Competition in farm credit markets: identifying market segments served by the farm credit system and commercial banks

Dodson, Charles B.; Koenig, Steven R.

doi:10.1108/00214660480001161

Cited by 14 publications

(12 citation statements)

References 4 publications

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“…The results regarding the impact of other lenders and type of loans – real estate backed (lagged values) and non-real estate loans – are compatible with previous findings by Dodson and Koenig (2004) and support the market segmentation hypothesis that the FCS institutions lend to larger full-time farmers while financing from alternative sources may be used for activities other than farming or for part-time farming and thus its impact is not captured by these dependent variables[5].…”

Section: Resultssupporting

confidence: 83%

“…These studies suggest that the credit needs of part-time farmers are different from those of full-time commercial farmers necessitating the existence of the FCS. Dodson and Koenig (2004) found that indeed FCS institutions are more likely to serve full-time commercial farmers and farmers located in regions with less competitive credit markets, while commercial banks were more likely to serve small, part-time, and hobby farmers. The authors conclude that this market segmentation of farm credit markets is consistent with expectations because federal regulations require FCS to provide credit to the “bona fide” farmers.…”

Section: Previous Literaturementioning

confidence: 99%

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Farm income and output and lending by the farm credit system

Nadolnyak

Shen²,

Hartarska

2017

AFR

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Purpose The purpose of this paper is to provide evidence of the positive impact of the FCS lending on farm incomes which should be useful to policymakers as they consider reforms and further support for this 100-year-old major agricultural lender. Design/methodology/approach The authors construct a panel for the 1991-2010 period from the FCS financial statements and evaluate how lending by the FCS institutions has affected farm incomes and farm output. The authors use fixed effects estimations and control for credit by other agricultural lenders as well as the stock of capital, prices, and interest rates. Since previous work suggests that rural financial markets are segmented and the FCS serves larger full-time farmers with mostly real-estate backed loans, the authors evaluate the impacts of farm real-estate backed loans and of short-term agricultural loans separately for a shorter period for which the data is available. The authors also perform robustness checks with alternative estimation techniques. Findings The authors found a positive association between credit by the FCS institutions and farm income and output. The magnitude of the estimated impact is larger during the 1990s than in the 2000s. Research limitations/implications The positive link between the FCS institutions’ credit and farm incomes and output supports the notion that the FCS lending was beneficial to farmers. The evidence also supports the segmentation hypothesis of rural financial markets. The financial reports data for 1991-2010 are from the ACAs and FLCAs aggregated on the regional level because there is no clear way to classify FCS lending to a more disaggregate level like the state. The authors also assemble and analyze a state-level data set that contains state-level balance sheet data for the period 1991-2003. Originality/value The authors are not aware of another work that directly links (real estate and non-real estate) credit by FCS institutions to agricultural output and farm incomes.

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Section: Resultssupporting

confidence: 83%

Section: Previous Literaturementioning

confidence: 99%

Farm income and output and lending by the farm credit system

Nadolnyak

Shen²,

Hartarska

2017

AFR

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“…Also, overall model significance would imply that FSA guarantees do not completely mitigate the relative comparative advantages in lending technologies of large and small banks. The framework used for this analysis was similar to approaches used in previous studies (Berger and Black, 2011;Dodson and Koenig, 2004;Wedel and Kamakura (2000); Black and Schweitzer, 1981). Berger and Black, in particular, utilized a similar empirical framework to analyze the probability that a small business loan was made by a small or large bank.…”

Section: Commercial Banks and Fsa-guaranteed Loan Programsmentioning

confidence: 98%

Bank size, lending paradigms, and usage of Farm Service Agency's guaranteed loan programs

Dodson

2014

Agricultural Finance Review

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Purpose -An established paradigm in small business lending is segmented by bank size with large banks more likely to lend to large informationally transparent firms while small banks are more likely to lend to small informationally opaque firms. In light of banking consolidation, this market segmentation can have implications for credit availability. Federal loan guarantees, such as those provided by USDA's Farm Service Agency (FSA) may reduce the risks of lending to informationally opaque firms thereby mitigating the impacts of the bank size lending paradigm. This paper aims to discuss these issues. Design/methodology/approach -This analysis utilized a binomial logit procedure to determine if there was any empirical evidence that smaller community banks served a unique clientele of farmers when making FSA-guaranteed loans. The analysis relied on a unique data set which incorporated detailed data on farm businesses receiving FSA-guaranteed loans, loan characteristics, as well as information about the originating bank and characteristics of the local credit markets. Findings -Results were consistent with the bank size lending paradigm with smaller banks being less likely to engage in fixed-asset lending, and more likely to serve a riskier and less established clientele when making guaranteed loans. Research limitations/implications -Data limitations did not permit detailed analysis of banks larger than $250 million in total assets nor for consideration of non-bank lenders. An expansion by these lender groups into serving more informationally opaque borrowers could mitigate any adverse impacts arising from fewer small community banks. Practical implications -The results suggested that Federal guarantees do not completely eliminate the relative informational advantages of large and small size banks. And, continued bank consolidation, such that there are fewer small community banks, could result in less credit availability among smaller, less creditworthy farm businesses. Social implications -While FSA guarantees may not enhance a large banks propensity to serve informationally opaque farm borrowers, they may enhance the ability of smaller community banks to serve groups specifically targeted through FSA lending programs; the provision of credit to family farmers who, despite being creditworthy, are unable to obtain credit at reasonable rates and terms. Originality/value -The analysis examines relationship between bank size and the use of FSA guarantees using a unique data set which incorporated information on FSA-guaranteed loans, farm financial characteristics, along with characteristics of commercial banks which participated in the FSA-guarantee program.

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“…Finansowanie podmiotów sektora rolnego jest praktycznie na całym świecie relatywnie trudnym wyzwaniem dla kredytodawców, co wynika ze znacznego poziomu ryzyka związanego z produkcją rolniczą (Dodson, Koenig 2004;Turvey 2013;Dodson 2014;Hartarska Nadolnyak, Shen 2015). Wymaga to też nader subtelnego zaangażowania ze strony państwa (Turvey 2013).…”

Section: Wprowadzenieunclassified

Instrumenty finansowe a polityki wspólnotowe UE

Soliwoda¹,

Kulawik²,

Wieliczko³

2018

wir

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Problemy budżetowe w UE, wynikające z coraz bardziej skomplikowanych uwarunkowań geopolitycznych i społeczno-demograficznych, mogą znacznie wydłużyć pracę nad perspektywą finansową po 2020 r. W tym kontekście coraz częściej formułuje się pogląd, że w przyszłości powinno się ograniczyć finansowanie dotacyjne na rzecz rozszerzenia stosowania instrumentów zwrotnych. Celem głównym artykułu było uzasadnienie teoretyczne interwencji, ze szczególnym przypadkiem interwencjonizmu kredytowego/finansowego. Problem ten jest odnoszony do polityki spójności, choć wskazano możliwości adaptacji do wspólnej polityki rolnej. Osią rozważań jest teza, iż wprowadzenie instrumentów finansowych do polityk wspólnotowych, w tym WPR, powinno opierać się na solidnych przesłankach teoretycznych, z odniesieniem do badań empirycznych i aplikacyjnych (nawet z sektora MŚP), identyfikujących wady, zalety, problemy i zagrożenia. Niedoskonałości i niekompletności rynków finansowych są pewnym uzasadnieniem dla rozważnej i czasowej ingerencji publicznej w kształtowanie podaży instrumentów finansowych, ale szacunki popytu na nie są bardzo niepewne, zawierające się w nieakceptowalnie szerokich przedziałach, co sugeruje wręcz możliwość ich zawyżania. Ograniczony popyt na powyższe instrumenty wynika także z przeglądu ich stosowania. Co nie mniej ważne, koszty administracyjne i transakcyjne niekiedy mogą być w ich przypadku bardzo znaczące, co może je uczynić nawet mniej atrakcyjnymi niż finansowanie w pełni komercyjne. Nie ma także pewności, że instrumenty finansowe staną się powszechnie dostępne dla wszystkich rolników i mieszkańców wsi.

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Competition in farm credit markets: identifying market segments served by the farm credit system and commercial banks

Cited by 14 publications

References 4 publications

Farm income and output and lending by the farm credit system

Farm income and output and lending by the farm credit system

Bank size, lending paradigms, and usage of Farm Service Agency's guaranteed loan programs

Instrumenty finansowe a polityki wspólnotowe UE

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