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Farms at Stake

March 19, 1985

President Reagan and Secretary of Agriculture John R. Block remain confident that the programs now in place are adequate to meet the farm-credit emergency despite new figures showing that the crisis is deeper than indicated in earlier analyses. The Department of Agriculture insists that it is monitoring the situation constantly and is prepared to propose alternative programs, if needed. There is too much at stake for too many farmers to do otherwise.

The new study shows that one-third of the family-size commercial farms, the backbone of national agriculture, are in financial difficulty ranging from serious to insolvency. There are 679,000 family-size commercial farms, those with gross earnings ranging from $50,000 to $500,000 a year. They are the basic fabric of American agriculture

There are 43,000 farms in that category that already are insolvent, 6.3% of the total of family-size commercial farms--an increase of 13,000 over last year. In addition, 50,000 farms have "extreme financial problems"--that is, a debt-to-asset ratio of 70% to 100%. And about 136,000 have "serious financial problems," with a debt-to-asset ratio of 40% to 70%.

Department of Agriculture officials acknowledge that there may be nothing that can be done for the farms already insolvent. Those 43,000 farms are the likely casualties of the crisis. The real test of the federal debt-assistance program is whether most, perhaps all, of those in the other endangered categories, with debt-to-asset ratios of 40% to 100%, can be saved.

The crisis on the farm is translated into serious problems for the credit institutions. The $212-billion farm debt as of Jan. 1 was divided between public and private lenders--24% in commercial banks, 6% in insurance companies, 23% with individuals and the Small Business Administration, 32% in the farm-credit system--including Federal Land Banks, production credit associations and federal intermediate credit banks--and 12% in the Farm Home Administration, the federal lender of last resort. All these creditors are feeling the strain.

The American Bankers Assn. has supported working within the liberalized federal debt-guarantee program while acknowledging that it "remains to be seen" whether the program will work satisfactorily.

If money is to be available in time for spring planting, loan guarantees must be processed in the next 60 days, according to the bankers. But the bankers have found that the processing time currently takes 90 to 120 days. There is movement, however. In the week before the President vetoed additional farm-credit assistance on March 6, the dollar value of loan guarantees doubled and is still increasing, Department of Agriculture officials said.

Other steps are being taken to try to soften the effect of the crisis on both farmers and their creditors while a new farm bill, to replace the 1981 law expiring at the end of this year, is written. The confidence of the Department of Agriculture that most, except for the already insolvent, can be rescued, is welcome news. Vigilance in monitoring the programs is required, however, to be sure that they are working. And there must be an acceleration of the processing of federal guarantees of commercial loans and the restructuring of Farmers Home Administration direct loans so that seeds get into the ground as the farm-belt snows melt.

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