Regulators and policymakers should take action to tackle the climate threat to America’s agricultural finance sector by: 6 Given the public stake in the agricultural banking system, farm lenders and financial companies have a responsibility to take measures to mitigate climate risk and ensure that they can continue to serve rural communities into the future. Department of Agriculture (USDA) and the FCS, farms are eligible for programs such as loan guarantees from the Small Business Administration’s 7(a) loan program. In addition to the backing of farms by loan guarantees, direct loans, and crop insurance subsidies, one of the largest lenders in agricultural banking is the government-sponsored enterprise the Farm Credit System (FCS), established to meet the credit needs of farmers and ranchers. Perhaps nowhere is the public role in banking clearer than in the case of agricultural finance. The federal government grants charters to banks, provides deposit insurance, and backs them with the Federal Reserve. The banking system is fundamentally a public-private partnership. 4 Recognizing the necessity of a robust, well-financed agricultural sector, the federal government has long subsidized the supply of credit to farms and, in many cases, supplied it directly. Varying weather patterns, the threat of pests, and other natural elements have always posed a hazard to farms, making them relatively unattractive customers in the eyes of banks. In order to transition to a greener economy, farmers and ranchers must have access to affordable credit, which is contingent on a stable and healthy agricultural finance sector.įarming is an inherently risky undertaking, making it difficult for farmers and ranchers to find affordable credit without public policy intervention. Public policy must ensure that agricultural producers are able to adopt practices that will help their operations become more resilient to a changing climate. 3 To sustain and reinforce the stability of the agricultural sector, agricultural producers and policymakers must act now in anticipation of the climate crisis. 2Įven before the pandemic began sweeping across the country, extreme weather events, along with trade disruptions, had upturned the agriculture sector, prompting large payouts from the Commodity Credit Corporation to stabilize the industry. To that end, regulators should ensure that agricultural finance institutions are properly analyzing and disclosing their risks and that they are adjusting their capital reserves accordingly. If the agricultural finance sector is not adequately protected in the event of a climate-induced farm crisis, agricultural banks will be hit hard, affecting the long-term availability of credit to rural communities. Policymakers must ensure that agricultural lenders put in place proper safeguards to adapt to the increased risks posed by climate change.
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