Phil Kenkel
Bill Fitzwater Cooperative Chair
The characteristics of the tax reform package and even its likelihood of passage are still in play as of this writing. Still, it is not too early to begin to think about how changes in tax regulations should impact how we distribute and retain profits in cooperatives. The tax treatment of cooperatives is one of the more interesting aspects of the cooperative business model. In general terms, Sub-Chapter T of the IRS code allows …
Phil Kenkel
Bill Fitzwater Cooperative Chair
A common aspect of the strategic planning process is to identify the core competencies of the organization. When a cooperative, or other organization, is forced to downsize they are also advised to concentrate on their core competencies. That raised the question of what constitutes a core competency.
C.K Prahalad and G. Hamel introduced the concept of core competencies in a 2014 Harvard Business Review article “The Core Competence of the Corporation. According to the …
Phil Kenkel
Bill Fitzwater Cooperative Chair
Sometime there are great questions with no simple answers. An example of that is the question of how much Section 199A deduction a cooperative needs to pass on to keep their members equivalent with farmers marketing through non-cooperative firms. The first difficulty in answering the question is that the effect is unique for each producer. Producers marketing through cooperatives face a possible offset (reduction) to another deduction that they would otherwise have available. The …
Phil Kenkel
Bill Fitzwater Cooperative Chair
As we have been discussing, most agricultural cooperative now face a diverse membership with different time horizons, different needs for goods and services and different attitudes toward the cooperative. Time horizon issues are influenced by the equity management system with an age of patron system creating the most issues. The length of the revolving period also affects time horizon issues. Another dimension in membership heterogeneity is differences in the goods and services needed from …
Phil Kenkel
Bill Fitzwater Cooperative Chair
As cooperatives mature, their membership becomes more diverse. There are many dimensions of membership diversity and each has different implications for the CEO and board. Cooperative members have different time horizons. The cooperative’s equity management system and revolving period can exaggerate or minimize time horizon differences. Cooperative members have different needs for products and services. Patronage pools and margin structures can partially address those differences. A final level of member heterogeneity is differences in …
Phil Kenkel
Bill Fitzwater Cooperative Chair
Most U.S. agricultural cooperatives started with a homogeneous group of producers and were organized around a simple common need. Over time, the membership in agricultural cooperatives has become much more heterogeneous. CEOs and boards face that issue as they consider equity management, pricing, services, infrastructure needs and other issues. There are actually multiple dimensions to membership heterogeneity and considering the dimensions helps to bring the issues into focus.
The first dimension is farm level …
Phil Kenkel
Bill Fitzwater Cooperative Chair
Cooperative employees can be a good source of ideas. At the same time an employee suggestion program can end up being just a channel for employees to vent frustration or to generate wild ideas that the cooperative could not possibly implement. The solution is to put a little structure, but not too much structure, into the format for suggestions.
The suggestion form (paper or electronic) should begin by asking for a one sentence description …
Phil Kenkel
Bill Fitzwater Cooperative Chair
Last week I discussed the sources of grain margin risks in grain marketing cooperatives. Some sources of that risk relate to grain grading accuracy and stored grain management and must be managed in the elevator. Other elements such as estimating transportation costs and hedging fall to the manager and merchandiser. The more straightforward source of grain margin risk is when a cooperative raises grain prices (and thus lowers margins) in an effort to maintain …
Phil Kenkel
Bill Fitzwater Cooperative Chair
One of my recent research projects has involved applying the principles of enterprise risk management to grain marketing and farm supply cooperatives. ERM involves analyzing all of the “risk buckets” for a firm as well as their capacity to withstand risk and their “risk appetite”. We used data from 10 case study cooperatives to investigate the historic risks for grain marketing and farm supply cooperatives.
Not surprisingly, variation in the volume of grain received …
Phil Kenkel
Bill Fitzwater Cooperative Chair
The road to our present Section 199A tax deduction started back in 2004 with a tax deduction for domestic manufacturing firms. Tax specialist were able to first argue that crop producers were manufacturing firms and then extend that argument to allow cooperatives to be collectively manufacturing their member’s crops. The cooperative could then retain the deduction or pass some or all of it on to the producers. Use of the old Section 199 (DPAD) …
