Date of this Version
Cornhusker Economics July 13, 2022
Equity allocated to members plays a crucial role in financing agricultural cooperatives. Although retained earnings not allocated to members have become an increasingly importantsource of equity in recent years, U.S. Department of Agriculture (USDA) data show thatallocated equity still accounted for 55.5 percent of the $47.5 billion in total equity held in U.S.cooperatives in 2020.  Allocated member equity differs from unallocated equity fromretained earnings in that it is owned by individual members and there is an expectation thatit will be redeemed in cash when it is eventually replaced by newer allocations. A recent study has examined the comparative performance of the revolving fund, percentage-of-all-equities, and base capital plans cooperatives use to systematically accumulate andretire equity as well as special plans for redeeming equity held by retired members andestates.  The plans, which are described in detail in the study, were compared usingmodels of a typical cooperative and member based on several key economic variables anddata from annual USDA reports of cooperative business statistics and the Census ofAgriculture . The performance of the plans was assessed according to several criteria,including member cash flow, proportionality, and opportunity costs. Proportionalityconcerns the extent to which individual members provide equity in proportion to their use ofthe cooperative.