Beginning farmer and rancher credit usage by socially disadvantaged status

Abstract

PurposeThe purpose of this paper is to examine credit usage by beginning farmers and ranchers (BFR). BFR credit usage is stratified by location (state) and by socially disadvantaged farmer and rancher (SDFR, also known as historically underserved) status. SDFR groups are defined to include women; individuals with Hispanic, Latino or Spanish Origin; individuals who identify as American Indian or Alaskan Native, Black or African American, Asian, Native Hawaiian or other Pacific Islander. Non-SDFR is defined as individuals who identify as non-Hispanic, White men.Design/methodology/approachThe US Department of Agriculture’s Census of Agriculture, Agricultural Resource Management Survey (ARMS) is linked with Farm Service Agency (FSA) loan program administrative data to estimate shares of BFR operations using FSA credit. Census data provided information on population changes in total farms and BFR operations from 2012 to 2017 which are compared by SDFR status.FindingsResults reveal differences among BFR operations active in agricultural credit markets by SDFR status and state. BFR were more common among SDFR groups as well as in regions where farms tend to be smaller, such as the Northeast, compared to a more highly agricultural upper Midwest. Among BFR, non-SDFR are more likely to utilize credit than SDFR, however, FSA appeared to be crucial in enabling BFR and especially beginning SDFR groups to access loans.Originality/valueThe results are timely and of keen interest to researchers, industry and policymakers and are expected to assist in developing and adjusting policies to effectively promote and improve BFR success in general and for beginning SDFR groups.

Guest editorial: Nontraditional Credit in U.S. Agriculture

“…For example, while these and other studies have established a link between financial stress and some types of non-traditional lending (e.g. Ahrendsen et al, 2022), we cannot make claims about whether these relationships increase or decrease financial stability. Likewise, it would be interesting to test whether there is a causal link between access to different lender types, including non-traditional lenders, and beginning farm survival.…”

“…Tetteh et al (2022) highlight the dearth of data on collateral-based lenders, while Lyons and Takash (2022) provide evidence that various types of non-traditional lenders play a significant role in farm real estate lending. The findings of Ahrendsen et al (2022) suggest the importance of studying vendor finance for short-term inputs, while Thilmany et al (2022) suggest that beginning farmers pursue diverse financing strategies and these may not be well reflected in farm survey data. Further, current farm financial data sources tend to reflect producers that contribute the majority of agricultural production and are hence inherently less reflective of groups that contribute a small share of production, such as socially disadvantaged farmers [7].…”

“…Systemic risk is limited by the market share currently held by non-traditional lenders and the notion that non-traditional borrowers have a higher risk of default may not apply in all instances. Ahrendsen et al (2022) show important correlations between higher probability of default and non-traditional lenders, especially those who supply short-term inputs. This additional risk would pose a challenge for regulators, especially for lenders not subject to public reporting.…”

“…This would provide a similar measure to a traditional banks' Tier 1 capital ratio [5], which is a measure of the financial strength of a lending institution. Ahrendsen et al (2022) use data from FSA direct loan borrowers to consider the relationship between probability of default (borrower risk) and use of non-traditional credit either from (1) intermediate vendor financing, largely from machinery and equipment vendors and (2) short-term vendor financing, largely from variable input vendors. Findings suggest borrowers using short-term vendor financing have a 22-25% higher probability of default, compared to 9% higher for borrowers using intermediate vendor financing.…”

Guest editorial: Special issue on beginning farmers and ranchers

“…The article “Beginning farmer and rancher credit usage by socially disadvantaged status” (Ahrendsen et al , 2022) looks at credit market participation rates by beginning farmers, specifically those considered socially disadvantaged. Targeted socially disadvantaged applicants are historically underserved groups, such as women and racial or ethnic minorities, including American Indian or Alaska Native, African American or Black, Asian, Native Hawaiian or other Pacific Islander, and Hispanic regardless of race.…”