Tag: newsletter articles

Phil Kenkel

Bill Fitzwater Cooperative Chair

In my last newsletter I discussed a recent research study examining the factors associated with the continued participation in a cooperative.  The members’ trust in the cooperative leaders, which had several dimensions, was strongly related to membership commitment.  Another important factor is the members’ understanding of and support for the cooperative’s mission.  The members’ support of the cooperative mission was measured by multiple questions which determined if the member understood the cooperative’s mission, whether …

Phil Kenkel

Bill Fitzwater Cooperative Chair

Cooperatives can distribute profits as cash patronage or retain profits in the form of qualified stock, nonqualified stock or unallocated retained earnings.  Members pay taxes on qualified stock when issued and pay taxes on nonqualified stock when redeemed.  I sometimes hear managers and board members relating the benefit of nonqualified stock to the member’s tax rate.  They assume that the benefit of nonqualified stock is that the member will be a lower tax rate …

Phil Kenkel

Bill Fitzwater Cooperative Chair

Under the federated cooperative model, local cooperatives are both receiving patronage from regional cooperatives and issuing patronage to their producer members.  Regional patronage has always created tax, cash flow and balance sheet issues for local cooperatives.  In recent years, several regional cooperatives have issued patronage in the form of non-qualified equity.  That has raised questions as to how non-qualified regional patronage effects the local cooperative.   Many local cooperatives calculate patronage on a tax basis …

Phil Kenkel

Bill Fitzwater Cooperative Chair

Under the federated cooperative model, local cooperatives receive patronage (cash and retained equity stock) from regional cooperatives.  The patronage of a federated co-op and its member co-ops creates tax, cash flow and balance sheet considerations for its member cooperatives.  Historically, federated cooperatives, commonly called regionals, have structured stock patronage in the form of qualified equity. Qualified regional equity becomes part of the local cooperative’s taxable income in the year the equity is issued.

In …

Phil Kenkel

Bill Fitzwater Cooperative Chair

As I mentioned in last week’s newsletter, our cooperative research group developed a number of representative cooperatives as part of our project analyzing the impact of the 2017 Tax Cuts and Jobs Act.  Representative cooperatives are useful for providing an understandable example of the effect of a decision or policy.  Cooperative leaders obviously need to take the representative cooperative result with a grain of salt since their mileage may vary.

The representative cooperative analysis …

Phil Kenkel

Bill Fitzwater Cooperative Chair

The Rochdale Pioneers adopted a series of laws, objectives, practices and procedures that assured their economic success. However, they never actually adopted as a group the specific set of principles known historically as the Rochdale Principles. Almost every major writer of the history of the Rochdale Pioneers has his or her own list of what the principles were, and each list is different both in content and number. With that being said, The Rochdale …

Phil Kenkel

Bill Fitzwater Cooperative Chair

Most U.S. agricultural cooperatives were formed around the needs of a homogeneous set of members.  Over time, the membership base has evolved to include producers of different ages, different farm operations and different needs for products and services.  Membership heterogeneity includes differences in member age and time horizon.  A member’s time horizon affects their preferences for the cooperative’s financial choices.  For example, members with shorter time horizons may favor distributing the maximum amount of …

Phil Kenkel

Bill Fitzwater Cooperative Chair

Volume have been written on the roles and responsibilities of the various participants in a cooperative.  The member role is often described as: “Members have a responsibility to provide capital to the cooperative, a responsibility to use and support the cooperative and a responsibility to actively participate in governance”.   That is a great description of a cooperative that is hitting on all cylinders.  At the other end of the spectrum, there are cooperative members …

Phil Kenkel

Bill Fitzwater Cooperative Chair

One somewhat circular definition of an effective board of directors is that a good board does things right.  That statement becomes more useful when we try to categorize the areas that the board needs to get right.  I’m going to suggest eight areas that your board needs to get right.

A good board also needs the right structures.  Those structures are unique to each cooperative but includes components such as the right number of …

Phil Kenkel

Bill Fitzwater Cooperative Chair

Patronage is one of the benefit streams from a cooperative.  Patronage is affected by both prices and efficiency.  One would hope that a cooperative sets prices at market level and the resulting profits and patronage reflect the efficiency of the firm.  From that line of reasoning, it is easy to see why cooperatives focus on efficiency.  Research suggests that the ratio of expenses to gross margin (a common measure of efficiency) is correlated with …