Abstract
Small farms in the US have significant challenges in financial management. This study examines how small farmers undertake farm financial management to meet their agricultural and farm-related spending and expenses. Using primary survey data from Tennessee, the study investigates the factors influencing the extent of use of five financing sources to meet the spending and expenses: cash/fund directly generated from the sale of agricultural products, farmer’s past savings, farm household’s off-farm income, income/incentives from government payments, and external loans. Using negative binomial regression estimation of generalized linear models, findings suggest that the decision on the use of financing sources is significantly influenced in general by age, education, income and land acreage holdings, off-farm work, and risk factors related to farmer or farm household. However, the associated factors and their effects on the extent of use are different depending on the financing source.
Highlights
IntroductionAgriculture continues to be the key economic activity and engages a vast number of households in rural areas
Do Small US Farms Meet TheirAgriculture continues to be the key economic activity and engages a vast number of households in rural areas
Off-farm income is a source of supplemental income for agricultural spending and debt repayment for most farm families (Zech and Pederson 2003; Stam et al 2003); higher income leads to higher repayment capacity (Featherstone et al 2006; Briggeman et al 2009)
Summary
Agriculture continues to be the key economic activity and engages a vast number of households in rural areas. Small farms face some restrictions to the formal source of finance because of the small size of their credit operations, inadequate assets, and institutional difficulties, which limit their capability to collateralize In such case, small farmers, mostly in rural areas, have to depend on lenders in the informal market. Off-farm income is a source of supplemental income for agricultural spending and debt repayment for most farm families (Zech and Pederson 2003; Stam et al 2003); higher income leads to higher repayment capacity (Featherstone et al 2006; Briggeman et al 2009) Subjected to all these challenges, it is interesting to analyze the financial choices made by small farmers to meet their agricultural spending and expenses. To investigate the research question, we conducted a primary survey among small farms and analyzed data using a generalized linear model with negative binomial distribution, appropriate for the nature of our data
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