University of Wisconsin Center for Cooperatives

Equity Redemption Practices of Wisconsin Agricultural Cooperatives

Frank Groves, Professor of Agricultural Economics and Chairman, University Center for Cooperatives, University of Wisconsin-Extension.

UWCC Occasional Paper No. 5 February 1981


** University of Wisconsin-Extension o United States Department of Agriculture a Wisconsin Counties Cooperating and Providing Equal Opportunities in Employment and Programming State, National, and Worldwide Assistance in the Development of Cooperative Enterprises Through Education, Training, Information, Consultation, Documentation and Research /**

INTRODUCTION

For several years the interest in equity redemption practices of agricultural cooperatives has been increasing. Interested parties include cooperative boards of directors, managers, members, attorneys handling estates of deceased cooperative members, state and federal regulatory officials, and members of Congress and state legislatures.

One of the main reasons for the increased interest has been the failure of many cooperatives to follow any kind of regular equity redemption program and in some cases to not even settle estates of deceased members. Attorneys handling deceased members' estates and the deceased members' families have often complained to members of Congress and state legislators. The result has been the introduction of several proposed laws to require cooperatives to redeem equity in a certain number of years. To date, none of these proposals has become law.

Another result of dissatisfaction with cooperative equity redemption policies was a study by the Comptroller General of the General Accounting Office.1 One of the recommendations of this study was:

--Require that a national campaign be conducted to motivate cooperatives to adopt equity redemption programs that are fair to current and former members. If cooperatives are not willing to do so voluntarily, legislation for mandatory programs should be proposed.
Early in 1980 the St. Paul Bank for Cooperatives, the Wisconsin Federation of Cooperatives and the University Center for Cooperatives sponsored a series of four Wisconsin meetings on cooperative equity redemption. During the program each participating cooperative was asked to fill out a short questionnaire about their equity redemption policies. (See Appendix A.) The same questionnaire was later sent to cooperatives that did not participate in the meetings.

METHODOLOGY

In April 1980, questionnaires were sent to 543 Wisconsin agricultural cooperatives that did not participate in the meetings cited above. The returns were divided into three classes: class I, farm supply cooperatives; class 2, marketing cooperatives; and class 3, service cooperatives. Numbers returned were:
TABLE 1

Number and Type of Cooperatives Returning Questionnaires, Equity
Redemption Survey, Wisconsin, 1980. (1)

Type of Cooperative                       No. Returned            
      Percent
-----------------------------------------------------------------
Class 1, Farm Supply                           122                
        66.7
Class 2, Marketing                              32                
        17.5
Class 3, Service                                29                
        15.8
-----------------------------------------------------------------
TOTAL                                          183                
       100.0
(1) Source for this and subsequent tables was the 1980 survey. ** 2 Includes cooperatives completing survey form at meetings. /**

RESULTS

The following tables and brief comments summarize the 1980 survey. Table 2 shows the number of cooperatives that had no equity redemption plan, about 20 percent, and the type of plan used by other cooperatives. Eighty-nine cooperatives used a specific year basis for retirement, while 18 used a percent of stock basis. Three cooperatives used both a specific year and a percent of stock. Thirty-seven cooperatives said they had a plan but did not report the basis.
TABLE 2

Cooperatives Reporting an Equity Redemption Plan and the Basis
for the Plan, Wisconsin, 1980.


Type of Plan          Farm Supply   Marketing    Service   Total
                          No.  %      No.  %      No.  %   No.  %
-----------------------------------------------------------------
No Plan                    22  18       5   16     9  31   36  20
Specific Year Basis        50  41      24   75    15  52   89  48
Percent of Stock Basis     16  13      --   --     2   7   18  10
Percent and Year Basis      2   2      --   --     1   3    3   2
Basis Not Reported         32  26       3    9     2   7   37  20
-----------------------------------------------------------------
Total                     122 100      32  100    29 100  183 100
Cooperatives that were redeeming stock were asked about the last year such redemption took place. Twelve cooperatives redeemed equity in the last year (1979) and 130 within the last three years. (Table 3.)
TABLE 3

Cooperatives Reporting Equity Redemption Within the Last Three
Years, Wisconsin, 1980.

Year Redeemed         Farm Supply   Marketing    Service   Total
                          No.  %      No.  %      No.  %   No.  %
-----------------------------------------------------------------
Last Year                  7    7      2   7       3  14   12   8
Last Three Years          87   83     25  83      18  82  130  83
Not in Last Three Years   11   10      3  10       1   4   15   9
-----------------------------------------------------------------
Total                    105  100     30 100       22 100 157 100

Totals will vary as not all respondents answered all questions.
Cooperatives redeeming equity on a chronological basis were asked the most recent year of equity that was retired. For the majority of reporting cooperatives (87 percent), the latest year retired was 1970 or earlier. (Table 4.)
TABLE 4

Redeemed Equity, Reporting Agricultural Cooperatives, 
Wisconsin, 1980.


Year Equity Issued    Farm Supply   Marketing    Service    Total
                          No.  %      No.  %     No.  %    No.  %
-----------------------------------------------------------------
Before 1961               27  48       6  22     10  59    43  43
1961-70                   27  48      11  41      6  35    44  44
1971-80                    2   4      10  37      1   6    13  13
Total                     56 100      27 100     17 100   100 100

Totals will vary as not all respondents answered all questions.
Cooperatives that redeemed a percentage of outstanding equity were asked what percent was picked up last year. Only 23 cooperatives indicated a specific percent of equity retired last year. Fourteen of these (61%) were farm supply cooperatives that retired 10 percent or less of outstanding equities. Other responses were scattered.

One of the more common types of equity redemption plans is the retirement of equity in estates. Most of the reporting cooperatives (90%) indicated they picked up all estates. The other ten percent had a dollar limit on estate retirement. Eleven cooperatives said they did not include any special plans to retire estates in their overall equity redemption program. The breakdown by type of cooperative reporting is shown in Table 5.

TABLE 5

Cooperatives Reporting Retiring Equity in Estates, Wisconsin,
1980.


Plan          Farm Supply    Marketing      Service       Total
                  No.  %      No.    %      No.  %        No.   %
-----------------------------------------------------------------
All Estates       98  89      20    95      13  87        131  90
Yes, but a limit  12  11       1     5       2  13         15  10
-----------------------------------------------------------------
Total            110 100      21   100      15 100        146 100

Totals will vary as not all respondents answered all questions.
In Table 6 the dollar amount of estates retired in 1979 is shown. Thirty-eight cooperatives indicated they did not pick up estates in 1979. Ninety-five cooperatives distributed less than $25,000 each.
TABLE 6

Dollar Value of Estates Retired in 1979 by Reporting Agricultural
Cooperatives, Wisconsin, 1980.

Dollars          Farm Supply   Marketing    Service      Total
                  No.   %      No.    %     No.   %     No.  %
-----------------------------------------------------------------
Under 5,000       22   20       7     35     3   18     32  22
5,000 - 9,999     25   23       1      5     1    6     27  19
10,000 - 14,000   15   14       --    --     1    5     16  11
15,000 - 24,999   17   16       --    --     3   18     20  14
Over 25,000       11   10       16    30     4   24     21  14
Amount Not 
  Stated          18   17        6     30    5   29     29  20
-----------------------------------------------------------------
Total            108  100        20   100    17 100    145 100

Totals will vary as not all respondents answered all questions.
Forty-nine cooperatives said they retired the equity of members over a certain age. Forty of these cooperatives (82%) retired the equities of members over 70. Nine cooperatives indicated they used an age between 60 and 69 years as their criteria.

Forty-seven cooperatives said they paid off stock of retired members last year (1979). The amount paid ranged from under $5,000 to $49,999. Two cooperatives indicated they paid over $75,000 to retired members.

Only 23 of the responding cooperatives indicated they retired equities of members that moved. They were distributed as follows:

TABLE 7

Cooperatives That Reported Retiring Equities of Members That
Move, Wisconsin, 1980.

Response       Farm Supply   Marketing   Service    Total
                 No.   %       No.  %      No. %    No. %
-----------------------------------------------------------------
Yes              16    13      5   16      2   7    23  13
No              106    87     27   84     27  93   160  87
-----------------------------------------------------------------
Total           122   100     32  100     29 100   183 100
The cooperatives were asked what percentage of their current year's earnings were paid in cash. Thirty-eight indicated "none". Twenty-six of these were service cooperatives, mainly rural electrics that handle retained equity differently than other agricultural cooperatives. The other twelve that did not pay any cash may not have had any net earnings to distribute.

The percent of cash paid by the other 14 cooperatives is shown in Table 8.

TABLE 8

Percent of Current Earnings Paid in Cash by Reporting
Agricultural Cooperatives, Wisconsin,
1980.

Percent Paid in Cash     Farm Supply   Marketing  Service   Total
                          No.    %      No.   %    No. %   No.  %
-----------------------------------------------------------------
20                        88    79      10   33    2 100  100  69
21- 30                    19    17      11   37    -- --   30  21
31- 40                     4     3       2    7    -- --    6   4
41 & over                  1     1       7   23    -- --    8   6
-----------------------------------------------------------------
Total                    112   100      30  100    2 100  144 100

One response was not usable.

SUMMARY

In 1980, following four equity redemption meetings in Wisconsin, 543 non-participating agricultural cooperatives were surveyed for their equity redemption practices. One hundred and eighty-three usable surveys were obtained from the meetings and the mail survey.

About 80 percent of the responding cooperatives indicated they had a plan for retiring equities. Eighty-three percent of the cooperatives answering said they had retired some equity in the last three years. Viost of the cooperatives used a specific year basis for retirement, but some, about 10 percent, used a percent of outstanding equity.

Ninety percent of the cooperatives that reported picking up estates paid 100 percent of the estates. Ten percent paid less.

Forty-nine cooperatives retired equity of members over a certain age, usually 70 and over. Of the cooperatives that reported paying some of last year's (1979) earnings in cash, 79 percent paid the minimum 20 percent. 


Footnotes: 1. Comptroller General of the United States, Report to Congress, "Family Farmers Need Cooperatives--But Some Issues Need To Be Resolved", CED-79-106, July 1979.



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