When Are Farm Interest Rate Subsidy Programs Most Effective?

The U.S. Department of Agriculture provides subsidized credit to high-risk farm borrowers unable to obtain credit from commercial sources. To boost incomes and to relieve financial stress, Farm Service Agency programs can provide additional interest rate subsidies to borrowers. However, when market interest rates are low as in recent years, these additional subsidies are less effective in improving borrower income and financial performance. Directing these additional subsidies to beginning farmers and socially disadvantaged borrowers or reserving their use for more stressful economic periods may help control program costs while increasing benefits to borrowers and the public.