Rural Cooperatives Magazine - March/April 2001
Earnings, sales dip for local cooperatives
Beverly L. Rotan, Ag Economist
USDA Rural Development
Local cooperatives handling farm supplies experienced a slight decrease in earnings during 1999, with net income averaging almost $327,000. Sales were also down slightly, averaging just over $13 million. About 26 percent of the cooperatives in this study suffered losses.
Although patronage refunds were down from 1998, they were still an important source of revenues. These refunds allowed 19 (out of 77) cooperatives that suffered losses on their local farm supply operations to post a gain in net income.
Current assets of local co-ops that market farm supplies declined, but total assets increased 7 percent from 1998 to 1999. Investment in plant, property and equipment (PP&E), grain and oilseed inventories, farm supply inventories, and accounts receivable for farm supply sales grew slightly.
Current liabilities declined 0.6 percent in the two-year period, with patrons' credit balances and "other" liabilities having the largest decrease. Current term and seasonal short- term debt used for financing operating expenses grew in double digits. Also increasing were accrued expenses, long-term debt, cash patronage refunds and dividends. Long-term debt increased by 10 percent from 1998 to 1999.
Farm supply sales followed the downtrend, posting a 3-percent decrease. Petroleum was the most important farm supply item sold. Feed was the second most important farm supply item sold, although there was a 6-percent decrease from 1998. Surprisingly, seed, tires, batteries and accessories and "other" farm supplies showed some growth, but these gains were offset by a steep drop of about 20 percent for other farm supplies sold by local co-ops. Service income was up about 10 percent.
Crop marketing sales also suffered sharp declines, with grain sales off the most, sliding 9 percent, to just over $5 million per co-op, on average.
Cost of goods sold and total sales (including farm supplies, grain, etc.) almost offset each other, with cost of goods sold falling about 7 percent and total sales falling 6 percent. Cost of goods sold averaged more than 85 percent of net sales. Total expenses were up from 1998, increasing about 7 percent.
Agricultural cooperatives continued to play a vital role for farmers, supplying them with both production goods and marketing their crops and livestock. These co-ops are also important to rural communities, where they are often one of the largest employers. These co-ops generate considerable tax revenues for rural towns.
The expense for a single employee averaged $34,493, and the local co-ops employed an average of 29 people, up about 4 percent from 1998.
Directors' fees and expenses were a small part of total costs. However, director compensation was an important factor in getting farmers to re-channel time normally spent on their own operations to helping to guide their cooperatives. Board expenses were rather modest, averaging $896 per director annually. The co-ops surveyed averaged 10 board members.
Production and prices for most grains and oilseeds decreased greatly in 1999 and most inventories were probably stored until cooperatives could capture higher prices.
Because co-ops are owned by their farmer/member/patrons, and as long as those farmers want to own a business where they can purchase their supplies and market their products, cooperatives will continue to adapt to changing economic conditions. Local cooperatives cannot depend on large patronage refunds to generate net earnings. During the past two decades, consolidation reflected an attempt to maintain an adequate size from which to provide their members with expanded products and markets. With numerous local co-ops losing money, further consolidation may be necessary in the future.
Information for this article was compiled from a study that collected detailed financial information from 291 cooperatives. Most respondents were small farm supply cooperatives, with sales averaging less than $2.5 million. Cooperatives were grouped into four sizes by sales volume, using actual figures. No attempt was made to deflate these values. Sales groupings used in this report were the same as in similar USDA studies and, for the 291 cooperatives, sizes and types used are summarized in table 1.[end]
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