Looking Beyond Farm Loan Approval Decisions: Loan Pricing and Nonpricing Terms for Socially Disadvantaged Farm Borrowers

Escalante, Cesar L.; Osinubi, Adenola; Dodson, Charles B.; Taylor, Carmina E.

doi:10.1017/aae.2017.25

Cited by 11 publications

(21 citation statements)

References 5 publications

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“…This study adopts the same motivation and provides an agricultural finance application. This article distinguishes itself from similar recent studies with farm applications (Dhakal et al, 2019;Escalante et al, 2018;Wu et al, 2012;Escalante et al, 2009; through its emphasis on the double minority labeling effect on the stipulation of loan terms (loan amount, interest rate and maturity) among approved farm loan applications. Moreover, the time period analyzed spans from 2004 until 2014 during which the USDA has undertaken serious efforts to improve the agency's treatment of minority (or "historically underserved") farmers and significantly minimize, if not completely eradicate, the likelihood of future complaints and lawsuits among their borrowing clientele.…”

Section: Background and Motivationsmentioning

confidence: 88%

“…This study's empirical model expands the framework employed by a previous related study (Escalante et al, 2018) by introducing additional demographic variables that capture borrowers' double minority classification. The analysis is conducted using seemingly unrelated regression (SUR) techniques.…”

Section: Econometric Approachmentioning

confidence: 99%

“…Following Escalante et al (2018), we also define equations for three loan packaging parameters, namely the amount of loan approved (loanamount), the prescribed fixed interest rate (interestrate) and the maturity of the approved loan (loanmaturity). The original model formulation is expanded by the addition of dummy variables for double minority labels.…”

Section: Econometric Approachmentioning

confidence: 99%

“…DEMO variables are borrowers' demographic and structural attributes such as gross revenues (as a size proxy measure), age, marital status (through two variables: Married and Married Female dummy variables), gender (Female). In contrast to the related article (Escalante et al, 2018), this study disaggregates the racial category variables into specific labels (African American, Asian American, American Indian and Hispanic American) with White borrowers as the excluded category. In addition, the double minority labels considered in this study include African American female, Asian American female, American Indian female and Hispanic American female borrowers.…”

Section: Econometric Approachmentioning

confidence: 99%

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Do farm service agency borrowers' double minority labels lead to more unfavorable loan packaging terms?

Ghimire

Escalante

Ghimire³

et al. 2020

AFR

Self Cite

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PurposeThis study adds a new dimension in the study of racial and gender bias in farm lending. Most previous studies analyzed the separate effects of race and gender attributes on loan approval decisions. The analysis focuses on the stipulation of loan terms (loan amount, interest rate and maturity) among approved farm loan applications. The time period analyzed spans from 2004 until 2014 during which the government has undertaken reforms to improve delivery of loan services to its clientele of minority farmers. Thus, this study's findings could help validate the effectivity of such institutional reforms affecting Farm Service Agency (FSA) lending operations.Design/methodology/approachThis study utilizes a national direct loan origination data from the FSA of the U.S. Department of Agriculture (USDA) collected from 2004 to 2014. The analysis begins by identifying significant differences in cross-tabulations of loan terms among different racial and gender classes. Seemingly unrelated regression (SUR) regression techniques are then applied for a system of equations involving the three loan packaging components. The combined effects of the prescribed loan packaging terms are subsequently analyzed under a simulation-optimization framework.FindingsRegression results validate that indeed, relative to White American borrowers, certain minority borrowers are accommodated with lower loan amounts at higher interest rates and with shorter maturities. However, these decisions seem to be prompted by credit risk management considerations. The most compelling findings include the insignificance of all double minority labeling variables, except for the interest rate equation that even produced favorable results for Hispanic American females. Simulation-optimization results further reinforce that even when one or two unfavorable loan terms are included in the packaging, double minority borrowers end up with better profitability and liquidity positions.Practical implicationsThis study provides a different perspective in dealing with the controversial minority bias in lending by presenting evidence gathered from a government farm lending institution. The USDA-FSA has been sued in numerous occasions by minority borrowers. Since then, however, it has deliberately implemented institutional reforms to rectify previous errors. This study provides empirical evidence strengthening FSA's claim of its intention to improve its delivery of loan services, especially for its socially disadvantaged borrowers with double minority classification.Originality/valueThis study pioneers the analysis of the double minority labeling effect on farm lending decisions. Its contributions to literature are further enhanced by its goal to validate the effectiveness of FSA institutional reforms undertaken since the early 2000s in order to improve credit access of and delivery of credit services to minority farm borrowers, especially those that belong to more than one minority classification.

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Section: Background and Motivationsmentioning

confidence: 88%

Section: Econometric Approachmentioning

confidence: 99%

Section: Econometric Approachmentioning

confidence: 99%

Section: Econometric Approachmentioning

confidence: 99%

See 2 more Smart Citations

Do farm service agency borrowers' double minority labels lead to more unfavorable loan packaging terms?

Ghimire

Escalante

Ghimire³

et al. 2020

AFR

Self Cite

View full text Add to dashboard Cite

show abstract

“…Rising input costs, equipment costs, and repair costs place significant financial burdens on many farmers and push on-farm expenditures beyond on-farm revenues 19 . Though the USDA provides farm loans at competitive rates and supports several programs that favor beginning and minority farmer, evidence suggests that nonwhite farmers still face structural discrimination in loan access essential to purchase of inputs (Daniel, 2013;Minkoff-Zern and Sloat, 2017;Escalante et al, 2018;US CRS, 2021).…”

Section: Rising Input Costsmentioning

confidence: 99%

The State of US Farm Operator Livelihoods

Burchfield¹,

Schumacher²,

Spangler³

et al. 2022

Front. Sustain. Food Syst.

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In nine of the last 10 years, the United States Department of Agriculture (USDA) has reported that the average funds generated on-farm for farm operators to meet living expenses and debt obligations have been negative. This paper pieces together disparate data to understand why farm operators in the most productive agricultural systems on the planet are systematically losing money. The data-driven narrative we present highlights some troubling trends in US farm operator livelihoods. Though US farms are more productive than ever before, rising input costs, volatile production values, and rising land rents have left farmers with unprecedented levels of farm debt, low on-farm incomes, and high reliance on federal programs. For many US farm operators, the indicators of a “good livelihood”—stability, security, equitable rewards for work—are largely absent. We conclude by proposing three axes of intervention that would help US agriculture better sustain all farmers' livelihoods, a crucial step toward improving overall agricultural sustainability: (1) increase the diversity of people, crops, and cropping systems, (2) improve equity in access to land, support, and capital, and (3) improve the quality, accessibility, and content of data to facilitate monitoring of multiple indicators of agricultural “success.”

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Analysis of the payments from the coronavirus food assistance program and the market facilitation program to minority producers

Giri

Subedi

Kassel

2022

Applied Eco Perspectives Pol

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This paper examines the payments made to minority producers, focused on African American producers, from the COVID‐19 program, Coronavirus Food Assistance Program (CFAP), of the United States Department of Agriculture (USDA) and compares it with one of the other more recent ad hoc program payments, the Market Facilitation Program (MFP). There were two rounds of the CFAP, and combinedly (as of March 2022), the program made direct payments of $31.0 billion ($11.8 billion from CFAP 1 and $19.2 billion from CFAP 2) starting in 2020. The MFP made a total payment of $23.5 billion (in two rounds, MFP 2018 and MFP 2019) to producers affected by the retaliatory tariffs placed on US producers by trade partners across multiple years. CFAP made almost $600 million in direct payments to minority producers, including Black or African American producers. Black or African American only producers received more than $52 million in CFAP payments. CFAP payments were proportional to the value of agricultural commodity sold for most minority producers. The 2017 Census of Agriculture showed that the majority of minority producers, including African American producers but excluding Asian producers, raised livestock. CFAP made the highest payments to livestock minority producers. The CFAP payment distribution pattern shows that payments reached minority producers who often did not receive Government payments. CFAP made more payments and as a share of total program outlays to minority producers compared to MFP. However, for Black or African American only producers, even though the magnitude increased (because CFAP disbursed more funds compared to MFP), the share of payment received did not increase.

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Looking Beyond Farm Loan Approval Decisions: Loan Pricing and Nonpricing Terms for Socially Disadvantaged Farm Borrowers

Cited by 11 publications

References 5 publications

Do farm service agency borrowers' double minority labels lead to more unfavorable loan packaging terms?

Do farm service agency borrowers' double minority labels lead to more unfavorable loan packaging terms?

The State of US Farm Operator Livelihoods

Analysis of the payments from the coronavirus food assistance program and the market facilitation program to minority producers

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