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The story of the Farm Credit System is the story of a cooperative that - like all cooperatives - was established to meet a need. Today, the needs of its members are as numerous as they were when the System started, but they have changed. As needs have shifted over the years, the System has evolved to meet them.

In the future, the needs of agriculture and rural America will be different still - and the Farm Credit System will continue to adapt to stay responsive to its customers.

In the Beginning …
The seeds of the Farm Credit System were planted by President Theodore Roosevelt in 1908, when he appointed a Country Life Commission to address the various problems facing a predominantly rural population. The commission's report led to presidential and congressional studies over the next several years, which included extensive analysis of other nations' rural credit systems.

The credit delivery method established by the 1916 Federal Farm Loan Act was based largely on Germany's Landschafts, which had operated since 1769 and appeared to be the most successful of the various European cooperative agriculture credit systems.

Nearly 100 different bills were introduced during the pivotal congressional debate over an American agricultural credit system. Congress battled to a stalemate in 1914, which led to the creation in 1915 of a Joint Committee on Rural Credits, which in turn drafted the final compromise that was adopted in 1916. In the end, lawmakers chose a cooperative credit structure based on 12 Federal Land Banks (FLBs), using $125 million in government seed money, but financed by private capital from investors.

The Early Years
Creation of the Farm Credit System coincided with World War I, a prosperous time for American farmers due to the demand for food in Europe. Prices collapsed after the war, however, resulting in a severe shortage of short-term credit for farmers. Congress responded with the Agricultural Credit Act of 1923, adding 12 Federal Intermediate Credit Banks (FICBs) to the Farm Credit System. However, this system was flawed by procedural and geographic problems and by a long, complicated loan approval process.

Things went from bad to worse with the stock market crash of 1929, touching off the Great Depression, throwing thousands of farmers into foreclosure, and virtually shutting down the System's ability to finance agriculture. Three major agricultural laws followed that would lead to a sweeping re-organization of the Farm Credit System.

• The Agricultural Marketing Act of 1929 was enacted to help stabilize farm prices and finance the development of agricultural cooperatives (which had been authorized by the Capper-Volstead Act of 1922).
  
• In 1933, Congress passed two crucial laws affecting the future of Farm Credit. One was the Emergency Farm Mortgage Act, which recapitalized the Land Banks with $189 million and cut interest rates to deal with the Depression.
  
• The other 1933 law was the Farm Credit Act, which, among other things, revamped the FICBs and established a new production credit system for farmers and ranchers through local Production Credit Associations. The Act also created 13 Banks for Cooperatives.

In addition, President Franklin Roosevelt issued an executive order in 1933 consolidating the supervision of all the federal agricultural credit agencies under the new Farm Credit Administration (FCA). These various cooperatively owned financial entities, with the FCA as their regulator, formed the basis of the Farm Credit System as it exists today.

Post-War Prosperity
During and after World War II, prosperity returned to American farmers. The decade of the 1950s saw technology transform agriculture and marked a major period of growth for the Farm Credit System.

Various laws were passed during this period that modified the governance of Farm Credit institutions and the structure of the FCA, and pushed the System toward full ownership by its farmer-borrowers. The System began a campaign in 1940 to pay off the government capital investment, a goal the Land Banks achieved in 1947. The Banks for Cooperatives and the last of the PCAs followed suit in 1968, leaving the Farm Credit System with no federal capital debt and completely owned by its borrowers.

In 1969, a National Services Commission on Agricultural Credit was formed to consider the future direction of the Farm Credit System. Its recommendations formed the basis for the Farm Credit Act of 1971, the most sweeping update of the System's charter since 1933. The 1971 Act, along with amendments added in 1980, significantly expanded the range of services Farm Credit institutions could offer, to include rural home mortgages, leasing services, and international and rural utility lending. It also expanded certain authorities of local associations, and led to a major reorganization of the Farm Credit Administration.

Financial Stress of the 1980s
As American agriculture plummeted into recession in the early- and mid-1980s, Farm Credit predictably suffered severe financial stress. Congress passed several laws between 1985 and 1987 to deal with recessionary economic conditions, which included rising inflation and collapsing farmland values. This legislation of the mid-1980s revised the structure and operations of the Farm Credit System and provided financial assistance in the form of a fully repayable, privately financed line of credit, which was guaranteed by the federal government. As a result:

• The FCA became a fully independent arm's-length regulator.
  
• A limited and temporary government-guaranteed line of privately financed assistance was provided to stressed System institutions.
  
• Risk-based capital standards were mandated - to be determined by FCA.
  
• The Farm Credit System Insurance Fund was created, financed by annual contributions from System banks.
  
• The Federal Farm Credit Banks Funding Corporation, which manages the sale of Systemwide securities, was formally established by statute as a System entity.

This period also initiated the widespread consolidation of System institutions. In the early 1980s, the Farm Credit System was composed of 37 banks and more than 1,000 local lending associations, whereas today there are only five System banks and fewer than 100 local lending associations.

As the 1980s drew to a close and agricultural producers started to recover from the recession, Farm Credit began to return to financial health - a trend that continued and strengthened into the 1990s.

Recent Years
In 1990-1991, Congress asked Farm Credit to play a greater role in financing agricultural marketing and processing operations, as well as water and sewer loans in rural communities. In 1992, Farm Credit petitioned Congress to enact legislation allowing Farm Credit to repay in advance the financial assistance provided in 1987. As a result, the Farm Credit System Safety and Soundness Act was passed, and the System has since repaid all of its financial assistance, including interest, without any cost to the government.

The System continued to show strong profits throughout the early 1990s and continued its trend toward consolidation. Today, the Farm Credit System is the largest single source of agriculture credit in the United States, with approximately $150 billion in assets.

On the Horizon
For almost 90 years, the Farm Credit System has pursued a mission to maintain the quality of life in rural America and on the farm by ensuring the availability of sound, dependable funding for a variety of financial needs. This trend continues today.

To help ensure that the System continues to fulfill its mission and meet the ever-changing needs of the agricultural industry and rural America, Farm Credit's leadership has initiated a forward-looking planning effort known as the Horizons Project. It is designed to foster consensus within the System and among those who have a vital interest in issues affecting agriculture and rural America. Currently under way, this project has three specific goals:

• To assess marketplace trends and the factors affecting Farm Credit's ability to serve customer needs in agricultural and rural markets today and in the future.
  
• To develop a consensus within the System about what changes - if any - are required to ensure that Farm Credit can effectively and efficiently serve rural America.
  
• To recommend a process for achieving those changes.

A final report will be issued in early 2006. Like the commission before it, the planning process will provide the input needed for Farm Credit to take its next step into the future.