@article{Nwoha:15772,
      recid = {15772},
      author = {Nwoha, Ogbonnaya John and Ahrendsen, Bruce L. and Dixon,  Bruce L. and Chavez, Eddie C. and Hamm, Sandra J. and  Settlage, Daniel M. and Danforth, Diana M.},
      title = {Farm Service Agency Direct Farm Loan Program Effectiveness  Study},
      address = {2005},
      number = {1538-2016-132152},
      series = {Arkansas Agricultural Experiment Station Research Report  977},
      pages = {136},
      year = {2005},
      abstract = {The three primary objectives of the Effectiveness Study  are to: (1) identify groups being served by FSA direct farm  loan programs, (2) examine the length of time borrowers  remain in the programs and the proportion of borrowers who  exit or 'graduate' from the programs, and (3) measure and  identify ways of reducing loan subsidy rates.   

The study  found that direct Farm Loan Programs (FLPs) appear to be  serving their intended clientele.  Recent FLP borrowers are  more financially stressed than non-borrowers and would be  generally considered as family farms.  About 78 to 92  percent would qualify as small family farms using USDA's  Small Farms Commission definition.  FLP credit market  penetration is relatively high among farms likely to be  eligible for these credit programs, despite the fact that  these programs represent a relatively small proportion of  total outstanding agricultural debt.    Increasing market  penetration or the share of farms served by the program  would require greater obligation funding and hence greater  budgetary costs.  Conversely, implementing more rigorous  loan eligibility criteria would likely lower the number of  operators receiving loans and hence loan loss occurrences  and subsidy rates would likely fall. 

The majority of FSA  Direct borrowers from FY 1994-1996 used FLPs as a  transitional tool.  At time of origination, FSA Direct  borrowers had fewer years of farming experience than the  farming population at large.  More than half of these  borrowers no longer had active FLP loans by the end of  November 2004.  So for the majority of borrowers, FLPs are  not a lifetime credit source.  FLPs are helping farmers  move to commercial credit or aiding farmers who  subsequently leave farming completely, as is common among  U.S. farmers.  Not surprisingly, farmers in stronger  financial condition originating FSA Direct loans are more  likely to exit and have fewer outstanding loans with FSA.   

FSA experiences higher loan loss rates than conventional  agricultural lenders.  This is to be expected because  commercial lenders can be more selective in choosing  borrowers and price loans to match risk profiles which FSA  does not do. In essence, FSA's mission is to provide credit  to riskier 'creditworthy' borrowers.  The agency is  accomplishing this goal.  The natural consequence is that  FSA loan loss rates are higher than for conventional  lenders. Whether the current borrowers are too risky or  should even riskier borrowers be included are policy  questions. The analysis indicates that attempts to cut  losses systematically would imply denying credit to some  current borrowers.},
      url = {http://ageconsearch.umn.edu/record/15772},
      doi = {https://doi.org/10.22004/ag.econ.15772},
}