Financial performance of small farm business households: the role of internet

Abstract

Purpose

The purpose of this paper is to investigate the impact of internet usage on financial performance of small farm business households in the USA. In particular, the authors want to assess the impact of internet usage on small farm businesses, where the owner’s main occupation is farming. Using a nationwide farm-level data in the USA and a non-parametric matching estimator, the study finds a significant positive impact of internet usage on gross cash income, total household income, off-farm income. The study further suggests that small farm businesses receive benefits from internet usage as it facilitates reduction in income risk through off-farm income sources, as well as a reduction in marketing and storage costs; households’ non-farm transportation and vehicle leasing expenses.

Design/methodology/approach

In this study, the authors use the “nearest neighbors” matching method in treatment evaluation, developed by Abadie and Imbens (2002). In this method, a weighting index is applied to all observations and “nearest neighbors” are identified (Abadie et al., 2004). Although matching estimation through the nearest neighbor method does not require probit or logit model estimation per se, the authors have estimated a probit model because it allows the authors to check the balancing property and to analyze the association of included variables with the likelihood of internet use.

Findings

The study suggests that small farm business households using the internet are better off in terms of total household income and off-farm income. As compared to the control group (which is counterfactual, representation of small farm businesses not using the internet), small farm businesses using the internet earn about $24,000-$26,000 more in total household income and about $27,000-$28,000 more in off-farm income. Also, small farm businesses using the internet earn about $4,100-$4,900 more in gross cash farm income compared to their counterpart. The estimate of ATT for NFI is not different from zero. However, gross cash farm revenue increased significantly.

Practical implications

To this end internet can provide an important role in information gathering. Internet is one of the convenient means to access and exchange information. Information and communication facilitation through internet have opened up new areas of commerce, social networking, information gathering, and recreational activities beyond a geographical bound. Producers and consumers can take advantages of internet in both collaborative and competitive aspects in economic activities as it can reduce the information asymmetries among economic agents.

Social implications

Farmers will seek assistance in interpreting data and applying information to their farming operations, via the internet. Therefore, it is essential that land grant universities continue to improve the delivery of electronic extension and provide information in a clear and concise manner.

Originality/value

Studies in farm households have mainly investigated factors influencing internet adoption, purchasing patterns through internet, internet use, and applications. In most cases, impact analyses of communication and information technologies such as internet in agricultural businesses are discussed with references to large scale farm businesses. Thus, the authors know very little about access to the internet when it comes to small farm businesses and small farm households and about how it impacts well-being of small farm households.

Citation

Khanal, A.R. and Mishra, A.K. (2016), "Financial performance of small farm business households: the role of internet", China Agricultural Economic Review, Vol. 8 No. 4, pp. 553-571. https://doi.org/10.1108/CAER-12-2014-0147