- 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
The purpose of this project is to determine lenders' perceptions of the relative credit riskiness of organic farms vis-à-vis conventional farms, and analyze any probable impediments to organic farms' access to credit. The booming organic farming sector registered an accelerated pace of growth in recent years; however, organic farmers have been unable to match the pace of market expansion with increases in their farm production. The expansion and growth of this industry,
however, will hinge on the availability of borrowed capital, among other options, to supplement existing funds to finance larger operating infrastructure and working capital requirements. Agricultural lending institutions, however, have traditionally tailored their financial services after the needs of large conventional farming systems.
This project will validate presumptions on lenders' perceptions of organic farms' credit risks and loan requirements. For instance, it is possible that lenders would tend to shun away from accommodating (relatively “too retail” or “small”) business of smaller or new farmers, a category that includes most organic farms. Moreover, organic farms are exposed to a wider array of production risk sources (such as contamination risks and greater vulnerability to pests and diseases). This project will analyze whether these risk issues result in a borrower's credit access problem and will explore strategies
with farmers on resolving such operating constraints.
This project relies on the expertise and collaborative efforts of academic professionals (University of Georgia and Fort Valley State University), industry experts (Georgia Organics), and producer (Full Moon Cooperative). Moreover, more producer inputs will be solicited by holding focus group discussions in two strategic locations in Georgia (UGA, Athens for North Georgia farmers and FVSU campus for Central Georgia farmers). These discussion groups will allow these producers to share their ideas on actual sources of credit risks experienced in their farming businesses. These discussions will also clarify actual and perceived issues in the lenders' assessment of
organic farms' credit risks, probabilities of acceptance of loan applications and overall access to credit and other financial services.
Inputs from these discussions, supplemented by ideas from other references, will be used to develop a farm lenders' survey instrument. The survey, to be conducted among various lenders in the Southeastern region, is designed to determine lenders' perceptions of organic farming risks, identifying whether any preconceived notions define their attitudes towards organic farm loan requests vis-à-vis other 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.
This study's results will help lenders consider modifications of their credit risk assessment models to adapt to organic farmers' credit needs. Farmers, on the other hand, will be guided in devising effective loan application strategies ensuring greater likelihood of success. With increased credit access, significant expansion of the organic farming industry will allow it to fill in the widening supply gap.
Project objectives from proposal:
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.