Co-ops ring up additional $14 billion
in sales via other ownership structures
E. Eldon Eversull
Agricultural Economist
USDA Rural Development
arm, ranch and fishery cooperatives had
additional sales of at least $14 billion in 2007
from other, non-cooperative business
ventures they have formed or invested in to
market products or sell supplies. These other
businesses represent more than $7.5 billion in assets.
The Cooperative Programs staff of USDA Rural
Development surveyed cooperatives about their use of other
ownership structures for business ventures in 2007. There
were 728 respondents, with 204 noting that they used other
ownership structures to bolster revenue to the co-op.
Since not all co-ops responded to the survey, the actual
sales total from these non-cooperative business ventures is
almost certainly higher than $14 billion — perhaps
significantly higher. If these revenues were added to the total
co-op business volume reported annually by USDA ($147
billion in 2007; see page 19 of the Sept.-Oct. issue of Rural
Cooperatives), co-ops would account for an even bigger share
of the nation’s food and farm supply market.
Other ownership structures used by cooperatives in this
study include limited liability companies (LLC),
corporations, limited liability partnerships (LLP),
partnerships and other types ownership structures (“other”
hereafter). This study was used to determine how many
cooperatives used these ownership structures, their
percentage of ownership and the sales and assets of these
ventures.
Variety of incentives for ventures
There are a wide variety of reasons for a cooperative to
use a non-cooperative ownership structure. For example, a
cooperative that would like to build an ethanol plant or a
food-manufacturing facility may not be able to raise enough
funds from its members or through bank loans. An LLC
might be formed to obtain funds from outside investors to
make this venture possible.
In another case, two cooperatives might form some other
type of ownership structure for their agronomy operations,
allowing the co-ops to offer more services, personnel and
equipment by pooling resources. Several cooperatives might
form a business using some other ownership structure as a
first step toward a possible merger. If the co-ops prove
compatible when working together in the venture, they
might opt to eventually form a single cooperative.
While there are many reasons for forming other
ownership structures, this study did not ascertain why they
were used nor determine whether the ventures were with
other cooperatives, investor-oriented firms, or non-member
investors. Some of the ventures in this study could be
between cooperatives, which would lead to double counting
of their sales volume. A more through analysis is planned
using information from this survey to document the use of
alternative ownership structures and their importance.
LLCs most common
The 204 survey respondents who reported using other
business structures are involved in 382 such ventures. Of
these, 312 (82 percent) were LLCs (figure 1). In 96 of these
LLCs, the co-ops owned more than 50 percent of the
business (figure 2), while 53 of the businesses were wholly
owned by the co-ops. Thus, co-ops held a controlling interest
in 48 percent of the 382 businesses.
A wide variety of cooperative sizes (by sales volume) are
involved in ownership of these businesses (figure 3). On the
high end were 12 co-ops with sales of more than $500
million that have invested in at least one LLC. On the other
end of the scale are 11 co-ops with sales of less than $5
million that have LLCs. The largest number of cooperatives
(47) with an ownership stake in one or more LLC reported
annual sales of between $25 million to $49 million.
The cooperatives that reported being involved in at least
one of these “other ownership structure” businesses account
for just over 34 percent of the nation’s total co-op business
volume. Grain/oilseed and supply cooperatives accounted for
most of the survey respondents (as would be expected, since
they represent by far the largest number of surveyed co-ops).
Responses from cotton and cotton gins, livestock, artificial
insemination, nuts, poultry, dry beans/peas and sugar
cooperatives were combined in tables 1 and 2.
About half of the sales and assets documented in this study
would not be captured in USDA’s annual statistical report on
cooperatives, since the co-ops do not have a controlling
interest in the venture. The sales volume would be reported
as a distribution of earnings from the business venture (net
income) on the income statement of the respondents,
appearing in the “non-operating income” category, or as
“income from other ventures.”
