Factors Influencing Risk Management Decisions and Risk Balancing: A Case from Small Farmers in Tennessee

Limited operational and financial resources challenge the viability of small farms and businesses. Adoption of appropriate risk management strategies remains an important decision for the viability of small farms. This study uses survey data from 100 small farms of Tennessee and studies factors influencing the adoption of various risk management strategies using multivariate probit models. Results suggest that the adoption decisions of various risk management strategies are closely interlinked. Depending on the strategies, they can be complementary or competitive, which suggests that adopting one may enhance or limit the other’s adoption. This study finds that the factors such as farm operator’s age, education, farm household income, land holdings, government incentives (payments), smartphones, and farmers’ continuation plans significantly influence the strategic decisions of adopting risk management strategies. Additionally, using various forms of generalized linear models, we assessed the determinants of the level of debt finance, saving finance, and debt to equity balancing. Our findings show that business risk (BR) is significantly associated with the extent of debt use, savings use, and debt-to-equity balance decisions of small farm households. Results indicate that small farm households of Tennessee show distinct risk balancing and financing behavior. Moreover, results indicate that the demographic and household characteristics and factors such as land acreage, adoption of agritourism, an existing continuation plan, credit constraints, and computer use significantly influence the financing decisions of small farm households in Tennessee