Cash refunds in farm supply co-operatives: Experience from the United States

Abstract

This study evaluated the effects of various cash refund policies on the financial position of co-operatives and co-operative members in Mississippi. Questionnaires were mailed to 25% of the farm supply co-operatives having over one million dollars of annual sales and to 25% of those having less than one million dollars of annual sales. In addition, financial data and parameters for three firms typical of co-operatives in the state were secured. These data were used to develop a hypothetical co-operative for analysis in a cash flow simulation model. The after-tax present values of the patron's investments were calculated and then the option of varying the cash refund percentage was analysed in order to evaluate its impact on the firm's financial position. It was found that members derive benefit from their co-operatives, as shown by the after-tax present value of yearly benefits to patrons. Also, increasing the cash patronage refund resulted in lower patron benefits and had an adverse effect on the financial structure of the co-operative. Therefore, increasing the percentage of cash refund to members will probably weaken the co-operative's ability to serve its members in the future.