Phil Kenkel
Bill Fitzwater Cooperative Chair
I recently had a chance to visit with a farm supply firm that was organized as an employee owned stock ownership program (ESOP). When a new employee was hired they received a small portion of their compensation in stock. The stock vested (the employee had full ownership rights to the stock) after a set number of years. At a later date the stock revolved with the value based on an outside valuation of the …
Phil Kenkel
Bill Fitzwater Cooperative Chair
Economics has been termed “the dismal science.” It therefore goes against my training to write anything positive. That makes it a struggle to describe the impact of tax reform on agricultural cooperatives, because it is basically all good! The outcome is a tribute both to our state and national cooperative councils and the apparent positive reputation of agricultural cooperatives among legislators.
The Tax Reform and Jobs Act of 2017 had several provisions that impacted …
Phil Kenkel
Bill Fitzwater Cooperative Chair
Many cooperative separate their functions into departments and track the performance and profitability of each unit. It is generally easy to allocate revenue and variable costs across departments. Departmental analysis necessitates allocated fixed or overhead expenses across the units. Some fixed costs are also easy to allocate. The ownership cost of the fertilizer application equipment can be assigned to the fertilizer department. Other expense, like the salaries of the main office staff, the central …
Phil Kenkel
Bill Fitzwater Cooperative Chair
Multi-stakeholder cooperatives have an interesting structure. Time will tell as to whether they are viewed as a major evolution of the cooperative business model or a niche structure. It is easy to see how there could be advantages in bringing more stakeholders in as member owners. Multi-stakeholder cooperatives also have inherent challenges in harmonizing and aligning the incentives and interest of multii classes of members. Some of the strategies that mutli-stakeholder cooperatives use to …
Phil Kenkel
Bill Fitzwater Cooperative Chair
In my last few newsletters I have been discussing my research on the risks areas in grain marketing and farm supply cooperatives. The results, which were based on intensive examination of ten case study cooperatives, identified grain volume as the largest risk bucket followed by grain margin and fertilizer margins. The relative results varied across cooperatives. Fertilizer margin was a major source of risk for at least one case study cooperative.
Just like grain …
Phil Kenkel
Bill Fitzwater Cooperative Chair
Agricultural cooperatives rapidly developed in the U.S. after the passage of the Capper Volstead Act. A 1924 USDA survey reported over 10,000 agricultural cooperatives. That period of cooperative formation coincided with the development of the Land Grant University System. At one time, many Land Grant Universities had cooperative specialists, often in Departments of Agricultural Economics. As agricultural cooperatives matured, they became larger and more diversified. The number of cooperative specialists at Land Grant Universities …
Phil Kenkel
Bill Fitzwater Cooperative Chair
While Section 199A, which was part of the 2017 Tax Cuts and Job Act, has faded from the news, many questions remain as to the exact implementation and guidance. Despite the saying that “the devil is in the details” it is useful for cooperative CEO and board members to take a high level look at the basic structure of the new tax provision. That “30,000 foot” view of Section 199A reveals some key strategic …
Phil Kenkel
Bill Fitzwater Cooperative Chair
Mature cooperatives are always challenged to meet the needs of a diverse membership. Cooperative leaders are used to considering differences in age and time perspective, farm size, services required and even interest in being involved with the cooperative. Tax reform has created another possible area of member heterogeneity and that dimension relates to farm level W-2 wages. Under Section 199A producers, marketing through a cooperative face a tax disadvantage (reduction in a pass through …
