Research Priorities for Agricultural Cooperatives and their <scp>Farmer‐Members</scp>

Boland, Michael A.; Briggeman, Brian C.; Jacobs, Keri; Kenkel, Phil; McKee, Gregory J.; Park, John L.

doi:10.1002/aepp.13068

Cited by 1 publication

(1 citation statement)

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“…The financial condition and health of farmer cooperatives is important for US agriculture. Boland et al (2021) argue the importance of understanding the key issues facing farmer cooperatives because of how integral these businesses are to rural America. Barton et al (2011) identifies specific financial challenges facing cooperatives, which include the ability (1) to invest in technology and assets to meet the needs of their farmer-owners; (2) to maintain consistent profits; and (3) to acquire the necessary capital to fund growth.…”

Section: Financial Condition Of Farmer Cooperativesmentioning

confidence: 99%

Assessing the financial condition and accounts receivable risk among US farmer cooperatives

Mashange

Briggeman

2021

AFR

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PurposeThe purpose of this paper is to examine the financial condition and ability of farmer cooperatives to withstand significant increases in bad debt expense.Design/methodology/approachA unique data set of farmer cooperative financial statements that spans from 1996 to 2019 is used to examine the changes in profitability, solvency, liquidity and accounts receivable risk. Also, a deterministic stress test model is designed to shock bad debt expense and the resulting write-off of accounts receivable for farmer cooperatives. The stress test provides insights to the resiliency of farmer cooperatives.FindingsResults find that farmer cooperatives are in a strong financial position, which has improved over time. The majority of farmer cooperatives are able to absorb a substantial increase in bad debt expense because of their sizable, retained earnings position. However, cooperatives that have significant profitability challenges do experience much larger losses, especially mixed farmer cooperatives (roughly equally amounts of grain and farm supply sales) and large cooperatives with more than $500 million in sales.Practical implicationsThe stress test results suggest farmer cooperative managers and boards of directors could re-examine their credit policies and consider extending additional credit. Also, cooperatives should consider monitoring and identifying an optimal accounts receivable to retained earnings ratio, which is similar to how banks examine their tier 1 capital ratios.Originality/valueThe value of this study is having data that allows for the examination of the financial condition of farmer cooperatives over time. Also, having current data means the accounts receivable stress test results are more relevant and timelier. This is important because these accounts receivable are primarily tied to crop input supplies, and farmer cooperatives are a significant market participant in the crop input supply market.

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Section: Financial Condition Of Farmer Cooperativesmentioning

confidence: 99%