The U.S. farm economy and credit landscape have seen substantial disruptions over the last five years. These disruptions are diverse: arising in trade markets, political instability, and market upheavals due to COVID-19. The COVID-19 pandemic in particular highlighted the potential fragility of the food and agricultural supply chain. Current and ongoing violence in productive agricultural regions have highlighted the degree to which agricultural markets are interconnected and demonstrate the compounding volatility in market movements. Global trade has also been uncertain, with the US facing major disputes over agricultural commodities with important trading partners, like China, who instituted retaliatory tariffs on US soybeans in 2018, and Mexico, which as of 2023 is considering an import ban on GMO corn. These disputes, particularly those with key allies, drives uncertainty that could shock farm income and in turn harm agricultural credit conditions.

In addition, the structure of agricultural lending continues to evolve. Of particular note are the increasing presence of “non-traditional” actors on both the credit demand and credit supply side of these markets. On the credit supply side, the set of lenders supplying credit to agricultural operations is growing increasingly diverse. There is a growing group of non-traditional lenders, defined broadly as institutions without a strong connection to the agricultural market; this group continues to gain ground in terms of lending volume. The role of “start-up” style funding mechanisms, typified by venture capital funded arrangements, is also receiving additional attention from stakeholders in this space, as is the increasing presence of funding from agricultural institutions, like implement dealers, that may not have been considered a viable or attractive lender in the past. Underlying many of these trends is a noticeable pattern of bank consolidation, particularly in rural spaces and among agricultural-focused banks.

Evolutions in banking regulations have likely contributed to this increased trend in banking consolidation, as many financial institutions now face more scrutiny and regulation. The increased regulatory environment is continuing to reshape rural financial markets since these financial regulations were passed by the US Congress in 2008 to address the disruptions associated with the global financial crisis. For rural credit institutions, oversight and bank lending practices in particular have been directly impacted by these financial regulations. Since these regulations were enacted, mergers and acquisitions within the rural credit markets have increased. Consolidation in the lender space means that the choice set for farmers is reduced, as is competition in the credit and lending sector. Reduced competition further rives changes in long-term credit availability and the structure of rural financial markets. Altogether, these trends have important implications for the accessibility and affordability of credit for agricultural operations. This is especially true given compositional differences in the types of operations that access credit via one type of lender or another continues to be a concern.

Credit access has long been identified as a factor that determines the success of an agricultural operation. In the last five years, increasing attention has been given to the difficulties many producers face in accessing credit. To some extent, this widespread difficulty has driven some of the changing patterns in terms of lender type that are described above. However, the sector has recognized that the difficulties in terms of credit access are not evenly distributed across all producers. Instead, difficulties in credit access have been concentrated among producers who have traditionally been under-served and/or socially disadvantaged. Thus, efforts are underway to expand the farm safety net to meet the needs of these underserved and socially disadvantaged producers. This increased recognition underscores a changed context in the agricultural and rural financial markets, which are responding to increased recognition by policymakers of the difficulties these producers face.

Together, these disruptions and the changing landscape of agricultural finance markets point to the need for new research in the field of agricultural and rural finance. How agricultural operations will respond to the challenges and opportunities these disruptions pose is one primary area where new research is especially important. Such research would inform current policymakers about the most effective means of supporting these farm operations, but may also be instructive for understanding how the country’s agricultural supply chain will respond to future large-scale shocks. Another important area of new research that this multi-state will be well-positioned to address are the differences between producers who are seeking credit or capital from non-traditional lenders, who are, as described above, increasingly present in agricultural financial markets. In response to many of these disruptions, many developed agricultural economies, including the United States, distributed substantial ad hoc payments to operators of businesses along the food and agricultural supply chain. This disbursement represents a significant enhancement of the traditional agricultural safety, which had been diversifying away from direct or counter-cyclical type payments. These payments, along with stable or even increasing commodity prices, gave some of these years record levels of farm income in some states.

However, other trends have worked to destabilize farm financing and erode farm incomes. Most notably are the headwinds brought about by inflation and generalized price increases that have marked the years following the COVID-19 pandemic. For an agricultural producer, this is felt most keenly in the increasing cost of inputs: for example, fertilizer experienced unprecedented price spikes in 2022 and the early part of 2023. Wages have also been increasing at a rate higher than their pre-COVID rate of increase, as another example. Perhaps most salient for the discussion of agricultural finance is the fiscal policy response to this inflation undertaken by the Federal Reserve. Interest rates were remarkably low during the height of the COVID-19 pandemic; they have since increased markedly, and, although they are well below the historic highs seen in the 1980s, the current rates represent a significant increase in the cost of credit. This increase is likely to have uneven effects across the farm income distribution, with operators of smaller operations particularly struggling to fund expansion. High interest rates also dampen demand for agricultural assets, like farmland and may increase operators’ vulnerability to financial shocks.

US agricultural production, like production in many parts of the developed world, faces the ever-increasing challenge of meeting demand for food and fibers. Competing land uses to use agriculture to produce bioenergy add to the difficulty, as does growing urbanization pressure competing for farmland. This production system depends on capital markets that are accessible, prudently regulated, and affordable.  A key determinant of how competitive US agriculture is on a global market is the ease and availability of credit. Without access to credit, operations are unlikely to be sustainable in the long term.

The members of NC-1177 are extremely well-positioned to produce research highlighting the importance of credit access, determining differences in credit access and subsequent outcomes across different groups of producers, and in evaluating policies that change the nature of lending in rural or agricultural spaces. In addition, through teaching in the classroom and as part of their roles with university extension, members of this multi-state project have direct access to both future and current agricultural lenders, financial managers, and farm operators. Thus, members have a crucial job in educating these participants in the agricultural and rural financial space. Through this work, industry participants are exposed to both the fundamental theories as well as the forefront of research on agricultural finance, endowing them with the necessary information to think critically about the best ways to management the finances of their operations and agribusinesses. the industry with the knowledge necessary to manage financial aspects of farms and agribusinesses. By engaging with the training of students, extension educators, and producers directly, the project will improve members of the food systems’ ability to do financial management. This will, in turn, increase the long-term sustainability of businesses operating in the food, fiber, and bioenergy system.

The members of the NC-1177 project have continued their excellent track record in terms of the number of collaborations and outcomes that depended upon the multistate project’s efforts. This current proposed project will continue to leverage the existing relationships while diligently working to incorporate new members into the research networks of the group. Below, you will find that each objective of the new project describes the actions members will take to achieve that objective and how outputs will be measured. A key function of this multi-state group is in this research network: given the relatively small number of researchers in this area at any one institution, it is unlikely that within-institution networks can form and work productively in this area. However, the connections provided for by the multi-state overcome these concerns. The involvement of a diverse group of researchers from a variety of institutions in turn improves legitimacy and allows for better marketing of the group’s outcomes.  The multi-state structure allows for the development of a critical mass, which is necessary to attract stakeholder interest; more efficiently collect and share data; enhance peer review of each work produced; and collaborate on issues that cross-cut geographic boundaries. Members also benefit from the participation of industry, public agency, and non-profit members.

This group has a strong history of leveraging the multistate funds to acquire numerous nationally competitive and state-level grants and other sources of funding. For example, in 2021, members of NC-1177 from Kansas State University, Cornell University, and a non-member from the University of Minnesota received a national AFRI grant in order to examine the impact of a changing farm credit climate on different measures of resilience among agricultural producers. These researchers received just under half a million in funds. NC-1177 members have also increased the impact of multistate funds by working with industry, including various state- and national-level commodity groups and other farm advocacy groups. Members will continue to collaborate and pursue grant opportunities from USDA, state agencies, and private industry to maximize the benefits of multistate funds.

The primary activity of this regional research group is the annual meeting, which is held each year in conjunction with the National Agricultural Credit Committee meeting. Researchers and staff Federal Reserve Bank of Kansas City serve as the hosts for this annual meeting, regardless of the geographic location where the meeting is held. The meeting gathers representatives from academia, industry, and government to present research findings, engage in discussion about the implications of those research findings, and hear from industry or policy leaders about developments or concerns that are grabbing their attention. This allows for the ground-truthing of research with a “real world” perspective. The research is presentations are solicited via an academic call for papers, in which participants are explicitly asked to address the objectives of this multi-state in the work they apply to present. Whether or not these objectives are being addressed will be based on the relevance and quality of the research projects and the discussion among academic and industry participants. In addition, most of the research projects presented at the annual meeting will be published in peer-reviewed academic journals. The number of such publications, and the times they have been cited, can be used as a quantitative measure of the impact of the research generated. Other work will result in extension publications and outputs, which are targeted at a non-academic audience; nonetheless, we can use the number and geographic reach of these outputs as another measure the project’s impact. 

In addition to the fall Annual Meeting, many of members of this multi-state research group are also members of the Agricultural Finance and Management (AFM) section of the Agricultural and Applied Economics Association (AAEA). This section hosts a business meeting each year at the annual summer AAEA meetings; in addition, it sponsors or co-sponsors up to four track sessions at those meetings in the general area of agricultural finance. For organizational simplicity and operational ease, the leadership of the two groups (the AFM section and the NC-1177 multi-state research group) are the same. Activities sponsored by the AFM section, much like activities sponsored by the multi-state, foster collaboration among researchers in agricultural finance domestically and internationally. These activities generate additional research presentations and publications directly related to the objectives of this project.

Upon completion of the project, we will have a better understanding about frictions and pressure points in the agricultural and rural financing system. The improved functioning of those markets, as a means to better serve the diverse array of agricultural producers that rely on them, is one of, if not the, primary goal of our research project. Benefits accrue not just to producers who see reductions in their business risk but also for rural residents and operators of non-agricultural businesses, who see greater local stability and increased long-term sustainability for their communities and their financial institutions. insights will be gained to ultimately improve the functioning of agricultural and rural financial markets. The value of this work to stakeholders is ultimately evident in the large number of non-station members who actively participate in the annual meeting and engage with the group’s research and extension output digitally. There are no apparent barriers hindering the technical feasibility of the proposed research project.