Revenue, margins trend downward
for nation’s top 100 ag cooperatives
By David Chesnick,
Ag Economist
USDA Rural Development
david.chesnick@usda.gov
uch of the nation’s
business sector struggled
during 2002, and
cooperatives were no
exception. Symbolic of
this economic downturn were Chapter
11 bankruptcy filings by many large
U.S. businesses, including several by
major cooperatives. Preliminary
reports analyzed as part of USDA’s
annual financial survey of the top 100
farmer-owned cooperatives show
that more than half of the co-ops ended
2002 with lower total revenue than
in 2001. For the top 100 farm cooperatives
as a whole, revenue dipped 7.5
percent from 2001.
Despite the deteriorating revenue
picture and bankruptcy filings, the
largest cooperatives showed surprising
resilience in the face of a difficult economy
in 2002.
Most of the $5.2 billion decline in
operating revenue can be attributed to
lower sales in the dairy and diversified
co-op groups. These two sectors
accounted for 80 percent of the revenue
decline. Strong showings by cotton,
grain and rice co-ops helped offset
the downtrend, as indicated in table 1
(which compares total revenue for all
co-op commodity groups between
2001 and 2002).
Gross profit margins for the top 100
co-ops also declined, falling 2.2 percent,
to $5.6 billion the lowest
amount in 10 years. Cost of goods sold
mirrored the change in revenue, falling
8 percent in 2002, which prevented
gross profit margins from falling more
than they did.
Operating expenses of $4.8 billion
remained virtually unchanged from
2001. This resulted in net operating
margins of $796 million, another 10-year low. Lower interest expense and
non-operating revenue boosted net
margins from operations by 15.5 percent,
to $613 million (table 2).
Cotton co-op margins soar
Cotton prices edged higher in 2002,
thanks in part to rising exports. Most
cotton cooperatives reported improved
revenue, with a 14.6 percent gain for
the sector. Prices returned to members
in the form of cost of goods sold
increased 8.8 percent, substantially less
than the increase in revenue. The
result was higher gross margins, which
reached $232 million in 2002, an
increase of just under 150 percent an
the highest level recorded in the past
10 years.
Cotton cooperatives needed higher
gross margins to cover record-high
operating expenses. Operating expenses
jumped 84.3 percent, to $161 million
(due mostly to the cost of processing
a very large crop), leaving net
operating margins of $70 million in
2002. Due to lower interest rates as
well as lower debt levels, interest
expense was down 41 percent, to $14
million. The result was $62 million in
net margins from operations in 2002, a
tremendous improvement over a $4
million loss in 2001.
Dairy suffers low prices
Lower milk prices coupled with
lower volume pushed revenue down
10.1 percent for dairy cooperatives in
2002. After reaching record levels in
2001, dairy cooperatives ended the year
with total revenue of $18.9 billion,
down $2.1 billion from 2001. Similar
to cotton cooperatives, dairy cooperatives
lowered their cost of goods sold
by 10.5 percent, resulting in a 2 percent
drop in gross margins, to $1 billion,
in 2002.
Operating expenses for dairy co-ops
were up 2 percent, to $933 million.
Lower gross margins with higher
operating expenses caused net operating
margins to fall 19.4 percent, to
$157 million, the lowest level in the
past 10 years. Lower working-capital
loans and lower interest rates cut
interest expense by 25.2 percent, to
$48 million. Although down 17.1 percent
from 2001, net margins from
operations were still a healthy $203
million in 2002.
Cooperative failures
hurt diversified sector
Diversified cooperatives took a hit
in 2002, with two cooperatives filing
for chapter 11 bankruptcy. The losses
generated from these cooperatives
pushed total revenue for diversified
cooperatives down 11.8 percent, to
$21.5 billion. Gross margins were
down 15 percent, to $1.2 billion, levels
not seen since 1994.
Lower gross margins and higher
operating expenses left diversified
cooperatives with a net operating loss
of $13 million. Despite higher nonoperational
revenue and lower interest
expense, diversified cooperatives ended
2002 with a net loss from operations of
$88 million.
Mixed results for
fruit/vegetable co-ops
As in 2001, the market was mixed
for fruit/vegetables. Some produce
crops had higher prices, while prices
retreated for others. The net result was
that fruit/vegetable cooperatives saw
their net revenue dip 2.2 percent, to
$5.2 billion. Cost of goods sold was cut
2.7 percent, resulting in a slight 0.3
percent decrease in gross margins, to
$997 million.
Fruit/vegetable cooperatives continued
to cut operating expenses. Operating
expenses are down 30 percent since
1999, falling to $771 million in 2002.
Lower expense boosted net operating
margins 24 percent, to $226 million.
Lower interest expense also helped the
bottom line for these cooperatives. Net
margins from operations were up 93
percent, to $95 million, in 2002.
Petroleum sale decline
cuts farm supply revenue
Farm supply cooperatives suffered a
$612.6 million decline in revenue in
2002. Lower petroleum sales accounted
for nearly half of the decrease in revenues.
Lower demand for fertilizer also
hurt farm supply sales. Gross margins
were down 6 percent, to $682 million,
the lowest amount since 1993.
Operating expenses increased 2 percent,
to $664 million, for farm supply
co-ops. That’s the highest expense level
in the past 10 years. Higher operating
expenses combined with lower
gross margins sliced deep into net
operating margins. Net operating
margins were down 76.4 percent, to
$18 million. Fortunately, lower interest
expense, along with higher nonoperational
revenue, prevented net
margins from operations from becoming
a net loss. Net margins from operations
were $14 million, down 19.9
percent from 2001.
Grain revenue climbs
Grain prices and supplies held
steady from 2001 to 2002. Virtually
all co-ops categorized as “grain coops”
in USDA’s top-100 co-op survey
also provide farm supplies and services
to their members. However,
those cooperatives that predominately
market members’ grain generated
higher revenue from their farm supply
sales and service revenue. Feed
sales pushed up total farm supply sales
by 37 percent, helping boost total
revenue for grain cooperatives by 7.3
percent, to $5.7 billion.
Gross margins for grain co-ops
climbed 2 percent, to $533 million.
However, operating expenses jumped
12 percent, to $471 million, suppressing
net operating margins 38.6 percent,
to $62 million. Similar to farm supply
cooperatives, grain cooperatives had
lower interest expense and higher nonoperational
income, which lifted net
margins from operations to $100 million.
However, this was down 6 percent
from 2001.
Livestock margins surge upward
Declining livestock sales pushed
revenue down for poultry & livestock
cooperatives in the top 100. This
commodity group had a decline in
revenue of 3 percent, to $2.4 billion
in 2002. Gross margins of $174 million
were up 28 percent. Even in the
best of times, margins are generally
tight for poultry/livestock cooperatives, so any increase helps.
Higher gross margins and lower
operating expenses provide
livestock/poultry cooperatives with a
165.6 percent increase in their net
operating margins. Net operating margins
reached $65 million in 2002. Lower
interest expense also helped increase
net margins from operations by 61.3
percent, which ended the year at $67
million.
Record net margins for rice
Rice sales were up 1.1 percent,
which halted the declining revenue
trend of the past few years. Rice
prices and production declined once
again in 2002. A few rice cooperatives
opened some foreign markets for rice
exports, which helped boost their
total sales. However, these sales came
at a price, as their cost of goods sold
jumped 5.6 percent and caused gross
margins to fall 9.1 percent, to $292
million.
Operating expenses were slashed
54.2 percent, to $140 million, which
left rice cooperatives with the highest
net operating margins in the past 10
years. Net operating margins were up
914.7 percent, to $152 million.
Higher operating margins and lower
interest expense gave rice cooperatives
a tremendous boost to their bottom
line. Net margins from operations skyrocketed
1,691.5 percent, to $151 million,
a record high.
Margins hold for sugar co-ops
Revenue for sugar cooperatives fell
8 percent, to $1.5 billion in 2002.
However, lower cost of goods sold
enabled gross margins to remain relatively
unchanged from 2001 at $351
million. Lower operating expenses
increased net operating margins 67
percent, to $58 million.
Higher net operating margins and
lower interest expense allowed sugar
cooperatives to post net margins from
operations of $9 million. Sugar cooperatives
have been operating at a net loss
from operations since 1997.
Assets of top 100 drop
Assets for the top 100 cooperatives
fell for the first time since 1998. Figure
1 shows the ownership of assets for the
past five years. Outside claims to cooperatives’
assets are in the form of liabilities.
Members’ claims on co-op assets
are reflected in member equity.
Total assets for the top 100 fell 2.1
percent, to $27.2 billion. Most of the
commodity groups with the exception
of farm supply, grain and rice
cooperatives saw their assets decline
in 2002. Most of the drop was due to
lower amounts of current assets.
Current assets fell $564 million to
$12.3 billion.
On the other hand, total liabilities
only declined 0.9 percent to $17.7
billion. The largest cooperatives
appeared to be transferring more of
their liabilities from short-term to
long-term. While current liabilities
fell 4.7 percent, to $9.5 billion,
non-current liabilities increased 3.9
percent, to $8.2 billion.
Member equity fell $327 million,
to $8.7 billion, the lowest level since
1995.
Cotton cooperatives ended the year
with 31.7 percent less current assets
than in 2001. Declining current assets
pushed down their total assets by 23.5
percent, to $667 million. Their liabilities,
both current and long-term, fell
35.4 percent. Total liabilities for cotton
cooperatives were $387 million at the
end of 2002. Some of the higher margins
from operations were rolled over
into their member equity, which
increased 2.9 percent, ending 2002 at
$280 million.
Dairy cooperatives also ended the
year with lower value assets. Current
assets fell 11 percent, which caused
total dairy assets to fall 5.1 percent, to
$4.8 billion. Total liabilities declined
8.7 percent, to $2.7 billion, due to a
drop of 12.9 percent in current liabilities
to $41.9 billion.
Long-term debt actually increased
3.4 percent, to $778 million. Minority
interest and member equity remained
unchanged from 2001, at $378 million
and $1.8 billion, respectively.
Despite the much reported co-op
bankruptcies, total assets for diversified
cooperatives remained unchanged at
the end of 2002, standing at $10.7 billion.
On the other hand, total liabilities
jumped 3.8 percent, to $7.7 billion.
Leading this increase was long-term
debt. Long-term debt was up 5.2 percent,
to $4.2 billion, while current liabilities
were up 2.3 percent, to $3.5 billion.
As would be expected with filings
for bankruptcy, member equity fell
10.8 percent, to $2.7 billion.
Total assets for fruit/vegetable
cooperatives dropped 8.2 percent,
with both current and long-term
assets falling. Current assets declined
5.4 percent, to $1.6 billion, while noncurrent
assets were down 11.4 percent,
to $1.3 billion. Liabilities fell 6.5
percent, to $2.2 billion.
Current liabilities fell 9.9 percent
and long-tem liabilities fell 3.7 percent,
to $935 million and $1.2 billion respectively.
Equity for fruit/vegetable co-ops
fell to its lowest level in the last 10
years, at $777 million, a 13 percent
decline.
Supply, grain co-ops
expand asset base
Farm supply cooperatives were one
of the few commodity groups showing
an expanded asset base. Total assets
grew 3.8 percent, to $2.6 billion. The
growth was due to expanded current
asset levels, which grew 13 percent, to
$1.4 billion. However, the growth was
due to higher debt levels. Current liabilities
grew 3.1 percent, to $959 million,
while long-term liabilities grew at
a 24.4 percent rate, ending 2002 at
$647 million. Equity fell 5.6 percent, to
$1 billion.
Grain cooperatives also ended 2002
with a higher asset level. Both current
and long-term assets grew, with net
assets growing 9.6 percent, to $2.6 billion.
Current assets increased 11.9 percent
while non-current assets grew 7.1
percent, to $1.4 billion and $1.2 billion,
respectively.
Grain cooperatives used both borrowed
funds and member equity to
fund the asset expansion. Total liabilities
grew 12.2 percent, to $1.5 billion,
while member equity grew 6.6 percent,
to $1 billion.
Poultry/livestock cooperatives saw
assets drop by 11 percent, to $894
million. Current assets were 14.5 percent
lower and non-current assets
were 23.3 percent lower. Liabilities,
both current and long-term, were
down 16.1 percent, to $606 million.
Current liabilities were 28.9 percent
lower and long-term liabilities were
1.9 percent lower. With higher margins,
poultry/livestock cooperatives
were able to add equity to their balance
sheets. Member equity was up
2.3 percent, to $285 million.
Assets grew at a modest 1.4 percent
for rice cooperatives in 2002, to $478
million. Growth in both current and
non-current assets fueled the increase.
This expansion was solely due to
member investment. Total liabilities
shrank 4.1 percent, to $214 million,
with long-term debt being the main
contributor to this reduction. Member
equity grew at 6.3 percent, to
$264 million.
Sugar cooperative assets fell by 1.5
percent, to $4.5 billion. Most of the
decline was in current assets, which
fell 4 percent, to $397 million.
Although there was a slight increase
of 0.8 percent in long-term debt, to
$465 million, total liabilities fell 2.9
percent, to $801 million. Member
equity grew 5 percent, reaching $459
million, the highest level of the past
10 years.
