34 



For this testimony, we spoke with representatives of the American Bankers Asso- 

 ciation, the Independent Bankers Association of America, and each of the Farm 

 Credit System's district offices. For information on Federal lending, we spoke with 

 FmHA representatives in headquarters who, at our request, surveyed each of the 

 approximately 1,700 county offices regarding aquaculture loan applications between 

 October 1, 1990, and July 31, 1993. To obtain the producers' perspective, we spoke 

 with representatives of three major industry associations, a discussion group of 

 Maryland aquaculturalists, the national director of the National Organization of 

 Aquaculture Coordinators, and selected individual producers. Additionally, we spoke 

 with recognized research experts in selected States nationwide. Finally, we spoke 

 with USDA officials to discuss the Department's activities in support of aquaculture. 



FINANCING IS DIFFICULT TO OBTAIN 



The lenders, research experts, and producers we spoke with all agree that financ- 

 ing can be difficult for aquaculturalists to obtain. However, they disagreed on the 

 severity of the problem and its relative importance in comparison with other obsta- 

 cles to the industry's growth. According to the lenders, research experts, and produc- 

 ers we spoke with, a principal source of financing difficulties for aquaculture is the 

 real or perceived high risk associated with these du sine sses: They require intensive 

 and skilled around-the-clock management; many operations involve expensive state- 

 of-the-art technology that has an uncertain resale potential should the businesses 

 fail; and species can take 9 to 18 months or more to mature and to begin to bring 

 cash returns. 4 Furthermore, research experts and producers told us that many lend- 

 ers do not understand such basic aspects of the industry as price cycles or inventory 

 valuation and expected yields. The researchers and producers believe that this lack 

 of knowledge majces it hard for the lenders to evaluate business plans, and, as a 

 result, they may reject an aquaculturalist's application in favor of one from a pro- 

 spective borrower in a more conventional business or require the aquaculturalist to 

 have a higher percentage of owner equity. For example, in order to make loans, 

 commercial banks require catfish farmers in Arkansas to have 65-percent equity, as 

 opposed to about 30 percent for producers of more traditional agricultural crops. 



While there is general agreement among those we interviewed that credit for 

 aquaculture is difficult to obtain, little data are available — commercial lenders do 

 not compile data on aquaculture loans and documented research on the issue is 

 scant. In general, the financing situation varies by region, species, type and size of 

 operation, and experience level of the aquaculturalist. For example, we were told 

 that both commercial and FmHA loans for catfish farming are relatively easy to ob- 

 tain in regions where production is high, such as Mississippi or Louisiana; however, 

 one farmer, who eventually became a successful catfish producer, indicated that he 

 had difficulty in obtaining start-up financing in Maryland, where catfish farming is 

 less well-known. Similarly, we were told that FmHA loans for baitfish operations 

 are relatively easy to obtain in Arkansas, where baitfish farms are prevalent; how- 

 ever, such loans are difficult to obtain in Iowa, where raising baitfish is less com- 

 mon. 



Although there is little information available on commercial aquaculture loans, we 

 were able to compile data on FmHA loans. FmHA, the Nation's agricultural lender 

 of last resort, provides direct and guaranteed loans for high-risk agricultural bor- 

 rowers, including aquaculturalists. For October 1990 through July 1993, FmHA 

 made or guaranteed nearly 300 aquaculture loans amounting to almost $38 million. 

 (Appendix I provides a breakdown, by State, of the FmHA loans.) During the same 

 period, the agency rejected 21 percent of the applicants for these loans, which is 

 roughly equivalent to the agency's rejection rate for all agricultural loans. According 

 to FmllA field office lending officials, the two major reasons for rejecting aqua- 

 culture borrowers were that the applicants were found ineligible for assistance 5 or 

 the proposed operations did not appear capable of providing sufficient income to en- 

 sure repayment. Most of the loans were made to catfish farmers, mainly in Mis- 

 sissippi and Louisiana — these borrowers received 74 percent of the total amount 

 lent. 



USDA's Rural Development Administration (RDA) also guarantees loans for rural 

 businesses under its Business and Industry Loan Guarantee Program, including 



■*In Rural Credit: Availability of Credit for Agriculture, Rural Development, and Infrastruc- 

 ture (GAO/RCED-93-27, Nov. 25, 1992), we found that producers growing other nontraditional 

 crops face similar difliculties in obtaining financing. 



B Eligibility for an FmHA loan is determined by a county committee composed of local citizens. 

 The committee determines eligibility by assessing a number of factors, including the applicant's 

 experience, credit history, and reliability. 



