Progress 06/01/04 to 11/30/07
Outputs
OUTPUTS: Outputs contained presentations and reports of analysis on USDA's Farm Service Agency (FSA) direct loans. These included: three refereed journal articles; a peer reviewed research report available in print, CD-ROM, and via the internet and distributed to interested research professionals and policy analysts across the United States; preliminary and final reports presented to FSA administrators, management, and analysts; invited presentations were made to FSA management in Washington D.C. and at FSA's 2006 National Farm Loan Programs Policy Meeting attended by national and state administrators and farm loan leaders in Reno, Nevada, with the presentation materials made available to all FSA employees via the internet; six professional association presentations which included one organized symposium, two selected papers, and three regional research project meetings; five professional association papers published in AgEcon Search and meeting proceedings, which are available via
the internet; and input on a GAO review of beginning farmer loans.
PARTICIPANTS: Bruce L. Ahrendsen and Bruce L. Dixon, Professors, Eddie Chavez, Diana Danforth, and Sandy Hamm, Program Associates, Department of Agricultural Economics & Agribusiness, University of Arkansas, Division of Agriculture, Fayetteville AR, O. John Nwoha, Assistant Professor, Grambling State University, Ruston LA, Daniel Settlage, Assistant Professor, University of Arkansas, Fort Smith AR. Steven Koenig and Charles Dodson of the Farm Service Agency also provided substantial background information and assistance in obtaining data for the analyses.
TARGET AUDIENCES: The results of this research have implications for farm operators, landlords, farm managers, policy makers, administrators, lenders, industry, and other research and extension professionals.
Impacts
The work associated with this project was also part of the research agenda of the Center for Farm and Rural Business Finance at the University of Arkansas and a regional research project and was reported in the research reports for projects ARK01722, ARK01734, and ARK02025. The Farm Service Agency (FSA) direct farm loan program provides credit to family-sized farms including those operated by beginning farmers and socially disadvantaged applicants. Approximately 37 percent of all U.S. farms were estimated to be eligible for FSA direct loans when farm size, credit needs, farming experience, and occupation were taken into account. However, market penetration rates for various borrower cohorts ranged from 0.8 to 4.6 percent for fiscal years 2000-2003. In general, beginning farmers had weaker financial characteristics than non-beginning farmers. However, the same result was not found when comparing socially disadvantaged farmers with non-socially disadvantaged farmers,
such that there were few significant differences or the differences in financial characteristics were mixed. Overall, results indicated FSA direct farm loan borrowers had weaker financial characteristics than eligible, non-FSA direct farm loan borrowers, implying FSA was serving farmers likely to be denied credit by commercial lenders.
Publications
- Nwoha, O. J., B. L. Ahrendsen, B. L. Dixon, D. M. Settlage, and E. C. Chavez. FSA Direct Loan Targeting: Successful and Financially Necessary? Agricultural Finance Review 67,1(Spring 2007):35-53.
- Dixon, B. L., B. L. Ahrendsen, O. J. Nwoha, S. J. Hamm, and D. D. Danforth. FSA Direct Farm Loan Program Graduation Rates and Reasons for Exiting. Journal of Agricultural and Applied Economics. 39,3(December 2007):471-488.
- Dixon, B. L., B. L. Ahrendsen, M. Foianini, S. Hamm and D. Danforth. Competing Risk Proportional Hazard Models of Farm Service Agency Direct Operating Loans. in Agricultural and Rural Finance Markets in Transition. Presented at Regional Research Committee NC-1014, St. Louis M., October 4-5, 2007.
- Dixon, B. L., B. L. Ahrendsen, M. Foianini, S. Hamm and D. Danforth. Competing Risk Duration Models of Farm Service Agency Direct Loans. In Hawaii International Conference on Business 2007 Conference Proceedings, http://www.hicbusiness.org (Presented in Honolulu HI, May 24-27, 2007):776-778.
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Progress 01/01/06 to 12/31/06
Outputs
The work associated with this project was also part of the research agenda of the Center for Farm and Rural Business Finance at the University of Arkansas and a regional research project and was reported in the research reports for projects ARK01722, ARK01734, and ARK02025. Work continued on Farm Service Agency (FSA) loan program research. Two areas were investigated in this project. The first investigates the time for loans to terminate and the type of termination. The second investigates the type of exit from FSA direct farm loan programs. The time-to-loan-termination project uses data collected in a survey of direct farm loans originated in federal fiscal years 1994-1996. This survey was constructed by the investigators and administered through the FSA. The sample had a 90 percent response rate and loan types were proportionately distributed over the various loan programs (operating, farm ownership, emergency loans). Demographic and financial data were collected
about each borrower including the date of origination and time and type of termination. The duration model literature was explored. Many past studies used duration models to model time-to-termination of loans. None of the studies in the refereed literature appear to have applied such methods to agricultural loans. Because of the nature of the survey observing loan status at one point in time, three possible status types were possible: still performing, defaulted and paid-in-full. Since there is more than one type of loan termination, the so-called competing risks model had to be used. Such models can provide relative probabilities of failure at a given point in time. Estimation is currently underway. The proportional hazards model is being estimated as well as exponential and Weibull parametric models. The loans are divided into four categories: one-year operating loans, seven-year operating loans, farm ownership loans and emergency loans. The distinctions are made because of the
different maturities and purposes of the loans. Preliminary results to date show that several financial variables are important as well as borrower age. The second project investigates why farmers leave the FSA direct farm loan programs. Direct loan borrowers should leave the direct loan program as soon as financially able. Using the survey data described above in the duration model project, a multinomial logit model was estimated to identify factors explaining why loans had borrowers in one of four categories. The categories were: still in direct farm loan program; exited from the program and currently engaged in farming using an FSA guaranteed loan, conventional credit or no credit at all; voluntarily left farming; or involuntarily left farming. The logit model used variables observable at loan origination to predict an outcome category an average nine years later. Results show that financial strength at time of loan is important. Also, number of outstanding direct loans at
origination is also significant and inversely related to exiting the direct loan programs. Impact of post-origination variables remains to be investigated.
Impacts
FSA success is predicated on delivering direct loans efficiently and minimizing losses to the taxpayer. Decreasing loan length and minimizing defaults aid this. The results to date of these two models suggest that stronger borrower financial characteristics are important determinants of loan duration and graduating from direct loan programs.
Publications
- Ahrendsen, Bruce L., Charles B. Dodson, Bruce L. Dixon, and Steven R. Koenig. Research on USDA Farm Credit Programs: Past, Present, and Future. Agricultural Finance Review 65,2(Fall 2005):165-181.
- Ahrendsen, Bruce L., Bruce L. Dixon, O. John Nwoha, Sandra J. Hamm, and Diana D. Danforth. Analysis of Farm Service Agency Direct Loan Loss Likelihoods and Loss Rates. AgEcon Search, Research in Agricultural and Applied Economics, agecon.lib.umn.edu (2006):29 pp.
- Ahrendsen, Bruce L., Bruce L. Dixon, Chris Bacchus, and Latisha A. Settlage. Commercial Bank Usage of the Farm Service Agency Interest Assistance Program. In Agricultural and Rural Finance Markets in Transition. ed. Ani L. Katchova, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics, www.ace.uiuc.edu/agfin/proceedings/AgFin2006.pdf (December 2006):40-61.
- Dixon, Bruce L., and Bruce L. Ahrendsen. Macroeconomic Impacts on Agriculture. Farm Management and Marketing Newsletter. University of Arkansas, Division of Agriculture 14,1(March 2006):1-4.
- Ahrendsen, Bruce L., O. John Nwoha, Bruce L. Dixon, Daniel M. Settlage, and Eddie C. Chavez. FSA Direct Loan Targeting: Successful and Financially Necessary? Agricultural Finance Review 67,1(Spring 2007):in press.
- Dixon, Bruce L., Bruce L. Ahrendsen, O. John Nwoha, Sandra J. Hamm, and Diana D. Danforth. FSA Direct Farm Loan Program Graduation Rates and Reasons for Exiting. AgEcon Search, Research in Agricultural and Applied Economics, agecon.lib.umn.edu (2006):30 pp.
- Nwoha, John, Bruce L. Ahrendsen, Bruce L. Dixon, Eddie C. Chavez, and Daniel M. Settlage. Farm Service Agency Direct Farm Loan Volumes and Market Penetration by Farm Size, Socially disadvantaged and Beginning Farmer Cohorts, 2000-2003. In Agricultural and Rural Finance Markets in Transition. ed. Christine Wilson, Purdue University, Department of Agricultural Economics, Staff Paper #06-03, www.ace.uiuc.edu/agfin/proceedings/AgFin2005.pdf (March 2006):11-40.
- Settlage, Latisha A., Bruce L. Dixon, Bruce L. Ahrendsen, and Steve R. Koenig. Factors Determining the Use of Guaranteed Loans by U.S. Commercial Banks. AgEcon Search, Research in Agricultural and Applied Economics, published at: agecon.lib.umn.edu (2006):30 pp.
- Settlage, Latisha, Bruce Dixon, Bruce Ahrendsen, and Steve Koenig. A Detailed Look at Lender Participation in the Farm Service Agency Guaranteed Loan Program. In Agricultural and Rural Finance Markets in Transition. ed. Ani L. Katchova, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics, www.ace.uiuc.edu/agfin/proceedings/AgFin2006.pdf (December 2006):23-39.
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Progress 01/01/05 to 12/31/05
Outputs
The Office of Management and Budget's 2005 Passback for the USDA Farm Service Agency (FSA) requested that an independent performance-focused review of farm loan programs be completed. Government programs typically need periodic assessments to indicate whether they are meeting their goals. The study has three major objectives: (1) identify groups being served by FSA direct farm loan programs, (2) examine the length of time borrowers remain in the programs and the proportion of borrowers who exit or graduate from the programs, and (3) measure and identify ways of reducing loan subsidy rates. The first objective required examining characteristics and creditworthiness of recent borrowers to determine if they are consistent with the creditworthiness of groups targeted by the program mission. The second objective measured duration of loans and how many borrowers exited the program and graduated to commercial sources of credit. The third objective emphasized reducing loan
restructuring and default costs. A research team of agricultural economists were assembled to work on the three objectives. In addition, professionals from USDA FSA, Economic Research Service, National Agricultural Statistics Service (NASS), and Arkansas Agricultural Statistics Service cooperated on the project. Data were gathered from various sources including the NASS's Agricultural Resource Management Survey and Census of Agriculture, FSA central data bases, and FSA field offices. FSA borrower groups, including family, socially disadvantaged, and beginning farmers, were identified. FSA borrower and other farmer demographic, geographic, and financial characteristics were examined to assess their creditworthiness. A survey of FSA borrowers receiving direct loans during fiscal years 1994-1996 was utilized to estimate factors associated with borrowers that transition to other sources of credit. The survey was also used to identify factors associated with the likelihood of an FSA loan
loss and the amount of the loss. The analysis estimated the number of U.S. farmers that may be eligible for FSA direct loans when farm size, credit needs, years of farming experience, and occupation are taken into account. FSA direct farm loan borrowers are estimated to have weaker financial characteristics than non-FSA borrowers implying FSA is serving individuals likely to be denied credit elsewhere. The results also indicated that a majority of borrowers did exit FSA farm loan programs, but only slightly less than half remained in farming. Statistical models indicated that financial strength at loan origination resulted in greater likelihood of graduation to farming without direct loans. Farmers found to be greater risks of having their loans end in a loss-and hence increasing program costs-included those with higher relative indebtedness, less repayment capacity, less liquidity, crop farms, and larger farms. The likelihood of a loan loss was negatively related to borrowers already
having or receiving a real estate loan.
Impacts
The study provides an independent assessment of the effectiveness of FSA direct farm loan programs. The study should guide management initiatives for FSA direct farm loan programs and budget requests in the future. It also provides information to legislators as they weigh various policy initiatives. Presentations were made to FSA management in Washington D.C. and to research professionals at a conference in Minneapolis.
Publications
- Nwoha, J., B.L. Ahrendsen, B.L. Dixon, E.C. Chavez, S.J. Hamm, D.M. Settlage, and D. Danforth. 2005. Farm Service Agency Direct Farm Loan Program Effectiveness Study. Research Report 977, Arkansas Agricultural Experiment Station, Division of Agriculture, University of Arkansas System, Fayetteville AR, December 2005 at: http://www.uark.edu/depts/agripub/Publications/bulletins/977.pdf
- Nwoha, J., B.L. Ahrendsen, B.L. Dixon, E.C. Chavez, S.J. Hamm, D.M. Settlage, and D. Danforth. 2005. Farm Service Agency Direct Loan Program Effectiveness Study. Executive Privileged Document: Final Report. Department of Agricultural Economics and Agribusiness, University of Arkansas, Division of Agriculture, June 15:188 pp. at: http://www.fsa.usda.gov/dafl/Downloads/EffectivenessStudyFinalReport. pdf
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Progress 01/01/04 to 12/30/04
Outputs
The Office of Management and Budget's 2005 Passback for the Farm Service Agency (FSA) requested that an independent performance-focused review of farm loan programs be completed. The study should guide management initiatives for the direct loan programs and budget requests. Government programs typically need periodic assessments to indicate whether they are meeting their goals. The study has three primary objectives: 1) identify those groups of individuals being served by FSA direct farm loan programs; 2) measure the effectiveness of the programs in assisting various groups of borrowers to become economically and financially viable and hence, able to graduate to private sector credit and 3) measure the costs of subsidies borrowers receive from the government over time and determine ways to reduce those subsidies. Work initially focused on addressing objective one, identifying FSA borrower groups, including family, socially disadvantaged, and beginning farms. Work was
also begun on meeting the other two objectives. Personnel were identified and hired to assist with the study. Data were gathered from various sources including the National Agricultural Statistical Service's Agricultural Resource Management Survey and Census of Agriculture, FSA central data bases, and FSA field offices.
Impacts
It is anticipated that the results of this study will have policy implications. Policy makers and administrators will be better prepared to evaluate the effectiveness of the program to target resources and to assist those targeted groups.
Publications
- No publications reported this period
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