Where
Credit Is Due
Russian farm credit
officials study American
finance model
By Perry Letson,Vice President for
Communications
ACDI/VOCA
t seems like southern
Illinois,” said
ACDI/VOCA Vice
President Fred Smith
while surveying the rich
black soil of Krasnodar, Russia, in 1994.
But he was surprised to learn that local
farmers only produced 50 bushels per
hectare. Fertilizer, hybrid seed and the
proper equipment for weed control
were available, and the local markets
were short on grain supply. “There was
just no working capital in the system —
no way for farmers to finance
improvements,” Smith said.
Smith developed a plan for
improving the availability of rural credit
in Russia. It took a while to implement,
but more than a decade later, the
Mobilizing Agricultural Credit
program, led by ACDI/VOCA, has
been called “one of the most successful
programs in the mission’s portfolio,” by
Ray Lewman, deputy director of the
Office of Economic Growth for
USAID/Moscow. The Russians’
appetite for a reliable farm credit
system has been whetted.
Credit needed in rural Russia
Only 5 percent of the market for
rural credit in Russia is currently being
served. The Russian Rural Credit
Cooperation Development Foundation
(RCCDF), together with ACDI/VOCA,
managed the groundbreaking Russian-
American Loan (RAL) Program that
has helped to bring rural credit to
Russia.
The idea was hatched by Smith, a
North Carolinan, who was frustrated by
the unfulfilled potential of rural Russia.
It was initially funded with loan capital
from USDA and technical assistance
funds from USAID, first through the
Mobilizing Agricultural Credit project
and now the Cooperative Development
Program.
From a starting point of $6 million
in USDA capitalization, the RAL
Program now has $10 million of equity
and has successfully loaned more than
$38 million to rural credit cooperatives.
About 91,000 people belong to Russian
rural credit co-ops, which provide the
best — and often the only — access to
financing.
“While credit cooperatives improve
access to credit for farmers and rural
entrepreneurs and are thus an
important economic development tool,
they also facilitate grassroots
improvements to local civil society,”
says ACDI/VOCA’s country
representative, Michael Harvey.
Credit cooperatives also have a
national impact. Credit cooperative
leaders have become political leaders in
Russia. At least one female credit co-op
leader has been elected to the State
Duma, Russia’s parliament. In addition,
staff of the RCCDF and Union of
Rural Credit Cooperatives have served
as expert advisers in both the Duma and
the Federation Council.
Building a rural credit system
Given this history, ACDI/VOCA was
the natural choice to organize a recent
U.S. fact-finding mission for some
Russian farm and credit leaders. Nine
Russians, among them three republic
ministers of agriculture, looked
intensively at the American model last
November.
ACDI/VOCA President Carl
Leonard welcomed the group to the
organization’s headquarters in
Washington, D.C., and Smith spoke of
the company’s seminal work in Russia.
The Russians got an overview of the
U.S. farm credit system from John
O’Day, former vice president of
AgriBank, and a briefing on the federal
government’s role in fostering
cooperatives from USDA Rural
Development economist James Baarda.
The first day ended with a reception,
at which Asif Chaudhry, deputy
administrator of USDA’s Foreign
Agricultural Service, formally welcomed
the group on behalf of the government.
After dinner, participants took a
nighttime tour of the Lincoln
Memorial.
The next day the group was off to
the heartland. O’Day had arranged
meetings at AgriBank in St. Paul,
Minn., the largest farm credit bank in
the nation, with a loan portfolio of $40
billion. The Russians were addressed (in
Russian) by a bank employee who had
emigrated to the United States at age
16. C.T. Fredrickson, former bank
president and former senior deputy
governor of the Farm Credit
Administration, had a rapt audience
when he spoke about the dire U.S. farm
credit crisis of the 1980s and the lessons
it provided.
While the turmoil and dislocation
suffered by many farm families and
farm credit professionals could not be
ignored, Fredrickson said a legislative
remedy proved highly successful — no
doubt an interesting lesson for the
Russians. He added, however, that there
were dangers in the government playing
too prominent a role in such situations.
“Those engaged in businesses in which
government policy is a large factor in
determining prices, profits and asset
values should always remember that the
market forces cannot be suppressed by
the government indefinitely,”
Fredrickson said.
Other tour highlights included:
- Lee Egerstrom, business reporter for
the St. Paul Pioneer Press, presented
the Russians with signed copies of
two of his influential books on
cooperatives, including “Make No
Small Plans,” much of which is
applicable to Russia as it strives to
build a stronger rural credit system.
Egerstrom stressed that a co-op has
two main objectives: to succeed as a
business and to help its memberowners
succeed in their own
businesses.
- John Schmitz and Tom Larson, CFO
and executive vice president,
respectively, of CHS, the largest U.S.
farmer co-op, also addressed the
group. Schmitz said that he saw great
potential for Russian agriculture, but
that Soviet style co-ops, while able to
perform certain governmental
functions, are poorly structured to
succeed as businesses in the global
marketplace.
- Bob Doane, a regional manager of
CoBank, provided an overview of
CoBank operations, while a
representative of Farm Credit Leasing
Co. explained how it works with
CoBank customers and others to
determine if it is advantageous to
lease or buy equipment. Export
financing is an important part of
CoBank’s portfolio, and the bank has
$2.3 billion in lines of credit,
including $158 million in Russia.
Members of the Russian delegation
expressed interest in working with
CoBank in importing new and used
farm equipment, fertilizer and Jersey
cows.
- Upon their return to the Washington
area, the Russians visited the
headquarters of the Farm Credit
Administration (FCA) in McLean,
Va., where they learned about its role
as an independent regulatory agency
in governing the farm credit system,
as well as the nuts and bolts of
rulemaking and the examination
process. Several FCA officials have a
keen interest in global rural finance,
including Roland Smith, secretary to
the FCA board, who has facilitated
the short-term service of FCA staff as
ACDI/VOCA volunteers. Smith
introduced one of them, Ron Boehr,
who has served on six assignments in
Russia over 11 years.
- Gene Swackhamer, former president
of the Farm Credit Bank of
Baltimore, sketched a history in which
farm credit authority migrated from
the U.S. Treasury Department to
USDA, and then from the FCA to the
banks themselves and, more recently,
to associations.
- The Russians traveled to the
Maryland Eastern Shore to tour the
65-head St. Brigid’s Dairy Farm in
Kennedyville and some local grain
and chicken farms.
- A briefing was held at the Farm
Credit Council, the U.S. farm credit
system’s advocate in Washington.
Terry Barr, economist for the
National Council of Farmer
Cooperatives, discussed the
economics of world agricultural trade
and the issues of the Doha round of
trade talks.
Wind-up on Capitol Hill
The last working day of the tour was
spent on Capitol Hill, meeting with
officials of the 5.7-million-member
American Farm Bureau and staff of the
Senate Agriculture Committee who
explained the mechanics of the Farm
Bill. The Russians were interested to
hear that the House Agriculture
Committee alone employs 48 full-time
professional staff members. A tour of
the Capitol was provided by Senator
Norm Coleman of Minnesota.
During lunch at the Monocle
Restaurant (considered a Hill
institution) the group met with Senator
Richard Lugar of Indiana, who at the
time chaired the Senate Committee on
Foreign Relations and who formerly
chaired the Senate Agriculture
Committee. Senator Lugar, who visits
Russia at least once a year, listened
intently as the visitors described
objectives of the mission and of the
progress being made in Russian
agriculture.
As a result of the tour, strong
relationships have been established with
ministers from key areas of Russia’s
North Caucasus region and they have
found new contacts within the
cooperative credit system.
Exporting the U.S.
cooperative model
ACDI/VOCA was founded by U.S. cooperatives to
bring the advantages of the co-op model overseas.
True to its roots, the development organization invokes
a great cooperative system that has served this country’s
farmers and business owners for decades and
that now extends to the productive soil of Russia.
Without the support and involvement of the U.S.
farm credit and cooperative community, the current
Russian system would not exist and the recent fact-finding tour could not have been made. Principles of
cooperation soundly trump concerns about competition or lingering cold war issues.
For 43 years and in 145 countries, ACDI/VOCA has empowered people in developing and transitional
nations to succeed in the global economy. It delivers technical and management assistance in agribusiness
systems, financial services, enterprise development and community development in order to promote
broad-based economic growth and vibrant civil society. ACDI/VOCA currently has approximately 90
projects in 40 countries and revenues of approximately $85 million.
