Upswing Continues
Despite loss of Farmland & Agway,
revenue, income climb for top 100
By David Chesnick,Ag Economist
USDA Rural Development
here was a dramatic
change in the landscape
of the nation’s 100
largest agriculture cooperatives
in 2003. No
longer were Farmland and Agway
included in the top 100 co-op list, as
both closed their doors. However, this
does not mean the agriculture cooperative
sector, as a whole, is on a downswing.
Indeed, quite the contrary is
true. In preliminary findings, the
largest agriculture cooperatives had a
jump of 7.8 percent in total operating
revenue while net margins and patronage
to members each soared 39 percent
in 2003 (table 1).
Based on USDA’s annual survey of
cooperatives, the top 100 co-ops had
operating revenue of $58.3 billion, up
from $54.1 billion in 2002. That’s
about half of total revenue for the
nation’s 3,000 farmer-owned co-ops.
Marketing activity contributed 72 percent,
farm supply sales 26 percent and
“other revenues” 2 percent of total
revenue for the top 100 co-ops.
Leading the increase were the “diversified”
category of cooperatives, with a
jump of $2.1 billion in total revenue.
Farm supply sales for diversified cooperatives
— those that primarily market
members’ grain and sell them farm supplies
— were up 38 percent, to $8.1 billion.
This marks the first time farm supply
sales were greater than marketing
revenue for diversified cooperatives.
Grain and farm supply cooperatives
also showed substantial gains in revenue,
with each group adding more
than $1 billion to total revenue. Fruit
and vegetable cooperatives had a $1
billion decline in total revenue.
However, most of the decline was due
to a restructuring activity that will
help a co-op improve its bottom line.
Margins soar
Net operating margins (gross margins
less operating expenses) were up
10.4 percent, to $980 million. Most of
the increase came from diversified
cooperatives, where net operating margins
jumped $125 million, to $268 million. Poultry/livestock cooperatives
showed the largest decline in operating
margins, which fell $106 million, leaving
them with a net operating loss of
$41 million.
Overall net margins from operations
(which exclude all non-operating revenues
and expenses) hit $906 million in
2003, an increase of 14.1 percent for
the top 100. Much of the gain was due
to fruit/vegetable cooperatives, which
saw net margins from operations climb
by $105 million, to $261 million. Nonoperating
revenues and expenses generally
include gains or losses from disposing
capital assets, accounting changes
or other one-time revenue or expenses
not related directly to operations.
Net margins — the bottom line for
cooperatives — increased 39.8 percent,
to $870 million for the top 100 co-ops
in 2003. With the exception of diversified,
grain and poultry/livestock cooperatives,
all commodity groups showed
substantial gains in net margins.
Poultry/livestock cooperatives were the
only commodity group to have a net
loss ($64 million).
More patronage goes to members
The top 100 cooperatives allocated
82 percent, or $718 million, of net
margins back to their members as
patronage in 2003. Of that amount,
$265 million was in cash payments to
members while the remaining $453
million was retained by the co-ops.
Dairy cooperatives led the way, allocating
94 percent of net margins back to
members.
Non-qualified, non-cash patronage
refunds were up 67 percent, to $7 million.
Dividends remained fairly constant,
at $10 million. Unallocated equity,
which was used to absorb net losses
in prior years, absorbed $87 million of
the net margins, up $83 million from
2002. Fruit/vegetable cooperatives was
the primary co-op group still using
unallocated equity and tax benefits to
absorb net losses.
Patronage refunds received by the
top 100 co-ops reached $99 million in
2003, up 54.5 percent. Much of this
increase was reaped by diversified
cooperatives, which saw patronage
increase 125.2 percent, to $61 million.
Goods, labor costs rise
Cost of goods sold by the top 100
co-ops was up 8.4 percent, with most
of the increase occurring among diversified,
grain and farm supply cooperatives.
These three commodity groups
also accounted for the largest increase
in total operating revenue.
Operating expenses were up a slight
.3 percent, to $4.2 billion, due in part
to higher labor costs. Cooperatives
that reported labor expenses indicated
costs were up 5 percent from 2002.
Labor as a percent of total expenses
rose from an average of 65 percent of
total expenses to 68 percent in 2003.
The largest increase in operating
expenses occurred in the grain sector,
up 12.2 percent, to $541 million.
Dairy cooperatives’ operating expenses
jumped up $42 million, to $807 million.
Fruit/vegetable cooperatives saw
the biggest decline in operating
expense, dropping 12.7 percent, to
$855 million, despite a 5-percent
increase in reported labor costs.
Low interest rates, coupled with
falling debt, pushed interest expense
for the top 100 co-ops to its lowest
level since 1994. Interest expense fell
12 percent, to $442 million. However,
most of this decline can be traced to
one cooperative which underwent
major restructuring. Without that
cooperative, overall debt levels would
be higher. There was also a slight
increase in interest expense of $1 million.
Lower interest rates caused interest
income to fall 24.9 percent, to $27
million. Nearly all commodity sectors
experienced falling interest revenue.
Other income, indirectly related to
operations, was also down 6.5 percent,
to $335 million. However, interest and
other income generally accounts for
less than 1 percent of total revenue for
all top 100 cooperative.
Other expenses not directly related
to operations were up 54.3 percent in
2003, to $113 million. This is the
largest amount of indirect expenses for
the top 100 co-ops in the past 10 years.
Income taxes paid jumped nearly
200 percent, to $49 million.
Non-operating expenses were down
79.5 percent, to $35 million. These
expenses are caused by accounting
changes, extraordinary gains and losses,
as well as income and expenses
from other marginal interests. These
expenses and revenues are generally
non-reoccurring.
Co-ops build asset value
Total assets for the 100 largest agriculture
cooperatives were up 3.1 percent,
to $24.7 billion (table 2) in 2003.
Leading the increase were current
assets, which jumped 7.3 percent, to
$11.9 billion. Investments dropped
slightly, falling .2 percent, to $3.6 billion.
Fixed assets also slipped marginally,
from $7.1 billion to $7 billion.
The largest increase in current
assets was in cash balances. Cash
jumped 47 percent, to $980 million.
Higher net margins from operations
helped fuel the increase in cash balances,
with almost all commodity
groups having higher cash balances at
the end of 2003. The exception was
rice cooperatives, which used the higher
cash flow generated by operations to
pay off debt.
Investments in other cooperatives,
excluding cooperative banks, was up
1.9 percent, to $1.5 billion. Most of
the investments in other cooperatives
reside with diversified, farm supply,
grain and poultry/livestock cooperatives.
Investment in cooperative banks
was down 4.6 percent, to $57 million.
Cooperatives carried less debt in
2003, especially from cooperative
banks. Non-cooperative business
investment was down 1.2 percent, to
$1.8 billion. Most of these investments
(63.7 percent) were held by
dairy cooperatives.
The value of fixed assets fell 1.9
percent, to $7 billion, continuing a
trend that started in 2001. However,
much of the decline in 2003 can be
attributed to one cooperative which
sold off substantial amounts of its
fixed-asset base. The average value of
fixed assets purchased was up $253,000
from 2002, to $8.5 million.
Despite overall lower debt levels,
total liabilities were up 1.7 percent, to
$14.8 billion. The increase in liabilities
was due mostly to higher current
liabilities, which jumped 3.5 percent,
to $8.7 billion. An increase in accounts
payable and liabilities owed to members
fed the increase in current liabilities.
Accounts payable jumped $293
million, to $3.1 billion, and funds
owed to patrons were up $164 million,
to $2 billion. Total funds owed to
members included member payables
and other liabilities owed to patrons.
Working capital loans were down
10.4 percent, to $2.1 billion, the lowest
level in more than 10 years. Diversified
cooperatives accounted for the majority
of the decline, with loan value
falling $333 million.
More cash flow from operations
Cooperatives were able to generate
higher levels of cash flow from operations,
allowing them to rely less on
working capital loans. The increase in
accounts payable and funds owed to
members are more likely in response
to higher sales. The ratio of these liabilities
to cost of goods sold remained
steady, at around 9.7 percent.
Non-current liabilities fell .8 percent,
to $6.1 billion. Again, lower debt
levels were the driving force. Total
long-term debt, less current portion
owed, was down 2.6 percent, to $4.9
billion. Generally, this decline can be
traced to lower investments in fixed
assets. However, higher margins, along
with higher cash balances, gave many
cooperatives flexibility to pay down
outstanding balances without acquiring
new loans.
Eighteen top 100 cooperatives held
majority holdings in subsidiaries in
2003. The top 100’s minority interest
in subsidiaries was up 20.1 percent, to
$924 million. Most of the minority
interest is concentrated in the dairy
sector, with dairy cooperatives holding
more than 51 percent of the total.
Diversified and sugar cooperatives
hold 45 percent of the other minority
interest. Each of those sectors
increased the amount of minority
interest.
Stronger equity position
Cooperatives’ improved their equity
position in 2003, continuing the trend
of the past few years. Total equity grew
4 percent, to $9 billion. Total equity
allocated to members grew $248 million,
to $7.9 billion.
Unallocated equity increased 9.7
percent, to $1.1 billion. The increase
in unallocated equity reversed a declining
trend of the past five years.
Diversified co-ops led the increase
in equity. Their equity balance climbed
$175 million, to $2.4 billion. Dairy and
grain cooperatives among the top 100
also increased their equity balance by
$76 million each.
The dairy sector placed most of its
increase in unallocated equity
accounts, while grain cooperatives allocated
a majority of income back to
members in the form of equity credits.
Poultry/livestock cooperatives were the
only commodity group to suffer a
decline in total equity.
