Among the Central and Eastern Europe Candidate Countries Poland supposedly is the one where the agricultural sector poses the most difficult adjustment problems in the course of EU accession. Not only do serious structural deficiencies call the sector’s international competitiveness into question (PETRICK et al. 2002). Also the gap in living standards between urban and rural groups of the Polish population gives rise to worries. It already brought about an increasingly negative attitude among rural citizens towards the whole accession process, which may well endanger social peace in the entire country.
The results of the most recent parliamentary elections which strengthened extreme anti-EU positions supported by parties with a largely rural clientele bear lively testimony to this. All this will make negotiations on the agricultural chapter of the accession talks scheduled for early 2002 even more complicated and politically sensitive.
Development of the Polish farm sector is thus of urgent necessity. Right from the beginning of market reforms, the Polish government introduced a number of policy measures to achieve this goal. Besides trade policy and output price support measures, interest subsidies figured prominently over recent years and accounted for about 38% of the agricultural budget in 1999 (not regarding expenses for the farmers’ social insurance fund; see MRiRW 2000 and OECD 2000). These subsidies are granted both on operational and investment loans extended by commercial banks. Intervention on credit markets can thus be regarded as a major instrument of the Polish government to achieve its political objectives.
Is there an economic justification for continued government intervention in rural credit markets? In fact, it is often claimed that farm households in underdeveloped rural areas are credit rationed by formal lenders in the sense that they cannot borrow as much as needed to finance inputs, investment, and indispensable consumption expenditures. Contemporary contract theory argues that banks are not interested in these clients because it is particularly difficult to overcome information asymmetries and resulting screening, monitoring, and enforcement problems: clients are poor, have few assets to collateralise, act in an especially risk-prone environment, and give rise to high transaction costs (BINSWANGER and ROSENZWEIG 1986).
The process of transition to a market economy tends to worsen these problems (SWINNEN and GOW 1999). Hence the question arises quite naturally whether there is any rationale for government intervention on rural credit markets in order to improve living standards and foster structural change. However, a second question is which type of intervention is desirable. No conclusive policy recommendations can be derived from theory alone (BESLEY 1994). In addition, experience both from developing and OECD countries suggests that subsidies on interest rates often failed to mitigate credit rationing of rural borrowers, and that governmental credit programs frequently did not achieve their stated objectives (see e.g. the collection of articles on developing countries in ADAMS et al. 1984 and BRÜMMER and LOY 2000 for a quite recent study on Germany).
A closer examination of the rural financial market in Poland appears thus to be worthwhile. In my view, the foremost step to formulate serious policy advice in the present situation is to find out (a) whether after a decade of interest subsidies Polish farmers are (still) credit rationed at all and (b) if yes, how severely this rationing affects current production outcomes. The aim of this paper is to give a methodologically sound answer to both questions. Its objective is to outline a theoretically consistent methodology to detect and analyse credit rationing of farm households and to apply this method to cross-sectional survey data of 431 Polish farms interviewed in 2000. The paper is thus also understood as an effort to bridge the observed gap in the literature (HOBBS 1997) between increasing theoretical interest in market imperfections on the one hand and empirical scrutiny that puts these concepts to the test on the other.
