Impact of the Farm Financial Crisis on Agribusiness Firms and Rural Communities

Abstract

The high real interest rates and low commodity prices since the early 1980s have created financial problems for many farmers, especially those in highly leveraged positions. Surveys of farmers in the United States and Iowa have indicated that as many as 30% of U.S. farm operators have debt-to-asset ratios greater than 70%. Several farm simulation studies suggest that farmers in this greaterthan 70% debt-to-asset category are likely to become insolvent within two to three years if economic conditions and commodity prices do not improve significantly (Johnson et al., Progress Report). Farm asset values have been falling in response to these conditions in agriculture. While farmers are bearing the brunt of the financial difficulties in agriculture, the current crisis has implications for other sectors in the rural economy that interact with the farm economy. The viability of agribusinesses which supply production inputs and marketing services to farmers, the main street merchants who provide consumer and retail services, and the other social institutions such as schools