for the growth of the agricultural business. Hence, assumption of the relationship between banks and the agricultural
enterprise is relevant. In addition to claiming remuneration
through the application of interests and since credit is a
limited resource, lenders try to assess the riskiness of loan
transactions through selecting companies that offer adequate
guarantees of repayment of capital.
Therefore, in the economic system, the profitability and
solidity analysis of a company is a very important topic because
both are directly connected to the assessment of the creditworthiness and to which approval of loans is subordinated.
The inefficiency resulting from a bad credit distribution is
relevant to both lenders (for whom the risk of losing invested
capital shares increases), and producers (because it increases
the cost of access to loan capital and a part of the production
chain is penalized in the implementation of less risky
investment projects than those chosen by the credit system).
This clarifies the growing attention over the years by both
the credit system and the public sector to the issue of risk
assessment.
As far as the national agricultural system is concerned,
the novelties of the last few years have defined a completely
new scenario. In fact, in the past, the credit in agriculture has
been regulated by “special schemes” (Italian Decree Law 24
January 2012) which, by promoting better conditions of
access for farmers, have become real instruments of agricultural policy. Meanwhile, today with the new Consolidated Law (Italian Legislative Decree no. 141/2010) in
banking and credit matters and the introduction of the
Basel III rules (Basel Committee on Banking Supervision,
2010; Basel Committee on Banking Supervision 2004; Core
and Magagnoli 2008; Crivellaro 2008), the condition of an
agricultural entrepreneur ceases to benefit of most of the
special regulations that facilitate for the farmer the role of
guarantees in relations with the credit system is scarcely
relevant. Due to the absence of audited accounts for most
national agricultural enterprises and the standardized charges
of the cadastral income indexes that is considered to be the
main source of revenue generated from agricultural activity,
this change is even more important.
The structure of this research paper includes a part dedicated to the presentation of the state of the art on the
methods for assessing the creditworthiness of farms, in
which the points considered critical for their use will be
explained. Subsequently, a new approach to risk assessment
in agriculture is presented, accompanied by an empirical
analysis carried out by testing the model on the sample of the
RICA (Rete Informazione Contabile Agricola) database. The
final Sect. 6 is dedicated to the final considerations.
2 Literature Review
The regulation for the credit system provided to the agricultural industry in Italy has led to a recent development of
analyses and proposals for the assessment of the creditworthiness of farms. The implementation of rating models as
synthetic indicators for the assessment of creditworthiness in
the agricultural sector, has also been subject to many difficulties due to the simplified accounting system, which is
common among operators in the sector. Moody’s has
developed on behalf of ISMEA (Istituto di Servizi per il
Mercato Agricolo Alimentare) the “Small and medium
enterprises model”, while some empirical tests have
involved the application of the Altman EM Score (Adinolfi
and Capitanio 2009a, b, c; Altman 2005; Altman et al. 1998;
Altman and Haldeman 1995).
In details, the “Small and medium enterprises model”
created by Moody’s specialized agency for ISMEA (Moody’s KMV 2009; Moody’s KMV 2004; Moody’s 2005a, b;
Cupo and Di Domenico 2008) in 2007 provides for the use
of several weighted indicators and identified five sections,
which have been assigned different weights; each of which
corresponds to a specific weight:
• Section 1—Economy: 4%;
• Section 2—Market/Industry: 6%;
• Section 3—Management: 25%;
• Section 4—Business: 40%;
• Section 5—Financial: 25%.
Each section is in turn composed of weighted indices that
are shown below:
• Section 1—Economy: level of confidence in the food
industry; level of trust in agriculture.
• Section 2—Market/Industry: attractiveness of the sector;
regional specificity; specificity altimetry; parks or protected areas; access to communication routes.
• Section 3—Management: Experience; specific training;
technical assistance and updating; accounting management and control; risk management—insurance contracts; development of alternative commercial channels;
access to foreign markets; extra-agricultural incomes;
voluntary certifications; recognized brand.
• Section 4—Business: membership of cooperatives, consortia and others, relations with suppliers; customer
relations; relationships with large retailers; customer
payment times; future design and development, net
profit; dependence on capital.
110
F. Capitanio et al.
enterprise is relevant. In addition to claiming remuneration
through the application of interests and since credit is a
limited resource, lenders try to assess the riskiness of loan
transactions through selecting companies that offer adequate
guarantees of repayment of capital.
Therefore, in the economic system, the profitability and
solidity analysis of a company is a very important topic because
both are directly connected to the assessment of the creditworthiness and to which approval of loans is subordinated.
The inefficiency resulting from a bad credit distribution is
relevant to both lenders (for whom the risk of losing invested
capital shares increases), and producers (because it increases
the cost of access to loan capital and a part of the production
chain is penalized in the implementation of less risky
investment projects than those chosen by the credit system).
This clarifies the growing attention over the years by both
the credit system and the public sector to the issue of risk
assessment.
As far as the national agricultural system is concerned,
the novelties of the last few years have defined a completely
new scenario. In fact, in the past, the credit in agriculture has
been regulated by “special schemes” (Italian Decree Law 24
January 2012) which, by promoting better conditions of
access for farmers, have become real instruments of agricultural policy. Meanwhile, today with the new Consolidated Law (Italian Legislative Decree no. 141/2010) in
banking and credit matters and the introduction of the
Basel III rules (Basel Committee on Banking Supervision,
2010; Basel Committee on Banking Supervision 2004; Core
and Magagnoli 2008; Crivellaro 2008), the condition of an
agricultural entrepreneur ceases to benefit of most of the
special regulations that facilitate for the farmer the role of
guarantees in relations with the credit system is scarcely
relevant. Due to the absence of audited accounts for most
national agricultural enterprises and the standardized charges
of the cadastral income indexes that is considered to be the
main source of revenue generated from agricultural activity,
this change is even more important.
The structure of this research paper includes a part dedicated to the presentation of the state of the art on the
methods for assessing the creditworthiness of farms, in
which the points considered critical for their use will be
explained. Subsequently, a new approach to risk assessment
in agriculture is presented, accompanied by an empirical
analysis carried out by testing the model on the sample of the
RICA (Rete Informazione Contabile Agricola) database. The
final Sect. 6 is dedicated to the final considerations.
2 Literature Review
The regulation for the credit system provided to the agricultural industry in Italy has led to a recent development of
analyses and proposals for the assessment of the creditworthiness of farms. The implementation of rating models as
synthetic indicators for the assessment of creditworthiness in
the agricultural sector, has also been subject to many difficulties due to the simplified accounting system, which is
common among operators in the sector. Moody’s has
developed on behalf of ISMEA (Istituto di Servizi per il
Mercato Agricolo Alimentare) the “Small and medium
enterprises model”, while some empirical tests have
involved the application of the Altman EM Score (Adinolfi
and Capitanio 2009a, b, c; Altman 2005; Altman et al. 1998;
Altman and Haldeman 1995).
In details, the “Small and medium enterprises model”
created by Moody’s specialized agency for ISMEA (Moody’s KMV 2009; Moody’s KMV 2004; Moody’s 2005a, b;
Cupo and Di Domenico 2008) in 2007 provides for the use
of several weighted indicators and identified five sections,
which have been assigned different weights; each of which
corresponds to a specific weight:
• Section 1—Economy: 4%;
• Section 2—Market/Industry: 6%;
• Section 3—Management: 25%;
• Section 4—Business: 40%;
• Section 5—Financial: 25%.
Each section is in turn composed of weighted indices that
are shown below:
• Section 1—Economy: level of confidence in the food
industry; level of trust in agriculture.
• Section 2—Market/Industry: attractiveness of the sector;
regional specificity; specificity altimetry; parks or protected areas; access to communication routes.
• Section 3—Management: Experience; specific training;
technical assistance and updating; accounting management and control; risk management—insurance contracts; development of alternative commercial channels;
access to foreign markets; extra-agricultural incomes;
voluntary certifications; recognized brand.
• Section 4—Business: membership of cooperatives, consortia and others, relations with suppliers; customer
relations; relationships with large retailers; customer
payment times; future design and development, net
profit; dependence on capital.
110
F. Capitanio et al.