Testimony of Roger Johnson
Agriculture Commissioner
House Bill 1330
House Agriculture Committee
Peace Garden Room
January 24, 2003

Chairman Nicholas and members of the House Agriculture Committee, I am Agriculture Commissioner Roger Johnson. I am here today in opposition to HB 1330, which proposes to repeal sections 28-29-04, 28-29-05, and 28-29-06 of the North Dakota Century Code, relating to powers of courts when agricultural prices are confiscatory.

I am neither an attorney nor an expert in the area of legal defense. However, I do have an extensive background in working with financially distressed farmers and their lenders. North Dakota's confiscatory price statutes date back to the Great Depression of the 1930's. Obviously, they originated in response to a dire situation for the state's farm economy and to provide some protections for producers facing farm foreclosure when prices are so low that foreclosure and the forced sale of assets are considered confiscatory.

During the 1980's, agriculture again experienced a severe farm credit crisis of declining commodity prices and a collapse in farm property values. As a result, the federal Ag Credit Act of 1987 required loan servicing and restructuring procedures, including mediation, for the Farm Service Agency (formerly FmHA) and Farm Credit System (FCS). In my judgment, these requirements have been very successful in facilitating distressed loan workouts outside the legal system, greatly improving the relationship between debtors and lenders, and reducing the number of farm foreclosures. However, it is important to note that these federal loan servicing and mediation participation requirements do not apply to other lenders in North Dakota.

Chapter 12 bankruptcy has also proven to be an effective farm debt reorganization tool, but its survival is questionable at best. Chapter 12 bankruptcy has expired and been reauthorized on a short term basis numerous times in recent years.

Unlike these two federal laws, the North Dakota confiscatory price laws do not provide that forgiveness. The North Dakota laws allow those North Dakota courts with the authority to provide a delay in foreclosures in times of extreme economic crisis. However, my observations lead me to believe that our debtor protection laws serve purposes beyond the original purpose of providing certain protections of individual debtors. I believe the existence of these laws provides a strong incentive for lenders to pro-actively attempt negotiated settlements short of foreclosure proceedings. This is good for everyone. The laws also serve as a vivid reminder of the farm credit problems of the past and encourage lending practice vigilance, which helps minimize the magnitude of any similar credit crisis in the future.

We all know that the farm economy is cyclical and that farm survival during down cycles has become increasingly difficult. Certainly, tough times on the farm are also tough on agricultural lenders. However, I believe lending institutions are far better able to weather farm economy downturns than individual farm operations.

Will we see another major farm credit crisis in the future? I don't know, but I sincerely hope not. I do, however, believe repealing these longstanding statutes is a mistake. It sends a wrong message and diminishes North Dakota's reputation as a strong supporter and advocate of our agricultural industry.

Chairman Nicholas and committee members, I urge a do not pass on HB 1330. I would be happy to answer any questions you may have.