Financing Your Agricultural Farm Credit Constraint, Financing Sources, and Farm Financial Performance of Small Farmers in Tennessee

Omobolaji Abosede Omobitan, Tennessee State University


Approximately 91% of all farms in the United States are small farms who add considerably to diverse and attractive rural landscape, local economics, the country’s food resource, and stronger rural communities. Agriculture in Tennessee is dominated by small farms with more or less 42% of Tennessee’s total land expanse as farmlands, and cropland having more than 63% of farmland. However, small farms face several challenges to survive and continue their operations. One of the important challenges is their limited access and capacity to capital. This thesis investigates capital and credit capacity of small farms, credit constraint, sources and use of different means of financing, and impacts of these on farm financial performance through two separate yet interrelated essays. First essay analyzes relationship between credit access and financial performances of small farmers in Tennessee with hypothesis that credit constraints reduce farmer’s productivity and impact financial performance. Second essay analyzes factors influencing financing choices and extent of debt and equity financing used by small farms to meet agricultural spending. To investigate these research questions, we conducted primary survey among small farms in Tennessee and analyzed data using econometric methods. We found significant effects of demographic, socio-economic, and risk related factors affecting likelihood of credit constraint. Using propensity score matching method and controlling for other factors, credit constraint has significantly negative impact on financial performance. Additionally, we analyzed extent of different means of financing used by small farms. Factors like age, education, smartphone use with Internet access and level of risk concern have significant positive effects on extent of debt financing while credit constraint, age, gender, marital status, household income, and risk perception have significant negative effects. This study contributes to limited literature about impact of credit constraint, decision and extent of financing sources among small farms. Researchers, extension programs, and policy makers should keep in mind demographic, farm, and farmer characteristics and their differential effect on extent of different sources of financing while designing programs for respective target population. Adequate demand and use of credit is found to be an important tool to enhance farm income and financial performance of small farms.

Subject Area

Economics|Agricultural economics|Finance

Recommended Citation

Omobolaji Abosede Omobitan, "Financing Your Agricultural Farm Credit Constraint, Financing Sources, and Farm Financial Performance of Small Farmers in Tennessee" (2018). ETD Collection for Tennessee State University. Paper AAI10978628.