Zhengfei Guan

Farm capital structure choice: theory and an empirical test

Purpose - – The purpose of this paper is to provide a unified theoretical framework that explains farm capital structure choice. Design/methodology/approach - – The framework accommodates different credit access scenarios and heterogeneous risk profiles of borrowers. It recognizes that the costs of capital are endogenously determined, reflecting the degree of credit risk and accessibility to credit markets. Based on the proposed model and the comparative statics derived thereof, the paper empirically tests the impacts of different factors on capital structure choice. Findings - – Based on the theoretical framework, the paper derived the impacts of different factors on capital structure choice using comparative statics. Results suggest that the potential determinants of capital structure have varying effects at different ranges of leverage. Empirical evidence supports the theoretical model. Originality/value - – Despite all of previous work on various aspects of farm capital structure choice, a framework that encompasses each of the different assumptions and scenarios is still lacking. The theoretical model integrates credit risk models and accommodates endogenous cost of capital, providing a comprehensive framework for studying farm capital structure choice and its determinants. The results provide insights that could help policy makers and lenders develop effective instruments to manage, monitor, and influence the financial leverage of farms at different quantiles of debt ratio.

Why do we adopt environmentally friendly lawn care? Evidence from do-it-yourself consumers

ABSTRACT This study identifies the factors determining the purchase frequencies of organic/natural fertilizers (ONFs) with a focus on do-it-yourself (DIY) consumers’ perceptions and motives. The estimation results of the generalized ordered logit model provide statistical evidence that environmental perceptions are critical factors in directing DIY consumers to purchase ONFs frequently. The results imply that educational programmes, informational campaigns, or advertisements to improve their perceptions on the potential negative impacts of fertilization on the environment may increase the purchase frequencies of ONFs. In addition, the results show that DIY consumers perceive that it is worth using ONFs despite their higher prices than chemical fertilizers. Their purchase frequencies will increase if they positively perceive the values of ONFs and are willing to pay a premium for ONFs. Moreover, the purchasing behaviour of DIY consumers is associated with their perceptions of neighbourhood landscaping. If neighbours or homeowner associations encourage landscaping improvements in their community, DIY consumers may increase their purchase frequencies of ONFs accordingly.

The impact of Mexican competition on the U.S. strawberry industry

This paper models the U.S. strawberry market and examines how increasing imports from Mexico affect the prices and shipment values of California and Florida winter strawberries. The Synthetic Inverse Demand System is used to quantify the impact of Mexican shipments on the prices of strawberries. The estimation results indicate that market prices are responsive to supply from each of the three sources, suggesting an integrated, competitive national market. The simulation results suggest that rapidly growing Mexican shipments will cause large losses to the U.S. strawberry industry, posing challenges to the sustainability and survival of the industry, particularly that of the Florida industry. Policy implications and recommendations for the industry are discussed.

Modeling heterogeneous risk preferences

Purpose - The purpose of this paper is to propose a general framework for modeling heterogeneous risk preferences of agricultural producers and identifying the underlying factors that affect risk preferences. Design/methodology/approach - This paper nests the risk preference function in a general production decision framework to test and model producers’ risk preferences. The framework allows for both production and price risk, and accommodates potential inefficient behavior. Panel data and the GMM method are used in the empirical estimation. Findings - The results in this study confirmed the hypothesis of heterogeneous risk preferences. Farmers are found to have decreasing absolute risk aversion. Both farmer characteristics and socioeconomic factors have significant impact on producers’ risk preferences. The results suggest that ignoring heterogeneity in risk preferences across individuals and how non-wealth variables could affect farmers’ risk preferences could result in biased economic behavior analysis. Originality/value - It is generally assumed in the literature that risk preferences are homogeneous among farmers at given wealth. This is a strong assumption and there are abundant evidences that suggest otherwise. This paper makes contributions to the literature by proposing an approach to modeling heterogeneous risk preferences and identifying the factors that affect preferences.

Farm Capital Investment and Deviations from the Optimal Path

We identify farms’ optimal investment path in capital assets and compare it with their actual investment to assess the direction and extent of deviation from the optimal investment. A probit model is further used to investigate the determinants of the probability that a farmer over†or under†invests in capital assets. We use a panel dataset of Dutch dairy farms over the period 2003–2013, and find that most farms under†invest in capital assets during the study period. Although the number of farms that had over†invested in capital assets is relatively small, these farms account for the biggest share of total investment in capital assets. The probit results show that liquidity, agricultural support payments, age, land tenure and standard output size are important variables explaining the likelihood of over†and under†investment.

The Effects of Tomato Suspension Agreements on Market Price Dynamics and Farm Revenue

Since 1996 there have been several suspension agreements between the United States and Mexico that set reference prices for imported Mexican tomatoes. The 2013 suspension agreement raised the reference prices of Mexican tomatoes by 43%. This study conducts an econometric analysis to examine the effects of reference prices on the dynamics of tomato price and farm revenue. Findings indicate that the suspension agreements have resulted in significant adjustments in the U.S. and Mexican tomato prices, and that the two prices are now more interdependent under the 2013 agreement. Although the 2013 suspension agreement has boosted the prices of U.S. tomatoes, simulation analysis shows that the Mexican industry reaps most of the benefits from increased prices under the 2013 suspension agreement. The findings in this study could inform future trade negotiations.