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