Net income, sales decline for
local farm cooperatives
By Beverly L. Rotan, Economist
USDA Rural Development/RBS
Beverly.rotan@usda.gov
ocal U.S. farm supply
cooperatives (many of
which also market grain)
had slight declines in
both sales and net
income in 2002, but patronage refunds
from regional cooperatives helped
many show a profit for the year. The
year was a dynamic one, with cooperatives
facing many challenges.
Average sales per local co-op were
$15,288,026 in 2002, a 0.14-decrease
from $15,309,299 in 2001. The average
net income per local co-op was
$228,500 in 2002, a 0.13-percent
decline from $265,622 in 2001.
Of 263 local co-op financial statements
analyzed for this article, 85 (or
32.3 percent) had losses in 2002.
However, patronage refunds paid by
regional cooperatives were up 40.1
percent. When patronage is included,
only 20.1 percent of the local co-ops
showed a loss.
Farm supply sales by co-ops declined
2.44 percent in 2002. Fertilizer sales
were down 3.6 percent and petroleum
sales fell almost 11 percent.
Farm supply sectors showing gains
were: feed, up 4.4 percent; seed, up
13.1 percent; and crop protectants, up
3.1 percent.
Grain sales were stronger for local
cooperatives which is particularly
impressive in the face of declines in
national production in some major
grains (corn production was down 1
percent, spring wheat production was
off 17 percent, durum wheat declined
23 percent and winter wheat was down
5 percent). Soybean production, however,
was up 1 percent.
The 263 local cooperatives studied
were classified by size: small, medium,
large and super (table 2). The cooperatives
were further classified into four
types based on what percentage of
their sales come from farm supplies
(see table 2 for the precise criteria).
Stronger local co-op assets
Both current assets and total assets
were up slightly, 9 and almost 6 per
cent, respectively. All aspects of current
assets, except cash, increased during
the two-year study period. Cash
was down almost 7 percent.
Current liabilities for local co-ops
jumped nearly 10 percent during the
study period, with allocated equity
(cash), current term debt and shortterm
(seasonal) debt having doubledigit
increases. Dividend on equity had
the largest decrease (58 percent), with
revolving equity redeemed (53 percent)
showing the second largest decline.
Possible causes for declines in
revolving equity include losses allocated
from previous years, merger and/or
the cooperative was fully capitalized.
Although total revenue was up 0.8
percent, total sales were down 0.14
percent. The rise of revenue was
attributed to a slight increase in service
income, marketing products and a sizable
increase in patronage refunds
from regional co-ops.
The average operating income
(from commodity marketing, farm supplies
and service income) rose slightly.
Marketing farm commodities (crops
and livestock) and grain sales both rose
almost 4 percent. Service income
increased 8 percent. Cost of goods sold
was down 0.11 percent. In 2002, cost
of goods sold averaged about 88 percent
of net sales.
Total expenses was also up about 3
percent). Total wages were up for the
two-year period by nearly 5 percent
and represented 8 percent of total
expenses. Wage expense includes payroll/
salaries, employee benefits including
retirement and payroll taxes.
Co-ops in the study had an average
of 41 employees (part and full-time),
who earned an average salary of
$24,681. Although there was an
increase in employees, salaries were
about the same as in 2001.
Directors’ fees and expenses were a
small part of total expenses. However,
director compensation is an important
factor that helps many cooperatives
convince producers to divert time each
month to help guide their cooperative.
Co-op boards averaged seven members,
who were paid an average of $942 per
year. Director’s fees were up 3 percent.
Monitoring performance
Some performance factors are within
the control of cooperative management,
but others are not. One way to
monitor the performance of your
cooperative is through financial statements
and ratios. Ratios for the surveyed
cooperatives remained relatively
unchanged from 2001 to 2002 (table
3). Ratios that help assess your cooperative’s
performance include:
- Liquidity ratios– focus on a company’s
ability to pay bills when
due. If liquidity ratios remain relatively
high for a prolonged period,
too much capital may be
invested in liquid assets (for example,
cash, short-term investments,
accounts receivable and inventory)
and too little is devoted to
increasing member equity. These
ratios should equal one or more.
On average, surveyed cooperatives
had quick and current ratios of
slightly more than 1.0. Small
cooperatives did a better job, with
a current ratio of 2.09 and a quick
ratio of 1.09.
- Leverage ratios– reveal a company’s
use of borrowed funds (rather
than members’ equity for investments)
to expand its business.
The goal is to borrow funds at a
low interest rate and invest in
business activity that produces a
high rate of return, exceeding the
target rate of return for investment.
Debt-to-equity ratio measures
the long-term solvency of a
company by comparing debt to
net worth. A company with a high
debt-to-equity ratio could have
trouble meeting fixed
interest/debt payments if business
falters or does not grow as
planned. Most lenders would
prefer this ratio to be 3 or lower.
Farm supply cooperatives had a
debt-to-equity ratio of 0.57,
which is better than average.
- Activity ratio turnover— also
called “efficiency ratios,” measure
activity or changes in certain
assets. Poor turnover generally
indicates resources are
invested in non-income-producing
assets. The inventory
turnover ratio measures how
quickly inventory is sold and
replaced each year. An inventory
turnover of 12 means inventory
is sold (turned over) once each
month. The times-interestearned
ratio measures a company’s
ability to make interest payments
on debt. If the ratio does
not exceed the interest rate on
current debt, the business may
not be making enough to pay
interest expenses.
- Profitability ratios— vary from
industry to industry and should be
compared to a company’s ratios for
prior years/periods. The retur non
assets measures how well a
company is using its assets to generate
net profits. The return-onmember
equity ratio measures a
company’s return on members’
money. Marketing cooperatives’
gross profit margin was lower than
cooperatives in the surveyed
group. This may be an indication
of lower demand for their products
or higher production of marketed
products (crops).
