SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS
JULY, 1986
AGRIBUSINESS IN THE AGRICULTURAL FINANCIAL CRISIS
Glenn H. Glover
The current agricultural crisis has im-
pacted virtually every aspect of agribusiness.
Many sectors of the general economy not
directly linked to agribusiness have also felt
the crisis. Information provided in this dis-
cussion is intended to: facilitate understand-
ing of the current financial situation in
agriculture, identify factors that have con-
tributed to the situation, and explore alter-
native strategies for agribusiness firms.
The current financial crisis in agribusiness
might be described in several ways. To sim-
plify this review, consider that a financial
crisis exists when available financial re-
sources are not adequate to meet current
financial obligations. From the short-term
perspective, it is a problem of inadequate
cash flow. Over a longer term, a financial
crisis is a problem of inadequate assets.
In 1985, farmers in the United States had
debt of about $210 billion for real estate and
non real estate, Table 1. This compares with
about $92 billion 10-years ago. At a 14 per-
cent interest rate, the annual interest payment
on this debt would be $29.4 billion. If the
$110 billion owed on farm real estate had
an average repayment period of 25 years, the
annual principal repayment would be of near
$4.4 billion. If the $100 million of non real
estate debt were repaid in 3 years, the annual
principal payment would be about $33-3
billion. Addition of the annual interest and
principal payments for the $210 billion debt
indicates that United States farmers needed
net cash income of about $67.1 billion dur-
ing 1985 to make loan payments. The cash
flow to farmers after production expenses
during 1985 was forecasted by USDA to be
between $79 and $82 billion (USDA (d), ρ.
16). This included off farm income that was
forecast to be between $39 and $43 billion.
If $80 billion is used as cash inflow and the
$67 billion debt service is deducted, $13
billion is left for capital expenditures and
farm family expenses. With 2 million farmers
in the United States, the $13 billion averages
to $6,500 per farm family for living and
capital investment requirements during the
year. It is obvious that this level of annual
income reflects a crisis situation in terms of
cash flow.
During September 1985, there were
124,909 active borrowers of funds from the
Farmers Home Administration for farm own-
ership in the United States (USDA (c)). These
borrowers had principal outstanding at that
time of $7.5 billion. Twenty-one percent of
these borrowers were delinquent on repay-
ment of their loans. The amount of unpaid
principal outstanding for the delinquent bor-
rowers was $1.8 billion which represented
25 percent of the total unpaid principal for
all active borrowers from FmHA. The delin-
quent amount was $344 million or 19 per-
cent of the total amount outstanding by the
delinquent borrowers. Loans in other cate-
gories such as emergency and economic op-
portunity had higher delinquency rates than
the farm ownership loans. Individual rural
housing loans by the FmHA, where payments
are made monthly by the borrowers, had a
Table 1. Farm Debt, United States, 1974-85
Real Non-real
Year estate estate Total
.............billion dollars .............
1974 ........................ 44.7 37.1 81.8
1975 ........................ 49.7 42.0 91.7
1976 ........................ 55.3 48.8 104.1
1977 ........................ 63.5 59.5 123.0
1978 ........................ 71.6 69 5 141.1
1979 ........................ 85.6 80.5 166.1
1980 ........................ 95.8 86.6 182.4
1981 ........................105.8 96.3 202.1
1982 ........................110.0 107.2 217.2
1983 ........................112.6 103 6 216.2
1984 ........................111.6 100.9 212.5
1985 ........................110.0 100.0 210.0
Source: USDA (e).
Glenn H. Glover is Director, Corporate Planning and Economic Research, Gold Kist, Inc; Atlanta, Georgia.
Invited paper presented at the Southern Agricultural Economics Association meeting, Orlando, Florida, February
2-5, 1986. Invited papers are routinely published in the July SJAE without editorial council review but with
review of the copy editor (as per Executive Committee action June 25, 1982).
Copyright 1986, SouthernAgricultural EconomicsAssociation.
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