Farm Credit System - Essay Example

Introduction

The creation of the farm credit system was a result of the lack of rural credit in the early 1990s. This system is partly owned by a government-sponsored entity. This government-sponsored entity (GSE) has the explicit mandate of generally serving agricultural borrowers. To the present day, this system has continually served the farmers and also prolonged its dominancy source in terms of long-term farm debt. Statistics indicate that this dominant force has grown continually from 20 percent of real estate farm debt to 40 percent over a presided-long period of time thus from 1960- 2006 (Bitter and Gordon 45). It is important to have knowledge of its consumer base which includes farmers, various producers of aquatic products, ranchers, select rural communications and energy companies, agricultural cooperatives, rural homeowners including other eligible entities as a whole. 

History

The farm credit system can basically be described as a nationwide network of various cooperative banks including other associations that are capable of providing credit to farmers. They are also capable of attending to agricultural concerns including various related businesses. It was created in 1916 by the United States parliament and the federal government supported it by funding it. This ensured that American agriculture had at least a dependable source of revenue or credit. At the moment, it is now independent and self-funding since it is owned by a member borrower.

The farm credit system has undergone several rounds of changes in its structure that has dated back since its inception in the Roosevelt era of administration. Through the creation of federal land banks in an estimated area of about 12 regions in the United States, the federal farm loan act developed a credit delivery system to the large agricultural sector. A kind of fund chain was developed where the land banks provided funds to the regional banks including associations. The regional banks were then supposed to support farmers by providing them with long-term mortgages thus financing them in their various projects. The farm credit act of 1933 born during the great depression period was imposed to boost agricultural production. This was by simply funneling short-term credits thus by the 12 production credit associations incorporated by 13 banks capable of supporting agricultural cooperatives (Bitter and Gordon 48). The emergency farm mortgage act was mobilized to refund the FLBs to stand as a help package for farmers who were facing foreclosures including debt complications. In 1987, every credit agency existing was transformed into a farm credit administration.

Economic Impact

The farm credit system provides loans for a variety of purposes. This includes funding agricultural processing including other market activities, farm-related businesses, rural housing initiatives, and rural utilities including both foreign and domestic companies that are involved in the agricultural trade. It also provides access to various critically required rural areas where national including regional banks control. It has also abandoned its intended mission as it consolidates into one of the largest headquartered scores. This is through distancing itself from farmers including the ranchers they are supposed to primarily serve. In fact, the traditional notion of a cooperative which is member ran for the purpose of benefiting members gives away to one administration. This is through hired managers who intend on structuring GSE empires as long as FCS associations continue to grow (Zachman 32).

This empire-building has led to the abandonment of the intended mission of the farm credit system and instead led to a different direction of focusing on large borrowers. This is at the expense of serving YBS farmers thus termed as the little guy of the American culture. The farm system associations now consolidate a huge association that is directly more to their marketing efforts. This is intended for making bigger and more profitable loans on large-scale farming including various ranching operations. In this case, large consumers can therefore be served swiftly from much-distanced offices thus enabling the association to shut down smaller offices that were better positioned in serving small farming operations (Zachman 38).

Through this way, the FCS is moving slowly by slowly away from serving those it was primarily intended to serve when it was founded. It was intended to serve farmers and ranchers who operated in areas that are not served by commercial banks including other private sector lenders. Luckily, the lots of numerous commercial banks stand by ready to be tasked with meeting the farmer's and ranchers' credit needs through the farm service agency loan guarantees. This is an event in the manner that large farmers including large loans account for almost the entire FCS loan growth since 1998 according to statistics. This is going by the fact that lots of young framers who are beginning are all characterized as small farmers. These farmers are there double or triple counted in the FCS records as young, beginning, and small farmers (Zachman 50).

Conclusion

It is evident that the farm credit system no longer serves its primary mission that it was primarily designed to serve. From its 1987 taxpayer bailout, the farm credit system has distanced itself away from its core mission of serving small-scale farmers including ranchers. It has turned its attention to attending large-scale structured farming. Rural residents from everywhere now have come to gain greater access to the appealing private sector credit from various sources that serve their needs. The FCS has continually distorted competition thus within the agricultural credit markets as it wanders away from its intended duty (Zachman 52). It has turned itself into no one’s benefit apart from the highly paid farm credit system managers including large and very wealthy borrowers that are in line and can stand with FCS financing.