The Ultimate Goal for a Cooperative
Phil Kenkel
Bill Fitzwater Cooperative Chair
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.
9-5-2014