Chapter 7 Impacts of Agricultural Finance and Credit
Chapter 7
Impacts of Agricultural
Finance and Credit
The vere financial stress of a large propor-tion of farmers and the recent regulatory and competitive changes in financial markets have combined to change forever the financial frame-work of farming. The farm of the future will be treated financially like any other business—it will have to demonstrate profitability before a bank will finance its operation. Managing a farm efficiently and profitably, which will necessi-tate keeping technologically up-to-date, will be the key to access credit.
The cost of credit, however, will be higher and more volatile. Interest on loans may be varia-ble rather than fixed. Moreover, given the con-centration in the banking industry, decisions about extending credit will more likely be made at large, centralized banking headquarters far removed from a loan applicant’s farm. Loan de-cisions will thus be less influenced by the con-
siderations of neighborly goodwill that frequent-ly shaded the decisions of the more local banks.
Congress will have to consider all of the fac-tors becau the availability of capital will con-tinue to be an important factor in agricultural production in general and in the adoption of agricultural technologies in particular. Read-ily available capital at reasonable rates and terms, plus technologies that aid profitability,provides a favorable environment for technol-ogy adoption. For the most part, the emerging technologies will pass the test for economic fea-sibility.This chapter considers the relationships be-tween technology adoption, financing con-quences, and the structure of agriculture. The major financing focus is on the credit compo-nent of financial capital, and on how the regu-latory and competitive changes in U.S. finan-cial markets during the 1980s will influence structural change as well as the cost, availabil-ity, and other terms of credit for agricultural producers. In the following ctions, some back-ground information on capital and credit mar-kets and institutions is reviewed, and an analyti-cal framework is established for understanding the relationships between credit, technological change, and agricultural structure. Then, vari-ous changes in the regulatory environment af-fecting farm lenders are reviewed, and impli-cations are given for technology adoption and structural change.Before considering the long-run impacts of technological change and of financing con-quences, it is important to consider the prent deterior
ating financial situation in agriculture.Financial conditions of many farmers and farm lenders have deteriorated significantly over the past 4 years. Large supplies and weak export demand have squeezed farm income and re-duced the net worth of farmers. Many farmers face insufficient cash flow, declining ast values, problems of access to credit, and forced liquidation, foreclosure, and bankruptcy. A substantial proportion of the U.S. farm c-tor is under vere financial stress, which can be measured by u of the debt-to-ast ratio.Approximately 11 percent of all farms (243,000farms) have debt-to-ast ratios of 40 to 70 per-cent. The farms are “highly leveraged,” tend to have rious cash shortfalls, and together owe one-third of all farm debt. Another 143,000farms have debt-to-ast ratios above 70 percent,The “very highly leveraged” farms make up about 7 percent of all farms, but they owe almost 25 percent of all farm debt (table 7-1).
137
138 . Technology, Public Policy, and the Changing Structure of American Agriculture
Table 7-1.–Distribution of Farms by Debt-to-Ast Ratio and Sales Class, January 1984
Highly leveraged
Very highly leveraged (debt-to-ast ratios of 40 to 70°/0)
(debt-to-ast ratios over 70°/0)Percent
正常反义词
Number of Percent Percent Number of Percent Sales class of class farms of debt
of class farms of debt >$500,000 . . . . . . . . . . . . . . . . . . . . . . . . . .17.45,200
4.81
5.34,500 4.9$250,000-$499,999 . . . . . . . . . . . . . . . . . . . . 19.0 .17,600
5.112.611,000 4.2$100,000-$249,999 . . . . . . . . . . . . . . . . . . . . 18.152,800
10.59.226,400 5.9$50,000-$99,999 . . . . . . . . . . . . . . . . . . . . . . 14.744,000
6.28.726,400 3.9<$50,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3123,200
5.8 5.074,800 4.8All farms . . . . . . . . . . . . . . . . . . . . . . . . .11.1242,60032.5
6.6143,10023.7
SOURCE: U.S. Department of Agriculture, The Current financial Condition of farmers and Farm Lendera,
Economic Rearch Service Bulletin No.
Many short-run programs are being consid-ments needed to solve the d to alleviate this current financial situation.In chapters 8 and 9, alternative short-term pol-However, as discusd later in this chapter,icies are analyzed along with other policy the programs will not allow for the adjust-—changes.
IMPACTS OF MONETARY The agricultural ctor is cloly linked to na-tional and international economies. Thus the public ctor policies and programs that influ-ence the economies also influence technol-ogy adoption and structural change in agricul-ture. The potential influences of monetary and fiscal policies on agriculture are identified in the following ctions.1
Monetary Policy
The amount of money and credit in the econ-omy, and its rate of change, are the primary con-cerns of monetary policy. The Federal Rerve System (FRS) is the primary regulatory author-ity that determines the direction of monetary policy in the United States. The objectives of FRS are to promo
te domestic economic growth,avoid excessive inflationary or recessionary pressures, maintain a sound U.S. balance of pay-ments, and promote full employment. The si-multaneous achievement of the goals is ex-tremely difficult, and FRS is often faced with lecting which policy objective has highest priority.
‘This ction and the next are bad on a paper by David A.
Lins, “Overview of Capital and Credit Markets Serving Agricul-
ture: Their Impact on Technology Adoption and Structural
Change,” prepared for the Office of Technology Asssment,
Washington, DC, March 1985.AND FISCAL POLICY
FRS influences the amount of money and credit in the economy through a variety of in-struments. Discussion of the instruments in detail is beyond the scope of this chapter. To determine its success in controlling the amount of money and credit in the economy, FRS us indicators, the most commonly ud being: 1)interest rates, and 2) the rate of growth in the money supply (this is also ud as an instrument by FRS).For many years FRS ud the level of interest rates as a key in
dicator of the success of mone-tary policy. Nominal interest rates were con-trolled within a fairly narrow range. However,during the 1970s the inflation rate began to ri,while interest rates were controlled by FRS ac-tions. The net effect was a fall in real interest rates. Figure 7-1 identifies the estimated real in-terest rate on 3-month Treasury bills from 1962through 1984.From 1962 through 1972 the real interest rate was generally positive, in the range of 1 to 2 per-cent. From 1972 through 1979, real interest rates were usually negative, suggesting that investors in Treasury bills lost money in real terms. FRS actions to control interest rates in the face of rising inflation were primarily responsible for this outcome.
Ch. 7—impacts of Agricultural Finance and Credit q 139 Figure 7-1.—Real Interest Rate on
3-Month Treasury Bills
196419681972197619801984
Year
SOURCE: Office of Technology Asssment.
Recognizing that savings are strongly discour-
aged by negative real interest rates, FRS in 1979
shifted from a policy of controlling interest rates
to a policy of controlling the rate of growth in
the money supply. The result was a rapid in-
crea in the real interest rate as well as in-
cread variability in nominal interest rates.2
Since 1983, the real interest rate on 3-month
Treasury bills has generally been in the range
of a positive 5 to 7 percent. The level of real in-
terest rates is likely to be a major determinant
of investment in agricultural asts, particularly
for nonfarm investors. With high real interest
rates there is less incentive to borrow money
奇妙造句to invest in new technologies. Conquently, ac-
tions taken in the pursuit of monetary policies
have a major impact on the agricultural ctor.
The strength of the U.S. dollar also has a ma-
jor impact on the agricultural ctor. The level
of interest rates in the United States compared
with tho in other countries is a major deter-
minant of the strength of the dollar. Since mone-
tary policies have a direct influence on the level
of interest rates, they also have a direct impact
on the strength of the dollar. In 1984 the U.S.
dollar reached a 12-year high against many ma-
jor foreign currencies. A strong dollar decreas
the level of agricultural exports, thereby reduc-
ing incomes of producers of export-dependent
Interest rates not adjusted for inflation.
products. While the incomes of other producers
may actually increa in such a situation, the
overall level of income for the agricultural c-
tor would probably decline. As incomes of agri-
cultural producers decline, less capital is avail-
able for investment in new technologies, and
credit may be ud more to overcome shortfalls
in income than to finance new investments or
transfer resources.
Many of the emerging agricultural technol-
ogies appear to be tho that will require expend-
itures on operating inputs such as genetically
星月岛enhanced eds, chemicals, embryo transplants,
and other products normally financed with the
farm operator’s capital or short-term credit. Al-
though the decisions on the purcha of the
inputs is affected by the level and variability of
interest rates (which in turn are influenced by
monetary policy), it ems more likely that the
decisions to adopt the new technologies will
be more strongly influenced by the expected
returns from adoption. Some technologies may
be so profitable to adopt, at least in the short
run, that the level of interest rates has little im-
pact on the decision process.
团圆酒Fiscal Policy
Fiscal policy involves the taxation and spend-
ing policies of the Federal Government. The
objectives of fiscal policy are to carry on the
functions of Government, promote economic
growth and full employment, and maintain
price stability. Fiscal policy instruments ud
to achieve the objectives include both auto-
matic and discretionary taxation and spending
alternatives.
Automatic taxation instruments include the
progressive income tax structure, which rais
taxes as incomes increa and decreas taxes
房租英文
when incomes fall, even if Congress has made
no explicit changes in tax rates. One automatic
spending instrument is unemployment com-
pensation, which automatically changes Gov-
ernment expenditures when unemployment
changes.
Discretionary items include tho taxation
and spending patterns that require specific con-
gressional action to change. In the area of taxa-
140 q Technology, Public Policy, and the Changing Structure of American Agriculture
tion, for example, depreciation rates and in-vestment credit change only as the result of legislative ch
anges. Likewi, numerous spend-ing programs require legislative action before the level of expenditure is changed. A major problem in meeting the objectives of fiscal pol-icy is that much Government spending falls into the category of “entitlements,” leaving little that legislators can do to change the total level of Government expenditures.
Federal budget deficits, the excess of Govern-ment spending over tax revenues, are frequently cited as a major determinant of interest rates. Some argue that large budget deficits create such a strong demand for credit that Govern-ment borrowing will “crowd out” the demands of the private ctor for credit if the deficit is not funded by expanding the money supply. Others suggest that budget deficits occur pri-marily as a result of high unemployment and recessions, which reduce tax revenues and cre-ate more expenditures on income transfer pro-grams. If true, this latter view suggests that Fed-eral deficits have little impact on interest rates. In fact, statistical studies show a very low corre-lation between budget deficits and the level of interest rates.
To the extent that fiscal policies affect the level and variability y of interest rates, they also affect credit availability and the adoption of new tech-nologies in agriculture. Again, the impact on the adoption of new technologies may depend on whether the new technologies are capital-intensive. Fiscal policies that result in large budget deficits will have a more deleterious ef-fect on capital-intens
ive technologies than on technologies that require little capital invest-ment and that reduce costs of production.
CAPITAL SOURCES FOR AGRICULTURE
It is uful to parate capital ud for agri-culture into two broad categories—debt capi-tal and equity capital. Debt capital is defined as funds that are borrowed and must be repaid with interest. In contrast, equity capital repre-nts an ownership interest in the business. Net income and capital gains reflect the returns to equity capital,
As shown in table 7-2, approximately 20 per-cent of the total capital ud in agriculture is in the form of debt capital. Debt capital as a per-cent of total capital in agriculture incread from about 10 percent in 1950 to 20.7 percent by 1985. To the extent that new technologies require the u of borrowed funds for adoption, lenders as well as farm operators must be con-vinced of the value of new, and perhaps un-tested, technologies. Educational efforts to ac-quaint lenders with new technologies will become increasingly important if such technol-ogies are to be financed with debt capital. Equity capital accounts for the majority of funds ud in agriculture and may come from a variety of sources, including initial investment
Table 7-2.—Balance Sheet of the Farming Sector,
Jan. 1, 1985
Item(billions of dollars) Asts:
Physical asts:
Real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Non-real estate:
Livestock and poultry . . . . . . . . . . . . . .
Machinery and motor vehicles . . . . . . .
Crops stored onfarm and off-farm . . . .
Houhold equipment and
furnishings . . . . . . . . . . . . . . . . . . . . .
Financial asts:
Deposits and currency . . . . . . . . . . . . . . .
Savings bonds . . . . . . . . . . . . . . . . . . . . . .
善待你所在的单位心得体会Investments in co-ops . . . . . . . . . . . . . . . .
$ 749.2
50.4
106.5
38.2
26.0
18.7
3.7
蝴蝶结打法
29.7
Total asts. . . . . . . . . . . . . . . . . . . . . ... ,$1,022.4 Claims:
Liabilities:
Real estate debt . . . . . . . . . . . . . . . . . . . . ,
Non-real estate debt to:
ccc . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . .
怎样才能深度睡眠Proprietors’ equity . . . . . . . . . . . . . . . . . . . . .
Total claims . . . . . . . . . . . . . . . . . . . . , . . .
Debt-to-ast ratio ... , . . . . . . . . . . . . . . . . .
December 19S4,
