University of Wisconsin Center for Cooperatives

UWCC Occasional Paper No. 3 - February, 1980


Summary of Regional Cooperative Equity Redemption Programs

Farmland Industries

Farmland Industries announced the commencement of their "Ownership Retirement Program" on September 8, 1972. In essence, Farmland Industries participates with local cooperatives in their programs of equity retirement. Farmland redeems in cash a pro rata portion of a local's equity in Farmland if the local has redeemed equities of deceased and/or retired members. For example, assume a local cooperative has $100,000 invested in Farmland Industries, and at the same time, this same local association has $500,000 deferred back to its patrons in some form of equity capital, i.e., common stock, preferred stock, or other deferred equities. When this local cooperative sets up a member- patron equity redemption plan, one of the conditions for qualifying in the payment is that the member-patron must be of at least 65 years of age. Farmland Industries will reduce the investment of the local association on the ratio of the local's investment in Farmland Industries to the local association's amount of allocated patronage to the member-patron. In the example above, this ratio equals twenty percent, so for all equities redeemed by the local association for patrons over 65 years of age, Farmland Industries will make a cash payment to the local and reduce the local association's investment in Farmland Industries. To go one step further, assume the above listed circumstances existed and a local association paid out $50,000 to retire equities for persons over the age of 65. Farmland Industries will send the cooperative a payment for twenty percent of the $50,000 paid out and the local cooperative's investment is then reduced to $90,000 in Farmland Industries.

After two years in existence, 22 percent (469) of Farmland's 2,125 affiliated members participated in the 1974 plan. The average cooperative participating in Farmland Industries' program, according to W. Gordon Leith, Corporate Vice President of Farmland and Chairman of the members' equity committee, paid out $15,265 and received $2,852 from Farmland Industries.

"Leith reported that almost every local participating in the equity retirement program retires equities in the event of a member's death. Most of these payments are in a lump sum. However, in a few cases, a system of part payments is used. About 57% of the locals also have a retirement program. Most use age to determine retirement, with 80% defining retirement age as 65 years. Other associations use 'sale or lease of farm' as the retirement criterion. A few use eligibility for Social Security as the determining factor." 1

CENEX (Farmers Union Central Exchange Inc.)

In mid-1974 CENEX developed an affirmative stock retirement program which included as its major goal: To have all CENEX affiliates (those companies with their major regional investment in CENEX) current to within 9 months for all estates, by September 30, 1976.

CENEX's plan focuses on personal attention given to each local cooperative having estate retirement problems (an estimated 200 locals out of the 580 mayor stockholder affiliates of CENEX). Essentially, this implies that CENEX's District Marketing Supervisor meets with the boards of directors and the managers of each one of the cooperatives that is behind in the retirement of stock held by estates and works out an individual plan for each cooperative for the handling of those retirements. The innovative aspect of the plan is that CENEX agreed to act as "surety" and guarantee funds to those local cooperatives that can project a promising future and thus loans will be provided for picking up stock held by estates.

Midland Cooperatives Inc.

Midland does not have a formal written equity redemption policy, but there has been a resolution passed at the 1975 Annual Meeting that makes a strong recommendation to locals with respect to equity redemption:
"IT IS HEREBY FURTHER RECOMMENDED that capital stock and other capital equities held by the representatives of the estates of deceased persons or by stockholders who are inactive because of age or condition of health be re- tired by issuing in exchange for such capital equities a subordinated promissory note or other type of salable security bearing a reasonable rate of interest and payable in equal principal installments or In a single amount of maturity, and maturing in the same period of time as that which is planned for revolving the total equity capital of the association." 2
In a recent study conducted by Midland, it was found that 28 percent (180) of the 643 Midland affiliated local cooperatives have written member-patron equity redemption policies.

F. S. Services Inc.

F. S. Services Inc. has no regional member-patron equity redemption plan. The management of F. S. Services has strongly recommended that a sinking fund be utilized in building up capital to retire member-patron equities.

Land O' Lakes Inc.

In May 1973 Land O' Lakes announced the establishment of an estate payment program for its Class A members (local cooperatives). This program was approved by the Board of Directors in April, 1973, and took effect January l, 1974. The plan has the same conditions and characteristics as the Farmland Plan except for one difference-- Land O' Lakes' plan Includes only estates and not the "over age 65 and estates" plan that the Farmland plan includes.
Occasional Paper 3
Appendix II
1Farmland News, "For Retirement, $7.1 Million," May 30, 1975, p. 65.

2 Midland Cooperator, March 31, 1975, Superior, Wisconsin, p. 4.

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