Factors affecting financial performance of new and beginning farmers

Ashok Mishra; Christine Wilson; Robert Williams

doi:10.1108/00021460910978661

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Agricultural Finance Review

ISSN: 0002-1466

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Factors affecting financial performance of new and beginning farmers

Document Information:
Title:	Factors affecting financial performance of new and beginning farmers
Author(s):	Ashok Mishra, (Department of Agricultural Economics and Agribusiness, Louisiana State University, Baton Rouge, Louisiana, USA), Christine Wilson, (Department of Agricultural Economics, Kansas State University, Manhattan, Kansas, USA), Robert Williams, (Economic Research Service, USDA, Washington, District of Columbia, USA)
Citation:	Ashok Mishra, Christine Wilson, Robert Williams, (2009) "Factors affecting financial performance of new and beginning farmers", Agricultural Finance Review, Vol. 69 Iss: 2, pp.160 - 179
Keywords:	Business formation, Business planning, Farms, Financial performance, Management effectiveness, Payments
Article type:	Research paper
DOI:	10.1108/00021460910978661 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Acknowledgements:	JEL classification – Q12, Q14, Q15, Q18 The authors wish to thank the Editor, Jim Johnson, Bill McBride and Carmen Sandretto for helpful discussions and comments. The views expressed here are not necessarily those of the Economic Research Service or the US Department of Agriculture. This research was supported by the Louisiana State University Agricultural Research Service.
Abstract:	Purpose – The purpose of this paper is to investigate the factors (farm, operator and household characteristics, along with farm type and regional location of the farm) affecting financial performance of new and beginning farmers and ranchers. Design/methodology/approach – Returns on assets (ROA), a measure of financial performance widely used in the farm management literature, is the ratio of net farm income plus interest payment to total assets. This measure has been used by Gloy and LaDue and Gloy et al. to measure financial performance of farmers in New York. ROA is hypothesized to be a function of operator/farm characteristics and management strategies used to manage the farm. The independent variables hypothesized to affect the farm's financial performance encompass the following three areas: farm operator characteristics, farm characteristics such as production and marketing efficiency measures, and management strategies. All standard errors were adjusted for heteroscedasticity using the Huber–White sandwich robust variance estimator based on algorithms contained in STATA. Findings – Results from this study show that although there is an inverted U-shaped relationship between age of the operator and financial performance, management strategies such as increasing the number of decision makers, engaging in value-added farming, and having a written business plan can lead to higher financial performance. Originality/value – More than 50 percent of current farmers are likely to retire in the next five years. US farmers over age 55 control more than half the farmland, while the number of new farmers replacing them has fallen since the Farm Crisis period, 1982-1987. Paralleling this shift in production, agriculture is in a decline in overall farm numbers. Concern in many states arises because the loss adversely affects the future of family farms, the farm economy and healthy rural communities. Additionally, the rapid decline in the entry of new and young farmers is an indication of rising barriers to entry, resulting in calls from within the farming community for public policy measures designed to aid new and beginning farmers.