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Personal characteristics crucial to paying back farm debt

Banks need to take a different approach to lending to farmers, new Lincoln University research says.

Research report* authors Bruce Greig, Dr Peter Nuthall and Dr Kevin Old found skills, attitudes and knowledge a person has in managing and operating a farm should be considered when assessing whether a loan should be given.

Dr Nuthall said banks use historic business statistics, and equity levels, to assess loans and credit worthiness.

“A farm manager’s personal characteristics are likely to be a better predictor of future debt payback performance,” he said.

“They have a lifetime of education and experience. A farmer’s objectives, and that of their associated household, can be considered part of the human capital which should be considered including attitudes to risky situations and their originating factors.”

The trio used data from a sample of New Zealand farm owner/operators to come up with a model, which they tested with data from a postal survey.

“The results make it clear a manager’s personal characteristics are highly correlated

with debt payback and, logically, are very likely to be the drivers.”

Dr Nuthall said it was also important to note the human characteristics that are related to payback can potentially be modified and improved.

“Counselling and psychotherapy can have very positive impacts and are likely to change a manager’s basic characteristics.”

“This is a positive approach which might be used when difficulties first surface preventing further problems. However, the manager must be prepared to cooperate in positive action which will then have lasting impacts.

“This is in contrast to short-term fire sale action.”

Dr Nuthall said overall, the research has shown, as logically could be expected, that a farm manager’s personal characteristics impinge on the debt payback decisions.

“Traditional financial measures reflect history, and the variables explored here reflect the future. In the future, credit scoring models should embrace farmers’ personal characteristics.”

*Farmers’ characteristics’ and the propensity to reduce debt. The case for New Zealand (NZ)

primary producers


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