Valuing Farm Financial Information

Valuing Farm Financial Information

For almost a century, agricultural economists have attempted to demonstrate to farmers the
benefits of keeping financial records and have advocated sound accounting practices, e.g., Pond
(1931) and Arnold (1931). Since 1914, Land Grant Universities have encouraged better farm
record keeping by forming farm management associations. However, with the dwindling size of
the farm population and the increases in technology and education of farmers, many have
questioned the value of using public resources to support the maintenance of farm records.
Indeed, today Cornell University, Kansas State University, and the University of Illinois are
among the very few that still maintain farm management associations with very detailed modern
record keeping activities. Nevertheless, evidence exists that farmers’ record keeping may be
sub-optimal. For example, 57% of farm loan applicants in Kentucky did not keep separate
records for their farm and household and only a meager 3% use a computerized accounting
system (Ibendahl, Isaacs, and Trimble 2002). Another study found that 29% of New York dairy
farmers never formulate financial budgets (Gloy and LaDue 2003). Evidence also exists that
one-third of farmers dislike record keeping or paperwork activities and record keeping and
attending meetings are the least favorite farm activities among farmers (Lasley and Agnitsch
2002), possibly contributing to sub-optimal record keeping.

Several studies have attempted to link record keeping with profitability and performance,
but evidence is mixed and is plagued with problems of endogeneity. Jackson-Smith, Trechter,
and Splett (2004) found a relatively weak link between deeper understanding of financial
concepts and greater financial return. Gloy, LaDue, and Youngblood (2002) found that farmers
who focused on profitability goals attained higher profitability, but they acknowledged this
might be attributed to farmers selecting goals in areas where they are already proficient. Ford

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