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Duncan, Marvin, and Jerome M. Stam, eds. Financing Agriculture into the Twenty-First Century. It was a challenge to review a book representing a collaborative effort of 20 different authors. As the editors note in their preface, 12 years have elapsed since there has been a comprehensive examination of agricultural sector financing. They observe:
I believe most readers will agree that their objectives have been largely achieved. Divided into three major parts, the book is comprised of eight chapters. Part One, "Forces Inducing Change," contains two chapters that address macroeconomic factors, international linkages, and structural changes in the farm sector. In Chapter 1, Pederson, Stensland, and Fischer document the increasing globalization of financial markets and cite examples of national and international linkages for financing agriculture. They trace the changing linkages among exchange rates, interest rates, and agriculture, and the resulting increased risks for producers and lenders. The authors conclude with a discussion of the emerging challenges for agricultural lenders as they seek ways to manage interest rate risk, covariant risks, and credit risks. In Chapter 2, Harrington, Hoppe, Peterson, Banker, and Gale describe changes in the structure of the farm sector. They argue that farm numbers will continue to decline and farming will continue to evolve toward a more dualistic structure, with large farms accounting for the bulk of production and small farms dominating the number of farms. Agricultural prices and production will become increasingly unstable with the erosion of government safety nets. As a result, risk management programs used by producers will become increasingly important in lending decisions. The increased volatility in farm income will in turn cause wider swings in farm asset values. Most farms will continue to be highly dependent on nonfarm income. Part Two, "Future Directions for Agricultural Finance," is clearly targeted to those whose business is to provide financing for the agricultural sector. In Chapter 3, "New and Changing Rules of the Game," Drabenstott and Barkema review trends in lenders’ shares of agricultural debt. They point out that the market for agricultural credit is growing slowly, that "old competitors have gained new financial muscle and new competitors have emerged in an already crowded field." The authors’ excellent overview of the regulatory environment leads to a case for "a fresh look at lending regulations to ensure that regulatory goals are achieved with minimum regulatory burden." They also observe that contract production arrangements are complicating the relationship risk-assessment process. Chapter 4, "The Emerging Agricultural Lending System," by Boehlje will be of special interest to agricultural lenders as they position themselves for the next millennium. The new lending environment is characterized by structural change, product changes, soft versus hard assets, boundaryless firms, and new competitors. In today’s slowly growing credit market, lenders will have to identify their niches through customer segmentation, types of loans, and delivery alternatives. Other future challenges for lenders include managing risk, reducing costs, sourcing funds, loan pricing, and developing alliances. Table 4.4, which attempts to distinguish between the documentation requirements of commercial and consumer loans, is a questionable use of space since all asset-based documentation requirements are identical, and there are few differences in performance documentation. Otherwise, this chapter is a valuable guide for lenders as they develop strategic plans for the future. Chapter 5, "Emerging Strategies for Traditional Lenders," by Featherstone, Boehlje, and Arata, fails to deliver on the promise for spelling out "the process for developing a strategic plan." Several mission statements from key players in the industry are followed by individual sections entitled "Generic Strategies," "Developing a Competitive Advantage," Identifying Industry Development," "Identifying Strategic Groups," and "Strategies for Traditional Lenders." Unfortunately, most of the discussion is too generic to be helpful for strategic planning. There is also considerable overlap with material in previous chapters. For example, the description of the regulatory environment (pp. 12224) was covered in Chapter 3, and most of the "Strategies for Traditional Lenders" (pp. 12931) were addressed in Chapter 4. Part Three of the book poses an important question: "Who Will Be the Lenders and What Will They Be Doing?" Chapters 6 and 7 are confined to a much narrower scope—federal credit programs and nontraditional lenders. Collender and Koenig (Chapter 6) provide an outstanding historical review of the role of federal credit programs. Federal credit programs are categorized as direct intermediation through the Farm Service Agency and its predecessors, and government-sponsored enterprises such as the Farm Credit System and Farmer Mac. The authors’ economic analysis of credit market intervention is exceptionally well done. Excerpts from their conclusions illustrate their insights:
In Chapter 7, Sherrick analyzes the growing presence of nontraditional lenders. He reviews the commonly cited reasons for the existence of nontraditional lenders, including product marketing, filling credit gaps, profit centers, and other motives. Differences between conventional and nontraditional lenders include the latter’s better access to funding, improved credit risk assessment, and lower regulatory burdens. Sherrick presents three economic approaches to explain nontraditional lender behavior—profit function, principal agency literature, and state-space framework. The chapter concludes with examples of nontraditional lender products and services. The author asserts that these "emerging lenders and their products will play an ever-increasing role in financing agriculture." In Chapter 8, the wrap-up chapter, Gustafson, Duncan, and Stam discuss "Public and Private Policy Implications," but the emphasis is overwhelmingly on public policy. Their historical review of "Private and Public Farm Credit" repeats much of the content of Chapter 6. The section on "Structural Change in Sector Requires New Lending Paradigm" also adds little to the discussion previously offered in several earlier chapters. Since there are only passing references to some of the preceding seven chapters, it is not clear whether Chapter 8 was designed to summarize the book, or to break new ground. However, it appears to be primarily a comprehensive summary. Based on my own examination of Financing Agriculture into the Twenty-First Century, I endorse it as recommended reading for all agricultural finance professionals. This work thoroughly captures the contemporary views of past trends with insightful projections for the future. It will prove to be a very useful reference for both academics and practitioners of agricultural finance. The authors are to be commended for their comprehensive lists of references that will serve as an update to the compilation by Brake and Melichar published in 1977. Consideration of some editorial adjustments for the next printing would make this book more reader-friendly. For example, there are numerous footnotes that appear at the ends of most chapters. Many of these notes (as in Chapter 1) contain significant content that would have been more helpful if incorporated into the text. In addition, some topics are covered repeatedly in several chapters. There are, for instance, multiple references to lender market shares, the regulatory environment, and farm sector structural change. Fortunately, the authors’ conclusions on these topics are, for the most part, consistent. Warren F. Lee The Ohio State University
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