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Agricultural Finance Review
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ISSN (Print) 0002-1466
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  • Is the hedging efficiency of weather index insurance overrated' A
           farm-level analysis in regions with moderate natural conditions in Germany
    • Pages: 290 - 311
      Abstract: Agricultural Finance Review, Volume 78, Issue 3, Page 290-311, June 2018.
      Purpose The purpose of this paper is to analyze the hedging efficiency (HE) of weather index insurances (WII) based on a whole-farm approach. The aim is to identify how different types of WII affect the economic performance risk of real farms in the light of the heterogeneity of farm operations and natural conditions. Design/methodology/approach Using historic simulation, the HE of various hedging strategies is computed for 20 farms in regions with moderate natural conditions. A priori defined “standardized” WII and hedge ratios as well as ex post “optimized” strategies are analyzed. The latter is identified through a risk programming approach that determines the strike level and hedge ratio that would have minimized the volatility of each farm’s historic total gross margins (TGMs) ex post. Findings (i) The correlations between the weather indexes and the yields of the farms’ main crop (wheat) do not provide useful insights regarding the whole-farm HE because farms’ performance risk is considerably affected by volatile factors other than wheat yield; (ii) Standardized WII are ill-suited to hedge performance risk for the majority of studied farms; (iii) A considerable positive whole-farm HE could have been obtained on average if farmers had been able to use the “optimized” risk management strategy. Using farm-specific information thus seems to be essential for identifying meaningful hedging strategies. Originality/value This study provides added value by analyzing the HE of WII for 20 German crop farms in “moderate” regions. The results show that exemplary tests of WII in extreme conditions provide no decision support for farmers in other regions.
      Citation: Agricultural Finance Review
      PubDate: 2018-02-23T11:32:42Z
      DOI: 10.1108/AFR-07-2017-0059
  • Trade credit supply in African agro-food manufacturing industry:
           determinants and motives
    • Pages: 312 - 329
      Abstract: Agricultural Finance Review, Volume 78, Issue 3, Page 312-329, June 2018.
      Purpose The purpose of this paper is to examine the determinants and motives for supply of trade credit among agro-food manufacturing firms in African countries. Design/methodology/approach The paper uses a subsample of food manufacturing firms from World Bank Enterprise Survey in eight African countries in 2014. Two-limit Tobit models are specified for the determinants of trade credit supply (TCS) and the motives for TCS are inferred from the determinants. An instrumental variable two-limit Tobit model is estimated to check the endogeneity of trade credit received (TCR) in relation to trade credit supplied. Findings The level of TCS is significantly related with degree of product diversification, manager experience, level of TCR and overdraft availability. From the results, financing motives (particularly liquidity and redistribution) and commercial motives (particularly marketing and quality guarantee motives) for TCS are implied. Research limitations/implications The parameter estimates may contain both demand and supply effects as the two effects cannot be separated due to absence of information on firms’ customers in the data set. The results should be interpreted in this context. Originality/value The motives for TCS by agro-food firms is less understood in the agricultural finance literature and this paper makes an important contribution in this regard. In particular, the paper shows the degree of product diversification is directly associated with TCS, a relationship which has not been explored in the trade credit literature.
      Citation: Agricultural Finance Review
      PubDate: 2018-01-08T11:46:51Z
      DOI: 10.1108/AFR-03-2017-0017
  • Relationship between money lenders and farmers
    • Pages: 330 - 347
      Abstract: Agricultural Finance Review, Volume 78, Issue 3, Page 330-347, June 2018.
      Purpose The dependence of farmers on money lenders for agricultural credit despite the penetration of the formal financial sector with subsidized interest rates remains an economic puzzle. The purpose of this paper is to revisit the relationship between money lenders and farmers in the presence of trade-loan nexus. Design/methodology/approach The study provides a theoretical framework supported by empirical evidence. It uses primary survey data of farmers in a major potato producing district of West Bengal, India. For the empirical analysis, apart from descriptive statistics, the authors use a logit regression model to derive insights from some testable hypotheses. Findings The study finds that trade-loan nexus increases defaults on agricultural loans through two channels: first, by increasing loan requirement and repayment obligations through high input prices and interest rates, respectively; and second, by reducing income of farmers by setting low prices for the output. Research limitations/implications The functioning of money lenders in rural areas, including their sources of finance and political control over local economy, and the existing social hierarchies in the rural context will have to be studied in detail to understand the complexities of the issue. Practical implications The findings of the study underline the need for policy initiatives to break the trade-loan nexus to reduce the dependence of farmers on money lenders. Social implications The higher defaults help the money lender to sustain in the rural agricultural loan market as the formal sector becomes reluctant to lend in the presence of pervasive defaults. Originality/value The study is entirely original based on primary survey data of seven blocks of a major potato producing district in West Bengal, India. It could be the first such study on the subject. The findings are fresh and expected to contribute to development economics and agriculture finance literature and policy making.
      Citation: Agricultural Finance Review
      PubDate: 2018-01-31T02:57:41Z
      DOI: 10.1108/AFR-07-2016-0066
  • Is there discrimination against the agricultural sector in the credit
           rationing behavior of commercial banks in Ghana'
    • Pages: 348 - 363
      Abstract: Agricultural Finance Review, Volume 78, Issue 3, Page 348-363, June 2018.
      Purpose The purpose of this paper is to examine if credit rationing persists even in the era of financial liberalization, the extent to which individual, firm and loan characteristics influence the rationing behavior of commercial banks and whether the agricultural sector is discriminated against in the commercial bank credit market. Design/methodology/approach The study employed a probit model with marginal effects and a generalized Blinder-Oaxaca decomposition estimation on a randomly selected data of 1,239 entrepreneurs from eight commercial banks’ credit records about their individual, firm and loan characteristics. Findings The study revealed that credit rationing persists and that applying for a relatively longer payment period, providing collateral and guarantor, being illiterate, being relatively older and being in the agricultural sector increases the likelihood of being credit rationed, while having some relationship with the bank, having non-mandatory savings and applying from a bank with relatively high interest rates reduce the likelihood of being credit rationed. The study also revealed a credit gap of 17.77 percent and a positive discrimination against borrowers in the agricultural sector as the gap was largely being influenced by unexplained factors. Research limitations/implications The research was intended to cover a large number of commercial banks in Ghana. However, most of the banks were unwilling to provide such information about their borrowers; hence, the research was limited to only eight commercial banks who provided the author with the information needed for the study. Practical implications The study concludes that policies that enhance human capital, women, and older access to credit and agricultural-oriented financial services and others, will go a long way to reduce rationing and increase access to credit, especially to the agricultural sector. Social implications The research proposes the use of group lending as a form of collateral and monitoring to ease risks and default, and hence supports sustainable funding to increase access and outreach. Originality/value The paper looks at the comprehensive way about the various factors determining credit rationing in that it considers not only the individual, economic/firm and loan characteristics but also the extent to which discrimination toward the agricultural sector exists in the commercial banks credit market.
      Citation: Agricultural Finance Review
      PubDate: 2018-03-08T12:19:20Z
      DOI: 10.1108/AFR-08-2017-0077
  • Accelerated tax depreciation and farm investment: evidence from Michigan
    • Pages: 364 - 375
      Abstract: Agricultural Finance Review, Volume 78, Issue 3, Page 364-375, June 2018.
      Purpose The purpose of this paper is to examine the use of accelerated depreciation deductions, which includes Section 179 and bonus depreciation, taken in the first year of asset life by Michigan farms. The frequency, value and influence of accelerated depreciation on farm investment are also analyzed. Design/methodology/approach Accrual adjusted income statements, balance sheets, depreciation schedules, and income tax information for 66 Michigan farms from 2004 to 2014 provide data for the analysis. The present value of the accelerated deduction and change in the cost of capital were calculated. Finally, investment elasticities were used to arrive at the change in investment due to accelerated depreciation. Findings Accelerated depreciation was utilized across all applicable asset classes. Section 179 was used more often than bonus depreciation in part because it was available in all the examined years. Based on actual farm business use, accelerated depreciation lowered the cost of capital for the operations resulting in an estimated increase in investment of 0.27 to 11.6 percent depending on asset class. Originality/value The data utilized are of a detail not available in previous investigations which used either aggregate data or estimated rather than the observed use of accelerated depreciation. This analysis reveals that accelerated depreciation as used by commercial farms lowers the cost of capital and thus encourages investment particularly in machinery and equipment.
      Citation: Agricultural Finance Review
      PubDate: 2018-04-18T01:26:19Z
      DOI: 10.1108/AFR-05-2017-0038
  • Evolution of agriculture finance in India: a historical perspective
    • Pages: 376 - 392
      Abstract: Agricultural Finance Review, Volume 78, Issue 3, Page 376-392, June 2018.
      Purpose Lack of access to finance is one of the major contributing to low profitability in agriculture. Various policy interventions were performed for promoting access to finance. However, access to finance always remained one of the biggest challenges to Indian policymakers. The purpose of this paper is to explore the policy interventions in the areas of agriculture finance. Design/methodology/approach This paper makes an attempt to explore the relation of earlier policy initiatives with the current microfinance industry as well. The data for the paper are collected from Reserve Bank of India Archive Museum at Pune. This Museum is having huge collection of archives of policy documents of the Indian financial sector and is one of its kinds in India. Findings The study concludes that many of the interventions of today were earlier experimented or proposed in the past but, due to some or the other reason those, interventions were not successful. The study concludes that if those interventions had been implemented that time, it would have taken India in one of the tops in the list of financial inclusion. Originality/value This paper is a unique in its feature as it has tried to link the evolution of agriculture finance and the microfinance industry of India as microfinance is an integral part of agricultural finance in India.
      Citation: Agricultural Finance Review
      PubDate: 2018-05-03T09:19:28Z
      DOI: 10.1108/AFR-05-2017-0035
  • The Basel accords, capital reserves, and agricultural lending
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The safety and soundness of financial institutions has become a leading worldwide issue because of the recent global financial crisis. Historically, financial crises have occurred approximately every 20 years. The worst financial crisis in the last 75 years occurred in 2008–2009. US regulatory efforts with respect to capital reserve requirements are likely to have several unintended consequences for the agricultural lending sector—especially for smaller, less-diversified (and often, rural agricultural) lenders. The paper discusses these issues. Design/methodology/approach Simulation models and value-at-risk (VaR) criteria are used to evaluate the impact of capital reserve requirements on lending return on equity. In addition, simulations are used to calculate the effects of loan numbers and portfolio diversification on capital reserve requirements. Findings This paper illustrates that increasing capital reserve requirements reduces lending return on equity. Furthermore, increases in the number of loans and portfolio diversification reduce capital reserve requirements. Research limitations/implications The simulation methods are a simplification of complex lending practices and VaR calculations. Lenders use these and other procedures for managing capital reserves than those modeled in this paper. Practical implications Smaller lending institutions will be pressured to increase loan sector diversification. In addition, traditional agricultural lenders will likely be under increased pressure to diversify portfolios. Because agricultural loan losses have relatively low correlations with other sectors, traditional agricultural lenders can expect increased competition for agricultural loans from non-traditional agricultural lenders. Originality/value This paper is novel in that the authors illustrate how lender capital requirements change in response to loan payment correlations both within and across lending sectors.
      Citation: Agricultural Finance Review
      PubDate: 2018-07-11T08:52:01Z
      DOI: 10.1108/AFR-04-2017-0025
  • Strategies to manage hail risk in apple production
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose Hail risk management is essential for successful farm management in German fruit production, particularly because hail events and associated losses have increased in recent years. The purpose of this paper is to conduct a detailed risk analysis comparing different strategies to manage hail risk, taking into account farmers’ risk aversion and farm-specific conditions. Design/methodology/approach Within an expected utility framework, two different strategies for managing hail risk are compared: one belonging to the group of financial instruments (hail insurance) and the other to the group of technical instruments (anti-hail net). A unique data set comprising a ten-year time series of orchard-specific hail damage and hail insurance data is used. Findings For orchards with low local hail risk and low yield potential, not using hail risk mitigation is most efficient. For orchards with high local hail risk and high yield potential, anti-hail nets provide the highest certainty equivalents. For orchards with high local risk, but low yield potential, hail insurance is most efficient. For orchards, with low local risk, but high yield potential, the certainty equivalents are higher for anti-hail net, when the farmer is risk neutral or slightly risk-averse. With increasing risk aversion, hail insurance is most efficient, which can be explained by the greater degree of the instrument’s flexibility. Originality/value The novelty of the study lies in the direct comparison of the risk effects of anti-hail nets and hail insurance in fruit production.
      Citation: Agricultural Finance Review
      PubDate: 2018-07-06T08:57:23Z
      DOI: 10.1108/AFR-07-2017-0062
  • Modeling calendar spread options
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The purpose of this paper is to derive a new option pricing model for options on futures calendar spreads. Calendar spread option volume has been low and a more precise model to price them could lead to lower bid-ask spreads as well as more accurate marking to market of open positions. Design/methodology/approach The new option pricing model is a two-factor model with the futures price and the convenience yield as the two factors. The key assumption is that convenience follows arithmetic Brownian motion. The new model and alternative models are tested using corn futures prices. The testing considers both the accuracy of distributional assumptions and the accuracy of the models’ predictions of historical payoffs. Findings Panel unit root tests fail to reject the unit root null hypothesis for historical calendar spreads and thus they support the assumption of convenience yield following arithmetic Brownian motion. Option payoffs are estimated with five different models and the relative performance of the models is determined using bias and root mean squared error. The new model outperforms the four other models; most of the other models overestimate actual payoffs. Research limitations/implications The model is parameterized using historical data due to data limitations although future research could consider implied parameters. The model assumes that storage costs are constant and so it cannot separate between negative convenience yield and mismeasured storage costs. Practical implications The over 30-year search for a calendar spread pricing model has not produced a satisfactory model. Current models that do not assume cointegration will overprice calendar spread options. The model used by the Chicago Mercantile Exchange for marking to market of open positions is shown to work poorly. The model proposed here could be used as a basis for automated trading on calendar spread options as well as marking to market of open positions. Originality/value The model is new. The empirical work supports both the model’s assumptions and its predictions as being more accurate than competing models.
      Citation: Agricultural Finance Review
      PubDate: 2018-07-02T01:19:58Z
      DOI: 10.1108/AFR-09-2017-0088
  • Risk implications from the selection of rainfall index insurance intervals
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The purpose of this paper is to empirically examine the financial outcomes from forage production and RI-PRF insurance interval for two locations in Nebraska. Both locations provide historical forage production and precipitation data, allowing the authors to examine the relation between RI-PRF net income and forage production. Design/methodology/approach The authors focus on evaluating the producer net income and risk (measured as variance of net income) by examining the relation between farm precipitation and production and comparing multiple insurance intervals to no insurance. Each insurance interval will likely have a different relation (basis risk) between observed production and return from insurance and, therefore, a different impact on the variance of net incomes. The impact on variance of net incomes identifies the risk-reducing aspects of RI-PRF insurance intervals. The authors then rank each scenario into four mutually exclusive zones that describe the risk-reducing effectiveness and whether the subsidy is working correctly. Findings The authors found both risk increasing and decreasing insurance intervals exist at both locations. One insurance scenario (low in BBR) provided the highest net income while increasing risk, suggesting a profit maximizing opportunity. RI-PRF reduces net income risk with intervals insuring during high expected precipitation (growing season); while net income risk increases with intervals insuring low expected precipitation (non-growing season, winter months). The farmer would want to insure during the high expected precipitation months, which coincides with the growing season, since RI-PRF lowers the net income risk. For the government, removing net income risk increasing intervals improves the allocation of government resources. Originality/value In this paper, the authors modeled the relation between RI-PRF interval selection using the historical forage production data at two locations in Nebraska. The use of historical forage production data allowed the authors to precisely identify the risk-reducing effectiveness of RI-PRF interval selection.
      Citation: Agricultural Finance Review
      PubDate: 2018-05-14T09:44:54Z
      DOI: 10.1108/AFR-10-2017-0097
  • The value of social capital in farmland leasing relationships
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The purpose of this paper is to investigate the impacts of social capital on the rate at which agricultural land is rented between landowners and tenants using data from the state of Kansas. Design/methodology/approach A survey of tenants provides data on the rental rate of farmland as well as characteristics of the lease, the land, and the landowner. Findings Results support the hypothesis of a negative impact on rental rates from longer-term leasing relationships. The model estimates a 10.0 percent discount relative to market rates when the leasing relationship increases from 11 to 22 years. At the sample average of $64 per acre, this is a $10 per acre discount. Research limitations/implications Increased levels of social capital, as measured by the length of the leasing relationship between landowner and tenant, reduce the rental rate. A 10 percent increase in the number of years a parcel of land is leased to the same tenant will decrease the annual rental rate by 1 percent. Originality/value Research adds to the understanding of informal relationships underlying farmland leases. A large number of farmland tracts may turnover in the coming years. This turnover may affect the rental rates for tenants who have had long-term leasing relationships over time.
      Citation: Agricultural Finance Review
      PubDate: 2018-03-20T03:18:17Z
      DOI: 10.1108/AFR-08-2017-0067
  • Farm business financial performance in local foods value chains
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The purpose of this paper is to identify the factors associated with farm financial success for those farms known to produce for local supply chains. The analysis considers alternative measures of farm financial performance and considers the role of the local foods supply chain in the choice to market locally. Design/methodology/approach The paper uses a two-stage Heckman approach which addresses the possibility of sample selection bias. In the first stage, the choice model to engage in direct marketing is estimated. In the second stage, the authors estimate a model of the financial performance of those in the sample that direct marketed which includes an IMR term calculated from the parameters of the first stage equation. The analysis uses national farm-level data from the Agricultural and Resource Management Survey of the US Department of Agriculture and combines data from 2009 to 2012 to overcome the constraint of small samples. Findings Indicators of the development of a local foods supply were positively related to the choice to engage in direct marketing. Factors affecting farm financial performance varied significantly between a short-term and a long-term measure. The results emphasize the importance of considering multiple outcome measures, developing local supply chains and provide implications about beginning farms. Originality/value If a local foods system is going to thrive, the farms that market the agricultural products in the local food system must attain a certain level of profitability. The value of the analysis is an improved understanding of the financial performance of farms producing for a small, but growing segment of the food supply chain.
      Citation: Agricultural Finance Review
      PubDate: 2018-03-19T03:09:30Z
      DOI: 10.1108/AFR-08-2017-0071
  • How do financially vulnerable farms finance debt in periods of falling
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The purpose of this paper is to examine the effect of falling commodity prices on farm debt usage of corn and soybean farms, and how this debt usage differs based on the financial leverage of the farm. Design/methodology/approach Using panel data on farms surveyed at least twice in the Agricultural Resource Management Survey (ARMS) from 1996 to 2015, this paper uses a difference-in-differences approach to measure the effect of low commodity price shocks on financially vulnerable farms. To account for the correlation in the error structure between the three dependent variables (real estate debt, non-real estate debt, and interest payments) we use a seemingly unrelated regression approach. Findings Following a commodity price shock, financially vulnerable farms (debt-to-asset ratio greater than 40 percent) were found to increase their non-real estate debt when compared with non-financially vulnerable farms. Off-farm business income was found to help farms reduce real estate debt and interest payments in the face of these shocks. Research limitations/implications Data consist of corn and soybean farms surveyed more than once in the ARMS from 1996 to 2015 and are not representative of all US farms, but have similar characteristics to US commercial farms. Social implications The results indicate that financially vulnerable commercial crop farms respond to lower prices by taking on non-real estate debt, increasing financial stress. Well-targeted federal programs could prevent further financial stress for this group. Originality/value This is the first paper to use unbalanced panel data from ARMS to examine how farm debt use responds to commodity prices. This paper can inform policymakers about the financial risks to farms resulting from the current low-price environment.
      Citation: Agricultural Finance Review
      PubDate: 2018-03-08T01:08:48Z
      DOI: 10.1108/AFR-08-2017-0066
  • The current farm downturn vs the 1920s and 1980s farm crises
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The purpose of this paper is to examine the current farm economic downturn and credit restructuring by comparing it with the 1920s and 1980s farm crises from both economic and regulatory perspectives. Design/methodology/approach This paper closely compares critical economic and regulatory aspects of the current farm downturn with two previous farm crises in the 1920s and 1980s, and equally importantly, the golden eras that occurred before them. This study compares key aggregate statistics in land value, agricultural credit, lending regulations, and also evaluates the situations and impacts on individual farmer households by using three representative case studies. Findings The authors argue that there are at least three economic and regulatory reasons why the current farm downturn is unlikely to slide into a sudden collapse of the agricultural markets: strong, real income; growth in the 2000s, historically low interest rates; and more prudent agricultural lending practices. The current farm downturn is more likely a liquidity and working capital problem, as opposed to a solvency and balance sheet problem for the overall agricultural sector. The authors argue that the trajectory of the current farm downturn will likely be a gradual, drawn-out one like that of the 1920s farm crisis, as opposed to a sudden collapse as in the 1980s farm crisis. Originality/value The review provides empirical evidence for cautious optimism of the future trajectory of the current downturn, and argues that the current downturn is much more similar to the 1920s pattern than the 1980s crisis.
      Citation: Agricultural Finance Review
      PubDate: 2018-03-05T03:39:42Z
      DOI: 10.1108/AFR-08-2017-0075
  • Characteristics of borrowers likely to benefit from loan modifications
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The purpose of this paper is to identify the characteristics of borrowers likely to benefit from loan modifications (restructuring) which includes concessions provided to the borrower from the lender. Design/methodology/approach Data were drawn from the US Department of Agriculture Farm Service Agency (FSA) for borrowers who had received an operating loan modification during 2005-2010. A logistic regression model is estimated to identify the characteristics associated with the likelihood of a borrower paying the modified loan as agreed or receiving a subsequent loan modification within seven years. Explanatory variables included financial condition, type and year of loan modification, farm type, organizational type, borrower demographics, and region. Findings Loans requiring more complex loan modifications and borrowers with previous loan restructuring, larger farms, little equity in loan collateral, little or no capital, and/or little to no liquidity are less likely to perform following loan restructuring, which could suggest a possible futility in providing concessions to these types of borrowers. Many of these borrowers ended up having a subsequent restructure within a short period of time. Most of the regional variability in loan performance appears to have been a result of land values and commodity prices and not jurisdictional laws. Originality/value FSA has followed a policy of providing loan modifications to the borrowers experiencing repayment problems for more than 25 years. Though farm financial conditions have remained relatively strong through 2016, a continuation of the low farm incomes and declining farm real estate values could increase farm loan repayment problems in upcoming years and increase interest in farm loan modifications from both lenders and policymakers. FSA’s experience provides a rich data source to examine and provide a better understanding of the costs and benefits associated with loan modifications.
      Citation: Agricultural Finance Review
      PubDate: 2018-02-21T11:55:32Z
      DOI: 10.1108/AFR-08-2017-0072
  • Asset concentration in the US agricultural balance sheet: a relative
           information approach
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose Over the past four decades, real values of farm real estate and the share of assets on farmers’ balance sheets attributed to farm real estate have increased. The purpose of this paper is to examine the factors that explain the concentration of the US agricultural balance sheet around a particular asset, farm real estate, and the extent to which the degree of asset concentration varies across United States Department of Agriculture production regions. Design/methodology/approach State-level data from 48 states and entropy-based inequality measures are used to examine changes in asset distributions (real estate vs non-real estate assets) both within and between regions over time. Findings The agricultural balance sheet is found to concentrate into real estate in the USA over the period 1960-2003 with the rate of concentration varying across production regions. In some regions, the concentration is mainly due to changes in real estate prices, while in other regions concentration is also driven by changes in real estate holdings or changes in total factor productivity. Originality/value This study formally estimates the degree to which the concentration of balance sheet items can be explained by the observed changes in farm real estate prices relative to observed changes in agricultural factor productivity or changes in farm real estate holdings. The computed regional differences in asset concentration and its main drivers have implications for changes in equity and solvency positions of farmers as well as agricultural lenders’ risk exposure.
      Citation: Agricultural Finance Review
      PubDate: 2018-02-15T11:21:24Z
      DOI: 10.1108/AFR-08-2017-0068
  • Financial stress and farm bankruptcies in US agriculture
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The purpose of this paper is to evaluate farm financial stress within the USA over the past 20 years and the agricultural and economic factors which have impacted farm businesses. The effect of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) on farm financial stress is further evaluated. In particular, Chapter 12 bankruptcies – which can only be filed by farmers – were only a temporary measure until BAPCPA made Chapter 12 a permanent fixture in bankruptcy law. Design/methodology/approach Chapter 12 bankruptcy filings from 1997 until 2016 are used as a proxy for farm financial stress. Panel fixed effects models are used to determine relevant factors affecting financial stress for farmers from agricultural and macroeconomic perspectives. Further, models incorporating pre- and post-BAPCPA regimes are utilized. Findings The results show that macroeconomic factors (interest and unemployment rates) are strong predictors of farm bankruptcies for farms while agricultural land values are the only consistent strong predictor among the agricultural factors. When evaluating the post-BAPCPA regime, only agricultural land values continue to be a significant predictor of farm bankruptcies. The findings also indicate a dynamic relationship with agricultural land values, where current year values are negatively related but previous year land values are positively related to bankruptcies. Originality/value The authors provide an analysis of the post-BAPCPA regime on farm bankruptcies that has not been evaluated within the literature yet. Further, the findings illuminate discussion on a potentially dynamic relationship with financial stress and agricultural land values.
      Citation: Agricultural Finance Review
      PubDate: 2018-02-08T09:25:42Z
      DOI: 10.1108/AFR-05-2017-0030
  • Evaluating financial stress and performance of beginning farmers during
           the agricultural downturn
    • Abstract: Agricultural Finance Review, Ahead of Print.
      Purpose The purpose of this paper is to examine the financial performance and stress of beginning farmers in the USA with emphasis on the agricultural downturn experienced since 2013. Design/methodology/approach Using the US Department of Agriculture’s Agricultural Resource Management Survey (ARMS) data, probit models are estimated to study the personal and farm characteristics that affect whether or not the financial ratios fall into critical zones as defined by the Farm Financial Standards Council. The financial ratios involve liquidity, solvency, profitability, efficiency, and repayment capacity. Findings Beginning farmers are at a greater risk of financial stress on average, with higher likelihood of financial stress in liquidity and efficiency. Further, the recent agricultural downturn has negatively affected liquidity, solvency, and profitability for farmers while repayment capacity does not appear to be affected. During the downturn, beginning farmers are better positioned than the general farming population with respect to liquidity and repayment capacity. Originality/value This paper applies current lending practices to a nationally representative sample of farms over a time of changing economic conditions for the agricultural sector.
      Citation: Agricultural Finance Review
      PubDate: 2018-01-22T02:54:55Z
      DOI: 10.1108/AFR-08-2017-0074
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