| Abstract: | The cooperative Farm Credit System (FCS) in the U.S. continues to undergo substantial structural changes. Many of these changes were made to comply with the Agricultural Credit Act of 1987. It is expected that structural changes will help the FCS provide competitive and stable financial services to agricultural firms and compete more effectively with other agricultural lenders. The impact of restructuring on cost efficiency and productivity growth of the FCS is important to decision-makers as they contemplate further mergers and other structural changes. The primary purpose of this study was to estimate and compare the cost efficiency and the overall total factor productivity growth for the FCS direct lending associations using panel data and the stochastic cost frontier approach. Results showed that on average, Agricultural Credit Associations (ACAs) providing both long- and short-term loan services were relatively more cost efficient than either Production Credit Associations (PCAs) providing short-term loan services or Federal Land Credit Associations (FLCAs) providing long-term loan services. This result suggests that associations providing a complete and coordinated set of short- and long-term credit services to members may be the direction for future restructuring. Regression results of the correlates of the inefficiency showed that the firm size is negatively correlated to the inefficiency of PCAs. This supports the recent movement of the mergers of many PCAs to form larger associations. However, results of efficiency comparisons before and after mergers showed that on average, mergers have not yet lead to efficiency gains for PCAs, ACAs, and FLCAs. The contradicting results above suggest that recently restructured associations may need a longer transitional period to take the advantage of efficiency gains from mergers. Results of the estimates of the technological change and total factor productivity showed that on average, only ACAs have been experiencing positive growth in both technological change and total factor productivity since 1989. The result above further supports our previous conclusion that the mergers of PCAs and FLCAs to form ACAs are the direction for future restructuring of the FCS direct lending associations. |
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