Price and Value
Phil Kenkel
Bill Fitzwater Cooperative Chair
Oscar Wilde lamented that man knows the price of everything but the value of nothing. I recently reviewed a research project that examined 500,000 price contracts. The contracts included all agricultural sectors including grain, poultry and milk. A researcher conclusion was that there was no difference between cooperative price contracts and contracts offered by investor owned firms. This research highlighted a challenge of cooperative management.
Maintaining infrastructure, rewarding employees, retiring equity and generating patronage refunds requires profits. Most cooperatives match their competitors’ price. Efficiency and cost control are the other variable in the profit equation. However at some point reducing costs erodes service which is another element of the cooperative difference.
Cooperative members benefit from both price and patronage. Price benefits are immediate and popular with members. A strategy of less favorable prices but increased patronage may make the cooperative value more visible and improve the Coop’s financial management. High profit cooperatives are able to offer a higher portion of cash refunds and revolve retained refunds more rapidly. Producers with very short planning horizons make decisions on the basis of price.
Other producers consider the entire value package of price, cash and retained patronage. The cooperative industry may not be doing enough to communicate the cooperative’s value package.
As Warren Buffet said “Price is what you pay, value is what you get”. Remember that as you visit with customers.
1-13-2010