Improving rural business development, one firm at a time: A look at the effects of the USDA's Value-Added Producer Grant on firm survival

Marcie Elaine Stevenson

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: The rural economy has been declining over the past decade and a half. With the removal of farm subsidies, the U.S. Department of Agriculture has been looking for ways to help these suffering economies throughout the U.S. In 2001, under the supervision of the USDA’s Rural Business-Cooperative Service, the Value-Added Producer Grant program was established to help aid and support independent producers and similar organizations who are directly involved in the production of value-added agricultural products. Economic studies of firm survival suggest that capital acquisition and asset fixity are some of the biggest challenges facing start-up firms today, especially in rural areas where venture capital is limited. By utilizing information on Value-Added Producer Grant recipients from 2001 to 2011 in Iowa and North Carolina coupled with National Establishment Time-Series data from 1990 to 2011, this study will be using survival analysis to determine the effects of the USDA Value-Added Producer Grant on firm survival. Recipients will be matched with similar, non-recipient peers that represent the plausible outcome of the recipient firm had they not received the grant. The difference in length of survival time will measure the effect of the grant on firm survival.The results of the study show that for both start-up and established firms, receiving a VAPG had a positive and significant impact on firm survival length. The value of the first grant received, conditional on having received a VAPG, as well as the total value of all grants received (in $100,000 increments) increases the estimated survival times though the size effect is not statistically significant. The estimated time ratios for the effect of the grant on firm survival varied greatly between the models suggesting that the grant may have different impacts on firm survival depending on the maturity of the business. Further evaluations were completed to determine if the control groups established within the study represented a good match to the treatment firms. Using probability estimation, we determined that grant selection, conditional on the matching process for the study, appeared to be approximately random.

Date: 2016-01-01
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