Texas Cooperatives
Best Practices
Assessing the Needs of Texas
Cooperatives
• 230 Ag Supply, Marketing, and
Service cooperatives in Texas
• Third largest number of
cooperatives in the US
• What do they need?
2002 Rural Business Cooperative Service Census
Dr. John Park
Dr. John Siebert
Why are we here?
• Establish a financial profile of
successful cooperatives
• Discuss operating philosophies that
can affect performance
• Looking ahead to future success
We need your input!
Distribution of memberships
by type of cooperative.
Livestock
and Poultry
4%
Dairy
3%
Cotton
2%
– Agricultural
Supply
– Marketing
– Services
Service
21%
Marketing
42%
37%
Agricultural
Supply
Our Survey
– Financial and operational information sought
– More than 100 different detailed questions
– Financial and utility cooperatives not included at
this time
Fruit and
Vegetable
1%
T obacco
5%
• 109,930
memberships
representing
businesses
from
• 230 cooperatives surveyed
Farm Supply
59%
Grain and
Oilseed
19%
Texas Cooperatives
Services
4%
Nuts
1%
Other
M arketing
2%
• Manager and Board Chairmen responded
• 67 responses
– 43 manager responses, 24 chairman responses
– Delays due to weather?
2002 Rural Business Cooperative Service Census
1
How do you rank
business performance?
Financial
Performance
• Pay attention to both short term and
long term
• Use industry acceptable benchmarks
• Study for multiple years
• For this case, we only have a one year
snapshot
Compare and Improve
Two Measures of
Performance
Equity to Assets
• Long Term:
Total Stockholder & Patron Equity
Total Assets
• Equity / Assets
measures control over your future
=
E/A
• Short Term:
Net Income
Total Assets
=
ROA
• CoBank prefers E/A > 50%
Return on Assets
Performance Matrix
• Net Income / Assets
measures short term performance
100%
In Control
80%
ROA
60%
8%
• CoBank prefers ROA > 8%
(or ROA > 5% in drought years)
40%
20%
0%
20%
-20%
-40%
30%
40%
50%
60%
50%
E/A
70%
80%
90%
100%
At Risk
2
Comparing In-Control and
At-Risk Cooperatives
IN CONTROL
• E/A above 50%
• ROA above 8%
Actual Profiles
In Control
At Risk
E/A
73%
42%
ROA
21%
- 5%
$2.3 million
$1.2 million
$350,000
$650,000
$2.6 million
- $150,000
AT RISK
• E/A below 50%
• ROA below 8%
• 15 firms earned a
• 6 firms earned a
place in this group
place in this group
Current
Liabilities
Long Term
Liabilities
Net Income
13
14
Percent of Firms
Ginning Cotton
Percent of Firms in
Fertilizer and Chemicals
50%
100%
83%
40%
40%
33%
75%
30%
50%
20%
27%
25%
10%
0%
0%
In Control
In Control
At Risk
At Risk
15
16
Percent of Firms Selling
Fuel or Tires
Average Stockholder
Equity per Firm
60%
$8,000,000
50%
$7,000,000
50%
$6,000,000
40%
%
30%
$4,000,000
20%
10%
$1,500,000
$2,000,000
7%
$0
0%
In Control
In Control
At Risk
17
At Risk
18
3
Percent of Firms Without a
Formal Equity Redemption Policy
Performance Matrix
100%
100%
100%
In Control
80%
75%
ROA
60%
50%
27%
8%
25%
40%
20%
0%
20%
30%
40%
50%
60%
50%
E/A
70%
80%
90%
100%
-20%
At Risk
0%
-40%
In Control
At Risk
19
20
Member Evaluation of
Cooperative Performance
Operating
Philosophies
• What other measures should we be
using?
• What other measures are important
for your cooperative?
Percent Willing to Raise Margins
to Survive and Prosper
Percent Willing to Cut Costs to
Survive and Prosper
30%
70%
60%
60%
27%
25%
50%
20%
40%
33%
17%
15%
30%
10%
20%
5%
10%
0%
0%
In Control
In Control
At Risk
23
At Risk
24
4
Attention: At-Risk Firms
Must Evaluate Cost
Breakdown of Business
Rivals
• Knowing that you are in the At-Risk
group can take politics out of your
decisions
• Its important when evaluating major
changes to let staff calmly do the
analysis
• When you cut costs by $1,
what is the best you can
do to improve profit?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Other
Internet Rivals
2x More
Competitors
In Control
National Chain
Rivals
Co-op Rivals
At Risk
26
Membership Trends for
Cooperatives “In Control”
Membership Trends for
Cooperatives “At Risk”
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
-25% or
Worse
-11 to
25%
-10%
No
Change
10%
+11 to
25%
+25% or
Better
-25% or
Worse
-11 to
25%
-10%
No
Change
10%
+11 to
25%
+25% or
Better
27
28
We have identified our
Top 25 customers
We have taken steps to
retain our Top 25
67%
70%
70%
60%
60%
50%
50%
40%
40%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
0%
In Control
At Risk
In Control
29
At Risk
30
5
We send out a board packet
one week in advance
60%
All directors are prepared for
our board meeting
60%
53%
50%
50%
50%
40%
40%
33%
30%
30%
20%
20%
10%
10%
0%
33%
0%
In Control
At Risk
In Control
At Risk
31
32
What would you change to
survive and prosper?
Develop New Lines of
Business
Looking Ahead
67%
67%
60%
Raise Margin Levels
33%
27%
Cut Costs
17%
Attitudes for Future Success
Expand Volum e In Current
Lines of Business
20%
17%
13%
17%
Sell Assets
0%
20%
40%
In Control
Our Top 25 Customers
60%
80%
At Risk
Most Important Factors of
Competition with Rivals
Customer
Focus
We have not identified
these customers
10%
We have a general idea
of their identities
33%
67%
40%
Number of
Competitors
40%
Location of Our
Company
0%
0%
20%
40%
In Control
33%
50%
Pricing Policies
10%
We have specifically
identified them
We have identified and
taken steps to retain them
64%
M ember
Loyalty
0%
60%
At Risk
80%
50%
50%
67%
7%
50%
0%
20%
40%
In Control
60%
80%
Competitor
Focus
At Risk
6
Most Important Factors of
Competition with Rivals
43%
Employee
Expertise
17%
Dr. John Park
979-845-1751
jlpark@tamu.edu
Dr. John Siebert
979-845-5800
j-siebert@tamu.edu
21%
Leadership
Experience 0%
Unique Product
or Service
Offering
Thoughts for Future
Work?
What is the value
of good employees?
21%
0%
0%
10%
20%
30%
In Control
40%
At Risk
50%
Dept. of Agricultural Economics
Texas A&M University
College Station, TX 77843-2124
7