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

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  • Jorgensen, Quatie

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.

Suggested Citation

  • Jorgensen, Quatie, 2007. "Do Farm Credit Customers Prefer Lower Interest Rates or Higher Patronage Payments?," SS-AAEA Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 2007, pages 1-17.
    • Handle: RePEc:ags:ssaaea:113242
    DOI: 10.22004/ag.econ.113242
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    Keywords

    Agricultural Finance;

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