Abstract
AbstractCapital and credit constraints limit the small farm’s ability to adequately use resources for optimum performance. Farmers’ access to capital is constrained in multiple ways, including price factors, risk factors, and transaction factors, as well as access to and ease of rural agricultural financing. Using a primary survey data of small farms in Tennessee, we analyzed factors influencing credit constraint and its impact on farm performance. Farm operators’ gender, off-farm work, land acreage holdings, farm specialization, and the use of smart phone with Internet significantly influenced credit constraint. We found that the financial performance of credit constrained small farmers was significantly lower than that of unconstrained small farmers—an adverse impact of constrained capacity to credit could result in up to $51,000 lower in gross farm sales. Additionally, our reason-specific results within credit constraint suggested that around $32,000 to $39,000 lower performance in gross sales can be attributable to the constrained borrowing with deficit to obtain agricultural loans at required or desired level.
Highlights
Agriculture, in most cases, requires a significant start-up investment to begin operations as well as to continue operations
Using the primary survey data from small farmers in Tennessee, we investigate whether credit constraint significantly affects financial performances
Mean gross sales in our sample is comparable with recent Tennessee Census data (Census of Agriculture, 2017), which shows that the largest portion among farmers were dominated by very small farmers—out of 69,983 operations, remarkably high 65,701 (93.8%) farm households generate farm sales below $100,000, followed by 1,639 (2.3%) generating $100,000 to $250,000; only 1,632 (2.3%) operations have farm sales above $500,000
Summary
Agriculture, in most cases, requires a significant start-up investment to begin operations as well as to continue operations. From the farmers stand point, payment for materials and purchase of inputs such as seeds, fertilizer, and labor should be met, in most cases, readily through cash, liquid assets, or line of credit (if available) during the respective stages of preparation, planting, cultivation, and harvesting. Note that these payments are required to be completed during times when limited or no income is earned from agriculture, while most cash income from farming is earned typically after some time of crop harvest or livestock sale. Agricultural consolidation and structural changes have increased the need for capital pushing farms to increase their sizes to maintain continued profitability
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