Survey shows dairy co-ops in
generally strong financial state
Carolyn Liebrand,Agricultural
Economist
USDA Rural Development
e-mail: carolyn.liebrand@usda.gov
Editor’s note: This article is based on
USDA's annual survey of all U.S. cooperatives,
which gathered 2002 financial and
marketing data for dairy cooperatives.
More detailed results are presented in
Research Report 203, “Financial Profile of
Dairy Cooperatives, 2002” available at:
www.rurdev.usda.gov/rbs/pub/newpub.ht
m. For a hard copy, call (202) 720-8381,
or e-mail: dan.campbell@usda.gov.
n 2002, all types of U.S.
dairy cooperatives were
negatively impacted by
lower milk and dairy
product prices.
Nevertheless, dairy cooperatives in
general appeared to be in good shape
financially, irrespective of operating
type. Cooperatives successfully
employed a variety of methods to market
members’ milk. While some used
few assets and operated on narrow
margins, others employed considerable
capital and generated wider margins.
This report uses some basic financial
yardsticks for measuring the fiscal
status of co-ops, based on the type of
operations.
More assets per cwt
Dairy co-ops used about $1 per
hundredweight (cwt) more of assets in
2002 than they did five years before.
Data analyzed by USDA Rural
Development shows that dairy cooperatives
employed $6.22 of assets per cwt
to market their members' milk in 2002
(table 1).
The growth in assets stemmed from
an increase in fixed assets (property,
plant, equipment and other fixed
assets). Much of this increase was supported
by a rise in long-term liabilities
per cwt of member milk relative to
1997 — the last time a detailed look
into dairy cooperatives’ financial performance
was taken by USDA Rural
Development.
Total liabilities came to $4.13 per
cwt of member milk, which amounted
to two-thirds of total assets. The $2.39
in current liabilities represented mostly
pending payments to members and
made up 58 percent of all liabilities.
On the other side of the ledger,
dairy cooperatives had $2.81 per cwt
in current assets and $2.90 per cwt of
property, plant and equipment in 2002
-- each representing around 46 percent
of total assets. With current
assets exceeding current liabilities by
18 percent, the short-run solvency
picture looked strong for dairy co-ops
in 2002.
Member equity of $2.10 per cwt of
milk represented one-third of total
assets. Member investment in cooperatives
per cwt was about the same as in
1997, but made up a slightly smaller
share of total assets. Furthermore, the
ratio of long-term liabilities to equity
almost doubled from that in 1997 (.83
vs. .44).
Relatively low milk and dairy product
prices in 2002 were reflected in the
operating statement. Milk and dairy
product sales were about $3 per cwt of
milk handled below those reported in
1997 (table 2). Milk and dairy product
sales of $15.73 per cwt, the largest single
income item, represented 86.1 percent
of total dairy cooperative income
in 2002.
Supply and other sales was the next
largest source of income, at $2.19 per
cwt, accounting for a slightly larger
share of total income than in 1997.
Total income was $18.27 per cwt while
net margins before tax came to 21
cents per cwt of milk handled. Return
on sales was a modest 1.2 percent in
2002.
These figures come from a survey
of U.S. dairy cooperatives conducted
by the Rural Cooperative-Business
Service of USDA Rural Development.
Forty-one percent of the dairy cooperatives
in the United States provided
financial information in sufficient
detail to be included in the financial
profile of dairy cooperatives for 2002.
However, these 80 cooperatives represented
almost all (98 percent) of the
combined total assets and most (97
percent) of the net milk volume handled
by all U.S. dairy cooperatives.
Performance varies
by type of operation
U.S. dairy cooperatives use a variety
of means to market members’ milk.
The various types of operations
require differing levels of capital and
generate differing amounts of income
and returns.
Cooperatives providing data for this
study were grouped into four general
operating methods: bargaining only;
commodity manufacturing; niche marketing;
and diversified and fluid processing.
The diversified and fluid processing
cooperatives handled about
two-thirds of the net milk volume
reported while bargaining-type co-ops
handled 23 percent (fig 1).
Commodity manufacturing cooperatives
made up 9 percent of the net
cooperative milk volume in 2002 while
niche marketing cooperatives represented
less than 1 percent.
Diversified and fluid processing
cooperatives were also the dominant
operating type in terms of assets, holding
91 percent of all assets of reporting
dairy co-ops while bargaining only coops
held just 4 percent. Similarly,
diversified and fluid milk processing
cooperatives had almost three-fourths
of cooperative milk volume and dairy
product sales. Bargaining-only co-ops
had the next largest share, 18 percent.
Niche-marketing cooperatives’ shares
of assets and dairy sales were less than
1 percent.
The assets supporting the various
methods dairy cooperatives used to
market their members’ milk ranged
from $1 to $10 per cwt, depending on
the type of operations employed (table
3 and figure 2). Likewise, total income
per cwt varied by almost $8 while net
margins came to between 4 and 32
cents per cwt of milk handled (table 4).
Bargaining-only dairy co-ops
Bargaining-only cooperatives seek
the most profitable outlets for their
members’ milk at the first-handler
level and do not own or operate plants.
Thus, they require the fewest assets to
market a cwt of milk, $1.02 in 2002.
This was the only operating type of
co-op to show lower total assets in
2002 compared to 1997. Current
assets represented 75 percent of total
assets used.
Likewise, bargaining-only cooperatives
had the fewest liabilities and
member investment on a per-cwt of
member milk basis. As such, longterm
liabilities came to just 6 percent
of total assets, the lowest level of the
four operating types.
At the same time, bargaining-only
cooperatives generated the lowest milk
and dairy product sales per cwt,
$12.84. Net margins of 4 cents per cwt
were well below those of any of the
other types. However, due to the low
use of equity and fixed assets, return
on equity (17.2 percent) and return on
fixed assets (18.5 percent) were highest
among the operating types. Further,
return on total assets was a modest 4.7
percent, below the average for all
cooperatives (5.3 percent).
Commodity marketing dairy co-ops
Commodity marketing cooperatives
operate plants to produce bulk dairy
products in high-volume plants. Many
of these plants capture economies of
scale in producing undifferentiated,
storable commodity dairy products.
They required the second lowest level
of assets, $3.41 per cwt, in 2002. Like
bargaining-only cooperatives, current
assets made up a majority (53 percent)
of their total assets. Commodity manufacturing
cooperative members had
the next to lowest investment in their
cooperatives, $1.60 per cwt.
Like bargaining-only cooperatives,
more than 90 percent of the commodity
manufacturing cooperatives’ total
income came from the sale of milk and
dairy products. Net margins for commodity
manufacturing cooperatives
were almost four times those of bargaining-
only cooperatives, yet they
were well below the other two operating
types. However, perhaps reflecting
efficiency of operation or economies of
scale, return on total assets was 6.7
percent, the highest of all operating
types in 2002.
Diversified and fluid
processing dairy co-ops
Diversified and fluid processing
cooperatives were lumped together in
one category. Fluid processing cooperatives
aim to capture value for their
members by processing and packaging
fluid milk, as well as products such as
ice cream, sour cream, cottage cheese
and/or yogurt. Diversified cooperatives
have a broad spectrum of operations,
selling a large portion of their milk
supply to other handlers while maintaining
a steady volume at their own
processing or manufacturing plants to
make both commodity and differentiated
products.
The system of plants operated by
diversified and fluid processing cooperatives
and their marketing operations
required the next highest level of assets
in 2002, $8.44 per cwt. They also
showed the largest increase in asset use
compared to 1997’s $6.96 per cwt.
Long-term liabilities represented 30
percent of total assets, the highest level
among the different operational types.
Furthermore, long-term liabilities
came to 90 percent of the equity members
had in the cooperatives. The
other operating types had ratios that
were less than one-half of that.
Supply and other sales made up
more than 14 percent of total income
for diversified and fluid processing
cooperatives, well above the level of
supply and other sales of either bargaining-
only or commodity-manufacturing
cooperatives. Total income and
net margins before tax for diversified
and fluid processing cooperatives were
also far above those two types and
were only slightly below that of nichemarketing
cooperatives.
Return on total assets was 5.3 percent,
a bit below returns for commodity
manufacturing cooperatives, but above
the other two operating types. Diversified
and fluid processing cooperatives
achieved the second highest return to
members’ equity, 11.7 percent.
Niche-marketing dairy co-ops
Niche-marketing cooperatives typically
process most of their members’
milk into specialty or branded dairy
products for particular market niches.
Most handle relatively small volumes
of member milk and, relative to the
other types, require the most assets per
cwt of member milk for cooperative
operations.
Assets employed in 2002, $10.03
per cwt, were similar to asset use in
1997, $10.07. The small volume of
milk handled by most niche-marketing
cooperatives diminishes their ability to
capture the level of economies of size
that commodity-manufacturing and
diversified cooperatives do.
Niche-marketing cooperatives made
the most use of member equity -- the
only operating type where equity represented
a majority of total assets (58
percent). Their members’ investment
of $5.80 per cwt was twice as high as
diversified and fluid processing cooperative
members’ investment in their
cooperatives. Additionally, niche-marketing
cooperatives, along with diversified
and fluid processing cooperatives,
had significantly larger total liabilities
per cwt of milk than the other two
types.
Niche-marketing cooperatives generated
the largest milk and dairy product
sales per cwt. Niche-marketing
cooperatives also had the most supply
and other sales per cwt of all operating
types. Thus, niche-marketing cooperatives
had the highest total income per
cwt, $21.94.
Niche-marketing co-ops also had
the largest net margins before tax per
cwt, 32 cents. Return to sales was 1.4
percent, the same as diversified and
fluid processing cooperatives, and wellabove
the other two operating types.
Nevertheless, return to assets for
niche-marketing cooperatives of 3.7
percent was lowest of all operating
types in 2002.
