Credit Rationing in the Polish Farm Sector: A Microeconometric Analysis Based on Survey Data

The objective of this paper is to empirically detect credit rationing of Polish farms. Based on cross-sectional survey data and motivated by a microeconomic farm household model, this effort is pursued by a methodology consisting of three interrelated steps. These steps include the analysis of qualitative survey data regarding farmers' experience with bank credit, based on this an econometric estimation of internal shadow prices of credit for the credit constrained sub-sample of respondents, and finally an investigation of interdependencies between determinants of consumption and production that should be influenced by the presence of a binding credit constraint. The results of the empirical analysis consistently suggest that among the observed randomly selected Polish farms more than 40 percent of borrowers experience pronounced credit rationing by rural banks. These farms display internal shadow prices of the credit constraint of on average 190 percent net of principal. Shadow prices are significantly different from individual effective interest rates for credit that account for loan specific transaction costs. In the group of credit constrained farms, household characteristics could be proven to have a significant effect on output supply. This is evidence for a violation of separability between production and consumption decisions and thus lends empirical support to the existence of a binding credit constraint. Overall, credit constrained farm households own less and rent more land than the average, operate with a high capital intensity with regard to land, tend to have a poor credit history, and engage intensively in intra-village conversation. Generous government support via interest rate subsidisation apparently contributed little to alleviate credit rationing of farms in Poland.