Farm Finance

The number of new farmers has declined considerably in recent years, largely because of unfavorable economic conditions in the agricultural sector. Also, people interested in farming often encounter problems in obtaining financing to cover the costs of acquiring and operating a farm. The Farmers Home Administration (FmHA), "lender of last resort" for the nation's farmers, has not targeted loan funds to beginning farmers, but such individuals can get loans if they are able to meet the agency's relatively lenient loan-making standards. FmHA has given beginning farmers priority in leasing or purchasing from its inventory of farm properties, but the suitability of these properties for beginning farmers is often questionable. Additionally, some states sponsor programs that target loan assistance to beginning farmers. Beginning farmers may have difficulty, however, in qualifying for credit through these programs or at FmHA. FmHA has yet to fully implement the beginning farmer provisions of the 1990 Farm Bill, such as establishing innovative programs for financing and for assisting in land transfers between generations of farmers. In October 1992, Congress mandated that the agency establish programs targeting farm ownership and farm operating loans to beginning farmers.

GAO found that: (1) the number of new farmers has declined by 25 percent annually due to the agricultural sector's poor economic conditions, the declining farm population and farm families' low birth rate, and obstacles to obtaining agricultural credit and suitable land; (2) FmHA does not target new farmers for assistance, and despite its lenient lending criteria, new farmers have difficulty in obtaining FmHA loans; (3) FmHA does give beginning farmers some priority over others in obtaining its farm inventory properties, but most properties are not suitable for new farmers; (4) some state programs target beginning farmers, but most only finance farmland acquisition, not operating expenses or debt refinancing; (5) beginning farmers often do not meet state eligibility requirements due to their inability to demonstrate they can repay loans; (6) FmHA has implemented only one beginning farmers provision of the 1990 act, partly due to its uncertainty over whether its authorizing legislation permits targeting of loan funds to beginning farmers, the existence of sales options available to all potential buyers, and competing demands for computer resources; (7) 1992 legislation directs FmHA to target its financial assistance to beginning farmers by establishing two new loan programs; and (8) FmHA is preparing proposed regulations to implement the recent legislation.