Harvest of Debt

The Farm Credit System wants $6 billion over the next three years to finance at least the beginnings of a reconstruction of its ailing network of about 800 cooperative farmer-owned banks and production credit associations. Whether this would be a “backup line of credit” or a “bailout” is not clear--which is why Washington, quite correctly, has not rushed to a decision.

This particular institution holds about one-third of the $210-billion farm debt now owed banks and the government. The $6 billion equals the undercollateralized loans of the Farm Credit System--that is, the amount by which the loans exceed the present depressed value of the real estate against which they were borrowed. But many in the business are convinced that much more than $6 billion will be needed to restore the system to economic health.

As the negotiations have begun, the Reagan Administration has said that extensive reforms of the system will be required before any money is forthcoming. That is important. The resources of the entire system should be pooled, for only a minority of borrowers are in deep trouble and only 15% of outstanding debts appear hopeless. The Department of Agriculture also is, correctly, insisting that rescue funds be seen as a loan, on the model of the Chrysler rescue package, repayable to the Treasury. That makes sense, but it also may represent wishful thinking, given the collapse of land values and the continued decline in commodity prices.

The crisis of the Farm Credit System has been aggravated by bookkeeping that has concealed millions of dollars in failing loans, according to a report by the Wall Street Journal. Estimates of the extent of the problem also have been understated, according to the General Accounting Office.

Credit needs will be competing with farm subsidies as the new farm bill is drafted. Congress has, unfortunately, rejected the restraints recommended by President Reagan on subsidies, including crop loans and target prices. Legislation now under consideration could cost taxpayers as much as $20 billion a year in what are essentially farmer income protection programs that do little or nothing to address the critical long-range requirements to make prices competitive in the world market and to tame suffocating surpluses.

The only answer at this moment would appear to be forceful action from the White House. On the Farm Credit System, reforms must come first, then a limited loan to ease the pinch during restructuring. On the farm bill, only a presidential veto holds any promise of encouraging realism in Congress. The farmers of America and American agriculture will not benefit in the long run with a flabby credit system and a structure of crop loans that inflate prices when success can come only through world market competition.