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

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

Summary

The third year of this project’s implementation has been devoted to the analyses of data collected from both farmers and farm lenders. The results compiled by the project so far validate differing perspectives and opinions of such two groups of decision makers that need to be reconciled in order to improve borrower-lender relationships. In addition to journal articles, outreach bulletins, conference posters and papers, this project also involves two ongoing thesis projects that probe more deeply into lending and business survival issues among small organic farmers. One thesis focuses on racial and gender minority factors while evaluating business survival obstacles and strategies of African American female farmers. The other thesis will provide a more in-depth evaluation of the recently launched government microloan program. The analyses will focus on small organic farmers, the possibility of curbing any existing debt aversion, and the potential demand for and use of microloans in small organic farm businesses. During the remaining term of the project, efforts will focus on more aggressive educational campaign, especially towards farm lending groups, in order to bridge the gap between farm lenders and organic farm businesses.

Objectives/Performance Targets

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 farmers’ 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 farmers’ 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.

Accomplishments/Milestones

Project activities on the third year focused on the analyses of the issues and opinions collected from both farmers and lenders on the organic farmers’ access to credit and the measurement of their credit risks. Two outreach bulletins were released – one focusing on the farmers’ concerns about their aversion to credit and farm lenders, their past experiences in obtaining farm credit and specific suggestions or considerations for the proper alignment of existing lenders’ credit risk assessment models to the organic farmers’ peculiar farm operating environments and practices.

There were at least three major academic outputs that were either completed or initiated during this period. First, an article on the USDA microloan program was published in the Choices magazine, an outreach publication of the Agricultural and Applied Economic Association (AAEA) that has an extensive national readership base. The article presented the organic farmers’ and farm lenders’ perspectives that need to be reconciled for the sake of improving lender-borrower relationships and increase the utilization of credit funds by organic farmers.

Then, a couple of Master’s thesis projects were initiated by two graduate students of UGA’s Department of Agricultural and Applied Economics. One of them involves a straightforward application of the research issues of this project in the analysis of the organic farmers’ demand for microloans. The graduate student will utilize the data collected in this project in her analysis to supplement her own survey data she collected on organic farmers’ perception of the newly launched microloan program of the USDA.

The second master’s thesis is actually devoted to the business and operating challenges experienced by African American female farmers in their farming businesses. This project’s findings on credit access issues will be used to corroborate the researcher’s own findings of the obstacles to business survival through several case interviews she conducted across the state.

Several outreach presentation for this project were made. A poster called “Organic Farmers’ Access to Credit: Reconciling Lenders’ and Farmers’ Perspectives” was presented at the annual meeting of the Southern Sustainable Agriculture Working Group in Mobile, Alabama held last January.

In late February, three graduate student posters were featured at UGA’s Sustainability Science Symposium and Workshop. “The Farmers’ Demand for Microloans” and “Contributions to a Sustainable Community and the Challenges in Attaining Sustainability of Farm Operations: The African American Female Farmer’s Perspective” provided overviews on the two Master’s theses related to this project. The third one provides a comprehensive summary of this project’s findings collected from organic farmers and farm lenders.

Other outreach efforts for this project include participation in the Sustainable Agricultural Conference for New and Beginning Farmers in Watkinsville, GA, the Sunbelt Ag Exposition in Moultrie, GA, and the National Women in Agriculture Association Meeting in Athens, GA. The two graduate students who attended these meetings had the chance to discuss their Master’s thesis research-in-progress and this project’s findings with other participants.

At the national symposium on the consolidation of the Farm Credit System, the principal investigator had the opportunity to present important points of departure between the organic farmers’ demands and farm lenders’ credit risk standards. He was able to emphasize the urgency in reconciling the points of disagreement so that the farm lending community and the organic farming sector can work hand in hand to tap important business opportunities in organic farming.

At this juncture, the project proponents plan to intensify further the outreach efforts through a wider dissemination of the outreach bulletins, exploring on ways to reach out to the lenders and other audiences for this research.

Impacts and Contributions/Outcomes

Project efforts to date have been able to provide validation of conflicting perspectives of organic farmers and farm lenders. The farm lenders’ survey results confirm the organic farmers’ concerns that the nature of their farming operations and their credit risks need to be properly regarded by farm lenders in order to improve the farmers’ credit access and chances of loan application approval. The results compiled by this project so far indicate a need for a stronger information dissemination campaign aimed at different types of farm lenders. These efforts will be given special consideration and attention during the remaining life of the project.

The two ongoing thesis research projects are expected to provide more comprehensive analyses of important facets of the credit predicament of small and organic farms. One of these theses looks at African American female farmers and will shed more light on the role of gender and race factors in the survival strategies of small, organic farms. This thesis not only looks at the minority factor but also will provide a holistic picture of the small farming experience and the economic sustainability efforts of such farms.

The other thesis will dwell more on microloans and how organic farms will benefit from them. A supplementary farmers’ survey conducted by the graduate student will provide a more quantitative data support to the results of this project’s earlier farmers’ focus group discussions.

The outreach efforts, especially the presentation at the national meeting of loan officers of the Farm Credit System FCS), have started spreading the word on the need to reconcile farmers’ and farm lenders’ views and decisions on farm credit in order to fully tap the rich economic potentials of organic farms. The feedback received so far has been very encouraging. FCS lenders, for instance, have been receptive to the ideas presented to them about the current state of the organic borrower-farm lender relationship. Given these developments, outreach efforts will be further pursued during the remaining term of this project.

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