Lessons Learned From The Farm Debt Crisis Of The 1980s

Harl was actively involved in advising state and federal policy-makers on the nature and severity of the crisis. Here he identifies contributing economic forces; describes efforts to deal with the problem; recounts experiences in dealing with politicians, bureaucrats and others; and identifies 12 lessons that should have been learned from the farm debt crisis. Annotation(c) 2003 Book News, Inc., Portland, OR (booknews.com)

Explores the social impact of the farm debt crisis of the 1980's through interviews with members of an agricultural community.

With a new foreword by Willie Nelson "An exquisitely written American saga." --Sarah Smarsh The "remarkably well told and heartfelt" (John Grisham) story of a young lawyer's impossible legal battle to stop the federal government from foreclosing on thousands of family farmers. In the early 1980s, farmers were suffering through the worst economic crisis to hit rural America since the Great Depression. Land prices were down, operating costs and interest rates were up, and severe weather devastated crops. Instead of receiving assistance from the government as they had in the 1930s, these hardworking family farmers were threatened with foreclosure by the very agency that Franklin Delano Roosevelt created to help them. Desperate, they called Sarah Vogel in North Dakota. Sarah, a young lawyer and single mother, listened to farmers who were on the verge of losing everything and, inspired by the politicians who had helped farmers in the '30s, she naively built a solo practice of clients who couldn't afford to pay her. Sarah began drowning in debt and soon her own home was facing foreclosure. In a David and Goliath legal battle reminiscent of A Civil Action or Erin Brockovich, Sarah brought a national class action lawsuit, which pitted her against the Reagan administration's Department of Justice, in her fight for family farmers' Constitutional rights. It was her first case. A courageous American story about justice and holding the powerful to account, The Farmer's Lawyer shows how the farm economy we all depend on for our daily bread almost fell apart due to the willful neglect of those charged to protect it, and what we can learn from Sarah's battle as a similar calamity looms large on our horizon once again.

The agricultural economy is more resilient today than it was thirty years ago during the farm crisis that spilled over into rural America. At that time, interest rates hikes driven by the Federal Reserve and other Western central banks led to a sharp slowdown in economic activity domestically and abroad. As rising debt-service burdens and plummeting exports squeezed economies, developing countries' demand for U.S. agricultural products collapsed. American farmers had borrowed large sums in the hopes of selling into an ever-growing international market, and then found their own debt payments escalating as their revenues declined. Farm foreclosures soared, and farmers sharply reduced their investment expenditures on new farm equipment. The value of U.S. agricultural exports fell by a third between 1980 and 1986. Real farm sector asset values fell by nearly half in that period. A full recovery from that crisis took nearly two decades. During those lean years, the less efficient farms-the ones with higher costs and lower output per unit of input-simply could not survive. The most productive farms became a larger and larger part of the total industry, while the least productive farms disappeared. This made the industry as a whole much more productive. It was a difficult process, but at its end America had a more efficient, more resilient agricultural system. Investments in rural America benefited farm families and helped boost production. Farmers diversified income streams and hedged against risks by renting lands, specializing in management of farming operations, contracting capital-intensive services requiring expensive machinery and information services, and making greater use of output contracts and financial risk mitigation strategies. Moreover, production has shifted to farm corporations and partnerships. Those factors have spread risk across a wider set of stakeholders. Farms have become more efficient and productive, increasing output without increasing inputs. The resulting resilience and increased productivity has helped the agricultural economy rebound quickly from the recent recession. Since the farm crisis of the mid-1980s, real farm assets (including land and buildings) have risen in both nominal and real (inflation-adjusted) terms (see Figure 1). In real terms, farm assets had not reached their 1980 level until this year. Similarly, agricultural land values are now at record highs today. Today, the real equity of farms is expected to establish a new nominal record in 2012, with the real value of farm assets at the highest level since 1980. In 2007, 31% of farms used debt financing, as compared to 60% in 1986 (Henderson and Akers, 2010). Current levels of debt are well below debt repayment capacity, with larger farms making more use of their debt capacity (Sundell and Shane, 2012).

In the early eighties, the unthinkable began to happen to the farm sector and its financial institutions. The outlook for commodity prices and farm income worsened abruptly as an export boom collapsed with little warning. Most farmers had just experienced their most prosperous decade ever and were relying heavily on credit to continue the rapid growth of their income and wealth. As it became increasingly hard for farmers to repay their debts, the financial trouble spread to financial intermediaries with significant involvement in farm lending: commercial banks, some of the larger life insurance companies, and the Farm Credit System. It turned out that the downward spiral of the farm credit crisis had reached bottom in 1986, as judged from farm loan delinquency rates and farmland prices. A remarkable recovery ensued, based in large part on huge government income payments to farmers and further aided by the restoration of order to the operations and viability of the Farm Credit System. The story of these tumultuous years of boom and bust is vividly presented in this book, by analysts and administrators who were immersed in the unfolding events and engaged in studying, devising, or administering governmental policies and actions.

After nearly a decade of prosperity, rural America entered the 1980s with its agricultural base facing a severe financial crisis. Land values, export markets and the general demand for agricultural commodities were declining while the levels of indebtedness reached during the 1970s were becoming increasingly difficult to manage. By the middle of the 1980s, the existence of a crisis was apparent in farm failure rates that had reached levels that had not occurred since the 1930s and in the fact that large numbers of agricultural banks were failing and agencies that provide loans to farmers and ranchers were experiencing unprecedented losses. Small towns in agriculturally dependent rural areas were losing businesses, populations and related services, and extremely high rates of socioemotional problems were noted among rural residents in agriculturally dependent areas of the nation.