Agricultural credit risk and the macroeconomy

2017 ◽  
Vol 77 (1) ◽  
pp. 164-180 ◽  
Author(s):  
Andrew M. Johnson ◽  
Michael D. Boehlje ◽  
Michael A. Gunderson
Keyword(s):  
Credit Risk ◽  
Agricultural Sector ◽  
Farm Income ◽  
Financial Health ◽  
Agricultural Credit ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Agriculture Sector ◽  
Farm Credit

Purpose The purpose of this paper is to explore the linkage between agricultural sector and macroeconomic factors with farm financial health. It considers whether agricultural lenders can more accurately anticipate changes in the credit quality of their portfolios by considering broad economic indicators outside the agriculture sector. Design/methodology/approach This paper examines firm, sector, and macroeconomic drivers of probability of default (PD) migrations from a sample of 153 grain farms of actual lender data from Farm Credit Mid-America’s portfolio. A series of ordered logit models are developed. Findings Farm-level and sector-level variables have the most significant impact on PD migrations. Equity to asset ratios, working capital to gross farm income ratios, and gross corn income per acre are found to be the most significant drivers of PD migrations. Macroeconomic variables are shown to unreliably forecast PD migrations, suggesting that agricultural lenders should emphasize firm and sector variables over macroeconomic factors in credit risk models. Originality/value This paper builds the literature on agricultural credit risk by testing a broader set of sector and macroeconomic variables than previous articles. Also, prior articles measured the direction but not magnitude of PD migrations; the ordered model in the analysis measures both.

Agricultural credit rationing in Ghana: what do formal lenders look for?

2014 ◽  
Vol 74 (3) ◽  
pp. 364-378 ◽  
Author(s):  
Dadson Awunyo-Vitor ◽  
Ramatu Mahama Al-Hassan ◽  
Daniel Bruce Sarpong ◽  
Irene Egyir
Keyword(s):  
Financial Institutions ◽  
Agricultural Sector ◽  
Credit Rationing ◽  
Farm Size ◽  
Farm Income ◽  
Two Stage ◽  
Agricultural Credit ◽  
Content Type ◽  
Access To Credit ◽  
Improve Access

Purpose – The purpose of this paper is to investigate the determinants of agricultural credit rationing by formal lenders in Ghana. Design/methodology/approach – This study employed descriptive statistics, analysis of variance (ANOVA) and Heckman's two-stage regression model to identify types of rationing faced by farmers and investigate factors that influence agricultural credit rationing by formal financial institutions. Data used in this study are gathered through a survey of 595 farmers in seven districts within Brong Ahafo Region of Ghana. Findings – The result reveals that farmers face three types of rationing. Evidence from the Heckman two-stage models shows that engagement in off farm income generating activities, increase in farm size, positive balances on accounts and commercial orientation of the farmers has the potential to reduce rationing of credit applicants by formal lenders. Practical implications – The results provide information on the factors that need to be considered as important in an attempt to reduce agricultural credit rationing by formal lenders. Originality/value – The value of this study is that farmers would use the results of this study to improve access to required amount of agricultural credit from formal financial institutions. The information would also benefit stakeholders in the agricultural sector, particularly youth in agriculture program organized by Ministry of Food and Agriculture in Ghana as how to improve access to credit and reduce rationing of program participants by formal financial institutions.

Farm and lender structural change: implications for federal credit

2017 ◽  
Vol 77 (1) ◽  
pp. 78-94 ◽  
Author(s):  
Charles B. Dodson ◽  
Bruce L. Ahrendsen
Keyword(s):  
Land Tenure ◽  
Commodity Price ◽  
Farm Size ◽  
Farm Income ◽  
Service Agency ◽  
Credit System ◽  
Content Type ◽  
Farm Credit ◽  
Size Groups ◽  
Guaranteed Loans

Purpose The purpose of this paper is to examine changes in the structures of US farms and lenders and identify prospective implications for federal credit. Design/methodology/approach Data from US farm operations for 1996-2014 were adjusted to 2014 values using commodity price indices. Farm size groups were constructed by value of farm production to analyze changes in farm numbers, production, assets, debt, leverage, liquidity, profitability, land tenure, commodity type, contract production, organization type, and use of Farm Service Agency (FSA) direct and guaranteed loans by farm size. Bank, Farm Credit System (FCS), and FSA data from 1996 to 2015 were adjusted to 2014 values. Lender size groups were constructed to analyze changes in bank and association numbers, farm loans, and use of FSA guaranteed loans by lender size. Findings The greatest consolidation has been by farms with over $2 million in production. More farm debt is held by large, complex organizations, frequently with multiple operators, more variable income, and greater reliance on production contracts and operating and nonreal estate credit. Large farms have greater leverage, are more profitable, and have a larger share of household income from the farm. Banks and FCS institutions are fewer and larger, yet smaller institutions use FSA guarantees to a greater extent. Larger farms tend to be more reliant on both direct and guaranteed FSA loans and are likely to become more dependent on FSA credit. Originality/value Changing farm and lender structure together with softening farm income may require FSA farm loan program changes to meet any increase in loan demand. Policy alternatives are provided to meet changing demand for farm credit.

The current farm downturn vs the 1920s and 1980s farm crises

2018 ◽  
Vol 78 (4) ◽  
pp. 396-411 ◽  
Author(s):  
Wendong Zhang ◽  
Kristine Tidgren
Keyword(s):  
Interest Rates ◽  
Agricultural Sector ◽  
Balance Sheet ◽  
Real Income ◽  
Economic Downturn ◽  
Agricultural Credit ◽  
Content Type ◽  
Farm Crisis ◽  
Low Interest Rates ◽  
Sudden Collapse

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.

Determinants of agricultural household demand for insurance in China from 2004 to 2007

2017 ◽  
Vol 9 (4) ◽  
pp. 660-667 ◽  
Author(s):  
Chu-Shiu Li ◽  
Chwen-Chi Liu ◽  
Yuehua Zhang
Keyword(s):  
Economic Development ◽  
Agricultural Sector ◽  
Western China ◽  
Farm Income ◽  
Farm Sector ◽  
Content Type ◽  
Demand For Insurance ◽  
Agricultural Household ◽  
The Difference ◽  
Insurance Consumption

Purpose The purpose of this paper is to examine the relationship between the purchase of insurance and economic growth among agricultural households. Design/methodology/approach Using survey data of the agricultural sector obtained from China over two years, the authors highlight the effect of job switching between farm and non-farm activities on the demand for insurance by applying the difference-in-differences and triple differences methodologies. Findings The results show that compared with farm income, non-farm income is associated with an increased (decreased) demand for insurance among households in Eastern (Western) China. The inequality in degree of economic development between the regions plays an important role in this finding. Both education and income exhibit a positive relationship with insurance demand for most regions. In addition, in 2007, regardless of farm or non-farm sector, switches are (except in the northeast region) associated with a significant increase in insurance expenditures. Households who switched from the farm to non-farm sector in 2007 are significantly negatively associated with insurance expenditures in the western region. Social implications Inequalities in the degree of economic development play an important role in insurance consumption. Originality/value The authors assess the determinants of insurance market development in the agricultural sector in China, characterized by inter-regional disparities in economic development.

Market microstructure and the historical relationship between the US farm credit system, farm service agency and commercial bank lending

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Calum G. Turvey ◽  
Amy Carduner ◽  
Jennifer Ifft
Keyword(s):  
Market Microstructure ◽  
Credit System ◽  
Agricultural Credit ◽  
Agricultural Finance ◽  
Content Type ◽  
Demand Elasticities ◽  
The Us ◽  
Farm Credit ◽  
Farm Credit System

PurposeThe purpose of this paper is to investigate the market microstructure related to the Farm Credit System (FCS), Commercial Banks (CB) and Farm Services Administration (FSA). The commercial banks frequently call out the FCS as having an unfair advantage in the agricultural finance market place due to tax exempt bonds, and an implied guarantee of those bonds. This paper addresses the issue by examining the interrelationships since 1939, while addressing the historically distinctive roles that the FCS, CB and FSA have played in the US agricultural credit market.Design/methodology/approachThere are two components to our model. The first is the estimation of short and long run credit demand elasticities, as well as land elasticities. These are estimated from a dynamic duality model using seemingly unrelated regression. The point elasticity measures are then used as independent variables in least square regressions, combined with farm specific and related macro variables, for the Cornbelt states. The dependent variable is the year-over-year changes in paired FCS, CB and FSA loans.FindingsThe genesis of the FCS was to provide credit to farmers in good and bad years. Therefore, we expected to see a countercyclical relationship between FCS and CB. This is found for the farm crisis years in the 1980s but is not a continuous characteristic of FCS lending. In good times the FCS and CB appear to compete, albeit with differentiated market segmentation into short- and long-term credit. The FSA, which was established to provide tertiary support to both the FCS and CB, appears to be responding as designed, with greater activity in bad years. The authors find the elasticity measures to be economically significant.Research limitations/implicationsThe authors conclude that the market microstructure of the agricultural credit market in the US is important. Our analysis applies a broader definition of market microstructure for institutions and intermediaries and reveals that further research examining the economic frictions caused by comparative bond vs deposit funding of agricultural credit is important.Originality/valueThe authors believe that this is the first paper to examine agricultural finance through the market microstructure lens. In addition our long-term data measures allow us to examine the economics through various sub-periods. Finally, we believe that our introduction of credit and land demand elasticities into a comparative credit model is also a first.

scholarly journals Conventional REITs, Islamic REITs and macroeconomic variables in Malaysia: a review

2020 ◽  
Vol 12 (1) ◽  
pp. 131-143 ◽  
Author(s):  
Mohd Edil Abd Sukor ◽  
Zahida Abu Sujak ◽  
Kamaruzaman Noordin
Keyword(s):  
Macroeconomic Factors ◽  
Business Decisions ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Different Types ◽  
Asset Size ◽  
The Impact ◽  
The Relationship ◽  
Practical Implications ◽  
Conventional Counterpart

Purpose The purpose of this paper is to empirically examine the return and dividend characteristics of two different types of Malaysian real estate investment trust (REIT) series, namely, conventional and Islamic, against macroeconomic variables over the period 2011-2017. Design/methodology/approach The required data are derived from Datastream database. Multiple regression analysis is used to determine the impact of macroeconomic variables on financial performance of 13 Malaysian REIT series. Findings Results show that the macroeconomic variables are able to predict future returns and dividends of Malaysian REITs. The analysis also suggests that Islamic REITs are seen to be less sensitive to macroeconomic variables and display better portfolio diversification benefits as compared to their conventional counterpart. The ongoing implications for large-cap and small-cap REITs are also highlighted. Research limitations/implications The main limitation of the study is the small percentage of Islamic REITs sample due to limited period of observation available. However, the two Islamic REITs included are representative of Islamic REITs in Malaysia as both of them are listed in the Bursa Malaysia with asset size and market capitalization values more than RM1bn. Practical implications The results of this study may serve as a useful input for financial market players on making strategic business decisions especially with regards to differences between conventional and Islamic REITs characteristics. Originality/value The main contribution of this paper is to explore the relationship between REITs and macroeconomic factors on a unique capital market (Malaysia) that allows comparison between conventional and its Islamic counterpart.

The ripple effect of credit accessibility on the technical efficiency of maize farmers in Ghana

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anthony Siaw ◽  
Yuansheng Jiang ◽  
Martinson Ankrah Twumasi ◽  
Wonder Agbenyo ◽  
Gideon Ntim-Amo ◽  
...  
Keyword(s):  
Technical Efficiency ◽  
Farm Size ◽  
Farm Income ◽  
Agricultural Credit ◽  
Maize Production ◽  
Content Type ◽  
Frontier Analysis ◽  
Access To Credit ◽  
Variable Approach ◽  
The Impact

PurposeThe purpose of this study is to examine the impact of access to credit on technical efficiency (TE) of maize farmers in a developing country, Ghana.Design/methodology/approachThe study employed an instrumental variable approach and the stochastic frontier analysis (SFA) method for the estimation of the results.FindingsThe study found that farmers who have access to agricultural credit stand the chance of increasing TE by a margin of 8%, which also influences the maize production than those who did not have access to credit. The average TE score of the farmers was 74%. The study also found out that factors like membership, gender, farmers' access to credit, age and social network determine farmers' possibility of accessing agricultural credit. The study finds out that returns to size are increasing among the maize farmers and that significant improvement in efficiency can be realized by increasing the level of input used in production. Also, factors such as farm size, labor, seeds and fertilizer are the essential determinants of maize production output. Also, gender, extension, age, off-farm income, access to credit and membership were significant factors influencing technical inefficiency (TI).Originality/valueThe paper contributes to the existing literature on agricultural credit on rural agricultural development. The problem of endogeneity associated with access to credit, which has been considered by other researchers, is dealt with this study. This paper also provides information to government policymakers, practitioners and all other stakeholders in the maize sub-sectors and also will benefit small farmers outside the study area.

The performance and corporate risk-taking of firms: evidence from Malaysian agricultural firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hanis Hazwani Ahmad ◽  
Adilah Azhari
Keyword(s):  
Firm Performance ◽  
Risk Taking ◽  
Agricultural Sector ◽  
Management Practice ◽  
Emerging Market ◽  
Random Effect ◽  
Least Square ◽  
Content Type ◽  
Agriculture Sector ◽  
Corporate Risk

PurposeThis study explores the effects of the performance and corporate risk-taking behaviour of agricultural firms. Despite its importance in mitigating climate change, the agricultural sector also faces global competition, market liberalisation, rapid technological advances and the starter of stricter quality and safety procedures, all of which require firms to take greater risks.Design/methodology/approachThis study explores this relationship by applying generalised least square (GLS), random effect methodologies (REM) and generalised method of moments (GMM).FindingsThe findings report a favourable relationship between firm performance and corporate risk-taking using a sample of firms from an emerging market.Research limitations/implicationsThe effects of these results for management practice and recommendations for further research were examined.Originality/valueWhile this empirical study used a sample focused on a single industry, most previous studies focused on multiple industries. The originality of this study is its analysis of how firm performance affects corporate risk-taking in the Malaysian agriculture sector.

Dynamic implications of GDP, interest rates, taxes, income, foreign direct investments, housing prices on property NPLs

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kuen-Wei Tham ◽  
Rosli Said ◽  
Yasmin Mohd Adnan
Keyword(s):  
Interest Rates ◽  
Global Financial Crisis ◽  
Housing Prices ◽  
Economic Environment ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Long Run ◽  
First Time

Purpose The study on how macroeconomic factors affect non-performing loans (NPLs) have not been focussed on property loans, which had been amongst the largest contributor of NPLs in many countries. At the same time, whilst there are many studies that focusses on NPLs during the recession and financial crises, not many studies focus on how macroeconomic factors affect property NPLs in a recovering economic environment. The purpose of this study seeks to fill the gap by analysing the relationships between gross domestic product (GDP), interest rates, income, foreign direct investments (FDI), housing prices and taxes on property NPLs with Malaysia as a case study in which NPLs rose for the first time after declining for almost a decade since the 2008–2009 global financial crisis. This study aims to understand the dynamics and direction of causation in relationships. Design/methodology/approach The author uses the auto regressive distribution lag analysis between the independent variables of GDP, interest rates, housing prices, service taxes, percapita income and FDI affecting the dependent variable of property NPLs from 2009 to 2017, during a unique period of recovering economic environment where NPLs rose for the first time in almost a decade of decline. Findings This study found that interest rates, housing prices, income, GDP and service taxes were found to possess long cause effects and long run elasticity with NPLs. At the same time, interest rates were found to implicate property NPLs significantly in longer periods, followed by GDP, housing prices, service taxes and income. FDIs were found to be insignificantly negative in implicating property NPLs in the long run. Research limitations/implications This paper allows policymakers to understand the dynamic implications of crucial macroeconomic factors in affecting NPLs so that appropriate strategic monetary policies could be formulated towards addressing them. More focus shall be given to addressing the long term implications of these factors on NPLs. Practical implications Appropriate strategic monetary policy making can be channelled towards addressing these factors via understanding the short and long term implications of macroeconomic variables on property NPLs. Policymakers can take note of the long cause effects and long run elasticity of average interest rates, housing prices, income levels, GDP and service taxes with property NPLs so that appropriate long term policies can be addressed to control the rise of property NPLs in the country. At the same time, priority should be given towards strengthening of the GDP of the country due to its strongest impact in long term effects with reduction of NPLs in the country. Social implications The insights from the present study suggest policymakers interested in bringing stability in the real estate finance system need to account for the various macroeconomic variables found in this study. Originality/value The paper is novel on at least two dimensions. First, this study involves focussing on a unique period of recovering economic environment where NPLs rose for the first time after a decade of decline since recovering from the 2008–2009 global financial crisis. At the same time, this study focusses on property NPLs, which is unique in nature compared to general NPLs. This study had enabled policymakers to better understand the dynamic implications of several macroeconomic variables affecting property NPLs and assist them in strategic monetary policy making.

Tax policy and farm capital investment: Section 179 expensing and bonus depreciation

2016 ◽  
Vol 76 (2) ◽  
pp. 246-269 ◽  
Author(s):  
James M Williamson ◽  
Sarah Stutzman
Keyword(s):  
Fixed Effects ◽  
Capital Investment ◽  
Agricultural Sector ◽  
Physical Capital ◽  
Cost Recovery ◽  
Farm Income ◽  
Content Type ◽  
Bonus Depreciation ◽  
On Farm ◽  
The Impact

Purpose – The purpose of this paper is to estimate the impact of Internal Revenue Code cost recovery provisions – Section 179 and “bonus depreciation” – on farm capital investment. Design/methodology/approach – The authors construct a synthetic panel of data consisting of cohorts of similar farms based on state and production specialization using the USDA’s Agricultural Resource Management Survey for years 1996-2012. Employing panel data methods, the authors are able to control for time-invariant fixed effects, as well as the effects of past investment on current investment. Findings – The authors estimate statistically significant investment demand elasticities with respect to the Section 179 expensing deduction of between 0.28 and 0.50. A change in bonus depreciation, on average, had little impact on capital investment. Practical implications – The estimates suggest there is a modest effect of the cost recovery provisions on investment overall, but a stronger effect on farms that have more than $10,000 in gross cash farm income. There are other implications for the agricultural sector: the provisions may encourage technology adoption with its associated benefits, such as reduced cost of production and improved conservation practices. On the other hand, the policy could contribute to the growing concentration in production as large commercial farms expand their operated acreage to take advantage of increasingly efficient physical capital. Originality/value – To the authors’ knowledge, this is the first research to use a nationally representative dataset to estimate to impact of Section 179 and “bonus depreciation” on farm investment. The findings provide evidence of the provisions’ impact on farm capital purchases.

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