Recipient Organization
TENNESSEE STATE UNIVERSITY
3500 JOHN A. MERRITT BLVD
NASHVILLE,TN 37209
Performing Department
Agricultural and Environmental Sciences
Non Technical Summary
Agriculture in Tennessee is dominated by small farms, defined by the United States Department of Agriculture (USDA) having less than $350,000 in gross annual farm income. Tennessee has around 69,983 farm operations with 10,900,000 acres of farm operated lands (Census of Agriculture, 2017). 2017 Census of agriculture shows that 66,406 male and 26,054 female principal operators of 69,983 farm operations in Tennessee make on average $10,911 net cash farm income per operation. Interestingly, in terms of annual net cash farm income, only 3,798 operations indicated net gain of more than $50,000 while 1,293 operations indicated net loss of more than $50,000 (Census of Agriculture, 2017). Several factors may contribute to the different performance of the farm operations and operators, including demographic characteristics, technology adoption and use, income and enterprise diversification, debt/ asset structures and management, and access to capital. Finance is an important component for small farmers because it involves money and funds required to initiate as well as to ensure continuous running of farm activities. Sources of finance however, can either be through borrowing (debt financing) or capital produced through direct effort of farmers (let's refer as equity financing). Farmers ideally need to choose the balanced combination of both, which makes up the capital structure of the farm. The capital structure of a farm refers to the combination between debt and equity financing. The management need to consider what combination of debt and equity to adopt: should more debt financing be adopted so as to earn a higher return? Should more equity financing be utilized so as to avoid the risk of debt and bankruptcy? (Ardalan, 2018).The Current trend suggests that the number of farms are declining in Tennessee, mostly small farms. Since small farms may not compete with large farms in specialized commodity production, small farms need to diversify their production, income sources and need strategic ways to sustain and remain viable in the farm business (Hoppe 2014; Khanal and Mishra, 2014; Hoppe, McDonald, and Korb, 2010). Enterprise diversification, income diversification through off-farm jobs, and adoption of alternative agricultural enterprises on the farm are some important strategies to stabilize income. Adoption of alternative enterprises on the farm could bring additional income by utilizing farm resources in best possible way. The studies dealing with small and medium sized operations, their survival strategies, means of finance, diversification, adoption of alternative agricultural enterprises and their roles are overwhelmingly important and timely for Tennessee's agriculture and economy. There have been very limited studies regarding sources and uses of capital and finance among farms in Tennessee and in assessing the roles of diversification, off-farm work, and alternative agricultural enterprises. Execution of various objectives of this proposed project will address these issues and contributes to address this knowledge gap. ?
Animal Health Component
10%
Research Effort Categories
Basic
80%
Applied
10%
Developmental
10%
Goals / Objectives
The overall objective of the proposed research project is to assess different means of financing for agricultural operations, analyze factors affecting extent of each financing method, and to examine the roles of off-farm work, diversification, and alternative agricultural enterprises on farm households' income, finance, and continuation of their farm business.Specific objectives are to:Compare agricultural operations in Tennessee with agricultural operations in other states in the region and the nation on key economic, financial, and operator characteristics.Review rural and agricultural lending mechanism and existing government program/policy for small and beginning farmers in the U.S.3) Assess different means of financing adopted by small farms and their extent of use to meet agricultural spending and expenses.4) Analyze factors influencing different means of financing, especially examining the roles of off-farm work participation, diversification, and credit access.5) Estimate the impacts of alternative agricultural enterprises such as agritourism on farm level and regional level economies.
Project Methods
To accomplish above mentioned objectives, this study will collect data and information from both primary and secondary sources where appropriate. National level data is collected from Economic Research Services (ERS) of United States Department of Agriculture (USDA) and the most recent 2017 Agricultural Census. The USDA-ERS in association with National Agricultural Statistics Services (NASS) collects multiple information about costs and returns of different commodity, farm income and wealth, crop production practices, farm household income and characteristics through Agricultural Resource Management Survey (ARMS). This study will use a nationwide scenario from cost and return survey of the recent ARMS data. For analysis of Tennessee farms, it will use primary survey data collected from farm households in Tennessee. The project will involve graduate student(s) in data collection and analysis and the researcher will secure IRB approval for each new survey administration.The procedure for objective 1 will involve comparing key economic, financial, and demographic characteristics of the sample farm households in Tennessee with region and nation-wide scenario of farm households using the latest data. We will use recent ARMS data and 2017 agricultural census, where appropriate in the comparison. The comparison enables to understand about important attributes on which Tennessee is better or lagging behind rest of the states in the region and national average. Significant difference on mean comparison will be analyzed using appropriate t or F tests. The mean comparison results on tabulated and graphical forms is expected to provide meaningful insights and guide further analysis.Objective 2 uses findings from primary survey and additional intensive literature review to assess rural and agricultural lending mechanisms and support programs on current agricultural financing, especially for small and beginning farmers. With this objective, the project expects to identify extent of use, effectiveness and challenges of existing policies discussed in the literature.Objective 3 will use primary survey data of Tennessee to examine different means of debt and equity financing among small farms. Debt financing in this study refers to financing through credit/loans borrowed while equity financing include capital produced through direct effort of farmers such as financing through sources such as cash, sales, off farm income, income from government payments, own savings etc. The proposed project, using relevant questions in the survey questionnaire, assesses each of these means and their extent of use to meet agricultural spending and expenses.Objective 4 will involve regression analysis to investigate factors influencing extent of different means of financing used by Tennessee farms and testing a series of hypotheses. Standard t-test or F-test will be used in regression analysis to test each hypothesis for statistical significance. For example, null hypotheses in general form can be shown as follows. Rejection of the null hypothesis using statistical tests will imply the statistically significant--implying the respective factor significantly influences the means of financing used.Null hypothesis 1: There is no relationship between operator and/or spouse's off-farm work participation and the extent of different means of farm financing used by small farms.Null hypothesis 2: There is no relationship between enterprise diversification and the means of farm financing used by small farms.Null hypothesis 3: There is no relationship between credit constraint and the means of farm financing used by small farms.Objective 5 estimates farm level and regional level impacts of the adoption of alternative agricultural enterprises such as agritourism. Farm level impact is estimated using appropriate models, testing the extent of relationship between adoption of agritourism and farm/ farm household level incomes. To estimate regional level impacts, we will use regional input-output model framework using State-level data and impact analysis procedure of IMPLAN (MIG Inc, www.implan.com ).