Financial Condition of American Agriculture

GAO reviewed the financial condition of American agriculture to assess: (1) the trends in the economic environment surrounding the farm sector; (2) farmers' financial condition; and (3) the performance of financial institutions serving agriculture.

GAO found that: (1) the financial condition of farmers has deteriorated rapidly since 1980; (2) the most severe financial problems are occurring in the grain- and red-meat-producing areas of the Midwest; (3) farmers borrowed to expand and produce for an apparently insatiable market; and (4) as U.S. agricultural products became relatively more costly, foreign countries began expanding their own agricultural production. GAO also found that: (1) much gross farm income has been absorbed by land and equipment expenses; (2) farmers bought land at real interest rates that were near or below zero in anticipation of rapid land appreciation, but when interest rates rose and crop prices fell, farm assets, primarily real estate, began to depreciate; (3) farmers' abilities to meet debt payments began to deteriorate as gross income levelled off and real interest rates rose; (4) the three largest institutional lenders have experienced varying degrees of financial stress, depending on their concentration in farm loans and the financial condition of their borrowers; and (5) the agricultural situation will continue to deteriorate until farm production costs fall low enough to be commensurate with sustainable levels of farm income.