Market Size of Farm Loan and Grant

Loan

• Commercial banks and Farm Credit System are two primary channels for receiving farm loans. In 2017, 47% of farms borrowed from commercial banks, 31% borrowed from Farm Credit System, 4% borrowed from the US Department of Agriculture (USDA)'s Farm Service Agency, and the remaining 18% borrowed from other sources, such as " state and county governments, savings and loan associations, life insurance companies, implement dealers, input suppliers, co-ops, credit cards, Farmer Mac, credit unions, and other individuals or institutions." In February 2020, Farm Credit System's funding increased to 41% of all farm business debts in the US.
• Based on the definition of the Federal Deposit Insurance Corporation (FDIC), the value of existing farm debt was expected to reach $427 billion in 2019, representing a CAGR of 3.4% from $317 billion in 2010 (CAGR calculation: (427/317)^(1/9)-1). The high level of debt was close to the level during the farm crisis of the 1980s, according to USDA.
• However, the future growth of farm loans is expected to decline, as the top 30 large banks in the space of agriculture loans, such as JP Morgan, have seen their loan portfolios fall by 17.5% and reached $18.4 billion between December 2015 and March 2019. This is primarily driven by farms' falling revenues and the trade tension between the US and China.
• In contrast to the top 30 large banks, the US commercial banks have seen significant growth in farm loans between December 2015 and March 2019, when the loan value grew from $172.01 billion to $183.77 billion, representing a CAGR of approximately 2.2% between 2015 and 2018 (CAGR calculation: (183.77/172.01)^(1/3)-1). However, the overall growth of the farm or agricultural loan slowed down in 2019 and lenders have become more cautious about lending to small farms, as the number of bankruptcy filings by small farmers increased from 361 to 498 between 2014 and 2018.
• The amount of loan provided by Farm Credit System grew from $249.80 billion to $286.96 billion between 2016 and 2019, representing a CAGR of 4.7% (CAGR calculation: (287/249.8)^(1/3)-1). The gross loan value reached $297.2 billion in June 2020. In 2019, the largest portion of the loan (16%) was used to finance cash grains, such as corn, wheat and soybeans.

Grant

• Government payments or subsidies to farms, which includes direct payments, crop insurance, and loans, increased from $14.59 billion in 2010 to $22.62 billion in 2019, representing a CAGR of 5.0% (CAGR calculation: (22.62/14.59)^(1/9)-1). The amount of government payments has been in a declining trend since it reached a peak record of $33.67 billion in 2000.
• As part of the trade aid initiative, the market facilitation program paid out $12 billion in 2018 and the amount reached $16 billion in 2019.
• In response to COVID-19, the US government launched a Coronavirus Food Assistance Program, which provided $16 billion pandemic relief to farmers through direct payments in April 2020 and another $14 billion in September 2020. As a supplement to the market facilitation program, the amount is expected to reach $33 billion in 2020, which has mainly benefited large farms.
• Moreover, Farm Bill 2018 launched $78 billion crop insurance and $61 billion farm commodity programs in December 2018.
• Overall, the government grant to farms is on an upward trend, driven by trade tension with China and the COVID-19 global pandemic.

Finance Available to Small vs. Large/Mega Farms

Loan

• Microloans are the financing facility specifically for beginning, small and medium-sized farms and have a value generally $500,000 or less per loan. The loan is used for purchasing land, financing agricultural operations, and other farming purposes. Since its launch in 2013, USDA has issued more than 8,400 microloans, of which 70% was lent to beginning farmers.
• According to the latest statistics from Farm Credit System, 87% of borrowers have received a loan of $500,000 or less as of December 2019. This group of people are likely to be small farms and the total outstanding loan valued at $54.94 billion, accounting for only 19.1% of the total $286.96 billion in 2019.
• In 2018, Farm Credit Service of America had 22,000 young, beginning and small farm clients, with a loan amount of $5.6 billion. In 2017, the average farm in the US was $1.3 million in debt.
• With an increasing number of debt delinquency and bankruptcy cases, the growth of small farm loans at commercial banks are expected to slow down in 2020 due to high-risk concerns and expected stringent requirements.
• In 2016, the small business and microloans ($100,000 or less) represented on average 17.1% of commercial bank assets. Small businesses include small farms.
• Large farms (1 million annual sales or more) are more likely to borrow debt than smaller farms and from multiple sources. 44% of large farms' debt was from commercial banks while 35% originated from Farm Credit System in 2017. Although loans from USDA's Farm Service Agency represent the smallest portion of farmers' debt portfolio, smaller farms tend to have a high percentage of debt from USDA than large farms.
• Facing the challenge of COVID-19, the American farm group has made available $10 billion loans for small farms and agriculture businesses in 2020.
• In the financial year 2020, the US Agriculture Marketing Service has granted a total of $4.4 million for funding small-scale gardening, herding and livestock farming activities. As part of the food security program, the fund was allocated to the agriculture departments in six states, namely Alaska, American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Hawaii, and the United States Virgin Islands.

Grant

• While 39% of 2.1 million farms in the US received government subsidies in 2018, the vast majority of the subsidy went to the largest farms that produce corn, soybeans, wheat, cotton, and rice. Most of the subsidy was granted to the growers of field crops and 60% of the subsidy from the three largest programs (insurance, ARC, and PLC) was granted to the largest 10% of farms by sales revenue in 2017/18.
• At the beginning of 2018, approximately 67% of the government trade aid was granted to the top 10% of farms (i.e. mid-to-large farms), in which large/mega-farms (gross cash farm income of $1 million or more) is estimated to be 3.4% (estimated by evenly distributing 2.1% non-family farms to family farms). The remaining approximately 90% of farms are small farms (gross cash farm income less than 350,000), which claimed 33% of the government payments.
• As grants are in proportion to the size of farms, large farms have received the largest amount of payment. Between 1995 and 2020, the top 10% of farmers received 58% of the trade aid or market facilitation program payment.
• The main grant program for small farms is the CARES Act, which delivers the SBA Paycheck Protection Program in 2020 and provides $619 billion to small businesses, including farms.

Research Strategy