Organic Farms’ Credit Access and Farm Lenders’ Assessment of Organic Farms’ Credit Risks

Project Overview

LS11-240
Project Type: Research and Education
Funds awarded in 2011: $132,386.00
Projected End Date: 12/31/2014
Region: Southern
State: Georgia
Principal Investigator:
Dr. Cesar Escalante
University of Georgia

Annual Reports

Commodities

Not commodity specific

Practices

  • Crop Production: multiple cropping, organic fertilizers
  • Education and Training: extension, focus group
  • Farm Business Management: budgets/cost and returns, agricultural finance, risk management
  • Production Systems: organic agriculture, transitioning to organic
  • Soil Management: organic matter
  • Sustainable Communities: sustainability measures

    Abstract:

    This project analyzed issues related to the organic farms’ access to regular farm credit needed to respond to pressures to expand business scale and scope due to an expanding organic consumer demand. The study also compiled the farm lenders’ perspective on such issues raised by the farmers. Certain areas of disagreement between farmer borrowers and farm lenders were identified. These include the lenders’ implementation of more appropriate credit risk assessment models, valuation of farmers’ soil enhancement investments, and the mutual need for a better knowledge and understanding of each other’s operating framework to improve borrower-lender relationships.

    Project objectives:

    1). To provide a better understanding of the sources of credit risks peculiar to organic farming systems and compile a representative collection of issues perceived by organic farms as significantly affecting their access to credit;

    2). To determine lenders’ perceptions of organic farming risks, identifying whether any preconceived notions define their attitudes towards organic farm loan requests vis-à-vis their regular farm borrowers, analyze the relevance of their existing credit risk assessment models to the organic farms’ peculiar operating environments, and elicit their opinions and perspectives in improving credit access of potential organic farm borrowers.

    3). To reconcile the farmers’ and agricultural lenders’ perspectives on credit risk assessment and credit access as collected in (1) and (2), and use such findings to formulate suggested strategies to resolve any credit access issues as well as any lenders’ divergent issues in credit risk assessment not properly attuned to organic farms’ business conditions.

    4). To implement a two-pronged outreach program directed towards lenders for the sake of clarifying credit risk assessment approaches more attuned to organic farms’ conditions and towards farmers for the sake of helping them understand lenders’ credit risk assessment methods, consider strategies to improve their credit risk ratings, and realize the role of external debt in promoting business growth and expansion.

    Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.