Banking on the Future
U.S. farm credit co-op model paying dividends in Armenia
By Pamela J. Karg
Editor’s note: Karg is a freelance writer
from Baraboo, Wis., with extensive
experience working with cooperatives. She
currently lives in Armenia, where she is a
volunteer with the United Methodist
Committee on Relief/Armenia. She also is
an agricultural cooperatives instructor at
the Agribusiness Teaching Center, a
university department funded by USDA
through Texas A&M University.
top Farm Credit
Administration official
recently saw first-hand
how the co-op lending
structure is working to
extend much-needed capital infusion to
farmers in a former Soviet republic.
Leland “Lee” Strom, chairman of
the board and CEO of the Farm Credit
Administration, spent the first days of
October — National Co-op Month —
witnessing the successes and challenges
faced by Farm Credit Armenia (FC
Armenia). From small-scale vegetable
farmers to owners of newly constructed
wineries, sometimes in broken English
and other times through a translator,
FC Armenia member-borrowers
repeatedly told Strom that the U.S.
farm credit cooperative model is
working well here as a partner that
helps them finance their dreams.
“It’s one thing to read about it, and
I’ve read a lot about Farm Credit
Armenia. It’s a whole different thing to
see it first-hand and to hear the stories
of what Farm Credit Armenia means to
the agriculture industry, the farmers
and the businesses associated with
them,” says Strom, who was appointed
to a 6-year term on the FCA board in
2006 and was designated chairman and
CEO in May 2008. He also serves as a
board member of the Farm Credit
System Insurance Corporation
(FCSIC).
Bridging the cultural chasm
As part of his agricultural tour of a
country about the size of Maryland
bordered by Iran, Georgia, Turkey and
Azerbaijan, Strom learned more about
the challenges land-locked Armenia has
faced in its past 100 years. He realized
the cultural chasm farmers and
agribusiness owners had to cross from
the former Soviet collective ideals to
the internationally recognized, free
enterprise cooperative model.
“I better understand the basic
challenges they’re facing here, and they
are complex. But I also see that a
cooperative farm lending institution is
the right structure, and it’s working,”
say Strom, owner of a third-generation
corn and soybean farm near Elgin, Ill.
Organizations such as USDA and
non-governmental organizations
(NGOs), such as the United Methodist
Committee on Relief and ACDI/VOCA
(which promotes economic development
in emerging democracies), set up
farm programs soon after Armenia
declared its independence from the
Soviet Union in 1991. Since then,
farmers and processors have learned
more efficient production techniques,
basic business skills, how to organize
cooperatives and have started youth
education programs, such as 4-H.
They’ve also learned about microcredit
and how to jump-start the
country’s Cooperative Extension-like
information and training system. Other
NGOs, such as the Center for
Agribusiness and Germany’s GTZ,
followed with more help. While this
work is ongoing, improving farm credit
became the next logical step.
Access to credit is essential for the
nation’s farm sector to advance, says
Fred Johnston, agricultural project
coordinator for USDA’s Foreign
Agricultural Service (FAS) in Armenia.
“As we’ve learned from the micro-credit
experience, credit is a crucial component in the development of
sustainable enterprises of all sizes.
Credit allows farmers and processors to
take advantage of the technical training
that they have or are receiving. It’s an
essential element in the recipe for
success of rural enterprises in any
country.”
The co-op commitment
In Armenia, there are institutions
that claim to serve agriculture, but they
have neither a real mandate nor any
incentive to do so, Strom says. “Regular
banks may abandon agriculture should
the rural economy falter or more
lucrative opportunities arise. A
cooperative organization such as Farm
Credit Armenia is owned by its
members and, through its bylaws, is
required to serve only rural clients.”
If credit is the next logical step, the
issue of sustainability looms large over
FC Armenia and its members. It received an initial infusion of capital
from Millennium Challenge Account-Armenia (MCA) and continues to
get technical support from the Farm Credit Administration, the Farm
Credit System and the USDA. Strom says he hopes the Armenian
government “will see how this structure can and will work, is working,
and will help in its sustainability.”
He sees parallels between the 1916 start of the American Farm Credit
System, funded through legislation signed by President Woodrow
Wilson, and the struggles Armenia faces today. “The U.S. Farm Credit
System started small and has grown to serve over 40 percent of U.S.
farmers. I can see the same thing happening in Armenia,” Strom says.
Johnston explains that USDA has been working to foster farm credit
in Armenia for many years, beginning with a Credit Clubs project.
When FAS assumed management of the project from USDA’s
Cooperative State Research, Education, and Extension Service
(CSREES) in April 2005, FAS began to look for ways to make the
project sustainable. While there were several organizations involved
with micro-credit and others that claimed to serve agriculture, the needs
of agricultural lenders were not being met.
“With that in mind, FAS engaged the U.S. Farm Credit
Administration to review the state of agricultural lending in Armenia
and make recommendations,” Johnston explains. “One of their
recommendations was to set up a farm credit organization that was
legally mandated to serve rural Armenia in good times and in bad. Based
on that recommendation, we worked with the Farm Credit System and
the Farm Credit Administration to set up Farm Credit Armenia.”
Key questions
As Strom sat through an FC Armenia board meeting during his week
in Armenia, he reflected on more parallels. Where should a new office
be constructed to more conveniently serve existing and new rural
members? Who should be selected from the 170 applicants to fill 11
new loan officer positions? When starting from scratch, what are the
available sources of capital the cooperative needs to remain a viable
partner for farmers and agribusinesses?
“These are some of the same issues Farm Credit started with in 1916
in America. Boards of directors deal with some of the same issues every
month or every quarter they meet,” notes Strom. “But then
you realize this is just the beginning for Farm Credit
Armenia’s five directors, outside director and staff — at a
time when there are global financial challenges.”
Strom says one solution he has offered is to speak
favorably about FC Armenia and how its members have
embraced the cooperative structure and principles as a means
to rebuilding the agricultural sector in their country’s
emerging free-market economy.
“I do agree with Lee’s assessment,” says Johnston. “But I
would add that I think Farm Credit Armenia offers an
opportunity for other donors and investors to fund a great
organization that is built on sound cooperative and credit
principles.” As potential donors and funders look into FC
Armenia, he thinks they will recognize the same opportunity
to serve rural Armenia as MCA did when it provided it with
lending capital.
“Farm credit in Armenia today is where the U.S. system
was 50 years ago,” Strom says. “Look what has been accomplished
in the United States. The same can be done here.”
Missouri farmer helping ag banks in developing countries
By Pamela J. Karg
ith a lifetime of
experience in farming
and finance, one might
think William Eyman
would want to relax,
enjoy the fruits of his labor and watch his
crops grow. Maybe keep track of his
retirement account. He’s doing all that, but
also much more, using his experiences to
help agricultural banks around the world
grapple with new economies.
“After I retired from full-time farming, I
went to work for the United State Bank [in
northeast Missouri] full time,” explains the
79-year-old from Knox City, Mo., as he
packs up after a 6-week assignment in the
Republic of Armenia. “I also felt I was a
fifth-generation Knox County American
farmer losing touch with a changing
world, so I decided it was time to see that
world.”
Eyman and his wife, Rosalyn, a retired
art instructor, packed their bags and
headed to the Czech Republic on what
was his first of many assignments around
the world.
“It’s been a chance to go all over the
world and work in finances in many
emerging countries or economies. Either I
go in to work starting banks or with loan
officer training,” Eyman explains. His work
always involves the agricultural side of
the bank’s portfolio and people.
From Tanzania to Siberia
To date, he has worked through
organizations as diverse as the World
Bank and International Monetary Fund,
ACDI/VOCA and the International
Executive Service Corps. The countries in
which he’s worked include Armenia,
Ghana, Uganda, Tanzania, Ethiopia (twice),
Kenya, Kyrgyzstan (twice), Republic of
Georgia (twice), Zambia, South Africa,
Latvia, Poland, Romania (twice),
Macedonia, Russia (five times), western
Siberia, The Czech Republic and Brazil.
“I’ve really enjoyed the people more
than anything,” he says. “Whether
working side-by-side with eager loan
officers wanting to learn how they can
help their local banks and farmers prosper
in emerging capitalist economies, or
seeing the country through their eyes,
they’ve all always been very kind. And
they’ve always wanted to show me the
best their country has to offer, and to
learn so they can create a future for
themselves, their families and their
country.”
Eyman is generally on assignment for 2
months at a time. Often working long days
traveling to remote areas, he spends most
of his time on farms or in the classroom
with loan officers for hands-on, one-onone
or small-group training. That was the
case during his trip earlier this year to
Armenia, a semi-arid, land-locked former
Soviet republic located between Georgia,
Iran, Azerbaijan and Turkey. Eyman
worked with local ACDI/VOCA employees
as part of its “Water to Market” (WtM)
program.
The fragmentation of Armenia’s
agricultural production base is keeping
the country’s farms from achieving the
scale necessary for efficient production.
Though rural family landholdings average
3.5 acres, these farms are usually made
up of three or more smaller parcels in
different locations.
As a result, farmers get low yields and
inconsistent quality and cannot assemble
enough produce to meet market demand.
That makes Armenia a food-deficit
country and requires it to import costly,
and sometimes uncertain, imports through
the only two open borders it has with
neighbors: Georgia and Iran.
Farmers face
numerous challenges
More importantly for Eyman‘s
purposes, limited financial resources and
a lack of information about on-farm water
usage and pest management have led to
widespread use of herbicides and
pesticides that come from dubious
sources and are applied with rudimentary
spraying devices, according to
ACDI/VOCA.
Due to the small-scale, highly
fragmented and diverse production of
fruits and vegetables, local marketing is
carried out by small traders, or even by
the producers themselves. Thus,
throughout rural Armenia, the laborintensive
ag sector produces low yields
and poor incomes for small farmers.
ACDI/VOCA, in partnership with
ARCADIS Euroconsult from the
Netherlands and VISTAA in Armenia, was
awarded an $18.4 million contract to
implement the Water to Market project as
part of the Millennium Challenge Armenia
(MCA).
Like other countries’ farmers with
whom Eyman has worked, small-scale
Armenian farmers have no money and
little access to credit. As a result, they
can neither improve their knowledge on
how to be better farmers, or fund any
improvements. A majority end up in a
subsistence cycle, hoping to produce
more than their families can consume so
that they can try to sell the extra for
whatever the market may bring. Nearly 15
percent of Armenia’s 2.8 million people
live on less than $1 a day.
The smallest Armenian farms list
assets such as hoes and bicycles as part
of the balance sheet they completed with
loan officers under Eyman’s tutelage. “It
doesn’t compare at all with U.S. farm
operations,” he says.
Roman Asatryan concurs. The young Armenian man
befriended Eyman and volunteered as a translator and tour guide
in the evenings and on weekends. Asatryan’s parents are typical
of many small landowners who raise mostly produce to feed their
families, selling any excess in the marketplace.
Subsistence farming
“People in rural areas and small villages farm to stay alive,”
Asatryan says. “They really don’t have any assets more than
what they can carry in their hand or store in the small shed most
people build on their land.”
Eyman notes that larger Armenian landowners may own
enough to hire someone to operate the farm, while the owner
also runs a one-room general merchandise store or a small foodprocessing
operation. Separating the farm operations from other
businesses was challenging.
“I was on tarragon [herb] farms and vineyards, in wineries
and cheese factories and greenhouses, all the time working with
Armenian loan officers who would, in turn, train other Armenians.
Then, on behalf of the farmers who qualified, I would go to credit
organizations to present recommendations on who could viably
handle a loan,” Eyman explains. “A large part of the goal was to
help the farmers install drip irrigation to improve farm yields.”
Working from a loan policy he first developed in Ethiopia,
Eyman introduces the document in every country. He follows up
with other policies and forms, such as a basic balance sheet,
cash-flow assessment and collateral inspections sheets. The
countries are free to use them as is, or adapt them to specific
nuances in their customs and cultures. The WtM project has
reached all 10 Armenian marzes, or provinces, through its training
and credit programs and has established demonstration sites.
“The business of banking in agriculture has similarities
around the world,” he says, adding that “it’s a wonderful
experience to help people who are looking to the future.”
