Bill Fitzwater Cooperative Chair
Oklahoma State University
Cooperatives are user owned firms that are formed to generate profits and distribute those profits as efficiently as possible to their member owners in proportion to use. Putting that simple concept into action forces us to consider the optimal size and efficiency of the cooperative firm. The firm must provide the optimal set of services and decide how to invest in infrastructure to maintain those services. It also has to consider how the profits generated should be balanced between cash patronage, qualified and non-qualified stock patronage and unallocated equity. The member’s return is also influenced by the tax effects, and the length of the equity revolving period. Recently, some cooperatives have experimenting with paying dividends on cooperative stock or revolving stock into a preferred dividend bearing stock.
Cooperatives leaders should be constantly trying to understand their options in generating profits and distributing profits to members. There is a big picture view which can be the guiding light. An agricultural cooperative is an extension of the farm business. It can generate profits or advantages at the farm level or at the cooperative level. The ultimate goal for the cooperative is that the member returns from participating in the cooperative, both farm returns and the after tax distributed profits from the cooperative, are greater than the returns would be without participating in the cooperative. When that condition is true members should, and usually do support the cooperative through continued patronage. If a change in the balance of price, service, investment or profit distribution increases that advantage then it should be undertaken.