oversight

Agricultural Lending: Information on Credit and Outreach to Socially Disadvantaged Farmers and Ranchers Is Limited

Published by the Government Accountability Office on 2019-07-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office
             Report to Congressional Committees




             AGRICULTURAL
July 2019




             LENDING

             Information on Credit
             and Outreach to
             Socially
             Disadvantaged
             Farmers and
             Ranchers Is Limited




GAO-19-539
                                              July 2019

                                              AGRICULTURAL LENDING
                                              Information on Credit and Outreach to Socially
                                              Disadvantaged Farmers and Ranchers Is Limited
Highlights of GAO-19-539, a report to
congressional committees




Why GAO Did This Study                        What GAO Found
In 2017, there were about 2 million farm      Information on the amount and types of agricultural credit to socially
and ranch operations nationwide.              disadvantaged farmers and ranchers (SDFR)—which the U.S. Department of
Farmers and ranchers often require            Agriculture (USDA) defines as members of certain racial and ethnic minority
loans to buy agricultural real estate,        groups and women—is limited. Comprehensive data on SDFRs’ outstanding
make capital improvements, and                agricultural debt are not available because regulations generally prohibit lenders
purchase supplies and equipment.              from collecting data on the personal characteristics of applicants for loans other
However, minorities and women                 than certain mortgages. A Consumer Financial Protection Bureau rulemaking
comprise a disproportionately small           pursuant to a provision in the Dodd-Frank Wall Street Reform and Consumer
share of agricultural producers, and          Protection Act that requires collection of such data in certain circumstances
certain minority groups have alleged          would modify this prohibition for certain loans, possibly including some
discrimination in obtaining agricultural
                                              agricultural loans. The bureau delayed the rulemaking in 2018 due to stated
credit. Most agricultural lending is done
                                              resource constraints and other priorities, but reported that it plans to resume
by either commercial banks or the Farm
Credit System, a network of lenders
                                              work on the rule later in 2019. An annual USDA survey of farmers provides some
regulated by the Farm Credit                  insights into agricultural lending to SDFRs but, according to USDA, may
Administration. USDA accounts for a           underrepresent SDFRs compared to more inclusive estimates from the 2017
small share of agricultural credit, but it    Census of Agriculture. In the 2015–2017 surveys, SDFRs represented an
makes direct loans and guarantees             average of 17 percent of primary producers in the survey, but they accounted for
loans made by private lenders. USDA           8 percent of outstanding total agricultural debt. Loans to purchase agricultural
and Farm Credit System lenders have           real estate accounted for most of SDFRs’ outstanding debt (67 percent).
responsibilities to expand credit access.
                                              SDFRs reportedly face a number of challenges that hamper their ability to obtain
Congress included a provision in statute      private agricultural credit. According to SDFR advocacy groups, lending industry
for GAO to study agricultural credit          representatives, and federal officials, SDFRs are more likely to operate smaller,
services provided to SDFRs. USDA              lower-revenue farms, have weaker credit histories, or lack clear title to their
direct loans were outside the scope of        agricultural land, which can make it difficult for them to qualify for loans. SDFR
GAO’s review. This report examines (1)        advocacy groups also said some SFDRs face actual or perceived unfair
what is known about the amount and            treatment in lending or may be dissuaded from applying for credit because of
types of agricultural credit to SDFRs, (2)    past instances of alleged discrimination. Additionally, they noted that some
challenges SDFRs reportedly face in           SDFRs may not be fully aware of credit options and lending requirements,
obtaining agricultural credit, and (3)        especially if they are recent immigrants or new to agriculture.
outreach efforts to SDFRs regarding
agricultural credit and related services.     Private lenders and federal agencies conduct outreach to SDFRs, but the
                                              effectiveness of these efforts in increasing lending is unknown. For example,
GAO analyzed survey, census, and
other USDA data; reviewed statutes and
                                              lenders have sponsored educational events targeted to SDFRs and translated
regulations governing collection of           marketing materials for non-English speakers. Farm Credit Administration
personal data on borrowers; and               regulations require Farm Credit System lenders to prepare marketing plans that
reviewed Farm Credit Administration           include specific outreach actions for diversity and inclusion. The Farm Credit
and USDA documentation on outreach            Administration examines these plans and indicated that it has prescribed
to SDFRs. GAO also interviewed SDFR           corrective actions in some cases. However, the Farm Credit Administration does
advocacy groups, lending industry             not require lenders to meet specific lending goals, and the regulatory data
groups, and officials from the Farm           restrictions noted previously constrain the Farm Credit Administration’s ability to
Credit Administration, USDA, and the          assess the effect of outreach efforts. USDA conducts outreach to SDFRs and
federal depository institution regulators.    lenders about its loan programs and collects data on the personal characteristics
                                              of loan applicants. However, USDA officials said they face challenges evaluating
                                              the impact of their outreach efforts, in part because outreach participants are
                                              reluctant to provide their demographic information.
View GAO-19-539. For more information,
contact Anna Maria Ortiz at 202-512-8678 or
ortiza@gao.gov
                                              ______________________________________ United States Government Accountability Office
Contents


Letter                                                                                    1
              Background                                                                  5
              Information Is Limited, but Survey Data Provide Some Insights
                 into Credit to Socially Disadvantaged Farmers and Ranchers             10
              Stakeholders Identified Multiple Challenges That Socially
                 Disadvantaged Farmers and Ranchers Face in Obtaining
                 Private Agricultural Credit                                            23
              Lenders and Federal Agencies Conduct Some Outreach to
                 Socially Disadvantaged Farmers and Ranchers, but the
                 Effectiveness of These Efforts Is Unknown                              31
              Agency Comments and Our Evaluation                                        38

Appendix I    Objectives, Scope, and Methodology                                        40



Appendix II   GAO Contact and Staff Acknowledgments                                     48


Tables
              Table 1: Producers Identified as Socially Disadvantaged Farmers
                      and Ranchers (SDFR), 2017                                           6
              Table 2: Number and Selected Characteristics of SDFR and Non-
                      SDFR Farms, 2017                                                    7
              Table 3: Estimated SDFR Share of Farms and Farm Debt, Annual
                      Average, 2015–2017                                                17
              Table 4: Top 10 State Recipients of FSA-Guaranteed Loans to
                      Socially Disadvantaged Farmers and Ranchers (SDFR),
                      Fiscal Year 2018                                                  23

Figures
              Figure 1: Estimated Outstanding Farm Debt, Annual Average in
                       2015–2017 (dollars in billions)                                  15
              Figure 2: Loans Guaranteed by the Farm Service Agency, Fiscal
                       Year 2018 (dollars in millions)                                  20
              Figure 3: Farm Service Agency–Guaranteed Loans to Socially
                       Disadvantaged Farmers and Ranchers, Fiscal Years
                       2014–2018                                                        21




              Page i                               GAO-19-539 Socially Disadvantaged Farmers
Figure 4: Percentage of Farm Service Agency–Guaranteed Loans,
         by Dollar Volume, to Socially Disadvantaged Farmers
         and Ranchers, Fiscal Years 2014–2018                                             22




Abbreviations

2017 Census                2017 Census of Agriculture
CFPB                       Consumer Financial Protection Bureau
Dodd-Frank Act             Dodd-Frank Wall Street Reform and Consumer
                            Protection Act
ECOA                       Equal Credit Opportunity Act
Federal Reserve            Board of Governors of the Federal Reserve System
SBA                        Small Business Administration
SDFR                       socially disadvantaged farmers and ranchers
USDA                       U.S. Department of Agriculture



This is a work of the U.S. government and is not subject to copyright protection in the
United States. The published product may be reproduced and distributed in its entirety
without further permission from GAO. However, because this work may contain
copyrighted images or other material, permission from the copyright holder may be
necessary if you wish to reproduce this material separately.




Page ii                                        GAO-19-539 Socially Disadvantaged Farmers
                       Letter




441 G St. N.W.
Washington, DC 20548




                       July 11, 2019

                       The Honorable Pat Roberts
                       Chairman
                       The Honorable Debbie Stabenow
                       Ranking Member
                       Committee on Agriculture, Nutrition, and Forestry
                       United States Senate

                       The Honorable Collin C. Peterson
                       Chairman
                       The Honorable Mike Conaway
                       Ranking Member
                       Committee on Agriculture
                       House of Representatives

                       According to the 2017 Census of Agriculture (2017 Census), there are
                       about 2 million farm and ranch operations nationwide (which we refer to
                       as farms). 1 Farmers and ranchers often require loans to, among other
                       things, buy agricultural real estate, make capital improvements, and
                       purchase supplies and equipment. The U.S. Department of Agriculture
                       (USDA) estimates that total outstanding agricultural debt was about $242
                       billion in 2017. 2 However, some demographic groups have alleged
                       discrimination in obtaining agricultural loans or are considered
                       underserved by the credit market. 3 In addition, according to USDA data,
                       minorities and women comprise a disproportionately small share of
                       agricultural producers relative to their numbers in the general population.

                       Congress has recognized some of the challenges these groups face by
                       requiring USDA to target “socially disadvantaged farmers and ranchers”
                       (SDFR) in programs that make direct loans or that guarantee loans made


                       1
                        The Census of Agriculture is conducted every 5 years and provides a detailed picture of
                       farms and the people who operate them.
                       2
                        This figure includes debt used for agricultural purposes only. It excludes debt used for
                       nonagricultural purposes that was secured by agricultural real estate or equipment.
                       3
                        For example, see Congressional Research Service, Garcia v. Vilsack: A Policy and Legal
                       Analysis of a USDA Discrimination Case (Washington, D.C.: Feb. 22, 2013). We discuss
                       additional reports and legal cases about discrimination in agricultural lending later in this
                       report.




                       Page 1                                          GAO-19-539 Socially Disadvantaged Farmers
by private lenders. 4 The Consolidated Farm and Rural Development Act,
as amended, defines a socially disadvantaged group as one whose
members have been subject to racial, ethnic, or gender prejudice
because of their identity as members of a group without regard to their
individual qualities. 5 USDA regulations further define SDFRs as belonging
to the following groups: American Indians or Alaskan Natives, Asians,
Blacks or African Americans, Native Hawaiians or other Pacific Islanders,
Hispanics, and women. In this report, we use USDA’s definition to identify
SDFRs both in USDA’s farm loan programs and in the broader population
of agricultural producers.

Several types of private lenders make loans to farmers and ranchers.
These include, but are not limited to, Farm Credit System associations,
commercial banks and credit unions, farm implement dealers, and
individuals. (We describe each of these in more detail in the background
section of this report.) USDA guarantees some of the agricultural loans
made by Farm Credit System associations and commercial banks.

The Agriculture Improvement Act of 2018 included a provision for us to
study agricultural credit services provided to SDFRs. 6 Based on the
language of the provision, we excluded USDA direct loans from the scope
of our review and focused on lending by private entities. 7 This report
examines (1) what is known about the amount and types of agricultural
credit to SDFRs, (2) challenges SDFRs reportedly face in obtaining
agricultural credit, and (3) outreach efforts to SDFRs regarding
agricultural credit and related services.

For all objectives, we interviewed officials from USDA (including the Farm
Service Agency, National Agricultural Statistics Service, and Economic
Research Service), the Farm Credit Administration (which regulates Farm
Credit System associations), and the federal depository institution

4
 These programs primarily serve farmers and ranchers who are unable to obtain credit
from other lenders at reasonable rates and terms. USDA loan guarantees protect lenders
against most losses—up to 95 percent of the lost principal and interest—in the event a
borrower defaults.
5
 7 U.S.C. § 2003(e).
6
 Pub. L. No. 115-334, § 5416, 132 Stat. 4490, 4725 (2018).
7
 The provision defines an agricultural credit provider as a Farm Credit System institution,
a commercial bank, the Federal Agricultural Mortgage Corporation, a life insurance
company, and any other individual or entity, as determined by the Comptroller General of
the United States.




Page 2                                          GAO-19-539 Socially Disadvantaged Farmers
regulators. 8 We also interviewed representatives from lending industry
groups we selected to cover the major types of private institutional
lenders that make agricultural loans. Additionally, we interviewed
representatives from national advocacy or research groups that focus on
one or more socially disadvantaged populations and on agricultural credit
or finance issues. We selected these groups based on referrals obtained
during prior GAO studies and recommendations from experts in the field.
Because the group of organizations we interviewed is a nonprobability
sample, the information they provided is not generalizable. In this report,
we refer collectively to the federal officials, lending industry group
representatives, and advocacy and research group representatives we
interviewed as stakeholders.

To address the first objective, we reviewed statutes and regulations
governing the collection of data on the personal characteristics of loan
applicants. We interviewed officials from the federal depository institution
regulators and the Consumer Financial Protection Bureau (CFPB) about
these requirements and the status of a related ongoing rulemaking. We
also analyzed USDA data from the Censuses of Agriculture for 2012 and
2017 and Agricultural Resource Management Surveys for 2015, 2016,
and 2017. 9 USDA’s National Agricultural Statistics Service and Economic
Research Service provided us customized summary statistics from these
data sources to facilitate our analysis. Additionally, we analyzed USDA
data on farm ownership and farm operating loans guaranteed by the
Farm Service Agency in fiscal years 2014 through 2018. 10 We focused on
guarantees issued by the Farm Service Agency because it operates the




8
 The federal depository institution regulators include the Board of Governors of the
Federal Reserve System, Federal Deposit Insurance Corporation, Office of the
Comptroller of the Currency, and National Credit Union Administration.
9
 The 2017 Census of Agriculture and Agricultural Resource Management Survey were the
most current versions of these data sources at the time of our review.
10
  Throughout this report, we use the term “guaranteed loans” to refer to farm ownership
and farm operating loans guaranteed by the Farm Service Agency. The agency also
guarantees conservation loans and land contracts.




Page 3                                         GAO-19-539 Socially Disadvantaged Farmers
primary federal agricultural credit programs. 11 To assess the reliability of
data from USDA, we reviewed agency documentation on how the data
were collected and analyzed. We also interviewed USDA officials about
interpretations of data fields and robustness of estimated values, among
other things. We concluded that the data were sufficiently reliable for
describing the size and characteristics of the SDFR population and the
amount and types of agricultural credit SDFRs received.

To address the second objective, we conducted a review of government
and academic literature and identified additional articles and reports
through citations in literature we reviewed and from expert
recommendations. To address the third objective, we reviewed USDA,
Farm Credit System, and federal depository institution regulator
documents on agricultural credit-related services for SDFRs, including
marketing, outreach, and education activities. We collected information on
how federal agencies and regulators oversee and evaluate these
activities. We reviewed statistics from the Farm Credit Administration on
its examinations of Farm Credit System association marketing plans,
which are required to contain specific actions for diversity and inclusion.
To supplement this work, we conducted a review of marketing plans from
a nongeneralizable sample of Farm Credit System associations in areas
with relatively high proportions of SDFRs. We also reviewed materials on
the activities of USDA’s Outreach and Technical Assistance for Socially
Disadvantaged and Veteran Farmers and Ranchers Program.
Additionally, we interviewed officials from the Farm Service Agency’s
Outreach Office and documented their procedures for targeting outreach
to SDFRs about USDA-guaranteed agricultural loans. For both the
second and third objectives, we also drew upon information and analysis
from our May 2019 report on agricultural lending on tribal lands. 12
Appendix I describes our scope and methodology in greater detail.


11
  The Small Business Administration (SBA) also guarantees loans to agricultural business
operators, including to members of socially disadvantaged groups, through its 7(a) loan
program. We did not include SBA’s program in the scope of our review because 7(a) loans
account for about 1 percent of agricultural lending. In fiscal year 2016, SBA approved
approximately $708 million in 7(a) loans to agricultural businesses. At least 23.7 percent
of that amount represented loans to minority- or women-owned businesses. SBA officials
suggested that this percentage should be interpreted with caution because the
demographic data are voluntarily self-reported by small business applicants and are not
corroborated.
12
 GAO, Indian Issues: Agricultural Credit Needs and Barriers to Lending on Tribal Lands,
GAO-19-464 (Washington, D.C.: May 9, 2019).




Page 4                                        GAO-19-539 Socially Disadvantaged Farmers
                          We conducted this performance audit from January 2019 to July 2019 in
                          accordance with generally accepted government auditing standards.
                          Those standards require that we plan and perform the audit to obtain
                          sufficient, appropriate evidence to provide a reasonable basis for our
                          findings and conclusions based on our audit objectives. We believe that
                          the evidence obtained provides a reasonable basis for our findings and
                          conclusions based on our audit objectives.



Background
The Agricultural Census   USDA conducts the Census of Agriculture every 5 years, most recently in
and Socially              2012 and 2017. The census provides a detailed picture of farms and the
                          people who operate them. The census identifies several categories of
Disadvantaged Farmers
                          farmers, including the following:
and Ranchers
                          •    Producers. Producers are individuals involved in farm decision-
                               making. 13 A single farm may have more than one producer.
                          •    Primary producers. The primary producer is the individual on a farm
                               who is responsible for the most decisions. Each farm has only one
                               primary producer.

                          The 2017 Census questionnaire substantially revised the way it collected
                          certain data in order to better capture the contributions of all persons
                          involved in farm decision-making. For example, the 2017 questionnaire
                          asked for the names and demographic information of up to four producers
                          per farm (compared to three in 2012) and used a series of questions on
                          specific types of farm decisions to determine the primary producer (the
                          2012 questionnaire did not include these questions). Therefore,
                          comparisons between the two censuses regarding the number and
                          personal characteristics of producers and primary producers should be
                          considered with the 2017 revisions in mind. While some changes may be
                          the result of actual changes in the population of farmers and ranchers,
                          other changes may be the result of changes in census methodology.

                          USDA’s 2017 Census counted about 3.4 million producers across the
                          roughly 2 million farms nationwide, compared to 3.2 million in 2012. This
                          13
                            Decisions may include planting, harvesting, livestock management, and marketing
                          decisions, among others. The producer may be the owner, a member of the owner’s
                          household, a hired manager, a tenant, a renter, or a sharecropper.




                          Page 5                                       GAO-19-539 Socially Disadvantaged Farmers
                                                               represents an approximately 7 percent increase over 2012 in the number
                                                               of reported producers, despite a slight drop in the number of farms
                                                               reported. 14 Many of these additional producers were SDFRs. 15 In 2017,
                                                               SDFRs accounted for 41 percent (1,390,449) of all producers, compared
                                                               to 36 percent (1,133,163) in 2012. The number of reported SDFR primary
                                                               producers also grew between 2012 and 2017. 16 Among SDFR subgroups,
                                                               women accounted for the largest increase in producers and primary
                                                               producers.

                                                               In the 2017 Census, women also made up the largest group of SDFR
                                                               producers and primary producers (see table 1). Women accounted for
                                                               88.3 percent of all SDFR producers and 81.0 percent of SDFR primary
                                                               producers. Hispanic, Latino, or Spanish-origin producers were the next
                                                               largest group, accounting for 8.1 percent of all SDFR producers and 11.0
                                                               percent of SDFR primary producers.

Table 1: Producers Identified as Socially Disadvantaged Farmers and Ranchers (SDFR), 2017

                                                              Number of SDFR          Percentage of          Number of SDFR      Percentage of SDFR
                                                                   producers        SDFR producers         primary producers      primary producers
 Women (any race/ethnicity)                                             1,227,461                88.3                 489,000                      81.0
 Hispanic, Latino, or Spanish origin                                     112,451                   8.1                  66,727                     11.0
 American Indian or Alaska Native                                         58,199                   4.2                  35,494                      5.9
 Black or African American                                                45,508                   3.3                  31,071                      5.1
 Asian                                                                    22,016                   1.6                  11,955                      2.0
 Native Hawaiian or other Pacific Islander                                 3,018                   0.2                   1,662                      0.3
 More than one race                                                       26,749                   1.9                  16,342                      2.7
                 a
 Total SDFR                                                             1,390,449               100.0                 604,019                    100.0
Source: GAO analysis of USDA’s Census of Agriculture. | GAO-19-539




                                                               14
                                                                 The 2017 Census showed a 3 percent decrease from the 2012 Census in the number of
                                                               farms reported.
                                                               15
                                                                 As previously mentioned, USDA regulations define SDFRs as belonging to the following
                                                               groups: American Indians or Alaskan Natives, Asians, Blacks or African Americans, Native
                                                               Hawaiians or other Pacific Islanders, Hispanics, and women.
                                                               16
                                                                 The 2012 Census used the term “principal operator” to identify the person on the farm
                                                               responsible for the most decisions. For ease of presentation, we use the term primary
                                                               producer in reference to both the 2012 and 2017 Censuses because the terms generally
                                                               have the same meaning. In 2017, about 30 percent (604,019) of primary producers were
                                                               identified as SDFRs, compared to 20 percent (419,365) in 2012.




                                                               Page 6                                        GAO-19-539 Socially Disadvantaged Farmers
                                                               Note: For the Census of Agriculture, the U.S. Department of Agriculture (USDA) primarily collected
                                                               data through the mail. USDA adjustments for nonresponse, misclassification, or other factors may
                                                               result in a level of error related to its estimates.
                                                               a
                                                                Individuals can be counted in multiple categories, such as Asian women or Hispanic African
                                                               American. Therefore, the total number of SDFRs is less than the sum of the categories. SDFR is
                                                               defined in statute by the Consolidated Farm and Rural Development Act, as amended, and in related
                                                               regulation by USDA.


                                                               On average, farms for which an SDFR was the primary producer (SDFR
                                                               farms) were smaller and brought in less revenue than non-SDFR farms in
                                                               2017. While representing 30 percent of all farms, SDFR farms operated
                                                               21 percent of total farm land and accounted for 13 percent of the market
                                                               value of agricultural products sold in 2017 (see table 2). About 55 percent
                                                               of SDFR farms had fewer than 50 acres, and 88 percent had less than
                                                               $50,000 in total sales and government payments. 17 Additionally, a lower
                                                               proportion of SDFR-operated farms (21 percent) received government
                                                               payments compared to non-SDFR farms (36 percent).

Table 2: Number and Selected Characteristics of SDFR and Non-SDFR Farms, 2017

                                                                                                                          Total market
                                                                                                          Percent of value of products
                                           Number                    Percent             Total             operated      sold (billions          Percent of total
                                           of farms                  of farms   operated acres              acreage         of dollars)            market value
 SDFR farms                                 604,019                       30        185,644,330                     21                   51.6                   13
 Non-SDFR farms                           1,438,201                       70        714,573,246                     79                 336.9                    87
 Total                                    2,042,220                      100        900,217,576                   100                  388.5                   100

Legend: SDFR = socially disadvantaged farmers and ranchers
Source: GAO analysis of USDA’s Census of Agriculture. | GAO-19-539

                                                               Note: SDFR farms are those for which the primary producer is a member of a socially disadvantaged
                                                               group (ethnic and racial minorities and women) as defined in statute by the Consolidated Farm and
                                                               Rural Development Act, as amended, and in related regulation by the U.S. Department of Agriculture
                                                               (USDA). Non-SDFR farms are all other farms. For the Census of Agriculture, USDA primarily
                                                               collected data through the mail. USDA adjustments for nonresponse, misclassification, or other
                                                               factors may result in a level of error related to its estimates.




Types and Sources of                                           Agricultural producers generally require financing to acquire, maintain, or
Agricultural Credit                                            expand their farms, ranches, or agribusinesses. Agricultural loans
                                                               generally fall into two categories:
                                                               17
                                                                 The 2017 Census defines government payments as payments from federal farm
                                                               programs made directly to farm producers, such as payments from the Conservation
                                                               Reserve and Wetlands Reserve programs and disaster payments. Commodity Credit
                                                               Corporation proceeds, payments from state and local government programs, and federal
                                                               crop insurance payments were not included in this category.




                                                               Page 7                                              GAO-19-539 Socially Disadvantaged Farmers
•     Farm ownership loans. These loans are used to acquire, construct,
      and develop land and buildings and have terms longer than 10 years.
      They are secured by real estate and are sometimes referred to as real
      estate loans.
•     Farm operating loans. These loans are generally short-term or
      intermediate-term loans that finance costs associated with operating a
      farm. Short-term loans are used for operating expenses and match
      the length and anticipated production value of the operating or
      production cycle. Intermediate-term loans are typically used to finance
      depreciable assets such as equipment and usually range from 18
      months to 10 years. 18 These loans may also be referred to as non-
      real-estate loans. 19

Several types of lenders provide credit to agricultural producers,
including, but not limited to, the following:

•     Farm Credit System. The Farm Credit System is a government-
      sponsored enterprise, established, in part, to provide sound,
      adequate, and constructive credit to American farmers and ranchers.
      The Farm Credit System includes a national network of 73 banks and
      associations. The Farm Credit System lends money to eligible
      agricultural producers primarily through its 69 lending associations,
      which are funded by its four banks. All are cooperatives, meaning that
      Farm Credit System borrowers have ownership and control over the
      organizations. The Farm Credit System is regulated by the Farm
      Credit Administration, an independent federal agency.
      The Farm Credit System’s statutory objectives include being
      responsive to the needs of all types of creditworthy agricultural
      producers having a basis for credit, with additional requirements to
      serve young, beginning, and small farmers and ranchers. 20 According
      to the Farm Credit Administration, the Farm Credit System is not
      statutorily mandated to focus on providing financial opportunities to
      any other group.
18
    The terms of USDA farm operating loans generally may not exceed 7 years.
19
  Throughout this report, we refer to real estate loans as farm ownership loans and non-
real-estate loans as farm operating loans.
20
  Farm Credit System associations are required to establish programs for furnishing
sound and constructive credit and related services to young, beginning, and small farmers
and ranchers. These programs must assure that such credit and services are available in
coordination with other units of the Farm Credit System serving the territory and with other
governmental and private sources of credit. 12 U.S.C. § 2207(a).




Page 8                                         GAO-19-539 Socially Disadvantaged Farmers
•    Commercial banks. Commercial banks are regulated by the federal
     depository institution regulators. 21 They vary in size and the type of
     credit they provide. In a January 2013 report, we found that large
     banks were more likely to engage in transactional banking, which
     focuses on highly standardized products that require little human input
     to manage and are underwritten using statistical information. 22 We
     also found that small banks were more likely to consider not only data
     models but information acquired by working with the customer over
     time. Additionally, we found that by using this banking model, small
     banks may be able to extend credit to customers who might not
     receive a loan from a larger bank. The American Bankers Association
     reported that in 2017, the majority of farm banks—those that made
     more agricultural loans than the industry average—were small
     institutions with a median asset size of $125 million. 23
•    USDA Farm Service Agency. USDA’s Farm Service Agency makes
     direct loans to farmers and ranchers and guarantees loans made by
     commercial lenders and Farm Credit System associations. The Farm
     Service Agency is a lender that focuses on assistance to beginning
     and underserved farmers and ranchers who are unable to obtain
     credit elsewhere. For its guaranteed loans, the agency typically
     guarantees 90 percent of losses the lender might incur in the event
     that a borrower defaults, although the agency may guarantee up to 95
     percent for qualifying loans to certain groups, including SDFRs.
     Guaranteed loan terms and interest rates are set by the lender,
     though USDA has established maximum rates and terms. Agricultural
     loans guaranteed by the Farm Service Agency generally account for
     about 4–5 percent of outstanding loans made by the Farm Credit
     System and commercial banks and credit unions.
•    Other lenders. A variety of other businesses and individuals provide
     agricultural credit to farmers and ranchers, including credit unions, life
     insurance companies, farm implement dealers, and family members.
     According to the National Credit Union Administration, agricultural
     lending represents a small portion (less than several basis points) of


21
  The federal depository institution regulators for commercial banks include the Board of
Governors of the Federal Reserve System, the Office of the Comptroller of the Currency,
and the Federal Deposit Insurance Corporation.
22
 GAO, Financial Institutions: Causes and Consequences of Recent Bank Failures,
GAO-13-71 (Washington, D.C.: Jan. 3, 2013).
23
  American Bankers Association, 2017 Farm Bank Performance Report (Washington,
D.C.: 2017).




Page 9                                         GAO-19-539 Socially Disadvantaged Farmers
                               credit union lending. 24 Historically, life insurance companies have
                               used agricultural real estate mortgages as part of their investment
                               portfolios. 25 Farm implement dealers sell machinery, parts, and
                               services and offer financing for those products. According to USDA
                               survey data, implement dealers currently provide almost one-third of
                               the agricultural sector’s farm operating debt with terms longer than 1
                               year and are an increasing source of agricultural credit.
                          According to USDA’s Economic Research Service, in 2017, the Farm
                          Credit System and commercial banks accounted for the bulk of
                          agricultural lending in the United States, comprising about 80 percent of
                          the total outstanding farm debt. The remaining debt was USDA Farm
                          Service Agency direct loans and loans made by other lenders. 26



Information Is
Limited, but Survey
Data Provide Some
Insights into Credit to
Socially
Disadvantaged
Farmers and
Ranchers




                          24
                            The National Credit Union Administration supervises federally chartered credit unions
                          and insures deposits in federally chartered and the majority of state-chartered credit
                          unions. A basis point is 1/100 of a percent.
                          25
                            According to the American Council of Life Insurers, farm mortgages accounted for 4.2
                          percent ($22 billion) of total mortgages held by life insurers in 2017. American Council of
                          Life Insurers, Life Insurers Fact Book 2018 (Washington, D.C.: 2018).
                          26
                            U.S. Department of Agriculture, Economic Research Service, U.S. and State-Level Farm
                          Income and Wealth Statistics, accessed May 13, 2019. https://www.ers.usda.gov/data-
                          products/farm-income-and-wealth-statistics/.




                          Page 10                                         GAO-19-539 Socially Disadvantaged Farmers
Regulatory Data Collection   Information on the types and amount of agricultural credit to SDFRs is
Restrictions Limit What Is   limited. Regulation B, which implements the Equal Credit Opportunity Act
                             (ECOA), generally prohibits lenders from collecting data on the personal
Known about Agricultural
                             characteristics (such as sex, race, and national origin) of applicants for
Credit to Socially           loans other than certain mortgages. 27 Therefore, financial institutions and
Disadvantaged Farmers        their regulators generally do not have information on the types or amount
and Ranchers                 of agricultural lending to SDFRs. In contrast, USDA collects and
                             maintains personal characteristic data on applicants for the farm loans it
                             makes or guarantees in order to target loans to traditionally underserved
                             populations and fulfill statutorily mandated reporting requirements. 28

                             The lack of personal characteristic data on a large portion of agricultural
                             loan applications limits the ability of regulators, researchers, and
                             stakeholders to assess potential risks for discrimination. In a July 2009
                             report, we found that federal enforcement agencies and depository
                             institution regulators faced challenges in consistently, efficiently, and
                             effectively overseeing and enforcing fair lending laws due in part to data
                             limitations. 29 Additionally, we found that such data would enhance
                             transparency by helping researchers and others better assess the
                             potential risk for discrimination. For our current review, some federal
                             depository institution regulators we spoke with said that additional data on
                             nonmortgage lending would allow them to perform additional
                             assessments of financial institutions’ compliance with fair lending laws. 30
                             Some SDFR advocates we spoke with also expressed concern about the
                             lack of accurate public information on lending to SDFRs, which they said
                             forces them to rely on anecdotal evidence in attempts to monitor potential
                             discrimination.




                             27
                               See 12 C.F.R. § 1002.5(b); see also 12 C.F.R. § 1002.5(a) (setting forth certain
                             circumstances when a creditor may obtain otherwise protected applicant information).
                             ECOA prohibits creditors from discriminating against credit applicants on the basis of race,
                             color, religion, national origin, sex, marital status, or age; because an applicant receives
                             income from a public assistance program; or because an applicant has in good faith
                             exercised any right under the Consumer Credit Protection Act. 15 U.S.C. § 1691(a).
                             28
                               See eg. 7 U.S.C. §§ 2003, 2008d, 2008x.
                             29
                               GAO, Fair Lending: Data Limitations and the Fragmented U.S. Financial Regulatory
                             Structure Challenge Federal Oversight and Enforcement Efforts, GAO-09-704
                             (Washington, D.C.: July 15, 2009).
                             30
                               The regulators did not offer views on CFPB’s rulemaking activities discussed later in this
                             section.




                             Page 11                                        GAO-19-539 Socially Disadvantaged Farmers
A rulemaking pursuant to Section 1071 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act) would modify the
Regulation B prohibition for certain loans, including possibly some
agricultural loans. 31 Section 1071 amended ECOA, requiring financial
institutions to report information on credit applications made by women-
owned, minority-owned, and small businesses. However, in April 2011,
CFPB issued a letter stating that the requirements under Section 1071 do
not go into effect until CFPB issues implementing regulations. The
purpose of Section 1071 is “to facilitate enforcement of fair lending laws
and enable communities, governmental entities, and creditors to identify
business and community development needs and opportunities of
women-owned, minority-owned, and small businesses.” 32 Section 1071 is
consistent with our 2009 report on fair lending issues, which said
Congress should consider requiring additional data collection and
reporting for nonmortgage loans. 33 Section 1071 did not specify a time
frame for CFPB to complete its rulemaking.

As of June 2019, CFPB had not yet completed a rulemaking
implementing Section 1071 of the Dodd-Frank Act. 34 In 2017, CFPB
issued a request for information seeking public comment on topics related
to the collection of data on small business lending. However, in
November 2018, CFPB announced that it was delaying the rulemaking
due to resource constraints and other priorities. CFPB reported in the
Spring 2019 Unified Agenda of Federal Regulatory and Deregulatory
Actions that it plans to resume pre-rulemaking activities later in 2019. 35


31
  Dodd-Frank Act, Pub. L. No. 111-203, § 1071, 124 Stat. 1376, 2056 (2010), codified at
15 U.S.C. § 1691c-2.
32
  Dodd-Frank Act, Pub. L. No. 111-203 § 1071(a), 124 Stat. 1376, 2056 (2010), codified
at 15 U.S.C. § 1691c-2(a).
33
  GAO-09-704.
34
  Under the Dodd-Frank Act, the Board of Governors of the Federal Reserve System
(Federal Reserve) retained ECOA rulemaking authority for certain motor vehicle dealers
that offer credit and, therefore, responsibility for Section 1071 rules related to that industry.
See Dodd-Frank Act, Pub. L. No. 111-203, § 1029(a) (2010). In September 2011, the
Federal Reserve published a final rule that excepted motor vehicle dealers subject to the
Federal Reserve’s jurisdiction from complying with Section 1071 until the effective date of
later implementing regulations. See 76 Fed. Reg. 59237 (Sept. 26, 2011). Agency officials
have stated publicly and to Congress that implementation of Section 1071 rules should be
done collectively with CFPB, either as a joint rule or as concurrent rules. Consequently,
the Federal Reserve is following CFPB’s timing and has not yet issued a rule.
35
 Bureau of Consumer Financial Protection, Semiannual Regulatory Agenda, 84 Fed.
Reg. 29730 (June 24, 2019).




Page 12                                           GAO-19-539 Socially Disadvantaged Farmers
Survey Data Have            USDA’s annual survey of farm producers, the Agricultural Resource
Limitations but Provide     Management Survey, provides some insights into agricultural lending to
                            SDFRs but has limitations when used for this purpose. 36 The limitations
Information on the Farm
                            fall into two main categories, as follows:
Debt and Credit Providers
of Socially Disadvantaged   •    First, the sample size used in the survey does not allow for capturing
Groups                           potential differences in the credit needs and challenges of specific
                                 socially disadvantaged subgroups. The relatively small proportion of
                                 SDFRs in the survey’s sample population renders estimates of SDFR
                                 farm debt less precise. 37 To increase the precision of its estimates,
                                 USDA averaged 3 years of survey data (2015–2017) to increase the
                                 sample size of SDFRs available for analysis. Due to the small size of
                                 several SDFR subgroups, we analyzed SDFRs as a single combined
                                 group. 38
                            •    Second, the survey may underrepresent the total outstanding farm
                                 debt of socially disadvantaged groups and should be interpreted with
                                 caution, according to USDA officials. As previously discussed, the
                                 2017 Census questionnaire included revisions that better captured the
                                 role of SDFRs in farm operations, and its results suggest that the
                                 2012 Census and the 2015–2017 surveys (which used similar
                                 methodologies) may have underreported the number of SDFRs




                            36
                              The Agricultural Resource Management Survey is a multiphase series of interviews that
                            uses a multiframe, stratified, probability-weighted sampling design. The survey does not
                            include Hawaii or Alaska.
                            37
                              A margin of error (or confidence interval) measures the precision of survey results by
                            providing the range around a statistical estimate where the true value is likely to exist. If
                            an estimate's margin of error is small, the estimate has a lower amount of random error
                            and is therefore more precise and known with greater certainty.
                            38
                              Women of any race or ethnicity comprised 70 percent of SDFRs in the survey, and
                            members of Hispanic or nonwhite groups comprised 36 percent.




                            Page 13                                          GAO-19-539 Socially Disadvantaged Farmers
     designated as primary producers, particularly women. 39 Specifically,
     in the 2015–2017 surveys, SDFRs represented 17 percent 40 of
     primary producers, whereas in the 2017 Census, SDFRs accounted
     for 30 percent of primary producers. 41 However, the potential
     underrepresentation issue should not affect the statistical significance
     of comparisons between the SDFR and non-SDFR subgroups within
     the survey.

With these caveats in mind, the 2015–2017 survey data suggest that
SDFR primary producers had annual average outstanding farm debt of
$20.0 billion ($17.5–$22.6 billion at the 90 percent confidence level). 42
This estimate represents debt used specifically for farm purposes. 43 Farm
ownership debt was a larger share of SDFR outstanding farm debt than it




39
  The surveys identified primary producers (using the term principal operator, which
generally has the same meaning) in a somewhat less systematic and inclusive way than
the 2017 Census. The 2015 and 2016 surveys did not include specific decision-making
questions and asked respondents to identify the primary producer. The 2017 survey asked
respondents to identify the primary producer after answering questions about decision-
making roles. The 2017 Census asked respondents questions about decision-making
roles, but it did not have respondents identify the primary producer. Rather, USDA’s
National Agricultural Statistics Service used responses from the decision-making
questions and a question about the amount of time spent working off the farm to designate
the primary producer from among up to four principal decision makers. Specifically, USDA
designated the person who made the most decisions for the farm, or, if equal decisions
were made, the person who worked off the farm the least, as the primary producer. In the
case of equal decisions and equal time off the farm, USDA chose the primary producer at
random.
40
  The confidence interval for this estimate is 16–18 percent at the 90 percent confidence
level.
41
  The contribution of SDFR primary producers in the 2015–2017 survey is roughly
comparable to the corresponding figure in the 2012 Census (20 percent), which used a
similar methodology. Throughout this report, we rounded estimated percentages and
associated confidence intervals to the nearest whole number.
42
  The data are adjusted for inflation to 2017 dollars. To create standard errors for 3-year
averages, loan volumes were adjusted to 2017 dollars using the chain-type gross
domestic product deflator. The confidence interval is the range that would contain the
actual farm debt value for 90 percent of the farm operator samples that USDA could have
drawn.
43
  The Agricultural Resource Management Survey measures farm business debt. Farm
business debt excludes debt for producer dwellings that are not part of the farm operation,
and also excludes nonfarm-use-dwellings and nonfarm debt secured by farm assets and
held by the primary producer, nonproducer landlords, or others.




Page 14                                        GAO-19-539 Socially Disadvantaged Farmers
                                         was for all other farmers and ranchers. 44 Among SDFR primary
                                         producers, farm ownership debt was estimated to account for 67
                                         percent 45 of outstanding farm debt, compared to an estimated 59
                                         percent 46 for non-SDFR primary producers (see fig. 1). Farm operating
                                         debt accounted for the remaining 33 percent 47 and 41 percent 48 of
                                         outstanding SDFR and non-SDFR farm debt, respectively.

Figure 1: Estimated Outstanding Farm Debt, Annual Average in 2015–2017 (dollars in billions)




                                         Note: The estimates are part of a probability-weighted survey, so that each observation has a
                                         different weight to reflect its probability of selection across the 3-year timespan and, therefore, what
                                         part of the sampled universe it represents. To create standard errors for 3-year averages, loan
                                         volumes are adjusted to 2017 dollars using the chain-type gross domestic product deflator.

                                         44
                                           The estimates come from survey data. USDA provided us with the 90 percent
                                         confidence interval associated with each estimate. Because the confidence interval
                                         around the estimate of SDFR farm ownership debt does not overlap with the confidence
                                         interval around the estimate of non-SDFR farm ownership debt, we conclude that the
                                         estimates are statistically different at the alpha = 10 percent level of significance.
                                         45
                                           The confidence interval for this estimate is 63–71 percent at the 90 percent confidence
                                         level.
                                         46
                                           The confidence interval for this estimate is 57–60 percent at the 90 percent confidence
                                         level.
                                         47
                                           The confidence interval for this estimate is 29–37 percent at the 90 percent confidence
                                         level.
                                         48
                                           The confidence interval for this estimate is 40–43 percent at the 90 percent confidence
                                         level.




                                         Page 15                                                GAO-19-539 Socially Disadvantaged Farmers
SDFRs received proportionately fewer loans and less agricultural credit
overall than non-SDFRs. Specifically, SDFRs accounted for an estimated
17 percent 49 of primary producers in the survey but only 13 percent 50 of
farms with loans and 8 percent 51 of total outstanding farm debt. 52 SDFR
debt represented an estimated 9 percent 53 of total farm ownership debt
and 7 percent 54 of total farm operating debt (see table 3). Therefore, even
though farm ownership debt comprised most outstanding SDFR farm debt
(67 percent), SDFR primary producers were still less likely to have
outstanding farm ownership debt than all other farmers and ranchers. 55




49
  The confidence interval for this estimate is 16–18 percent at the 90 percent confidence
level.
50
  The confidence interval for this estimate is 11–14 percent at the 90 percent confidence
level.
51
  The confidence interval for this estimate is 7–9 percent at the 90 percent confidence
level.
52
  Most farms in the survey (about 68 percent) did not have outstanding loans, which is
consistent with previous survey results. The estimates come from survey data. USDA
provided us with the 90 percent confidence interval associated with each estimate.
Because the confidence intervals around the estimates do not overlap, we conclude that
the estimates are statistically different at the alpha = 10 percent level of significance.
53
  The confidence interval for this estimate is 8–11 percent at the 90 percent confidence
level.
54
  The confidence interval for this estimate is 5–8 percent at the 90 percent confidence
level.
55
  The estimates come from survey data. USDA provided us with the 90 percent
confidence interval associated with each estimate. Because the confidence interval
around the estimate of the percentage of SDFR primary producers does not overlap with
the confidence interval around the estimate of the percentage of SDFR primary producers
with outstanding farm ownership debt, we conclude that the estimates are statistically
different at the alpha = 10 percent level of significance.




Page 16                                        GAO-19-539 Socially Disadvantaged Farmers
Table 3: Estimated SDFR Share of Farms and Farm Debt, Annual Average, 2015–
2017

                                                                 Estimated SDFR                 Ninety percent
                                                                    share of total          confidence interval
                                                                        (percent)                    (percent)
 Farms                                                                                 17                16–18
 Farms with outstanding debt                                                           13                11–14
 All outstanding farm debt (ownership                                                   8                  7–9
 and operating)
 Outstanding farm ownership debt                                                        9                 8–11
 Outstanding farm operating debt                                                        7                  5–8

Legend: SDFR = socially disadvantaged farmers and ranchers
Source: GAO analysis of USDA’s Agricultural Resource Management Survey. | GAO-19-539

Note: Percentages represent the share of farms or farm debt belonging to farms whose primary
producer was an SDFR. The percentages and associated confidence intervals are rounded to the
nearest whole number. The estimates are part of a probability-weighted survey, so that each
observation has a different weight to reflect its probability of selection across the 3-year timespan
and, therefore, what part of the sampled universe it represents. To create standard errors for 3-year
averages, loan volumes are adjusted to 2017 dollars using the chain-type gross domestic product
deflator.


While the survey data show that SDFRs had proportionately less
agricultural credit than non-SDFRs, the survey does not provide
information on the reasons why. However, a number of factors may help
explain these differences. For example, the 2017 Census shows that
SDFRs are more likely than non-SDFRs to operate smaller farms with
less market value, and smaller farms may require less credit to operate.
In addition, as discussed later in this report, SDFRs may have greater
difficulty qualifying for agricultural loans or may be dissuaded from
applying for credit.

SDFR primary producers generally borrowed from the same type of
lenders as non-SDFRs and reported using a range of agricultural credit
providers. The distribution of SDFR and non-SDFR farm debt by lender
type in the survey was roughly similar, with all differences within the
margin of error (at the 90 percent confidence level). According to the
survey data, an estimated 51 percent 56 of SDFRs’ outstanding farm debt
was lent by commercial banks and savings associations. Lending by



56
  The confidence interval for this estimate is 45–57 percent at the 90 percent confidence
level.




Page 17                                                        GAO-19-539 Socially Disadvantaged Farmers
Farm Credit System institutions (28 percent 57), USDA’s Farm Service
Agency (6 percent 58), and other lenders, such as individuals and
equipment dealers (15 percent 59), comprised the remainder. 60 SDFRs
received a larger share of their operating credit, compared to ownership
credit, from lenders in the “other” category. 61 This was true for non-SDFR
operating debt as well. 62

These results should be interpreted cautiously because the information is
self-reported and respondents may not have known the specific types of
lenders they used. The survey results for all farms appear to
overrepresent debt from commercial banks and savings associations
when compared with data collected by USDA’s Economic Research




57
  The confidence interval for this estimate is 22–34 percent at the 90 percent confidence
level.
58
  The confidence interval for this estimate is 3–9 percent at the 90 percent confidence
level.
59
  The confidence interval for this estimate is 12–18 percent at the 90 percent confidence
level.
60
  According to the survey data, 52 percent (50–53 percent at the 90 percent confidence
level) of non-SDFRs’ outstanding farm debt was attributable to lending by commercial
banks and savings associations. Lending by Farm Credit System institutions (30 percent,
27–33 percent at the 90 percent confidence level), USDA’s Farm Service Agency (4
percent, 3–5 percent at the 90 percent confidence level), and other lenders such as
individuals and equipment dealers (15 percent, 12–17 percent at the 90 percent
confidence level) comprised the remainder.
61
  The estimates come from survey data. USDA provided us with the 90 percent
confidence interval associated with each estimate. Because the confidence interval
around the estimate of SDFR operating debt does not overlap with the confidence interval
around the estimate of SDFR ownership debt, we conclude that the estimates are
statistically different at the alpha = 10 percent level of significance.
62
  Non-SDFRs received 11 percent (6–16 percent at a 90 percent confidence interval) of
their ownership loans and 20 percent (18–23 percent at a 90 percent confidence interval)
of their operating loans from the “other” category.




Page 18                                        GAO-19-539 Socially Disadvantaged Farmers
                          Service on farm-sector balance sheets. 63 It is possible some respondents
                          mischaracterized some debt from Farm Credit System institutions as debt
                          from commercial banks.


About 11 Percent of       While loans guaranteed by USDA’s Farm Service Agency make up a
Lending Guaranteed by     small percentage of overall agricultural lending, the agency tracks how
                          much of this lending goes to SDFRs and the purpose of the loans
the Farm Service Agency   (ownership or operating). 64 In fiscal year 2018, the Farm Service Agency
Went to Socially          guaranteed $3.2 billion in new agricultural loans. About $340 million (10.8
Disadvantaged Farmers     percent) of this amount went to SDFRs (see fig. 2). By dollar volume,
and Ranchers              farm ownership loans accounted for about 71 percent of the guaranteed
                          loans to SDFRs. Farm operating loans accounted for the remaining 29
                          percent. Guaranteed farm ownership loans to SDFRs averaged about
                          $519,000, while farm operating loans averaged about $279,000.




                          63
                            Differences between the survey and balance-sheet data limit the comparability of the
                          two sources. The balance sheet data use a more expansive definition of farm debt and are
                          compiled from information filed by lenders, while the survey data are gathered from farm
                          producers. However, according to the balance sheet data, in 2015–2017, commercial
                          banks and savings associations accounted for 41 percent to 43 percent of outstanding
                          farm debt, and Farm Credit System institutions accounted for 40 percent to 41 percent. In
                          the survey data, commercial banks and savings associations accounted for 51 percent
                          (50–53 percent at the 90 percent confidence level) of outstanding farm debt, and Farm
                          Credit System institutions accounted for 30 percent (27–32 percent at the 90 percent
                          confidence level). U.S. Department of Agriculture, Economic Research Service, U.S. and
                          State-Level Farm Income and Wealth Statistics, accessed May 13, 2019.
                          https://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/.
                          64
                            Loans guaranteed by the Farm Service Agency account for about 4–5 percent of
                          outstanding debt each year.




                          Page 19                                       GAO-19-539 Socially Disadvantaged Farmers
Figure 2: Loans Guaranteed by the Farm Service Agency, Fiscal Year 2018 (dollars in millions)




                                         A 1988 amendment to the Consolidated Farm and Rural Development
                                         Act states that USDA should establish annual target participation rates for
                                         SDFRs on a county-wide basis for farm ownership loans and, to the
                                         greatest extent practicable, reserve funds for certain loans it makes or
                                         insures under these targets. 65 However, in August 2007, USDA’s Office of
                                         General Counsel provided a legal opinion that stated that the statute
                                         could be read to apply only to the direct loan program. 66 As a result,
                                         officials at the Farm Service Agency told us it does not set annual target
                                         participation rates by county or reserve funds for guaranteed loans. 67

                                         Over the last 5 fiscal years (2014–2018), the Farm Service Agency
                                         guaranteed an increasing number of loans to SDFRs each year. The
                                         agency guaranteed 489 loans to SDFRs in fiscal year 2014 and 817 loans
                                         in fiscal year 2018—a 5-year high. Over that period, the total dollar
                                         amount of guaranteed loans to SDFRs increased by 69.6 percent when

                                         65
                                           See Pub. L. No 100-233, § 617 (1988) (codified as amended at 7 U.S.C. § 2003).
                                         66
                                           An evaluation of USDA’s legal opinion on the statutory provision was outside the scope
                                         of our study.
                                         67
                                           For fund control purposes, the Farm Service Agency allots guaranteed loan funds for
                                         SDFRs and adjusts the allotment depending on demand for and availability of funding,
                                         according to agency officials. While the agency does not have specific performance
                                         targets for guaranteed lending to SDFRs, it has an annual performance measure for the
                                         combined percentage of direct and guaranteed loan borrowers who are socially
                                         disadvantaged.




                                         Page 20                                       GAO-19-539 Socially Disadvantaged Farmers
adjusted for inflation. 68 The increase was similar for farm ownership and
farm operating loans (see fig. 3).

Figure 3: Farm Service Agency–Guaranteed Loans to Socially Disadvantaged
Farmers and Ranchers, Fiscal Years 2014–2018




Note: Guaranteed loan volumes are adjusted to 2018 dollars using the gross domestic product price
index.


While the total dollar amount of guaranteed loans to SDFRs increased
each year, the percentage of guaranteed loans that went to SDFRs, by
dollar volume, decreased from fiscal years 2014 through 2016 (see fig. 4).
This percentage started increasing in fiscal year 2017, when SDFRs
accounted for 8.7 percent of guaranteed loans by dollar volume.
However, guaranteed loans to SDFRs still accounted for a slightly smaller
portion of all guaranteed loans in fiscal year 2018 (10.8 percent) than in
fiscal year 2014 (11.0 percent).



68
  Guaranteed loan volumes were adjusted to 2018 dollars using the gross domestic
product price index.




Page 21                                            GAO-19-539 Socially Disadvantaged Farmers
Figure 4: Percentage of Farm Service Agency–Guaranteed Loans, by Dollar Volume,
to Socially Disadvantaged Farmers and Ranchers, Fiscal Years 2014–2018




In fiscal year 2018, the dollar amount and percentage of guaranteed loan
funds that went to SDFRs differed substantially by state (see table 4).
Hawaii and Puerto Rico were the only two states or territories where
SDFRs received more than one-half of all guaranteed loans (farm
ownership and operating loans combined). However, Hawaii and Puerto
Rico received 0.1 percent of all guaranteed loans. For several states
where SDFRs received a large dollar amount of guaranteed loans, these
loans represented less than 20 percent of the state’s guaranteed loan
funds (for example, Arkansas, Missouri, and South Dakota). In contrast,
several states with the largest proportions of guaranteed loans to SDFRs
had less guaranteed loan funds overall (for example, Florida, Wyoming,
and Maryland). The Farm Service Agency did not guarantee any loans to
SDFRs in Alaska, Connecticut, New Hampshire, or Rhode Island in fiscal
year 2018.




Page 22                                  GAO-19-539 Socially Disadvantaged Farmers
Table 4: Top 10 State Recipients of FSA-Guaranteed Loans to Socially Disadvantaged Farmers and Ranchers (SDFR), Fiscal
Year 2018

                         Top states by dollar amount                                 Top states by percentage of guaranteed loans
                            Guaranteed loan amount                                             Guaranteed loan amount
                              (dollars in millions)                                              (dollars in millions)
                                                                   SDFR                                                             SDFR
                                    All              SDFR percentage of                               All          SDFR     percentage of
State                         borrowers          borrowers all borrowers   State                borrowers      borrowers    all borrowers
Oklahoma                            $109.4           $42.7           39    Puerto Rico                $1.7           $1.7             100
Texas                                149.9            37.4           25    Hawaii                      1.5            1.0              64
Arkansas                             184.4            28.2           15    California                 42.0           20.6              49
California                             42.0           20.6           49    Delaware                   11.5            4.8              42
Missouri                             106.4            14.5           14    Oklahoma                  109.4           42.7              39
Georgia                                59.4           13.8           23    Florida                    17.6            5.4              30
North Carolina                         51.6           11.5           22    Wyoming                    16.5            4.7              29
South Dakota                         112.4            11.5           10    Maryland                   14.8            3.9              26
Mississippi                            57.6           10.7           19    South Carolina             40.0           10.3              26
South Carolina                         40.0           10.3           26    Texas                     149.9           37.4              25

Legend: FSA = Farm Service Agency
Source: GAO analysis of FSA data. | GAO-19-539




Stakeholders
Identified Multiple
Challenges That
Socially
Disadvantaged
Farmers and
Ranchers Face in
Obtaining Private
Agricultural Credit




                                                      Page 23                                    GAO-19-539 Socially Disadvantaged Farmers
Smaller Operations,         According to representatives from some SDFR advocacy groups, federal
Weaker Credit Histories,    depository institution regulators, and lending industry associations we
                            interviewed, SDFRs can have difficulty obtaining agricultural credit from
and Land Ownership
                            private-sector lenders because they operate smaller farms and in some
Issues Reportedly Present   cases do not meet standards for farm revenue, applicant credit history,
Hurdles to Obtaining        and collateral. 69
Agricultural Credit
                            Farm size. As previously discussed, SDFRs are more likely than other
                            farmers and ranchers to operate small farms, which can make it difficult
                            for them to qualify for private credit. According to data from the 2017
                            Census of Agriculture, SDFRs represented 30 percent of primary
                            producers but operated 39 percent of farms smaller than 50 acres and 16
                            percent of farms 500 acres or larger. 70 Some SDFR advocates and
                            lending industry association representatives we interviewed said lenders
                            have several incentives to lend to larger farms. First, one advocate noted
                            that operators of smaller farms typically need smaller loans, and making
                            many small loans is more time- and resource-intensive than making
                            fewer, larger loans. Second, one industry association and one SDFR
                            advocate noted that large farms often produce major commodities such
                            as corn, soybeans, and beef cattle, while small farms often produce
                            specialty crops. The SDFR advocate said underwriting loans to large
                            farms that produce major commodities is easier and less risky because
                            more data are available on the market for those products. Third,
                            representatives of one SDFR advocacy group and one industry
                            association noted that programs such as crop insurance are geared
                            toward large, major-commodity farmers. They said these programs
                            mitigate repayment risk and make lenders more likely to approve a loan
                            or provide more favorable terms, such as lower interest rates. In contrast,
                            representatives from the Office of the Comptroller of the Currency noted




                            69
                              Collateral is an asset pledged as security to a lender until a loan is repaid. If the
                            borrower defaults, the lender generally has the legal right to seize or force the sale of the
                            collateral to pay off the loan.
                            70
                              The most recent data available at the time of our review indicate that these general
                            patterns held true for most SDFR subgroups. According to the 2012 Census of
                            Agriculture, only American Indian or Native Alaskan farmers and ranchers operated larger
                            farms on average than white farmers and ranchers. As of April 24, 2019, the
                            Race/Gender/Ethnicity Profile that documents this information was not yet available for the
                            2017 Census of Agriculture.




                            Page 24                                          GAO-19-539 Socially Disadvantaged Farmers
that the Community Reinvestment Act can provide incentives for banks to
lend to smaller farms. 71

Farm revenue. Consistent with their smaller size, SDFR farms also
generate less revenue on average than non-SDFR farms. As previously
noted, SDFR primary producers accounted for a disproportionally small
portion (13 percent) of total agricultural product sales in 2017 relative to
their overall representation among primary producers (30 percent). 72
Additionally, according to one SDFR advocate, SDFRs may have more
difficulty than other farmers and ranchers in documenting their revenue
because they are more likely to sell their products through informal cash
transactions.

Operating a lower-revenue farm and having limited documentation of
revenue can be hurdles to obtaining private credit because these factors
may negatively affect a lender’s assessment of the applicant’s repayment
ability. Federal depository institution regulators have noted that farm
revenue is critical to demonstrating a borrower’s capacity to repay an
agricultural loan. For example, in its risk management expectations for
agricultural credit, the Board of Governors of the Federal Reserve System
says banks should review borrower-prepared cash-flow statements to
identify potential repayment-ability problems. 73 Lenders consider farm
revenue when calculating an applicant’s debt-to-income ratio (the
percentage of income that goes to recurring debt payments), which is a
central underwriting criterion. In general, having lower income relative to
recurring debt payments indicates weaker repayment ability. Consistent
with this principle, Farm Credit Administration regulations require Farm
Credit System associations to have written policies and procedures that
include underwriting standards that demonstrate an applicant’s

71
  The Community Reinvestment Act is codified at 12 U.S.C. §§ 2901-2908. The act gives
consideration for (1) small farm loans whose original amounts are $500,000 or less and
were reported as either ‘‘Loans to finance agricultural production and other loans to
farmers’’ or ‘‘Loans secured by farmland’’ in the Reports of Condition and Income,
Schedule RC–C, Part I; and (2) within this group of loans, loans to farms with gross
annual revenues of $1 million or less.
72
  The most recent data available at the time of our review indicate that these general
patterns held true for most SDFR subgroups. According to the 2012 Census of
Agriculture, only Hispanic and Asian farmers had higher average product sales than white
farmers. As of April 24, 2019, the Race/Gender/Ethnicity Profile that documents this
information was not yet available for the 2017 Census of Agriculture.
73
  Board of Governors of the Federal Reserve System, Supervisory Expectations for Risk
Management of Agricultural Credit Risk (Washington, D.C.: Oct. 26, 2011).




Page 25                                       GAO-19-539 Socially Disadvantaged Farmers
repayment capacity when approving a loan. 74 Additionally,
representatives of one industry lending association said that revenue is
the most important factor that banks consider in underwriting agricultural
loans.

Credit history. Some SDFRs may have relatively low credit scores or
limited credit histories, which can make it difficult to obtain agricultural
credit. 75 Some SDFR advocates and lending industry association
representatives we interviewed said that some SDFR subgroups are
more likely than members of nondisadvantaged groups to have difficulty
meeting credit score standards for agricultural loans. Prior research
provides some evidence to support this view. For example, the Board of
Governors of the Federal Reserve System reported in 2007 that African
Americans and Hispanics had lower credit scores on average than non-
Hispanic whites and Asians, although the study did not specifically
examine farmers and ranchers. 76

While private agricultural lenders are not subject to federal statutory or
regulatory credit score requirements for approving agricultural loans,
federal depository institution regulators emphasize the importance of
evaluating applicants’ creditworthiness in their lending guidelines. For
example, the Office of the Comptroller of the Currency’s handbook on
agricultural lending states that current credit information is essential to a
bank’s ability to evaluate borrowers’ creditworthiness. 77 Lending industry
association representatives we interviewed also noted that underwriting
for agricultural lending is increasingly standardized and reliant on credit
scores. For example, representatives from the Farm Credit Council (the
trade association for the Farm Credit System) said approval decisions for
about one-half of the loans that Farm Credit System associations make
each year are made using credit scorecards. Credit scorecards are
algorithms that statistically quantify a borrower’s probability of repayment
using inputs such as the borrower’s credit score. Additionally,

74
  12 C.F.R. § 614.4150(g)(1).
75
  Credit scores are numeric indicators of a borrower’s ability to repay future obligations.
They generally range from 300 to 850 and are calculated based on credit reports from the
national credit bureaus.
76
  Board of Governors of the Federal Reserve System, Report to the Congress on Credit
Scoring and Its Effects on the Availability and Affordability of Credit (Washington, D.C.:
August 2007).
77
  Office of the Comptroller of the Currency. Comptroller’s Handbook: Agricultural Lending,
Version 1.3 (Oct. 15, 2018).




Page 26                                         GAO-19-539 Socially Disadvantaged Farmers
participation in the secondary market for agricultural loans may require
lenders to comply with credit score criteria. 78 For example, the Federal
Agricultural Mortgage Corporation (commonly known as Farmer Mac)—a
federal government-sponsored enterprise that purchases and securitizes
agricultural loans—has minimum credit score standards that range from
660 to 720.

Collateral. Some SDFRs face challenges using their agricultural land as
collateral. Many long-term agricultural loans require the borrower to
pledge land as collateral to secure the transaction. For example, long-
term loans (up to 40 years) made by Farm Credit System associations
must be secured by a first-position lien on interests in real estate,
generally enabling the Farm Credit System to obtain ownership or control
of the land in the event of default. Federal regulators, lending industry
association representatives, and SDFR advocates we spoke with
identified several reasons why SDFRs, especially African Americans and
American Indians on tribal lands, have difficulty using agricultural land as
loan collateral.

Some SDFRs do not have a clear title to their agricultural land because
the land was passed down informally from generation to generation
without a will. In addition, land passed down in this manner can result in
numerous heirs—thousands in some cases—owning the land in common
(that is, not physically divided among them). These circumstances can
limit use of the land as collateral because of lending requirements or
conventions that require formal proof of ownership or that disallow the
use of a partial ownership interest as security for a loan. 79 SDFR
advocates and officials from the Farm Credit Administration told us these
issues have particularly affected African American farmers due to
historical factors that limited their access to legal services. In our May
2019 report about lending on tribal lands, we discussed how these issues
also have posed problems for American Indian farmers. 80



78
  In the secondary market, lenders sell loans to entities that package the loans into
securities and sell the securities to investors.
79
  The 2018 Farm Bill included a provision that may make it easier for certain operators of
land with divided interests to be eligible for USDA programs by allowing eligible operators
on heirs property to obtain a farm number. See Agriculture Improvement Act of 2018, Pub.
L. No. 115-334, § 12615, 132 Stat. 4490, 5014 (2018).
80
  GAO-19-464.




Page 27                                         GAO-19-539 Socially Disadvantaged Farmers
                              As we also reported in May 2019, American Indian farmers on tribal lands
                              face additional challenges in using tribal land as collateral for agricultural
                              loans because of statutory restrictions and some lenders’ concerns about
                              their ability to enforce a foreclosure.


Farmer Advocates Report       SDFR advocates we spoke with said that in addition to difficulty meeting
Additional Challenges for     loan underwriting standards, SDFRs face challenges related to historical
                              discrimination, ongoing unfair treatment by lenders, and a lack of
Socially Disadvantaged
                              familiarity with some programs and technologies when trying to obtain
Farmers and Ranchers          private agricultural credit.
Seeking Agricultural Credit
                              As the Congressional Research Service reported in 2013, allegations of
                              unlawful discrimination against SDFRs in the management of USDA
                              programs are long-standing and well-documented. 81 For example, in
                              1965, the U.S. Commission on Civil Rights found evidence of
                              discrimination in the delivery of USDA farm programs, including loan
                              programs. 82 A subsequent report by the commission in 1982 and a report
                              by the USDA Civil Rights Action Team in 1997 found continuing problems
                              with the experience or treatment of SDFRs in USDA programs. 83 USDA
                              has also settled several class action lawsuits that SDFRs filed for, among
                              other things, discrimination in the agency’s farm assistance programs. 84
                              The allegations in these lawsuits included that USDA systematically
                              denied SDFRs agricultural credit and other program benefits in violation

                              81
                                Congressional Research Service, Garcia v. Vilsack: A Policy and Legal Analysis of a
                              USDA Discrimination Case (Washington, D.C.: Feb. 22, 2013).
                              82
                                U.S. Commission on Civil Rights, Equal Opportunity in Farm Programs: An Appraisal of
                              Services Rendered by Agencies of the United States Department of Agriculture
                              (Washington, D.C.: Feb. 27, 1965).
                              83
                                U.S. Commission on Civil Rights, The Decline of Black Farm Ownership in America.
                              (Washington, D.C.: 1982) and U.S. Department of Agriculture, Civil Rights at the United
                              States Department of Agriculture: A Report by Civil Rights Action Team. (Washington,
                              D.C.: February 1997).
                              84
                                Pigford v. Glickman was filed on behalf of African American farmers in 1997 and settled
                              in 1999, Keepseagle v. Vilsack was filed on behalf of Native American farmers in 1999
                              and settled in 2010, Love v. Vilsack was filed on behalf of female farmers in 2000, and
                              Garcia v. Vilsack was filed on behalf of Hispanic farmers in 2000. See Pigford v.
                              Glickman, Nos. 97–1978, 98–1693 (D.D.C. filed Aug. 28, 1997, July 7, 1998); Keepseagle
                              v. Vilsack, No. 99–03119 (D.D.C. filed Nov. 24, 1999); Garcia v. Vilsack, No. 00–2445
                              (D.D.C. filed Oct. 13, 2000); Love v. Vilsack, No. 00–2502 (D.D.C. filed Oct. 19, 2000).
                              Garcia and Love were consolidated on appeal and settled in 2011. In a 2010 settlement
                              referred to as Pigford II, additional funds were made available to African American farmers
                              who filed claims after the filing deadline for funds available under Pigford.




                              Page 28                                        GAO-19-539 Socially Disadvantaged Farmers
of ECOA and failed to investigate complaints of discrimination, as
required by USDA regulations. 85 The settlements made more than $4
billion in awards available to farmers and ranchers whose claims were
approved through administrative procedures.

Some SDFR advocates told us that historical discrimination in agricultural
lending adversely affects SDFRs’ current ability to obtain private credit in
several ways. First, they said SDFRs who were unfairly denied USDA
loans and other program benefits in the past have not been able to
develop their farms in the same ways as farmers and ranchers who did
receive loans, thus reducing their ability to obtain private credit today. The
advocates elaborated that USDA agricultural credit allows recipients to
expand operations and to purchase land and equipment that can later be
used as collateral, making it easier to get subsequent and larger loans.
Some SDFR advocates also stated that historical exclusion from credit
markets and farm programs has limited SDFRs’ familiarity with lending
standards and resulted in less formal recordkeeping, which impairs their
ability to obtain private-sector credit. Finally, advocates said that historical
discrimination has led generations of SDFRs to distrust institutional
lenders, making them less likely to apply for credit.

Some SDFR advocates we spoke with said that unfair treatment by
private lenders is also a barrier to SDFRs obtaining private agricultural
credit. One SDFR advocate said some lenders discriminate against
SDFRs in loan approval decisions but that they more frequently treat
SDFRs unfairly with respect to loan terms and conditions (for example,
interest rates, fees, and collateral requirements) and loan servicing (for
example, restructuring and foreclosure mitigation actions). Another noted
that adverse loan terms and conditions and servicing practices can
increase the risk that borrowers will lose their farm, house, and other
property by making the loan unaffordable or reducing the chances that
borrowers will catch up on payments if they fall behind. For example, this
SDFR advocate said they were aware of cases in which (1) lenders
required SDFRs to pledge potentially excessive collateral for loans, such
as the borrower’s home in addition to the farm land, and (2) loan servicers
moved more quickly to foreclose on SDFR borrowers who were behind on

85
  We previously reported that USDA’s Office of Civil Rights had significant problems in
processing discrimination complaints in a timely manner. See GAO, U.S. Department of
Agriculture: Recommendations and Options to Address Management Deficiencies in the
Office of the Assistant Secretary for Civil Rights, GAO-09-62 (Washington, D.C.: Oct. 22,
2008).




Page 29                                        GAO-19-539 Socially Disadvantaged Farmers
loan payments than on other borrowers and did not provide repayment
options that may have allowed them to continue their operations. One
SDFR advocate also stated that some SDFRs report not feeling welcome
at lending institutions based on the perception of having been repeatedly
dismissed by lender staff, while another said that in some cases, SDFRs
have not been provided timely or helpful information on the loan
application process. One SDFR advocate we spoke with said these
practices are prevalent in some agricultural credit markets and that they
had been or were currently involved in litigation related to these types of
practices.

However, banking industry association representatives said they did not
believe that SDFRs are being treated unfairly and that denying loans to
qualified applicants would cause lenders to decrease profits in a
competitive market. They noted that lenders face significant competition,
which incentivizes them to make loans to all qualified borrowers, and that
lending decisions and loan terms are based only on the applicant’s ability
to repay a loan and other underwriting criteria. We did not attempt to
independently verify claims of unfair treatment of SDFRs by private-sector
lenders, in part because data limitations discussed earlier limit the
identification and analysis of possible discriminatory practices.

Some SDFR advocates also said that some SDFRs may not be obtaining
private agricultural credit because they are not aware of all potential credit
options and related programs and are not always familiar with the
technology needed to access them. For example, one advocate told us
some SDFRs may not be aware that they could qualify for private
agricultural loans, especially if they are recent immigrants or new to
agriculture. This problem may be particularly true for loans from the Farm
Credit System associations. Two advocates said SDFRs are not familiar
with these lenders, and representatives of the Farm Credit Council told us
people who did not grow up in farming tended not to know about the Farm
Credit System. SDFR advocates we spoke with said this issue is
exacerbated by limited outreach by private lenders to SDFRs, as
discussed in more detail later in this report. Advocates also noted that
historically disadvantaged groups are less likely to have access to or be
familiar with computer technology and the internet, and that credit
applications and related financial education programs are now provided
online.




Page 30                                 GAO-19-539 Socially Disadvantaged Farmers
Lenders and Federal
Agencies Conduct
Some Outreach to
Socially
Disadvantaged
Farmers and
Ranchers, but the
Effectiveness of
These Efforts Is
Unknown
Farm Credit System         The Farm Credit System does not have a specific mandate to serve
Outreach Is Not            SDFRs, but its associations conduct some outreach to SDFRs in
                           implementing the following statutory requirements and Farm Credit
Specifically Targeted to
                           Administration regulations.
Socially Disadvantaged
Groups, and Data           •    The Farm Credit Act of 1971 was amended in 1980 to require the
Collection Restrictions         Farm Credit System to serve young, beginning, and small farmers. 86
Prevent Assessment of           Related Farm Credit Administration regulations require the
                                associations to implement effective outreach programs to these
Impact                          groups. While these requirements do not mandate outreach to SDFRs
                                specifically, Farm Credit Administration officials said that many
                                SDFRs qualify as young, beginning, or small farmers and, therefore,




                           86
                             Pub. L. No. 96-592, § 403 (1980) (codified as amended at 12 U.S.C. § 2207). The Farm
                           Credit Administration defines young farmers as farmers, ranchers, or producers or
                           harvesters of aquatic products who are 35 years old or younger as of the loan transaction
                           date and beginning farmers as those who have 10 years or less of farming, ranching, or
                           aquatic experience as of the loan transaction date. Small farmers are those who normally
                           generate less than $250,000 in annual gross sales of agricultural or aquatic products. The
                           Farm Credit System is not statutorily mandated to focus on providing financial
                           opportunities to any other groups of eligible agricultural producers besides young,
                           beginning, and small farmers. The Farm Credit System is tasked by statute to be
                           responsive to the credit needs of all types of eligible and creditworthy agricultural
                           borrowers.




                           Page 31                                        GAO-19-539 Socially Disadvantaged Farmers
     that Farm Credit System outreach efforts reach SDFRs to some
     extent. 87
•    In 2012, the Farm Credit Administration amended its regulations on
     business planning to help ensure the Farm Credit System is
     responsive to the credit needs of all eligible and creditworthy
     persons. 88 The regulations, which first applied to 2013 business
     plans, require Farm Credit System associations to develop marketing
     plans describing, among other things, (1) the demographic groups in
     their service areas, (2) ways to market their services to all qualified
     farmers and ranchers, and (3) specific outreach toward diversity and
     inclusion in each market segment. 89 The supplementary information
     included with the publication of the final rule cites the perception of
     some SDFR advocates that Farm Credit System associations are not
     accessible to underserved farmers and have not conducted sufficient
     outreach to those populations about programs and services.

The full extent of the Farm Credit System associations’ outreach to
SDFRs is unknown. Neither the Farm Credit Administration nor the Farm
Credit Council maintains aggregated information on the number or type of
completed outreach activities involving SDFR participants. However, our
nongeneralizable review of recent marketing plans from six Farm Credit
System associations in areas with relatively high proportions of SDFRs
identified some examples of outreach to SDFRs. For instance, some
associations have partnered with a nonprofit organization to provide
educational programs designed to strengthen women’s roles in the
modern farm enterprise. Associations have also participated in
agricultural conferences at historically black colleges and universities and
translated marketing materials for non-English speakers.



87
  Data from the 2017 Census support this view. For example, in 2017, 26 percent of
SDFR primary producers had less than 10 years of farming experience, which would
qualify them as beginning farmers, and at least 87 percent would qualify as small farmers
based on their sales of agricultural products.
88
  Farm Credit System associations are not evaluated under the Community Reinvestment
Act, which requires certain federal banking regulators to assess whether financial
institutions they supervise are meeting the credit needs of the local communities.
89
  Farm Credit System marketing plans are also required to include strategies and actions
to promote diversity and inclusion within the bank or association’s workforce and
management, in part on the basis that diverse perspectives within institutions can help
increase diversity among customers. See generally, 12 C.F.R. § 618.8440 and 77 Fed.
Reg. 25577 (May 1, 2012).




Page 32                                       GAO-19-539 Socially Disadvantaged Farmers
Despite some outreach, some SDFR advocates we spoke with said that
Farm Credit System associations’ outreach has had limited effects on the
amount of credit provided to SDFRs and SDFRs’ familiarity with the
system. One SDFR advocate we spoke with said that while some Farm
Credit System associations engage with socially disadvantaged
communities, the outreach has not increased the diversity of the system’s
borrowers. Others said that Farm Credit System outreach to SDFR
communities has been insufficient and that some SDFRs are still not
aware of the Farm Credit System. However, one SDFR advocate noted
that the Farm Credit System’s outreach to young, beginning, and small
farmers has been beneficial for those populations.

The impact of Farm Credit System associations’ outreach to SDFRs is
also not known. The marketing plan requirement does not oblige Farm
Credit System associations to meet specific lending goals or favor any
type or group of agricultural producers in their underwriting. Accordingly,
the associations are not expected to quantify the extent to which they are
meeting their diversity and inclusion outreach plans in the information
they provide to their boards of directors. Moreover, Farm Credit
Administration officials said Regulation B, discussed earlier, prevents the
associations from collecting data on the race, ethnicity, and sex of loan
applicants that would be needed to assess the effects of outreach efforts
on lending to socially disadvantaged groups. In contrast, the officials
noted that Farm Credit System associations are required to set lending
targets for young, beginning, and small farmers; monitor outreach to
those groups; and report on performance results of their young,
beginning, and small farmer programs. In 2018, the Farm Credit System
reported that all direct-lender institutions with young, beginning, and small
farmer programs within the system were in compliance with these
requirements. 90

While the Farm Credit Administration has not evaluated the impact of
outreach by Farm Credit System associations, its reviews of association
marketing plans have found that most of the plans comply with
requirements for outreach toward diversity and inclusion but that some
lack specificity. The Farm Credit Administration told us it examines all of
the associations’ marketing plans for regulatory compliance every 3



90
  Farm Credit Administration, Fiscal Year 2018 Performance and Accountability Report
(McLean, Va.: 2018).




Page 33                                      GAO-19-539 Socially Disadvantaged Farmers
years. 91 Farm Credit Administration officials reviewed their examinations
from 2014 and 2017, the two scheduled examination cycles after the new
requirements were implemented in 2012. They found that 85 percent of
the 78 Farm Credit System associations examined in 2014 complied with
the marketing and outreach requirements, and 94 percent of the 71
associations examined in 2017 complied. In cases where examiners
identified deficiencies in marketing plans, the agency said it prescribed
corrective actions, including requiring associations to do the following:

•    obtain sufficiently detailed information to analyze and understand
     potential markets;
•    develop specific action plans and outreach strategies to market the
     institution’s products and services to potentially underserved markets;
     and
•    ensure appropriate reporting on progress in accomplishing marketing
     plan strategies and actions.

Farm Credit Administration officials said they hold periodic discussions
with managers of Farm Credit System associations to monitor the status
of corrective actions and conduct follow-up examinations to determine the
adequacy of the corrective actions and, if applicable, the need for
additional enhancements.

The results of our review of a nongeneralizable sample of association
marketing plans were broadly consistent with the Farm Credit
Administration’s findings. We reviewed the most recent available plans of
the six Farm Credit System associations noted previously for evidence of
demographic information on the institution’s service area and for diversity
and inclusion outreach efforts. Among the plans we reviewed, five
included demographic information, but one did not. Farm Credit
Administration officials said they also had identified that deficiency in their
examination of that marketing plan. Additionally, five of the plans had
examples of planned outreach efforts to SDFRs, but another one did not.




91
  The Farm Credit Administration also told us it conducts supplemental examinations of
individual associations in between regularly scheduled examinations based on a risk
assessment.




Page 34                                       GAO-19-539 Socially Disadvantaged Farmers
Other Lenders Conduct         According to representatives of lending industry associations we
Little Outreach to Socially   interviewed, commercial banks generally do not target outreach for
                              agricultural lending to specific demographic groups. Officials from the
Disadvantaged Farmers
                              federal depository institution regulators noted that commercial banks and
and Ranchers and Are Not      credit unions are not required to conduct outreach on agricultural lending,
Required to Do So             and that the extent to which any lender conducts outreach is a private
                              business decision. However, officials from one federal depository
                              institution regulator noted that some lenders have participated in
                              conferences organized by SDFR groups. They also said that in fulfilling
                              responsibilities under the Community Reinvestment Act, lenders engage
                              with community groups in their assessment areas to help identify credit
                              needs. 92 The officials said these efforts would likely engage SDFRs in
                              areas where agriculture was prevalent and where agricultural lending was
                              part of a bank’s business model.

                              Some SDFR advocates we interviewed said that outreach and
                              engagement by commercial banks was insufficient. For example, despite
                              their familiarity with agricultural lending, some noted that they did not
                              know of any specific outreach to SDFRs by private-sector lenders. They
                              also noted that additional outreach is needed because some SDFRs are
                              not familiar with agricultural lending products offered by commercial
                              banks.

                              Federal depository institution regulators do not monitor outreach to
                              SDFRs by the institutions they supervise but have conducted some
                              additional outreach themselves. Officials from the regulatory agencies
                              told us they do not collect data on the amount of, types of, participation in,
                              or impact of outreach conducted by their regulated institutions. However,
                              as part of their efforts to promote the availability of credit and other
                              services, the federal depository institution regulators have engaged in
                              some outreach to SDFRs, as shown in the following examples.

                              •     The Office of the Comptroller of the Currency has established an
                                    Office of Minority and Women Inclusion and an Office of External
                                    Outreach and Minority Affairs, which help to address fair credit access
                                    issues affecting minority communities and have worked with some
                                    national SDFR groups to coordinate, facilitate, and implement
                                    conferences, roundtables, and seminars.



                              92
                                  See generally 12 U.S.C. §§ 2901-2908.




                              Page 35                                     GAO-19-539 Socially Disadvantaged Farmers
                            •   The Federal Deposit Insurance Corporation’s Community Affairs
                                Branch has engaged bankers, nonprofits, and other stakeholders to
                                provide small business training for SDFRs. This training provides
                                examples of small business lending and has highlighted programs for
                                which participants may qualify.
                            •   In 2017, the Federal Reserve Bank of St. Louis and the Board of
                                Governors of the Federal Reserve System engaged with federal
                                agencies, businesses, and groups representing SDFRs to develop
                                and publish a guide titled Harvesting Opportunity, which focuses on
                                how credit can provide greater support for local food-related
                                businesses and farmers. 93

USDA Conducts Outreach      USDA facilitates and provides outreach to SDFRs that some SDFR
to Socially Disadvantaged   advocates say has been beneficial, but outreach on USDA-guaranteed
                            farm loans is just one component of this broad-based effort. USDA’s
Groups on Its Lending
                            Office of Partnerships and Public Engagement implements the Outreach
Programs, but Data-         and Technical Assistance for Socially Disadvantaged and Veteran
Collection Challenges       Farmers and Ranchers Program, referred to as the Section 2501
Hamper Evaluation of        program. 94 The program is designed to enhance coordination of outreach,
Outcomes                    technical assistance, and education efforts authorized under agricultural
                            programs to improve SDFR and veteran farmer and rancher participation
                            in the full range of USDA programs, including guaranteed farm loans.
                            USDA officials said this program primarily provides grants and technical
                            assistance to community-based organizations and develops materials
                            describing best practices for national, state, and local outreach efforts.
                            Two SDFR advocates we interviewed said outreach programs
                            coordinated through the Section 2501 program have improved SDFRs’
                            understanding of USDA’s farm lending programs, and that the program’s
                            efforts to engage SDFRs in programs and services are better now than
                            they have been historically. USDA officials said they track these outreach
                            activities but do not maintain data on activities that specifically address
                            guaranteed loans because the outreach is generally intended to connect


                            93
                              Federal Reserve Bank of St. Louis and the Board of Governors of the Federal Reserve
                            System, Harvesting Opportunity: The Power of Regional Food System Investments to
                            Transform Communities (2017).
                            94
                              Section 2501 of the Food, Agriculture, Conservation, and Trade Act of 1990 established
                            this program. See Pub. L. No. 101-624 § 2501, 104 Stat. 3359 (1990). As amended, the
                            act establishes the program to encourage and assist SDFRs and veteran farmers or
                            ranchers in owning and operating farms and ranches, and in participating equitably in the
                            full range of agricultural programs offered by USDA. See 7 U.S.C. § 2279(c)(2)-(3).




                            Page 36                                       GAO-19-539 Socially Disadvantaged Farmers
socially disadvantaged groups with any USDA program that may be
appropriate.

In addition to department-level outreach activities, USDA’s Farm Service
Agency conducts outreach to increase SDFR participation in its programs
through activities targeted to underserved populations. Farm Service
Agency outreach efforts are conducted by the agency’s field offices and
overseen by the Outreach Office. The outreach includes lender trainings
and partnerships with community-based and tribal organizations to
engage socially disadvantaged communities. Farm Service Agency
officials said that they have partnered with private-sector lenders to
conduct some outreach events specifically related to the guaranteed farm
loan program but that most of the outreach is more general.

Farm Service Agency officials told us they use data on guaranteed loans
to SDFRs to target outreach to underserved communities. As previously
discussed, unlike other providers of agricultural credit, USDA generally
collects data on the personal characteristics of guaranteed loan
applicants and borrowers. Farm Service Agency officials told us that state
executive directors, farm loan chiefs, and outreach coordinators plan their
outreach in annual strategy sessions. As part of this planning, state
offices review the state’s lending goals for SDFRs, Census of Agriculture
data on the state’s farmer population, and data on Farm Service Agency
direct and guaranteed loans made to farmers belonging to different
socially disadvantaged groups to target outreach to underserved
communities. While the outreach is planned by state offices, the Farm
Service Agency’s Director of Outreach said the Outreach Office has
emphasized the use of lending goals and loan data in targeting outreach
efforts.

Although it maintains data on guaranteed loans made to SDFRs, USDA
generally does not evaluate whether SDFR outreach participants go on to
use Farm Service Agency lending programs or otherwise evaluate the
impact of its outreach on lending to SDFRs. Farm Service Agency
officials said that they track outreach activities at the national level by
monitoring the number of activities, the groups engaged, and the number
of participants, but that they face challenges evaluating the impact of
outreach efforts. The officials said any personal or demographic
information on outreach participants must be voluntarily provided by the




Page 37                                GAO-19-539 Socially Disadvantaged Farmers
                     participants, but that many of them are reluctant to do so. 95 As a result,
                     data on the characteristics of outreach participants are limited. The lack of
                     data, in turn, makes it difficult to assess how effectively the outreach was
                     targeted and whether it could be expected to increase lending to socially
                     disadvantaged groups. Representatives from one SDFR advocacy
                     organization said that while outreach programs may increase SDFRs’
                     understanding of USDA’s loan programs, it is unclear how much outreach
                     programs help SDFRs obtain credit because USDA does not track
                     participant outcomes. Farm Service Agency officials said that some of
                     their state offices have begun trying to track the progress of individual
                     outreach participants in obtaining loans through Farm Service Agency
                     programs (using voluntarily provided information), but that these efforts
                     were in the early stages.


                     We provided a draft of this report to USDA, the Farm Credit
Agency Comments      Administration, the Consumer Financial Protection Bureau, the Office of
and Our Evaluation   the Comptroller of the Currency, the Federal Deposit Insurance
                     Corporation, the Board of Governors of the Federal Reserve System, and
                     the National Credit Union Administration for their review and comment.
                     The Board of Governors of the Federal Reserve System and the National
                     Credit Union Administration did not provide comments. USDA, the Farm
                     Credit Administration, the Consumer Financial Protection Bureau, the
                     Office of the Comptroller of the Currency, and the Federal Deposit
                     Insurance Corporation provided technical comments, which we
                     incorporated as appropriate.


                     We are sending copies of this report to the appropriate congressional
                     committees, the Secretary of Agriculture, the Acting Chairman and Chief
                     Executive Officer of the Farm Credit Administration, and other interested
                     parties. In addition, the report is available at no charge on the GAO
                     website at http://www.gao.gov.




                     95
                       Farm Service Agency officials said that in the past the agency gathered demographic
                     information by visual observation of outreach participants but that the information was
                     unreliable.




                     Page 38                                       GAO-19-539 Socially Disadvantaged Farmers
If you or your staff have any questions about this report, please contact
me at (202) 512-8678 or ortiza@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO staff who made major contributions to this report are
listed in appendix II.




Anna Maria Ortiz
Acting Director, Financial Markets and Community Investment




Page 39                              GAO-19-539 Socially Disadvantaged Farmers
Appendix I: Objectives, Scope, and
                           Appendix I: Objectives, Scope, and
                           Methodology



Methodology

                           The objectives of this report were to examine (1) what is known about the
                           amount and types of agricultural credit to socially disadvantaged farmers
                           and ranchers (SDFR), (2) challenges SDFRs reportedly face in obtaining
                           agricultural credit, and (3) outreach efforts to SDFRs regarding
                           agricultural credit and related services.

                           In this report, we use the term SDFR as defined in the Consolidated Farm
                           and Rural Development Act, as amended, and related U.S. Department of
                           Agriculture (USDA) regulations. The act defines a socially disadvantaged
                           group as one whose members have been subject to racial, ethnic, or
                           gender prejudice because of their identity as members of a group without
                           regard to their individual qualities. 1 USDA regulations further define
                           SDFRs as belonging to the following groups: American Indians or
                           Alaskan Natives, Asians, Blacks or African Americans, Native Hawaiians
                           or other Pacific Islanders, Hispanics, and women. 2 Although the act and
                           USDA regulations defined SDFR for purposes of classifying participants
                           in USDA programs, in this report, we use USDA’s definition to identify
                           SDFRs both in USDA programs and in the broader population of
                           agricultural producers, consistent with the statutory provision this report
                           responds to. 3

                           Additionally, based on the language of the statutory provision, we
                           excluded USDA direct loans from the scope of our review and focused on
                           lending by private entities. The provision defines an agricultural credit
                           provider as a Farm Credit System institution, a commercial bank, the
                           Federal Agricultural Mortgage Corporation, a life insurance company, and
                           any other individual or entity as determined by the Comptroller General of
                           the United States.


Estimates of the Numbers   For the background section of this report, USDA’s National Agricultural
of Farms and Socially      Statistics Service provided estimates from the 2012 and 2017 Censuses
                           of Agriculture on the number of farm and ranch operations (which we
Disadvantaged Farmers
                           refer to as farms) whose primary producer—that is, main decision
and Ranchers               maker—qualified as an SDFR, broken down by different SDFR
                           subgroups. The service also provided estimates on the characteristics of
                           farms whose primary producer was an SDFR, including the total acreage

                           1
                           7 U.S.C. § 2003(e).
                           2
                           7 C.F.R. § 761.2.
                           3
                           See Pub. L. No. 115-334, § 5416(a)(2), 132 Stat. 4490, 4725 (2018).




                           Page 40                                     GAO-19-539 Socially Disadvantaged Farmers
                        Appendix I: Objectives, Scope, and
                        Methodology




                        and market value of products sold. We compared the 2017 Census
                        estimates of SDFR primary producers to analogous estimates from the
                        2012 Census and calculated numerical and percentage differences. We
                        reviewed documentation on the methodologies used by the 2012 and
                        2017 Censuses to identify the main decision maker on a farm. We also
                        interviewed National Agricultural Statistics Service officials about
                        methodological differences between the two censuses and their likely
                        effects on the number of reported SDFR primary producers. The 2012
                        Census used the term “principal operator” rather than “primary producer”
                        to identify the main farm decision maker, but for ease of presentation we
                        use the term primary producer in reference to both the 2012 and 2017
                        Censuses because the terms generally have the same meaning.


Amount and Types of     To examine what is known about the amount and types of agricultural
Credit to Socially      credit to SDFRs, we reviewed requirements in the Equal Credit
                        Opportunity Act and its implementing regulation (Regulation B) governing
Disadvantaged Farmers   the collection of data on the personal characteristics of loan applicants. 4
and Ranchers            We interviewed officials from the Consumer Financial Protection Bureau
                        (CFPB), which has primary responsibility for issuing Equal Credit
                        Opportunity Act regulations, about these requirements and the status of a
                        related rulemaking pursuant to a provision in the Dodd-Frank Wall Street
                        Reform and Consumer Protection Act. 5 We also interviewed officials from
                        the federal depository institution regulators—the Board of Governors of
                        the Federal Reserve System, Federal Deposit Insurance Corporation,
                        Office of the Comptroller of the Currency, and National Credit Union
                        Administration—about the extent of information available on agricultural
                        lending to SDFRs and about data restrictions stemming from Regulation
                        B. We also drew upon information and analysis from our June 2008 and
                        July 2009 reports on data limitations in nonmortage lending. 6




                        4
                         The Equal Credit Opportunity Act is codified at 15 U.S.C. §§ 1691-1691f. Regulation B is
                        codified at 12 C.F.R. pt. 1002.
                        5
                         The CFPB rulemaking relates to Section 1071 of the Dodd-Frank Wall Street Reform and
                        Consumer Protection Act. See Pub. L. No. 111-203, § 1071, 124 Stat. 1376, 2056 (2010)
                        (codified at 15 U.S.C. § 1691c-2).
                        6
                         GAO, Fair Lending: Race and Gender Data Are Limited for Nonmortgage Lending,
                        GAO-08-698 (Washington, D.C.: June 27, 2008) and Fair Lending: Data Limitations and
                        the Fragmented U.S. Financial Regulatory Structure Challenge Federal Oversight and
                        Enforcement Efforts, GAO-09-704 (Washington, D.C.: July 15, 2009).




                        Page 41                                       GAO-19-539 Socially Disadvantaged Farmers
Appendix I: Objectives, Scope, and
Methodology




Additionally, we analyzed data from USDA’s Agricultural Resource
Management Survey. The survey is a multiphase series of interviews that
uses a multiframe, stratified, probability-weighted sampling design. The
survey does not include Hawaii or Alaska. USDA’s Economic Research
Service provided us customized summary statistics from the 2015, 2016,
and 2017 surveys combined. Specifically, the service averaged survey
data for those 3 years to provide a robust sample size of surveyed
SDFRs. The service provided estimates and associated confidence
intervals on the proportion of primary producers who were and were not
SDFRs; 7 the annual average amount of outstanding farm debt each group
had over the 3-year period, by type of debt (ownership or operating); and
the lending source for this debt (USDA Farm Service Agency, Farm
Credit System institution, commercial bank and savings associations, or
other). 8 The service adjusted debt information for inflation. Specifically, to
create standard errors for the 3-year averages, the service adjusted
outstanding debt to 2017 dollars using the chain-type gross domestic
product deflator. We compared and contrasted survey statistics for
SDFRs and non-SDFRs, focusing on the volume and percentage of total
outstanding farm debt, farm ownership and operating debt, and lender
type. We interviewed Economic Research Service officials about
limitations of the survey data. The limitations include the small size of
several SDFR subgroups (which prevented more detailed analysis of
different demographic groups), the potential underrepresentation of
SDFRs in the survey, and potential overreporting of debt from commercial
lenders. With regard to lender type, respondents may not have known the
specific types of lenders they used. The survey results for all farms
appear to overrepresent debt from commercial banks and savings
associations when compared with data collected by the service on farm-




7
 The surveys defined main farm decision makers similarly to the 2012 Census and called
them principal operators. For presentation purposes, we refer to these individuals as
primary producers (consistent with terminology from the 2017 Census) because the terms
generally have the same meaning.
8
 The survey measures farm business debt, which excludes debt for producer dwellings
that are not part of the farm operation, non-farm-use dwellings, nonfarm debt held by the
primary producer, debt held by nonproducer landlords, and nonfarm debt held by others.




Page 42                                        GAO-19-539 Socially Disadvantaged Farmers
Appendix I: Objectives, Scope, and
Methodology




sector balance sheets. 9 It is possible some survey respondents
mischaracterized some debt from Farm Credit System institutions as debt
from commercial banks. These issues and their implications are
discussed in the body of this report.

To assess the reliability of the survey data, we reviewed methodology and
quality review documents and compared results to other publicly available
sources, such as farm balance-sheet data and the 2017 Census. We
concluded that the data were sufficiently reliable for describing the
amount and types of agricultural credit SDFRs received, the sources of
this credit, and how SDFRs and non-SDFRs compared along these
dimensions.

We also analyzed USDA data on farm ownership and farm operating
loans guaranteed by the Farm Service Agency in fiscal years 2014
through 2018. We focused on guarantees issued by the Farm Service
Agency because it operates the primary federal agricultural credit
programs. 10 For the 5-year period, we analyzed the annual amount and
percentage of guaranteed loans (by dollar volume and adjusted for
inflation) that went to SDFRs. We also separately examined trends in
guaranteed farm operating and farm ownership loans to SDFRs. Finally,
we analyzed the volume of guaranteed loans to SDFRs by state. We
used this analysis to identify the top 10 states (or territories) in terms of
(1) the dollar amount of guaranteed loans that went to SDFRs and (2) the
9
 Differences between the survey and balance-sheet data limit the comparability of the two
sources. The balance-sheet data use a more expansive definition of farm debt and are
compiled from information filed by lenders, while the survey data are gathered from farm
producers. However, according to the balance-sheet data, in 2015–2017, commercial
banks and savings associations accounted for 41 percent to 43 percent of outstanding
farm debt, and Farm Credit System institutions accounted for 40 percent to 41 percent. In
the survey data, commercial banks and savings associations accounted for 51 percent
(50–53 percent at the 90 percent confidence level) of outstanding farm debt, and Farm
Credit System institutions accounted for 30 percent (27–32 percent at the 90 percent
confidence level). U.S. Department of Agriculture, Economic Research Service, U.S. and
State-Level Farm Income and Wealth Statistics, accessed May 13, 2019.
https://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/.
10
  The Small Business Administration (SBA) also guarantees loans to agricultural business
operators, including to members of socially disadvantaged groups, through its 7(a) loan
program. We did not include SBA’s program in the scope of our review because 7(a) loans
account for about 1 percent of agricultural lending. In fiscal year 2016, SBA approved
approximately $708 million in 7(a) loans to agricultural businesses. At least 23.7 percent
of that amount represented loans to minority- or women-owned businesses. SBA officials
suggested that this percentage should be interpreted with caution because the
demographic data are voluntarily self-reported by small business applicants and are not
corroborated.




Page 43                                       GAO-19-539 Socially Disadvantaged Farmers
                          Appendix I: Objectives, Scope, and
                          Methodology




                          proportion of guaranteed lending to the state or territory that went to
                          SDFRs.

                          To assess the reliability of data from USDA, we conducted electronic
                          testing—including checks for missing data and erroneous values—and
                          compared the data to publicly available sources. The loan guarantee data
                          we present are somewhat different than publicly available information on
                          USDA’s website because we used loan closing dates to group loans by
                          fiscal year, while the publicly available data used the dates on which
                          USDA obligated commitment authority for the loans. According to USDA
                          officials, the closing date is a more accurate representation of the actual
                          amount of loans guaranteed in a fiscal year, because some loans for
                          which commitment authority is obligated may close in the following fiscal
                          year or not close at all. We also interviewed USDA officials about
                          interpretations of data fields and robustness of estimated values, among
                          other things, and reviewed USDA internal policies and procedures for
                          data entry. We concluded that the data were sufficiently reliable for
                          describing the amount and proportion of farm lending guaranteed by the
                          Farm Service Agency that went to SDFRs and non-SDFRs nationwide
                          and by state.

                          Finally, we reviewed documents and interviewed officials from the Farm
                          Service Agency on the agency’s performance goals and target
                          participation rates for farm lending to SDFRs. We also reviewed a 2007
                          USDA Office of General Counsel legal opinion on a statutory provision
                          concerning establishment of target participation rates for SDFRs. 11
                          However, an evaluation of the legal opinion was outside the scope of our
                          study.


SDFR Credit Challenges    To examine challenges SDFRs face in obtaining agricultural credit and
and Outreach Efforts to   outreach efforts to SDFRs regarding agricultural lending, we conducted
                          searches of government and academic literature for research on private
SDFRs
                          agricultural lending to socially disadvantaged groups. We searched the
                          internet and various databases, such as AGRICOLA, EconLit, ProQuest
                          Newsstand Professional, and Social SciSearch. Using broad search
                          terms, we identified articles related to our research objectives that
                          provided useful context and discussion topics for interviews with
                          stakeholders. We did not identify any government or peer-reviewed

                          11
                           See Pub. L. No. 100-233 § 617 (1988) (codified as amended at 7 U.S.C. § 2003).




                          Page 44                                     GAO-19-539 Socially Disadvantaged Farmers
Appendix I: Objectives, Scope, and
Methodology




academic literature that directly addressed private agricultural lending to
socially disadvantaged groups, barriers those groups may face when
trying to obtain agricultural credit, or outreach to disadvantaged groups by
private agricultural lenders. We also solicited expert recommendations for
academic literature on agricultural lending to socially disadvantaged
groups. Several SDFR advocates identified the Socially Disadvantaged
Farmers and Ranchers Policy Research Center as a potential source for
academic literature on the subject. 12 We found that the center had
conducted some potentially relevant research but that the work had yet to
be published in academic journals or government publications.

To review efforts by agricultural lenders and their regulators to provide
and oversee credit-related services to SDFRs—including marketing,
outreach, and education activities—we reviewed data and documents
from the Farm Credit System, USDA, and the federal depository
institution regulators. We reviewed summary statistics from the Farm
Credit Administration’s 2014 and 2017 examinations of Farm Credit
System association marketing plans to determine the extent to which the
associations had met requirements for outreach for diversity and
inclusion. We supplemented this effort by reviewing marketing plans from
a sample of six Farm Credit System associations in areas with substantial
proportions of SDFRs from each of the socially disadvantaged groups
identified in USDA regulations. While we included associations from
different geographic regions of the country, the sample was not intended
to be representative of all associations. We documented the extent to
which the marketing plans we reviewed contained information on the
demographic characteristics of the population in the associations’ service
areas and planned outreach activities for diversity and inclusion. We also
documented examples of outreach to SDFRs that were ongoing or that
they had completed. Further, we also reviewed illustrative examples of
outreach materials to SDFRs developed by USDA and the federal
depository institution regulators, and we interviewed officials from these
agencies about their outreach efforts.

To gain further insight into challenges faced by and outreach efforts to
SDFRs, we interviewed (1) SDFR advocacy and research organizations,

12
  The Socially Disadvantaged Farmers and Ranchers Policy Research Center, located at
Alcorn State University, was authorized in the Agricultural Act of 2014 and is funded by
USDA for the purpose of developing policy recommendations for the protection and
promotion of the interests of SDFRs. See Pub.L. No. 113–79, § 12203, 128 Stat. 649, 984
(2014) (codified at 7 U.S.C. § 2279(c)(5)).




Page 45                                      GAO-19-539 Socially Disadvantaged Farmers
Appendix I: Objectives, Scope, and
Methodology




(2) industry group representatives, and (3) federal agency officials. We
refer collectively to the entities we interviewed as stakeholders. To select
SDFR advocacy and research organizations, we used a snowball
sampling technique that identified organizations based on referrals
obtained during prior GAO studies and referrals from stakeholder
interviews during this study. We limited our interviews to organizations
that are national in scope and that focus on one or more socially
disadvantaged populations and on agricultural credit or finance. Based on
the snowball sampling, we identified and interviewed representatives from
the following five groups: Socially Disadvantaged Farmers and Ranchers
Policy Research Center, National Sustainable Agriculture Coalition,
National Black Farmers Association, Rural Coalition, and Rural
Advancement Foundation International-USA. The snowball sampling did
not identify a national advocacy organization focused on women
farmers—the largest SDFR subgroup—but we identified American Agri-
Women based on an internet search, and we interviewed representatives
from that organization as well. Because the group of organizations we
interviewed was a nonprobability sample, the information they provided is
not generalizable.

We also interviewed representatives from lending industry groups—the
American Bankers Association, the Independent Community Bankers of
America, and the Farm Credit Council—that we selected to cover the
major types of private institutional lenders that make agricultural loans,
including large commercial banks, community banks, and the Farm Credit
System. Additionally, we contacted industry associations representing
insurance companies and community development financial institutions—
both of which provide some agricultural credit—but representatives from
these associations said they did not have information directly related to
our research topic.

Finally, we interviewed officials from USDA and its Farm Service Agency,
the Farm Credit Administration, CFPB, and the federal depository
institution regulators.

For our work on credit challenges faced by SDFRs, we also drew upon
information and analysis from our May 2019 report on agricultural lending
on tribal lands. 13 Among other things, that report describes (1) what is
known about the agricultural credit needs of Indian tribes and their
13
 GAO, Indian Issues: Agricultural Credit Needs and Barriers to Lending on Tribal Lands,
GAO-19-464 (Washington, D.C.: May 9, 2019).




Page 46                                      GAO-19-539 Socially Disadvantaged Farmers
Appendix I: Objectives, Scope, and
Methodology




members, (2) barriers stakeholders identified to agricultural credit on tribal
lands, and (3) Farm Credit System authority and actions to meet those
agricultural credit needs.

We conducted this performance audit from January 2019 to July 2019 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




Page 47                                 GAO-19-539 Socially Disadvantaged Farmers
Appendix II: GAO Contact and Staff
                  Appendix II: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Anna Maria Ortiz, (202) 512-8678 or ortiza@gao.gov
GAO Contact
                  In addition to the contact named above, Steve Westley (Assistant
Staff             Director); Jeremy Anthony (Analyst in Charge); Katherine Carter; William
Acknowledgments   Chatlos; Tom Cook; Sam Portnow; Jennifer Schwartz; Jena Sinkfield;
                  Tyler Spunaugle; and Farrah Stone made key contributions to this report.




(103262)
                  Page 48                              GAO-19-539 Socially Disadvantaged Farmers
                         The Government Accountability Office, the audit, evaluation, and investigative
GAO’s Mission            arm of Congress, exists to support Congress in meeting its constitutional
                         responsibilities and to help improve the performance and accountability of the
                         federal government for the American people. GAO examines the use of public
                         funds; evaluates federal programs and policies; and provides analyses,
                         recommendations, and other assistance to help Congress make informed
                         oversight, policy, and funding decisions. GAO’s commitment to good government
                         is reflected in its core values of accountability, integrity, and reliability.

                         The fastest and easiest way to obtain copies of GAO documents at no cost is
Obtaining Copies of      through GAO’s website (https://www.gao.gov). Each weekday afternoon, GAO
GAO Reports and          posts on its website newly released reports, testimony, and correspondence. To
                         have GAO e-mail you a list of newly posted products, go to https://www.gao.gov
Testimony                and select “E-mail Updates.”

Order by Phone           The price of each GAO publication reflects GAO’s actual cost of production and
                         distribution and depends on the number of pages in the publication and whether
                         the publication is printed in color or black and white. Pricing and ordering
                         information is posted on GAO’s website, https://www.gao.gov/ordering.htm.
                         Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
                         TDD (202) 512-2537.
                         Orders may be paid for using American Express, Discover Card, MasterCard,
                         Visa, check, or money order. Call for additional information.

                         Connect with GAO on Facebook, Flickr, Twitter, and YouTube.
Connect with GAO         Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts.
                         Visit GAO on the web at https://www.gao.gov.

                         Contact FraudNet:
To Report Fraud,
                         Website: https://www.gao.gov/fraudnet/fraudnet.htm
Waste, and Abuse in
                         Automated answering system: (800) 424-5454 or (202) 512-7700
Federal Programs
                         Orice Williams Brown, Managing Director, WilliamsO@gao.gov, (202) 512-4400,
Congressional            U.S. Government Accountability Office, 441 G Street NW, Room 7125,
Relations                Washington, DC 20548

                         Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
Public Affairs           U.S. Government Accountability Office, 441 G Street NW, Room 7149
                         Washington, DC 20548

                         James-Christian Blockwood, Managing Director, spel@gao.gov, (202) 512-4707
Strategic Planning and   U.S. Government Accountability Office, 441 G Street NW, Room 7814,
External Liaison         Washington, DC 20548




                            Please Print on Recycled Paper.