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- By Chez Oxendine
- Food | Agriculture
The Farm Service Agency (FSA) announced a new rule for its loan programs aimed at easing collateral requirements, adding more flexible payment options, and providing a safety net for farmers, including Native producers, facing natural disasters or in financial distress.
The rule, titled Enhancing Program Access and Delivery for Farm Loans, will take effect September 25. Under the new regulations, the FSA will establish a set-aside fund for payment deferrals, aim to better support farmer profitability with more flexible loan terms, and reduce required collateral value from 150% of the loan value to 125%.
The rule represents a “major shift in mindset,” says FSA administrator Zach Ducheneaux, who shared his thoughts on the rule in a Native American Agriculture Fund (NAAF) webinar Aug. 21. Under the new rule, FSA agents should feel “empowered” to reach producers they might not have been able to reach before, Ducheneaux said.
Producers should also be more clearly informed on what’s available to them through improved technical assistance before they ever even get to the FSA office, he added. With all that in mind, farmers should be better equipped to begin building generational wealth and keeping more of their profits, Ducheneaux said.
“Our producers say, ‘The FSA keeps me screwed down so damn tight I can’t operate my business the way I need to,’” Ducheneaux said. “We’re training our staff to think about what these producers’ actual needs are … we have the ability to fundamentally change the paradigm by implementing these tools.”
The new rule has drawn praise from Native producer-serving organizations from across Indian Country. Janie Simms Hipp, CEO of the new Native Agriculture Financial Service, said the rule would expand access to FSA programs and, by extension, help alleviate a long-standing, chronic barrier to credit.
Hipp is a long time advocate for credit access for Native farmers, having served as the general counsel for the USDA and CEO of NAAF. She told Tribal Business News via email that the FSA changes represent a policy shift she’s sought “for almost four decades” — not just for Native producers, but farmers in general.
“These changes to the FSA lending portfolio are a really big deal, not just for Indian Country, but for all producers who depend on and rely on FSA’s lending opportunities to acquire, continue, or grow their farming or ranching operation,” Hipp wrote. “We’ve needed these regulation changes for so many years. There have been attempts in the past, here and there, to improve how we sit alongside our nation’s farmers and ranchers … but those didn’t ever go as far or were as laser-focused as these new approaches.”
In a statement, NAAF CEO Toni Stanger-McLaughlin called the changes “the culmination of decades of advocacy” on behalf of farmer-serving organizations.
“These long-awaited changes represent a significant step forward for agricultural producers,” Stanger-McLaughlin said. “For those who have faced challenges due to outdated rules and barriers, the improvements in FSA over the past three years have paved the way for a more promising future for all.”
Major changes to flexibility, deferrals
Central to the new rule is the Distressed Borrower Set-Aside Program — a “derivation” of an existing deferral program for natural disasters, Ducheneaux said. Under current regulations, farmers who have suffered damages due to natural disasters can defer an FSA loan payment to the end of the loan term.
Many times, that single deferral is a lifesaver, Ducheneaux said during the NAAF webinar.
“What we have found is that many times that's all a producer needs. Between that and distressed borrower assistance programs, a lot of our producers have really found their footing and are really on a pathway to prosperity,” Ducheneaux said. “But we shouldn't wait for a natural disaster to trigger that. There are other circumstances beyond the control of the borrower that may trigger the need for that set aside.”
The so-called “22006 funding” program uses funds allocated under section 22006 of the Inflation Reduction Act. Under that allocation, the USDA was provided $3.1 billion to provide relief for distressed borrowers.
By tapping into that funding, the Distressed Borrower Set Aside Program expands the circumstances in which a producer with challenging times ahead can request a deferral, Ducheneaux said. For example, applicable conditions now also include medical costs.
The deferred payment is pushed to the end of the loan, and accrues lower interest — 1/8th of a percent, Ducheanux said.
“That way it won’t feel like a debt time bomb out there for producers … it’s just going to feel like another payment,” Ducheneaux said. “It can really help reposition things.”
Also in play is a reduction in required loan collateral. That change stems from a deep dive analysis into the FSA’s existing loan programs and their collateral requirements, Ducheneaux told attendees in the NAAF webinar.
That analysis found that in many cases, existing language, which requires collateral “up to” 150% percent of the value of the loan, was often misinterpreted as “at least” the 150% amount. The analysis also found that the FSA doesn’t require that much security to protect taxpayer investments in producer loans, Ducheneaux said.
After Sept. 25, new FSA loans will instead require “not more than” 125% of the loan value, Ducheneaux said. That opens up more of a producer’s assets for collateral on other loans - meaning they have more competitive access to commercial credit.
“That is a fundamental, game-changing reality for a lot of our producers, because it’s going to put them in a different position when they do go out and try to engage in relationships with commercial creditors or some of our innovative friends in the Community Development Financial Institution (CDFI) industry,” Ducheneaux said.
Finally, the FSA is reworking its loan terms to take more advantage of the agency’s flexibility when it comes to repayment, Ducheneaux said.
Currently, the agency’s approach has them “clawing back” the principal loan as fast as the borrower can repay it. Alongside other sources of credit, keeping up with repayments can leave many farmers working second jobs to keep their families afloat, Ducheneaux said.
Under the new rule, FSA aims to build equity by supporting a producer’s growth. When determining initial terms or restructuring a loan, FSA staff are instructed that farmers should be able to save for retirement and education for their children.
“This administration acknowledges the sins of the past, the wrongs that we've done to people,” Ducheneaux said. “This rule signifies all of that commitment to change - our goal here is to help our staff understand that they are supported in using their discretion to the benefit of producers.”
