Jaclyn D. Kropp

The effects of direct payments on liquidity and repayment capacity of beginning farmers

Purpose - US decoupled direct payments, paid to farm operators based on historic yields and base acreage under the 2002 Farm Bill, may alter a farmers access to credit or his ability to meet debt servicing obligations. More specifically, direct payments might improve the farmers liquidity position or repayment capacity enabling the farmer to obtain more favorable credit terms. In turn, more favorable credit terms might allow a farm to remain in business or expand production, leading to current production distortions. Since direct payments are based on historic production, beginning farmers tend to receive lower levels of direct payments and hence these payments might impact beginning farmers differently than more experienced farmers. The purpose of this paper is to investigate the effects of direct payments on liquidity and repayment capacity for experienced and beginning farmers. Design/methodology/approach - Given the manner in which direct payments are calculated and administered, it is likely that direct payments affect beginning farmers and more experienced farmers differently; hence the authors analyze the impacts of direct payments on the current and term debt coverage ratios for these two groups separately. In the analysis, the authors control for farm financial characteristics, farm operator characteristics, and other factors. Data from the US Department of Agriculture (USDA) Agricultural Resource Management Survey (ARMS) for the years 2005, 2006, and 2007 were used in the weighted regression analysis and jackknifed standard errors computed. Findings - A positive significant relationship was found between the level of direct payments (in dollars) and the term debt coverage ratio for experienced farmers, suggesting that direct payments improve repayment capacity. However, this relationship is not significant for beginning farmers. Also, a negative significant relationship was found between the number of base acres and the current ratio for experienced farmers, while this relationship lacks significance for beginning farmers. Originality/value - The paper provides evidence that decoupled direct payments impact a farmers liquidity and repayment capacity. Furthermore, direct payments impact beginning and experienced farmers differently. This paper also contributes to the growing body of research investigating the mechanisms by which decoupled payments have the potential to distort current production.

Are the poor really more trustworthy? A micro‐lending experiment

Purpose - This paper aims to clarify the relationship between wealth and trustworthiness with the goal of understanding why micro-lending institutions grant loans to poor individuals countering well-known models of credit markets and credit rationing, such as those proposed by Stiglitz and Weiss. Micro-credit markets appear to be based on two conjectures: the poor are trustworthy, and their willingness to pay for credit is relatively high. Design/methodology/approach - The paper simulates trust-based lending in an experimental setting to determine whether the conjecture that the poor are trustworthy is plausible. By conducting the experiments in the USA, a wealthy developed country, and China, a developing country where formal micro-finance institutions have not established a visible presence, it is possible to test the conjecture and draw cross-cultural comparisons. Findings - The paper finds that while the absolute level of family income had no significant effect on repayment behavior, US borrowers that perceived themselves as having a family income that was relatively lower than other US households repaid at higher rates. Therefore, evidence was found that trustworthiness might be a function of perceived relative wealth or social status rather than the absolute level of wealth or income. Research limitations/implications - The research results may be difficult to generalize because of the experimental approach and use of students as participants. Practical implications - The paper includes implications for the administration of micro-credit loans in China and other developing nations. Originality/value - This paper experimentally tests a conjecture which appears to be the foundation of micro-credit markets.

Production Incentives from Static Decoupling: Land Use Exclusion Restrictions

Many agricultural support payments are based on past production with restrictions on how land may currently be used. When support payments to field crops are analyzed in a static framework, they do not directly impact current production decisions. However, over time, as relative profits change, these payments affect current output. The payments may keep land in less profitable production of program crops through restrictions prohibiting potentially more profitable endeavors such as cultivating fruits and vegetables. These payments have the potential to lead to production and trade distortions similar in magnitude to the distortions associated with direct production subsidies. Copyright 2013, Oxford University Press.

Decoupled Direct Payments under Base Acreage and Yield Updating Uncertainty: An Investigation of Agricultural Chemical Use

We analyze the impacts of agricultural subsidies on farm-level production decisions and input use under price, yield, and policy uncertainty for a risk-averse farmer. Using U.S. farm-level data and weighted ordinary least squares, we find that decoupled payments had little impact on agricultural chemical expenditures (our proxy for use) when the payments were first introduced in 1996. However, after 2004 there is a positive, significant relationship between decoupled payments and agricultural chemical expenditures. The results suggest that updating, introduced in 2002, and expectations of future updating caused decoupled payments to become coupled to current input use and, ultimately, production.

A General Equilibrium Theory of Contracts in Community Supported Agriculture

Community Supported Agriculture (CSA) contracts allow consumers to buy claims on a farms future production. In turn, the consumer provides working capital to the farm during the growing season. CSA contracts also provide risk management for farmers with limited access to Federal crop insurance by transferring part of the farms risk to the consumer. We derive a theory of CSA contract pricing for the two most prevalent types of CSA contracts: yield contracts, in which consumers receive a percentage of the farms production, and weight contracts, in which consumers receive fixed quantities. We develop a two-period model in which expected utility maximizing producers and consumers engage in CSA contracting in the first period based on anticipation of yields and spot prices in the second period. Using the model, we generate several testable hypotheses to be explored in future research. Additionally, we present an overview of the data necessary to test the propositions and potential challenges that might arise in related empirical work.

US agricultural support programs and ethanol policies effects on farmland values and rental rates

Purpose - – In recent years, prices for prime farmland have increased substantially, begging the question is the dramatic increase the result of a speculative bubble or consistent with market fundamentals with increases driven by increased global demand, low interest rates, and recent changes to US agricultural and energy policies. The purpose of this paper is to investigate the impacts of recent agricultural support policies and ethanol policies on farmland values and rental rates. Design/methodology/approach - – Farm-level Agricultural Resource Management Survey data collected by the United States Department of Agriculture (USDA) between 1998 and 2008 as well as county-level data collected by the USDA, US Census Bureau, and Bureau of Economic Analysis are used to determine the impacts of recent agricultural support policies and ethanol policies on farmland values and rental rates, while controlling for parcel characteristics and urban pressure. Specifically, weighted ordinary least squares and two-stage least squares are used to investigate the impact of various governmental agricultural support policies, corn ethanol facilities location, and local corn ethanol production capacity on farmland values and rental rates. Findings - – The results indicate that government payments, urban pressure, and the proximity of the parcel to an ethanol facility have a positive impact on both farmland values and rental rates. More specifically, parcels located in the same county as at least one corn ethanol facility are more valuable and command higher rental rates. In addition, county-level ethanol production capacity is positively associated with farmland values and rental rates. An inverse relationship between distance of the parcels from an ethanol facility and farmland values is also found; a similar result is found for rental rates. Research limitations/implications - – The findings suggest that agricultural support payments and ethanol policies are capitalized into farmland values. These findings have important implications for the formulation of future farm policy. A limitation of the analyses is that farmland values are estimated by landowners; future research could utilize farmland transaction data to overcome potential biases generated by using landowner estimates. In addition, while our study period covers 11 years, future research could expand the time period further to analyze the effect of more recent agricultural and ethanol policies. Originality/value - – This paper extends prior research pertaining to factors influencing farmland values and rental rates by also examining the proximity of the parcel to an operating ethanol facility using a unique data set.

Credit Constraint Impacts on Farm Households: Survey Results from India and China

India and China have the largest farm-household populations in the world and in many areas also the poorest. Among the many factors that affect farm livelihoods access to credit has been identified as a significant barrier. While there has been a significant literature on credit constraints in developing countries there is surprisingly little information as to the actual impacts of credit constraints on household well-being. The objective of this paper is to investigate the impact of credit constraints on various livelihood choices such as, physical and human capital formation, agricultural inputs application, consumption smoothing, and wage seeking behavior. This paper contributes to the literature and policy debates by comparing the effects between China and India using direct elicitation. The analytical results demonstrate that binding credit constraints adversely affect a broad range of production and livelihood choices. We empirically show that credit constraints negatively affect food consumption, farm inputs applications, and health and educational attainments.

Asset concentration in the US agricultural balance sheet: a relative information approach

Purpose Over the past four decades, real values of farm real estate and the share of assets on farmers’ balance sheets attributed to farm real estate have increased. The purpose of this paper is to examine the factors that explain the concentration of the US agricultural balance sheet around a particular asset, farm real estate, and the extent to which the degree of asset concentration varies across United States Department of Agriculture production regions. Design/methodology/approach State-level data from 48 states and entropy-based inequality measures are used to examine changes in asset distributions (real estate vs non-real estate assets) both within and between regions over time. Findings The agricultural balance sheet is found to concentrate into real estate in the USA over the period 1960-2003 with the rate of concentration varying across production regions. In some regions, the concentration is mainly due to changes in real estate prices, while in other regions concentration is also driven by changes in real estate holdings or changes in total factor productivity. Originality/value This study formally estimates the degree to which the concentration of balance sheet items can be explained by the observed changes in farm real estate prices relative to observed changes in agricultural factor productivity or changes in farm real estate holdings. The computed regional differences in asset concentration and its main drivers have implications for changes in equity and solvency positions of farmers as well as agricultural lenders’ risk exposure.

Socioeconomic and Demographic Determinants of the Nutritional Content of National School Lunch Program Entrée Selections

&NA; New National School Lunch Program (NSLP) guidelines aim to reduce sodium and saturated fats, limit calories, and eliminate trans‐fat and whole milk. This paper provides a novel approach to understanding how the healthfulness of NSLP participants’ entrée selections varies across socioeconomic and demographic groups. Unlike previous studies that rely on dietary recalls, we use a mixed logit model to examine students’ entrée choices in a school cafeteria. We estimate the likelihood that an entrée is selected from the available lunch choices as a function of the entrées nutrients (fat, carbohydrate, protein, and sodium) and entrées taste profile characteristics (e.g., Mexican, Pizza‐like), as well as the students socio‐economic and demographic characteristics. Using these estimates, we examine how changing the nutritional content of an offering impacts the probability of selecting each of the offerings. Free lunch recipients are more likely to choose entrées higher in fat but lower in sodium than other students. Full‐price lunch recipients are the most responsive to changes in nutritional content of the offerings and are most likely to respond to changes in the nutritional content of the offered entrées by substituting a lunch brought from home for the school‐purchased lunch. Replacing less healthy menu items with popular but healthier items reduces the selection of total calories, calories from fat, and sodium by approximately 4%, 18%, and 8%, respectively, over the study period. The new guidelines should be effective at improving the nutrition of school‐age children, and potentially reducing childhood obesity, provided NSLP participation does not decline appreciably.

Willingness to pay for shrimp attributes and evidence of stigma following the Gulf Coast oil spill

ABSTRACT Mandatory labeling requirements in the United States require shrimp products to be labelled with certain credence attributes: production process and country of origin. To determine the effects of these requirements in the wake of the 2010 Gulf Coast oil spill, we estimate willingness to pay (WTP) for various credence characteristics (geographic origin and production process) and physical attributes using a Becker DeGroot Marschak experimental auction. Although the results are obtained from a small convenience sample, and hence cannot be generalized, we find that participants are willing to pay premiums of