ELIMINATE FEDERAL COMPETITION FOR FARMERS

SIKESTON, Mo. -- As a banker raised in Southeast Missouri, I am pleased and grateful to be able to share my thoughts on agriculture. My whole life has been directly related to agriculture: as a child growing up on a farm, as a young man working as an FDIC bank regulators in Mississippi examining over 100 rural banks, as a banker with 12 years' experience in agriculture lending, as a part-time farmer and as a father teaching my small sons about farming. My comments are adamantly biased toward the preservation and even the enhancement of this country's most vital industry: farming.

Several issues must be understood by all. Although we sometimes take it for granted, Americans enjoy and depend on the bounty of our farmers. Few other countries have it so good, but the American farm is in jeopardy. Why? Consider the following facts:

* Expenses per acre (labor, equipment, fuel, fertilizer) are increasing and have been doing so steadily.

* The average age of 75 percent of landowners in Missouri is 70-plus. The land is going to change ownership one way or the other.

* The average age of farmers in our area is well over 60 years, with few newcomers willing to enter the industry.

* Revenue per acre is down due to depressed prices and yields, which are topping out. This has been the case for the past several years. Unfortunately, the outlook for years to come is no better.

* Return on capital is as low as it has been since the Depression and is not enough to provide an acceptable investment for those who farm in the 500-acre to 2,500-acre range, which is generally the range for borrowers needing capital. These days, a bank certificate of deposit provides a greater return than farming, with no risk and no work.

* Because of declining availability and access to farm borrowers, capital necessary to farm and purchase land is becoming scarcer.

* The size of surviving farms is increasing, while the number of farming operations is decreasing. The trend for monopolistic practices is looking better and better. The city dweller will pay higher prices for food in the future.

I sincerely hope my observations will gain the attention of all key federal policy-makers who hold the extremely vital power in the palm of their hands to shape this country's future. Not only do their decisions directly affect this country's food supply, but also the thousands of families who work and live on farms, the farmhands and laborers who derive their livelihood from the farming industry and those of us who eat the crops and enjoy the inexpensive cost of food as a low percentage of our disposable income.

Price supports vital

Inexpensive food is in our national interest. Other countries pay a larger share of their income for food than we Americans do and have done for many years. Our government must provide price-level support for production results, not just efforts, to assure an acceptable return covering input costs, equipment costs, living expenses and a reasonable profit. The farmer simply cannot outrun low crop prices any longer with increased yields.

Without price supports, newcomers will not enter farming. Larger and more corporate entities will control the farming industry, and higher prices will ensue. We will pay more at the grocery store. This consolidation trend has already occurred in other industries and is happening now in the agriculture industry, especially at the wholesale and equipment-manufacturing levels. No other industry has a more broad-reaching impact, perhaps with the exception of energy, than the food industry.

We must underwrite a base price on vital crops to assure an adequate supply of food for the citizenry of this country and for strategic use overseas where American interests are best served. Hunger is a poor reason for conflict. America must not neglect its responsibilities and allow food shortage to occur.

Therefore, we must ensure that we provide a reasonable return to America's farmers for results, not efforts, and make it predictable for all concerned, especially those who make this harvest happen.

I will not address the issues of crop insurance or government payments for halfhearted efforts with no intention of producing results. This program is alive and well right here in Missouri and is a despicable practice. Bureaucracy and government mismanagement have allowed this to happen, and it must be stopped. However, protection from a crop disaster due to acts of God must be preserved.

Serving the farmers

Congress must eliminate government's practice of competing with private banking as a means of providing needed capital to the agriculture industry. The Farm Credit System was created to support the young or struggling farmer who was not bankable. Now the role is reversed, and the farming industry has been damaged as a consequence. Only one-third of the FCS loans are made to small farmers. Within the 7th Farm Credit District alone, the FCS makes loans totaling $18 billion, representing more than a $300 million profit. The earnings level of profit is more than many banks realize as a percentage return on assets.

To better compete with banks, Farm Credit Services has recently changed its name to Progressive Farm Credit Services to make it appear less like government. The FCS has sought greater powers toward becoming a bank while competing with favorable tax subsidies with the banking industry. No longer does the FCS serve the original intent, but uses lower prices to court better farmers, and does so successfully because of its ability to earn a profit with tax subsidies. It is very difficult to compete with your own government. We simply should have to.

The banking system has been left with the most difficult sector of the agriculture industry. The higher-risk farmer has been underserved by FCS, which has actively sought the less risky, larger and older farmer. The result is that the private banking industry is forced to accept or reject the riskier farmer who is generally less profitable. The needed profit from those better farmers cannot assist in parlaying the risk of the lesser farmer or those who need borrowed capital.

The truth is that banking cannot compete heads up with its own government. Higher risks and lower profits are not healthy combinations for today's banking industry. FCS conducts business in the financial markets under the implied full faith of the federal government. I simply ask: Is it the federal government's intention to nationalize the farming industry?

Our ability to serve the farmer by the large number of qualified banking institutions far outreaches the federally supported system. Why not use the banking industry instead of competing with it to enhance the farming industry?

The answer

The Small Business Administration and the Federal Home Loan Bank have developed a model that works. Neither directly competes for credit delivery, and our common clients are better served. The FHLB can also borrow from the federal treasury at a low spread and lend its funds to banks using the designated loan as collateral. A farm loan credit could serve as collateral to be lent at a rate and terms favorable to farmers. Funding, therefore, could be offered to the banks, and any pricing benefits could be passed along to farmers.

The farmers would be pleased with this solution. They could do business with their neighbor, the banker, and not be encouraged or obligated to deal with the federal government. A farmer is a proud, self-sufficient individual who does not want to rely on the government or deal with a government-sponsored entity.

Summary

* Congress should support a fair and predictable return for the risk incurred by farmers.

* Congress should abolish the federally sponsored competitor in favor of private industry.

* Congress should allow funding to the private banking industry through federally insured financial institutions to ensure a predictable source of capital.

By enacting these three principals, we will be taking a big step forward to preserve today's and tomorrow's farmers who are as vital to our nation's security as the military and energy or any other national interest.

Jeff Sutton, senior vice president of First National Bank in Sikeston, made these remarks in June during an agriculture roundtable in Malden, Mo., sponsored by U.S. Rep. Jo Ann Emerson.