Their Loyalty or Our Value Package

Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

At a recent cooperative educational program, a large producer was invited to present his perspective toward his local cooperative. He prefaced his remarks with the comment that he placed no value on cooperative stock since it was unclear when it would be redeemed and its value could be written down. His views were another spin on the familiar desire for deep discounts just above marginal costs. The producer was not interested, or perhaps had not been recruited, to serve on the board or become involved in the cooperative.

A common reaction to these types of expectations is to conclude that the producer has no loyalty to the cooperative and wants benefits without the responsibility of investing. There is validity to those claims but the issues are worth pondering. Loyalty to a cooperative is not an end in itself. It is rather a reflection of the belief (and often fact) that patronizing the cooperative on a long-term basis is in the producer’s best interest. The lack of “loyalty” of the disinterested large producer may be explained by his first statement about cooperative equity. In most situations, the prices of products, services and commodities are similar between a cooperative and its independent competitor. The cooperative value package provides three advantages: cash patronage, stock patronage and the opportunity to be involved in and influence the direction of the business. The net impact of cash patronage is reduced by the tax impacts of the qualified stock. A significant part of the cooperative value package is the fact that the member is building equity without any out-of-pocket investment. If members do not consider themselves an owner, their value package is obviously reduced.

Building loyalty in a cooperative comes down to explaining why patronage is in the member’s long-term best interest. That involves creating the best value package of price, service and investment in infrastructure and communicating the value of ownership and governance. Ownership value is diminished by long revolving periods and eliminated when cooperatives channel member returns to unallocated reserves. Rapid equity revolvement requires high profitability, which may diminish the customer-level returns. Overall, cooperative managers and boards do a great job of balancing those tradeoffs and creating an enviable value package. They often fall short in communicating the entire value package, particularly the value of ownership. Are today’s producers less loyal or do we need new ways to communicate our value?