Category: Cooperatives

Phil Kenkel

Bill Fitzwater Cooperative Chair

Differential pricing, which is charging or offering different prices to different customer groups, can make good business sense.  In many cases, equal pricing is not equitable because there are cost differences associated with volume, location or handling method.  Most cooperative members understand and accept the rationale for pricing differences which are clearly related to cost factors.  Differential pricing can become controversial when it is beneficial but not necessarily equitable. For example, because many of …

Phil Kenkel

Bill Fitzwater Cooperative Chair

The cooperative business model is unique in that members are both customers and owners.  For that reason pricing strategies in a cooperative can become controversial.  As owners, members should want pricing that allows the cooperative to effectively compete and be financially stable.  That allows the cooperative to be profitable and distribute benefits through patronage.  As customers, each individual member wants favorable prices that create immediate benefit.  Differential pricing, charging different prices in different situations …

Phil Kenkel

Bill Fitzwater Cooperative Chair

In my cooperative class I have student teams create hypothetical cooperatives and perform a feasibility analysis.  It is always interesting to see how fresh eyes look at the cooperative business model.  That makes me ponder how I would design the perfect cooperative. I’ll limit that discussion to a traditional open membership cooperative such as a farm supply and commodity marketing cooperative.  The closed membership or “New Generation” cooperative is really a different animal.

I …

Phil Kenkel

Bill Fitzwater Cooperative Chair

In 2000 a major electronic retailer began selling the same DVD movies at different prices to different customers.  The differential prices were based on the customer’s previous purchases.  Customers who had purchased more DVDs in the past were actually charged a higher price.  In essence, the retailer was trying to target price incentives to new or infrequent customers.  Loyal customers soon uncovered the differential pricing strategy and flooded the chat boards with complaints.  The …

Phil Kenkel

Bill Fitzwater Cooperative Chair

My students in Ag Cooperatives class often struggle with the concept of depreciation.  It is a complex subject particularly when all of the impacts on the firm are considered.  The basic concept of depreciation is a measure of the amount of an asset “used up” during an accounting period.  If my son mows yards and calculates his income without depreciation he will be overestimating his actual income since he is gradually wearing out his …

Phil Kenkel

Bill Fitzwater Cooperative Chair

I sometimes classify cooperative financial decisions as “the good, the bad and the ugly”.  Some decisions are clearly in line with cooperative principles and the long-term interest of the membership.  Some are contrary to those goals.  Some are “ugly” or maybe “clunky” is a better term.  They may be creating some outcomes but those outcomes are not necessarily tailored for the cooperative.  “Ugly” practices can also be artificially linked decisions that could be better …

Phil Kenkel

Bill Fitzwater Cooperative Chair

I often hear statements about cooperative finance that might not hit the level of “fake news” but are highly questionable.  The first “fallacy” is that retaining profits as revolving equity creates a future obligation that will be difficult to meet.  When an investor owned firm reinvests in infrastructure they expect that future profits will provide a return on that investment.  In a cooperative, we do not provide a return on equity and we expect …

Phil Kenkel

Bill Fitzwater Cooperative Chair

The week of Independence Day might be a good time to note the independence of U.S. cooperatives.  “Autonomy and Independence” is one of the ICA cooperative principles.  I have given up trying to explain it and simply say that it is not very relevant in the U.S. but is important in some countries.  In contrast to some countries where the government was heavily involved in developing the cooperative sector, most U.S. cooperatives started at …

Phil Kenkel

Bill Fitzwater Cooperative Chair

The Tax Reform and Jobs Act of 2017 (tax reform) created the Section 199A deduction for cooperatives and their members.  You don’t need me to tell you that a least on provision of Section 199A is controversial.  The tax reform process has greatly raised the profile of the cooperative business model.  Agricultural cooperatives were one of the few sectors that received a special provision in the tax reform act.  There has been debate as …

Phil Kenkel

Bill Fitzwater Cooperative Chair

In my last newsletter I discussed a recent research article analyzing the impact of board of director characteristics and operations to cooperative profitability and success.  The more profitable cooperatives had a slightly smaller board size, participated in more director education activities and had more active board members.  The study also investigated other areas such as the tenure of the board chair and CEO, the frequency of board meetings and the use of executive sessions.…