Banking on ECORA’s Encore

By Ed Elfmann

U.S. farmers and ranchers are used to tough times. Even before COVID-19 turned national supply chains upside down, farmers and ranchers were struggling. Delays from wet weather and flooding made for a weak growing season, and ongoing trade uncertainty compounded financial losses.

For U.S. producers facing another year of instability, access to affordable credit is a lifeline. Farm prices remain stagnate while the cost for land and farm inputs continue to rise. As a result, farmers and ranchers quickly feel the effect of lower income levels. To make farmers’ financial row a little easier to hoe, legislation was recently introduced in the U.S. House of Representatives: H.R. 1977, the Enhancing Credit Opportunities in Rural America Act of 2021, or ECORA. The bipartisan bill was introduced by Rep. Ron Kind (D-Wis.) and Rep. Randy Feenstra (R-Iowa) on March 17. Companion legislation is expected in the Senate soon.

ECORA is intended to lower the cost for farmers and ranchers to acquire credit in rural America. It would create equity in agricultural real estate and lower costs for farmers to acquire credit. It also will help ensure that rural banks are strong into the future. Without record financial assistance from USDA, net farm income would have dropped dramatically in 2020. With farm incomes declining from their high in 2012, Congress needs to do everything it can to help farmers and ranchers do more with less income. ECORA would enhance net farm income for the long term and benefit agricultural producers that aren’t likely to receive similar direct assistance in the future.

ECORA is not a new concept. Similar legislation has been introduced on Capitol Hill for more than a decade, and it continues to be a priority issue for the American Bankers Association. Now, perhaps more so than in past sessions, however, Congress is in a position to help our country’s farmers and ranchers in this current agricultural economy. ECORA removes the taxation on income from farm real estate loans that are made by banks. By removing this taxation, the cost to make farm and ranch real estate loans will be reduced, and the savings will be passed on to farmers and ranchers. It is estimated that ECORA could reduce the average interest rate on a farm and ranch real estate loan by 21%. This legislation offers a straightforward solution to help farmers and ranchers during this time of lower farm incomes without creating new government payments or programs.

Leveling the playing field

At present, only Farm Credit lenders and credit unions are exempt from federal income taxes on profits from real estate lending. Of Farm Credit’s $178 billion in reported debt holdings, $125 billion—more than two-thirds—is real estate debt. That means that they don’t pay federal income taxes on interest generated from most of their debt holdings and then pass savings along to their customers through below-market credit rates.

The current system encourages one set of lenders over another, rather than finding the best ways to support farmers and ranchers with the credit they need. Today, about half of all farm debt in the United States, which totaled $418 billion in 2019, is supplied by banks. Banks, however, do not enjoy federal income tax exemptions on real estate debt holdings and cannot pass similar savings on to borrowers.

Almost half of all farm loans made by banks are small and micro farm and ranch loans. And farm banks, banks that specialize in lending to farmers and account for most of all farm lending by banks, are increasing their lending to America’s farmers and ranchers. In 2019, total farm lending by farm banks increased by 3.6% and totaled $105 billion. If passed, the ECORA Act would give all agricultural borrowers who already depend on bank loans greater access to affordable credit.

According to research conducted by the Farm Bureau through September 2019, Chapter 12 (family farmers and fishermen) bankruptcies totaled 580 filings and were up 24% from the year prior. Researchers noted that “while filings remain well below the historical highs experienced in the 1980s, the trend is a concern.”

“I’ve heard from many Wisconsin lenders and farmers about a credit crunch for agricultural and rural loans, which has only worsened as the COVID-19 crisis continues,” said Rep. Kind, adding that ECORA would “take steps to address this issue, lowering the cost for farmers and families to acquire credit in our rural communities and providing a pathway to increased income. Especially during these challenging times, we need to ensure our hardworking family farmers get the support they need and increasing their access to low-cost credit is an important way to do so.”

U.S. farmers are a resilient group used to finding ways to weather hard times. This legislation will provide additional avenues to keep them productive and financially viable.


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