Graduate Thesis Or Dissertation
 

Capital for growth and adjustment of agricultural co-operatives

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https://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/sx61dp467

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  • Agricultural co-operatives in Oregon have experienced financial problems in recent years due to changes in the economic environment in which they operate: Increasing amounts of new capital will be required to finance growth and adjustment of operations in the future. This places a growing importance on the role of long-range financial planning. The major objectives of this study were (1) to develop a framework of over-all policy for business which emphasizes the importance of long-range capital planning; (2) to develop and test models for various capital structure mixes that take into account financial requirements for necessary growth and adjustment; (3) to determine to what extent co-operatives can, in a relatively competitive market structure, depend on the revolving fund for capital in the years ahead. Financial data for the past 10 to 12 years were collected from "representative II firms whose major activities were farm supplies, milk manufacturing and grain marketing. Capital structure models were constructed and tested by application to existing firms, the hypothesis being that the revolving fund will necessarily decline in importance. In each case a model capital structure for one point in time was constructed and the projected balance sheet method was used to project the firm's dollar sales, total assets and capital structure for a 10-year period in the future. The general objective was the attainment of a financial structure which would have the confidence of members and support the volume of service they require. The model suggests that a "typical II supply co-operative should strive for an increase of 45 percent in dollar sales over the next 10 years in order to keep pace with inflation, growth of the market for farm supplies and a desire for a five percent increase in its share of the total market.- Oregon farm supply co-operatives in general have shown only moderate growth in the past decade, compared to the model. Some firms have been able to achieve more rapid growth, however, and some have been successful in raising a substantial proportion of invested capital for expansion. The revolving fund has proved to be a simple, economical and painless method of raising equity capital in the past. However, declining net margins and the requirement that at least 20 percent be distributed in cash indicate that it will not provide sufficient capital in the future. Equitability of the method itself with regard to the treatment of present vs. former and large vs. small members has been questioned. Dairy manufacturing is a declining industry in Oregon. Cooperatives that have as their objective the provision of a continuing, stable and reliable market outlet for their producer-members face a challenge of increasing unit costs. A flexible financial position can be maintained in this situation by replacing much of the emphasis on revolving book credits with increased reserves. Government policies have made up the largest exogenous factor affecting grain co-operatives in recent years. During the postwar period, government storage programs provided Oregon grain marketing co-operatives with an unexpected source of income, which enabled them to build up a strong equity position and shorten their revolving fund terms. Considerably more might have been done for the members, however, if these associations had borrowed additional capital and returned more of the earnings to producers for use in their farm businesses. The sound financial condition and size of the co-operatives would make it possible for them to borrow at lower rates of interest than individual members must pay for on-farm operating capital.
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