June 16 -- The purpose of the proposed rule is to increase direct lender associations' Young, Beginning, and Small farmer and rancher (YBS) activity and reinforce the supervisory responsibilities of the funding banks, authorized by section 4.19 of the Farm Credit Act. The proposed rule requires direct lender associations to adopt an independent strategic plan for their YBS program. The direct lender association's funding bank will approve each YBS strategic plan, annually. The direct lender association's YBS strategic plan must contain specific elements that will be evaluated as part of a rating system to measure year-over-year internal progress. The rating system will enable the Farm Credit Administration (FCA) to compare the success of the direct lender association's extension of credit and services to the YBS borrowing population to its peers both within and outside its bank district. You may send us comments on or before August 15, 2022.
The objectives of this proposed rule are to:
Increase direct lender associations' YBS activity;
Reinforce the supervisory responsibilities of the funding banks, authorized by section 4.19 of the Farm Credit Act;
Require each direct lender association to adopt an independent strategic plan for their YBS program; and,
Provide elements that will be evaluated as part of a rating system to measure year-over-year YBS progress, allowing FCA to compare the success of the direct lender association to its peers with regard to extension of credit and services to the YBS borrowing population.
The Farm Credit System (System) is the oldest of the financial Government-sponsored enterprises (GSEs). The objective of the System is to improve the income and well-being of American farmers and ranchers by furnishing sound, adequate, and constructive credit and closely-related services to them, their cooperatives, and selected farm-related businesses. The System has a unique mission to serve YBS farmers and ranchers. Section 4.19 of the Farm Credit Act of 1971, as amended (Act), requires each System association to establish a program to furnish sound and constructive credit and related services to YBS farmers and ranchers. In addition, each affiliated association's YBS program is subject to review and approval by their respective funding bank, which must report annually to FCA on the operations and achievements of their associations' programs.
YBS farmers and ranchers, like all those in agriculture, face a wide range of challenges, including access to capital and credit; the impact of rising costs on profitability; urbanization and the availability of resources like land, water, and labor; globalization; and competition from larger or more established farms. Although all agricultural producers face these challenges, the hurdles that YBS farmers and ranchers face are often greater due to their lack of an agricultural production history, inexperience in production agriculture, low capital position, or limited credit history. The FCA continues to believe the System's YBS mission is important to enable small and start-up farmers and ranchers to make successful entries into agricultural production. Also, FCA believes it is important to ensure marketing and outreach efforts include all eligible and creditworthy persons, with specific outreach toward diversity and inclusion. The System's YBS mission is also critical to facilitate the transfer of agricultural operations from one generation to the next. FCA remains committed to ensuring the System fulfills its important mission to YBS farmers and ranchers.
Since FCA's YBS regulation was first implemented in 1981, the agency has periodically strengthened the YBS framework through regulatory amendments, Board policy statements, bookletters, exam manual updates, public statements, and other initiatives to promote compliance and to highlight the System's efforts to provide service to YBS farmers and ranchers. In recent years, a focus on YBS has been a regular feature of FCA strategic and performance plans. Nonetheless, there remain opportunities for further improvement.
Pursuant to existing regulations, FCA receives YBS program information through associations' operational and strategic business plans. To meet the requirements of the regulation, these plans must discuss forward-looking information such as program objectives, annual quantitative and qualitative targets, and proposed methods to ensure credit and services are provided in a safe and sound manner.
However, as part of the existing planning process, there is no requirement for associations to report on past performance. Without this assessment, plans are unlikely to target deficient areas (e.g., outreach, budget resources, terms of extended credit) for improvement. This information would help the funding banks and FCA to identify trends. For these reasons, we believe associations should include assessments of their past performance in their YBS plans.
As noted, a direct lender association's funding bank serves a role in YBS plan development. Indeed, the Act assigns to the banks the role of reviewing and approving their affiliated direct lender associations' YBS plans.
Given this, and to parallel what is required of direct lender associations, we believe funding banks should implement internal controls that establish clear lines of responsibility for approving, reviewing, and monitoring of their affiliated associations' YBS reporting and activities.
On August 12, 2021, the FCA Board Chairman announced the agency's work on a proposed YBS rule. The statement noted that while the System has made consistent efforts to serve YBS farmers, the average age of American farmers has continued to rise. On November 8, 2021, FCA and the University of Nebraska-Lincoln held a symposium to enhance YBS decision-making at System institutions. More recently, on March 23, 2022, FCA and Colorado State University (CSU) co-hosted a national forum on serving the credit and related needs of YBS farmers and ranchers. The event covered a range of topics of interest to YBS producers and their lenders, with presentations by top industry stakeholders, experts from CSU, Farm Credit System representatives, and local agricultural producers.
FCA proposes revisions to our regulations located in 12 CFR 614.4165 to reinforce the supervisory responsibilities of the funding banks, require each direct lender association to adopt an independent strategic plan for its YBS program, and provide elements that will be evaluated as part of a rating system to measure year-over-year YBS progress. This proposed rule reflects FCA's expectation of bolstering YBS program planning and increasing both lending and non-lending YBS activity. FCA also proposes to revise § 620.5(k)(2) to update referencing.