Author : Pichit Thani

Summary : Theoretical model indicates that credit risk affects farmers' debt use and thus firm organization. An empirical model is set up to test the hypothesis from the theoretical model. the purpose of this study is to examine how credit availability to individual farmers, as evaluated by their lenders, responds to changes in past levels of farm income. Effects of resulting credit risks on optimal farm portfolios, including credit reserves, are then evaluated with different degree of risk aversion coefficients. The data used in this study were obtained from both primary and secondary sources. The historical data series of farmers' income and supply of credit were elicited from individual borrower record keeping and approved loan request form. Five lenders and 259 borrowers were selected as the sample of the study. Farmers were classified into the following six groups: severe loss, moderate loss, average conditions, moderate gain, and favourable gain, based on their farm income experienced by the farmer in the preceding year. Thus, the likelihood associated with the gain and loss conditions are derived with farm income risk parameters used in this study.