USDA m

United States

Department of

Agriculture

Rural BusinessCooperative

Service

RBS Research

Report 166

A New Approach

To Measuring Dairy

Cooperative

Performance
Abstract This report prescribes a new method to evaluate and compare operational performance of dairy cooperatives. A cooperative is creating extra value if its net operating

margin can more than cover its operating cost, including the opportunity cost of operating capital (the sum of fixed assets and working capital). The extra-value measure

can be common-sized by operating capital to create an extra-value index (EVI). The

scale-neutral index is an objective measure for comparing operating efficiency

between dairy cooperatives and dairy investor-owned firms (IOFs). Using actual data,

performance rankings of firms by EVI and by return on equity (ROE) differed somewhat. Dairy cooperatives performed as well as IOFs, based on both EVI and ROE.

Key words: Economic rent, extra value index, cooperatives, dairy, performance

ranking.

A New Approach To Measuring Dairy Cooperative Performance

K. Charles Ling

Carolyn Liebrand

USDA Rural Business-Cooperative Service

RBS Research Report 166

September 1998

Price: Domestic-$5; foreign-$5.50
A question frequently asked by people is, “Which cooperative performs better for the

members?” The obvious response is, “The cooperative with the most satisfied

members.” The answer, however, is very subjective and is not easy to determine.

Financial ratios are usually used to provide objective and readily available measures of

performance-return on equity, return on assets, return on operating capital (the sum

of fixed assets and working capital), net margins on sales, and net margins per

hundredweight of milk, etc. While worthwhile benchmarks, none would yield an

unequivocal answer to the performance question.

In searching for a better measurement, we came across a new way of comparing firm

performance by Davis and Kay in the Business Strategy Review (Summer 1990, Vol. 1,

No. 2). Their approach measures performance in terms of earnings generated net of

total costs, including a cost for equity employed. The approach was modified to fit the

cooperative context. Our purpose was to provide dairy farmers an objective tool to

measure the performance of their cooperatives and compare that performance with

certainty.
Contents Highlights............................................................ii i

Introduction .......................................................... .

Extra Value Defined ..................................................2

Extra-Value Measure Characteristics .....................................4

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

Return on Equity vs. Extra-Value Index .....................................4

Comparing Cooperative Performance ......................................7

Ranking Basedon ROE ............................................... .

Ranking Basedon EVI ................................................ .

Case One: Assuming member equity to be free capital ....................8

Case Two: Assuming member equity cost 10 percent per year .............. .9

Case Three: Assuming member equity cost 25 percent per year ........... .lO

Implications of rankings ..............................................ll

Comparing IOF Performance ............................................12

Investor-Owned Firms’ Rankings .......................................13

Dairy Cooperatives vs. Investor-Owned Firms ..............................14

Conclusions.. ..................................................... ..14

References ....................................................... ..16

Appendices.........................................................l 7
Highlights Common measures of a cooperative’s operating performance-return on equity, return

on assets, return on operating capital, net margins on sales, net margins per hundredweight of milk, etc.-are useful for evaluating an individual cooperative’s operating

results. However, they may not be objective measures for comparing performance

between cooperatives. They do not unequivocally tell which cooperative actually

performs better.

To illustrate the point, this report examines two cooperatives that market exactly the

same volume of milk and have the same amount of assets, operating capital, sales,

cost of goods sold, operating cost and net operating margin, but have different ways of

financing the operation.

This report describes a relatively new approach called “extra value” for measuring

business performance. The approach accounts for the total cost of operations,

including cost on equity, and measures performance in terms of earnings generated,

net of this total operating cost. The cost on equity is the opportunity cost of equity

capital. It is an interest charge on the equity used in the operation at a rate equivalent

to the amount the money could earn elsewhere.

Extra value can be calculated using the information commonly found on any firm’s

financial statements (except for interest rate on equity which has to be imputed):

Extra value = Net operating margin (before tax) - Interest on equity, where

Net operating margin (before tax) = Operating margin + Interest income - Interest

expenses + Other income - Other expenses, and

Interest on equity = (Member or stockholder equity - Investment in other firms) X

Interest rate.

Any patronage or investment income is excluded from the net operating margin

because it does not result from the cooperative’s own operations and should not be

used to measure the cooperative’s operating performance. Likewise, investment in

other firms is removed from the cooperative’s assets and the corresponding amount is

subtracted from members’ or stockholders’ equity. This way, extra value captures the

cooperative’s operating performance and not the performance of other firms in which

the cooperative invests. Earnings are before income tax. They do not measure a business’ performance based on tax accounting maneuvers.

A positive extra value, indicating a cooperative generated value for its members,

attests to the cooperative’s comparative advantage in the marketplace. The cooperative may have a comparative advantage in one or several ways. Its operations may be

more efficient than the competition, it may be technologically more advanced or it may

have developed brand names or niche markets that allow it to extract premiums from

the marketplace.

A negative extra value indicates that a cooperative is not fully recovering its total costs

and is losing value as a business. The erosion of a cooperative’s value may be caused

by its comparative disadvantage in the marketplace, due to inefficient operations, technological deficiency or overpaying for the cost of goods sold.

This extra-value measure may be of special interest to members because cooperatives

. . . 111
Highlights do not have valuation through stock markets. Knowing whether a cooperative is

creating value should be of particular interest to members.

To make the extra value scale-neutral, an “extra-value index” (EVI) is developed by

expressing extra value as a percentage of operating capital. Because EVI is commonsized by operating capital and is thus scale-neutral, it allows cooperatives and firms of

different sizes and/or types of operations to be compared fairly.

Dairy cooperatives that have more bargaining than processing and marketing operations may have lower margins on sales but also use less operating capital. Other cooperatives that engage in further processing may add more value to milk and milk

products, but require more operating capital to generate the higher margins on sales.

The extra-value index, being common-sized, puts all cooperatives on an equal footing

for comparing their operating performance.

Data for 25 dairy cooperatives that were consistently on USDA’s Cooperative Services’

list of the nation’s 100 largest agricultural cooperatives every year for 11 years

between 1986 and 1996 were used to illustrate the extra-value approach, as compared

with the most commonly used performance measure, the return on equity (ROE).

While ROE highlights the relationship of a firm’s net earnings to the equity it employs,

EVI measures the efficiency of a firm’s operation in adding value to the firm for the

stakeholders (cooperative member-producers). The two measures have different

emphasis. Depending on a cooperative’s particular situation, in some cases they would

result in yielding different performance ranking of a cooperative as compared with

other cooperatives. In other cases, the ranking may converge. The relative performance of the cooperatives also depends upon what cost is assigned to equity capital

for the EVI measure.

The rankings of cooperatives appeared more similar between ROE and EVI when

equity capital was not charged a cost in the extra-value calculation than when equity

capital was assumed to cost 10 or 25 percent. Very few (no more than three) cooperatives ended up with the same rank under each measure. Because the differing degrees

to which an individual cooperative relied on equity capital, versus debt capital, in

financing its operations, the relative ranking by EVI changed when the opportunity cost

of member equity changed. It appears that the EVI rankings at selected rates for equity

capital cost were more similar in the earlier years of the time period. Perhaps this

reflected cooperatives adjusting their mix of equity versus debt capital in different ways

due to the more market-oriented operations of recent years.

A more telling observation than the differences in ranking was that the number of cooperatives showing negative extra value was typically larger than the number of cooperatives that had negative returns to equity. Because ROE measures the return members’

equity earns by being employed by cooperatives and EVI measures the earning ability

after covering the cost of equity, a cooperative could show positive returns to equity but

actually be losing value as a going concern. Not unexpectedly, the number of cooperatives with a negative extra-value index increased as the imputed cost of equity

increased. Very significantly, however, over the 11 -year period of 1986-l 996, 5 to 10

cooperatives each year generated value while “paying” a charge of 25 percent on the

equity capital employed.

Investor-owned firms (IOFs) from the Dairy Field magazine’s annual list of the top 100

iv
Highlights dairy processing firms that filed financial data with the U.S. Securities and Exchange

Commission (SEC) for 1994 through 1996 were also analyzed. The rankings using

ROE and EVI appeared to be quite different in 1996, but almost the same in 1994

especially when stockholder equity was valued at a cost of 25 percent.

The performance of dairy cooperatives and dairy investor-owned firms (IOFs) were

compared for 3 years, 1994-l 996. In ROE terms, most firms had positive earnings and

few lost money in 1994-l 996. However, many firms could not cover their imputed cost

of equity capital in their operations-they lost value as a business concern.

While an IOF ranked first by all measures for the 3-year period, the top rankings were

held by both cooperatives and dairy IOFs. In terms of profitability (ROE) or extra value

created (EVI), dairy cooperatives performed as well as IOFs. Three out of seven losing

firms that had negative ROES were IOFs in 1994, and three out of four losing firms

were IOFs in 1995. And the only firm that lost money in 1996 was an IOF.

Neither IOFs nor cooperatives were much out of proportion in the groups of firms that

had negative EVls. It was not obvious which group was more prone to losing value in

their business operations.

In summary, EVI may give a better indication of a company’s operating efficiency in

generating value for its shareholders than conventional measures of profitability. By

showing the rate of value creation in the operation, EVI may be a better measure than

other traditional means for evaluating a manager’s performance. EVI is an indicator

calculated on operating capital that does not include funds for investment activities. It

measures operational efficiency, not the profitability of financial transactions derived

from investment activities. EVI is also based on earnings before income tax, and

neither rewards nor punishes a manager based on tax accounting maneuvers.

This report illustrates the use of extra-value index in comparing operational performance among dairy cooperative and dairy companies. The concept and the method

are equally applicable to other commodities and businesses.

V
A New Approach To Measuring Dairy

Cooperative Pefformance

Introduction

There are many ways to measure a cooperative’s

operating performance-return on equity, return on

assets, return on operating capital, net margins on sales,

and net margins per hundredweight (cwt) of milk,

among others. While useful tools, they fall short of

providing a clearcut comparison between firms as shown

in table 1 using two hypothetical dairy cooperatives.

Cooperative A and Cooperative B market exactly

the same volume of milk and have the same amount of

assets, operating capital, sales, cost of goods sold,

operating cost and operating margin. The only difference is the way they finance their operations.

Cooperative A’s operating capital is financed by

$80,000 debt and $480,000 member equity, while

Cooperative B’s operating capital is financed by

$310,000 debt and $250,000 member equity. The table

shows how the cooperatives perform at various

interest rates on debt.

The operating results allow both cooperatives to

claim successful performance. When the interest rate

on debt is 10 percent, Cooperative B can claim that it

has achieved better return on member equity, while

having acceptable net savings and other measures of

performance, and not requiring members to contribute

much capital. On the other hand, Cooperative A can

tell its members that it has generated higher net

savings per cwt of milk, has performed better by

almost every measure and achieved a reasonable

return on equity. The two cooperatives can make the

same claims when the interest rate on debt is lower,

such as 9 percent. When the interest rate on debt is

higher, 11 percent for instance, Cooperative A can

claim that it has outperformed Cooperative B in every

aspect, even in terms of return on equity.

This example shows that conventional measures

of performance do not unequivocally tell which coopTable I- Comparison of two cooperatives using

conventional measures of performance

Cooperative A Cooperative 6

Milk volume handled (cwt)

Total assets

Operating capital

Debt

Equity

Sales

Cost of goods sold

Gross margin

Operating cost

Operating margin

Interest on debt 0 70 percent

Net savings

Return on equity

Return on assets

Return on operating capital

Net margins on sales

Net margins per cwt

/Were& on debt d9 percent

Net savings

Return on equity

Return on assets

Return on operating capital

Net margins on sales

Net margins per cwt

Interest on debt 0 7 1 percent

Net savings

Return on equity

Return on assets

Return on operating capital

Net margins on sales

Net margins per cwt

$1 ,ooo,ooo

560,000

80,000

480,000

$5000,000

4,500,000

500,000

440,000

60,000

8,000

52,000

10.8%

5.2%

9.3%

1 .O%

$0.21

7,200

52,800

11 .O%

5.3%

9.4%

1.1%

$0.21

250,000

$1 ,ooo,ooo

560,000

310,000

250,000

$5,000,000

4,500,000

500,000

440,000

60,000

31,000

29,000

11.6%

2.9%

5.2%

0.6%

$0.12

27,900

32,100

12.8%

3.2%

5.7%

0.6%

$0.13

34,100

25,900

10.4%

2.6%

4.6%

0.5%

$0.10
erative actually performs better. A new tool may be

useful to clarify cooperative performance. This report

uses a new method for evaluating business performance to measure and compare U.S. dairy cooperatives. This method was proposed by Davis and Kay in

1990 and modified to suit cooperatives.

Extra Value Defined

The new tool uses an “extra value” approach. It

accounts for the total cost of operations - including

cost on equity - and measures performance in terms

of earnings generated, net of this total cost. Extra value

can be calculated using the information commonly

found on any firm’s financial statements (except for

the interest rate on equity which has to be imputed).

Extra value = Net operating margin (before tax)

- Interest on equity

where:

Net operating margin

(before tax) = Opera ing margin + Interest income t

- Interest expenses + Other income

- Other expenses, and

Interest on equity = (Member or stockholder equity

- Investment in other firms)

x Interest rate.

Any patronage or investment income is excluded

from the net operating margin as these are not the

results of the cooperative’s own operations and should

not play a part in measuring operating performance.

Likewise, investment in other firms is removed from

the cooperative’s assets and the corresponding amount

is subtracted from members’ or stockholders’ equity.

This way, extra value captures the cooperative’s operating performance and not the performance of other

firms in which the cooperative invests.

Ideally, the interest on equity is a value imputed

from the cooperative’s own opportunity cost of capital.

The appropriate rate is cooperative-specific. However,

it is difficult, if not impossible, to figure out a cooperative’s opportunity cost of equity capital from its financial statement. Using various assumed rates across all

cooperatives in the extra-value calculation, sensitivity

analysis can be made to examine results.

In table 2, interest on equity is calculated at the

same rate as on debt. When the interest rate is 10 percent,

total input cost of Cooperative A is $496,000 ($440,000

operating cost, $8,000 interest on debt and $48,000

interest on equity). Subtracting this total input cost from

gross margin ($500,000) would produce a net amount of

$4,000. This is the net amount generated by the cooperative’s operations after all cost is paid, including a cost for

2

using member equity. Economists call it “economic rent,”

“surplus” or “economic value added.” The term “extra

value” is more straight-forward. It is earned by

Cooperative A for its members after paying for everything used in the operation, including the opportunity

cost of using retained member equity.

To make the extra value scale-neutral, an “extravalue index” is developed by expressing extra value as

a percentage of operating capital. The extra value can

then be expressed as a ratio to the cooperative’s or

firm’s operating capital. This way, the effects of scale

are removed. This is useful for comparison purposes.

Extra-value index = Extra value / Operating capital x 100

where:

Operating capital = Fixed assets + Net working capital

and

Net working capital = Current assets - Current liabilities.

Again, any investment in other firms is excluded

from fixed assets because these investments are not

used in the cooperative’s own operations.

As an example, if the extra-value index is 10

percent, it means 10 cents of extra value is generated

for every dollar of operating capital used by a business.

Table 2- Comparison of two cooperatives using extra

value to measure performance

Cooperative A Cooperative B

Operating capital 560,000 560,000

Debt 80,000 310,000

Equity 480,000 250,000

Gross margin 500,000 500,000

Operating cost 440,000 440,000

lnferest on debt 0 70 percent

lnferest on equity @ 70 percent

Total input cost

Extra value

Extra-value index

Interest on debt 09 percent

hfefesf on equity 09 percent

Total input cost

Extra value

Extra-value index

hferesf on debt 0 7 7 percent

hferesf on equity 0 7 7 percent

Total input cost

Extra value

Extra-value index

8,000 31,000

$48,000 $25,000

496,000 496,000

4,000 4,000

0.7% 0.7%

7,200

$43,200

490,400

9,600

1.7%

8,800

$52,800

501,600

(1,600)

-0.3%

27,900

$22,500

490,400

9,600

1.7%

34,100

$27,500

501,600

(1,600)

-0.3%
Table 2 shows that Cooperative A generates an

extra value of $4,000, the same as Cooperative B. The

extra-value index is 0.7 percent for both cooperatives.

These numbers indicate that the performance of

Cooperatives A and B are the same. It may be

concluded that the two cooperatives perform equally

well, despite apparent differences exhibited by the

conventional performance measures in table 1.

When the interest rate is 9 percent, each cooperative generates an extra value of $9,600 (extra-value

index 1.7 percent). Again, both perform equally well.

When the interest rate is 11 percent, neither cooperative can recover its total input cost. Each cooperative

generates a negative extra value of $1,600 (extra-value

index -0.3 percent). Nevertheless, the performance of

the two cooperatives is equal, although the value of

each cooperative declines by $1,600.

The erosion of a cooperative’s value may be

caused by its comparative disadvantage in the marketplace, possibly caused by inefficient operations, technological deficiency or overpaying for the cost of

goods sold. Many dairy cooperatives are under pressure from members or competitors to pay various

kinds of premiums and subsidies that may hurt the

financial integrity of the cooperative.

However, positive extra value by a cooperative

attests to its comparative advantage in the marketplace

in one or several ways. Its operations may be more

efficient than the competition, it may be technologically more advanced, or it may have developed brand

names or niche markets that allow it to extract

premiums from the marketplace.

The extra-value concept appears to provide a sound

measure for comparing cooperative performances. Given

that Cooperatives A and B are assumed to be identical

except for the different levels of debt and equity, one

would expect an objective performance measure to indicate that they perform equally well (table 2).

Because the two cooperatives have different debtto-equity levels, this conclusion is valid only when the

interest on debt and the imputed interest on equity are

the same. When interest rates differ, using extra value to

compare performance becomes more complicated. This

is shown in table 3 where interest on debt is held at 10

percent, while the imputed interest rate on equity varies.

Some would argue that because a cooperative is

owned by members, member equity used in its operation should be cost-free. Following this argument, the

imputed interest on member equity is zero (table 3).

Extra value calculated for Cooperative A is $52,000 (an

index of 9.3 percent). Cooperative B generates $29,000

extra value (an index of 5.2 percent). By comparing the

extra values and the indices generated, Cooperative A

therefore outperforms Cooperative B.

Others could argue that using member equity

might be cheaper than debt, but it is certainly not costfree. If the imputed interest on equity is lower than the

interest on debt, 9 percent for instance, the extra values

calculated again indicate that Cooperative A has outperformed Cooperative B, although by a slimmer margin.

Still others might argue that equity is riskier than

debt, so the imputed interest on equity should be higher

than interest on debt to compensate for the risk of

investing in the business. (Equity in an investor-owned

firm is usually treated this way.) In some dairy cooperatives, members exert high pressure to pay out as much

as possible and retain little as equity. The imputed

interest on equity for these cooperatives is very high.

Take, for example, a situation where the imputed

interest on equity is 11 percent. Table 3 shows that

Cooperative A, which is financed mostly with member

equity, does not fully recover its total input cost and has

a negative extra value of $800 (an index of -0.1 percent).

On the other hand, a highly leveraged cooperative (B)

has an extra value of $1,500, (an index of 0.3 percent). In

Table 3 - Extra values at various interest rates on

equity (interest on debt 10 percent)

Cooperative A Cooperative B

interest on equity 00 percent

Total input cost

Extra value

Extra-value index

lntefest on equity Q9 percent

Total input cost

Extra value

Extra-value index

interest on equity 0 11 percent

Total input cost

Extra value

Extra-value index

interest on equity 0 75 percent

Total input cost

Extra value

Extra-value index

interest on equity 020 percent

Total input cost

Extra value

Extra-value index

$448,000

52,000

9.3%

$43,200

491,200

8,800

1.6%

$52,800

500,800

(800)

-0.1%

$72,000

520,000

(20,000)

-3.6%

$96,000

544,000

(44,000)

-7.9%

$471,000

29,000

5.2%

$22,500

493,500

6,500

1.2%

$27,500

498,500

1,500

0.3%

$37,500

508,500

(8,500)

-1.5%

$50,000

521,000

(21,000)

-3.8%
this case, Cooperative B’s performance is better than

Cooperative A’s, although Cooperative B’s highly leveraged position may leave it financially vulnerable.

When the imputed interest on equity is zero, or

lower than interest on debt, firms tend to use more

equity than debt in financing its operation. Conversely,

when the interest on debt is lower than the imputed

interest on equity, it is more profitable to finance operations with more debt than equity to a prudent extent.

To adequately finance a cooperative’s operations,

members should carefully evaluate the opportunity

cost of their equity capital.

Extra-Value Measure Characteristics

In summary, extra value measures the performance of a cooperative’s operation. A cooperative is

creating value for its members if its extra value is positive. If it is negative, the cooperative is not fully recovering its total input cost and is reducing its value as a

going concern. A cooperative’s stock is not exchanged

on the stock market and therefore its value is not

known. Therefore, knowing to what extent a cooperative is creating value is useful and should be of particular interest to members.

The extra-value index is scale neutral. Using this

index, cooperatives of different sizes and with

different types of operations can be compared fairly.

For example, some dairy cooperatives may have more

bargaining operations than processing and marketing.

Their margins on sales may be slim, but they do not

use much operating capital in the operation. Other

cooperatives engaged in further processing use more

operating capital but probably return higher margins

on sales. Use of operating capital as the denominator

in calculating the extra-value index puts various types

of cooperatives on an equal footing. This is useful for

comparing the performance of dairy cooperatives that

are engaged in various mixes of operations, ranging

from bargaining to the most sophisticated processing

and marketing. So, extra value may be more revealing

than traditional performance measures when

comparing the performance of diverse dairy cooperatives and their managers’ performance.

To show the real-life application of the approach,

actual data from major dairy cooperatives were used

to calculate extra values and extra-value indices. The

results were compared with those using return on

equity, the most commonly used conventional

measure. In addition, dairy cooperative performance

was compared with the performance of investorowned dairy firms.

Data

There were 25 dairy cooperatives that were

consistently on USDA’s Cooperative Services’ list of

the nation’s 100 largest agricultural cooperatives every

year between 1986 and 1996. Their financial data for

those 11 years were analyzed (cooperatives listed in

Appendix A).

Dairy Field magazine annually lists the top 100

dairy processing firms. IOFs from this list that filed

financial data with the U.S. Securities and Exchange

Commission (SEC) for 1994 through 1996 were

analyzed in this report (Appendix B). The companies’

annual reports (as filed with the SEC via Form 10K)

and “current reports” (filed with the SEC via Form 8K)

were used. Complete data for 12 IOFs were available

from this source for 1994 and 15 were available for 1995

and 1996. Only 3 years of data were used. Because of

fast-paced industry restructuring, it was not feasible to

maintain a consistent time series of data for IOFs.

The 15 IOFs were primarily in the dairy business,

although many were also involved in other enterprises. A few were grocery chains that had their own

milk processing facilities. Seven of the companies

processed and marketed fresh milk products and/or

ice cream, three processed fresh milk products and

nondairy products, two manufactured cheese and

three were supermarket chains that manufactured and

processed milk products. The publicly available data

did not segment dairy from nondairy operations.

Two of the IOFs had minor investments in other

businesses. Their investment earnings were not separately identifiable and thus could not be purged from

net margins from operations in the extra-value calculation. However, the impact of this on the comparison

should be minimal.

Return on Equity vs. Extra-Value Index

While return on equity highlights a firm’s financial

performance, extra-value index measures a firm’s efficiency in adding value for the stakeholders (memberproducers in a cooperative). The two measures have

different emphasis. Depending on a cooperative’s

particular situation, the measures may result in a

different performance ranking when comparing one

cooperative with another. In other cases, the ranking

may converge. The relative performance of the cooperatives also depends upon what cost is assigned to equity

capital for the extra-value calculation.
Table 4- Comparison of dairy cooperatives’ ROE and EVI, 1993-l 996

Dairy Co-op Code ROE EVI-0% EVI-10% EVI-25% Daily Co-op Code ROE EVI-0% EVI-10% EVI-25%

16 1

6 2

19 3

8 4

1 5

17 6

22 7

12 8

24 9

7 IO

11 11

14 12

3 13

9 14

13 15

18 16

25 17

5 18

IO 19

21 20

2 21

20 22

15 23

23 24

4 25

____--. --- 1994 Rank -. ______

6

16

12

22

3

19

17

1

7

24

14

11

9

15

8

13

21

10

18

25

20

23

5

2

4

1 2

2 5

3 3

4 1

5 4

6 6

7 7

8 IO

9 9

10 16

11 8

12 14

13 11

14 12

15 13

16 15

17 18

18 17

19 19

20 20

21 21

g, (E,

(24) (24)

(25) (25)

_______ ____ ______ 1996 &y,k ______ _________--

1

6

3

5

11

9

2

4

14

7

13

8

IO

12

15

17

19

(:i,

20

16

22

21

23

24

1

4

3

6

8

9

2

5

11

7

13

10

12

14

15

17

(ii,

(22)

(24)

(Ai)

(21)

(23)

(25)

2

4

3

1

5

6

7

9

8

11

IO

12

13

14

15

(:i,

(:Y,

(18)

(22)

(20)

(24)

(23)

(25)

1

2

3

5

7

(9)

4

A

(10)

(11)

(16)

(15)

(17)

(13)

(21)

(18)

(19)

(12)

(24)

(14)

(20)

(23)

(22)

(25)

2

4

3

1

5

7

t:,

(8)

(10)

(13)

(12)

(17)

(16)

(14)

(15)

(23)

(11)

(20)

(18)

(21)

(19)

(24)

(22)

(25)

16

6

3

19

1

12

17

22

7

14

11

24

8

9

13

23

5

21

10

15

18

4

2

25

20

19

6

16

22

12

3

17

7

5

24

20

14

1

11

13

9

18

15

23

21

2

4

IO

8

25

_ ________________ 1995 Rank ________ _________

1 5 3 1

2 7 6 4

3 1 2 3

4 3 4

5 12 10 &

6 2 1

7 IO 9 (1%

8 4 5

9 8 7 A

IO 6 8 (13)

11 13 12 (12)

12 15 15 (11)

13 11 13 (15)

14 9 (18)

15 17 (E, (16)

16 14 (14)

17 20 (::, (21)

18 18 (20) (22)

19 16

20 19 (:A) Vi

21 23 (23) (23)

22 21 (24) (25)

23

(E,

(21) (17)

(22) (20)

(25) (25) (24)

_________________ 1993 Rank __________ _______

1 2

2 4

3 7

4 1

5 5

6 6

7 8

8 3

9 IO

IO 15

11 11

12 9

13 12

14 13

15 17

16 14

17 18

18 16

19 20

20 19

21 21

22 22

23 24

2

3

6

1

5

7

8

4

9

13

12

11

10

14

16

(ii,

17

(i?,

(20)

(25)

(22)

(24)

(23)

2

3

4

1

5

A

A

(11)

(15)

(14)

(10)

(13)

(16)

(20)

(19)

(17)

(12)

(24)

(18)

(25)

(21)

(23)

(22)

Parenthesis indicates the cooperative had negative returns (losses) for the particular entty.

5
For illustration, table 4 compares how the cooper- had the highest ROES in 1996 and 1995, but were not

atives rank using return on equity after taxes (ROE) necessarily the most efficient users of operating capital

and the extra-value index (EVI) for 1993-1996. The as reflected by their EVIs. Other cooperatives and for

1986 through 1992 comparison is found in other years can be examined in the same manner in

Appendix C. Table 5 summarizes all 11 years. table 4 and Appendix C.

For instance, cooperative No.16 was ranked first

under all measures in 1996, while cooperative No.6

was ranked second based on ROE and sixth, fourth

and second if the imputed capital cost used in

computing EVI was 0, 10, and 25 percent, respectively

(table 4). In 1995, cooperative No.16 again was ranked

first based on ROE, but fifth, third and first based on

EVI using different capital cost. Cooperative No.6 was

again ranked second based on ROE, but seventh, sixth

and fourth based on three EVIs. The two cooperatives

In general, the rankings by ROE and by EVI

appeared more similar when equity capital was not

charged a cost in the extra-value calculation than when

equity capital was assumed to cost 10 or 25 percent

(table 5, upper left panel). Very few (no more than

three) cooperatives ended up with the same rank

under each measure (table 5, lower left panel).

Because of the differing degrees to which a cooperative relied on equity capital versus debt capital in

financing its operations, the relative ranking by EVI

Table 5- Summary of selected difference between ROE and EVI measures of performance, 1986-l 996

Year EVI-0% EVI-10% EVI-25% ROE EVI-0% EVI-10% EVI-25%

Number of cooperatives with same rank as ROE Number of cooperatives with negative returns

1996 6 5 7 0 1 7 18

1995 3 5 2 1 2 9 18

1994 11 9 6 3 3 8 18

1993 6 4 2 1 1 7 18

1992 3 4 5 3 3 11 20

1991 8 3 5 3 4 14 20

1990 10 5 2 3 4 12 20

1989 6 5 3 1 3 6 15

1988 7 5 3 2 2 5 15

1987 8 4 2 2 2 6 16

1986 3 8 4 1 1 10 16

Average 6 5 4 2 2 9 18

Mode 6 5 2 1 1 7 18

Max. 11 9 7 3 4 14 20

Min. 3 3 2 0 1 5 15

Number of cooperatives with same Number of cooperatives with same

rank by all measures rank by EVI at each selected level

(ROE and EVI @ O%, 10% and 25%) of equity cost

Year Number Year Number

1996 2 1996 3

1995 0 1995 1

1994 2 1994 4

1993 1 1993 4

1992 0 1992 4

1991 2 1991 5

1990 0 1990 6

1989 3 1989 7

1988 1 1988 8

1987 2 1987 7

1986 1 1986 6

6
changed when the opportunity cost of member equity Because ROE measured the return members’

changed. For instance, from 1992 to 1996, just one to equity earns by being employed by cooperatives, and

four cooperatives held the same rank across the three EVI measured the earning ability beyond covering all

different levels of cost for equity capital (table 5, lower operating cost-including the cost of equity, a cooperaright panel). It appeared that the EVI rankings at tive could show positive returns to equity but actually

selected rates for equity capital cost were more similar be losing value as a going concern. Not unexpectedly,

in the earlier years of the time period (five to eight the number of cooperatives with a negative extracooperatives held the same rank under the three value index increased as the imputed cost of equity

different charges for equity capital from 1986 through increased. Very significantly however, over the ll-year

1991). Perhaps this reflected cooperatives adjusting their period 1986-1996, five to 10 cooperatives each year

mix of equity versus debt capital in different ways due were able to generate value while “paying” a charge of

to the more market-oriented operations of recent years. 25 percent on the equity capital employed.

A more telling observation than the differences in

ranking was that the number of cooperatives showing

negative extra value (the cooperative actually lost

value in operations) was typically larger than the

number of cooperatives that had negative returns to

equity (table 5, upper right panel). This was particularly pronounced when opportunity cost for equity

capital was 10 and 25 percent.

Comparing Cooperative Performance

Ranking Based on ROE

The relative ranking of the 25 dairy cooperatives

for 1986-1996 using this traditional measure is shown

in table 6. Twelve cooperatives ranked in the top five

Table B- Relative ranking of dairy cooperatives based on return on equity after tax, by rank, 1986-96

Rank 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

1 6

2 3

3 15

4 19

5 4

6 17

7 12

8 7

9 8

10 22

11 24

12 21

13 16

14 18

1.5 25

16 11

17 20

18 10

19 1

20 14

21 13

22 9

23 23

24 5

25 2

6 6 12 19 19 19 19 6 16 16

3 16 6 16 16 22 6 16 6 6

16 19 16 22 7 16 16 12 3 19

15 12 19 6 6 6 22 22 19 8

12 3 22 7 12 20 12 3 1 1

7 7 14 12 3 7 3 19 12 17

17 1.5 20 3 1 3 17 17 17 22

22 13 15 14 22 17 7 1 22 12

19 17 13 20 17 1 5 7 7 24

4 20 3 15 IO 14 24 24 14 7

20 18 7 1 4 24 20 14 11 11

21 5 17 13 20 13 14 11 24 14

24 22 21 4 15 12 1 9 8 3

13 14 5 17 11 15 11 15 9 9

8 21 18 21 18 9 13 8 13 13

5 1 24 2 14 21 9 13 23 18

IO 24 11 24 13 18 18 21 5 25

14 4 1 11 8 5 15 IO 21 5

18 8 23 9 5 4 23 18 10 10

11 10 8 8 2 8 21 25 15 21

25 11 4

1 25 IO

23 23 9

(9) (9) 25

(2) (2) (2)

18 23 IO

(2:) (Z, (i:,

(10) (25) (2)

(23) (9) (23)

20

23

(5)

(2)

(4)

18

4

2

2

20

15

23

4

Parenthesis indicates the cooperative had negative returns (losses) for the particular entry.

7
for at least 1 of the 11 years. Cooperative No.6 was the

only cooperative ranking in the top five every year

while cooperatives No.16, No.19 and No.12 were in the

top five for most years.

At the other end, almost two-thirds of the 25

cooperatives (16) found themselves in the bottom five

at sometime during 1986-1996. Cooperatives Nos. 2,23

and 25 were at the bottom a majority of the time.

Cooperative No.2 had losses for 5 out of the 11 years,

as evidenced by a negative return on equity. In 1990,

1991,1992 and 1994, three cooperatives had losses.

Interestingly, four cooperatives ranked both in

the top five and the bottom five at some point between

1986 and 1996. Cooperative No.4, which ranked fifth in

1986, but ended up among the bottom five for 5 of the

11 years and was last in 1994 and 1996. Cooperative

No.20 ranked fifth in 1992, but had the lowest return

on equity just 3 years later in 1995. Cooperative No.15

ranked in the top five the first 2 years of the period,

but ended up 23rd in 1996. Conversely, cooperative

No.1 ranked 22nd in 1987, but was fifth in both 1995

and 1996. In 1986 and 1996, all of the 25 cooperatives

showed profits.

Ranking Based on EVI

Cooperative rankings using the EVI under

different assumptions on the value or cost of equity

capital are shown in tables 7 through 9. Five different

charges for equity capital-O, 5,10,15 and 25 percent

were used. Results using 0,lO and 25 percent are

presented here. Results using the other two rates are in

Appendices D and E.

Case One: Assuming member equity to be free

capital. The cost of equity capital was valued at 0

percent (table 7) and 12 different cooperatives ranked

Table 7- Relative ranking of dairy cooperatives based on extra-value index if equity capital equals zero

percent per year, by rank, 1986-l 996

Rank 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

1 3 22 22 12 22 19 22 22 22 3 16

2 7 3 16 14 19 12 19 19 6 12 22

3 6 6 6 16 16 7 7 7 12 19 19

4 4 7 7 6 7 22 20 6 3 22 12

5 15 15 19 19 14 6 6 12 16 16 8

6 19 16 12 13 12 1 14 3 19 14 6

7 12 12 15 7 6 3 3 16 17 6 7

8 17 19 13 15 15 4 1 17 14 7 14

9 22 4 3 20 20 16 17 14 7 9 17

10 8 21 14 17 3 17 13 5 1 17 3

11 21 17 21 3 1 15 21 20 9 8 1

12 1 13 18 21 21 20 16 1 15 1 9

13 24 24 17 22 4 14 15 11 8 11 11

14 11 20 5 5 17 11 9 9 11 23 24

15 18 a 4 1 9 10 24 24 13 24 13

16 10 1 20 11 2 18 12 15 24

17 14 5 24 18 11 8 4 13 10

18 9 14 11 8 13 2 8 18 21

19 20 10 8 24 24 21 18 21 18

20 25 11 1 23 8 13 10 23 25

2

18

5

25

21

21 13 18 IO

22 16 25 25

23 5 23 23

24 23 (9) (2)

25 (2) (2) (9)

9

(:E,

(4)

(2)

(i:)

(5)

(10)

(23)

23

(5)

(24)

(25)

(9)

5

(::,

(23)

(2)

2

4

8

20

23

(5)

(2)

(4)

10

13

21

15

5

4

2

(E)

(20)

15

20

23

Dairy Cooperative Code

Parenthesis indicates the cooperative had negative returns (losses) for the particular entry.

8
in the top five at some point between 1986 and 1996.

While none ranked in the top five every year using the

EVI, cooperative No.22 was in the top five for 9 of the

years and ranked first for 6 years. Five other cooperatives ranked in the top five a majority of the timeNos. 6,7,12, 16 and 19.

Sixty percent of the cooperatives (15) ranked in

the bottom five at some time between 1986 and 1996, if

equity capital was assumed to have zero cost. Three

cooperatives (Nos. 2,23 and 25) were in the bottom

five for a majority (8) of the years. Six cooperatives

appeared in the bottom five for just 1 of the 11 years

(Nos. 8,11,13,15,16 and 24). Each year, at least one of

the 25 cooperatives showed negative extra value, indicating that the operations reduced the overall worth of

the cooperative, even without charging a cost for the

use of members’ capital. In 1990 and 1991, four cooperatives lost value.

Five cooperatives ranked both in the top five and

in the bottom five at some time between 1986 and 1996

when using the EVI with equity capital assumed to

have zero cost. Cooperative No.16 started out in the

bottom five in 1986, but ranked in the top five a

majority of the years and first in 1996. Cooperative

No.4 showed the opposite pattern, ranking fourth in

1986 and in the bottom five for half of the remaining

years, and in 1996 was 24th.

Case Two: Assuming member equity cost 10 percent

per year. Eleven cooperatives ranked in the top five

sometime between 1986 and 1996 when using the EVI

(table 8). These same cooperatives ranked in the top

five when equity was assumed to be cost-free. In 1996,

cooperative No.8 ranked fifth when the annual cost of

equity was assumed to be cost-free and dropped to

sixth when equity was assumed to cost 10 percent.

Table B- Relative ranking of dairy cooperatives based on extra-value index if equity capital cost equals 10

percent per year, by rank, 1988-l 998

Rank 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

1 3 22 22 12 22 19 22 22 22 12

2 7 3 16 14 19 7 19 19 6 3

3 6 6 6 16 16 12 7 6 12 16

4 15 7 7 6 7 22 20 7 16 19

5 4 15 19 19 14 6 6 12 3 22

.

16

22

19

6

12

6 19 16 12 7 12 1 14 16 19 6 8

7 12 12 15 13 6 3 3 3 17 7 7

8 17 19 3 15 20 16 1 17 7 14 1

9 8 4 13 20 15 4 16 5 1 17 17

IO 22 17 14 22 3 17 17 1 14 1 14

11 1 21 17 17

12 21 1 18 3

13 24 13 5 1

14 18 20 20 21

15 25 24 1 5

1

21

(2:)

(17)

(YE,

(11)

(10)

(14)

13

24

21

(E)

14 24 IO 24

20 11 11 3

24 9 8 11

11 15 9 9

23 8 24 13

16 (10)

17 (11)

18 (14)

19 (20)

20 (13)

21 (23)

22 (5)

23 (16)

24 (9)

25 (2)

5

8

IO

$Z)

21

4

24

10

8

11

18

24

(Z,

(25) (23) (9)

(2) (2) (4)

(11) (18) (10)

(9) (8) (8)

(13) (24) (18)

13

15

(1:)

(2)

IO

(AZ,

(21)

(23)

(E,

(15)

(5)

(21)

2

18

25

(5)

(20)

(18) (11) (8) (8) (13)

(23) (25) (10) (18) (5)

(11) (23) (2) (5) (21)

(9) (2) (9) (23) (25)

(2) (9) (4) (10) (9)

(21) (18) (2) (15)

(10) (20) (25) (10)

(25) (2) (18) (23)

(8) (5) (4) (21)

(4) (4) (20) (4)

Dairy Cooperative Code

Parenthesis indicates the cooperative had negative returns (losses) for the particular entry.

9
There were minor changes in the order of the top five capital, at least 5 of the 25 cooperatives lost value as a

ranking, and in 5 of the years, the order was exactly business entity in any given year between 1986 and

the same when equity cost was either 10 percent or 1996. In 1991, more than one-half of the 25 cooperacost-free. tives (14) lost value. In 1996,7 lost value.

Similarly, 15 cooperatives ranked in the bottom

five at least once during the 11 years when equity

capital was assumed to cost 10 percent per year.

Fourteen of the 15 cooperatives were the same that

held the bottom five position when equity was

assumed to be cost-free. However, the relative ranking

among the bottom five cooperatives was more varied

when equity cost 10 percent versus no cost. Only in

1992 was the rank order the same for the two different

costs of equity capital.

Case Three: Assuming member equity cost 25 percent

per year. The same 12 cooperatives that ranked in the

top five between 1986 and 1996 when equity capital

was assumed to have no cost, ranked in the top five

when equity capital cost 25 percent per year (table 9).

Cooperative No.6 ranked in the top five every year

except 1990. However, when equity capital was

assumed to be cost-free, cooperative No.6 also fell out

of the top five in 1995 and 1996 (table 7).

Notable was the increase in the number in any

given year that showed a diminishing of the cooperative’s value (i.e., negative EVI) when equity capital

was assigned a cost. At a cost of 10 percent for equity

Sixteen cooperatives ranked in the bottom five

sometime during the 11-year period when equity capital

was assumed to cost 25 percent per year. The same 14

ranked in the bottom five when equity capital was

Table SI- Relative ranking of dairy COOperatiVeS based upon extra-value index if the cost of equity capital is 25

percent per year, by rank, 1988-1998

Rank 1988 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

1 3 22 22 12 22 19 22 22 22 16 16

2 7 7 16 14 19 7 19 19 6 12 6

3 6 6 6 16 16 22 6 6 12 3 19

4 15 3 7 6 7 12 20 16 16 6 22

5 4 15 19 19 14 6 7 12 3 19 8

6 19

7 17

8 12

9

10 (2:)

11 (25)

12 (8)

13 (22)

14 (18)

15 (21)

16 (10)

17 (13)

18 (20)

19 (23)

20 (14)

21 (5)

22 (11)

23 (16)

24 (9)

25 (2)

16

12

1

(G,

12 22 (6) (1) (16)

3 7 (25) (16) (1)

13 13 (12) (3) (3)

15 20 (20) (23) (17)

1 15 (1) (17) (14)

17

19

(7)

(1)

(24)

IO

22

(7)

(1)

(17)

12

(2:)

(17)

(7)

(4) (17) (25) (3) (4) (24) (24) (10) (24) (11)

(20) (18) (1) (15) (10) (13) (23) (11) (11) (10)

(13) (5) (3) (24) (20) (15) (11) (14) (14) (13)

(24) (26) (17) (2) (11) (10) (14) (8) (23) (2)

(5) (14) (23) (21) (2) (23) (20) (13) (8) (3)

(25) (10) (5) (11) (24) (21) (13) (15) (13) (14)

(21) (24) (24) (4) (15) (12) (15) (9) (2) (9)

(10) (25) (21) (17) (18) (25) (2) (25) (9) (25)

(23) (21) (18) (13) (5) (5) (18) (23) (15) (5)

(18) (23) (11) (9) (14) (8) (9) (18) (25) (20)

(8) (4) (8) (8) (13) (9) (10) (20) (5) (18)

(14) (8) (10) (18) (8) (18) (25) (2) (21) (23)

(11) (2) (2) (5) (25) (11) (8) (21) (18) (15)

(9) (11) (9) (23) (21) (4) (21) (5) (26) (21)

(2) (9) (4) (16) (9) (2) (4) (4) (4) (4)

Dairy Cooperative Code

Parenthesis indicates the cooperative had negative returns (losses) for the particular entry.

10
considered free to the cooperative. Cooperative No.21

was in the bottom five in 1991 and from 1993 through

1996 when equity cost 25 percent, but when equity was

cost-free it ranked 19th or higher in each of the years.

As expected, the number of cooperatives with

negative EVI was high when equity capital was charged

a cost of 25 percent per year. Noteworthy was that the

top five cooperatives managed to increase their value

every year from 1986 to 1996, while valuing the use of

their member’s capital at 25 percent. In fact, in 1988 and

1989,lO cooperatives created value from operations

while “paying” 25 percent for member capital.

Implications of Rankings

Some points of interest are discernable from the

analysis. Table 10 uses four of the 25 co-ops to illustrate.

Altering the assumed cost of equity capital had

different effects on a cooperative’s relative ranking.

For example, performance of No.9 tended to decline

(relative to the other cooperatives) as the imputed cost

for equity capital increased. For instance, in 1995,

cooperative No.9 ranked ninth when equity was not

charged a cost, but 18th when equity was assumed to

cost 25 percent. Conversely, the relative ranking of

No.10 improved as the equity charge rose, as was the

case in 1995 when equity capital was assumed to be no

cost, it ranked 16th. But if the charge for equity was 25

percent, No.lO’s rank rose to sixth. The differing

results in response to increased cost of equity capital

might have been due to cooperative No.9 using more

equity capital while cooperative No.10 relied more

heavily on debt, or because the interest costs of their

debt capital were different, or both.

Because the EVI and ROE had different emphasis,

there were some marked differences in cooperative

performance ranking. Take cooperative No.16’~ relative

performance. By the ROE measure, it ranked 13th in 1986

and lst, 2nd or 3rd for 1987 through 1996. However, by

EVI (assuming no charge for equity capital), cooperative

No.16 ranked 22nd in 1986 and fluctuated between 12th

and first for the remaining 10 years. On the other hand,

cooperative No.22 showed a different pattern. It ranked

first by EVI (at all three levels of assumed equity cost) for

6 of the years from 1986 to 1996, but by the ROE measure,

it ranked 13th to 2nd in those same years. Furthermore,

while cooperative No.16 held the same rank as measured

by ROE and EVI in 3 of the 11 years, cooperative No.22

never held the same rank between the EVI and ROE

measures, except for 1986 when it ranked 10th by ROE

and by EVI at 10 percent equity cost.

Table IO- Selected dairy cooperatives’ ranking, by various measures, 1986-1996

Measure 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Cooperative No.9

Rank by ROE 22 (24) (24) 23 19 (25) 15 16 13 14 14

Rank by EVI Q 0% (24) (25) (25)

Rank by EVI Q 10% (ii) (24) (25) (Z) (::, (25) (ii)

14 11 9 12

Rank by EVI Q 25% (24) (24) (25) (24) (20) (25) (21) (:i) (:;) (Z) (F)

Cooperative No. 70

Rank by EVI Rank by ROEQ 0% 18 17 20 22 (24) IO 2 1 23 18 19

(ii)

19 21

(Z,

(24)

(::) (Z) (Z)

17 16 (Z)

Rank by EVI Q 10%

(::) (::)

(25) 11 (22)

Rank by EVI Q 25% (16) (22) (25) (12) (14) (21) (::) 6 (12)

Cooperative No. 16

Rank by ROE 13 3 2 3 2 2 3 3 2 1 1

Rank by EVI @ 0% 6 2 3 3 9 12 7 5 5 1

Rank by EVI Q 10%

(::)

6 2 3 6 4 3 1

Rank by EVI Q 25% (23) 6 2 3

3 (Y)

3

(i,

4 4 1 1

Cooperative No.22

Rank by ROE IO 8 13 5 3 8 2 4 4 8 7

Rank by EVI Q 0% 9 1 1 13 1 4 1 1 1 4 2

Rank by EVI Q 10% IO 1 1 IO 1 4 1 1 1 5 2

Rank by EVI Q 25% (13) 1 1 6 1 3 1 1 1 7 4

Parenthesis indicates the cooperative had negative returns (losses) for the particular entry.

11
Comparing IOF Performance

Table 12 summarizes the differences in ranking

between the ROE and EVI at various charges for

equity capital. The effect on the ranking by EVI, when

The relative ranking of dairy IOFs for 1994 through the opportunity cost of stockholder equity was varied,

1996 using return on equity after taxes (ROE) and the was not consistent between the 3 years for which data

extra-value index (EVI) is shown in table 11. The rank- was readily available. In 1996, just four of the 15 firms

ings using ROE and EVI appeared to be quite different held the same rank whether the cost for equity was 0,

in 1996, but almost the same in 1994, especially when 10 or 25 percent. However in 1994, seven of 12 firms

stockholder equity was valued at a cost of 25 percent. held the same rank. In addition, just one firm held the

Table II- Comparison of dairy IOF’s ranking by ROE and EVI, 1994-1996

IOF Code ROE EVI-0% EVI-I 0% EVI-25% IOF Code ROE EVI-0% EVI-10% EVI-25% IOF Code ROE EVI-0% EVI-10% EVI-25%

_______ ,996 Rank _______ _______ ,995 Rank _______ ------- 1994 Rank* _______

FlO 1

F9 2

F6 3

Fl 4

F8 5

F7 6

F3 7

Fli 8

F5 9

F12 10

F14 11

F4 12

F2 13

F13

F15

2 2 2

1 1 1

11 11 (7)

3 3 3

4 6 (10)

8 8 (11)

6 5 4

10 10 5

5 4 (8)

9 7 6

7 9 (12)

13 12 (9)

14 13 (13)

(14) (14)

(E) (15) (15)

F9 1

Fl 2

FIO 3

F8 4

F7 5

F4 6

F5 7

Fll 8

F15 9

F14 10

F12 11

F13 12

F2 (13)

F6 (14)

F3 (15)

1 1

2 2

4 4

3 3

5 5

12 10

6 6

9 8

8 7

7 9

11 11

(Z) (Z)

13 (13)

(15) (15)

(Z)

(10)

(8)

(12)

(11)

(14)

(13)

(7)

(15)

F8 1 1

F7 2 2

F4 3 7

F5 4 3

Fll 5 6

F15 6 4

F14 7 5

F12 8 8

F2

F13 (Ii) (1:)

Fl** (11) (12)

F3** (12) (11)

4

5

(i)

(IO)

(12)

(11)

1

2

3

(Z)

(6)

(7)

(8)

(9)

(10)

(12)

(11)

Parenthesis indicates the firm had negative returns (losses) for the particular entry.

l Data was unavailable for firms Nos. F6, F9 and FlO in 1994.

** Firms Nos. Fl and F3 had both negative margins and negative equity in 1994. Therefore these cooperatives were “forced” to have a

negative ROE.

Table 12-Summary of selected differences between rankings by ROE and EVI, dairy IOFs, 1994-1996

Year EVI-0% EVI-10% EVI-25% ROE EVI-0% EVI-10% EVI-25%

Number of firms with same rank as ROE Number of firms with neaative returns

1996 1 4 3 1 1 2 9

1995 5 7 9 3 2 3 9

1994 5 5 10 3 3 4 8

Average 4 5 7 2 2 3 9

Max. 5 7 10 3 3 4 9

Min. 1 4 3 1 1 2 8

Number of firms with same rank by all measures Number of firms with same rank by EVI

(ROE and EVI @ O%, 70% and 25%) at each selected level of equity cost

1996 1 4

1995 5 5

1994 5 7

12
same rank in 1996 between ROE and EVI at the three

rates, while in 1994 and 1995, five firms ranked the

same by all measures.

Investor-Owned Firms’ Rankings

The rankings of dairy IOFs as measured by ROE

and by EVI at five different charges for equity capital

are reported in table 13. Firm F9 ranked first by all

measures in 1995, first by EVI at all five levels of

equity capital charge in 1996, and second by ROE in

1996 (1994 data for F9 was not available). Firm F3

ranked last or second-to-last in 1994 and 1995 by all

measures. In 1996, F3’s relative performance improved

markedly to achieve seventh in ranking by ROE and

higher rankings when measured by EVI.

In 1994, F8 ranked first by ROE and by EVIeven as the opportunity cost of equity ranged from 0 to

25 percent (table 13). However, in 1996, as F8’s perforTable 13- Relative ranking of dairy IOFs based on ROE and EVI at equity costs of 0,5,10,15 and 25 percent,

by rank, 1994-96

Rank 1994 1995 1996 1994 1995 1996

1 F8

2 F7

3 F4

4 F5

5 Fll

6

7

8

9

10

F15

F14

F12

(FE)

11

12

13

14

15

(Fl *I

(F3*) **

**

**

_ _ _ _ _ _ -

F8

F7

F5

F15

F14

6 Fll

7 F4

8 F12

9 (F2)

IO (F13)

11

12

13

14

15

(F3)

(Fl) **

**

**

___________ ROE___ ________ __________ EVI_()% __________

___

F9 FIO

Fl F9

FIO F6

F8 Fl

F7 F8

F4 F7

F5 F3

Fll Fll

F15 F5

F14 F12

F12 F14

F13 F4

(F2) F2

(F6) F13

(F3) (F15)

,CV,_ 10% __________

F9 F9

Fl FIO

F8 Fl

FlO F5

F7 F3

F5 F8

F15 F12

Fl 1 F7

F14 F14

F4 Fll

F12 F6

F13 F4

(E, (Fg

(F3) (F15)

F8 F9 F9 F8 F9 F9

F7 Fl FlO F7 Fl FIO

F5 F8 Fl F5 F8 Fl

F15 FlO F8 F15 00 F8

F14 F7 F5 F14 F7 F5

Fll

F4

F12

(FE)

F5 F3 Fll F5 F3

F14 F14 F4 F15 F14

F15 F7 F12 Fll F7

Fll F12 (F2) F14 F12

F13 Fl 1 (F13) F4 Fll

(F3)

(Fl) **

**

**

F12

F4

(E)

(F3)

F6

F13

F4

(FE)

(F3)

(Fl)

l *

**

**

F12

F13

(FE)

(F3)

F6

F4

F13

(FE)

__________ EV/- 15% __________

F8 F9 F9

F7 Fl FlO

F5 F8 Fl

F15 FlO F3

F14 F7 F5

Fl 1 F5 F8

(FE)

F15 F12

Fl 1 F7

(F2) F14 F14

(F13) F4 Fll

(F3) F12 F6

(Fl) (F6) ** (Fl3) (Z,

** (F2) (Fl3) ** (F3) (F15)

1994 1995 1996

__________ E+-5% __________

_________ _ ,i=vI_25% __________

F8 F9 F9

F7 Fl FIO

F4 FlO Fl

F8

(F::) F7

F3

Fll

(Fl5) F12

(Fl4) (R) (F6)

(Fl2) (F15) (F5)

(F2) (F5) (F4)

(Fl3) (Fll) (F8)

(F3) (Fl2) (F7)

(Fl) (Fl4) (Fl4) ** (F2) (F2) ** (Fl3) (Fl3) ** (F3) F15)

Parenthesis indicates the firm had negative returns (losses) for the particular entry.

* Firms Nos. Fl and F3 had both negative margins and negative equity in 1994. Therefore these firms were ““forced”” to have a negative ROE.

** Data was unavailable for firms Nos. F6, F9 and FlO in 1994.

13
mance in terms of ROE declined to 5th, its rank in

terms of EVI was 10th when the opportunity cost for

equity capital was assumed to be 25 percent.

The pattern in F6’s ranking was interesting. By

ROE, it ranked 14th in 1995, rising to 3rd in 1996.

However, when ranked by EVI, it was more consistent

between the 2 years, ranking the same or differing by

just one to two places.

Dairy Co-ops vs. Investor-Owned Firms

The performances of dairy cooperatives and

dairy IOFs are compared in table 14, by ranking them

together according to ROE and EVI for 1994-1996. In

terms of ROES, most cooperatives and IOFs had positive earnings and few lost money. However, many

could not cover their imputed cost of equity capital in

their operations and lost value as a business concern.

While an IOF (F8 in 1994, F9 in 1995, and FlO and

F9 in 1996) ranked first by all measures for the 3-year

period, the top rankings were not dominated by dairy

IOFs-although in 1995, IOFs occupied the top four

rankings by all measures. The number of IOFs in the

top 10 rankings by all measures in 1995 and 1996 was 4

(2 to 3 in 1994), occupying 40 percent (20 to 30 percent

in 1994) of the top 10. Of the 40 firms (37 in 1994) in the

comparison, 15 were IOFs (12 in 19941, or a proportion

of 37.5 percent (32.4 percent in 1994). In terms of profitability (ROE) or extra value created (EVI), IOFs did

not outperform dairy cooperatives. Three of six losing

firms (50 percent) that had negative ROE’s were IOFs

in 1994, and three out of four losing firms (75 percent)

were IOFs in 1995. The only firm that lost money

according to ROE in 1996 was an IOF.

In summary, comparing the performance of firms

examined in this study, it may be concluded that during

1994-1996, dairy cooperatives did about as well as IOFs.

Conclusions

This report indicates that there is more to the

conventional measures of profitability than meets the eye

and shows how EVI may better indicate a company’s

operati.ng efficiency in generating value for its shareholders. A firm may earn a positive ROE, the most

commonly used profitability measure, but may have a

negative EVI when the cost of equity capital is considered.

In other words, the firm may show that it is

making money for the shareholders, but in reality its

operations cannot cover the cost of operating capital

and therefore its alternative cost of equity capital. The

firm actually loses value by operating. Rewarding the

management of such a firm based on ROE is ironic,

because it amounts to a reward for reducing the firm’s

value through its operations.

ROE assumes equity capital is free. It is also

common-sized by equity (using equity capital as the

denominator) and is biased in favor of firms that use

more debt capital and less equity capital in operations

(other things being equal). On the other hand, EVI

assumes there is an imputed cost of equity capital. It is

common-sized by operating capital which is the sum of

debt capital and equity capital, and therefore is unbiased. It does not favor using debt capital over equity

capital, or vice versa, unless there is a difference

between the cost of debt financing and equity financing.

The EVI is a particularly meaningful tool for

measuring the operating efficiency of a cooperative,

where members typically supply equity capital

through retained patronage earnings or capital retains

and where stock-market valuation of its business

worth is usually nonexistent. A cooperative’s operating efficiency can be properly evaluated by charging

a cost for using members’ equity capital. By including

the cost of equity capital in evaluating a cooperative’s

performance, the EVI approach uses a total cost

concept.

By showing the rate of value creation in the operation, EVI may be a better measure than other traditional means for evaluating a manager’s performance.

EVI is an indicator calculated on operating capital that

does not include funds for investment activities. It

measures operational efficiency, not the profitability of

financial transactions derived from investment activities. EVI is also based on earnings before income tax,

and thus does not reward or punish a manager based

on tax accounting maneuvers. EVI is common-sized by

operating capital and is thus scale neutral. It allows

firms of different sizes and with different types of

operations to be compared fairly.

The EVI performance measure also indicated that

dairy cooperatives did just as well in creating value for

their members as did dairy IOFs for their shareholders.

This is significant because detractors perceive cooperatives as being unable to generate earnings for memberproducers.

While the extra-value index is an objective

measure for comparing performance of cooperatives,

two considerations should be borne in mind when

using it:

Consideration one-The interest on equity is

imputed and the “right” rate to use is cooperative14
Table 14- Relative ranking of dairy cooperatives and IOFs based on ROE and EVI at equity costs of 0.5,10,15

and 25 percent, 1994-96 (IOFs are identified with ““F”” preceding firm codes.)

1994

ROE EVI at various interest rates

Rank 0% 5% 70% 75% 25% 25% 0% 5% 70% 75% 25%

1 F8 F8 F8 F8 F8 F8

2 6 22 22 22 22 22

3 16 6 6 6 6 6

4 12 12 12 12 12 12

5 22 3 16 16 16 16

0% 5% 70% 75%

F9 F9 F9 F9 F9

Fl Fl Fi Fl Fl

FIO F8 F8 F8 F8

F8 FlO FIO FlO FlO

16 3 3 12 12

F9 FIO F9 F9 F9 F9 F9

Fl F9 16 16 FlO FIO FIO

FIO 16 22 FIO 16 16 16

F8 6 19 22 22 19 Fi

16 19 FlO 19 19 22 6

6 3 16 3 3 3 3 6 12 12 3 3 12 F6 12 12 Fl Fl 19

7 19 19 19 19 19 17 3 19 19 16 16 3 Fl 8 Fl 6 6 22

8 17 F7 F7 F7 F7 19 19 22 16 19 19 6 8 Fl 6 12 12 F3

9 F7 F5 F5 17 17 F7 1 16 22 22 6 19 1 6 8 8 8 8

10 1 17 17 F5 F5 F4 12 14 6 6 22 10 17 F8 F8 F5 F3 12

11 7 14 7 7 7 F5 F7 6 F7 F7 F7

12 F4 7 1 1 1 (Fll) 17 F7 14 7 7

13 F5 1 14 14 F15 (F15) 22 7 7 F5 F5

14 24 F15 F15 F15 F14 (7) 7 F5 F5 14 14

15 14 F14 F14 F14 Fll (1) F4 F14 F15 F15 F15

F7

22

(Fi)

(Fl5)

22 F5 F5 F3 F5 1

12 7 7 F8 F8 Fll

F8 14 F3 7 1 F12

24 F3 14 1 7 (F6)

F7 17 17 17 F12 (F5)

16 Fll 9 9 Fl 1 F4 (F14) 14 F15 Fll Fil Fll (F5) 7 3 1 14 17 (24)

17 F15 Fll Fll F4 14 (F12) 11 Fll F14 F14 10 (7) F3 F14 F14 F12 F7 (F4)

18 F14 15 15 24 24 (24) F5 9 17 17 F14 (Fit) Fll F7 F7 F7 F14 (17)

19 11 8 8 11 (11) (10) Fll 17 1 1 17 (F12) 11 1 3 F14 24 (F8)

20 9 11 11 9 (8) (11) 24 8 910 1 (1) 14 9 F12 24 Fll (F7)

21 15 13 24 15 (10) (14) F15 1 8 F4 F4 (17) F5 F12 9 3 14 (7)

22 8 24 13 8 (15) (8) 8 11 11 11 F12 (Fl4) 3 11 24 11 F6 (F14)

23 13 F4 F4 10 (F12) (13) 9 23 F4 8 11 (24) F12 24 11 9 11 (F2)

24 21 IO 10 13 (9) (15) F14 24 IO F12 24 (11) 9 13 Fll Fl 1 3 (11)

25 10 21 21 F12 (13) (F2) F12 F13 F12 9 8 (14) F14 2 13 F6 F4 (10)

26 F12 F12 F12 (25) (F2) (9) 13 F12 23 24 (F6) (23) 13 18 2 13 9 (13)

27 18 18 (25) (F2) (25) (25) 23 F4 24 23 (23) (F2) 18 Fll F6 2 (13) (2)

28 25 25 (18) (21) (23) (23) F13 10 F13 F13 (9) (8) 25 5 18 F4 (2) (3)

29 20 20 (20) (23) (18) (18) 5 13 13 F6 (F13) (F13) F4 F6 5 F2 (F2) (14)

30 23 23 (23) (18) (21) (20) 21 21 21 13 (13) (13) 5 25 25 18 (25) (9)

31

32

33

34

35

F2 F2 (F2) (20) (20) (2)

(5)(F13) (F13) (F13) (F13) (21)

(Fl3) (5) (2) (2) (2) (F13)

(2) (2) (5) (5) (5) (5)

(4) (4) (4) (4) (F3) (F3)

IO 15 15 (15) (F2) (2)

15 5 5 (F2) (15) (9)

18 4 F6 (5) (2) (15)

4 2 (2) (21) (5) (25)

2 18 (F2) (2) (21) (5)

IO 21 F4 25

F2 F13 F13 (5)

21 15 F2 (F13)

(5) (25)

(18) (5)

(10) (Fl3)

2 F4 15 (20) (F13) (20)

20 20 21 (15) (20) (18)

36

37

38

39

40

(Fl*) (F3) (F3) (F3) (4) (Fl)

(F3*) (Fl) (Fl) (Fl) (Fl) (4) **   **  l * **

  **  l * ** **

  **  ** ** **

25 F6 (25) (25) (25) (21) F13 F2 20 (10) (23) (23)

(F2) (25) (4) (18) (18) (18) 15 23 (23) (23) (15) (15)

(20) (F2) (18) (4) (4) (20) 23 4 (10) (21) (21) (21)

(F6) (20) (20) (20) (20) (4) 4 (10) (4) (4) (4) (Fl5)

(F3) (F3) (F3) (F3) (F3) (F3) (F15) (F15) (F15) (F15) (F15) (4)

ROE

1995

EVI at various interest rates ROE

1996

EVI at various interest rates

Parenthesis indicates the firm or cooperative had negative returns (losses) for the particular entry.

* Firms Nos. Fl and F3 had both negative margins and negative equity in 1994. Therefore these firms were ““forced”” to have a negative ROE.

** Data was unavailable for firms Nos. F6, F9 and FlO in 1994.

15
specific and depends on its credit worthiness and its

cost of equity capital. Sensitivity analyses showed the

impact various interest rates, from 0 to 25 percent, had

on the extra value and the extra-value index. It

remains for the members to decide the appropriate

rate to use for the cooperative’s opportunity cost of

equity capital.

Consideration two-If a dairy cooperative has to

pay the prevailing market price for milk to stay

competitive in recruiting members, then this second

consideration is moot. Nevertheless, when a dairy

cooperative pays members high prices for milk, the

cooperative may generate low net savings or even

incur losses. On the other hand, a cooperative may pay

lower milk prices and report hefty net earnings. The

two cooperatives may perform equally well, although

their earnings show otherwise. This is the well-known

shortcoming of using the conventional measures, such

as return on equity or return on investment for

comparing performance. Because extra value also uses

earnings as a part of the calculation, a similar shortcoming may exist.

But extra value has the advantage of putting the

cooperative pay-price issue in proper perspective. If its

extra value is negative, the cooperative cannot fully

recover the cost of using capital in the operation. Then,

over time, the purchasing power of member equity

will erode. This can happen even if the cooperative has

positive earnings (but negative extra value). Members

will have to ask whether the negative extra value is

caused by inefficient operations or by unsustainable

milk prices they have demanded.

Thus, members need to consider these two

factors to accurately evaluate their cooperative’s

performance using EVI: the pay price (relative to the

market), and the opportunity cost of the equity they

have invested in their cooperative.

This report uses dairy cooperatives and dairy

IOFs as examples to illustrate the use of extra-value

index in comparing operational performance among

firms. The concept and the method should be applicable to other commodities and businesses as well.

Refererices

Davis, Evan and J. Kay. “Assessing Corporate

Performance.” Business Strategy Review, Summer

1990, Vol. 1, No. 2.

Davis, Evan, S. Flanders, and J. Star. “Who Are the

World’s Most Successful Companies?” Business

Strategy Review, Summer 1991, Vol. 2, No. 2.

Davis, Evan and J. Star. “The World’s Best Performing

Companies.” Business Strategy Review, Summer 1993,

Vol. 4, No. 2.

Davis, Evan, C. Gouzouli, M. Spence, and J. Star.

“Measuring the Performance of Banks.” Business

Strategy Review, Autumn 1993, Vol. 4, No. 3.

Stewart, Thomas A. “Trying to Grasp the Intangible.”

Fortune, Oct. 2,1995.

Tully, Shawn. “The Real Key to Creating Wealth.”

Fortune, Sept. 20,1993.

16
Appendices Appendix A- The Cooperatives*

Agri-Mark, Inc.

Alto Dairy Cooperative

Associated Milk Productions, Inc.

Atlantic Dairy Cooperative

Bongards’ Creamery

California Gold Dairy Products

California Milk Producers Association

Cass-Clay Creamery

Dairyman’s Cooperative Creamery Association

Danish Creamery

Darigold Farms, Inc.

First District Association

Foremost Farms

Land O’Lakes

Michigan Milk Producers Association

Mid-America Dairymen, Inc.

Milk Marketing, Inc.

0-AT-KA Milk Producers

Prairie Farms Dairy Cooperative

San Joaquin Valley Dairymen

Swiss Valley Farms, Inc.

Upstate Milk Cooperative

Valley of Virginia

Western Dairymen Cooperative, Inc.

Appendix B- The Dairy IOFs*

Alpine Lace Brands, Inc.

Ben &Jerry’s Homemade, Inc.

Borden, Inc.

ConAgra, Inc.

Dairy Fresh L.P.

Dean Foods Company

Dreyer’s Grand Ice Cream, Inc.

Giant Food, Inc.

Model Dairy

Morningstar Group, Inc.

Publix Super Markets, Inc.

Suiza Foods Corporation

Swiss Dairy

The Vons Companies, Inc.

*Alphabetical order does not correspond to the firm code in the

study, which was randomly assigned.

‘Alphabetical order does not correspond to the cooperative code in

the study, which was randomly assigned.

17
Appendix C- Comparison of dairy cooperatives’ ROE and EVI, 1988-1992

Code ROE EVI-0% EVI-10% EVI-25% Code ROE EVI-0% EVI-10% EVI-25%

19 1 2 2

22 2 1 1

16 3 12 9

6 4 5 5

20 5 4 4

7 6 3 3

3 7 7 7

17 8 9 10

1 9 8 8

14 10 6 6

24 11 15

13 12 10

12 13 16

15 14 13

9 15 14

21 16 11

18 17 19

5 18 21

4 19 17

8 20 18

10

11

25

2

23

21

(ii,

(24)

(25)

20

(E,

(25)

(24)

(:i,

(21)

(17)

(19)

(18)

(22)

(23)

(25)

(24)

_____________________ 1990 Rank _______________ ____ __ ______ ____ _ __________ 198gRank _________ _ ________ ___

19 1 2 2

16 2 3 3

22 3 1 1

6 4 7 7

7 5 4 4

12 6 6 6

3 7 10 10

14 8 5 5

20 9 9 8

15 10 8 9

1 11 11

13 12 18

4 13 13

17 14 14

21 15 12

2 16 16

24 17 19

11 18 17

9 19 15

8 20 20

18

5

25

10

23

21

(&

(24)

(25)

(Zi,

(22)

(24)

(25)

(17)

(14)

(18)

(19)

(21)

(22)

(23)

(16)

(25)

(24)

_____________________ 1992 Rank _____________________

2

---___________---____ 1991 Rank ____ _________________

19

16

7

6

12

t:,

2

5

4

(6)

3

4

t:,

(9)

(7)

(10)

(11)

(12)

(17)

(13)

(21)

(16)

(22)

(19)

(24)

(20)

(14)

(23)

(18)

(25)

(15)

2

3

(6)

4

(8)

(11)

A

(12)

(10)

(19)

(17)

(18)

(15)

(14)

(13)

(16)

(20)

(21)

(22)

(23)

(7)

(25)

(24)

3 6 7

1 7 6

22 8 4

17 9 10

10 10 15

4 11 8

20 12 12

15 13 11

11 14 14

18 15 16

14 16

13 17

8 18

5 19

2 20

13

20

(::,

18

23

21

24

25

9

21

(&

(24)

(25)

21

(::,

(24)

(25)

12 1

6 2

16 3

19 4

22 5

4

3

5

13

1 1

4 4

3 3

5 5

10 6

14 6 2 2

20 7 9 9

15 8 8 8

13 9 6 7

3 IO 11 12

7 11 7 6

17 12 10 11

21 13 12 14

5 14 14 15

18 15 17 17

24 16 19

11 17 16

1 18 15

23 19 20

8 20 18

18

16

13

(:Y,

4

10

9

25

2

21

22

23

(24)

22

&

(25)

(25)

(22)

(24)

(20)

(23)

7

6

4

(ii,

9

(ii,

(13)

(18)

(15)

(21)

(19)

(22)

(17)

(16)

(23)

(20)

(24)

(25)

(8)

(6)

(1:)

(12)

(11)

(13)

(17)

(14)

(18)

(20)

(21)

(22)

(19)

(15)

(9)

(24)

(16)

(23)

(25)

2

9

10

&

(1:)

(18)

(16)

(19)

(17)

(20)

(12)

(15)

(21)

(25)

(22)

(24)

(11)

(23)

Parenthesis indicates the cooperative had negative returns (losses) for the particular entry. - Continued

18
Appendix C (Continued)- Comparison of dairy cooperatives’ ROE and EVI, 1988-l 992

Code ROE EVI-0% EVI-10% EM-25% Code ROE EVI-0% EVI-10% EVI-25%

6

16

19

12

3

7

15

13

17

20

18

5

22

14

21

1

24

4

8

IO

11

25

23

9

2

6

3

15

19

4

17

12

7

8

22

24

21

16

18

25

11

20

10

1

14

13

9

23

5

2

_____________________ 1988 Rank _____________________

1 3 3 3

2 2 2 2

3 5 5 5

4 6 6 6

5 9 8 7

6 4 4 4

7 7 7 9

98 138 119 A

10 16 14 (14)

11 12 12 (12)

12 14 13 (13)

1314 101 101 &

15 11 16 (19)

16 20 15

17 17 18 (:;,

18 15 17 (21)

19 19 20

20 21 19 I::;

21 18 (21) (24)

22 22 (22) (18)

(Z, (Zi,

(23) (20)

(25) (25)

(25) (24) (24) (23)

_____________________ ,9*6R~nk_____________________

1 3 3 3

2 1 1 1

3 5 4 4

4 6 6 6

5 4 5 5

6 8 8 7

7 7 7 8

89 102 29 &

10 9 IO (13)

11 13 13 (10)

12 11

13 22 (E,

(15)

(23)

14 15 14 (14)

15 20 15 (11)

16 14 (17) (22)

17 19 (19) (18)

18 16 (16) (16)

19 12

20 17 (iA, (2:)

21 21 (20) (17)

22 18 (24) (24)

23 24 (21) (19)

(22) (21)

(25) (25)

6 1 3 3 3

3 2 2 2 4

16 3 6 6 6

15 4 5 5 5

12 5 7 7 7

7 6 4 4

17 7 11 10

22 8 1 1

19 9 8 8

4 10 9 9

20 11 14 14

21 12 10 11

24 13 13 15

13 14 12 13

8 15 15 17

5 16 17

IO 17 19

14 18 18

18 19 21

11 20 20

16

18

(:Y,

(23)

25

1

23

9

2

21

22

(Z,

(25)

22

16

(Z,

(25)

(20)

(&

(24)

(25)

2

9

(1:)

(11)

(12)

(17)

(14)

(13)

(21)

(15)

(18)

(22)

(20)

(23)

(16)

(1:)

(24)

(25)

_ _______ _ ____________ 1987Rank _________ ____________

Parenthesis indicates the cooperative had negative returns (losses) for the particular entry.

19
Appendix D- Relative ranking of dairy cooperatives based on extra-value index if cost of equity capital is 5

percent per year, by rank, 1986-96

Rank 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

-

1 3 22 22 12 22 19 22 22 22 3 16

2 7 3 16 14 19 12 19 19 6 12 22

3 6 6 6 16 16 7 7 6 12 19 19

4 4 7 7 6 7 22 20 7 16 16 12

5 15 15 19 19 14 6 6 12 3 22 6

6 19 16 12 13 12 1 14 3 19 6 8

7 12 12 15 7 6 3 3 16 17 14 7

8 17 19 13 15 20 16 1 17 7 7 14

9 22 4 3 20 15 4 17 5 1 17 17

10 8 17 14 17 3 17 16 14 14 1 1

11 21 21 18 22 1

12 1 13 17 3 21

13 24 24 5 21 4

14 18 1 21 1 17

15 IO 20 20 5 2

20

15

14

c:b

13 1 9 9 3

21 20 15 8 9

24 24 8 11 24

15 11 11 10 11

9 9 24 23 13

16 11 8 4 11 9 (18)

17 25 5 1 18 24 (23)

18 14 14 24 8 11 (2)

19 20 10 8 24 13 (8)

20 13 18 IO 23 (8) (13)

12

4

(1:)

(18)

15

13

18

23

21

13

IO

(Z)

(18)

24 2

13 18

21 5

15 25

5 15

21

22

23

24

25

(1:)

(5)

(23)

(2)

25

23

11

(9)

(2)

11

(Z,

(2)

(9)

(25) (25) (5) (5) (2) (20) (2)

(10) (18) (21) (11) (10) (23) (25)

(9) (5) (24) (25) (8) (2) (4)

(2) (10) (25) (23) (25) (5) (18)

(4) (23) (9) (2) (4) (4) (20)

21

(Z)

(10)

(4)

Dairy Cooperative Code

Parenthesis indicates the cooperative had negative returns (losses) for the particular entry.

20
Appendix E- Relative ranking of dairy cooperatives based on extra-value index if the cost of equity capital

is 15 percent per year, by rank, 1986-96

Rank 1966 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

1

3

4

5

3 22 22 12 22 19 22 22 22 12 16

2 7 7 16 14 19 7 19 19 6 319

6 6 6 16 16 12 6 6 12 16 22

15 3 7 6 7 22 20 7 16 19 6

4 15 19 19 14 6 7 12 3 6 12

6 19 16 12 7 12

7 17 12 3 13 6

8 12 19 15 22 20

9 1 17 13 15 1

10 8 4 17 20 3

1

16

(:I

(17)

3 16 19 22 8

14 3 17 7 1

1 17 7 14 7

16 5 1 10 17

17 1 14 17 24

11

12

13

14

15

22

21

(Z)

(18)

1 1 3

21 14 17

20 18 1

13 5 5

24 20 21

(13)

(24)

(15)

(21)

(12)

14

24

(TY)

(23)

24

(11)

(6)

(10)

(15)

16 (10)

17 (14)

18 (13)

19 (20)

20 (11)

(25) (4) (14) (9) (13) (9) (9) (2)

(24) (11) (2) (10) (15) (13) (13) (25)

(23) (17) (16) (4) (9) (25) (15) (5)

(11) (9) (24) (6) (16) (23) (2) (16)

(16) (13) (5) (5) (2) (16) (5) (10)

21 (23) (23) (25) (6) (6) (6) (16) (10) (21) (21) (20)

22 (5) (16) (23) (10) (16) (13) (11) (21) (20) (25) (23)

23 (16) (11) (11) (2) (5) (21) (25) (25) (2) (16) (15)

24 (9) (9) (2) (9) (23) (25) (23) (6) (5) (4) (21)

25 (2) (2) (9) (4) (10) (9) (2) (4) (4) (20) (4)

Dairy Cooperative Code

Parenthesis indicates the cooperative had negative returns (losses) for the particular entry.

21
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.

The U.S. Department of Agriculture (USDA) prohibits

discrimination in all its programs and activities on the basis of

race, color, national origin, gender, religion, age, disability,

political beliefs, sexual orientation, and marital or family

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 USDA’s TARGET Center at

(202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director,

Office of Civil Rights, Room 326-W, Whitten Building, 14th and

Independence Avenue, SW, Washington, D.C. 20250-9410 or

call (202) 720-5964 (voice or TDD). USDA is an equal

opportunity provider and employer.