United States

Department of

Agriculture Local Petroleum

Rural Business/

Cooperative

Service Operations
Abstract Local cooperatives play a prominent role in providing farmers with agricultural inputs.

They are important to the farmer and the rural community as a whole. One of the most

important products distributed to the rural community is petroleum. This report examines petroleum operations of local cooperatives and their importance to the rural community. The main emphasis is on cooperative product mix, services, supply source,

and competition. Cooperatives are analyzed based on various characteristics such as

size, type, and region.

Key Words: petroleum, local cooperatives, petroleum operation.

LOCAL PETROLEUM OPERATIONS

David S. Chesnick

RBS Research Report 149

Septmber 1996

Price: Domestic-$4.50, Foreign-$5.00
Preface Regional cooperatives rely on the local cooperatives as a direct link to the agricultural producer. Likewise, the locals are the agricultural producer’s direct link to markets

and supplies. Therefore, local cooperatives play a pivotal role in the rural community.

Yet, they are more than just a provider of markets and agricultural supplies. The rural

community looks to its local cooperatives for services that may not otherwise be provided in the surrounding communities. The largest commodity those local cooperatives supply to member/patrons is petroleum. This report identifies the petroleum

products and services these locals provide for the rural community.
Contents Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..~i

Data ............................................................... .

Size ........................................................... .

Type ........................................................... .

Regions ........................................................ .

SalesMethod .................................................... .

Sales ............................................................... .

Type ........................................................... .

Size ........................................................... .

Regions ........................................................ .

Source ............................................................. .

Type ........................................................... .

Size ........................................................... .

Regions ........................................................ .

Fuel Type and Volume Sold .............................................4

Type ........................................................... .

Size ........................................................... .

Regions ........................................................ .

Other Products ....................................................... .

Type ........................................................... .

Size ........................................................... .

Regions ........................................................ .

Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...8

Services ............................................................ .

Type ........................................................ ..lO

Size ........................................................ ..ll

Regions ..................................................... ..ll

Competition ....................................................... ..12

Regional ..................................................... ..12

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...13

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...13
Highlights Petroleum products power the machinery and tools used in agricultural production and

account for more than a quarter of total cooperative farm supplies sold. More than twothirds of the total marketing and farm supply cooperatives have petroleum sales. A

number of characteristics pertain to cooperatives that sell petroleum products:

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Nearly 90 percent of the cooperatives selling petroleum have some form of bulk

delivery of gas and/or diesel.

Regional cooperatives are the main suppliers of petroleum products to the local

cooperatives.

More than 70 percent of the cooperatives operate a service station.

Cooperatives operating a service station are more likely to offer other services such

as sales and services of tires, batteries, and accessories, full-time mechanics, tire

trucks for on-site farm service, and convenience stores.

A higher percent of farm supply cooperatives operate a retail service station.

Farm supply cooperatives sell a higher percent of petroleum products than marketing cooperatives.

A higher percent of smaller cooperatives’ total sales is attributed to petroleum products.

Full service stations are more prevalent with smaller cooperatives and offer more

services.

Larger cooperatives are more likely to have bulk delivery than smaller cooperatives.

Cooperatives in the northern regions deliver more bulk fuel.

More fuel is sold at the retail level by cooperatives in the southern regions.

The sale of ethanol-enhanced gasoline and premium diesel are more concentrated

in the Midwest.

Northern regions have a higher percent of cooperatives running a full service station

and offer more services to their member/patrons.

Cooperatives that sell only bulk generally do not offer services with their sales.

Propane is sold in the northern regions, which accounts for 90 percent of all

propane sold.

. . . 111
Local Petroleum Operations

L

ocal agricultural cooperatives provide many

goods and services to the rural community. The

leading farm supplies handled by cooperatives

in 1993 in terms of net business volume were petroleum products. Sales of petroleum products reached $5.2

billion, representing 26.9 percent of the total $19.2 billion farm supplies sold.

In 1993, more than 2,500 local cooperatives sold

petroleum products in the United States. Recent RBSCooperative Services KS) research by Eversull and

Dunn shows that these cooperatives provided 41 percent of petroleum products used by farmers in the

United States. This illustrates the importance cooperatives have in supplying petroleum products to the

rural community.

This report examines characteristics and structure

of these cooperatives and their distribution system.

Emphasis is placed on operations and services provided, based upon various demographics.

Data

In its 1993 annual farmer cooperative survey, CS asked

seven questions about local cooperative petroleum

operations. Surveys were sent to all 4,244 farmerowned cooperatives in the United States. Of these,

2,522 reported selling some type of petroleum product.

Sales of petroleum ranged from less than $100 to more

than $600 million for all cooperatives. The figures presented in this report represent the 738 cooperatives

that responded to the survey and answered the 7 questions concerning petroleum operations.

The respondents were found in 31 States.

Petroleum sales for these cooperatives averaged $2.1

million. The characteristics of these cooperatives vary

by size, type, and region. To provide a better understanding of the cooperatives’ business, this report analyzes information based on size, type, and geographical location. Tables 1 and 2 show the number of

cooperatives in each of the different categories.

Size

Cooperatives were listed within each size category

based on sales volume shown in table 1. These are similar to those used in other studies (Chesnick and

Eversull) and are also used here because of the distinct

differences between the operations of these size categories. The four sizes are small, medium, large, and

super. The small-size cooperatives have total sales less

than or equal to $5 million. The sales of medium-size

cooperatives ranged from over $5 million to $10 million. The large-size cooperatives had sales from over

$10 million to $20 million while the super-size cooperatives included those cooperatives with sales over $20

million. In classifying by sales volume, product mix is

ignored. Two-thirds of these cooperatives have total

sales of less than $10 million.

Table 1 -Category and number of respondents by size and type

Size Sales volume Respondents

Small $5 million and less

Medium more than $5 million to $10 million

Large more than $10 million to $20 million

Super more than $20 million

We Sales mix

Farm supply 100 percent farm supply sales

Mixed farm supply 40 to 100 percent farm supply sales

Mixed marketing 40 percent and less farm supply sales

258

207

155

118

358

195

185
Table +-States listed by tqjiOn and number of cooperatives in each region

Region State Number Percent

Northwest ID, OR, WA 27 3.7

Southwest AZ, CA, NV, NM, UT 2 0.3

Western Plains MT, CO, WY 39 5.3

Northern Plains KS, NE, ND, SD 210 28.5

Southern Plains TX, OK 29 3.9

Lake States MI, MN, WI 153 20.7

Corn Belt IL, IN, IA, MO, OH 218 29.5

Delta States AR, LA, MS 24 3.3

Northeast CT, ME, MA, NH, NJ, NY, PA, RI, VT, DE, MD 4 0.5

Appalachia KY, NC, TN, VA, WV 30 4.1

Southeast AL, FL, GA, SC 2 0.3

Type

Cooperatives were placed in three type classifications

to analyze their operations based on product mix. The

category for type diverged from those used in earlier

CS research. The three groups included farm supply,

mixed farm supply, and mixed marketing. Almost half

the cooperatives within this study derive their total

income from farm supply sales. Therefore, those classificd as farm supply cooperatives sold exclusively farm

supplies. The mixed farm supply group contains those

that are predominantly farm supply cooperatives. The

farm supply portion of total sales ranged between 40

and 100 percent while the other revenue came from

marketing members’ products. Like other studies, it

was found that cooperatives shift between types due

to fluctuations in marketing sales. Farm supply sales

tend to be more stable over time. Therefore, to ensure

inclusion of cooperatives that averaged sales of at least

50 percent farm supplies, the cutoff point is set at 40

percent. The last group is mixed marketing cooperatives whose predominant activity is marketing members’ products.

Regions

To help identify characteristics relating to different

locations, cooperatives are separated by regions.

However, due to the reporting of a few centralized

regional cooperatives, some regions are under-represented. Many regional cooperatives have centralized

ownership, i.e., they own their local outlets. Because of

this, local petroleum operations and sales data were

not available from these regional cooperatives. Three

regions (Southwest, Northeast, and Southeast) are not

included because few local cooperatives in these areas

responded to the survey. They are not aggregated

because of the diverse agricultural practices. The

regions with the most responses are the Lake States,

Corn Belt, and the Northern Plain States. Alaska and

Hawaii are not included.

Sales Method

A final grouping further separates the cooperatives: 1)

sell only bulk petroleum; 2) operate only a retail operation; and 3) mixed with both retail and bulk operations. The cooperatives with only a bulk delivery operation account for 14 percent of the 738 cooperatives

sampled. Although only a few cooperatives sell only

bulk fuel, the cooperatives in this group relied on marketing for a majority of their sales revenue. The average volume of petroleum sold in this group is less than

the other two groups. The highest petroleum sales

along with farm supply sales are found in the mixed

group.

Sales

Average sales profiles as a percent of total sales are

illustrated in table 3. The degree petroleum contributes

to the operations of many local cooperatives changes

dramatically depending on type, size, and region.

Petroleum contributes to more than 40 percent of total

sales for small farm supply cooperatives. This contrasts with less than 10 percent for super and mixed

marketing cooperatives. Still, petroleum products represent the largest percent of farm supply sales for all

cooperatives.

TLpe

Among farm supply cooperatives, a higher percentage

of their total sales are attributed to petroleum products

(table 3). Other supplies, which typically include tires,

batteries, and auto accessories (TBA), also show up as

2
Table +-Percent of product sales to total sales for respondent cooperatives by size, type, and region

Petroleum Feed Seed Fertilizer Chemical Other Farm supply Marketing

Cooperative

All cooperatives 17.66

Farm supply 39.28 11.11 2.07 17.79 13.09 16.67 100.00 0.00

Mixed farm supply 17.84 14.44 1.38 11.81 9.24 6.22 60.93 39.07

Mixed marketing 7.45 5.39 0.74 ‘6.32

42.52 9.39 1.54 12.81 8.87 13.22 88.35 11.65

Medium 25.89 11.86 1.71 14.47 10.72 9.54 74.18 25.821

Large 19.67 10.20 1.47 11.68 8.98 7.79 59.79 40.21

Super 10.33 8.08 0.90 8.34 6.28 3.87 37.81 62.19

Northwest

9.33 1.23 10.56 7.91 6.92 53.80 46.20

a higher percentage in farm supply cooperative sales.

Even when looking at just farm supply sales, the farm

supply cooperatives still sell a higher percent of petroleum, more than 10 percentage points higher than the

other two cooperative types.

Size

The four cooperative sizes also show significant differences in sales mix. The typical small-size cooperative

relies heavily on petroleum for sales revenue. For these

cooperatives, petroleum sales average nearly 50 percent of their total farm supply sales while the largest

cooperatives average only 27 percent. Although larger

cooperatives derive more of their sales from marketing

operations, they still sell a higher percentage of petroleum than other farm supplies. However, the farm

supply sales mix becomes more diversified as sales

volume increases.

Regions

Source

delivered directly to

tive affiliates and 12 percent to their directly owned

locals. The other 31 percent went to resellers or noncooperative outlets. Affiliated locals purchased 66 per3
Table +-Average source of petroleum supply for local cooperatives

Regional co-ops Other co-ops

Product

Gasoline 87.90 1.52

Diesel 87.54 1.52

Propane 79.85 3.25

Lubricants and oil 89.91 3.01

Grease 92.45 2.51

Major Oil Co.

Percent

4.28

4.87

4.38

3.52

2.84

Indep.jobber Other

6.08 0.16

5.91 0.17

11.81 0.99

3.17 0.29

1.96 0.23

cent of their distillate fuels and the directly owned

locals accounted for 22 percent. Local affiliates

accounted for 76 percent and regionally controlled outlets 21 percent of their propane sales. Therefore, local

cooperatives are a key component of the network for

distributing cooperative-produced petroleum products

to the farm.

Type

There are little differences between the types when

examining supply sources. All of the cooperative

types follow similar patterns described earlier. Even

though the regionals are the main supply source for

petroleum products for affiliated locals, farm supply

cooperatives are showing more reliance on the independent jobbers for the remainder. Farm supply cooperatives receive 7.5 percent of their gasoline and diesel

supply from independent jobbers and only about 3

percent from major oil companies. The other two

types receive around 6 percent from the major oil

companies and roughly 4 percent from independent

jobbers.

Size

As in the type comparison earlier, the various sizes

remain close to overall averages. Although super-size

cooperatives rely somewhat less than others on regionals for gasoline and diesel, they still received more

than 80 percent of their supply from regionals. The

small- and large-size cooperatives show a larger

propensity for regional supply while the medium-size

cooperatives followed overall averages. On the other

hand, the super-size cooperatives purchase 95 percent

of lubricating oil and grease from regionals compared

with 85 percent of the smallest size cooperatives.

Regions

Locals within the various regions rely on regional

cooperatives for nearly 85 percent of their petroleum

source. Two regions deviated from this pattern. In

Appalachia, regionals supplied about 66 percent of

4

their gasoline and diesel while the other third came

from major oil companies and independent jobbers.

Conversely, locals in the Northern Plains look to their

regionals for 95 percent of their gasoline and diesel

supply.

Regionals in Appalachia are more likely to be

centrally controlled and own their local outlet. These

local outlets were not surveyed. Therefore, survey

results in this region do not reflect overall cooperative

activities as well as in other regions. Respondent locals

in this region tend to be independent, not tied to

regional cooperatives in a federated or centralized system. Therefore, their purchasing behavior is different

than other parts of the county. These independent local

Appalachia cooperatives look for the most convenient

or cheapest source.

In contrast, federated regionals dominate the

Northern Plains and have a strong bond with the

locals. Unlike the locals within the centrally controlled

system, federated locals are not controlled by the

regional. The federated locals are more accustomed to

working together within a regional system than the

more independent locals.

Equity investment in regionals can be used to

help illustrate this point. Local ownership in the

regional is represented by this equity investment. In

the Northern Plains, $638,000 or 26 percent of total

assets are represented by these investments in contrast

to $218,000 which represents 14 percent for

Appalachia.’

Fuel Type and Volume Sold

Nearly 90 percent of all locals deliver bulk petroleum

products to their member/patrons and about 80 percent of the locals have some retail operation (table 5).

The product with the highest average volume sold in

1 These investments do not include the equity held in CoBank or

Bank for Cooperatives.
bulk is diesel. Bulk sales are delivered directly to the

member/patron while retail and wholesale are sold at

the cooperative. Of those who deliver bulk, nearly 63

percent of their total average volume of diesel sold is

in bulk form. Retail and wholesale sales make up 18

and 19 percent of the sales, respectively. On the other

hand, 48 percent of gasoline sold is retail volume while

bulk and wholesale make up 34 and 18 percent, respectively. Although the average wholesale volume is substantial (about 20 percent of total petroleum sales for

those cooperatives that have wholesale operations),

only 11 percent of the cooperatives within the sample

have wholesale petroleum operations.

Type

Proportionally more farm supply cooperatives are

involved in retailing petroleum than either the mixed

farm supply or mixed marketing cooperatives (table

6). Mixed marketing cooperatives are the least

involved in retail sales, although 75 percent indicate

some level of retail sales.

Size

The size of the cooperative appears to have a different

influence on how petroleum products are delivered.

The main differences between the various sizes are the

percentages of cooperatives selling wholesale and bulk

deliveries. Seventeen percent of the largest cooperatives, compared with seven smaller ones, have wholesale operations. The larger cooperatives also are more

likely to have bulk delivery. Retail operations were

very similar among the four sizes.

Bulk operations are more capital-intensive and

operating costs are higher. These capital requirements

can be prohibitive for smaller cooperatives. For

instance, larger storage tanks are needed along with

Table +-Methods and average volume of fuel sold for all cooperatives

Gasoline, all types Distillate, all types

Retail Wholesale Bulk Retail Wholesale Bulk delivery

Volume in gallons 541,158 207,213 387,754 239,003 263,513 850,016

Percent of co-ops selling 81.2 11.2 89.0 77.5 10.6 89.1

Table +-Methods and average volume of fuel sold by type and size

Gasoline, all types Distillate, all types

Retail Wholesale Bulk Retail Wholesale Bulk

delivery delivery

Farm supply

Volume in gallons

Percent of co-ops selling

Mixed farm supply

Volume in gallons

Percent of co-ops selling

Mixed marketing

Volume in gallons

Percent of co-ops selling

Small

Volume in gallons

Percent of co-ops selling

Medium

Volume in gallons

Percent of co-ops selling

Large

Volume in gallons

Percent of co-ops selling

Super

Volume in gallons

Percent of co-ops selling

603,185 162,126 386,603 261,726 195,835 858,532

83.0 9.5 88.1 82.9 9.6 88.8

541,905 189,000 445,635 212,474 368,160 1,006,348

79.4 14.0 90.2 75.8 12.9 89.7

403,688 303,626 328,195 216,930 246,929 670,450

75.0 11.4 89.1 69.0 10.3 90.8

282,652 181,872 235,929 121,373 208,842 449,426

80.9 7.0 85.5 77.7 7.0 85.9

554,106 105,802 332,433 243,502 106,078 731,561

75.2 9.2 89.3 75.2 9.2 89.3

696,513 230,907 463,388 343,448 329,970 1 ,139,459

83.8 12.3 90.2 79.9 13.0 91.5

867,688 323,394 684,291 346,591 398,558 1,468,902

81.4 17.8 94.7 78.0 17.0 94.9

5
delivery trucks. This equipment requires maintenance

that can prove to be expensive. Small cooperatives

may not have adequate cash-flow to support such an

operation.

On the bulk selling side, discounts are common

with bulk fuels compared with retail sales. Therefore,

with lower margins and higher costs, it takes larger

sales to support bulk operations.

Regions

Table 7 shows the average volume of fuel sold at the

retail, wholesale, and bulk levels, by region, as well as

the percentage of local cooperatives operating at each

level. The regional differences are significant. Further,

these differences are less dependent on size or type than

expected. For example, in the Northwest region, nearly

a third of the cooperatives sold petroleum at the wholesale level, despite the fact that the region has a high concentration of smaller farm supply cooperatives.

The Appalachian and, to a lesser extent, the Delta

region deviate quite a lot from the “typical” cooperative discussed earlier. In Appalachia, nearly one-third

of the cooperatives are either exclusively bulk or retail

operations. In the other regions, most cooperatives

generally have both. While it was also shown earlier

that for the United States as a whole, more cooperatives sell fuel in bulk than in retail, this is not the case

with regional data. For example, in the Southern

Plains, more than 93 percent have a retail operation

while less than 73 percent have a bulk operation.

Other Products

Other petroleum products that cooperatives sell

include gasohol, premium diesel, propane, lubricating

oil, and grease. Table 8 provides the average volume of

each category for different types, sizes, and regions.

Because of the nature of farm supply cooperatives,

many of their petroleum products such as premium

diesel and refined lubricants and oils are geared

toward farm production and not for highway trucks.

Programs emphasizing premium diesel focus on getting these products directly to the farm.

Table T-Methods and average volume of fuel sold by region

Gasoline, all types Distillate, all types

Retail Wholesale Bulk

delivery

Retail Wholesale Bulk

delivery

Northwest

Volume in gallons

Percent of co-ops selling

Western Plains

Volume in gallons

Percent of co-ops selling

Northern Plains

Volume in gallons

Percent of co-ops selling

Southern Plains

Volume in gallons

Percent of co-ops selling

Lake States

Volume in gallons

Percent of co-ops selling

Corn Belt

Volume in gallons

Percent of co-ops selling

Delta States

Volume in gallons

Percent of co-ops selling

Appalachia

Volume in gallons

Percent of co-ops selling

882,826 290,321 744,723 374,210 151,627 1,103,219

85.2 29.6 77.8 85.2 22.2 77.8

462,185 108,242 427,486 232,707 447,787 704,646

86.8 15.8 89.5 84.2 10.5 89.5

481,565 214,527 299,234 233,410 247,438 562,725

89.9 9.6 96.6 87.0 9.1 96.6

449,541 31,237 228,361 359,084 162,205 653,124

93.1 6.9 69.0 96.6 10.3 72.4

778,343 144,259 320.836 243,440 184,369 799,367

84.3 10.5 92.2 83.0 10.5 92.2

444,943 243,712 534,855 206,411 344,205 1,225,850

72.4 13.4 91.7 66.4 12.9 91.7

268,155 290,625 196,323 241,237 N/A 892,983

87.0 4.4 60.9 65.2 N/A 65.2

488,023 N/A 144,415 165,204 25,498 554,220

60.0 N/A 66.7 53.3 3.3 70.0

N/A = Not Available

6
This niche market gives cooperatives a competitive advantage in the rural market. A recent report by

Eversull and Dunn indicated sales of premium diesel

grew substantially from 1988 to 1993. However, this

was not accompanied by an overall increase in distillate products sold. Nearly 70 percent of the average

total volume of distillate fuel sold by cooperatives is

premium diesel. Most cooperatives carrying premium

diesel deliver it primarily to farm accounts and do not

rely on highway traffic for diesel sales.

Similarly, ethanol-blended gasoline sales

increased tremendously during the same period, while

total gasoline volume remained unchanged. In 1993,

the average volume of gasohol sold represented about

30 percent of total gasoline volume. However, only 63

percent of the respondents who provide gasoline to

member/patrons sell ethanol-blended gasoline. Sixtyeight percent of all local cooperatives sell propane.

Type

There is little difference between the various types of

cooperatives when comparing gasohol and premium

diesel sales. However, differences emerge when comparing propane, lubricants, and grease. More farm

supply cooperatives sell these products than the other

two types (table 8). Yet, these numbers do not tell the

whole story. Lubricants and grease are often sold

under tire, batteries, and auto accessories (TBA). A

higher percent of farm supply cooperatives also have

an automotive section where they sell TBA. If considering only those cooperatives selling TBA, the comparisons between the types of cooperatives carrying these

other petroleum products become much more pronounced. Farm supply cooperatives continue to show

a higher percentage (90.8) than mixed farm supply

(74.2) and mixed marketing (68.6).

Size

Not only do larger cooperatives sell more than smaller

cooperatives, but there is a higher percentage of them

selling these other petroleum products. This is especially evident with gasohol. For example, 72 percent

of the super-size cooperatives sell gasohol compared

to 55 percent of the small-size cooperatives. The most

probable cause is location. Ninety percent of all supersize cooperatives are found in the Northern Plains,

Lake States, and Corn Belt, where a substantial

amount of ethanol is produced.

Regions

The regions differ in terms of other types of fuel sold.

More cooperatives in the Northern Plains, Lake States,

and Corn Belt provide ethanol-blended gasoline and

premium diesel than in other regions. Even though a

lower number of cooperatives carry gasohol in the

Northwest, Southern Plains, and Delta regions, they

tend to sell a higher volume. For example, in the

Southern Plains, only 10 percent of cooperatives carry

Table s-Average volume of other petroleum products by types, sizes, and regions

Gallons Gasohol Premium diesel Propane

volume Pet. volume pet. volume pet.

All cooperatives 335,891 60 663,925 68 908,712 68

Farm supply 365,238 59 634,557 6 7 828,891 74

Mixed farm supply 349,238 59 755,333 6 7 1,111,070 68

Mixed marketing 271,852 65 627,020 71 855,024 59

Small 282,798 55 379,884 6 8 550,677 68

Medium 297,547 5 7 555,173 63 767,317 63

Large 319,215 65 803,946 71 1,090,144 69

Super 496,984 72 1,217,473 7 4 1,557,096 80

Northwest 674,398 3 0 848,368 3 0 111,066 5 9

Western Plains 308,200 26 673,324 61 544,780 7 4

Northern Plains 271,886 66 520,072 76 590,369 83

Southern Plains 936,461 10 723,327 4 8 507,843 38

Lake States 344,967 7 7 519,483 7 9 1,029,450 83

Corn Belt 358,133 76 905,794 76 1,447,253 62

Delta States 520,290 4 1,205,706 13 729,120 13

Appalachia N A 276,368 2 3 28,765 2 0

Oil and grease

volume pet.

18,502 78

17,391 85

22,088 73

17,183 70

10,559 8 4

20,697 72

19,849 74

31,227 81

24,464 85

16,409 82

22,085 84

13,838 69

16,180 90

17,671 7 4

6,937 3 0

17,519 4 3

7
gasohol, yet those cooperatives selling gasohol averaged nearly 1 million gallons per year. Cooperatives

selling ethanol-enhanced gas in the Northern Plains,

Lake States, and Corn Belt typically sell less than half

that amount. Typical of the regions with a low number

of cooperatives selling a high volume of gasohol, nearly all of the gasoline sold was ethanol-enhanced. In the

Southern Plains and the Delta States where only about

10 percent of the cooperatives sell gasohol, it accounts

for almost 100 percent of their total gasoline volume.

With some of the other regions, where the volumes of

gasohol are relatively small and the number of cooperatives selling gasohol is numerous, less than half the

gasoline sold is ethanol-enhanced.

The characteristics of cooperatives selling premium diesel are similar to those selling gasohol. With the

exception of the Corn Belt, the regions with the highest

volume of premium diesel sold generally have the

lowest number of cooperatives selling premium diesel.

In the Southern Plains, for example, less than 50 percent of their cooperatives sell premium diesel, yet the

volume for those that sell premium diesel totaled more

than 90 percent of their gross diesel sales. In regions

such as the Lake States, more than 75 percent of the

cooperatives sell premium diesel. However, premium

diesel amounted to only half of their gross volume of

diesel sold.

Propane sales are concentrated in the Western

Plains, Northern Plains, Lake States, and Corn Belt

regions. These four regions represent 92 percent of the

total number of cooperatives selling this type of fuel.

Propane is generally associated with home heating,

therefore, it would be expected that these northern

regions have higher sales. This holds for most northern

regions except the Northwest where cooperatives are

not large suppliers of propane, even though nearly 60

percent of all cooperatives sell it. The average volume

of propane sold by Northwest region cooperatives is

substantially below that of the other regions, except for

Appalachia.

Storage

Fuel storage is a major concern for many cooperatives.

Leaks from tanks and upgrades to bring the tanks into

code are expensive. This is especially true for underground tanks that must be excavated. This disruption

of service can place considerable pressure on a cooperative’s cash-flow. The aboveground storage tanks have

a larger volume than those below ground. The majority of cooperatives also use aboveground storage.

However, this probably has more to do with bulk sales

than environmental concerns. Table 9 presents the

average capacity for storage tanks of each type of fuel.

Another way to look at storage capacity is to

examine the volume turnover. This ratio is defined as

the volume of petroleum sold divided by the volume

of storage capacity. Table 10 shows this turnover ratio

by fuel type and sales method. If the cooperative operates a retail station and has underground tanks, it is

assumed these tanks are for the retail station and retail

sales volume is used. If the cooperative has aboveground storage and bulk delivery, it is assumed the

aboveground storage is for bulk. If the cooperative had

both retail and bulk, as the majority of cooperatives

did, aboveground tanks were used with bulk and

tanks below ground were associated with retail. Also

included with aboveground storage is wholesale fuel.

Table 10 shows that retail stations have higher sales in

relation to storage capacity than bulk centers.

Several factors can help explain the differences

between these ratios. The retail station tanks are generally smaller than those used for bulk because retail

sales are typically sold in small units, i.e., 10 to 20 gallons at a time, while the bulk inventory could be

drawn down in units as large as 5,000 gallons at a

time. Also the service station has a continuous flow of

traffic throughout the year and the amount of fuel

needed is fairly stable and predictable, so there is no

need to carry excess capacity. Bulk sales, however, are

likely to be seasonal, with most sales coming in the

Table +-Range of storage capacity for petroleum products above and below ground

Gasoline Distillate fuels Propane 1

Gallons (1.000)

Above ground 20 - 80 30-120 20 - 60

Below ground 8 - 40 4 - 30 n/a 2

1 Underground storage of propane is rare, less than 1 percent.

* Not available.

8
spring and fall during planting and harvesting.

Cooperatives need the larger storage capacity during

the peak months.

If the cooperative is located on a major highway,

the higher turnover for gas at the retail service stations

is probably due to the higher volume of car traffic.

Therefore, the gasoline sales volume will be higher

than diesel at the retail center, accounting for the higher turnover. Where the principal patrons are farmers,

more diesel than gasoline can be expected to be sold,

accounting for the higher turnover of diesel in locals

offering bulk delivery.

As would be expected, larger cooperatives have a

greater average storage capacity than smaller cooperatives. However, that did not always imply lower perunit cost. According to a recent report by Dahl, Cobia,

and Dooley, the least-cost bulk storage facility is

around 50,000 gallons regardless of the sales volume.

The researchers examined several cooperatives in

North Dakota and found this size facility places little

or no constraints on operations. Delivery from terminals to the cooperative is reliable and easily scheduled.

Although the storage capacity of 30 percent of the

cooperatives sampled exceed 60,000 gallons, no single

size category dominated this segment. The capacities

in excess of 50,000 gallons are likely due to multiple

storage locations or uncertainty of future supply and

prices.

Services

Cooperatives not only sell petroleum products, but

also offer other related operations and services (table

11). Over 70 percent of local cooperatives operate a

retail service station. Most cooperatives also provide

Table IO -StOragC? tUITIOVt!r ratios by types, SiZeS, and regions

Retail sales Bulk deliveries

Gasoline Diesel Gasoline Diesel

Ratio

All cooperatives 27.54 18.81 8.76 12.78

Farm supply 28.15 17.91 8.70 12.43

Mixed farm supply 27.71 19.63 9.52 15.18

Mixed marketing 25.29 20.68 8.10 11.03

Small 25.17 16.36 7.19 9.53

Medium 30.93 20.46 9.30 13.26

Large 25.34 20.09 9.02 15.24

Super 31.19 20.49 10.79 15.55

Northwest 22.35 15.57 17.84 21.23

Western Plains 28.58 25.16 10.91 15.82

Northern Plains 30.63 20.76 7.32 10.01

Southern Plains 12.69 11.87 17.06 21.93

Lake States 25.49 17.31 8.18 12.05

Corn Belt 28.42 19.64 9.23 13.33

Delta States 31.31 12.70 7.02 19.36

Appalachia 25.44 8.44 8.37 17.39

Table ii -PMXIIt of COOperatiVeS providing WIOUS operations and SetViCeS to members

Operation Percent Service Percent

Retail service station 70.85 Mechanic for major repairs 22.17

Convenience store 42.04 TBA sales and installation 64.25

Tire truck (on farm service) 47.49 Card or key activated pumps 70.94

Franchise outlet (Midas, etc) 5.14 Furnace and A/C service/repair 25.25

Video tape sales and rental 18.35 Petroleum sales specialist 46.75

Other operation 1.69 Other services 1.32

9
tires, batteries, and auto accessories (TBA) sales and

services. Sixty-four percent of those cooperatives sampled had TBA sales and services. The percentage offering TBA increases to nearly 85 percent if the cooperative operates a service station. Services of mechanics

for major repairs are offered by 22 percent of cooperatives. As might be expected, there is also a high correlation between employing a mechanic and operating a

service station.

About 50 percent of cooperatives selling petroleum products also offer a tire truck for on-farm servicing. Nearly 90 percent of those cooperatives equipped

with a tire truck service also operate a service station.

Card- or key-activated pumps, which allow

members access to pumps during off-hours, are

offered by 71 percent of the cooperatives. However, the

presence of a card- or key-activated pump is unrelated

to the operation of a full service station by the cooperative.

With a relatively small number of customers

spread out over a larger area, deliveries to members

can be costly. These low-density regions require many

delivery truck miles. About half of the local cooperatives employ a petroleum sales specialist who coordinates large bulk sales and deliveries to

member/patrons. Nearly all cooperatives employing a

petroleum sales specialist have bulk delivery. The

petroleum specialist coordinates product delivery to

members and helps lower transportation cost.

Cooperatives in the low-density areas are more likely

to have “keep full” contracts which allow the cooperative to coordinate scheduled stops to refill the tank.

This will give the cooperative more control to coordinate deliveries to members and lowers transportation

costs. Having a coordinator for this function can greatly improve efficiency and lower costs.

Furnace and A/C service and repairs are provided by 25 percent of the surveyed cooperatives. This

service primarily ties in with propane sales for home

heating and crop drying. Ninety-two percent of the

cooperatives that provide furnace and A/C repairs

and services also sell propane.

In the rural community, stores and repair shops

could be many miles away in the nearest town. In

many instances the local cooperative is the nearest

business. Consequently, the importance of the cooperative in providing a convenient access to basic everyday

home products becomes evident. Forty-two percent of

the cooperatives operate a convenience store.

Although the store may only carry a limited variety of

products, a quick trip to the cooperative for bread, butter, milk, or even flashlight batteries could save the

patron more time than a trip into town. Eighty-five

percent of those cooperatives operating a convenience

store also run a full service station.

Type

One of the biggest differences between types of locals

is the amount of services provided to

member/patrons. Table 12 lists some of the major serTable 12 -Percent of cooperatives providing selected services by type, size, and region

Service C-store Tire TBA Card- Key- Mechanic Petroleum

Station Truck Activated Pump Specialist

Percent

Farm supply 76.62 50.14 51.91 75.17 73.02 30.01 51.57

Mixed farm supply 66.37 36.97 41.40 55.66 64.07 14.36 36.49

Mixed marketing 57.40 28.64 45.09 48.77 75.09 13.50 49.54

Small 84.72 34.99 48.77 78.13 67.85 30.57 44.57

Medium 63.96 42.30 45.42 64.85 69.27 21.12 42.37

Large 69.83 48.51 45.13 61.99 65.77 21.28 38.55

Super 68.92 40.21 50.74 56.93 79.33 1 a.54 59.83

Northwest 59.26 32.23 7.41 44.44 88.89 11.11 58.49

Western Plains 78.95 30.53 52.63 76.31 68.42 7.89 44.76

Northern Plains 80.77 42.54 57.21 75.48 71.15 28.85 43.78

Southern Plains 65.52 20.00 27.59 62.07 82.76 0.00 12.59

Lake States 70.59 76.79 44.44 72.55 60.13 32.03 41.26

Corn Belt 42.86 24.06 22.12 36.87 53.00 8.76 54.82

Delta States 69.57 25.22 26.09 82.61 4.35 0.00 26.46

Appalachia 56.67 9.67 50.00 66.67 40.00 20.00 36.41

1 0
vices along with the percent of cooperatives within

each type providing them. With the exception of cardor key-activated pumps, most farm supply cooperatives offer more services than strictly marketing cooperatives. Many of these services are provided in conjunction with operating a full service station. However,

even when the operation of a full service station is

taken into account, farm supply cooperatives are more

likely to offer other services such as a mechanic, convenience store, and TBA sales.

Of those locals carrying propane, 52 percent are

farm supply cooperatives, 27 percent are mixed farm

supply and 21 percent are mixed marketing.

Cooperatives selling propane frequently provide furnace and A/C service and repairs. Of all cooperatives

selling propane, 36 percent of farm supply, 18 percent

of the mixed farm supply, and only 4 percent of mixed

marketing cooperatives have furnace and A/C service

and repairs.

Farm supply cooperatives are more likely to

employ a petroleum specialist (42 percent) than mixed

marketing cooperatives (35 percent), or mixed farm

supply cooperatives (29 percent).

Size

Smaller cooperatives are more likely to offer services

to members than other size cooperatives, including:

operating service stations, employing a mechanic, selling TBA products and services, and having furnace

and A/C repairs and services (table 12). Super-size

cooperatives are more likely to have a petroleum sales

specialist and card- or key-activated pumps.

Most cooperatives bundle their services with a

service station. For example, more than 70 percent of

those cooperatives with a service station offer at least

three other services. Depending on the size, only

between 10 and 25 percent of those cooperatives without a service station will offer three or more services.

However, the super-size cooperatives are more likely

to offer these services without a service station (25 percent) compared with 10 percent of the small-size cooperatives.

Furnace and A/C service and repairs are more

dependent on whether the cooperative sells propane

than operating a service station. Yet, it is interesting to

note that more super-size cooperatives sell propane

than smaller ones. Nearly 80 percent of these largest

cooperatives sell propane, compared with 69 percent

of large cooperatives, 62 percent of medium, and 68

percent small. However, significantly more smaller

size cooperatives offer heating and A/C services than

larger cooperatives. When considering only those

cooperatives selling propane, a higher percentage of

small-size cooperatives still provide furnace and A/C

services (38 percent for small, 35 percent for medium,

21 percent for large, and 25 percent for super-size

cooperatives).

Sixty percent of super-size cooperatives have a

petroleum sales specialist. The volume of their bulk

sales could be expected to justify staffing such a position. Petroleum specialists were employed by 45,42,

and 39 percent of small, medium, and large cooperatives, respectively.

Of the three smaller size categories, smaller cooperatives are more likely to employ a petroleum specialist, even though they generally have smaller sales territories and fewer of them deliver bulk fuel. With the

small-size cooperative, bulk petroleum sales account

for an average of 36 percent of their total cooperative

sales, nearly doubling the next size cooperative. The

relatively great importance of bulk sales to these small

cooperatives means that having an efficient delivery

system could mean the difference between a healthy

cooperative and a troubled one.

Regions

Table 12 demonstrates that the percentage of cooperatives providing services to its members varies by

region. A higher percent of cooperatives in the northern regions (Western Plains, Northern Plains, and Lake

States) provide services. Corn Belt cooperatives typically provide the least.

Operating a service station generally indicates

that a cooperative also provides other member services. Only 43 percent of the Corn Belt cooperatives

operate a service station. This region also has a higher

concentration of larger marketing cooperatives.

Petroleum is not a major revenue source for many of

them, thus explaining the lower emphasis on petroleum products and services.

While many cooperatives bundle their services in

conjunction with a service station, the Lake States and

Corn Belt are an exception. Convenience stores and

tire trucks are operated almost exclusively in conjunction with a service station for most cooperatives in

other regions. However, in the Lake States and Corn

Belt, 20 and 30 percent of those cooperatives running a

convenience store do not combine that operation with

a service station, while 15 and 30 percent have a tire

truck without a service station, respectively.

Ninety-one percent of the mechanics employed

by cooperatives are in the Northern Plains, Lake

States, and Corn Belt regions. Ninety-two percent of

the cooperatives providing heating and A/C repair

11
and services also sell propane. However, 93 percent of

those providing this heating and A/C repair and services are in the Western Plains, Northern Plains, Lake

States, and Corn Belt. As shown earlier these four

regions account for 92 percent of cooperative propane

sales.

Competition

Competition, changing markets, and market shares are

increasing concerns for cooperatives. Urban business is

becoming an important source of petroleum sales to

cooperatives as the number of farms continue to

decrease and acreage is consolidated in the remaining

farms. Cooperatives estimated that they face, on average, 18 competitors in retail and 8 in bulk delivery

operations (table 13). However, given the huge number

of competitors in some urban areas, these average statistics may be somewhat misleading. The median number of competitors facing cooperatives is three for their

retail and two for their bulk operations.

One area of particular concern for many cooperatives is the competition from other cooperatives for the

same members. Forty-six percent indicated that they

face cooperative competition. This duplication pushes

up the investment and the cost of delivering petroleum

products to members. For the sake of a more efficient

and less costly cooperative petroleum sector, this overlap at all levels of the cooperative system must be

reduced.

All cooperative types have similar characteristics

regarding competition. As would be expected, the

average number of competitors increases with the size

of cooperatives, most likely due to multiple locations.

For instance, super-size cooperatives average nearly

seven locations compared with the small-size cooperatives which average between one and two locations.

As larger cooperatives expand into more towns or

regions, the number of competitors could easily double or triple. Nearly 70 percent of the small-size cooperatives have five or fewer competitors in the retail

market. Among super-size cooperatives only 37 percent have five or fewer competitors.

Regional

Competition also varied between regions (table 14).

The average number of retail competitors ranged from

15 in Appalachia to 6 in the Delta region. Cooperatives

with bulk delivery average two to five competitors.

However, some cooperatives estimated they faced 100

competitors. Despite this large range of competitors for

both retail and bulk, more than 75 percent of the cooperatives have less than 10 retail and 5 bulk competitors.

Table 15 shows the regions and how the cooperative perceives the market is moving. The Delta and

Table Is-Average and median number of COmpetitOtS

Major oil company

average median

Retail operation 8.17 2

Bulk delivery operation 2.85 1

Independent oil company Other cooperative

average median average median

8.05 1 2.40 0

3.35 1 2.55 0

Table la-Average number of competitors facing

cooperatives for retail and bulk operations by

region

retail bulk

Northwest

Western Plains

Northern Plains

Southern Plains

Lake States

Corn Belt

Delta States

Appalachia

average

14

9

7

8

10

12

6

15

Tablets-Percent of cooperatives indicating direction

of competition in their market by region

growing same shrinking

Percent

Northwest 7.69 76.92 15.38

Western Plains 9.38 59.38 31.25

Northern Plains 7.25 68.91 23.83

Southern Plains 7.69 61.54 30.77

Lake States 10.14 63.51. 26.35

Corn Belt 5.58 58.88 35.53

Delta States 25.00 70.00 5.00

Appalachia 15.38 57.69 26.92

12
Appalachia regions are showing increasing competition. On the other hand, nearly a third of the cooperatives in the Western Plains, Southern Plains, and Corn

Belt stated that the level of competition was declining.

Summary

Petroleum products are important to agricultural production, and cooperatives play a vital role in moving

those products from the refining stage to the final consumer. Local cooperatives provide nearly a third of the

total farm supplies sales and petroleum is a significant

part of the product mix. However, many cooperatives

provide more than just gas and diesel to the rural communities. Cooperatives are increasing the kinds of services provided to their communities and often pick up

the slack left when non-cooperative businesses close

their doors.

Despite the importance cooperatives play in providing fuel and services to members, there are striking

differences among the cooperatives themselves. Some

only provide bulk deliveries while others offer a full

range of services. Petroleum sales and services are

essential for cooperatives in some regions of the

United States. In other areas, these may not be needed,

reflecting the differing nature of agricultural production from one region to another.

The average small farm supply cooperative sells

a higher proportion of petroleum products, compared

with its larger counterparts. The Midwest regions,

which have a higher concentration of larger marketing

cooperatives, focus on bulk delivery. Many of those

cooperatives also sell ethanol-enhanced gas and premium diesel, again reflecting the nature of their agricultural production. The southern regions rely more on

retail traffic than bulk sales. A smaller number of

cooperatives sell premium diesel and gasohol.

However, cooperatives in the southern regions average

a higher volume of the premium diesel and gasohol.

Propane sales are concentrated in the northern regions

and are not related to the size or type of cooperative.

While most local cooperatives provide some basic

services in addition to petroleum sales, cooperatives

operating a service station seem to offer the most.

Cooperatives often bundle services with service stations. Nearly 75 percent of the cooperatives have a service station. However, they seem to be concentrated

with small farm supply cooperatives. Yet, larger marketing cooperatives that concentrate in bulk delivery

will employ a petroleum specialist to help coordinate

distribution.

Competition varies among the different classifications. The larger cooperatives face two to three times

more competitors than smaller cooperatives in the

retail sector which probably has more to do with the

cooperatives operating more locations. The largest

cooperatives also face between four and five more bulk

competitors than the smaller size ones. Most cooperatives indicated that the number of competitors is stable. However, of greater concern for cooperatives is the

number of cooperatives competing against each other.

There needs to be a concerted effort to reduce duplicate facilities and overlapping territories and support

more cooperative cooperation.

References

Chesnick, David S. and E. Eldon Eversull, Analysis of

Income Statements of Local Farm Supply and Marketing

Cooperatives, U.S. Department of Agriculture, Rural

Development Administration, Cooperative Services,

Research Report 134, June 1994.

Dahl, Bruce L., David W. Cobia, and Frank J. Dooley,

Bulk Fuel Distribution Costs For Cooperatives In North

Dakota, Department of Agricultural Economics North

Dakota State University, Agricultural Economics

Report No. 334, Sept. 1995.

Eversull, E. Eldon and David S. Chesnick, Analysis of

Balance Sheets of Local Farm Supply and Marketing

Cooperatives, U.S. Department of Agriculture, Rural

Development Administration, Cooperative Services,

Research Report 138, November 1994.

Eversull, E. Eldon and John R. Dunn, Petroleum

Cooperatives, 2993, U.S. Department of Agriculture,

Rural Business and Cooperative Development Service,

Cooperative Services, Research Report 143, June 1995.

Richardson, Ralph M., Celestine C. Adams, Katherine

C. DeVille, Jacqueline D. Penn, John W. Stutzman, and

Charles A. Kraenzle, Farmer Cooperative Statistics, 2993,

U.S. Department of Agriculture, Rural Development

Administration, Cooperative Services, Service Report

43, November 1994.

13
U.S. Department of Agriculture

Rural Business-Cooperative Service

Stop 3250

Washington, D.C. 20250-3250

Rural Business-Cooperative Service (RBS) provides research, management, and

educational assistance to cooperatives to strengthen the economic position of farmers and

other rural residents. It works directly with cooperative leaders and Federal and State

agencies to improve organization, leadership, and operation of cooperatives and to give

guidance to further development.

The cooperative segment of RBS (1) helps farmers and other rural residents develop

cooperatives to obtain supplies and services at lower cost and to get better prices for

products they sell; (2) advises rural residents on developing existing resources through

cooperative action to enhance rural living; (3) helps cooperatives improve services and

operating efficiency; (4) informs members, directors, employees, and the public on how

cooperatives work and benefit their members and their communities; and (5) encourages

international cooperative programs. RBS also publishes research and educational

materials and issues Rural Cooperatives magazine.

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programs on the basis of race, color, national origin, sex, religion, age, disability, political

beliefs and marital or familial status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for communication of program

information (Braille, large print, audiotape, etc.) should contact the USDA Office of

Communications at (202) 720-2791.

To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture,

Washington, D.C. 20250, or call (202) 720-7327 (voice) or (202) 720-l 127 (TDD). USDA is

an equal employment opportunity employer.