THE IMPACT OF BORROWING CONSTRAINTS ON FARM HOUSEHOLDS - A LIFE-CYCLEAPPROACH

This paper examines the potential impact of borrowing constraints on f arm households. Using an adaptation of a life-cycle model of the farm household, two types of borrowing constraints are investigated. The fi rst type of constraint, restrictions on the ratio of total debt to far m value added, reflects the possibility that financial institutions re strict lending on the basis of current farm profitability. The second type, restrictions on the debt to asset ratio, reflects the possibilit y that loans must be secured against assets. These two versions of the model are analysed and then simulated for a set of Dutch dairy farms. From the results it was found that, whilst the impact of such constra ints does not appear to be affected by farm size, the proportion of la nd owned was a factor in determining which far ms were likely to be bo rrowing-constrained.