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CONTENTS

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February 18, 1997 to Mr. Townsen

Thomas, Max, submitted statement

West, Darreil, producer, submitted statement

Yeary, Buddy, president, Ideal Gas, Inc., submitted statement

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(III)

OVERSIGHT OF THE AVAILABILITY OF

AGRICULTURAL CREDIT

FRIDAY, FEBRUARY 21, 1997

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FORESTRY,
RESOURCE CONSERVATION, AND RESEARCH,
COMMITTEE ON AGRICULTURE,

Lubbock, TX The subcommittee met, pursuant to call, at 9:02 a.m., in Plains Cooperative Oil Mill Meeting Room, Lubbock, TX, Hon. Larry Combest, (chairman of the subcommittee) presiding.

Present: Representative Stenholm.
Also present: Representative Thornberry.

Staff Present: Russell Laird, staff director, Subcommittee on Forestry, Resource Conservation, and Research; Russell Middleton, minority staff, Jimmy Clark, Tom Sell, Brian Thomas, Ken Hodges, and Don Starr.

OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS Mr. COMBEST. The hearing will come to order.

I'd like to welcome everyone here and say good morning to everyone. It's my pleasure that we are convening the first official hearing of the Subcommittee on Forestry, Resource Conservation, and Research here in Lubbock, TX. I certainly would like to extend our welcome to my colleague joining me from 17th District, who is the Ranking Minority Member of the House Agriculture Committee, and also to Congressman Mac Thornberry, who represents the 13th District, and he reminded me we are actually physically in his district as we crossed a few streets in Lubbock heading east.

I also appreciate very much the USDA officials who have come from Washington, and as we've already discussed, had, hopefully, some good west Texas hospitality and good food, as well as other USDA officials who have come from other parts of the State.

This hearing is to discuss the factors which affect the availability of credit to agricultural producers. I feel that ensuring a strong and viable farm credit infrastructure of USDA loan programs, commercial banks, and the Farm Credit System is critical to meet the future needs of agricultural producers. I hope to have a comprehensive discussion of the pertinent issues related to that subject.

Specifically for the first panel, the subcommittee would like for USDA officials to discuss the status of the direct and guaranteed loan program portfolios, including figures regarding current outstanding principal and interest, delinquency rates, loan losses, et

(1)

cetera. Also, the number of borrowers who will be affected by the graduation requirement included in the Agricultural Credit Improvement Act of 1992 should be discussed. We would expect USDA officials to provide an update on the implementation of the Certified and Preferred Lender Programs which were also authorized in 1992.

The subcommittee would also like a detailed explanation and clarification of the credit reform provisions in the 1996 farm bill and the number and types of borrowers that will be affected. We would expect USDA officials to detail efforts they have made to improve delivery of direct and guaranteed loan services to borrowers and how they have addressed the delays in loan processing that have been experienced in some counties. As well, we would like a brief explanation of USDA's borrower training program and any views regarding the affordability and access to this program for farmer-borrowers.

As for the second panel, we will hear the views of several bankers and representatives of the Farm Credit System regarding their participation in USDA's Guaranteed Loan Program and any specific ideas they have for improvement in this program. The general views of these banks or any ideas regarding the future challenges and opportunities in agricultural credit would be very helpful.

Finally, the panel will hear a discussion on the Small Business Administration's Guaranteed Loan Program and recent changes that the SBA has made to improve its program.

Again, I appreciate very much the time that our witnesses took to prepare for this subcommittee hearing, and I look forward to their testimony.

I would like to thank Wayne Martin for the use of this facility. It's a great facility for a committee hearing.

I would like to recognize my colleague, Mr. Stenholm, for any comments that he might wish to make.

Mr. STENHOLM. Thank you, Mr. Chairman. I commend you for holding this hearing today. I have a statement that I would like to have inserted in the record at this point.

[The prepared statement of Mr. Stenholm follows:] STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS

I want to thank you for holding this hearing to examine the availability of agricultural credit. It is particularly appropriate to examine this issue in our State of Texas, given the important role agriculture plays in our State's economy.

I think it is also important to look at his issue in the context of the uncertainty of Mother Nature and the prospect of another long-term dry spell. Finally, we need to determine how our Nation's producers will be affected by a diminished safety net, a by-product of the 1996 farm bill.

Today's hearing will provide an opportunity to consider the Federal Government's role in lending. Some believe there is a role for the Federal Government as a lender of last resort, or as a resource for beginning farmers and ranchers, but this is by no means a universally held belief. Last year's farm bill signalled a change in direction for Farm Service Agency borrowers, the impact of which we are not yet fully

The USDA's lending programs will probably continue to face a great deal of scrutiny, and I look forward to having an update on these programs, along with USDA's perspective on the impact of future statutory requirements on current borrowers.

aware.

I think it will also be helpful to hear from the bankers and farm credit system representatives who are involved in providing credit. I look forward to having their insights about factors such as market prices,

and their impact on lending practices. Mr. STENHOLM. I would just also thank our colleague, Mr. Thornberry, for issuing temporary green cards to you and I to come into his district today. In spite of the fact it was a most unusual requirement that I must be here after midnight and leave by 3:00 today. We will do that. We will comply because I would not want to suffer whatever penalties that might be involved in that.

I'm delighted to be here. Always good to be in the facilities of the Plains Cooperative Oil Mill and look forward to hearing from the panels today.

I commend you, Mr. Chairman, for beginning the oversight processes that we've been a little derelict on over the last couple of years. The proper role of the House Agriculture Committee is to spend some time overseeing those laws which we have passed to see whether or not they are working, and particularly when we talk about credit.

As we enter a new era of farm programs, or perhaps lack thereof, it is going to be extremely imperative that we look at how we are going to provide credit for United States agriculture under the circumstances under which we appear to be going to have to live. This is a subject that is going to become more and more complicated as we go on and it is going to be even more imperative that we look at other aspects of the Farm Program, not the least of which is, as you mentioned, the safety net. As to whether or not we will have a system for production agriculture that will allow us to receive credit under any shape, forms or fashion in this modern, international marketplace.

So, this is what the subject, the beginning today. I commend you for doing it. I look forward to working with you in the days ahead and with those that we wili hear from today from USDA, as well as others involved in farm credit, as to how we may work in a complimentary way to see that the needs of the United States agriculture are met.

Mr. COMBEST. Thank you, Mr. Stenholm.

Mr. COMBEST. Mr. Thornberry, do you have any comments you'd like to make?

Mr. THORNBERRY. Mr. Chairman, first, I thank you for letting me, as an interloper, participate in the subcommittee hearing. I'm glad all you all could come to the 13th District of Texas. There's no requirement that you have to leave by 3:00. Sundown will be OK, Charlie.

I also appreciate, Mr. Chairman, having a hearing outside Washington. Sometimes, you know, it feels like it's hard for those of us up there to hear from real folks. I suspect our folks from USDA are glad to get out of there every once in a while too, to see something of the real world.

I also suspect, Mr. Chairman, that most of our colleagues don't have a clue what it takes to make a living in agriculture today. Most of our colleagues in Congress don't understand. And by the time you put taxes and regulation and the different factors in a world market, together with weather and insects and things, it's a tall order.

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