Do Farm Credit Customers Prefer Lower Interest Rates or Higher Patronage Payments?

Quatie Jorgensen

SS-AAEA Journal of Agricultural Economics, 2007, vol. 2007, 17

Abstract: Farm Credit Services of East Central Oklahoma (FCSECO) is part of a nationwide cooperative that supplies financing for full-time and part-time farmers. FCSECO not only makes loans to farmers but because it is a cooperative, its members/borrowers also benefit from what is known as the patronage payment. The patronage payment is a way of distributing Farm Credit’s profits to its members/borrowers. Since FCSECO is customer-focused and customer-driven, it is essential that the FCSECO Board of Directors knows their customer base and what they desire as a customer. It would benefit FCSECO to determine the substitutability between patronage payments and fixed interest rates. A conjoint survey was conducted on random FCSECO customers. After performing an OLS regression analysis, the results illustrated that the average FCSECO customer values a higher patronage payment more than a lower fixed interest rate on a given loan. This information is valuable to the FCSECO Board of Directors because it shows which attribute the average FCSECO customer has a preference towards. Since the average FCSECO customer greatly values the patronage payment, the FCSECO Board of Directors could use the patronage payment to its advantage in securing new loans.

Keywords: Agricultural; Finance (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ssaaea:113242

DOI: 10.22004/ag.econ.113242

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