The Third Leg of the Cooperative Bottom Line: Member Level Returns
Phil Kenkel
Bill Fitzwater Cooperative Chair
The cooperative “triple bottom line” consists of ownership, financial return and member level
returns. Members who understand cooperatives place a value on being an owner. If they do not it is
our fault for not communicating the value package. Cooperative members also receive financial
returns from their cooperative in the form of cash and deferred patronage. This requires good
strategy and management to create profits and an understanding of the tradeoffs in cash patronage
rates and revolving periods in distributing profits. In addition to the value which is created at the
cooperative level and distributed to the members, cooperatives create value directly at the member
level.
These member level returns can involve more favorable prices, superior service, risk reduction and
the cooperative value in keeping the competition honest. Member level returns are the first thing
members ask for an often the last that they fully appreciate. Favorable prices are immediate benefits
to the members but also immediately reduce the cooperative bottom line. The cooperative may also
be reducing risks for their members. For example, the common practice of open purchase fertilizer
inventories pushes the price risk to the cooperative. Members are not faced with the risk of not
having fertilizer available or having their inventory of fertilizer drop in value. During this year’s
harvest many cooperative elevators sheltered their producers from some of the risk of marketing
low protein wheat. The most elusive category of member level returns in the cooperative’s
“invisible benefit” in keeping the marketplace competitive.
There are two challenges with creating returns at the member level. First, members may not
recognize that the return came from the cooperative. Second, the membership is not homogeneous
and not every member uses every service. Most successful cooperative focus on the returns at the
firm level and then are aggressive in distributing patronage and revolving equity. However,
cooperatives can and do generate value it the form of price, service and risk reduction. At the end
of the day the question is whether the producer is better off with cooperative membership and
patronage or without it. The cooperative bottom line includes ownership, patronage, and services.
What a value package and what a balancing act.
July 14