Beginning farmer and rancher credit usage by socially disadvantaged status

PurposeThe purpose of this paper is to examine credit usage by beginning farmers and ranchers (BFR). BFR credit usage is stratified by location (state) and by socially disadvantaged farmer and rancher (SDFR, also known as historically underserved) status. SDFR groups are defined to include women; individuals with Hispanic, Latino or Spanish Origin; individuals who identify as American Indian or Alaskan Native, Black or African American, Asian, Native Hawaiian or other Pacific Islander. Non-SDFR is defined as individuals who identify as non-Hispanic, White men.Design/methodology/approachThe US Department of Agriculture’s Census of Agriculture, Agricultural Resource Management Survey (ARMS) is linked with Farm Service Agency (FSA) loan program administrative data to estimate shares of BFR operations using FSA credit. Census data provided information on population changes in total farms and BFR operations from 2012 to 2017 which are compared by SDFR status.FindingsResults reveal differences among BFR operations active in agricultural credit markets by SDFR status and state. BFR were more common among SDFR groups as well as in regions where farms tend to be smaller, such as the Northeast, compared to a more highly agricultural upper Midwest. Among BFR, non-SDFR are more likely to utilize credit than SDFR, however, FSA appeared to be crucial in enabling BFR and especially beginning SDFR groups to access loans.Originality/valueThe results are timely and of keen interest to researchers, industry and policymakers and are expected to assist in developing and adjusting policies to effectively promote and improve BFR success in general and for beginning SDFR groups.

Beginning farmers' entry and exit: evidence from county level data

PurposeThis paper identifies factors that affect entry and exit of beginning, young and women farmers and ranchers.Design/methodology/approachThe empirical framework is fixed effects regression analysis that uses county level data to evaluate how barriers to entry, access to and use of credit, local economic environment, and climate affect entry and exit of Beginning Farmers and Ranchers (BFRs). The dataset is assembled from several sources matching the Census of Agriculture years for the period of 1997–2017.FindingsResults show that new farmers are more likely to enter in counties with more and smaller farms and with lower farm productivity, indicating that BFRs have the potential to improve the overall productivity in such counties if able to grow and succeed. The results also indicate that the high capital intensity nature of farming is an effective barrier to entry. BFRs are more likely to do better in counties where agriculture is more important to the economy and with more off-farm work opportunities. The net entry is positively associated with higher input/output price index and the use of insurance but is unaffected by government payments and farm and off-farm income. The authors observe substitutability between farming and alternative self-employment for more entrepreneurial young people. Net entry increases with availability of non-real-estate loans but decreases with real estate credit. Thus, for BFRs to acquire the assets needed to reach optimal scale, access to credit remains essential.Originality/valueThe authors are not aware of other work that estimates how barriers to entry and other economic factors including access to credit affect entry and exit of BFRs of various ages and young and women farmers using the Census of Agriculture data up to 2017.

Farmers' perception and preference of Islamic Banking in Turkey

PurposeThe purpose of this paper is to examine the factors that influence farmers' preference for the use of Islamic banks in Turkey and to investigate their knowledge level and perception about Islamic finance.Design/methodology/approachSurvey data used in this study is obtained by drawing a sample of 1902 farmers who are members of the Agricultural Credit Cooperatives Union (ACCU) from 37 provinces of Turkey. Pearson's Chi-square test is used to analyze the association between the demographic features of farmers, conventional bank usage and Islamic bank usage. Binary logistic regression model is used to estimate the factors influencing the preference for Islamic banks. Explanatory variables include knowledge on Islamic banking and finance, perception of compliance to religion, saving ability and cost concern along with the control variables of Islamic bank branch number in the region and age of respondent. Robustness check is conducted via alternative models using ordinary least squares (OLS) and logistic regression.FindingsLess than 10% of the participant farmers use Islamic banks and 59% declare they know nothing about Islamic banking. Age, education level, income level, nonagricultural income level, saving ability, duration of working in agriculture, land size and region are significantly related to farmers' preference of using Islamic banks. Knowledge level, perception of religious compliance, saving ability and cost concern are statistically significant factors that influence the probability of using Islamic banks.Research limitations/implicationsThis study does not include the analysis of the relationship between being religious and using Islamic banks because questions related to the assessment of religious practice were excluded due to the ACCU's sensitivity to investigate personal beliefs. Therefore, future studies can expand the scope of this research by investigating religiousness. The sample is chosen from the ACCU members who are already benefiting from a formal source of credit; therefore, the results should not be attributed to all farmers.Practical implicationsIslamic banks and microfinance institutions' further engagement in the agricultural sector and ACCU's implementation of Islamic finance instruments.Social implicationsIslamic banks' further diversification in the agricultural sector and ACCU's implementation of Islamic finance instruments.Originality/valueTo the best of the authors' knowledge, this paper is the first to investigate the farmers' perception and preference of Islamic banking in Turkey. The sample size of 1902 is much larger and geographically diversified compared to studies in agricultural finance. This study will be valuable for the agricultural finance empirical studies in Turkey as well as an important addition to the emerging literature on Islamic finance.

Determinants of trade credit financing: a dynamic analysis comparing agri-food cooperatives and non-cooperatives

PurposeThe particular characteristics of agri-food cooperatives reduce their ability to access external financial resources. The purpose of this paper is to explore the factors influencing the agri-food cooperatives' trade credit operations by measuring their accounts receivable and comparing the results with agri-food investor-owned firms (IOFs).Design/methodology/approachThe authors apply a partial adjustment model (PAM) estimated using a dynamic panel model with a two-step general method of moments (GMM) estimator to a sample of 11,930 Spanish agri-food cooperatives and IOFs for the period 2011–2018.FindingsThe study concludes that cooperatives and IOFs have an accounts receivable target, which they attempt to achieve rapidly. Cooperatives tend to behave as IOFs do, but they present lower adjustment coefficients. This difference seems to be explained by the unique characteristics of cooperatives which set different economic and social goals, not just profit maximization as IOFs. The findings show differences between the financial and commercial purposes of the cooperatives and IOFs as a result of their internal management policies. Larger cooperatives with access to external financial sources, positive cash flows and operational necessities will grant trade credit.Originality/valueThis study gives interesting implications for cooperative managers and policymakers to help them to understand the strategies behind trade credit policies. Previous empirical studies on the agri-food sector are scarce and focus on IOFs without considering the role of trade credit in European cooperatives.

A profile of nontraditional agricultural real estate lender activity in the secondary market

PurposeThis paper uses novel data from a secondary market to assess how loans from nontraditional agricultural real estate lenders (NARELs) differ from traditional sources. Over $2 billion in loans from these entities were purchased by the secondary market between 2011 and 2020, but a lack of data has prevented a robust understanding of how these institutions operate.Design/methodology/approachThe authors review loans from nontraditional lenders through their lifecycle in the secondary market from application to purchase and performance.FindingsThis paper finds no observable differences between nontraditional and traditional volumes with regards to borrower credit characteristics, loan approval rates, interest margins and loan performance. It finds significant differences between loan volumes and variable rate product use.Originality/valueThis is the first paper to use internal lender data to review nontraditional agricultural real estate loans and is the first analysis of nontraditional agricultural volumes in the secondary market.

The landowner role in beginning farmer/rancher land access: exploring predictors of landowners' views of extra-familial farm transfer to a BFR

PurposeBeginning farmers and ranchers (BFRs) are more likely to access land through an unrelated landowner than through family. Thus, farm and ranch owners who might transfer their land or businesses out of family are potential sources of land access for BFRs and are the most frequent participants in incentive programs to facilitate land transfer to BFRs. To assist in identifying landowners who might transfer out of family, the paper aims to explore similarities and differences between landowners according to their expectations for intra-familial versus extra-familial farm transfer.Design/methodology/approachPairwise and regression analysis of USA Midwestern and Plains landowners' responses to an online survey (n = 322).FindingsLandowners who might transfer out of family were likely to need the proceeds from a land sale to finance their retirement. Landowners' financial needs interacted with their widespread interest in transferring to a BFR such that 97% of owners who expected extra-familial transfer wanted to transfer to a BFR. There were also statistical patterns around the size of owners' landholdings in relation to their transfer plans.Research limitations/implicationsThis exploratory inquiry suggests patterns for future research to examine, especially around landowners' juxtaposition of their retirement income and their interest in transferring to a BFR and how to align these priorities and values.Originality/valueBy exploring the characteristics of landowners who are the most likely to provide land access to BFRs, the authors begin to examine how to target these owners in program outreach. Patterns for further exploration point to landowners' financial needs in relation to their interest in helping a BFR to get started in agriculture.

An economic analysis of nontraditional lending in Chapter 12 bankruptcy cases

PurposeNontraditional lenders are important credit providers for farmers. However, previous research has found that farmers who use nontraditional lenders are riskier lending opportunities. Using a unique dataset of Chapter 12 bankruptcy cases, the authors analyze the share of payment that is made or allowed by the courts on debt owed to traditional and nontraditional lenders.Design/methodology/approachThe authors use a Tobit model to calculate parameter estimates and marginal effects of the impact of creditor type (traditional/nontraditional) and debt classification (secured, priority and unsecured) on the proportion of a bankruptcy claim that lenders receive or are expected to receive when a case is discharged.FindingsThe authors find that traditional lenders with secured debt receive a greater repayment than nontraditional lenders. Meanwhile, there are more than twice the number of nontraditional lenders that are owed debt in these bankruptcy claims. While this raises concern for nontraditional lenders, that is mitigated some by the level of debt that is on average about one-sixth the size of the average debt of traditional lenders. Finally, the authors show there are numerous opportunities for future research in this area using case level bankruptcy data.Originality/valueThis paper fills a research gap by focusing on the state of nontraditional lenders in Chapter 12 bankruptcy cases and their treatment in discharged cases.

On the money: characterizing banking and lending in the California cannabis industry

Purpose Despite 2016 legalization of recreational cannabis cultivation and sale in California with the passage of Proposition 64, many cannabis businesses operate without licenses. Furthermore, federal regulations disincentivize financial institutions from banking and lending to licensed cannabis businesses. The authors explore the impact of legal cannabis business activity on California financial institutions, the barriers to banking faced by cannabis businesses, and the nontraditional sources of financing used by the industry.Design/methodology/approach The authors use a mixed methods approach. The authors utilize call data for banks and credit unions headquartered in California and state cannabis licensing data to estimate the impact of the extensive and intensive margins of licensed cannabis activity on key banking indicators using difference-and-difference and fixed effects regressions. The qualitative data come from interviews with industry stakeholders in northern California's “Emerald Triangle” and add important context.Findings The quantitative results show economically and statistically significant impacts of licensed cannabis activity on banking indicators, suggesting both direct and spillover effects from cannabis activity to the financial sector. However, cannabis businesses report substantial barriers to accessing basic financial services and credit, leading to nontraditional financing arrangements.Practical implications The results suggest opportunities for cannabis businesses and financial institutions if regulations are eased and important avenues for further study.Originality/value The authors contribute to the nascent literature on cannabis economics and the literature on banking regulation and nontraditional finance.

Credit-linked insurance bundles in Zambia: evidence from the aftermath of a shock

PurposeThis research seeks to assess the impact of a credit-linked insurance bundle in Zambia, in terms of the inputs used and the amount of maize subsequently produced and sold.Design/methodology/approachTo estimate the impact of a credit-linked insurance bundle, this research relies on a natural field experiment. A cross-sectional survey, conducted among 409 households that enrolled in a credit-linked insurance program prior to a drought and adverse market conditions, revealed that 252 households dropped out of the program. Of these, 113 households left for an exogenous, involuntary reason (i.e. group loan was not repaid on time).FindingsA comparison of households that used the program and those that dropped out reveals that smallholders who lost the credit-linked insurance bundle purchased less fertilizer (−36%), and this input restriction resulted in diminished harvests (−27%) and less quantity sold (−31%).Research limitations/implicationsRisk-exposed smallholders tend to be severely credit constrained, so they cannot invest in sufficient inputs to increase their yields. A credit-linked insurance scheme provides such risk-exposed smallholders, who lack or have only limited collateral, with commercial agricultural credit services and greater access to input. The current analysis cannot specifically attribute the impact of individual components of the bundle (i.e. credit, insurance and input supply), but the overall impact is substantial. The implication of this research is that policy initiatives which support a credit-linked insurance system should not only encourage upscaling but also resilience of the scheme.Practical implicationsAligning government and public support programs with private initiatives suggests opportunities for greater benefits.Social implicationsAfrican farmers are mainly smallholders, so they face inherent production risks. They also tend to be severely credit constrained, with few means to mitigate these risks, so they suffer from a limited capacity to invest in improved farm technology systems that might increase their productivity. Insured input bundles could help farmers to cope better with adverse risks and facilitate increase productivity.Originality/valueThis research design exploits the peculiarity of the data, including group liability and a strict time window for loan repayments to remain eligible in a forthcoming growing season. This impact assessment approach is rigorous in controlling for self-selection bias and thus offers opportunities to establish how households in each sub-sample (eligible or not) are (un)able to ride out a lean season, following a drought and adverse market conditions.

Unique financing strategies among beginning farmers and ranchers: differences among multigenerational and beginning operations

PurposeBeginning farmers have unique challenges securing credit because they are less likely to have established sales and collateral for secured loans. This article explores US beginning farmers’ financing strategies relative to those of established operations, with a focus on the source of financing and debt structure (short- vs long-term usage). Agricultural operations commonly use nontraditional financing tools and strategies to start, build and/or sustain their businesses. This article provides a comparative overview of financing strategies comparing established operators to operations with only beginning operators, as well as those multigenerational operations with at least one beginning operator.Design/methodology/approachThe study uses 2013–2016 USDA Agricultural Resource Management Survey data to explore how various financing patterns vary across US beginning farmers and ranchers with a particular focus on understanding differences where (1) all operators are beginning, (2) there is a mix of beginning and established operators and (3) all operators are established.FindingsThis article explores how the nature of beginning farmer status, human capital resources and alternative marketing strategies may influence financial management strategies and lead to differential use of nontraditional financing sources for beginning farmers and ranchers.Originality/valueThough exploratory, the authors hope that attention to patterns among US beginning farmers and ranchers of reliance on human capital resources including off-farm income and type of beginning farm operation, nontraditional government support programs and alternative marketing strategies can provide important information as to the role of nontraditional credit in the US farm economy.