The huge and troubled Farm Credit System will hold its annual national directors meeting in California beginning tomorrow and near the top of the agenda will be the sticky issue of reorganization.
The House Agriculture Committee earlier this month passed a bill to bail out the system without specifying how much should be spent -- the FCS wants $6 billion -- and also ordered consolidation.
But the approximately 380 owner-borrower associations that run 37 regional banks in the system would rather decide on their own on just who should assume greater control under any reorganization plan.
The Agriculture Committee legislation, to be considered by the full House in September, would essentially reduce the number of system banks to less than 10.
But it is far from certain the farmer-borrower associations will come up with their own plan. "Consensus has been the most difficult thing to reach in the Farm Credit System, on anything," said Joseph Terrell, vice president of the Farm Credit Council, the trade association for the FCS.
The system's 37 banks are in 12 districts and they are controlled by the owner-borrower associations, including 232 federal land bank associations and 150 production credit associations.
One knowledgeable source, who spoke privately, said the coming battle in general could well pit the production credit associations against the land bank associations.
The former support crop plantings and equipment purchases as opposed to offering long-term loans for mortgages as the federal land banks do.
The production credit associations, the source said, are short-term lenders and have a lesser need to accumulate capital. They might find the Agriculture Committee proposal more to their liking because consolidation could turn some existing banks into a "discount window for their paper."
Ironically, the FCS is battling the perception that money obtained below the prevailing market rates has led to overextensions and inefficiency in the system. The system's performance in recent years backs that perception.
It has lost $4.6 billion over 1985 and 1986 and the loan portfolio has declined in recent years from $80 billion to $50.9 billion, as of June 30. Meanwhile, overhead costs have steadily climed from $621 million in 1981 to $882 million by 1985.
That record has Congress ready to step in. But the Farm Credit Council's Terrell said, "We have interpreted that the committee was also inviting the system to come forward with some alternatives to accomplish some of the same goals."
Terrell said an 11-member legislative committee of the FCS was to meet Friday and Saturday and would be "wrestling with various alternatives on the structure."
At this point, Terrell said, the legislative committee would be likely to submit options to farmer-directors. "I don't think they're going to step forward and say, 'Eureka, this is it,' " Terrell added.
Colin Mathews, a Washington lawyer who lobbies on behalf of Texas farm credit system borrowers, said his clients would not have it any other way.
"There will be people at the Sacramento meeting who share the point of view that says the system is still owned and run by its stockholders just like it has been for the past 81 years," Mathews said.
"Our goal is to preserve for stockholders the right to vote on proposals to reorganize or eliminate the banks," Mathews added.
But before any stockholders cast any votes, the directors will have to decide whether stockholders will have a direct say in deciding the issue.
The associations are the stockholders in the banks and individuals are stockholders in the associations. Unresolved is how the associations should solicit the views of their members.
That could prove to be trouble for a group that seems to have difficulty reaching agreement, as Terrell said, on anything