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Measuring the efficiency of the Farm Credit System

Author

Listed:
  • Trang Dang
  • David Leatham
  • Bruce A. McCarl
  • Ximing Wu

Abstract

Purpose - – The purpose of this paper is to develop information on the relative efficiency of Farm Credit System (FCS) lenders. Also the evolution of relative efficiency is examined as influenced by the biofuel boom, the financial crisis, and farm income increases. The paper aims to discuss these issues. Design/methodology/approach - – A stochastic frontier production function is used to estimate technical efficiency of FCS banks and associations. Findings - – A significant difference is found in efficiency between large and small associations and banks. Larger asset bases and management compensation are found to be positively associated with efficiency. Banks are found to have higher technical efficiency than associations (66-46 percent). Association efficiency is found to be increasing indicating likely effects of recent consolidation. The financial crisis was not found to have a significant effect with the bioenergy and farm income booms being likely countervailing forces. Research limitations/implications - – Further work is needed on the impact of the biofuel boom, increases in farm income, and new regulations. Practical implications - – The study provides information and indications of strategies for FCS management including additional consolidation. Originality/value - – This does an updated assessment of FCS efficiency taking into account changes in consolidation, lending practices, and economic conditions. Implications are developed for management actions such as more consolidation. The study also uses a more advanced methodology compared to older studies.

Suggested Citation

  • Trang Dang & David Leatham & Bruce A. McCarl & Ximing Wu, 2014. "Measuring the efficiency of the Farm Credit System," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 74(1), pages 38-54, April.
    • Handle: RePEc:eme:afrpps:v:74:y:2014:i:1:p:38-54
    DOI: 10.1108/AFR-12-2011-0035
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    References listed on IDEAS

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    1. Abhiman Das & K. R. Sanmugam, 2004. "Efficiency of Indian commercial banks during the reform period," Industrial Organization 0410005, University Library of Munich, Germany.
    2. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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    Cited by:

    1. Gregory McKee & Albert Kagan, 2019. "The differential impact of the Dodd–Frank Act on niche non-metro lenders," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(4), pages 291-301, December.
    2. Song, Minrong & Escalante, Cesar L., 2014. "Pre- and Post- Recession Input Allocation Decisions of Farm Credit System Lending Units," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170080, Agricultural and Applied Economics Association.

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