[Congressional Record Volume 140, Number 143 (Wednesday, October 5, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: October 5, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
   THE FARM CREDIT SYSTEM AGRICULTURAL EXPORT AND RISK MANAGEMENT ACT

  Mr. FORD. Mr. President, I ask unanimous consent that the Senate 
proceed to the immediate consideration of H.R. 4379, the Farm Credit 
System Agricultural Export and Risk Management Act just received from 
the House; that the bill be deemed read the third time, passed, and the 
motion to reconsider be laid on the table, and that any statements 
relating to this matter be placed in the Record at the appropriate 
place as if read.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  So the bill (H.R. 4379) was deemed read the third time, and passed.
  Mr. LEAHY. Mr. President, I am pleased to join today with the 
distinguished ranking member on the Committee on Agriculture, Senator 
Lugar, to speak in support of final passage of the Farm Credit System 
Agricultural Export and Risk Management Act.
  I believe that the act strongly merits passage by the Senate for 
three prime reasons. First, it expands the capacity of our Nation's 
financial system to provide credit for the export of U.S. agricultural 
products--a very promising growth area for rural economies that we must 
stimulate in every reasonable, affordable way we possibly can.
  The act accomplishes this through modest expansion of the export 
lending authority of the National Bank for Cooperatives [CoBank], which 
has played a growing role in financing the export of American 
agricultural products since 1980.
  Second, the act authorizes member lenders of the Farm Credit System--
a Government-sponsored enterprise [GSE]--and the Nation's private banks 
to participate together in multilender transactions for the purpose of 
improving loan management capability and reducing the concentration of 
risk.
  Finally and very important to the American taxpayer, the act moves in 
these two important directions without any Federal subsidy. Its 
provisions are modest and narrowly drawn. It will enhance credit 
opportunities for important rural ventures by carefully expanding 
CoBank's already-existing authority and by providing incentives for the 
Farm Credit System and private banks to cooperate and share risks.
  The CoBank's present authority allows it to finance only exports 
produced by American agricultural cooperatives. This places an 
artificial limitation on its capacity to serve all of American 
agriculture. One of the act's central provisions will broaden CoBank's 
ability to finance the export of any U.S. agricultural product, 
regardless of the source.
  CoBank has an excellent track record of providing significant 
financing for U.S. agricultural exports. In addition, it actively 
markets our products abroad and works with commodity and governmental 
organizations to develop new export opportunities.
  In this rapidly changing era of NAFTA and GATT, it makes good sense 
to enhance this authority. CoBank--an experienced, technically 
proficient export lender that concentrates exclusively on agricultural 
products--can help our farm sector increase its exports dramatically 
without having to turn to the small group of foreign-owned banks that 
now dominate this relatively low-profit, high-risk business.
  The act will accomplish something additional that I believe both the 
Farm Credit System and private banks have been seeking for some time 
and will find mutually beneficial. It creates the opportunity for farm 
credit institutions and private banks to manage and reduce their 
concentration of loan loss risk in terms of geography, industry, and 
account exposure by expanding the System's ability to purchase and sell 
loan participations from commercial banks and other nonsystem lenders.
  The act may be modest in scope and neutral in its effect on the 
Federal budget. However, it is good for both America's private banks 
and for our Government-sponsored Farm Credit System, which has been so 
diligent in repaying the Federal obligations it incurred as a result of 
the 1987 Agricultural Credit Act, and in streamlining and improving its 
operations.
  More important, the act is also good for the farms, ranches, and 
agriculture-related businesses of rural America, which will benefit 
from enhanced credit opportunities.
  Most important of all, the act is good for American taxpayers and 
consumers, who will appreciate and support its reliance on nonfederal 
resources--and who have a real stake in improving the health of 
American agriculture. I strongly support and look forward to its final 
passage.
  Mr. LUGAR. Mr. President, I strongly support the Farm Credit System 
Agricultural Export and Risk Management Act, which Senator Leahy and I 
offer today on behalf of ourselves and Senator Dole. This legislation 
will encourage U.S. agricultural exports, remove burdensome regulatory 
requirements from the Banks for Cooperatives, and clarify legal 
authorities for Farm Credit System institutions to manage risk through 
loan participations and similar transactions that will benefit not only 
the System but also commercial lenders.
  The Farm Credit System's borrower-owned institutions have made a 
phenomenal recovery from their near-collapse in the mid-1980's. It is 
appropriate that Congress continue to encourage the System to manage 
its risks prudently, structure its operations in a manner consistent 
with the changing nature of the U.S. financial system, and facilitate 
its borrowers' participation in the international marketplace. I 
believe this legislation will help accomplish all these goals.
  The key provision of this bill affects the ability of the banks for 
cooperatives to finance agricultural export transactions. These banks--
primarily the National Bank for Cooperatives, or CoBank--have had 
export financing authority since 1980. CoBank finances about $2 billion 
of U.S. farm exports per year, nearly all of which is backed by the 
Agriculture Department's GSM-102 Credit Guarantee Program.
  CoBank is, in fact, the dominant player among lending institutions 
participating in the GSM-102 Program. Relatively few U.S. commercial 
banks have financed GSM-102 transactions.
  The law presently requires that, in order to finance an export sale, 
CoBank must ensure that the exported commodities originated with a 
cooperative. This does not mean that a co-op must actually be the 
exporter; more typically, a commercial grain company would export grain 
that was sourced from co-op elevators.
  Since CoBank is owned by its cooperative borrowers, the institution 
has an obvious desire to source the exports it finances from co-ops 
whenever possible. In some cases, however, it is difficult or 
impossible for the exporter to certify co-op origin to CoBank. In such 
circumstances, CoBank simply loses business, often to foreign banks.
  Two years ago, Congress absolved CoBank of the co-op sourcing 
requirement with respect to exports to the former Soviet Union, 
reflecting the high priority of maintaining trade ties to those 
republics unencumbered by unnecessary redtape. The legislation before 
the Senate will, in essence, extend this authority to all export 
destinations, while requiring that priority be given to commodities 
originating with cooperatives. In addition, following consultation with 
representatives of both CoBank and the commercial banking sector, this 
legislation will include a limitation on the total amount of 
noncooperative-sourced exports that can be financed without Federal 
guarantees.
  As I have already indicated, I believe that by allowing some 
flexibility to CoBank, we will achieve a number of desirable goals. We 
will reduce a regulatory burden that sometimes results in export 
financing business being forfeited to offshore institutions. By virtue 
of CoBank's dominant role in GSM-102, we will enhance that program's 
efficiency and its ability to facilitate U.S. export sales. We will 
encourage an expansion of U.S. agricultural export sales at a time when 
exports of many commodities are in decline. And by reducing the 
administrative cost of some transactions, we will enhance efficient 
operations in a major Farm Credit System institution, further shoring 
up the safety and soundness of the entire System.

  The bill has several other provisions, all of which enhance the Farm 
Credit System's ability to keep up with changing practices in the U.S. 
financial system. Specifically, the bill will--
  Authorize the banks for cooperatives to finance international joint 
ventures and partnerships in which U.S. co-ops hold an ownership 
interest, while prohibiting any such financing that would lead to any 
U.S. facilities being moved overseas;
  Authorize all Farm Credit System institutions to use risk management 
authorities presently available to the banks for cooperatives, by 
participating in loans to entities similar to those eligible to borrow 
from the System, but not holding more than a 50-percent interest in 
such loans;
  Clarify the System's current authority to participate in loans 
originated by other financial institutions by ensuring that this 
authority will keep pace with evolving banking industry practice, 
permitting the System to take part in syndications and similar 
transactions.
  In each case, these changes will enhance the System's ability to 
reduce its concentration of risk in terms of geography, industry, and 
account exposure. System institutions both purchase and sell 
participations from and to other lenders, a practice that is important 
particularly in the case of larger loans. For example, CoBank recently 
administered a $650 million syndication for Farmland Industries, Inc., 
a major farmer-owned marketing and supply cooperative. Seven commercial 
banks joined CoBank to provide funding for the syndication, 
illustrating the growing number of cases where banks and System 
institutions are working together harmoniously to meet the credit needs 
of rural America.
  It is important to note that the legislation will not give System 
institutions an unfair advantage over the commercial banking industry. 
For example, in the case of loans to agricultural entities that are 
similar to System borrowers, the System would be prohibited from 
providing 50 percent or more of the funds for such loans, ensuring that 
the System's use of loan participations will be limited to those cases 
where commercial lenders desire to involve the System, and that the 
System still will not be able to originate loans of this type. As I 
have previously mentioned, there are also strict limits on CoBank's 
ability to finance export transactions not originated by cooperatives 
where these transactions are not protected by Federal credit 
guarantees.
  Mr. President, I am pleased to join Senators Leahy and Dole as a 
sponsor of this important bill. Identical legislation has been approved 
by the House Committee on Agriculture, and I hope congressional 
consideration of the measure can be concluded in this session and the 
bill sent to the President. Let me again urge all Senators to support 
the bill.
  I would like to clarify one aspect of the legislation before us, and 
ask the chairman of the Agriculture Committee whether his understanding 
is the same as mine. In the expanded authority for CoBank financing of 
export transactions in section 4, the products eligible for such 
financing include farm supplies. Does the chairman concur that 
authority to finance sales of such products is also contained in 
current law, and that the existing statute uses the identical phrase 
``farm supplies''?
  Mr. LEAHY. That is my understanding. What is being changed in this 
bill is the current requirement that every export sale, without 
exception, be sourced from a cooperative. The product coverage of the 
current law is not being changed.
  Mr. LUGAR. At present, I am told, farm supplies are understood to 
comprise inputs for use on the farm. The phrase is not considered to 
include such items as agricultural processing equipment, machinery used 
in food manufacturing, or similar capital goods for off-farm use. Does 
the chairman agree that nothing in this bill should be construed to 
imply a change in the current understanding of the phrase ``farm 
supplies''?
  Mr. LEAHY. The Senator is correct. We are not expanding that kinds of 
products that are eligible for CoBank financing; we are allowing for 
limited exceptions to the current requirement that all such products 
originate with cooperatives.
  Mr. LUGAR. I thank the Chairman.

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