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Evaluating the Relative Cost Effectiveness of the Farm Service Agency’s Farm Loan Programs – Report to Congress

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  • Dodson, Charles
  • Koenig, Steven

Abstract

Excerpts from the Executive Summary: The federal government’s credit programs specifically designed to serve agriculture are those administered by the U.S. Department of Agriculture’s Farm Service Agency (FSA). Through the FSA and predecessor agencies, USDA has been involved in farm credit markets since the Great Depression. While the reach and breadth of federal farm credit programs have fluctuated, they have been an important source of credit to family farmers through economic impoverishment, prosperity, and political change. FSA delivers credit assistance to family farmers through direct lending programs, where loans are made and serviced by FSA staff, and through loan guarantee programs, where loans are made and serviced by commercial lenders but guaranteed against loss by FSA. Direct farm loans have historically been more costly and their loan repayment performance has generally been weaker than have guaranteed loans for similar purposes and terms. The higher delivery cost and weaker loan repayment performance of direct loans has raised Congressional concerns over the need for continuation of this delivery system when alternative guaranteed delivery mechanisms are available. It is in this context that Section 5301 of the Farm Security and Investment Act of 2002 (P.L. 107-171) required the Secretary of Agriculture to undertake an evaluation of the direct and guaranteed loan programs administered by FSA. Congress directed that the study should examine the effectiveness of direct and guaranteed loans programs in meeting the credit needs of agricultural producers in an efficient and fiscally responsible manner. Congress directed the study to assess differences in the characteristics of direct and guaranteed loans, specifically mentioning the number and size of loans, as well as delinquency and default rates. This report addresses the provisions of the Act by: (1) documenting FSA’s direct and guaranteed farm loan program missions, objectives, loan activity, and performance over historical periods of time; (2) examining and comparing the characteristics and the loan performance of different loan cohort groups during recent time periods; and (3) comparing the costs of the direct and guaranteed loan delivery systems in reaching their mandated objectives. Guidelines for administering federal credit programs as outlined by the Office of Management and Budget are considered in addressing the issues and concerns expressed by Congress.

Suggested Citation

  • Dodson, Charles & Koenig, Steven, 2006. "Evaluating the Relative Cost Effectiveness of the Farm Service Agency’s Farm Loan Programs – Report to Congress," USDA Miscellaneous 338717, United States Department of Agriculture.
    • Handle: RePEc:ags:usdami:338717
    DOI: 10.22004/ag.econ.338717
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    References listed on IDEAS

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    1. Stam, Jerome M. & Dixon, Bruce L., 2004. "Farmer Bankruptcies And Farm Exits In The United States, 1899-2002," Agricultural Information Bulletins 33689, United States Department of Agriculture, Economic Research Service.
    2. Charles B. Dodson & Steven R. Koenig, 2003. "Explaining county‐level variability in farm service agency farm loan programs," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 63(2), pages 193-212, November.
    3. Koenig, Steven R. & Dodson, Charles B., 1998. "When Are Farm Interest Rate Subsidy Programs Most Effective?," Agricultural Information Bulletins 33693, United States Department of Agriculture, Economic Research Service.
    4. Robert B. Avery & Raphael W. Bostic & Paul S. Calem & Glenn B. Canner, 1997. "Changes in the distribution of banking offices," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 83(Sep), pages 707-725, September.
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