to them as a board the basis which he has for believing that he can, in fact, turn his situation around and make a success of it.

Mr. ENGLISH. I would simply urge that you give careful consideration to that policy of consolidation and try to make certain that there is at least someone on the board who has an acquaintanceship at least with the farmer who is in question because I think it is a very big factor as to how good a farmer is.

They have got to have that kind of understanding and knowledge, it seems to me.

Also, I would simply urge that you keep in mind, too, Mr. Fredrickson, of course the reason we have a farm bill in the first place and the reason that farmers receive a little different consideration than other businessmen by this Government is because it was decided an awful long time ago back in the thirties that it was in the best interest of this Nation to have the food and fiber produced by family farmers.

The objective is to try to make it possible for these people to stay in business because that is in the interest of the country, not just because Tom Jefferson thought they were nice folks.

So I would hope that we would keep that objective in mind and that we wouldn't get to the point that we are so sterile that we don't take into consideration any personal knowledge that a member of the board of directors might have about that farmer. Are there any further questions?

Mr. Stenholm?

Mr. STENHOLM. I think in light of my question to Mr. Naylor earlier and particularly following on what Mr. English has just said, we are going to need to give a lot of serious consideration to some type of maintaining of a personal relationship in Farm Credit, FmHA, and I keep coming back to the ASCS system where you have elected peers to review.

I know personally that the PCA has done more of this in the past and are doing it today, I think, than is commonly known as far as the personal review of the concerns. I want to reemphasize my earlier question to you.

As we look at that never-never land between a decision that is made by a PCA board in Oklahoma in which that board is elected to represent a 20-county area but yet that farmer and his family is dependent upon that jury understanding his local situation, we do need to look at some way to move from that decision that has to be made at PCA level in the Farmer's Home and have a transition and I think a loan guarantee in that area is going to make more

sense.

I just reemphasize my previous question and you have already responded to that but I think in light of the very good point Mr. English has made, this is an area we need to look at.

Would you briefly go over for the committee and for the record the loss-sharing agreement that is now present in Farm Credit?

Mr. FREDRICKSON. There are authorized under the Farm Credit Act loss sharing agreements for all of the institutions of the system. Those agreements are, in effect, the implementation of the joint and several liability of all 37 banks on the bonds that are issued to public investors.

Each of the districts has its own individual loss-sharing program among its PCA's and among its Federal land bank associations and when the losses in a certain association reach a predetermined level, then assistance is provided to that association by the other associations in that district.

There are similar programs among the three groups of banks, the Federal land banks, the Federal credit banks and the banks for cooperatives.

Each of those three systems has a bank system loss-sharing agreement which would be triggered if one of those banks were to get into serious financial difficulty.

And, finally, there is, at the top of that, a loss-sharing agreement which involves all 37 of the banks under which, if 1 of the banking systems got into serious financial difficulty, the other 2 would be contractually obligated to come to its aid.

Now, there have been several triggerings of district association loss-sharing programs during the past 18 months. There have been approximately five or six individual PCA's and in every case they are receiving aid and financial assistance from the other associations in that district. None of the banks at this point is even remotely close to triggering a bank system loss-sharing agreement but they are there for the protection of the stockholders as well as the protection of the investors.

Mr. ENGLISH. Thank you very much, Mr. Fredrickson. We appreciate it.

I guess we will recess until 2 p.m.

[Whereupon, at 1 p.m., the subcommittee was recessed, to reconvene at 2 p.m., the same day.]

AFTERNOON SESSION

Mr. BEDELL [acting chairman]. The subcommitte will come to order.

Mr. Jones is unable to be here. I am going to be chairing the subcommittee again this afternoon.

Mr. Coleman, do you have any statement to make?

Mr. COLEMAN. No, Mr. Chairman.

Mr. BEDELL. David Senter was to be our first witness. Apparently he cannot get here because of the weather, so his prepared statement will be placed in the record.

[The prepared statement of Mr. Senter appears at the conclusion of the hearing.]

Mr. BEDELL. Now, Mr. Paul Sacia, National Farmers Union.

STATEMENT OF PAUL R. SACIA, ASSISTANT DIRECTOR OF

LEGISLATIVE SERVICES, NATIONAL FARMERS UNION

Mr. SACIA. Thank you, Mr. Chairman.

I am Paul Sacia, assistant director of legislative services for the National Farmers Union. We appreciate this opportunity to address ourselves to a question which ominously hangs over the agricultural community today, that question being: Has the USDA responded properly in administering its credit policies considering the economic circumstances farmers now face?

Secretary Block, Under Secretary Naylor and FmHA Director Shuman have consistently maintained that they are doing everything within their means to assist farmers during these rough times, the standard USDA refrain being, we are going the second mile with financially distressed farmers.

We can best judge the validity of their claim by evaluating: (1) the farm income situation; (2) the agricultural credit picture; and (3) actual USDA policies and actions.

These times in agriculture are often compared to the Great Depression. However, in many ways, the comparison does not sufficiently describe the severity of today's problems. As appendix A shows, the Great Depression included 3 bad years in succession, with farm prices dropping below 60 percent of parity for only 1 year. But now we are experiencing 3 bad years with farm prices below 60 percent of parity, and we face another one in 1984. For 1981 and 1982, farm prices averaged 57 percent of parity, one point worse than for the year 1932.

The poor cash flow on American farms in the past 3 years has caused the liquidity situation of farmers to deteriorate rapidly. Thirty years ago, U.S. farms had $1.11 in cash assets against $1 in debt. Now they have 10 cents in cash assets for each $1 of debt. Incredibly, farm production expense alone exceeded cash receipts from farm marketings in 1982. And while there are some positive signs of recovery for other sectors of the economy, that cannot be said for agriculture. Burdensome stocks almost dictate that better days are a couple of years away.

Obviously, the income and cost of production crunch has caused severe credit difficulties for thousands of our farmers. The greatest burden often falls upon our youngest and best-educated operators who have not built up the equity so important in sustaining oneself through several bad years.

We are seeing a rising tide of farm failures that not only translates into immeasurable human misery, but also threatens the very structure of American agriculture as we now know it.

While foreclosure tallies are not the best barometers in measuring credit conditions, it is revealing to note that in 1980 there were 260 foresclosures by the Farmers Home Administration. In 1981, the agency recorded 300 foreclosures. However, in 1982, we started seeing a much different picture. In 1982 FmHA foreclosures rose to 844.

But more significantly, there were 5,908 FmHA liquidations and 1,245 bankruptcies, not to mention 4,313 notices of acceleration, most of which also result in the losing of a farm and the means of supporting a family.

În 1979, only 13 percent of FmHA borrowers were delinquent, compared to today's 28 percent figure. The dollar amount delinquent has more than tripled in just 3 years.

This tide of distress is rapidly flowing over into the Farm Credit System. The Farm Credit Administration projects that 4,383 farm credit borrowers were in the process of being liquidated in 1982, twice as many liquidations as last year. Federal land banks are reporting a 30-percent increase in delinquent borrowers for 1982. None of this, of course, even touches upon difficult financing conditions in the commercial market.

Now let us examine how the administration has responded in relation to the plight of many of today's farmers.

First, and in an action highly symbolic to farmers, the USDA chose not to spend 1 cent of the $600 million in economic emergency loan money Congress appropriated for fiscal year 1982, although the use of such funds would not have resulted in a significant expense, as repayment of outstanding loans largely finances this program.

Equally disturbing have been the Department's efforts in implementing the limited resource operating loan program. It failed to use more than $121 million of operating loan money specifically earmarked for limited resource borrowers, meaning that only 54 percent of the appropriated $265 million was provided to qualified farmers. This represents the first time FmHA has not met Congress established limited resource loan quota and it resulted in approximately 4,990 unserved borrowers.

Appendix B shows a State-by-State breakdown 1 month before the end of fiscal year 1982. (Final year-end figures varied slightly.) The chart shows a great disparity in State-by-State usage of limited resources operating loans for fiscal year 1982.

For the first quarter of fiscal year 1983, FmHA is showing even less commitment to limited resource borrowers than in fiscal year 1982.

Commitment of operating loan money to limited resource borrowers. October 1981.......

November 1981.

December 1981.

October 1982..

Percent

1014

132

132

112

15

November 1982.

December 1982.

1534

We can only hope that the first quarter of fiscal year 1983 does not accurately represent their intentions of availing limited resource funds.

A third cause of consternation amongst our members has been the Department's handling of the emergency disaster loan program. Senator Thomas Eagleton served us all by requesting an opinion by the Comptroller General which resulted in confirming his belief that the FmHA "has followed and continues to follow a policy which illegally denies farmers access to the emergency disaster loan program."

The Comptroller asserted that the Secetary for 2 years now has ignored the clear mandate under the Consolidated Farm and Rural Development Act that all farmers who have suffered a minimum loss of 30 percent be eligible for disaster loans.

The USDA capriciously used a guideline limiting the availability of emergency loans to counties in which there was a 30-percent dollar loss to all cash crops grown in the country instead of basing availability of the program on losses suffered by individual farmers. The Comptroller General opined, "He (the Agriculture Secretary) may not conduct the program under a policy which systematically excludes individual farmers made eligible by the statute."

We concurred with Senator Eagleton when he said, "To illegally deny farmers even the opportunity to apply for an emergency loan

is unconscionable. Yet the practice persists as the policy of this adminstration."

While such public condemnations have caused favorable adjustments to be made in the program, the fact is that the public should never have to deal with such flouting of the law. One can only ask what sort of spirit pervades our Department of Agriculture at this critical juncture in our agricultural history.

For all obvious reasons, we are extremely pleased to support the Emergency Agricultural Credit Act of 1983, and we thank Congressman Ed Jones and Congressman Tom Coleman for their original cosponsorship.

We have no criticisms whatsoever of H.R. 1190 but would like to make a few comments and suggestions.

LOAN DEFERRALS

It is important that when a farmer satisfies the first two conditions for a loan deferral, (1) that the farmer be proven good manager, and (2) that he suffer from circumstances beyond his control, that he not be tripped up by the third rather fuzzy condition, (3) that he have a "reasonable chance" of recovery. We would prefer that this requirement be made more definitive, in order to eliminate as much discretionary application as possible, or perhaps be dropped entirely.

GUARANTEED LOANS

This provision is significant not only because it would free up much needed commerical and cooperative credit, but it would do it without creating resentment among those borrowers who are only able to obtain credit at prevailing market interest rates.

NOTIFICATION PROVISIONS

The utility of each loan program spelled out in H.R. 1190 would be greately enhanced if farmers were thoroughly informed of their new credit options. An information gap has posed a major obstacle to farmers getting credit for which they are eligible. Frequent FmHA letters of notification of programs are a fundamental need.

CONFUSION OVER PRIVACY ACT

It would be useful if the law made it clear to local FmHA officials that the Privacy Act was never meant to keep a "borrower's file" from the borrower. We believe a copy of the file should be made automatically available upon request to the respective borrower. This information is particularly important to the farmer in preparation for appealing FmHA loan decisions.

Again, we thank Congressman Jones for introducing the Emergency Credit Act of 1983 and Congressman Coleman for his cosponsorship. This bill is precisely what the doctor ordered. However, we deeply regret that this legislation is so necessary. The USDA has had the means to respond to the farm depression in a responsible and humane way. They have snubbed congressional intent and needlessly caused misery for thousands of farm families.