INSTITUTE OF FOOD AND FLORIDA
AGRICULTURAL SCIENCES COOPERATIVE
UNIVERSITY OF FLORIDA EXTENSION SERVICE
TC IFLORIDA FOOD AND RESOURCE ECONOMICS
Trends in Agricultural Finance with Reference to Florida
P. J. van Blokland*
This article attempts to succinctly compile the recent
trends in debt financing by the farm sector. It concentrates
on the national trends in debt over the past thirty years and
concludes with a discussion of farm sector debt financing in
Florida. Florida's farmers do not operate in a vacuum.
Therefore, it is important to provide a relatively complete
synopsis of the national scene before trying to understand
the situation in Florida.
Strategy is essential for businesses which provide returns
greater than the cost of borrowed money. Recent financial
trends suggest that many farm businesses fall into this cate-
There have been some considerable changes in farm debt
in recent years, stemming largely from inflation and in-
creased price sensitivity to world events. The 1970s have
produced historic highs in both real estate debt (land and
buildings) and non-real estate debt (machinery, livestock,
fertilizer, etc.). Production costs now typically rise 15%
annually and commodity prices can fluctuate more than
50% in one season. Farmers operate on thinner margins
than they have ever done before. Five sets of figures illus-
trate these alarming changes.
The first set concerns net farm income. In 1979 U.S.
farmers enjoyed the highest net farm income ever at around
$35 billion. But this figure is in current dollars. If it is ad-
justed to 1967 purchasing power, these 1979 returns are
only slightly above the average for the last 30 years, as
shown in Figure 1.1 And 1980 looks even worse. A Wall
Street Journal 1980 estimate suggest $28 billion2 which,
when expressed in 1967 dollars, would make 1980 the
worst year since the 1930s.
The second set of figures involves net returns to
equity, or ownership in the farm business. It appears that
these returns, around 2% for the late 1970s, are lower than
at any other time since 1945.
The third set concerns capital formation in agriculture.
In 1953-54 capital formation came entirely from farmers'
profits. In other words, farmers purchased additions to
their business entirely from the profits they made from
farming. By 1970 about 30% of farm investment in new
capital was debt financed. Today the figure is a little over
95%, which means that only 5% of farm additions are fi-
nanced from farm profits.4
The fourth set examines various key ratios, which are
presented in Table 1. This table indicates that net farm in-
come is becoming a smaller and smaller proportion of gross
farm income. An increasingly greater proportion of income
is needed solely for production expenses, leaving little avail-
able for new investment. In 1950 404 of every dollar of
gross farm income were available for non-production ex-
penses but in 1979 this amount had fallen to 224r. Even
though the rising trend has apparently leveled off at about
0.78 in the late 1970s, as shown in column 4, the constan~t-
ly increasing energy costs will increase the ratio in the future.
Finally, the fifth set of figures (shown in column 5, Table
1) concerning the ratio of total farm debt outstanding to
net farm income is no more reassuring. In 1950 farmers
could have settled both their real estate and non-real estate
debts with one year's net farm inccome. In the late 1970s
it would have taken five years of accumulated net farm in-
come, and preliminary statistics suggest that 1980 will
probably be worse.
These five sets of figures do not paint a reassuring picture
for U.S. farmers. Farmers are now facing some unique in-
terest charges and price fluctuations. They have recently ex-
perienced conflicting governmental policies that have in-
cluded planting from fencepost to fencepost, set asides, and
grain embargos, all since 1973. The growing uncertainty, of
the farm environment is culminating in some problematic
size and ownership characteristics which are polarizing
farms into two basic groups. There are the few that supply
the vast majority of produce, and the many that provide
very little. These two groups have very different financial
requirements, and face different risk situations. These points.
will be discussed in the next section.
Farm Structural Changes
o I, . , . . I . , I I . 1 It is well-known that the number of farms have declined
1951 '55 '"9 '63 '67 71 75 '79 and the remaining farms have become larger. It is not so
well-known that this is a comparatively recent trend. The
Figure 1. Net farm income in U. S. A. number of farms, in fact, increased until the early 1940s,
*Assistant Professor, Food & Resource Economics Department, IFAS, University of Florida, Gainesville 32611.
The Institute of Food and Agricultural Sciences is an Equal Employment Opportunity Affirmative Action Employer authorized to provide research,
educational information and other services only to individuals and institutions that function without regard to race, color, sex, or national origin.
COOPERATIVE EXTENSION WORK IN AGRICULTURE AND HOME ECONOMICS. STATE OF FLORIDA, IFAS, UNIVERSITY OF
FLORIDA, U. S. DEPARTMENT OF AGRICULTURE, AND BOARDS OF COUNTY COMMISSIONERS COOPERATING
peaking at about 6.5 million, before falling to just under 4
million in 1960 and around 2.2 million today.8 It is this
dramatic reduction in numbers and changes in farm size
that have serious agricultural financial implications.
Farm size can be measured in several ways. One of the
more useful methods classifies farms in different size cate-
gories depending on the value of their annual gross sales. If
we define a large farm as one that sells more than $100,000
of produce annually and a small farm as one that sells less
than $20,000, then during this time of declining numbers,
large farms have increased but small farms have decreased.
For example, between 1959 and 1974, large farms increased
from about 20,000 to 150,000, while small farms fell from
3.4 million to 1.6 million. Notwithstanding the effects of
inflation, these are dramatic changes.
The larger farms that sell over $100,000 of produce an-
nually accounted for 54% of total sales in 1974. Those sell-
ing less than $20,000 annually supplied less than 10%. The
present picture suggests that 6% of the farms now produce
60% of the sales while 69% of the farms contribute about
5%. In fact, if present trends continue, by 1985 some 50,000
farms will probably provide over half of our agricultural
Farms are therefore very different. The larger farms have
financial requirements that bear little relationship to the
majority of U.S. farms, not only in the amounts of capital,
but in the types, timing, and management of this capital. In
addition, these larger farms derive most of their income
from farming rather. than off-farm sources. Even though
off-farm income has consistently provided a greater propor-
tion of total farm family income than the farm business for
all farms together since the late 1960s, this is not the case
for the larger farm group. Small farms rely on a steady flow
of income from off-farm sources to help maintain their
farm business. The larger farmers are, therefore, much more
susceptible to the price fluctuations of the agricultural mar-
ket, particularly with the growing dependence on exports as
a major factor in net farm income. The larger farmers have
greater leverage and farm debt repayment problems, and are
thus particularly sensitive to current events.
In the future there will probably'be an even faster growth
in farm numbers in the large categories, particularly as farm
output price rise. These farms will use increasing debts to
stay ahead. At the same time, the number of small farms
which have an assured off-farm income source of funds will
probably level off. Both groups have specific financial re-
quirements, and so it should now be useful to turn to the
picture of farm debt.
Total outstanding farm debt has increased rapidly in re-
cent years and now stands at about $160 billion, compared
with $12 billion in 1950 and $53 billion in 1970. Farm real
estate debt is typically a little over half the total debt, and
both real and non-real estate debt have increased equally
rapidly. Total debt has been growing at about 13% annually
since 1975, compared with approximately half that rate in
The main supplier is the Farm Credit System which pro-
vides short term credit or non-real estate debt mainly
through the Production Credit Associations, and long term
credit, or real estate debt from the Federal Land Banks.
The second main source of debt capital is commercial banks,
which are tending towards short term rather than long term
credit. The third most important source is individuals such
as relatives, though this source also includes merchants and
dealers. If fact, individuals have traditionally been the larg-
est credit provider to farmers up until 1973-74.
For example, in 1950 Federal Land Banks had around
$1 billion of real estate debt outstanding, and commercial
banks and life insurance companies lent about the same
amount, while individuals provided some $2.5 billion. By
1970, the respective amounts changed to $6.7 billion, $3.7
billion, $5.7 billion, and $11 billion. On January 1, 1980,
the comparative figures were $30 billion, $9 billion, $12
billion, and $28 billion.
In 1950, non-real estate debt outstanding for Production
Credit Associations was $0.4 billion, commercial banks had
$2 billion and individual lenders $2.4 billion. By 1970,
these figures changed to $.46 billion, $30.4 billion and $12
All these figures underline one very important trend,
that debt is increasing at rates never experienced before.
For example, real estate grew 60% between 1970 and 1974
and 80% between 1975 and 1979. The previous five year
periods starting from 1955 show 34%, 39%, and 45%, re-
spectively. Farm non-real estate debt illustrates the same
trends, though even more pronounced recently. Between
1970 and 1974, non-real estate debt grew 50%, but from
1975 to 1979 it increased 110% (Previous periods showed
34%, 41%, and 33%, respectively).
One other institution deserves emphasis. The Farmers
Home Administration is a government funded organization
(the Commodity Credit Corporation is the only other to re-
ceive tax money) that is styled a "lender of last resort." In
other words the FmHA deals with those customers who
cannot satisfy the requirements of other lending institu-
tions. So between 1975 and 1979 the FmHA has expanded
its non-real estate lending 850%. In 1970 they lent $785
million in short term funds. Their figure now is close to $10
billion. There are apparently a considerable number of farm
customers who are no longer considered credit worthy by
These national trends obviously derive from individual
state experiences. The next section looks at the debt trends
Agricultural Debt in Florida
We need to realize that agriculture is an exceedingly im-
portant industry in Florida. The retail value of agricultural
output is probably now around $12.5 billion, or nearly $4
billion ex. farm gate, and the contribution to Gross State
Product is approximately 17%. Agriculture generates 2.8%
Table 1.-Gross and net farm income; ratios of production expenses to gross farm income and total farm debt to net farm income in USA.
Table 2.-Farm real estate debt outstanding January 1 by lender in Florida (s
Year Income ($B)*
Gross Farm Income/
Net Farm Income
Gross Farm Income
Total Farm Debt/
Net Farm Income
Years $ %
*State Farm Income Statistics, Supplement to Statistical Bull. No. 627, E.S.C.S., U.S.D.A., Jan. 1980.
**Agricultural Letter, op.cit.
*Agricultural Finance Statistics, E.R.S., U.S.D.A., Washington, D.C., approp
of the labor and proprietors' income in the state, which
while seemingly small, is higher than either Texas or Illinois,
both major agricultural states and only slightly less than
California, (3.1%) the leading agricultural state in the na-
tion. This 2.8% is equivalent to $950 million, which is a
greater sum than that generated by general building con-
struction ($700 million), foodstore sales ($770 million),
and more than hotels, motels and amusement centers and
recreation parks put together. As Florida is generally
known for tourism and construction, these statistics under-
line the relative importance of agriculture to the state.
Florida farm products are produced on farm units which
are considerably larger than the national average, ranking
3rd in net income per farm in the U.S.A. Some 9% of the
farms produce 81% of the farm output, and 72% of total
output comes from farms selling at least $200,000 worth of
produce annually. Given this synopsis, we need to see
whether Florida's agriculture is receiving the debt capital it
The real estate statistics presented in Table 2 show a re-
markable increase in Federal Land Bank lending in Florida.
Between 1967 and 1979 total loans outstanding have in-
creased six-fold, and the Federal Land Bank's share has
grown from 16% to 40%, while other sources have generally
declined. Commercial banks now supply only 9% of the real
estate debt, or less than half that of the life insurance com-
panies, who in turn have a greater share in agricultural real
estate in Florida than in any other state.
Table 3 provides figures illustrating the non-real estate
trends. Though perhaps somewhat distorted by the recent
enormous influence of Farmers Home Administration funds
stemming from weather related crop disasters, again the
trends are obvious. In essence, the Production Credit Asso-
ciations have increased their share of non-real estate loans
at the expense of commercial banks. While the banks' flow
of short term funds to agriculture has doubled since 1969,
their total share has fallen from 40% to 25%, and in real
terms, their dollar volume has actually declined.
In summary, the commercial banks' share of total farm
loans outstanding in Florida was 20% in 1960, similar to
the Farm Credit System. However, by 1979 their share had
slipped to 13% while the Farm Credit System provided 44%
of the total. In fact, the Farm Credit System's outstanding
loans in 1979 was 16 times the 1969 total, while the com-
mercial banks' increase is a little over 4 times their 1960
level. Apparently, the Farm Credit System found it worth-
while to expand their inputs into Florida's agriculture,
while the commercial banks were less enthusiastic. In order
to see whether this situation is unusual, a comparison be-
tween Florida and the other Federal Reserve Sixth District
states showed that Florida receives proportionally far less
capital from commercial banks that the other component
states of the Sixth District (Alabama, Georgia, Louisiana,
Mississippi, and Tennessee).12 This statement is consistent
with historical and trend statistics, with real estate or non-
real estate figures.
For example, these states have received a fairly constant
24% of their real estate debt from commercial banks since
about 1960. These figures range from Georgia and Tennes-
see highs of around 28% to the Louisiana low of 17%. Yet
Florida's typical percentage over this same time period is
11%, which although nearer the nation's average real estate
lending from commercial banks of about 14%, is much low-
er than its neighbors. A similar situation is seen with non-
real estate lending. Typically, between 42% to 45% of short
term loans in the sixth district (excluding Florida) have
come from commercial banks since 1970, and this propor-
tion has increased slightly since 1960. However, the Florida
proportion has declined since this date from 43% to about
34% in 1977 and 25% in 1979. To put these figures in some
perspective, the U.S. average is 63%, showing that loans
from commercial banks in the sixth district including or ex-
cluding Florida, provide a smaller proportion of non-real
estate debt than in the rest of the nation.
Florida farms are larger than average and thus tend to
have larger loans. Using a simple average of real estate debt
divided by farm numbers in the state, Florida's figure of
$36,000 per farm is nearly twice as high as, Louisianna, the
next largest figure in the sixth district, with $19,000, and
considerably greater than the U.S. average of $21,000. Sim-
ilarly on a per farm acre basis, Florida's real estate debt is
$98, followed by Georgia with $80, while the comparable
U.S. average figure is $53.
The non-real extate figures show a broadly similar pat-
tern. For example, average non-real estate debt per farm in
Florida is the highest in the Southeast. Florida's figure is a
little under $18,000, while the next highest is Georgia at
$16,000. However the commercial banks short term contri-
butions per farm is greater in Louisiana, with Florida and
Georgia jointly second at about $4,500.
All these figures illustrate that Florida agriculture is be-
ing financed in accordance with its larger units and greater
income. Farms in the state have greater average real and
non-real estate debt loans than other farms in the Southeast
and in the nation. Yet it is not obvious that Florida's agri-
culture is financed at a sufficiently greater extent, particu-
larly in non-real estate loans. A simple ratio of total cash
marketing to non-real estate debt supplied by institutions
gives some credence to this suggestion. A historical compar-
ison (since 1960) with the other southeastern states, and
other agriculturally prominent states such as California, Illi-
nois, Iowa, Kansas and Texas, shows that Florida's ratio is
consistently the highest.
More current figures support this contention. For in-
stance, 1977 statistics show the ratio for the following
states: Alabama 3.1, California 2.9, Georgia 2.2, Illinois 2.4,
Louisianna 2.6, Mississippi 2.2, Tennessee 1.5 and Texas
2.4 compared with Florida at 4.3. This ratio is obviously
simplistic, but not unuseful. It indicates at worst the cash
marketing per dollar of short term debt, and at best, the
potential for future investment through short term lending.
Yet even though this ratio has narrowed since 1969 for all
states, Florida's ratio is always higher than the others, sug-
Table 3.--Farm Non Real Estate Debt Outstanding by Lander in Florida, ($M)*.
% $ %
Credit Commercial Home
Associations Banks Administration
$ % $ % $ %
*Agricultural Finance Statistics, R.R.S., U.S.D.A., Washington, D.C., appropriate years. [Note: individuals and others, my calculations].
elected years) ($M)*
"iate years. [Note: individuals and others, my calculations].
gesting that non-real estate indebtedness in the state could
be profitably increased.
This statement is also partially confirmed by comparing
two balance sheet ratios for Florida agriculture with the na-
tion's agriculture. The debt to asset ratio in the U.S. was
about 17% throughout the 1970s, which means that for
every $1 of farm assets there is 17t of debt. Florida's com-
parative figure over this same time period is 12%. The debt
to equity ratio in the U.S. remained at 0.2 during the 1970s,
meaning that for every $1 owned by the farmer there was
20t of debt. Again Florida compares favourably with an
average of 164 for the decade.
Finally, Florida's farm income (which ranks third largest
per farm in the country) has expanded much faster than the
farm income of the USA, suggesting that Florida farmers
could service increasing debt loads. For example, total farm
income in Florida has increased four times between 1960
and 1978, compared with three times in the USA as a
whole. And it has grown two and a half times between
1970 and 1978 compared with doubling nationwide. Net
farm income comparisons look even better. The 1960 to
1978 period has a four fold increase compared with a two
and a half, and three and a half increase between 1970 and
1978 compared with less than two.
Admittedly, Florida has agricultural problems that most
other important agricultural states do not have. It relies on
energy far more than other states and has tremendous com-
petition for land use, stemming from its rapidly expanding
These and other problems have great financial implica-
tions. Commercial banks play an atypically miniscule role
in farm financing, preferring to invest in non-farm real es-
tate and in urban consumer lending. The Farm Credit Sys-
tem is atypically traditional in mainly demanding real estate
as security for short term loans. Given the prevailing land
pressures and the state's energy problems, we do not have
much time left to improve financial institutions' knowledge
of local agriculture. We rank far behind most states in agri-
cultural expertise in lending, particularly in commercial
banking. The Farm Credit System and commercial banks
have always provided the main credit sources for U.S. agri-
culture. While this is still the case in Florida, the relative
disinterest shown by one, and the resulting lack of compe-
tition faced by the other, is not a particularly good omen.
Florida needs a viable agriculture. A viable agriculture needs
sound financing. I hope it will be obtainable.
1Agricultural Letter, Federal Reserve Bank of Chicago, Number
1519, February 22, 1980.
2Wall Street Journal, August 16, 1980.
3Sada L. Clarke, Economist, Federal Reserve Bank of Richmond,
personal communication, July 1979.
4vanBlokland, P. J., "Thought Stimulation," Staff Paper 116,
FRED, College of Agriculture, IFAS, University of Florida, January
5State Farm Income Statistics, Supplement to Statistical Bulletin
Number 627, E.S.C.S., U.S.D.A., January 1980.
6Agricultural Letter, op. cit.
7Agricultural Finance Databook, Monthly Series, Board of Gover-
nors of Federal Reserve System, Washington, D.C.
8Preliminary figures for 1979. The last complete census, in 1974,
showed 2.46 million farms.
Agricultural Statistics, Government Printing Office, Washington,
D.C., 1980, plus several Agricultural Outlook monthly publications.
10Agricultural Finance Statistics, E.R.S., U.S.D.A., Washington,
D.C., appropriate years. [Note: individuals and others, my calcula-
12vanBlokland, P. J., "An Investigation on the Role of Commercial
Banks in Financing Florida Agriculture," Economic Report 95,
FRED, College of Agriculture, IFAS, University of Florida, Gaines-
ville, December 1979..
Food and Resource Economics Department
1157 McCarty Hall
University of Florida
Institute of Food and Agricultural Sciences
Gainesville, Florida 32611
Dr. Peter E. Hildebrand, Visiting Prof.
1088 McCarty Hall
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