Farm Firms Research Articles

Effects of Government Program Payments on Farm Portfolio Diversification

The substitution of capital for labor promotes specialization and results in larger farms capturing size economies. Conversely, when production is labor intensive, farms tend to be smaller and more diversified. Robison and Barry concluded that specialization leads to significant economies of scale that must be expected in order to offset the risk reduction advantage of diversification. In diversifying, the farm sacrifices economies of scale, but tends to stabilize returns at a lower level with the benefit of reduced risk. White and Irwin found that there may exist linkages between size and outputspecialization in United States agriculture. In addition, Pope and Prescott concluded, from a survey of crop farms in California, that as farm firms become wealthier, farms place less emphasis on diversification. While management expertise and many technological advances tend to favor specialization, income uncertainty due to yield and price variability may favor diversification. Such diversification may be viewed as a portfolio investment problem including investment in onfarm enterprise activities and investments off the farm in stock and other financial securities. Government acreage reduction programs also complicate decisions about the ideal farmenterprise activity mix and its relationship to offfarm investments. Further, adjustments in the remainder of the farm portfolio given the availability of government acreage reduction program participation, are not well understood. These issues motivate an analysis of farm versus off-farm asset investment strategies, and the impact of government acreage reduction program payments on risk-efficient investment portfolios.

Do Farm Businesses and Big Businesses Apply Different Capital Budgeting Procedures?

Recent studies of capital budgeting procedures used by business executives suggest increasing use of present value methods. This study compares Massachusetts greenhouse business managers use of capital budgeting procedures to those of Fortune 1000 firms. Results indicate that different capital budgeting procedures are used and that the payback criterion remains the most popular for the farm firms studied. Some implications for Extension finance educators are drawn.

Instrumentation et pilotage stratégique dans l'entreprise agricole

About strategic monitoring tools in the farming firm. In this paper, the authors investigate the long term management of the farming firm and its links with operational management. In the present context of large uncertainty, it becomes more important to analyse how strategies are expanded and reviewed. The function of strategic monitoring is to support the adjustment of strategic choices to the evolution of environment and to the conditions of firms' activities. The authors especially raise the issue of setting up strategic monitoring tools in the small firm. Using an example, they suggest a conceptual framework to guide the choice and the use of management indicators, and to modelize the links with the farmer's information system. This general framework stems from interventions by researchers and advisers, in several types of farm firms. It makes possible to formalize interactions between strategy and operational management in terms of information and décision. it leads to the design of a spécifie monitoring system, linked with the farmer's rules of reasoning and his project. the system consist of a diagram which spécifies a decisional division into "modules", diagnosis and vigilance fonctions and monitoring key-dates for each module. The originality of this approach is : i) to develop a formalization of the strategic monitoring process with the farmer himself ; ii) to evaluate the "robustness" of the process in relation to the specific uncertainty of the farmer's project. Moreover, this framework makes a dialogue between adviser and farmer possible. The authors stress the interest of this framework to support the farmer in analyzing and evaluating his own management reasoning. Lastly, the authors show how this work can open new issues for management advice and for the development of a function of "strategic accompaniment". The design of the farmer's monitoring system becomes the first step of the intervention of the adviser. It is possible to create a common knowledge between the farmer and the adviser about farm management modes ; at the same time, this construction helps to structure the advisory relationship. Rather than limited intervention, this approach leads to a management advice in a permanent way.

Contract Choice in Modern Agriculture: Cash Rent versus Cropshare

E CONOMISTS have expended enormous effort examining the rationale for various contractual arrangements in agriculture, particularly sharecropping. While economists have made considerable theoretical efforts to understand agricultural contracts, few empirical studies have been undertaken. The dearth of empirical analyses of agricultural contracts is particularly striking for modern Western agriculture.' This is an important omission, not only because the existing empirical work tends to focus on the question of efficiency, but also because the theoretical models tend to examine contracts that bear little resemblance to those found in the United States today.

Impact of agronomic and economic factors on farm profitability

A multi-period mathematical programming model capable of representing cereal/grazing farm firms in South Australia was developed to determine the likely impact on farm profitability of alternative rotational sequences. Historically, crop rotations have been modelled using explicit predetermined rotations. In this study the model freely determines the optimal rotation over the designated planning horizon. Empirical results indicate that the complex inter-relationships involved in a mixed crop/livestock farming operation play a major role in determining the optimal farm plans. The model develops a plausible set of farm plans under various price and yield assumptions, though somewhat different from traditional farm practices. Its broad application across cereal/grazing areas in South Australia suggested an optimal cereal/grazing mix of 75/25. The model has been adapted to many cereal/grazing farm firms, through data changes specific to the environment under study, for farm planning advice and farmer training in management.

Tax Reform Impacts on Agriculture: Discussion

purposes. Authors of the two papers in this session describe the separate tax law changes in the TRA which will have an impact on farm firms; and they provide estimates, within a static framework, of the magnitude of taxes paid by selected farming operations before and after the act. They provide only a partial answer, however, to the question of how the TRA will impact agriculture. We still do not know how sharp rate reductions, modification of investment incentives, and broadening the tax base will interact to affect the flow of investment dollars into various sectors of the economy and into agricultural enterprises. Our research task for the next several years is to sort out the nature of these impacts and determine their structural implications. Impacts of changes in individual tax provisions on tax liabilities are discussed in both papers. Hanson and Bertelsen utilize a multiperiod approach to derive rental costs for capital inputs. Based on changes in rental costs, they conclude that the TRA is likely to shift farm investors' interests relatively more to land investment and away from machinery investment. This is in line with our results for similar Treasury tax proposals (Hardesty and Carman). Hanson and Bertelsen also found that the TRA tends to increase relative input costs most for the largest farms and concluded that this would likely lessen tax-motivated incentives for farm growth. Lins, Offutt, and Richardson seem to have conflicting views on farm growth based on simulation analysis results. They indicate that analysis using the FLIPSIM model found that TRA would likely decrease tax liabilities for large-scale farms and increase taxes for small-scale farms, suggesting TRA-induced shifts from smaller to larger scale operations. This is a point worthy of further discussion.

Agricultural Transition: Its Implications for Agricultural Economics Extension in the Southeast

David M. Kohl, Leonard A. Shabman,and Herbert H. StoevenerINTRODUCTION extension program, management informationThe current depressed state of the was focused upon the production decisions ofagricultural economy has had a negative effect farm firms, at a time when production agri-on the public funding for agricultural eco- culture was the primary income source for anomics programming at many of the region's large part of the nation's population. Then,land-grant colleges. Especially difficult with the increasing integration of the farmbudget times have confronted those charged production sector into the general economy,with supporting the extension mission. It the extension product was broadened to in-might seem that hard times on the farm would elude agricultural market intelligence and thecall for increased extension program activity operation of national agricultural policy. Atsupport. This has not been the case, and it will the same time, the extension clients came tobe our contention that the budget outlook will include not only the farm managers, but alsonot improve. Rather, we will argue that the associated agribusinesses. Also, at a lowerfuture will not permit a return to business as level of resource commitment, rural develop-usual extension programming. ment extension grew to provide informationThe paper will be developed in three sec- for community decision makers both withintions. First, a statement of the problem is of- and outside the formal governmental decisionfered. The second part of the paper will ex- process. Attempts to broaden extension clien-pand upon the problem definition, and the tele beyond these groups have been resistedthird part will elaborate upon the implications by public officials who review and approvefor extension. extension budgets and by those who deliverBefore proceeding, a perspective on our ap- extension services. Thus, the focus of exten-proach to the topic is needed. This paper has sion has remained upon the welfare of ruralbeen developed in the manner of a literary communities and, predominantly, upon theessay, seeking to make as persuasive a case as agricultural enterprises in those communities.possible

Dynamic Analysis of Income Taxes on Farm Firms

AbstractA dynamic optimization model is used to analyze the effects of tax law changes instituted by the Economic Recovery Tax Act of 1981 on farm firm decision making. The model incorporates the integrated nature of the firm's production, investment, and financing decisions. Because of interactions between tax provisions, the tax changes had the unexpected effect of reducing optimal investment in machinery and land.

A Farm Firm Model of Machinery Investment Decisions

AbstractThis article presents a multiperiod mixed integer programming (MMIP) model of optimal machinery decisions. Infinite horizon valuation models of replacement and other investment situations are conceptualized in the context of a finite programming model. Dual properties of the MMIP model are used to identify and value opportunity costs involved in investment decisions of farm machinery. The interdependent nature of investment and production relationships necessary for solving these values emphasizes the importance of a holistic firm perspective in analyzing farm machinery investment strategies. An empirical situation is used to demonstrate model application.

Effects of Selected Tax Policies on Management and Growth of A Catfish Enterprise

AbstractA multiperiod programming model was used to simulate the effects of lower marginal income tax rates, the soil and water conservation deduction, and the cash tax accounting option on firm growth for a “representative” farm operating in the Alabama Black Belt region. Results show the lowered marginal income tax rates associated with the Economic Recovery Tax Act (ERTA) of 1981 provide a positive growth stimulus to the modeled firm as measured by accumulated net worth over a 10-year planning horizon. The soil and water conservation deduction in general provides greater tax relief to the modeled firm than either the ERTA income tax rate changes or the cash tax accounting provision. Important complementary and substitute relationships were found to exist between marginal income tax rates and the various tax provisions studied, implying care must be exercised when attempting to evaluate the impact on farm firms of changes in tax policy.

Choice of Depreciation Methods for Farm Firms

AbstractAccelerated depreciation methods are usually considered to increase the present value of after‐tax cash flows for farm firms compared to straight line methods. Review of the theoretical foundations of this conclusion indicates that it requires an assumption of constant marginal income tax rates, which is inappropriate for many farm firms. Numerical analysis of a more general theoretical model and a detailed capital budgeting example both indicate that straight line methods are preferred with income tax rates below maximum levels and/or lower discount rates. General recommendations on depreciation methods are therefore impossible.

Possibilities and limits of individual marketing on family farm firms

Agricultural marketing is usually regarded as the affair of special institutions created to improve the situation of the whole sector. However, any farm has at its disposal a bundle of marketing activities to improve its economic situation. Generally these activities aim at a reduction of input prices and/or an increase of the farm-gate output prices. The paper deals with these possibilities and gives some first approximations of the profit increases which could be attributed to improvements of individual marketing activities. Copyright 1986 by Oxford University Press.

Financial Stress among Farm Firms: Discussion

American Journal of Agricultural EconomicsVolume 67, Issue 5 p. 1133-1135 Invited Paper Session Financial Stress among Farm Firms: Discussion Alan R. Tubbs, Alan R. Tubbs president and C.E.O. and chairman of the Agricultural Division First Central State Bank, American Bankers Association, DeWitt, IowaSearch for more papers by this author Alan R. Tubbs, Alan R. Tubbs president and C.E.O. and chairman of the Agricultural Division First Central State Bank, American Bankers Association, DeWitt, IowaSearch for more papers by this author First published: 01 December 1985 https://doi.org/10.2307/1241387AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL No abstract is available for this article. Volume67, Issue5December 1985Pages 1133-1135 RelatedInformation

Financial Stress Among Farm Firms: Discussion

American Journal of Agricultural EconomicsVolume 67, Issue 5 p. 1131-1132 Invited Paper Session Financial Stress Among Farm Firms: Discussion Lauren Soth, Lauren Soth journalist Des Moines (Iowa) Register former editor of editorial pagesSearch for more papers by this author Lauren Soth, Lauren Soth journalist Des Moines (Iowa) Register former editor of editorial pagesSearch for more papers by this author First published: 01 December 1985 https://doi.org/10.2307/1241386 AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL No abstract is available for this article. Volume67, Issue5December 1985Pages 1131-1132 RelatedInformation

Incidence, Intensity, and Duration of Financial Stress among Farm Firms

Over the past year, evidence on the extent of farm financial stress became available (Melichar, Jolly). However, policy makers disagree not only about the size and significance of the farm debt problems but also about the type of intervention, if any, that would be appropriate. The objective of this paper is to provide a benchmark for subsequent policy discussion. Financial stress requires definition. The absence of normal profit or returns to factors cause financial stress, yet these same forces drive the allocative mechanism of a market economy. Financial stress occurs when the capacity of an individual or firm or a specific sector of the economy to adjust to the forces causing stress is exceeded. Some stress is essential for efficiency and growth. Too much financial stress may lead to misallocation of resources, undesirable structural change, loss of economic and human capital, needed institutions, and individual well-being. Two surveys are used in this report. The USDA Farm Costs and Returns Survey (FCRS) is a probability-based sample of 23,386 farm operators contacted by enumerators between 15 February and 8 March 1985. Of these initial contacts 73% participated in the survey (Johnson, Baum, and Prescott). The FCRS collected income, cost, and balance sheet data for farm operators. The second data source was a mail survey of 4,700 Iowa farm operators conducted in March 1985. The Iowa Crop Reporting Service requested information on 1984 and 1985 financial conditions and operator characteristics. Approximately 23% of the questionnaires were returned (Jolly and Barkema).

Financial Stress among Farm Firms: Discussion

The three papers provide a good description of the current financial problems, the impacts of monetary and fiscal policies and farm programs, and possible short-term solutions to financial stress in agriculture. The authors are to be commended for an excellent set of papers, although there are omissions and weaknesses in each paper. Jolly, Paulsen, Johnson, Baum, and Prescott (JPJBP) provide an interesting synopsis of financial stress in agriculture. Their focus on only two measures of financial stress (debt-to-asset ratio and negative net cash flow) is the weakest part of their paper. Other measures of financial conditions could include the levels of and changes in net worth and net farm income, the number of bankruptcies and foreclosures, and the number of voluntary or involuntary liquidations. Such measures would provide additional guidance and insights to the financial problems. The proportion of farmers with negative net cash flows in any one year is not a reliable measure of financial stress. For example, a wealthy farmer who builds inventory in anticipation of better prices may show a negative net cash flow. In contrast, a financially strapped farmer may sell a significant portion of inventory and generate a positive net cash flow. Negative net cash flows indicate serious financial stress only if they persist over an extended period of time. Unfortunately, the JPJBP paper provides no evidence of how many farm operators have consistently experienced negative cash flows. The initial paragraph in the Hughes, Richardson, and Rister (HRR) paper suggests that management skills affect financial stress in agriculture. However, there is no further mention of management in the paper, so I will share some results of our work on this issue. Our research shows that an Illinois cashgrain farm with average management (management skills are based upon returns per dollar of input) and an initial debt-to-asset (D/A) ratio of 50%, is likely to experience significant reductions in net worth and negative net farm income under current economic conditions (table 1). However, managers ranked in the top 25% achieve crop revenues which are approximately 12% above average and have production expenses, excluding interest, more than 11% below average. With superior management, a cash-grain farmer with a D/A ratio of 50% can survive current economic conditions. However, a superior production and marketing manager saddled with a D/A ratio of 80% cannot survive current economic conditions (table 1). Disaggregate analyses of macroeconomic and farm policies are explored in the HRR paper using a firm-level simulation model. The results appear useful in analyzing the impact of public policies on individual farm firms. However, the large differences in growth in net worth and average annual net cash income among farm types raise serious questions about whether regional shifts in production are likely to occur. Brake and Boehlje (BB) have the unenviable task of suggesting solutions to the current financial stress in agriculture. Their paper identifies five adjustments for a financially stable agriculture: (a) lower interest rates, (b) mothball excess capacity, (c) lower resource values, (d) reduce debt, and (e) restructure asset ownership. While each of the five adjustments would improve conditions in agriculture, it seems questionable whether all five are needed for financial stability. For example, sector level debt is just over 20% of asset values. It is not the level of debt which is the problem, rather it is the distribution of that debt. Likewise, lower interest rates would improve incomes, but it is possible for agriculture to prosper and survive under current interest rates. Perhaps the most useful contribution of the BB paper is the five-step sequence of adjustments for firms experiencing financial stress. David A. Lins is a professor of farm financial management at the University of Illinois.

Financial Crisis in Agriculture: Discussion

The United States has just endured the most severe, protracted period of farm financial stress in nearly half a century. This invited papers session serves the helpful purpose of sorting out the effects of the farm recession, distilling the policy issues that emerge from this period, and directing the profession to a number of important research questions. Boehlje and Eidman advance a theoretical framework for examining farm firm survival. The model they present, containing some new approaches and directing emphasis to new decision variables, should be a worthy construct to address public policies and their impacts on farm firms. The authors make an excellent case for focusing more attention on the collateral and liquidity characteristics of assets. These attributes have been largely overlooked by economists and the Boehlje-Eidman theoretical structure provides appropriate variables and rules to incorporate them into prudent management decisions. The Boehlje-Eidman paper follows a con

Women's Employment Issues: Discussion

The results of the papers in this symposium have policy implications for the design of research and extension programs aimed at increasing agricultural productivity and incomes on farms which employ women, are comanaged by women, or are managed solely by women. Let us first examine the results of Jones' paper, which show that not all households in the third world can be treated as homogenous, unified decision-making units whose internal relationships can be taken as given either in research or extension projects. Indeed, the behavioral assumption that the household is a husband-wife team maximizing a jointly held utility function to attain shared goals obscures and ignores both the conflicts and the complex complementarities that occur within and divide the household, at least in the short run (Guyer, Haugerud). Instead, farming households in many societies of the third world (and certain subcultures of the U.S.) should be characterized as farm firms with overlapping but semiautonomous production and consumption units within the firm. The units are semiautonomous because they are managed by the several wives or married sons who are associated with the household via labor-, food-, and/or incomepooling arrangements. Each wife and married son is responsible for cultivation of a field and has the right to what the field produces. The units are overlapping because the wives and married sons also provide labor to cooperatively worked fields managed by the household head (McMillan). The extent to which household labor is allocated to the collective fields instead of the private fields, and the choice of food versus cash crops grown on each type of field has usually been determined by traditional rules and rights, e.g., the Massa husband's right to any of his wives' cash income not needed for food. With the introduction of an exogenous change, however, in the form of a rural development project introducing a new or recently irrigated cash crop, or a new land resettlement scheme (McMillan), or he sedentarization of a previously nomadic population, these traditional rules or rights are suddenly questionl' 1 and subject to negotiation. Conflicts often develop between household members determined to take advantage of the ne w, enlarged set of economic resources, be they the expanded surplus value from a new cash crop, access to new lands of

Evaluating the Food and Agriculture Act of 1977 with Firm Quadratic Risk Programming

AbstractFederal agricultural commodity programs generally have been assumed to reduce the income risk for farm firms, but limited empirical research exists on this proposition. This paper presents a study of the impact of the Food and Agriculture Act of 1977on income risk for a representative farm in Georgia. The model is used to derive an E‐V frontier for a firm not participating in the program and for the same firm that is participating in the program. Results indicate that participation dominates nonparticipation except for higher level of expected net income.

Effects of Alternative Goal Orientations on Farm Firm Growth and Survival

Effects of Alternative Goal Orientations on Farm Firm Growth and Survival