lime 
-ner operating approHlaataly 400 acras of land groMing hay and raising 
:lla. I hava b««n a borrowar of the Fadaral Land Bank Association for a 
nbar of yaars and a> vary Intaraitad In Its davclopanants and Its sarvlea 
nanbar-borrowars. I an alto a borrowar of th* local Production Credit 
•oclation and I patronize a Co-op lupply store. I an Interested In the 
lire rerm Credit System, but particularly with the Federal Land tank. I 
ireclate this opportunity to present aiy vlaot to your eoBBlttea as a 
nber-borroMr of the Fedaral Land Bank concarnlng tha House Bill Ho. 47B2, 
! Fam Credit Act AMndnants of 1979- 

I have reviewed ell of the material which lies been nnada available to 
concerning the proposed amendaents, and hava discussed this lagliiatlve 
:lon nanaganent, bank managaiiienl , end Other association 
-borrowart of th* association. Mr. ChainMn, w* would 
the legislation as subaitted to congress, as x* feel It 
:rest of the fanners, agriculture, and th* consuning public. 
' II ka to coHBant on Olfferentlal PIvldends which is a part 
idment being considered in this laglsiatlv* packag*. 

irrent law the Federal Land Banks have the authority to 
pay Federal Land Bank Association dividends on a Differential basis. However, 
Federel Land Banks can distribute eernlngs and pay dividends to stockholders, 
only In proportion to their equity ownership. Because the Incom* Is not 
distributed eccording to the contt'lbutlon nad* to earnings, this restriction 

Koitizedb, Google 

ThFs proposal would ixniilt Federal land Bank Association 
videtids according to Interest paid, thereby, directly reducing 
borrowers In the same proportion as It was Incurred. This Is 


Interest rate 
t land bank sy: 

i under which interest n 
s. Because of this, dlfl 
1 pennlt the dtstrlbutloi 



long-term capita) that I needed o 
Land Bank Association of Honroe. 

In 1979 the land bank syit 
ince 1973 virtually all 1 
f course these variable i 
fixed rate loans made prior to 1973- 
volume outstanding are variable rata 
lat* according to the cost of borrowed 
llvldends by Federal Land Bank Association 
ngs according to the contributions made 

s opportunlt to express my views to you 
Federal Land Bank furnished me the 
le years. On bahalf of the Federal 
-gc your support of the legislative effort 

and hope that H.R. H782 Is favorably considered. 

Box 65 

SiBsboro, Louisiana 71275 

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waaatan or 


01 BiHALr or 

Mt. Ctatdnu), I aa Dalbart L. Xdmrda of CarrolltoD, HlaalsBippi, 
refTBamtins the Tadaral Laud Bank Aaa'n. of Craamiood, MB. 
I aa a part tlaa fanur oparatlng a 1?7 acre cattle fam. I 
hare been a borrover of the Fedaral Land Bank Aaaociatloe of 
Greenwood for about aeren faara and bare been Interested 
Id Its dereloinent and ita aarrlce to acaber-borrover* . I am 
proreaBlonally aaaociated vitb the local PCA, varloua far* 
cooperative* and aa Intereatad in the antlre Fam Cradlt Syatc*, 
but particularly, with the Fedtral Land Bank. I appreciate tbia 
opportunity to present qr rlewa to your Ccaailttee aa a aember- 
borrover of the federal Land Bank concerning the Bouse Bill Bo. k^8^, 
the r«n> Credit Act AMBdaenta of I9T9. 

1 haTe reviewed all of the aaterlal which has been made available 
to ne concerning the proposed aBcndaents, and have discussed this 
leglBlatlve effort with association BsnagaBcnt, bank ■anaxeaebt 
and farBsr-^cirrovers of the associations. Hr. Chalraan, I urge 
passage of the legislation aa aubaltted to Congress, aa I feal 
It serves the best Interest of the faraera, agriculture, and the 
eonsimlng public. 1 would particularly like to consent on the 
85 Percent Landing Llaltatlon which la a part of the proposed 
■BendaeDts being conaldered In this legislative package. 
Ulth todays land prices, production Input coats and capital purchasea 
being so unusually high It has becoae iir,cree.Eingly difficult 
for young faraers to get started. To reqaire 13% eiiulty at the 
outset with Bost young people slaply prohibits thea freni taking up 
famine as a profession. As I understand the PLB/P&HA pu-tlclpatlng 
loan prograa this has been quite successful but there exists the 
problea of llzlted appr opriations with hHA and a* a conaequence 

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nany prospective leodovnere have to mit for fxinfling Bod often 

lose their optlooa due to the tine lag. 

If the 6? percent lisltatloD Is ranoved. It iippeara that many 

prospective landovners could get tbelr credit needs net with 

Federal Land Bank loans guaranteed "bg TioEA or perhaps other suaranteed 

Mr. Chairman, I am grateful for the opportunltjr to czpress 17 
▼leva to 70U and mBBbers of jour Cc^alttee. The Federal Land Bank 
has been InstruBental to 17 financing progress h/ fUmlahlng >e the 
long tern credit needs that I needed to achieve the financial goals 
I set for ayself and bjt fanlly. On hehalf of the Federal Land Bank 
Association of Creeovood, ME, I urge jour support of the legislative 
effort as autoiltted, and hope that E.S. llTSS Is favorahly considered. 

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stttimtta et c«t H. Bmmhy, Jr., r*il«al Uod Ink AsKKlatlen. IfeiKl* ShoUl, Ala. 

nr. ChtlrMn. I •■ G«ne H. KM>y, Jr., of Shefftald, KUImm, representing 
Um r«<jeril Und B*nk AttocKtIon or Nutde ShMll, AUtMM. I «• the reUlnwl 
couMet for the Federel lind Benk of Nutcle ShMli end tg pertner tnd I oon over 
300 ttrtt of Und tiiOi SO *tnt 1n cotton (nd 30 teres In lorbeant. I h*ve been 
« bomjuer of the federil Lend Bank KtiocUtlon of Nutcle Shoe U for over ■ yeer 
end have ctoied Toeni for It for aeny yean. I m Intereited <n tti developBent 
and Hi service to acifter-tiorroHeri . Due to these Interests, I a* concerned 
about the entire Fan Credit Syitea. but particularly, alth the Federal Land 
Bank, t appreciate this opportunity to present mr vleM to your Camltte* as a 
■enber-borroirtr of the Federal Land Elank concerning the House B111 No. 4782, the 
Fara Credit Act taemkents of 1979. 

I have reviewed all of the Mterlal Nhlch has been aade available to ■• 
concerning the proposed *iiien<kients, and have discussed this legislative effort 
■Ith association Mnigonent and bank MnagMent. Mr. Chalnan, we urge passage 
of the legislation as sutialtted to Congress, as oe feel It serves the best 
Interest of the fanetrs, agriculture, and the canstmlng public. I would particu- 
larly like to coHnent on loss sharing, which Is ■ part of the proposed anendeents 
being considered In this legislative package. 

It Is felt that loss sharing would clarify the capital viability of the 
systoi and would help Insure a dependable source of funds fro« the Investment 
markets. This should strengthen Fana Credit organfiatlons. 

Kr. Chairman, I aa grateful for the opportunity to express ttf ilmn to you 
and to HOfaers of your CoeKlttee. The Federal Land Bank has been Instrwental to 
my financing progress by furnishing ae the long'tene credit needs that 1 needed 
to achieve the financial goals t set for myself and iv family. On behalf of the 
Federal Land Bank Association of Kuscle Shoals, we urge your support of the legis- 
lative effort as submitted, and hope that H. R. tJBZ Is favorably considered. 

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t FcdBTAl l^nd E«Elk A: 

and Gtapla CoCEoa Coop 

I fAner growlog vh«At, doybeuiB, 

ctlcm funds tlcm Tsllulah Ftoductlon 
» Other Financial Inxltuclcma, A(r 
Stapla Colton Discount CorpocsClon o 
board of Union Oil Kill of H«Bt 
m the Nav Orl«in« taak tot Coaft 
twcncr five Bllllen dollsi botr 
Id addition, I acclvaly unage 

of the New OiUani Bank fn 

n Che Fan CtwIIe Sy 

lal belief that no slnile eiitlt:r c 

Df Che cradlt for the Auertcan fan ■ 
Irtchout thl. ■■Choi of providing the 

I flrBly ballava raaca heovily on the 
food and fiber for thla nation and ch 

1 hav* carafully ravlemd the proposad changes 

parclcularly like to oddrasi nygelf 
Banks to land in axceaa of SSI of a 

■al when Che loans veie guaranteed by ShII 

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nn blood 
ror tlw fu 

■ la ■ Buch naad*] rnUlsa that miU >l>plr allow f, 
doini tlhtt it t> alriady very aucceaafully doing, th 

:ur(. Th* aitieBtlT tilth coat of land and aachlDcr; 

:u( off th* epportualtlM handMl dcnm to ua [or futi 
rgiBCnt atalnal thla provlaion alght be that loan qi 

n Ftmira Bamr Adnl 

of helping young 

d flacal approach to long ten Fan lending and IF given tl 

la act will ba la an ovan bettor poaltloo to contlnua thla badly aaeded 

of Lake Provideaca, I urga your auppart of MR 47B2 aa aubalctad. 

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Slatemtnt of Iv«n L, Hand, Feder»l Land Bank Association, Starkvllle, Klsa, 

Mr. Chainnan, I on Ivan L. Hand of Storkvlll*, MInlMlppI reprMmrtng 
the Fadaral Land Bmk Aooclation of Sttrtn^lU, MlnlMlppt. I coma lo you wlHi 
ttili itatement waortng two hott, one a* o banker ond one <■ a Fonner. I am 
preddent of a bonk wttfi totot meh of $80,000,000.00 wttfi apfsraxlmately 75% 
of our buiinen coming from the agricultural MgnMnt. I on olio a farmw being 
engaged in ttia beef cattle enlerprite. 

I hove been a borrower of the Federal Lond Bank Anoclotion of Starkvtlle 
for 15 yean, I hove been Interetted In Ifie development and lervlee of ifili 
OTBonizotion for even o longer period of time having re f err ed many mutual 
cuilomen to the Federal Land Bonk for l on g-term finortclng Ihol we could not make 
avoilable through a eornmerclal bank such oi mine. I «n Intereited in the total 
form credit lyttem and apt>«clate thli opportunity to pre w nt my views to your 
Committee as a Federal Land Borik member-borrower concerning Homo KM 
l^lo. 4782, the Form Credit Act Amendments of 1979. 

I hove reviewed the matertol mode ovailobte to me concerning the |Mii|iiMeil 
onendmenti and hove discuned this propoeed legttlafion with our locol Federal Land 
Bank >^*oclatian management, Mr. Chairman, I urge p'tftt* ^ ''" legislation 
OS submitted to Congrea, as I feel It will serve the best interest of the formen, 
ogrlcullur*, and the coneuming public. I would pstlculorly like to ootranent on 

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•h* 8S% I«kHi« llmitorion - FMkral Land lanla, whieh b a port afllM papmi 
canandmanli b*tng con ri dwd In itili laglilottv* poafcaQa. 

Ai I mMrioMd «H1«r, I am a coiMiMrclar bonlwr and I know tfwt If I hod 
a fMxad llmttarton of loan IMh tuA oi itw pwppMd 89% ItmiloMan, that I oouM 

rwnind ihoM favorina thh llnlloHen of iho old Hod and prevon Ihunb rulo of Iho 
*3 «'(" le oantitr In making a loon. Tha ihra* eonddtrariont botntf eollotoral, 
dinro c lf , and c^twl. Cartoinly, all of ihaaa ara worthy of oamldaratlon and 
in my opinion rfMNtld not faa limllod by a flxod poroontapa for eontldararton on 

Ai o oonanarclot bonk, «w ora tncraodrvl)' faaing wgad by rapraaantotlvw 

Faman Honta gwaKXtaa. In our own con wo a* not Itmltad lo 69% af itia 
oppraltod volua, and 1 do not faal that iha Fadwol Laid Bonk rfwuld bo Itmttad. 
In tact tharo will ba on tnaaoM In tha frand for privota londan to maka loont 
lluuruntaad by Fonnan Honta Admlnittration and unlaai thl> Itmltotlan t* ramovad, 
tha Fadaral Land Baik will not ba ^la to eontlnua to raoch borrowari Nich Oi it 
now Mrvat wtdir tha FmH^'TLB panldpatino loon program. Tha FodMvl Land 
Bonk will ba hrthor ditodvonlOBad bocowM of tho raquhomant In tha piaaant low 
for a boiTowa r to tnvart in tha ttoek of hii Fadaral Lond Bonk Anoclatlen In on 
oniount raprawnttng 5% of hli loon. 

Mr. Owlnnan, I am yotohil far iha opportunity to anproM my vlawi to 
you «id to mamban of your Caomlttaa. Tha Fadaral Land Bonk ha boon 

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In g tnjmwitot lo my own flnonclng pragram by furnithtng m* fong-Mmi a«rflt, Wtrti 
Km erwctmmi of tfils AmandnMnl, ih« Fadaral Lend Benk wfll be able ta bow tfwir 
declthm on loom to formwi on a braodw Tongs of cfsdll facion than ti now pcMiIbl* 
under cvn«nt low anobllng ttwni to be of added mvloe «k1 Mpeclally ta young 

On behalf of ihe Federal land Bank AHocToHon of Starkvllle, Mlidalpp) 
I urge your wppart of the legblellve eflbrf is tufamlHod and hope Ihal H. R, 4782 
U favorably o 


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SUtlMDt Of 

Plett^nr S. Hmtdm 
on bahaOf of 
faOKTmi Land Bulk Aaaodatlon of tJtarlMatoa, NS 
I u n«t<^«T S. HayiM* of lasbart, NlBalaalppl, l«ic«a*ntlng th* Padaral 
Land Bulk of QiarlaatoD, HlulMlppl.. I >■ a fkraar, Bardiuit ud onttlo- 
■ui, faralQe KpiroxlattBlT 2900 aorva of cotton, Bojbasaa, oom, paanuta, 
orcharda and hajr* I pravlouBlj aarvad 12 yaara aa oounty suparvlaor and 
■■ currwitljr Dlractor of Unltad Southam Banks (11 tanka) r tharafora, I 
can a^raclata tt» aarvloa Padaral lAnd Bank glvsa to ay eoaaunity. It 
Haa on ona of tr rturt aeos Tiara that I had to go to Fadonl Land Bank 
and thar aarrad a; naada aa ttmj hava so aaay othara. 

I Kould Ilka to proaant aj vlaiia to jma Coaalttaa eonoaming Houaa Bill 
Ito. 4782, ttw Fan Cradlt Act taandaanta of 1979. I tava attandad aamal 
aasilngs whara thla Bill aa dlaouaaad and raad tha propoaad aaandaanta. 
Hr. Chalzaan, wa urga paaaaga of thla Bill. 

Mr. Qialiaan, wa urga tha TTuth-In-Laodlng part of tha propoaad aaandaant 
ba laft aa Hrltian oatafallahlng that no Stata can lapoaa any furthar ca^ulza- 
■■ntn or rastrleilons on tha Padaral I«nd Bank. If no, this Hould put aiv 
axtza burdan on tha landar oaualnc aoza tlaa and a^anaa vhlah vould hava to 
ba paoaad on to tha boiroitar. I appraolata your oonaldaratlon of thla Bill. 

I apiradata your sarvtoa to our Httlon. If I oan avw ba of any aoolBtaiMa 

Stncvraly youra, 

riatehar 3. Haynaa 

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Giaw E. aivsz 


Kr. cholxnan ocd wtjtti:! of Ota SdxxBmiae^, I si Slcm E. Haiti, pg— idwt 
of the FMeral Land Bank of St. IjsuI*. I hava baac vployad in tim Ttoi 
Credit Sysun for alnost 30 yaara, includljig neon ttvm 10 jaara as Ecaaid«>t 
of 'Dw Fadecal I^nd Bank of St. teui*. During m^ years of oq^lcynant ^tii 
the Pom Ondlt Systtn, I olao galnad «qpMdsia* wiUi ita ot±ar •■i,-'irtt i 1 t 
by vorlcli^ aa a roHnager of a Producticxi Ondlt Aaaodation and aa a n^aity 
GovBcnog; in the Fam Cradit AdniniMraticn wnicliig with tha Bnka for 

Aa chalxnan of tha PraaldBtts axnittae of ttw Faoi CZwlit Bank* of St, Loula, 
khieh Includaa Hm Fedaml Land Bank of St. i«uia, tha Fadnnl mtacnadina 
Cradit Bank of St. Loula and the St. Louis Bank for CocfiaraUvu, I m 
plaaaad to make tiila natasnt en hohalf of tha Sixth Fam Oadlt QLatzict. 
I, alao, beU«v« that theaa roDBEka are repcaaantAti\« of tha pnwlticn of 
the Paem Qndit SysCai oa a whole. I ^piBclAte tliia CKxztuiity to adalt 
to tliia ocnnlttee out tUtaoBit aCrcngly m^poctln} Socticn 403 of BR 4T82 
as part of tha nun Cradit tet h 

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SKtloi 403 o( HR 47S3 iKMld and Utl* IV of tbt PSm Ccadlt Act of U71 

to (tMa aa folliswi 

'Btavs 4.19. mnB-Df-taoiNG. — ma pmvl«len« of wy Stata 
atatuta or acy ottwr Iw or rvgulaticn tttleh ii^oaa, with ngaid 
to a cxadlt tnnaactlaii mv Aj^ or taquixMHOt tbat lud baMi 
l^iiwul by tha buth In tsiUag tec (82 Stat. 146) pElcr to any 
^NfKkant tharato tfiall not ba i^litBhle to czadit trsiaactlcna 
of Fain Qndlt Syaton Inatitutlcna.* 

Ttm p u rpoaa of ttvU ^NoAHRt la to allaw Fani QMdlt inatlOitioia to follov 

dmgaa In ttia Fadacal nuth In landing I^t noOfithatanding aqr ■»<»ft'«j at 

Kfeaaquitly anactad S^ta lav to the omtraiy. 

tta laco^ilze that the Padaral Truth In lading Jtct aeta ndnlnal fodaral oon- 
awar [oxitectlcn atandard* and anoouragaa Stata actien. Tha Fedaral act 
i^eclf Ically stataa that it doaa not altar ca; affact aiy stata tagulrwnL 
ccxialatant with the Padaral atandarda and wan cvtwldaa fer daCaranoa of thi 
ndaral l«f Wian State laqulatio) of f era aiirilar piotectlcna end pcovldM for 
adequate «afaraaiBit. BsNomr, Na do not beliava thla ^NoAHRt would nalea 
m/ at±at«ttial changa to thla poli^. IIm Stataa mouU nttaln all of thalc 
praroQatlvea in ragulatiiq credit tranaacticna Inwolvliig Fan Cradit Inatitu- 
tiona aa thay praawLly have, •aco^vt to tha «ct«it that mi '"<*<»< raqulrvHot 
of tha Padaral Ttuth in Lvidlng *ct mm adMaqtMncly delated ty OiiwaealKial 

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Ihe «ffact of thl« propo o nd anrnJug i t t» tho Facm Cndit Act Ix bMt ifaCMi 

throu^ lUurtratlCTi. 

Aa cdglnaUy siKted the Fedenl Ttuth In lending Act ^iplled bo all agri- 
cultural l<wdlnj ovan tfaou^ thare ma an cocBiiitlcn tat busineas cradlt and 
otlwc uziraal utata candlt trtnanctioos tenxeOing $25,000. With thia pi»- 
vlaioi oa a nodal, Statas tiishing to <^taiii an vc^ptlon fcoo the nadaral 
law had to traat agricultural cxadlt sl]nllar:y In their State leglalatlcn. 

Aa Dcce eocpazlaioa ma gainad with the apsESticna of the nuth In lending lar, 
miy aa^Mnta of the pAlic oeaplainad tlwt the Tnttb In I^iding Act dl«cri»- 
IjiBtad agalnat agricultural ^ndlt. Iheaa eejne nta aiquad that ^rlnultigal 
credit NB8 the ■iim aa luinlnmn cradlt or at the wy mtnlnun that agrlcultuzal 
czedlt trana«:ti(zu occeedlng 525,000 diould Kijcy the aam axaqitlcn aa ottar 
ncnraal eatata cradlt tronaactions CKoeadlng $25,000. The raquiranants oC 
the ttuth In Undlng Act were atated to Im a burden en agricultural lending 
rfilxA ma dlats±idiiBtacy, umeaeaaary and not coat affective. 

Ocngraaa wparantly wjreed with theaa critic* becauae In lata 1974, it paaaKl 
an — na— It to the TrMli in lending Act which « ^M ^pte d agricultural endit mt- 
neaillnij 125,000. Ihia oongra aa icnal acticn cK'ovlded ralief In all juciadi?- 
tlcna aNMpt lAare thoaa Stabae had adcpted TcxtOi In leiding Ims bwed en ttw 
ociglnal Fadn»l anactMant. &i thcMa Stabaa, lec^sra rvalned subjact to tlM 
ociiginal agricultural oedit prcwlalena ixileaa the Stata I^gialaburaa c^lad 
the Omgreaal/Tal HNndhant. Alao, other States could ralnpoaa the fauidaD at 

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cultural landing pnnrUlaw of ttw oclglnBl TXuCh in landing Act. Ihia aituft- 
tlon EruRzwtes tha ffinarwlflwil InUttt and iMtdi te an «nc—loui raault ttan 
Ian fadazal ragulMlai b^ actually oaata a gcaatic burdai at tha EooMrly 
ragulated activity. I^daca cvaxatlng in mwb tban ma Stctai Inataad of lock- 
ing to ona lagulatory aomica, Biat van ba alart to tha ragwlr— nta of BKqr 
ragulatccy aoutoaa. 

Although the ^•ru^^r>r] industry aa a whola ia aubjact ta thia fc u B tiat ing 
aituBticn, ne belisva thaca ore cogen t rsBacna for alloidng run Credit 
instituticna to folloH the Federal Izm. IhaBS reaacna oentar around tha 
p«A>lic purpoae aerved by Fam Ceadlt inatlCuticna. 

Inatitutions of tha Fana Qradit S^stm are linitad purpoaa organliaticna 
doal^ied ty Qxicrriaaa to alf idantly di n pa na a camlit to Caogars and taDnar 
cooperativaa at tha IcMa at reaacmbla ooat. Such oadit ia li^orUnt not 
only to the ecovMic wall-faelng of tha ^oerloen faooac but alao to tha ooat 
of food and £iber to tha ganaral piilic. Slnoa tha atatutczy authority 
inder whidi Farm Qradit IxiatiCuticna cp ara t a ia ao ocncamad with Ina^ing 
tha cost of credit aa lor aa rsaacnably poaaibla, nb siinit that Patn 
Oadit Institutiois Aould be able to take aArmtta^ of rnnjiaaitiiiiil 
attaopta to alapUfy tha Federal Truth In Lending Jict. Ma do not baliav* 
that Ccc^reaa Mould ctunge the pnwlalcna of tha Hulit in landing tet lai- 
laaa Ccngreaa balievea that audi prcwi«icna ar« aitbar not coat affactlva, 
mduly burd«iacina, or inqjfnraforlate. It aavoa cnly logical that craationa 

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of CongrM* such em Fam Oodlt Institutlcns, i«tLd) are mwnrtntert by CVitjwjiM 
to )soep cradlt costs an low as r— cnably possible, should ba able to take 
advantage of Ccngreaalcnal relief rather tlun ba subjected to the ju^mta 
of fifty ottMT legislative bodies *Aich might not have the amm ctrcazna 
tar the agrlcultuiBl Mgaa it of Om accncnr. He, thenfece, bellam Uiat 
Sactloi 403 of HR 4782 is ^^c^firiBte boaame It oBsists in ksaplng credit 
cceta low in aoootdance with the Ccngresslcnal aitoniticn in the Fam Credit 
fct. It would accanpliah this with cnly minimal limitation en State actlcn. 
The anentaent would ajply cnly to thoae aspects of the mith in Lending Act 
uhidi CCngress, after the tet's Initial sutctment, detanoined nere either 

Although the enactment of this amenAnent would roiove a significant part 
of tha Faun Ondit System's lendij^g fron the purvi«w of State Truth in 
lending laws. It Is inpurtant to roncntor that this ewnptlm will afply 
to nothing mare than Oxigresa has olisady dsterwlned tfnuld ba exoi^ 
fron tha Psder&l low. Form Credit Institutlcns, as creatlcns of OnsresB, 
should ba able to follow the Cungrassixxuil purpoea. Bdrxowars are ade- 
quately protactad even without St«to l<w because bcnouar OMWEShip of 
tha institutlcns of the cooperative Farm Credit Systai and the ragulatlcn 
of Interset rates by the Farm Oedit AAiinlstratlon are adsquats safeguards 
to Insure that coats to bccRMera will raaain as low as possible . c 
with sound business practice. 

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m ■— iij. I Ml urvlag auppert fix aaotiot 403 of Hr 4782, ttw fua ccadit 
Act I^Ki*iif oC 19Tf , tbc tha foUodng e*uccwi 

(U Um Mtoaw n t IwB cnly Mlntnil >f2act oi StaU laf beooun it 
■g t>c t» cnly tismm tnith In loiJlig pcavl«ii3)* Wtlch vara arigln- 
ally IncluJiJ In Ow JKt wd w± — qw nt ly a»lM«d Iv OcngrHai 
(3) DlB BBOvlaloM oC tb* CKlgliMl ttlttfa in Lading law wuU not 
tMn« bMD d»l*tad ty Ongiaaa «il— Cnngr — had totsid thoat to 
be inw^ctfclatai not ooat affactiva, bucdviacna cc not in tfaa bast 
intanat oC tha 9«ianl pdsllci 

(3) Fam Oadlt inatitutiooa ara ^'"^t xtl purpoaa Inatituticxia ittlcti 
ara raquizad by Qjwpraaa to Aimlah ondit at tha loiraat ooat 
acnain«it with aotnd buainaaa (onotica and, ttaarafiata, it 
wuU waar to ba lllcglcal to offar raliaf ban FUaral law 
(zily to aoka theao institutiaia aubjact to alwllar ragulUicn 
£ro« fifty aaparata jurladictiaia; and 

(4) Thoaa borzoKlng txtm Fam Credit Inatitutioia rasuln piotjciad 
becauaa of tha bcaxamr otmd nabire of the oEqHilaatl^na and 
their doee aifwrvlalcn by tha Fam Qradlt Ntalnittratioi, a 
federal ra^ulM^zy a^Ktcy- 

Ih cloaing, I dould lUce to annraea ny ^ccadatlcn fen: being allowad to 
offer this at Mj mm u. in aiCTO^t of thla lavcrtont part of the wandOKita 
to the Fam Credit Act. I beliava that all of these mnAiMnt a are Ibvo- 
tBit becauaa thay Kill aiabla Fam Qradit Inatituticos to serve all of the 
(sedlt needs of the tatrian famsc and to be wtn mwa eftic)«nt in Baking 
that credit available. 

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coDfiaiot public- 

Koitizedb, Google 

la by fumlBhlTit ■■ ih* loo^ttrm crvdlt v«*4« n*^tma*Tj In BtTtvliig 

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StatoRient of 
Robert L. Homll 

on behalf of 
Federel Land Bank Aa.ociation of Bnterpriae, Alabama 
Hr. Chairaan, I an Robert L. Howell of Hartford, Alabaua 
representing the Federal Land Bank Association of Enterprise, 
Alabama. I am a farmer operating approximately 307 acres of 
land, row creeping and raising beef cattle. I hav 
of the Federal Land Bank Asaociatian of Bnterpriae for a number of 
years and have been Interested in ita develoioent and Its service 
to nenber-borrowers . I am ■ fanner interested in the entire Fam 
Credit Systen but particularly, with the Federal Land Bank. I 
appreciate this opportunity to present my views to your CoBBittse 
ai a mcMber-borroHer of the Federal Land Bank concerning the House 
Bill Ho. 4782, the Farm Credit Act Amendments of 1979. 

I have reviewed all of the material which has been made 
available to Ba concerning the proposed amsndnents, and have 
discussed this legialative effort with aasociatlon managanent, 
bank managament, other aaacxilatlon directors, and famer-borrovers 
of the association. Hr. Chairman, we urge passage of the legis- 
lation as submitted to Congress, as we feel it serves the best Interest 
of the faraers, agriculture, and the consiMlng public. I would 
particularly like to cement on differential dividends, wblch is a 
part of the proposed amendments being considered in this legislative 

Under current law, FLBs have the authority to pay PLHAs dividends 
on a differential basis. However, FLBAs can diatribute earnings and 
pay dividends to stockholdeca CHily In proportion to their equity 
ownership. Many view thia restriction as Inequitable b 

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tha Inccne la not dlstributad according to tha 

The flaxiblllty In this proposal would pvrait FLBAs to pay 
dlvldandi according to Intarest paid, thoreby dlroctly raducing 
that coat to borrowara In tha aaaa proportion as It waa incurrad. 
Thla la significant In tha advent of varlabla rata landing. In 1969, 
tha land bank ayatsm cooaancad Making variable rata loans, and alnca 
1973 virtually all land bank loona have been on a voraibla rate 
baala. Theaa variable rata loans carry substantially higher Intereat 
ixad rate loans, node prior to 1973. Hlnety-thraa 
and bank system's loan volune outitandlng are var- 
undar which intereat rates fluctuate according to 
owed funds. The contribution to aaminga of these 
variable rata loans is Buch greater than the older fixed rate loans. 
Thus, differential dividends by an FI.SA would pernlt the distribution 
of earnings according to tha contribution node to those earninga. 

Hr. Chairaon, I an grateful for the opportunity to axpraas my 
views to you and to Baabera of your CcxMlttae. The Federal Land Bank 
has been instruaental to m</ financing progress by furnishing aa the 
long-term credit naad that I needed to achieve tha financial goals 
I set for ayaelf and my family. On behalf of the Federal Land Bank 
Association of Enterprise, we urge your support of the laglalativa 
effort as sutaitted, and hope that H.R. 47S2 la favorably conalderad. 

percent of 
table rate loani 

Koitizedb, Google 

yatflB, but pATticuI'LrlT w 

crniBlng public. I would pakrtlcularly llk« 
.tion n«tds lbs Itgml «utbority to p«y divl- 

^vonLbly contldartd. 


~ Charier UemDet = 

Koitizedb, Google 

sutenant of 
L. H. IUi«, Jr. 

l^ederal Land Bank AsaolcMlan of Huscle Ehnals, AlabniB 

Ifr. Fllppo, I in L. H. King, Jr. of IclRhtor, Alabama representing 
the Federal l^nd Bank of Huscle Shcals, Alabana. I am a full tine famer 
^fjuratlng approxirnBtely 1,000 acres ot land, grcwing cottm, soybeans and 
cattle. I have be«n k bomMer of the Fiederal Land Bank Association ol 
Huscle Shoals for timty-flve yeam, and have beoa Interested In Ita devel<Y>- 
meot and its service to mmfcer-borToiiiers . I «n Interested in the entire Farm 
Credit System, but particularly with the Federal Und Bank. I appreciate 
this oppurtunity to present nv viens to your Ojimlttee as a timnber-ijorramer 
at the Federal Und Bank concerning the house bill no. 4782, the Fam Credit 
Act Anencknents of 1979. 

I have reviewed all of the material ahlch has been rmde available to 
me ccncemlng the proposed atisnitnent , and have discussed this legislative 
effort with Association ratnagonent. other Assocation directors, and faimer- 
bijrroners of the Asaocatlon. Hr. Fllppo «e urge passage of the 

legislation an sutxnittcd to COtif^'Sii, an wt feci it serves the be^it Interest 
i>l the fann>r, agriculture, and the cunsamni; public. I viould particularly 
like to i^jnnent no the UWry Law portion fo the Bill . 

The farmers need for credit continues even during periods of hi^ interest. 
If the I'ann Credit sysletn Is to acccnpli^ Its goal as set forth in the 1971 
Credit Act It must ccntinue to be in position at all times to supply the 
Ovdil nee<te for eligible, credit iiorthy marher-borrowers . Tliere is already 
several built-in checks that IftBure the Faun C»dlt syston does not charge 
ejtcesalve interest. The credit institution operate solely for the benefit 
of menber-borrcHiers under the direction ot a board sleeted by tbcn, and 
any earnings realized by the ayart«ni in otcess of cfieratlng axpenaee are returned 
to the borroaers in the form of dividends or patronage refunds. 

Tbe Farm Credit syston reclevee aoBt of its funds through the sale of 
securities in the nations money nailcet. Iberetore, the rate Fknn Qedlt 

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pays investors nuEt be cai|ietltlve with rates available fran other In- 
vestors. This could not be acccnf>ll£j>ed during periods of hi(Si interest 
rates If the system lending were to be subject to the state usury law. 
If fanners are to have a ready source of lone teim credit, an Institution 
such as the Federal Land Bank inist continue to be In a position to lend 
money at rates that pennlt than to be self-sustaining, 

Mr. Fllppo I am grateful for the opportunity to express my vievre 
to you and to menfcers of your Ccnmtttee, The Federal Land Built has been 
Instnmental to tag financing progress by furnishing me the long-teira credit 
needs that I needed to achieve the financial goals I set for mjrself and my 
fmily. On bebalf of the Federal Und Bank Assocatlon of Uuscle Shoals, 
vie urge your support of the legislative effort as Butmitted, and hope that 
H.R.4782 is favorably considered. 

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SUtvwnt of Oickte Joe L«dner 
on beh«lf of 
Fadtral land Bink Astoclitlon of Hattlosburg, H1siUs1(>p1 
Mr. ChalnMfi. I w OfckJe Joe Ltdner of Sauctcr. msslsslppt repmmtlng 
the Federal land Bank Ajsoctatlon of Hattlesburg, H1»1»jp|i1. I m a full 
tine f*™er operating approxlnwtely <.000 acrei of land and rent approxiMtely 
Z,5» acres of land, groMtng loybeani and raising beef cattle. I have been a 
borrower of the Federal Land Sank Association of Hattlesburg for a nuaber of 
years and nave been interested In Us developoent and Us service to Meaber- 
borrowers. I an aUo fwlliar wUh other Farm Credit Institutions. I an a 
farmer Interested in the entire Fane Credit System, but particularly, with 
the Federal Land Bank. I appreciaW this opportunity to present wy views 
to your CoiwiUtee as a neater- borrooer of the Federal Land Bank concerning the 
Hou^e BUI No. <782, the Fani Credit Act Awndaents Of 1979. 

1 have reviewed all of the HUrlal which has been made available to n 
concerning the proposed awntKnts, and have discussed this legislative effort 
wUn association utanagenent, bank Mnageaent, other association directors, and 

er-borrowers of the association. Mr. Chairman, we urge passage of the 
legislation as submitted to Congress, as we feel It serves the best Interest of 
the fanners, agriculture, and consuiing public. I would particularly like to 
nent on aquatic lending, which is a part of the proposed snendHnts being 
ildi^red in this legislative package. 
I feel it would be very advantageous to allow Federal land Banks and 
Federal Land Bank Associations to wake long-tem loans to producers and 
iters of aquatic products. In this area, with the Mississippi Gulf 
available, it seens vital that this proposed aaendrcnt pass. With 
today's econany like it Is, not only Is the farmer Involved In needing land, 
ISO products from the sea. Uc must all realize that there Is much the 
can furnish us. if we have the right equipment and knowledge to develop 
irea. Sy allowing the Federal Land Banks and Federal Land fiank Associations 

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to 1en<t aquatic producers and harvesters long-ters fliuncing. this vital 
agricultural area could be utilized to Its fullest. Presently, producers 
«nd harvesters of aquatic products are eHqible to borrow froa Production 
Credit Associations, Mhlch Is short-terv financing. However, mny aquatic 
t.roducers require processing, storage, and docking to efficiently conduct 
ineir Ousiness. Thus this need for 1ong-ter« financing is beconing nore 
jfid more evident, especially with the expanded 2W-ni1e territorial water 
limit and the United States goal of becvlng a net exporter of fish. The 
passage of this aaendnent Is a logical and needed extension of the financial 
services provided by the Fam Credit Systea to agriculture. 

Hr. Chaiman, 1 aai grateful for the opportunity to express nv views to 
/ou and ti the ineRtwrs of your ConnitLee. The Federal Land Bank has been 
instrunientat to my financing progress by furnishing ne the long-tera credit 
needs chat I needed to achieve the financial goals I set for ayself and my 
family. On belialf of the Federal Land Bank Association of Hattiesburg, we 
urge your suppo