When Things Get Tight, Think Outside the Box

Susan Voss, CPA, one of the heads of our Ag team, provides the next installment in her series on helping farm families understand and respond to changes in agribusiness.
I just returned from a couple hour horseback ride through the fields this fine afternoon.  The corn is growing like crazy right now.  Thigh high by June 5!!  It won’t be long until riding down the rows will have to stop.  This quarter I’m going to go through an additional way to raise that bottom line number in your farm operation this year.
Become a Member of a Cooperative Business

If you haven’t been a member of a coop, you may want to consider it.  I recently visited with a farm wife who actively participates in the farm she and her husband operate.  I asked her why she was a member of a particular large coop with locations in the area.  I thought she would name patronage dividends as one of her top reasons, but it wasn’t.  Her first comment was that she and her husband liked the idea that they could be involved with management if they chose to be.  They weren’t interested in a Board position but they knew a member on the Board.  She stated that the folks at the coop knew the industry and were very helpful and driven to see them succeed.  She liked the idea that the coop was a farm community effort, owned by many having similar rewards in the industry and similar struggles.  I asked her, “What about patronage dividends?”  She said, “Oh yeah, that’s nice too.”  I also asked if the coop passed out tax benefits to them.  Although the one she was a member of didn’t, some do pass out a tax benefit called DPAD, Domestic Production Activities Deduction which can become a deduction on your tax return.

What is My Benefit for Being a Member of a Coop?
All the things listed above are great examples of the benefits of being a member of a Coop.  The financial benefit of membership is the potential to receive patronage dividends.  Knowing you have people who care about your industry to call upon for questions and answers is another reason.  I recently inquired with a manager of a local coop about his thoughts on the coop structure and how the members receive cash back in the form of patronage dividends.  He explained the members of the coop he manages each pay a small amount to be a member.  Membership gives them the right to run for a position on the Board.  The Board is fiscally responsible for the coop.  They might not issue patronage every year.  In fact, fiscal responsibility includes knowing when to say yes and when to say no.  The Board members do their best to fulfill the requirements of their responsibilities.  The amount of business each member does with the coop determines that member’s amount of patronage.  For instance, farmer Andy did $100,000 of business with them while farmer Bruce did $50,000.  Andy’s patronage will be twice as much as Bruce’s.
 Sharing is Fun
Do you remember your Mother teaching you to share?  Sharing in the profits of a coop can help build your bottom line.  I like to compare a patronage dividend to a dividend paid from the profits of a commercial business.   The owners of a commercial business are not necessarily involved with the business or even the industry.  Chances are, they live far away and have only invested money, not blood sweat and tears, into the business and the industry as a whole.  When a business owned by folks scattered far and wide has profits and dividends are declared, the dividend dollars go far and wide.  It’s very likely that very little stays in the community.  The return of profit to the member/customers in a coop that generated the profit keeps dollars in your hands and those of your neighbors.  I have heard the comment, “Well, they charge more to start with, so it all nets out in the end.”  You’ll find that with most coops, their prices are at market rates, sometimes better.  The difference is, the profits stay here instead of hitting an owner who is not involved and doesn’t think about the details of profit and where it came from. 
Many Shapes and Sizes
There are many businesses that operate as cooperatives.  Examples:  home care facilities and services, grocery stores, housing developments, utility companies like telephone companies and electric companies, certain lending and financial associations, farm elevators, chemical dealers, seed dealers, petroleum distributors, and even equipment dealers.  Sometimes communities or public institutions form coops to allow for buying in large quantities to keep costs down.  Names like Land O’Lakes, Ace Hardware, Ocean Spray, CoBank, Welch’s, True Value, TIP/REC, University of Iowa Credit Union, and The Piggly Wiggly are all coops kicking profits back into the hands of their customers.  There are over 30,000 coops in the United States.
 
Consider working with a Cooperative 
I am hoping you can take a couple of these ideas and consider or re-consider going into business with a coop and/or seek out more cooperative businesses.  You might be pleasantly surprised to find your costs netting to something lower than they previously were.
 
Happy Red, White and Blue Day!! 
Freedom Don’t Come Free… so… Thank a Veteran or Active Military person when you have a chance!
Susan K. Voss, CPA
By | 2017-04-24T09:22:34+00:00 July 1st, 2016|Agriculture, Cooperative|

About the Author: