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Can Joining the Agricultural Industry Chain Alleviate the Problem of Credit Rationing for Farmers?

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  • Nan Zhao

    (College of Economics and Management, Northwest A&F University, Yangling 712100, China)

  • Dehong Lv

    (College of Economics and Management, Northwest A&F University, Yangling 712100, China)

Abstract

To solve the problem of credit rationing for farmers that shackles the transformation and upgrading of the agricultural industry and to improve the effect of agricultural industry chains in helping farmers, this paper empirically examines the effect of joining agricultural industry chains on supply-based and demand-based credit rationing for farmers, using the probit and tobit models based on the microscopic research data of 991 farmers in Shaanxi Province, China, and explores its specific effect mechanism. The study finds that agricultural industry chains can increase farmers’ credit by reducing the information asymmetry between farmers and banks, reducing agricultural business risks, and forming effective collateral and guarantee mechanisms, and that they have significant mitigating effects on farmers’ supply-based quantity rationing and demand-based price rationing, risk rationing and transaction cost rationing. Credit enhancement mechanisms such as information systems, commercial credit, orders, guarantees, production services and government support in agricultural industry chains have significant effects on alleviating farmers’ credit rationing, while insurance has limited effects on alleviating farmers’ credit rationing. There are differences in the effects of agricultural industry chains on alleviating various types of credit rationing of heterogeneous farmers in terms of scale, and the effects of joining agricultural industry chains on alleviating supply-based and demand-based credit rationing of large-scale farmers are more obvious than those of small farmers. Compared with the existing studies, this paper incorporates the credit rationing produced from farmers’ own reasons into the analysis framework, and introduces credit-enhancing variables of agricultural industry chains to test their specific mechanisms on farmers’ credit rationing. The findings of this study can provide a theoretical basis for promoting the innovation of financial models of agricultural industry chains, which is of great practical significance for improving the system of agricultural industry chains in developing countries, strengthening the role of industrial chains in absorbing small farmers, and promoting the modernization of agricultural industries with financial assistance.

Suggested Citation

  • Nan Zhao & Dehong Lv, 2023. "Can Joining the Agricultural Industry Chain Alleviate the Problem of Credit Rationing for Farmers?," Agriculture, MDPI, vol. 13(7), pages 1-28, July.
    • Handle: RePEc:gam:jagris:v:13:y:2023:i:7:p:1382-:d:1192013
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    References listed on IDEAS

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