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The Impact of Food Price Shock on Heterogenous Credit Constrained Firms

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Author Info
Pavel Ciaian
d'Artis Kancs

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Abstract

This paper analyses how rising agricultural prices affect heterogenous farm production and access to inputs under credit market imperfections in the CEE transition countries. Using the FADN farm level panel data, which contains 37416 observations for 2004 and 2005, we estimate a farm credit constraint equation and find that small individual farms (IF) are more credit constrained that large corporate farms (CF). Using the estimated parameters we simulate the effect of rising input and output prices on production and input use of IF and CF farms. Our results suggest that in the presence of credit market imperfections, the relatively less credit constrained CF tend to benefit more from higher output prices than IF. Given that farms in transition and developing countries are more credit constrained than farms in developed market economies, raising food prices may actually reduce their profits and income compared to the latter. Hence, not only consumers but also agricultural producers in the developing world may loose from the increasing food prices.

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Publisher Info
Paper provided by Economics and Econometrics Research Institute (EERI) in its series EERI Research Paper Series with number EERI_RP_2008_02.

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Length: 29 pages
Date of creation: Feb 2008
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Handle: RePEc:eei:rpaper:eeri_rp_2008_02

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Related research
Keywords: Credit constraint; food prices; firm level heterogeneity;

Find related papers by JEL classification:
Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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References listed on IDEAS
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  1. Ciaian, Pavel & Swinnen, Johan F.M., 2008. "Credit Market Imperfections And The Distribution Of Policy Rents: The Common Agricultural Policy In The New Eu Member States," 107th Seminar, January 30-February 1, 2008, Sevilla, Spain 6591, European Association of Agricultural Economists. [Downloadable!]
    Other versions:
  2. von Braun, Joachim, 2008. "Rising food prices: What should be done?," Policy briefs 1, International Food Policy Research Institute (IFPRI). [Downloadable!]
  3. Boot, Arnoud W A & Thakor, Anjan V & Udell, Gregory F, 1991. "Secured Lending and Default Risk: Equilibrium Analysis, Policy Implications and Empirical Results," Economic Journal, Royal Economic Society, vol. 101(406), pages 458-72, May. [Downloadable!] (restricted)
  4. Laure Latruffe, 2005. "The Impact of Credit Market Imperfections on Farm Investment in Poland," Post-Communist Economies, Taylor and Francis Journals, vol. 17(3), pages 349-362, September. [Downloadable!] (restricted)
  5. Benjamin, Catherine & Phimister, Euan, 2002. " Does Capital Market Structure Affect Farm Investment? A Comparison Using French and British Farm-Level Panel Data," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 84(4), pages 1115-29, November. [Downloadable!] (restricted)
  6. Lerman, Zvi, 2001. "Agriculture in transition economies: from common heritage to divergence," Agricultural Economics, Blackwell, vol. 26(2), pages 95-114, November. [Downloadable!] (restricted)
  7. Bhattacharyya, Anjana & Bhattacharyya, Arunava & Kumbhakar, Subal C., 1996. "Government Interventions, Market Imperfections, and Technical Inefficiency in a Mixed Economy: A Case Study of Indian Agriculture," Journal of Comparative Economics, Elsevier, vol. 22(3), pages 219-241, June. [Downloadable!] (restricted)
  8. Aleksandr Subbotin, 2005. "Determinants of Access to Credit for Corporate Farms in Russia," Comparative Economic Studies, Palgrave Macmillan Journals, vol. 47(1), pages 181-187, March. [Downloadable!] (restricted)
  9. Dries, Liesbeth & Swinnen, Johan F. M., 2004. "Foreign Direct Investment, Vertical Integration, and Local Suppliers: Evidence from the Polish Dairy Sector," World Development, Elsevier, vol. 32(9), pages 1525-1544, September. [Downloadable!] (restricted)
  10. Brian C. Briggeman & Charles A. Towe & Mitchell J. Morehart, 2009. "Credit Constraints: Their Existence, Determinants, and Implications for U.S. Farm and Nonfarm Sole Proprietorships," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 91(1), pages 275-289, 02. [Downloadable!] (restricted)
  11. Allen, Douglas W & Lueck, Dean, 1998. "The Nature of the Farm," Journal of Law & Economics, University of Chicago Press, vol. 41(2), pages 343-86, October.
  12. Carter, Michael R., 1988. "Equilibrium credit rationing of small farm agriculture," Journal of Development Economics, Elsevier, vol. 28(1), pages 83-103, February. [Downloadable!] (restricted)
  13. Swinnen, Johan F. M. & Gow, Hamish R., 1999. "Agricultural credit problems and policies during the transition to a market economy in Central and Eastern Europe," Food Policy, Elsevier, vol. 24(1), pages 21-47, February. [Downloadable!] (restricted)
  14. Petrick, Martin, 2004. "Farm investment, credit rationing, and governmentally promoted credit access in Poland: a cross-sectional analysis," Food Policy, Elsevier, vol. 29(3), pages 275-294, June. [Downloadable!] (restricted)
  15. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  16. Stéphane Blancard & Jean-Philippe Boussemart & Walter Briec & Kristiaan Kerstens, 2006. "Short- and Long-Run Credit Constraints in French Agriculture: A Directional Distance Function Framework Using Expenditure-Constrained Profit Functions," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 88(2), pages 351-364, 05. [Downloadable!] (restricted)
  17. Johan F. M. Swinnen, 1999. "The political economy of land reform choices in Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(3), pages 637-664, November. [Downloadable!] (restricted)
  18. Pavel Ciaian & Johan Swinnen, 2005. "Land Market Imperfections and Agricultural Policy Impacts in the New EU Member States: A Partial Equilibrium Analysis," LICOS Discussion Papers 15805, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
    Other versions:
  19. Pollak, Robert A, 1985. "A Transaction Cost Approach to Families and Households," Journal of Economic Literature, American Economic Association, vol. 23(2), pages 581-608, June. [Downloadable!] (restricted)
  20. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September. [Downloadable!] (restricted)
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