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A Brief History

The decade from 1973 to 1983 covers a period in the history of American agriculture which started with optimism, bordering on euphoria; and ended with discouragement and disillusionment, bordering on depression. The number and magnitude of events and changes experienced in that decade would at least rival the events and changes experienced by American agricultural in any preceding decade.

During the subsequent years of 1983 to 1987, agriculture suffered through what is now looked back on as the "Farm Debt Crisis." The experience of those years pointed out that methods used to determine, measure, and analyze the financial position and the financial performance of agricultural producers were either totally inadequate or seriously underutilized.

The Farm Debt Crisis created an increased interest in farm financial education and a demand for more sophisticated techniques to be used in analyzing financial position and financial performance. That demand brought about a rapid expansion in the number of textbooks, computer programs, and similar products and services to be used for such analysis. Many of these new systems incorporated unique methods of analysis which only added to the existing wide array of procedures and practices followed in analyzing the financial position and financial performance of farm operations. Unfortunately, it was often difficult for agricultural producers, lenders, farm financial advisers, or other interested parties

1.	to be confident in the theoretical validity and technical soundness of the system, and
2.	to perform any type of comparative analysis of the financial position and financial performance of one farming operation to others within the same industry group.

In 1988, the Executive Committee of the Agricultural Bankers Division of the American Bankers Association conceived a project to attempt development of some standardization in financial reporting and financial analysis with respect to agricultural producers. The need for at least a degree of standardization was highlighted in the February 22, 1989, Report of the National Commission on Agricultural Finance. One of the three major recommendations for action made by that Commission was as follows:

Efforts are needed to develop: (a) a universal loan application, and (b) accounting standards for farm businesses. Efforts should address both loan documentation and accounting practices for analyzing farm businesses and for collateralizing loans. As sales of agricultural loan instruments become regional and national, such documentation and standardization are essential.

On January 22-23, 1989, at the invitation of the Agricultural Bankers Division of the American Bankers Association, a gathering occurred in St. Louis, Missouri of more than 50 interested parties representing virtually all aspects of agricultural finance. The purpose of the meeting was to focus on financial reporting and financial analysis for agricultural producers. The facilitator opened that initial meeting with the charge "check your ego and lapel pin at the door." He closed with the observation that notwithstanding the apparent differences among various parties, there was probably better than 80 percent common ground with respect to what were deemed to be appropriate methods for both financial reporting and the analytical techniques useful for effective and realistic measurement of the financial position and financial performance of agricultural producers.

Beyond the financial analysis of a single farming operation, there were recognized to be other benefits of standardized methods of financial reporting and financial analysis for agricultural producers. Uniform guidelines and formats could facilitate the educational process for those associated with and interested in production agriculture. In addition, uniformity would permit interested parties to collect data for historical and comparative analysis of farming operations. When such information is assembled over time, it might be expected to aid in development of benchmarks that would reasonably be expected to facilitate the flow of capital and credit into the agricultural community. Furthermore, by applying those benchmarks to understand the impact of debt and equity capital on various types of farming operations, there may be improvement in pricing (i.e., interest rates) for debt capital used by agricultural producers.

From the participants, there was clear consensus that it would be worthwhile to make a concerted effort to develop and publish standardized Financial Guidelines for Agricultural Producers. Subcommittees were created and work began on the first edition of that Report.