Credit use and resource productivity in West Tennessee

The quantity and quality of productive assets controlled by a farm operator determine, to a considerable extent, the level of farm income. One of the critical problems for the farm operator today is gaining control of these productive assets. There are several ways in which a farm operator may gain control of the capital assets needed to operate an efficient business. In the past, savings from net farm income were the major source of farm capital. Other methods of acquiring use or control of capital resources are leasing, inheritance, vertical integration, and borrowing or use of credit. Farm operators have been increasing their use of agricultural credit in recent years. Figure 1 shows that total farm debt had increased from 10.5 billion dollars in 1950 to twenty eight billion dollars in 1963. At the same time farm debts increased by 167 percent and farm asset values increased by 80 percent. Underlying the continued increase in farm debts was the growth in physical size and capital requirements of farms. Farm expansion and consolidations and the adoption of new technologies are increasing capital requirements of farmers. The major factor in the increase in farm asset values was due to the continued rise in farm real estate prices. Operators often cannot obtain adequate capital from savings or leasing and must rely on credit to supplement other sources.