Effects of business maturity, experience, and size on farms economic vitality

Abstract

Purpose The purpose of this paper is to examine the relative financial strength and endurance of several paired classes of farmers according to business maturity (beginning versus mature farm businesses), farm operators’ age/experience (young versus older, more experienced farm operators), and farm size (small vs large farm businesses) by utilizing random-effects ordered logistic techniques. Design/methodology/approach This study uses a credit migration approach to analyze the factors that impact the probability of farm credit migration rates. An ordered logit model is used to assess the influence that factors have on a farm upgrading, staying same, or downgrading in credit rating. Findings Results show that increasing farm size will lead to a higher probability of class upgrades. Being a young farm operator, meanwhile, decreases this probability. Positive changes in money supply and farm real estate values were found to increase the likelihood of credit upgrades. Results also show trend reversal of credit risk movement, where upgrades (downgrades) are more likely to be followed by downgrades (upgrades). Originality/value With farms being dependent on capital for growth, knowing what factors affect the ability of a farm to obtain credit lends insight in the agricultural credit markets. This paper is also the first to assess the impacts of these factors on small farms which constitute 92 percent of farms in the USA per the US Department of Agriculture.