Can AgStar Save Rural Minnesota?

A Changing Landscape

The product of a consolidation of four ag lenders that merged to maximize economies of scale and risk diversification, AgStar is a for-profit cooperative association owned by 12,600 farmers—including about half the full-time farmers in its service area. To become a stockholder, a farmer needs to purchase up to $1,000 in shares. With $4.1 billion in assets, AgStar is the fourth-largest association in the Farm Credit System, following Farm Credit Services of Mid-America in Kentucky, Omaha-based Farm Credit Services of America, and Northwest Farm Credit Services in Spokane, Washington. Besides providing services for its 12,600 voting stockholders, AgStar serves another 7,500 clients, about half farmers and half rural residents, with crop insurance, home mortgages, and tax services. The company employs 515 full time across 11 offices.

“We are dispersed in a variety of industries—dairy, swine, grain, agribusiness, ethanol, timber, rural housing—versus a smaller, more localized lender that doesn’t have that diversity,” notes DeBriyn, who adds that “we are committed to returning 55 percent of our net income back to our stockholders.” Net after-tax income in 2006 was $51 million; since 1998, AgStar has allocated $163 million in dividends.

AgStar’s roots date back to the passage of the Farm Credit Act of 1916, which established federal Farm Loan Associations to provide credit to farmers for expanding their holdings. In 1933, in the midst of the Great Depression, President Franklin D. Roosevelt expanded the Farm Credit Act’s mission by establishing the Farm Credit System, a nationwide network of farmer-owned institutions designed to provide a safe, sound, and dependable source of credit and related services to farmers, ranchers, and rural residents. The Farm Credit System currently provides more than $130 billion in loans to more than a half-million borrowers. System banks and associations don’t take deposits. Loanable funds are raised through the sale of systemwide bonds and notes to the nation’s capital markets.

In 2006, the Farm Credit Administration, the regulating agency for the federal Farm Credit System, clarified rules that allow Farm Credit Associations to purchase bonds issued by rural businesses or local communities. Proceeds from these bonds are used to invest in rural businesses, health care, and housing.

“We’ve taken the lead [in using this authority] and are further ahead than the rest of the country,” Monson says. “Most of the other lenders in the system are just dipping their toes now. We are head first.”

AgStar is focusing its "mission-related investments" in three areas of rural infrastructure: up-to-date and sufficient health care facilities, business retention, and improved housing.

The result has been a significant shift in AgStar’s loan portfolio into nonfarm projects. “Production agriculture is the backbone—about two-thirds—of our business,” DeBriyn continues. “Ten years ago, it was probably 90 percent.”

This shift reflects the major changes in the rural economy. Not so long ago, rural communities were almost wholly dependent on agriculture for their survival. Nearly every community had a creamery, a farm implement dealer, a grain elevator, and other ag-related services. That has changed. According to Measuring Rurality, a U.S. Department of Agriculture Economic Research Service report, 29 of Minnesota’s 87 counties were considered farming-dependent in 1989. By 2000, that number had dropped to 10. “Farming-dependent” is defined as either having 15 percent or more of average annual labor and proprietors’ earnings derived from farming, or 15 percent or more of employed residents working in farm occupations.