Duration: 10/01/2003 to 09/30/2004

Administrative Advisor(s):

NIFA Reps:

Non-Technical Summary

Statement of Issues and Justification

The agricultural finance landscape has recently been inundated by policy changes, advances in risk management, and consolidation of the agribusiness and lending sectors. Multiple facets of the farm economy have been affected, but with different problems to be addressed. The crop producer has seen a safety net evolve that reduces production risk through price supports and subsidized crop insurance. However, the net responses in terms of business risk and management strategies have not been thoroughly addressed.
Agribusinesses have consolidated, but still face the same dependence on production variability and income. They have expressed a need for better financial management education, as producers have become managers. The lending sector is facilitating the distribution of capital to both of producers and agribusinesses. However, the net impacts on the loan portfolio in terms of its susceptibility to production risks and policy changes are not well understood. Lending regulators have been regular participants in the former project, NC-221, and have given their insights into the needs faced by institutions. The number of lenders has been greatly reduced as well, leading producers to be concerned about sources of objective advice. Outside observers have noted that the consolidation across the different sectors has perhaps created an environment with reduced transparency of the producers financial situation.

Production agriculture is dependant on high levels of financial capital. In turn, rural areas are often quite dependent on farm and ranch income for sustainability. Access to fairly priced capital can reduce financial swings and stabilize the well being of the rural economy. Failure to understand the full effects of policy changes and the response by producers, agribusinesses, and lenders may lead to inefficient capital flows, unnecessarily constrained credit, and ultimately greater volatility of farm income.

The track record of NC-221 was excellent regarding the number of collaborations and outcomes that depended on multi-state efforts. This project will also benefit from a multi-state effort in a number of ways. Land productivity, production practices, tax situations, differences in state laws, and market boundaries can all affect management practices and the financial performance of the agricultural landscape. Multi-state efforts allow those factors to be isolated and their effects understood. After controlling for those differences, the common factors can be extrapolated to other states. Thus, a more complete picture of the financial ramifications can be obtained. The scientists involved in the project have a wide variety of expertise in agricultural finance and policy analysis. In addition, the project has several participants from the lending industry and governmental agencies. In addition, because the number of scientists at any one institution working in this area tends to be small, multi-state efforts allow for synergies as resident experts at other institutions can effectively collaborate to address problems.

Upon completion of the project, insights will be gained to ultimately improve the functioning of the financial system. Producers and agribusiness should benefit through increased profitability with managed business risk. The lending sector will become more stable and better prepared to face future policy and production-related challenges.

There are no apparent barriers hindering the technical feasibility of the proposed research project.

Objectives

Procedures and Activities

Expected Outcomes and Impacts

Projected Participation

View Appendix E: Participation

Educational Plan

Organization/Governance

Literature Cited

Attachments

Land Grant Participating States/Institutions

AL, AR, FL, GA, IA, IL, IN, MI, MN, ND, NY, OH, OK, PA, TX

Non Land Grant Participating States/Institutions

Federal Reserve Bank of Kansas City, USDA, USDA/ERS