Evaluating the Effectiveness of Farm Financial Management Training in a Difficult Environment

1. Evaluating the Effectiveness of Farm Financial Management Training in a Difficult Environment Richard L. Trimble, Rick Costin, Rush Midkiff Jennifer Rogers, Suzy Martin, and Steve Isaacs University of Kentucky, Department of Agricultural Economics National Farm Management Conference June 11-14, 2007 Agricultural Economics

2. The Farm Service Agency (FSA)Borrower Training Program • Mandated by Congress in 1994 • All FSA borrowers must take financial management training, unless exempted • Participant’s performance must be graded • Training in Kentucky is expensive • Result was/is a large group of “unhappy participants” Agricultural Economics

3. General Characteristics of Borrower Participants • FSA is lender of “last resort” • Two general types of participants: • Older management challenged farmers looking to retire and escape • Young farmers with no experience, little knowledge, and great aspirations • All unhappy with training requirement Agricultural Economics

4. Training Workshops and Materials Developed Specifically forFSA Borrowers • Two day workshops covering basic Farm Financial Management • Topics included: • Goals & Goal Setting • Decision Making and Risk Management • Record Keeping • Enterprise Budgeting • Balance Sheet preparation and use • Income Statement preparation and use • Financial Analysis (ATA) • Included Home Work Assignments Agricultural Economics

5. Financial ManagementBaseline Survey Questionnaire • First thing done at every workshop • Purpose was to help instructors get acquainted with participants and their abilities • Type and size of operations • Level of knowledge of financial management • Current record keeping practices • Fewer than 40% used any kind of record keeping • Only 31% of participants reported filling out an IRS Schedule F form Agricultural Economics

6. FSA Workshop Exit Evaluation (How Did We Do?) • Generally quite complimentary • Good Handouts • Great Overheads • Most important things learned: • Record Keeping • Goal Setting • Least important things learned: • Enterprise Budgeting • Balance Sheet Agricultural Economics

7. Most Gratifying Responseto Exit Survey Question: Would you recommend this workshop to another farmer? Ninety-Seven percent of respondents indicated they would recommend the workshop to another farmer! Agricultural Economics

8. FSA Workshop Follow-Up Survey • Between Feb. 1995 and Mar. 2006, 78 FSA Workshops were conducted • Involving 969 farms & 1,488 participants • Two Page Questionnaire mailed to all 969 farms July 2006 • Postcard and telephone encouragement Agricultural Economics

9. FSA Workshop Follow-Up Survey The Results • 235 useable responses were received • Determined that we had 823 farms that should have responded • Response rate of 29% • We were quite happy with this response rate from the clientele group Agricultural Economics

10. General Characteristics of Respondents • Responses from all years: (2005 – 23%, 2004 – 4%, 1995 – 6%) • Mostly small farms: (33% = 100-250ac, 7% = > 1,000ac) • Enterprises quite representative of KY: (Beef–70%, Tobacco–50%, Corn-33%, Beans-26%, Wheat-20%, Dairy-14%, Hogs-4%, Poultry-4%, F&V-4%) Agricultural Economics

11. Major Objectivesof Follow-Up Survey • Determine if participants learned, retained and used any of concepts taught • Discover which concepts were most readily adopted and which were not • Ascertain any problems with concepts taught • Establish a value of the training workshop to participants Agricultural Economics

12. Major Concepts Evaluated • Goals & Goal Setting • Record Keeping • Enterprise Budgeting • Balance Sheet preparation and use • Income Statement preparation and use Agricultural Economics

13. Goals and Goal Setting • Baseline Survey indicated some folks used goals, but quite informally! • In Follow-Up Survey, 85% of respondents indicated they made goals and goal setting a part of their farm business management • 15% indicated that they did not use goals or goal setting Agricultural Economics

14. Record Keeping • Baseline Survey found 40% used some type of record keeping, again informally • In Follow-Up Survey, 97% of respondents indicated they used record keeping as part of their farm business management (record books-65%, computer-28%, consultant-9%) • 3% did not use record keeping • Has record keeping improved financial decision making? Yes – 87%, No – 13% Agricultural Economics

15. Enterprise Budget • Baseline Survey found 51% budget annually • Follow-Up Survey found that 36% had used Enterprise Budget to reduce or eliminate an enterprise (64% had not) • Follow-Up Survey found that 28% had used Enterprise Budget to expand or start a new enterprise (72% had not) • In Total, 64 % had used enterprise budget Agricultural Economics

16. The Balance Sheet • Baseline Survey found 38% prepared a Balance Sheet annually • Follow-Up Survey found 84% better able to prepare a Balance Sheet (16% Did Not) • Follow-Up Survey found 70% used Balance Sheet to measure financial progress (30% Did Not) Agricultural Economics

17. The Accrual Adjusted Income Statement • Baseline Survey found 68% prepared an Income Statement annually (This may be an indicator of the level of participant knowledge of financial statements?) • Follow-Up Survey found 48% used workshop training to prepare an Income Statement (52% Did Not) • Follow-Up Survey found 71% used Income Statement to determine profitability of farm business (29% Did Not) Agricultural Economics

18. Change in Farm Profitability Resulting from Workshop • Follow-Up Survey found 57% of students thought workshop training improved farm profitability (43% Did Not) • Improvement ranged from 2% to 75%, with an average of 18% improvement • Follow-Up Survey found 75% thought that workshop training improved management skills enough to cover workshop costs (25% Did Not) Agricultural Economics

19. Increase in Annual Farm Income Resulting from Workshop Participation Agricultural Economics

20. Farm Business Profitability Relative to Use of Management Tools Taught Agricultural Economics

21. Management Tools & Concepts Effectiveness • Goals, Record Keeping, and Balance Sheets were effective • Income Statement was not as effective, but worthwhile • Enterprise Budgeting was a Total Failure and in need of Revamping or Removal from the Workshop Curriculum Agricultural Economics

22. Summary and Conclusions • FSA Borrower Workshops have been successful • The Follow-Up Survey indicated training had lasting value after up to 12 years • Majority of workshop participants were able to increase both farm income and profitability • 87% of Follow-Up Survey Respondents indicated they would recommend it to other farmers Agricultural Economics

23. Parting Thoughts • Educators working with larger farmers that are amongst the “brightest and best in the industry” should remember, FSA Borrowers are from the other end of the spectrum • The marginal value of these educational efforts may be greater than with the other, more traditional groups Agricultural Economics

24. Any Questions about Kentucky’s FSA Borrower Workshop Training Program? Agricultural Economics