Evaluating financial stress and performance of beginning farmers during the agricultural downturn

Abstract

This study examines farm financial performance and stress for all farmers versus beginning farmers in the U.S. with emphasis on the agricultural downturn experienced since 2013. Using the USDA's Agricultural Resource Management Survey (ARMS) data, probit models are estimated to study the personal and farm characteristics that affect whether or not the financial ratios fall into critical zones as defined by the Farm Financial Standards Council. The financial ratios involve liquidity, solvency, profitability, efficiency, and repayment capacity. Beginning farmers are at a greater risk of financial stress on average, with higher likelihood of financial stress in liquidity and efficiency. Further, the recent agricultural downturn has negatively affected liquidity, solvency, and profitability for farmers while repayment capacity does not appear to be affected. During the downturn, beginning farmers are better positioned than the general farming population with respect to liquidity and repayment capacity. This paper applies current lending practices to a nationally representative sample of farms over a time of changing economic conditions for the agricultural sector.

The Impacts of Economic, Demographic, and Weather Factors on the Exit of Beginning Farmers in the United States

“…Since agriculture has high capital requirements and lenders have stringent lending standards, young and beginning farmers may face difficulties in accessing loans to buy land due to restricted access to credit [18,19]. Their growth prospects are also very diverse with younger farmers having better opportunities even though they are less likely to own and more likely to rend land [5,15]. This has an interesting implication: since BFRs own less land, they are less exposed to fluctuations in land values because rents are relatively sticky.…”

“…For example, several programs such as the Aggie Bond program established in the 1980s and the support programs through the 1992 Agricultural Credit Improvement Act were developed to provide beginning farmers access to capital [4]. The most recent Agricultural Act of 2014 also contains provisions for crop insurance programs, Farm Service Agency loan programs, and the Conservation Reserve Program's Transition Incentive Program [5]. However, it is unclear if such programs are sufficient to ensure BFR ability to remain in farming, since the factors that affect BFRs success or exit need to be better identified.…”

Broadening Our Understanding of Farm Children’s Risk Exposure by Considering Their Parents’ Farming Background

“…In these early stages, young farm parents must contend with competition for financial resources and time between the development needs of the household and the operation [ 14 , 19 , 20 , 67 , 68 , 69 ]. Furthermore, high demands on younger and beginning farmers are associated with higher levels of financial and mental stress [ 18 , 21 ]. This body of work has found some variations in access to resources between first- and multi-generation farmers.…”

“…Juggling multiple roles can also be stressful [ 13 , 15 ], and stress is associated with higher rates of injury [ 16 , 17 ]. Furthermore, in early stages of the farm business, which have traditionally overlapped with the birth and early years of their children, these farm families are more likely to be in vulnerable positions due to high financial demands [ 15 , 18 , 19 , 20 , 21 ]. These high financial demands may limit farm parents’ abilities to adopt recommended farm safety practices such as the use of physical barriers on the farm or child supervision off the worksite through the use of childcare [ 22 , 23 ].…”

Credit Constraints and Beginning Farmers’ Production in the U.S.: Evidence from Propensity Score Matching with Principal Component Clustering

“…Access to credit is also important in the context of the pending transition of farm assets from retiring operators to the new generations of farmers, as well as in the context of the agricultural downturn and the economic consequences of the COVID-19 pandemic [15][16][17][18]. For example, BFRs are at a greater risk of financial stress and the agricultural downturn has negatively affected their profitability, liquidity, and solvency, although it had no effect on their repayment capacity [19]. As the share of BFRs in the US agriculture increases, evidence of the impact of limited access to credit on agricultural output would inform future policy interventions as well as agricultural lenders in designing policies to improve credit access.…”