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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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