Factors affecting the level of farm indebtedness: the role of farming attitudes

Abstract

Using a nationally representative survey of farm operators in Ireland, this paper aims to provide a framework for better understanding the characteristics that influence the degree of indebtedness on farm businesses. This paper derives explanatory variables (based on a factor analysis of respondents mean ratings of 13 multiple value items) representing 3 different farming attitudes. An ordered logit model is then formulated to examine the effect of farming attitudes as well as personal characteristics and farm structural variables on the degree of indebtedness. Personal characteristics of the farmer such as age and education as well as farm structural variables such as farm size and farm system were all found to have a statistically significant impact. The presence of decoupled farm payments was also found to affect the degree of indebtedness. The study identified two distinct farming attitudes which were found to have important but opposite effects. These were attitudes strongly orientated to business related objectives which was positively associated with having farming debts and secondly positive attitudes relating to the benefits of farm relative to non-farm work which was negatively associated with the degree of indebtedness. Past research has focused on the effect of socio-demographic characteristics and farm structural variables in examining differences in farm indebtedness. This study extends this literature by specifically examining the role of farming attitudes. Obtaining a deeper understanding of the factors that affect the level of farming debt will be important as the degree of indebtedness has been found to affect farmers’ management decisions. Furthermore, outside of explaining farm credit use, farming attitudes and motivations may have an important impact on farmers’ behaviour in relation to a variety of farm activities.