Examining the financial performance of agricultural cooperatives in the USA
ISSN: 0002-1466
Article publication date: 8 January 2019
Issue publication date: 5 April 2019
Abstract
Purpose
The purpose of this paper is to identify financial stress and the causes of financial stress for agricultural cooperatives and provide management recommendations to stakeholders including cooperatives’ managers, boards of directors and lenders.
Design/methodology/approach
This research used the geometric mean of the real rate of return on equity to identify financially stressed agricultural cooperatives. The real rate of return on equity allows the allocation of total financial stress among the return on assets, leverage and interest rate issues.
Findings
This study found that financially non-stressed agricultural cooperatives had a higher rate of return on equity and rate of return on assets, but lower leverage ratios and interest rates than stressed agricultural cooperatives. Further, non-stressed cooperatives had higher total assets and sales compared to stressed cooperatives. This suggests that smaller cooperatives are more likely to face financial stress than larger cooperatives. The decomposition of the financial problem showed that a substantial percentage of financial stress was correlated with a low return on assets or profitability. A smaller percentage of financial stress was due to financing decisions.
Originality/value
This study provides value by measuring the impact of profitability, leverage and interest rate on the financial performance of agricultural cooperatives. Results showed that a substantial proportion of financial stress was associated with a low return on assets. This indicates that profitability is a problem for agricultural cooperatives. This study also examines profitability during a period of volatile returns in production agriculture.
Keywords
Acknowledgements
This research was conducted while Krishna P. Pokharel was a PhD student at Kansas State University and continued as a research agricultural economist at USDA-Agricultural Research Service, Northern Great Plains Research Laboratory. The views expressed in this paper are solely the views of the author(s) and do not represent the views of Federal Energy Regulatory Commission or the United States Government.
Citation
Pokharel, K.P., Regmi, M., Featherstone, A.M. and Archer, D.W. (2019), "Examining the financial performance of agricultural cooperatives in the USA", Agricultural Finance Review, Vol. 79 No. 2, pp. 271-282. https://doi.org/10.1108/AFR-11-2017-0103
Publisher
:Emerald Publishing Limited
Copyright © 2019, In accordance with section 105 of the US Copyright Act, this work has been produced by a US government employee and shall be considered a public domain work, as copyright protection is not available