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Agribusiness Trade Credit -- A Paradox


  • Gustafson, Cole R.


This article utilizes the Survey of Small Business Finances to compare and contrast trade credit practices of rural small business firms. The results show that these firms borrow money and then re-lend it to others in the form of trade credit. There is a strong direct relationship between various forms of debt held by these firms and their level of accounts receivable (e.g., trade credit extended to customers). The actual level of re-lending varied among firms depending on their adoption level of computers that are used for cash management and credit services. Accounts receivable balances were also dependent on sales levels, costs of doing business, and other income. The most important source of funds for re-lending was obtained from mortgages and stockholder loans. These fund sources provide continuity in trade credit availability. The results also identify key factors affecting demand for trade credit extended to agribusinesses by other firms' accounts payable. A strong inverse relationship exists between accounts payable and other credit sources, indicating they are substitutes. Greater availability of credit from mortgages, other loans, and credit lines, reduces demand for accounts payable. However, they are not perfect substitutes. Demand for accounts payable varies with level of sales, cost of doing business, other income, and adoption of technology.

Suggested Citation

  • Gustafson, Cole R., 2004. "Agribusiness Trade Credit -- A Paradox," Agribusiness & Applied Economics Report 23513, North Dakota State University, Department of Agribusiness and Applied Economics.
  • Handle: RePEc:ags:nddaae:23513

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    References listed on IDEAS

    1. Lawrence, John D. & Otto, Daniel M. & Meyer, Seth D., 1997. "Purchasing Patterns of Hog Producers: Implications for Rural Agribusiness," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 15(1).
    2. Hurt, Christopher, 1994. "Industrialization in the Pork Industry," Choices, Agricultural and Applied Economics Association, vol. 9(4).
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    4. Drabenstott, Mark, 1994. "Industrialization: Steady Current or Tidal Wave?," Choices, Agricultural and Applied Economics Association, vol. 9(4).
    5. Lawrence, John D. & Otto, Daniel & Meyer, Seth D., 1997. "Purchasing Patterns of Hog Producers: Implications for Rural Agribusiness," Staff General Research Papers Archive 5149, Iowa State University, Department of Economics.
    6. Ervin, David E. & Smith, Katherine R., 1994. "Agricultural Industrialization and Environmental Quality," Choices, Agricultural and Applied Economics Association, vol. 9(4).
    7. Knoeber, Charles R, 1997. "Explaining State Bans on Corporate Farming," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 151-166, January.
    8. W. Timothy Rhodus & E. Dean Baldwin & Dennis R. Henderson, 1989. "Pricing Accuracy and Efficiency in a Pilot Electronic Hog Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(4), pages 874-882.
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    Cited by:

    1. Dary, Stanley, 2017. "Trade Credit Financing In African Agro-Food Manufacturing Industry: Incidence And Motives," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252850, Southern Agricultural Economics Association.
    2. Dell’Aquila, Crescenzo & Eboli, Mario, 4. "Financing production with liquidity constraints: the role of trade credit in agro-food supply chains," Politica Agricola Internazionale - International Agricultural Policy, Edizioni L’Informatore Agrario, issue 4.

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    agribusiness; trade; credit; finance; Agribusiness;


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