Conferences
Dynamic Pro Forma Tool for Farmer Cooperatives
Gerald Mashange
Summary
The U.S. farmer cooperative industry has experienced a lot of merger and consolidation activity in the past few decades. Total gross cooperative business volume has increased from $82.1 billion in 1988 to $179.8 billion in 2019, with the number of cooperatives in operation declining from 4,937 to 1,779 in the same period (Farmer Cooperative Statistics, 1988; Agricultural Cooperative Statistics, 2019). Cooperatives are larger than before. However, the advantages of increased scale have also introduced increased complexity. This added complexity means cooperatives are faced with strategic challenges unlike the past. Therefore, cooperative managers and directors need tools to help them make strategic decisions that will benefit their membership.
The overall direction of a farmer cooperative is set in strategic planning sessions. This process requires a discussion of the problems being faced and deciding on the proposed solutions. Each established decision will have a consequence—expected or unexpected—that will either materialize immediately or at some point in the future. The difficulty that is often faced when evaluating each proposal is quantifying their impact on the finances of the cooperative and viewing their interdependencies. Equipping cooperative boards with a tool that visualizes the monetary value or cost of their proposals in real-time will aid the strategic planning process in making more informed decisions. This tool ought to present a picture of the
current state and future state of the cooperative given the proposed decisions.
The objective of the proposed extension program is to develop and deliver a dynamic pro-forma financial tool for farmer cooperative senior leaders and boards of directors. While the classic pro-forma financial statement is a straightforward way of presenting the future state of a company, it is limited in that the line items on the income statement and balance sheet change with the direction and relative size of revenues. The result of this limitation is an inability to make projections that are specific to each line item. These projections can be misleading since in reality all line items do not proportionally move with revenues. Therefore, the proposed extension program will provide farmer cooperative senior leaders and directors with a dynamic tool that accounts for their financially complex businesses and will improve their strategic decisions.
A dynamic pro-forma tool for farmer cooperatives is presented, which allows senior leaders and directors to input their historical financials and incorporate assumptions for every line item on the income statement and balance sheet. In addition, it presents a cash flow
statement detailing the uses and sources of cash, assesses the liquidity of the cooperative and determines the borrowing needs required to achieve the stated assumptions. The results summarize the cooperative’s Key Performance Indicators (KPIs) in a way that will strengthen the strategic decisions made by cooperative leaders and directors. The advantage of this tool is that each decision and assumption are specific to a line item, which provides an immediate view of the future impacts across all three financial statements. For example, a director can evaluate the impact on retained earnings and other dependent accounts in all projected years if patronage
dividends were to be increased by a $1 million in the first projected period.
*Note this was a winning presentation at the 2022 AAEA Extension Section Graduate Student Competition.
Presentation Materials
Details
| Conference | 2023 Extension Risk Management Education National Conference |
| Presentation Type | Poster |