Do farm lenders’ attitudes and risk assessment models encourage organic farmers’ demand for microloans?

Abstract

Abrupt, significant shifts in consumer demand for organic products in the U.S. over the past two decades have overwhelmed organic farmers in providing adequate domestic supply. This study investigated capital constraints as one of these major obstacles. Specifically, the goal of this research was to provide empirical evidence on the predicament of organic farmers in their efforts to access credit from regular farm lenders. This study produced important evidence that specific credit risk assessment benchmarks have an impact on the chances of organic farm operators having their loan applications accommodated and subsequently approved by lenders. This study’s results have underscored the need for lenders’ better understanding of organic farms’ operating structures and business potentials. Lenders should consider the adoption of more appropriate credit risk assessment model that should more accurately capture organic farms’ credit risk conditions. Furthermore, organic operators should consider the Microloan Program to better suit their business situations.