Bill Fitzwater Chair
Oklahoma State University
The portion of cooperative equity help in the form of unallocated equity (retained earnings) has been increasing for many years. From 1954 to 1976 the ratio of unallocated to total equity increased from 12% to 15%. By 1987 it had increased to 21% and in 2011 the median level wa 41%. Among large grain marketing and farm supply cooperatives the current average is 63%.
There are a number of issues related to unallocated equity, many of which have been discussed in previous newsletters. A key issue is the value that cooperative members place on allocated revolving equity. The value placed on allocated equity impacts how important it is for the cooperative to distribute patronage in the form of stock and would also impact how much the revolving equity increases their overall sense of ownership.
I recently completed a national survey investigating those issues. Approximately 200 CEOs, board members and members from agricultural cooperatives responded to the survey. Based on the categories checked it appears that almost all of the respondents represented diversified grain marketing and farm supply cooperatives.
A survey question asked the respondents how much value they thought members placed on allocated equity. Eleven percent of the respondents felt that members placed no value on allocated equity while 40% felt that they place a low value. Thirty nine percent reported that members place a moderate value while 9% indicated a high value and 2% a very high value. . Overall, the results were almost split with 51% reporting a moderate or higher value and 49% reporting a low value or no value. The results were similar across roles in the cooperative with board members slightly more likely to report a high or extremely high value.
The take home results appear to be that allocated equity (stock patronage) is a moderately important part of the cooperative value package. Cash patronage is undoubtedly king but cooperatives obviously need to retain funds to finance the infrastructure that members demand. In the next article I’ll report how allocated equity influences a member’s decision to be involved in the governance of the cooperative.