Presentation Transcript

1. The Economic Footprint of Montana (and other) Cooperatives Gary Brester Dept. of Agricultural Economics and Economics Montana State University Montana Agriculture in 2014: Prospects for Growth, Future Challenges, and the Role of Cooperatives Bozeman, MT October 25, 2013 1
2. OUTLINE 1. Firm Ownership Structures User/Owner Firms Scope of Cooperatives Economic Rationale Issues Facing Cooperatives
3. Firm Ownership Structures Firms are owned by people Some people own firms for investment purposes Some people own firms for personal reasons Of course, some firms are owned by other firms Firms may be publically-owned Other firms are privately held And, some firms are owned by those who also use the services of the firm
4. OUTLINE 1. Firm Ownership Structures User/Owner Firms Scope of Cooperatives Economic Rationale Issues Facing Cooperatives
5. Rochdale Principles Set of ideals (seven) for cooperative businesses established in Rochdale UK, 1844 Summary of general principles: User-Owned Goal is proportional to use User-Controlled Board of Directors consistsof users/members Not proportional in general User-Benefits Profits distributed to users based on proportionality of use Lower (higher) prices for services (goods)
6. User/Owner Firms Fraternal Organizations Serve a communal objective Devote net earnings exclusively to a cause such as a charity, religious organization, or educational group Must have a fraternal purpose
7. User/Owner Firms Fraternal Organizations (continued) Operate under a lodge system Parent organization Subordinate lodges or branches Examples include Thrivent Financial Knights of Columbus Sons of Norway
8. User/Owner Firms Mutual Companies Designed to meet needs of members Need to be profitable for continued sustainability May have additional purposes beyond profit maximization Do not usually obtain capital from members through direct investment Do not have external shareholders
9. User/Owner Firms Mutual Companies (continued) Services that are unique to a group For example, the insurance needs of rural communities Examples Mountain West Farm Bureau Mutual Insurance Company Liberty Mutual
10. Cooperatives Rural Electric/Telephone Cooperatives Financial Cooperatives Open Cooperatives Closed (New Generation) Cooperatives Non-Traditional Cooperative Structures
11. Cooperatives 1. Rural Electric/Telephone Cooperatives Public utility cooperatives that developed infrastructure especially in rural areas Rural electric cooperatives established by the New Deal Telephone cooperatives established in 1951 Profits are re-invested or distributed as patronage
12. Cooperatives 2. Financial Cooperatives Cooperatives developed to provide financial services to members Often developed to meet specific needs of their members Usually serve a specific group Montana Educators Credit Union Northwest Farm Credit Services
13. Cooperatives 3. Open Cooperatives Members/owners result from business patronage Member investment is not required Profits are allocated to members based on patronage A variety of mechanisms are used to return equity to members Corporate income taxes can be avoided if profits are distributed in a specified manner Example: Town & Country Supply
14. Cooperatives 4. Closed (New Generation) Cooperatives Members/owners are based on equity investments Share investments provide a right and an obligation to participate Profits are distributed through patronage returns Working capital is often accumulated through unit retains Shares can be traded to other users Share values change Example: Western Sugar Cooperative
15. Cooperatives 5. Non-Traditional Cooperative Structures Cooperatives have become creative in finding ways to acquire equity capital from non-members Preferred stock represents non-voting rights to profits Limited Liability Corporations have been bundled (blurred?) in co-ownership arrangements Joint ventures provide another alternative Example: Wyoming Sugar Co. LLC
16. OUTLINE 1. Firm Ownership Structures User/Owner Firms Scope of Cooperatives Economic Rationale Issues Facing Cooperatives
17. Scope and Scale
18. Scope and Scale National Rural Electric Cooperatives 911 Electric utilities $97 Billion in assets $34 Billion in sales revenue Montana Rural Electric Cooperatives 24 Electric utility companies 155,650 member/owners 3 billion kWh per year 22% of Montana total electricity
19. Scope and Scale Montana Oil Refining Capacities
20. OUTLINE 1. Firm Ownership Structures User/Owner Firms Scope of Cooperatives Economic Rationale of Cooperatives Issues Facing Cooperatives
21. Cooperative Rationale Competitive yardstick Market access Pooling risk Participation in value creation Investments in upstream and downstream business activity Reduce transactions costs Improve quality
22. OUTLINE 1. Firm Ownership Structures User/Owner Firms Scope of Cooperatives Economic Rationale Issues Facing Cooperatives
23. Cooperative Issues Capital acquisition Equity management Corporate/Personal income taxes Strategic business management Director recruitment and development Management development Cooperative education Public education Student education Employee education
24. QUESTIONS