AGRICULTURAL AND RURAL FINANCE MARKETS IN TRANSITION

• Sponsoring Institution: National Institute of Food and Agriculture
• Project Status: COMPLETE
• Funding Source: HATCH
• Reporting Frequency: Annual
• Accession No.: 0200297
• Multistate No.: NC-1014
• Project Start Date: Oct 1, 2004
• Project End Date: Sep 30, 2009
• Program Code: [(N/A)]- (N/A)

Recipient Organization
AUBURN UNIVERSITY
108 M. WHITE SMITH HALL
AUBURN,AL 36849

Performing Department
AGRI ECONOMICS & RURAL SOCIOL

Non Technical Summary
A. The family farm is not only a production unit but also a household. B. Many farms cannot finance their new undertakings. C. Lenders explore new ways to lend to the poor. D. Some lenders use non-traditional practices to serve the poor. A. Learn about the investment choices of family farms B. Identify farms that cannot fund thier projects. C. Can social capital serve as "collateral" for the poor. D. Do governance practices of an organization improve its success.

Animal Health Component

70%

Research Effort Categories

Basic

20%

Applied

70%

Developmental

10%

Classification

Knowledge Area (KA)	Subject of Investigation (SOI)	Field of Science (FOS)	Percent
602	6120	3010	50%
602	6199	3010	50%

Knowledge Area
602 - Business Management, Finance, and Taxation;

Subject Of Investigation
6120 - International economy and sectors thereof; 6199 - Economy, general/other;

Field Of Science
3010 - Economics;

Keywords

social capital

agricultural finance

finance

rural areas

markets

transition

households

family resources

resource management

financing

constraints

sectors (economics)

agricultural economics

farms

agribusiness

market competition

farm income

market structure

structural changes

economic analysis

sustained use

entrepreneurs

risk

investments

economic factors

bargaining

economic impact

peanuts

production efficiency

Goals / Objectives
1.Determine the effects of changes in international competitive balance and federal and state policies affecting agriculture on the financial and economic performance of farms, agribusinesses and rural financial markets. 2.Determine the effects of market, policy, and structural change in the agricultural and financial market sectors on the financial soundness, safety, and management of financial institutions that supply financial capital to agriculture. 3.Evaluate the management strategies, capital needs, and financial performance required for the long-term sustainability of firms in the food and agribusiness sector. 4. Social Capital and Rural Entrepreneurship.

Project Methods
A. Research effort will focus of developing a conceptual framework to study what determines the choices of farmers to invest in risky financial assets. According to data from a database maintained by the extension service, more than a third of the farmers have significant investment in risky financial assets. While return on investment is important, it is yet unclear what other factors may affect farmers choices. Unlike other studies that look at the farm as a production unit, this research will identify the farm as a household maintaining a portfolio where investment choice is driven not only by the demands of the production unit but also by the needs of the farm unit which here is taken to be the family. Insights on this topic come from the intra-household bargaining models that will be incorporated in a portfolio choice model. B. The financial constraints of farms will be identified and linked to general macro economic factors and farm specific circumstances. In a perfect world, investment should be independent of the source of finance. Problems of asymmetric information, however, lead to financing constraints and affect investment. New developments in the financing constraints literature provide better theoretical underpinning for an empirical study that would identify the obstacles to financing the capital needs of farmers. In addition, developments in stochastic frontier analysis provide useful mechanism to study the effect of access to credit on the efficiency of the production unit which will also be explored using experimental station data. C. Applying an option-based model of mortgage termination, research will focus on the use of borrowers social capital as an additional way to mitigate risk. Standard repayment models use borrower repayment history and financial cushion to explain potential repayment problems. This research will explore whether borrowers social capital within the community influences his/her decision to apply and accept credit, as well as whether repayment patterns were affected by borrowers desire to maintain the trust and good will of their religious leaders and community. D. The governance of non-traditional lending institutions and cooperatives would be explored in a general capital structure framework adjusted to the specific circumstances of these institutions. Secondary data will be used in the empirical analysis.

Progress 10/01/04 to 09/30/09

Outputs
OUTPUTS: I worked with the multistate team to develop a research base containing performance and benchmark financial information on farms and their lenders, and rural and non-traditional capital markets. I also developed a dataset of social capital measurement from several different sources. Under the project, I trained 3 MS students and one PhD student. Research was disseminated through publications in over 15 refereed journals, and more than 30 professional conferences. Noteworthy are two special meetings on microfinance and rural finance that I organized: one at the Tri-annual Meetings of the International Agricultural Economics Association in Beijing, China and one at the Annual Meetings of the Allied Social Sciences Association which includes the Agricultural and Applied Economics Association. I was asked to consult the World Bank on the effectiveness of ratings for improving efficiency in MFIs, and received external funds for part of the work from a prestigious grant by the Center for Financial Research at the Federal Deposit Insurance Corporation, where I also presented the work at a special workshop. PARTICIPANTS: Not relevant to this project. TARGET AUDIENCES: Not relevant to this project. PROJECT MODIFICATIONS: In 2009 this project was under review for renewal and was renewed as NC1177. The new project goals are 1. Examine the impact of recent fluctuations in capital and commodity markets on the performance, management, and regulation of agricultural financial institutions 2. Evaluate the management strategies, capital needs, and policy impacting the financial performance and long-term sustainability of firms in the food and agribusiness sector 3. Identify financial institutions and services that benefit agricultural producers and rural communities and expand agricultural markets, especially those producers that are beginning, young, from socially disadvantaged groups, and/or involved in producing specialty crops 4. Investigate capital structure, financial performance, and investment strategies of firms producing renewable energy in context of long term climate change. Implications of these findings for agriculture and rural communities will be delineated

Impacts
Since traditional agricultural financial institutions, set up to support agricultural production, are playing a diminishing role due to globalization and transition of financial markets, new players such as mainstream financial institutions, specialized microfinance and community development financial institutions, now provide essential services to rural households and farmers in the domestic and international rural finance markets. My research helped understand the objectives and drivers of performance of the new players in the rural financial markets as well as the factors improve performance and risk-management of domestic and international financial institutions. An important sub-area of my research was on governance and performance in financial institutions. Governance includes internal governance involving board-management interaction and ownership, and external governance involving rating, regulation, auditing and other institutions of market discipline. To correctly study the link between governance and performance, it is important to develop and use appropriate measurement of performance, especially in multi-task financial institutions such as microfinance and community development financial institutions because they strive to serve 1/many marginal clients (achieve outreach) in 2/ a profitable manner (sustainability). Measuring the efficiently of these FIs matters as well, so I have studied FIs efficiency with innovative stochastic frontier methods. Mastering these methods has permitted me to collaborate with colleagues and students and apply the methods to other sectors such as nursery greenhouses and peanut production. The success and failure of a financial institution depends on its ability to understand its clients, namely firms and households. My research shows that alternative lending practices and technologies such as credit counseling, group loans, and the use of social capital as collateral are important and can successfully be used by both lenders and their clients. I also study investment in firms and farms and their dependence on external funds and changes in producer support policies and show to what extent financial markets and institutions are able to meet the financial needs of their clients in a changing environment.

Publications

• Hartarska, Valentina; C. Parmeter, and D. Nadolnyak (2010) Economies of Scope of Lending and Mobilizing Deposits in Rural MFIs: a Semiparametric Analysis, American Journal of Agricultural Economics.
• Hartarska V., and R. Mersland, (2010), What governance mechanisms promote efficiency in reaching poor clients Evidence from rated MFIs, European Financial Management.
• Caudill, S, Gropper D, and Hartarska V. (2009), Which Microfinance Institutions Are Becoming More Cost-Effective With Time Evidence from a Mixture Model, Journal of Money, Credit, and Banking, 41(4), p.651-672.
• Hartarska V., (2009)review of Swinnen, J.F.M. ed. (2007) Global Supply Chains, Standards and the Poor: How the Globalization of Food Systems and Standards Affects Rural Development and Poverty, Cambridge, MA: CABI., American Journal of Agricultural Economics 91(4):1154-1155 .
• Hartarska V. (2009), The Impact of Outside Control in Microfinance, Managerial Finance, 35(12), p 975-989.
• Hartarska, V., and Nadolnyak, D. (2008) Does rating help microfinance institutions raise funds Cross-country evidence. International Review of Economics and Finance, 17, p 558 571
• Hartarska V. and D. Nadolnyak (2007), Do Regulated Microfinance Institutions Achieve Better Sustainability and Outreach Cross-Country Evidence, Applied Economics 39(10-12):1207-1222.
• Nadolnyak D., S. Fletcher, and V. Hartarska (2006), Peanut Cost-Efficiency and Producer Characteristics in the Southeast: Implications for the Farm-Level Impact of the 2002 Farm Act, Journal of Agricultural and Applied Economics 38(1), p. 213-224.
• Hartarska V. and M. Holtmann (2006), An Overview of Recent Developments in the Microfinance Literature, Agricultural Finance Review, 66(2): 147-165.
• Hartarska V. and C. Gonzalez-Vega (2006), Evidence on the Effect of Credit Counseling and Mortgage Loan Default by Low-Income Households, Journal of Housing Economics, 15 (1): 63-79.
• Hartarska V. and C. Gonzalez-Vega (2006), What Affects New and Established Firms Investment: Evidence from Small Firms in Russia, Small Business Economics Journal, 27(2&3): 195-206.
• Ellinger P., V. Hartarska, and C. Wilson (2005), Structure, Performance, and Risk Management of Financial Institutions, special issue of Agricultural Finance Review,35(2):183-200.
• Hartarska, V. and C. Gonzalez-Vega (2005), Credit Counseling and Mortgage Termination by Low-Income Households, Journal of Real Estate Finance and Economics, 30(3):227-243.
• Hartarska, V. (2005) Governance and Performance of Microfinance Institutions in Central and Eastern Europe and the Newly Independent States, World Development Vol. 33(10):1627-1643.
• Hartarska, V. (2004), Community Development Financial Institutions in the Southeast: Board Size and Diversity as Governance Mechanisms, Southern Business and Economics Journal, 27 (1&2):102-110.
• Hartarska V., Nadolnyak D. (2010)What external control mechanisms help Microfinance Institutions meet the financial needs of marginal clientele (forthcoming 2009) in Handbook of Microfinance edited by Marc Labie and Beatriz Armedariaz
• Barth, J., M. Burtus, V. Hartarska, Hai Jasob Jiang, and T. Phumiwasana (2007), A Cross-Country Analysis of Bank Performance: The Role of External Governance pp151-153 Corporate Governance in Banking: A Global Perspective. Benton Gup (ed.), Edward Elgar Publishing
• Barth, J., V. Hartarska, D. Noelle, and T. Phumiwasana (2005), A Cross-Country Analysis of External Governance and Bank Profitability in Regulation of Financial Intermediaries in Emerging Markets, edited by T. Mohan, R. Nitsure and M. Joseph, A Sage Publications, New Delhi: India, pp. 46-86.
• Elliot V., V. Hartarska, C. Bailey, (2007) Economic Growth and Resource Allocation in Alabama: Is there a Dutch Disease, proceedings from the PAWC Annual Meeting, Dec. 4-6, 2006.
• Kennealy, P., V. Hartarska, C. Bailey and M. Dubois, 2006 Correlation Between Forestland Ownership and Poverty in the Non-Metro South, proceedings from the at the PAWC Annual Meeting, Dec. 4-6. 2005.
• Hartarska, V. (2005) Community Development Financial Institutions: Issues of Performance and Governance, Online Proceedings of the Center for Financial Research Workshop, Federal Deposit Insurance Corporation, Washington D.C. September 20-21, 2005.
• Hartarska, V. (2005)Community Development Financial Institutions in Rural Areas: Efficiency and Governance, Proceedings of the Annual Meeting of NC 1014, Rural Financial Markets in Transition, Minnesota, October 4-5, 2005.
• Barth, J., D. Gropper, V. Hartarska, S. Nolle, and T. Phumiwasana, 2005 External Governance and Bank Performance: A Cross-Country Analysis, Dolibois Seminar Series Miami University Oxford, Ohio. April 2005.
• Nadolnyak D., V. Hartarska, and S. (2004) Fletcher Cost Efficiency of U.S. Peanut Producers and Welfare Effects of Substitution of Quota with Marketing Assistance Loan Program, published abstract in Journal of Agricultural and Resource Economics, 2004.
• Hartarska, V., (2004) The Portfolio of Family Farms, abstract in Journal of Agricultural and Resource Economics, 2004.
• Ellinger P., V. Hartarska, and C. Wilson, 2005 Structure, Performance, and Risk Management of Financial Institutions, Organized Pre-Conference Seminar, American Agricultural Economics Association Annual Meetings in Rhode Island, 2005, Session CD publication.
• Bellenger M., D. Fields, and V. Hartaska. 2005 Technical Efficiency in Alabama Nursery and Greenhouse Sectors. Southern Nursery Association Research Conference Proceedings. Volume 50, 2005.
• Hartarska V., and C. Gonzalez-Vega, (2005) The Impact of Credit-Counseling on Mortgage Prepayment and Default by Underserved Low-Income Households, Conference Proceedings, Federal Reserve System's Fourth Community Affairs Research Conference Promises & Pitfalls: As Consumer Finance Options Multiply, Who Is Being Served and at What Cost, April 2005.
• Mai C., Hartarska,V. (2008) Financing Constraints and the Family Farm: How do Families React published abstract in Journal of Agricultural and Applied Economics, 2008.
• Elliott II V., V Hartarska, and C. Bailey, (2008), Natural Resources Endowment and Economic Growth in the Southeastern United States, published abstract in Journal of Agricultural and Applied Economics, 2008.
• Hartarska V. 2005 Ratings in Microfinance, abstract published in Journal of Agricultural and Resource Economics, December, 2005.
• Hartarska, V. (2004) Governance and Performance of Microfinance Organizations in Central and Eastern Europe and the Newly Independent States, abstract published in Journal of Agricultural and Applied Economics, 2004.

Progress 01/01/08 to 12/31/08

Outputs
OUTPUTS: Activities. Completed the analysis of resent farm family data to understand how families financial constraints affect their on-farm investment. Events. Presented two selected papers, one on investment in family farms and financial constraints and another on poverty and economic development at the Annual Meetings of the Southern Agricultural Economics Association in Huston, February 4-6, 2008 and completed a term as Chair of NC1014 Multistate Project "Agricultural Financial Markets in Transition", attended and presented a paper at the annual meeting in Kansas City, October 4-5, 2008. Services. Tutored a graduate student on data collection techniques and methods Products. Completed farm family portfolio database to include two additional years; graduated one graduate student in economics, used the data in a graduate econometrics class; collaborated with colleagues to draft for the new multisate research project; collaborated with extension to write a grant to explore impact of financial education program for high school students among other things on how the program may meet the needs of future farmers; one MS student worked on the project. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
Analysis of the portfolios of family farms within the Alabama Farm Analysis Database for the period of duration of the last farm Bill, farm investment is more dependent on out of farm income than farm income suggesting that there are constraint in rural financial markets and that family farms remain in farming by using off-farm income.

Publications

• Elliott II V., V Hartarska, and C. Bailey, Natural Resources Endowment and Economic Growth in the Southeastern United States, published abstract in Journal of Agricultural and Applied Economics, 2008.
• Hartarska V., (forthcoming 2009, accepted May 2008) in American Journal of Agricultural Economics, book review of Swinnen, J.F.M.ed. (2007) Global Supply Chains, Standards and the Poor: How the Globalization of Food Systems and Standards Affects Rural Development and Poverty, Cambridge, MA: CABI.
• Mai C., Hartarska, V, Financing Constraints and the Family Farm: How do Families React published abstract in Journal of Agricultural and Applied Economics, 2008.

Progress 01/01/07 to 12/31/07

Outputs
OUTPUTS: Activities: analyzed more resent farm family data to understand if and how families financial constraints affect their on farm investment and mentoring a student in their work on the project. Events: presented a selected poster on investment in family farms and financial constraints at the Annual Meetings of the AAEA in Portland July, 27-29, 2007 and attended and was selected to be the Chair of NC1014 Multistate Project "Agricultural Financial Markets in Transition" during the anual meeting in Kansas City, October 4-5, 2007. Services: participated in the search committee to hire new farm management extension person. Products: updated the farm family portfolio database by adding two additional years; demonstrated how these data can be used in a graduate econometrics class and had two students write research papers using the data; collaborated with colleagues to explore further topics that need to be addressed within the multisate project; collaborated with extension to write a grant to explore impact of financial education program for high school students among other things on how the program may meet the needs of future farmers; graduated one MS student who worked on the project. PARTICIPANTS: Valentina Hartarska, PI, Quanfei Wang (MS student) graduated summer 2007, collaborators within NC1014 TARGET AUDIENCES: agricultural policy-makers, farmers, citizens of Alabama and US, bankers and financial insitutions serving the rural South PROJECT MODIFICATIONS: the main focus was on completing objective 1 as the other objectives were in a stage where papers were submites for publications and included mostly revision after R&R

Impacts
Analysis of the portfolios of family farms within the Alabama Farm Analysis Database for the period of duration of the last farm Bill, farm investment is more dependent on out of farm income than farm income suggesting that there are constraint in rural financial markets and that family farms remain in farming by using off-farm income.

Publications

• Barth, J., M. Burtus, V. Hartarska, Hai Jasob Jiang, and T. Phumiwasana (2007), A Cros-Country Analysis of Bank Performance: The Role of External Governance, pp151-153 Corporate Governance in Banking: A Global Perspective. Benton Gup (ed.), Edward Elgar Publishing.
• Hartarska V. and D. Nadolnyak (2007), Do Regulated Microfinance Institutions Achieve Better Sustainability and Outreach? Cross-Country Evidence, Applied Economics 39(10-12):1207-1222.
• Elliot V., V. Hartarska, C. Bailey, 2007 Economic Growth and Resource Allocation in Alabama: Is there a Dutch Disease, proceedings from the PAWC Annual Meeting, Dec. 4-6, 2006.

Progress 01/01/06 to 12/31/06

Outputs
A&B. Family farms in Alabama rely to a larger extent on off-farm income than on on-farm generated funds to fund their farm investment. C&D.Microfinance Institutions and Community Development Financial Institutions provide valuable services to low-income rural areas.

Impacts
1&2 Non-agriculture related lending will become increasingly important in rural areas and for farmers and must be encouraged to alleviate the financial constraints of family farms. 3-5 Innovative lending technologies like social capital collateral deliver positive results and should be encouraged to expand the circle of potential clientele. Diversity on the boards of CDFIs should not be encouraged as it correlates with lower efficiency.

Publications

• Valentina Hartarska, 2006, Community Development Financial Institutions: Board Size and Diversity as Governance Mechanisms, FDIC Center for Financial Research Working Paper No. 2006 11
• graduate student MS thesis Mai, Chi, 2006, FARM INVESTMENT AND OFF-FARM INCOME: A STUDY OF FARMS IN ALABAMA
• Hartarska V. and M. Holtmann (2006), An Overview of Recent Developments in the Microfinance Literature, Agricultural Finance Review, 23, p. 1-19.
• Hartarska V. and C. Gonzalez-Vega (2006), Evidence on the Effect of Credit Counseling and Mortgage Loan Default by Low-Income Households, Journal of Housing Economics 15 (1), p. 63-79.
• Nadolnyak D., S. Fletcher, and V. Hartarska (2006), Peanut Cost-Efficiency and Producer Characteristics in the Southeast: Implications for the Farm-Level Impact of the 2002 Farm Act, Journal of Agricultural and Applied Economics 38(1), p. 213-224.

Progress 01/01/05 to 12/31/05

Outputs
A major effort during the year was undertaken to map the current state of the field and to develop strategies for further research including identifying specific collaborative research efforts. I collaborated with Christine Wilson at Purdue University and Paul Ellinger at University of Illinois in a research project that summarized accomplishments of the discipline in the area of Structure, Performance and Risk Management of Financial Institutions in Agriculture and identify emerging issues that need to be addressed by the discipline. Outputs included conference paper presentations and a refereed article. Non-traditional financial services are becoming important source of funds in rural areas as traditional financial institutions streamline their operations to be relevant in a global world. Focusing on lending practices, I study whether innovative lending practices such as use the applicants social capital can help lenders to make a better decision. In addition focusing on Community Development Financial Institutions, I analyze governance practices their impact on institutions performance. Outputs include funding to leverage resources and a fellowship with the Center for Financial Service Research, FDIC, one conference and one workshop presentations and published proceedings, one paper on social capital under review and two working papers. This work attracted the attention of the editor of Journal of Agricultural Finance Review who asked me to submit my work for peer review and possible publications in AFR as well as to write and a lead invited paper on microfinance to broaden the field AFR. Another area of my research focused on evaluating the impact of changes in the 2002 Farm Act, on efficiency of the Southeastern peanut producers and specifically whether the substitution of the peanut quota system with a marketing loan program affects efficiency, and whether the policy changes will hurt former quota owners. Outputs include a journal article, a conference paper and a published abstract. I also made progress in the developing of modeling strategy on farm household portfolios. A graduate student was recruited to develop a thesis proposal on the topic and to assemble the experimental station farm management data. Review of the literature on off-farm income, household bargaining and farm investment began. In addition, a grant proposal with Dr. Duffy was submitted to leverage finds for the program but was not funded.

Impacts
1. Identified plan for further research on Risk Management of Financial Institutions for NC10140 2. Investment and off farm income of Alabama farm households are strongly correlated suggesting employment opportunities outside the farm will affect the future of the family farm. 3. Substitution of peanuts quota system with marketing loan program is not expected to put at disadvantage former quota owners. 4. Credit counseling and social capital affect loan repayment and default. 5. CDFIs with more diversified boards are less efficient.

Publications

• Hartarska, V. (2005), Community Development Financial Institutions: Issues of Performance and Governance, Online proceedings of the Center for Financial Research Workshop, Federal Deposit Insurance Corporation, Wahsington D.C. September 20-21.
• Hartarska, V., and C. Gonzalez-Vega,(2005).Credit Counseling and Mortgage Termination by Low-Income Households, Journal of Real Estate Finance and Economics, 30(3) 227-243.
• Ellinger P., V. Hartarska, and C. Wilson, (2006).(forthcoming) Structure, Performance, and Risk Measurement of Financial Institutions, special issue of Agricultural Finance Review.
• Nadolnyak, D. A., S. M. Fletcher, and V. M. Hartarska, (2006). Peanut Production Cost Efficiency and Producer Characteristics in the Southeast: Implications for the Farm-Level Impacts of the 2002 Farm Act, Journal of Agricultural and Applied Economics.
• Nadolnyak, D. A and V.M. Hartarska, and Fletcher, S.M., (2005). Producer Characteristics and Peanut Cost Efficiency in the Southeast: Implications for the Farm-Level Impacts of the 2002 Farm Act, Abstract published in JAAE.
• Hartarska, V.(2005). Community Development Financial Institutions in Rural Areas: Efficiency and Governance, Proceedings of the Annual Meeting of NC 1014, Rural Financial Markets in Transition, Minnesota, October 4-5.
• Ellinger P., V. Hartarska, and C. Wilson (2006), forthcoming), Structure, Performance, and Risk Measurement of Financial Institutions, special issue of Agricultural Finance Review.
• Hartarska, V., and C. Gonzalez-Vega (2005), Credit Counseling and Mortgage Termination by Low-Income Households Proceedings of from invited presentation at the Federal Reserve System Fourth Community Affairs Research Conference Promises and Pitfalls: As Consumer Finance Options Multiply, Who Is Being Served and at What Cost? April.
• Bellenger, M., D. Fields, Valentina Hartaska, (2005). Technical Efficiency in Alabama Nursery and Greenhouse Sectors. Southern Nursery Association Research Conference Proceedings. Volume 50, 2005.

Progress 01/01/04 to 12/31/04

Outputs
1.Progress was made in term of developing of the modeling strategy. First, the literature on off-farm income and its contribution to farm wealth was reviewed and data on the recorded impact collected. Second the literature on household bargaining was reviewed and the traditional unitary model was rejected in favor of modern bargaining theories. Strategies for incorporating the findings into the modeling concept were developed. Outputs form the effort are an accepted selected paper for the Western Agricultural Association Meetings in the summer, a published abstract in Journal of Agricultural and Resource Economics, and a grant proposal to leverage funds for this research (developed in December 2004, submitted January 5, 2005). 2 and 3 a/ The main effort focused on estimating the impact that change in The Farm Act of 2002, specifically the substitution of the peanuts quota system with a marketing loan program, has on efficiency of peanuts produces in the South. Quota ownership was not found to impact efficiency prior to 2002 and therefore proposed policy changes are not expected to take out of business efficient producers. Output includes a presentation an accepted papers at the National Meetings of the American Agricultural Economics Association and at the Meetings Western Agricultural Association, a published abstract in Journal of Agricultural and Resource Economics, and a submission of a manuscript to the Journal of Agricultural and Resource Economics. The status of the manuscript is revise and resubmit. b/ A complementary effort focused on acquiring data and analysis of governance practices and performance of Community Development Financial Institutions. Outputs include progress in writing an invited paper for the Journal of Southern Business and Economics and a submission of a grant proposal to the Federal Deposit Insurance Company (submitted January 3, 2005). C This work was completed and a paper was accepted for publication by the Journal of Real Estate Finance and Economics. An important outreach achievement resulting from this work is that I was invited to speak at the Federal Reserve System's Fourth Community Affairs Research Conference Promises and Pitfalls As Consumer Finance Options Multiply, Who Is Being Served and at What Cost? in April 2005. The keynote speech there is by the FED Chairmen Alan Greenspan. 4 This work included evaluating the impact on loan repayment that the level and distribution of the social capital in the community have. The main research objective was to discover whether banks can use social capital as an additional parameter when evaluating borrower credit worthiness. This is important because borrowers who live in poor rural and urban communities may not have traditional credit history of sufficient collateral but may have stock of social capital. This research effort resulted in a completion of a manuscript to be submitted to JUE by Tuesday, January the18th pending minor editorial changes by the co-author. I also participated in a program to explore similar issues in West Alabama with Dr. Conner Bailey an in writing as a NRI grant proposal on similar issues on which I am a Co-PI.

Impacts
On 1 Understanding how bargaining within families influences disinvestment from agricultural production will help policymakers devise better incentives to help preserve the family farm. 2&3 a/ Since quota ownership was not found to impact peanut production efficiency prior to 2002, the proposed policy changes (substitution of the peanuts quota system with marketing loan program) are not expected to cause the exit of efficient peanut producers. 2&3 b/ Results will help understand what organizations are best at providing financial services that promote entrepreneurship among low-income individuals. C Non-traditional practices to improve repayment rates such as credit counseling work to decrease default and non-profitable early mortgage loan termination. Low-income borrowers could be served in a profitable manner. 4 Lenders serving low-income populations who live in poor rural and urban communities often cannot use traditional credit history or collateral but may use social capital heterogeneity to evaluate risk and provide adequate finance.

Publications

• Hartarska V.M. and C. Gonzalez-Vega 2005, Credit Counseling and Mortgage Termination by Low-Income Households, Journal of Real Estate Finance and Economics.
• Hartarska, V, 2004 The Portfolio of Family Farms, abstract in Journal of Agricultural and Resource Economics.
• Nadolnyak D., V Hartarska and S. Fletcher 2004 Cost Efficiency of U.S. Peanut Producers and Welfare Effects of Substitution of Quota with Marketing Assistance Loan Program, abstract in Journal of Agricultural and Resource Economics.