LEGAL EAGLE SPOTLIGHT Camber M. Jones Eric L. Johnson It cannot be disputed that the agriculture and food industries are a substantial part of the American economy. In 2020, according to the USDA, agriculture, food, and related industries reflected 5% of the U.S. GDP, or approximately $1.055 trillion. In Missouri, according to a 2021 economic contribution study, agriculture, forestry, and related industries contributed $34.9 billion in value added to the Missouri economy. Given its economic importance, many protections are given to agricultural producers and buyers of agricultural products that alter or modify the traditional collateral rules in lending. The purpose of this article is to highlight some unique provisions a lender should be cognizant of when making an agricultural-related loan. The Food Security Act of 1985 The Food Security Act of 1985 (FSA) was enacted, in part, to protect purchasers of farm products (11 U.S.C. § 1631). Congress was concerned that certain states would permit a secured lender to enforce liens against the purchaser even if the purchaser did not know that the lien existed. Congress found that this double payment burdened interstate commerce and inhibited free competition. Under the FSA, for a secured lender to remain perfected in farm products, it must provide notification of its security interest to the potential purchaser of such farm products. How notice is provided depends on whether the respective state is a direct notification state or has adopted a central filing office. For example, Missouri is a direct notification state. The lender should know which state’s notifications laws apply, or risk being unperfected. As part of its security agreement, a lender should require a list of the borrower’s buyers, commission merchants, and selling agents. This list will provide a basis for whom to send its notification. As part of its routine review of the producer’s financials, the lender should review where sales are being made by the producer in addition to being generally aware of other buyers in the producer’s area. Even if not included on the list provided by the borrower, the lender will want to consider sending notifications to such buyers. Assignment of Federal Crop Insurance Proceeds Generally, an Article 9 security interest in Federal Crop Insurance Proceeds will only be effective with respect to distributed Beware Collateral Pitfalls in Agricultural Loans Spencer Fane LLP Spencer Fane LLP 8 | The Show-Me Banker Magazine
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