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Arkansas lawmakers are challenging a proposed Small Business Administration rule that would deny many poultry growers access to millions of dollars in agency-sponsored financing.

U.S. Sens. John Boozman and Tom Cotton and Reps. Rick Crawford, French Hill, Steve Womack and Bruce Westerman are pressuring the Small Business Administration to reverse the proposed rule that would make it more difficult for contract poultry growers to obtain agency-backed loans.

In a recent letter to agency Administrator Linda McMahon, the legislators asked her to reconsider the rule, saying it could "jeopardize the livelihoods of thousands of small family farms and small businesses across Arkansas."

This comes after a report earlier this year from the agency's Office of Inspector General assessed the relationship between companies, such as Tyson Foods, and the contract farmers who raise poultry for them. After looking at 11 sample cases, the agency in March suggested the companies and growers have acted more as affiliates and less as independent entities, raising questions about the validity of more than 1,500 agency-backed loans for poultry growers made between 2012 and 2016.

Months after the investigation, the Small Business Administration submitted proposed changes to regulations governing its business-loan programs. Among them is an amendment to expand an "identity of interest" principle that may be critical to the determination of whether a poultry farmer is classified as an independent small business, the proposal published Sept. 28 said.

Arkansas lawmakers opposed to the rule argue that access to capital is one of the largest hurdles that farmers face, "which is why Congress specifically included agriculture in the SBA's mandate," they said in the letter dated Nov. 19. Mississippi lawmakers sent their own letter recently to the Small Business Administration to dispute the inspector general's office investigation.

Meanwhile, net farm income has been cut in half since 2013, farm bankruptcies have increased and input costs are rising, according to the U.S. Department of Agriculture.

"We are deeply concerned that, if finalized, provisions in this proposed rule would effectively end the ability of Arkansas' family farmers and small businesses to utilize SBA's loan programs," the letter said.

While farmers are able to obtain loans through the Agriculture Department, the Small Business Administration has in recent years become the agency of choice for new poultry growers wanting to build costly, modernized poultry feeding operations.

The Agriculture Department's Farm Service Agency can guarantee lenders up to $1.429 million per loan, its website said. The Small Business Administration can guarantee lenders up to $4.5 million, resulting in loans of as much as $5 million.

The delinquency rates of 7(a) loans for poultry growers in the inspected period was less than one-half of 1 percent and make up 1 percent of the entire 7(a) portfolio, the agency said in testimony before the House Small Business Committee in April.

Although the loans at issue make up a small part of the program, the Arkansas lawmakers argue in the letter that "they have an outsized impact on [the] state."

The Small Business Administration guaranteed 1,535 7(a) loans, totaling $1.8 billion, from fiscal 2012 to fiscal 2016 for U.S. poultry growers. Almost a quarter, or 371 loans, went to Arkansans, an agency spokesman said in an email earlier this year.

Agriculture, including poultry production, is the leading economic driver of the state. In general, chicken companies supply the birds, feed, transportation and production facilities, while the contract growers raise the birds on their own dime until they're ready for harvest.

Gary Sewell of El Dorado, who opposed the Small Business Administration's rule change, said he is concerned about the negative effect it could have on poultry growers. Sewell said in a recent comment to the Small Business Administration that the agency has played a vital role in assisting poultry farmers with capital when the U.S. Department of Agriculture was unable to. In response to the amount of control companies have over contract growers, he said it was no different than the control franchisers have over franchisees like Dunkin' Donuts or Krispy Kreme.

"In many ways the control is less," Sewell said in a comment submitted Nov. 13.

The deadline to submit comment on the proposed rule is today. Almost 1,400 comments have been received on the matter as of Monday. The public may comment at regulations.gov.

Business on 11/27/2018

Print Headline: Arkansans in D.C. oppose poultry-grower loan changes

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