Farm Finance:

Farm Debt, Government Payments, and Options To Relieve Financial Stress

RCED-86-126BR: Published: Mar 18, 1986. Publicly Released: Mar 18, 1986.

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Pursuant to a congressional request, GAO provided information on: (1) the nature of current farm debt; (2) the distribution of federal farm program direct payments to financially stressed farms; and (3) alternatives for reducing excessive farm debt.

GAO found that: (1) outstanding farm debt currently totals more than $200 billion, divided about equally between real estate loans and other loans; (2) about $74 billion in 1984 debt was held by farms with debt-to-asset ratios of 40 percent or more; (3) more than 50 percent of this amount was held by farms receiving direct farm program payments; and (4) lenders reported about $25.7 billion in delinquent or nonperforming farm loans at the end of fiscal year 1985. GAO also found that: (1) direct federal farm payments totalled $3.3 billion in 1984, of which commercial farms received 91 percent; (2) commercial farms with high debt-to-asset ratios received about $1.2 billion; (3) average payments were higher for farms with high debt-to-asset ratios; (4) about 43 percent of commercial farms received direct payments; and (5) without federal direct payments, many commercial farms would have negative cash flow. In addition, GAO found that alternatives for reducing excessive farm debt include, in order of increasing cost: (1) a federal loan guarantee with a 10-percent principal write-down by lenders; (2) an interest rate buy-down ranging from 1.60 to 2.86 percentage points; (3) a holding company that would buy farm land and other assets and lease them to farmers; and (4) a federal discharge of debt for farms with negative cash flows.

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