Research Reports
A Study on Investment Behavior of Specialized Farm Households and Policy Implication
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AuthorPark, Joonkee
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Publication Date2010.10.01
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Original
The purpose of this study is to analyze the investment behavior of specialized farm households and to suggest policy implications. Agricultural investment can play a major role in economic growth increasing the productivity of capital and the income level of farm households.
It is necessary to focus on the specialized farm household rather than all farmers. There are environmental changes in Korean agriculture, such as the opening of the agricultural product market with the increase of aging population in the farming sector. Specialized farm households have been adapting to these changes by scaling up farm size and raising efficiency. In a long-term point of view, the analysis on investment behavior of specialized farms will provide an effective policy.
In this study, we first describe the recent changes in the environment of Korean agriculture. The macroeconomic changes in Korean agriculture lead us to investigate the actual state of agricultural investment and the behavioral state of specialized farms. It is true that there is a modest trend in agricultural investment. The internal and external capital constraints have been a barrier for investment. The distribution of governmental fund is about to be adjusted.
Next, we analyze the investment behaviors of specialized farms. We surveyed 352 households about their demographic characteristics and investment behaviors in detail, such as farming, financing, and their future point of view. Examining all responses, we learn who invests, where they invest, and what can make the farm invest. Young farmers are willing to invest more, and most farms prefer the agricultural corporation although they have a problem with professional management. It results in the needs for skilled management and the stabilization of a large-scale farm. One of problem is the lack of various tools for financing.
Two econometric analyses support these results. A ordered logit model is applied to survey data. Nine categories of farm households (0~more than 500,000,000 won) are selected. Their asset and liability level are the key variables. We conclude that there is a liquidity constraint that can affect a decision to invest. When the groups are divided by their aims of investment - expand or maintain, the asset level is not a significant variable any more to the farm that invests only for maintenance. A fixed effect model is used in Farm Household Economy Survey (2003-2007) to find macro factors. It shows that the specialized farm considers stability more than profitability.
Finally we suggest several policy implications. This study focuses on relaxing the external/internal capital constraints. In regard to the external capital constraint, the funding system should be adjusted to better evaluate business plans and diversify the financial resources. Launching a new governmental agency, tentatively called Korean Agricultural Finance Corp., is a good way to support agricultural start-ups of new technology. Tax policy including income tax, value-added tax, and corporation tax should be amended. For the internal capital constraint, the farm household needs to allocate their risks with an effective system. To provide a service for management consulting would help the farm household to get investment fund, make a profitable business plan and avoid the risks they might face.
Researchers: Joon-kee Park, Eui-sik Hwang, Mee-bok Kim
E-mail address: jkpark@krei.re.kr
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