Recipient Organization
UNIVERSITY OF KENTUCKY
500 S LIMESTONE 109 KINKEAD HALL
LEXINGTON,KY 40526-0001
Performing Department
Agriculture Economics
Non Technical Summary
Following the farm financial crisis in the mid 1980s there has been an almost thirty year period of strong economic performance punctuated by only a few years of economic decline. Notably interest rates have not increased by much at any point over this period and have been at record low levels for an extended period. While farm income increased rapidly from 2007 through 2012, farmland values increased at a far faster rate. Now that incomes are projected to be flat to down for the next few years it is important to think about the potential for another farm financial crisis. In this environment it is important to understand what causes farmers to exit agriculture. Retirement, financial stress and a change in interest are all candidates, as is being offered a large amount to sell by another farm operator. Currently we have a limited understanding of the relative importance of these four drivers and improving this understanding is the main objective of the research. A secondary objective is to identify factors that alter the relative role of each of the four drivers so we can assess how changing conditions in agriculture might alter incentives to exit.
Animal Health Component
70%
Research Effort Categories
Basic
(N/A)
Applied
70%
Developmental
30%
Goals / Objectives
Examine the impact of recent fluctuations in capital and commodity markets on the performance, management, and regulation of agricultural financial institutions
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
Project Methods
USDA and Agriculture Canada have both created multi-period linked Census of Agriculture data sets that follow individual farms through time. These data sets provide a new way to examine exit and entry that looks at factors other than operator age. Initial work in 2015 will be done on the Ag Canada Data set and then similar analysis will be conducted on the USDA data. The first phase will invlve constructing cross-tabs for exit rates by: operator age, farm size (sales class), farm type and three fianancial measure - gross margin, trends in investment in machinery and equipment and contribution of off-farm labor. These cross-tabs will provide initial information on exit rates over time and how these rates vary over commodity price cycles. The cross-tabs will help to identify a set of independent variables that will be used to develop a logit regression model that has exit rate as the dependent variable. This model should provide information on the relative importance of key drivers of exit, such as: operator age, change in operaotor objectives, farm finacial stress, or sale of a viable buisness. USDA has developed a similar econometric model but has not used it to address causes of exit other than operator age. By looking at the same model in two different countries we may also be able to implicitly identify the role of other policy drivers that can explaindifferences in exit rates between similar farms in Canda and the United States.