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Rural Finance, Capital Constrained Small Farms, and Financial Performance: Findings from a Primary Survey

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  • Khanal, Aditya R.
  • Omobitan, Omobolaji

Abstract

Capital and credit constraints limit the small farm’s ability to adequately use resources for optimum performance. Farmers’ access to capital is constrained in multiple ways, including price factors, risk factors, and transaction factors, as well as access to and ease of rural agricultural financing. Using a primary survey data of small farms in Tennessee, we analyzed factors influencing credit constraint and its impact on farm performance. Farm operators’ gender, off-farm work, land acreage holdings, farm specialization, and the use of smart phone with Internet significantly influenced credit constraint. We found that the financial performance of credit constrained small farmers was significantly lower than that of unconstrained small farmers—an adverse impact of constrained capacity to credit could result in up to $51,000 lower in gross farm sales. Additionally, our reason-specific results within credit constraint suggested that around $32,000 to $39,000 lower performance in gross sales can be attributable to the constrained borrowing with deficit to obtain agricultural loans at required or desired level.

Suggested Citation

  • Khanal, Aditya R. & Omobitan, Omobolaji, 2020. "Rural Finance, Capital Constrained Small Farms, and Financial Performance: Findings from a Primary Survey," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 52(2), pages 288-307, May.
    • Handle: RePEc:cup:jagaec:v:52:y:2020:i:2:p:288-307_7
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    Citations

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    Cited by:

    1. Iotti, Mattia, 2023. "Financial evaluation and credit access of agricultural firms," Economia agro-alimentare / Food Economy, Italian Society of Agri-food Economics/Società Italiana di Economia Agro-Alimentare (SIEA), vol. 25(2), October.
    2. Changjun Zheng & Sinamenye Jean-Petit, 2023. "The Effects of the Interactions Between Agro-Production, Economic, and Financial Development on Bank Sustainability," SAGE Open, , vol. 13(2), pages 21582440231, June.
    3. Adhikari, Sudip & Khanal, Aditya R., 2020. "Does higher business risk influence financial risk and induce savings among small agricultural operations? Findings from Tennessee," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304509, Agricultural and Applied Economics Association.
    4. Mattia Iotti, 2023. "Financial evaluation and credit access of agricultural firms," Economia agro-alimentare, FrancoAngeli Editore, vol. 25(2), pages 31-67.
    5. Mattia Iotti & Giuseppe Bonazzi, 2023. "Financial Sustainability in Agri-Food Companies: The Case of Members of the PDO Parma Ham Consortium," Sustainability, MDPI, vol. 15(5), pages 1-31, February.
    6. Dmytriieva, Viktoriia & Sviatets, Yurii, 2023. "Agricultural business in independent Ukraine: thirty-year dynamics of the reorganization process," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 9(2), June.
    7. Monica Laura Zlati & Andrei Mirel Florea & Valentin Marian Antohi & Marius Sorin Dinca & Florentin Bercu & Costinela Fortea & Stanciu Silvius, 2023. "Financing Romanian Agricultural Cooperatives’ Investments for the 2023–2027 Horizon," Sustainability, MDPI, vol. 15(3), pages 1-28, January.
    8. Omobolaji Omobitan & Aditya R. Khanal, 2022. "Examining Farm Financial Management: How Do Small US Farms Meet Their Agricultural Expenses?," JRFM, MDPI, vol. 15(3), pages 1-15, March.
    9. Reginald Holland & Aditya R. Khanal & Purushottam Dhungana, 2022. "Agritourism as an Alternative On-Farm Enterprise for Small U.S. Farms: Examining Factors Influencing the Agritourism Decisions of Small Farms," Sustainability, MDPI, vol. 14(7), pages 1-12, March.
    10. Jiali Zhou & Xiangbo Fan & Chenggang Li & Guofei Shang, 2022. "Factors Influencing the Coupling of the Development of Rural Urbanization and Rural Finance: Evidence from Rural China," Land, MDPI, vol. 11(6), pages 1-21, June.

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