Farm business decisions and the sustainable growth challenge paradigm

Abstract

Purpose

The purpose of this paper is to introduce the application of sustainable growth challenge (SGC) model in agricultural finance as a conceptual paradigm and then uses the model to measure sustainable growth rates for Illinois grain and livestock farmers. The SGC concept is used to understand the economic conditions and business decisions made by farmers in certain episodes of the time period analyzed.

Design/methodology/approach

A seemingly unrelated regression approach is used to analyze the interrelationships of the four levers of growth using a panel data of Illinois farm‐level financial and operating information. The second analysis flows from the first and examines aggregate US farm data to provide an historical perspective of changes in the SGC over time.

Findings

Econometric results indicate the relevance of the SGC model in explaining farm financial and operating decisions. The farms’ tendencies to attain balanced growth seem to be more influenced by asset productivity and leverage decisions, which are given different emphasis by grain and livestock farms due to differing operational structures and constraints. This study's estimation and analysis of the USA farm sector's actual and sustainable growth rates from 1981 to 2001 data generally show that the industry has adapted to positive or negative SGCs in a manner consistent with the model.

Originality/value

This paper explores the relevance of the SGC model as a business, policy and teaching tool for understanding issues surrounding farmers’ financial and operating decisions.

Citation

Escalante, C.L., Turvey, C.G. and Barry, P.J. (2009), "Farm business decisions and the sustainable growth challenge paradigm", Agricultural Finance Review, Vol. 69 No. 2, pp. 228-247. https://doi.org/10.1108/00021460910978706