USDA, farm loan program need update to be ready for the future

There has been much focus recently on shrinking the size of, and increasing the efficiency of, the federal workforce. USDA will not be immune from these painful discussions..Having spent our careers working for and around the USDA’s farm loan programs, our focus in this article is on this small but critical piece of the ag credit market. With its direct and guaranteed loan programs, USDA helps farmers and ranchers access credit. Without them, there would be a significant hole in the farm finance picture..Shutter the county office system. The key delivery vehicle for USDA in the 20th century was the state and county office network that USDA extended to virtually every state and county in America. With the possible exception of the U.S. Postal Service, more Americans encounter their federal government by accessing USDA programs at the local level than any other department.Trying to keep an outdated delivery system alive has been counterproductive. USDA must radically redesign program delivery in a way that meets the needs of the people it was designed to serve, and to utilize the technology that has been shown to work efficiently and effectively for the private sector. The county office system has to be put out to pasture.Look at how the private sector has streamlined delivery systems. The good news for USDA’s farm loan program delivery is they do not have to reinvent the wheel. They should carefully examine how regional and community banks have managed to deliver credit and other financial services with a much smaller footprint.The government-backed federal Farm Credit System has closed thousands of offices in rural America and yet it continues to grow its portfolio. These consolidations have not been easy, but they have been vital to the survival of these institutions..Look at how banks and other lenders manage human resources and policy. In today’s environment, banks of all sizes operate over vast distances. The Farm Credit System covers even greater distances than most banks do. They have done so successfully by streamlining the number of “deciders” who work to oversee operations and policy. Not so with USDA. Every state on the farm program side has a state director. Every state on the rural development side has a state director. Every state on the natural resources and conservation side has a state director. In turn, every one of these state directors works out of a fully staffed, immobile state office. This duplication of effort must be reformed. Is the farm loan program so far removed from the rural development side of the shop that it requires an entirely separate staff? Without shrinking this vast, duplicative network of offices, there will be little cost savings and operational efficiencies achieved. USDA can access more human capital at a lower cost. USDA should contract with existing financial institutions that have agricultural lending experience to do many of the day to day servicing and processing tasks that have previously been done by USDA employees. According to a report published by the American Bankers Association in 2024, there are 1,442 banks that specialize in agricultural lending. These banks employ 75,475 workers and maintain a vast network of local and regional offices. Many of these institutions have the capacity to service additional credits if they were given the opportunity to do so.USDA must embrace technology. USDA is still trying to get horse and buggy technology to work. It isn’t necessarily their fault. For decades, the technology needs of USDA have been ignored by policymakers. Clinging to the outdated county office delivery model has cost USDA dearly. Both banks and the federal Farm Credit System have successfully embraced technology. The good news is that much of the technology USDA needs is currently in use by banks and others, and could be readily adopted by USDA’s farm loan programs. This isn’t Flash Gordon technology — it is the same technology that has enabled banks and others to meet their customers’ needs in rural America, and in many cases has been deployed for more than 25 years.The whole process USDA uses to make decisions and to carry out its mission must be scrapped. USDA is a rules-driven organization. For example, the policy guidelines for lenders who are seeking a farm credit guarantee is more than 500 pages long. At Bank of the Rockies, the entire farm loan policy is 10 pages. This is just one example of how USDA’s credit making and loan servicing policies have grown out of control, and how badly out of step they are with the rest of the industry. Every attempt at reform by USDA over the decades has been as an add-on to the impossible system they maintain. The system does not have to be reformed; it has to be completely scrapped.A renewed partnership with other credit providers in farm and ranch country must be forged. For too long, USDA has operated independently in trying to meet its mission. Their attitude in the past has often been, “our way or the highway.” USDA’s role in providing agricultural credit is too vital to rural America to disappear. All of us in the ag credit industry must work together to drag the Department, kicking and screaming, into this century. The future of USDA as a provider and supporter of farm and ranch credit hangs in the balance. Heather Malcolm is vice president of Bank of the Rockies in Livingston, Mont. John Blanchfield owns Agricultural Banking Advisory Services.