ABSTRACT
A major reason for studying farm structure, as outlined in Chapter 2, is to understand how and why the agricultural sector is changing and what such changes may mean for the future. Agricultural finance is one factor that is often linked with changes in farm structure. Past practices of farm lending, which include liberal lending in favorable times and capital rationing in less favorable times, have strongly affected the size, profitability, and welfare of family farms. However, this linkage does not necessarily imply causation. Rather, financial markets in agriculture can be viewed as accommodating in the sense that they only indirectly respond to underlying economic and political shifts in the sector. That is, financial markets provide the financial capital needed to achieve structural changes in response to economic incentives created by changes in underlying supply and demand conditions, and/or by changes in agricultural policy. For example, public credit programs frequently facilitate structural change by reducing costs of transition.
