Teaching/Communication/Extension/Profession, Agribusiness,

Holcomb, Rodney B.

Kenkel, Philip L.

English

Research Papers in Economics

 
 
 
 
 
 
 
Energizing a Cooperative Class with Cooperative Feasibility Software 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Phil Kenkel          Rodney Holcomb 
Bill Fitzwater Cooperative Chair    Charles Browning Distinquished Professor 
Department of Agricultural Economics  Department of Agricultural Economics 
Oklahoma State University      Oklahoma State University 
kenkel@okstate.edu        Holcorb@okstate.edu 
 
 
 
 
 
 
2005 Annual Meeting, NCERA 194 Research On Cooperatives, Minneapolis Minnesota, Energizing a Cooperative Class with Cooperative Feasibility Software 
 
Phil Kenkel and Rodney Holcomb 
Department of Agricultural Economics, Oklahoma State University 
 
Background 
Historically, most undergraduate agricultural economics programs included a 
course on agricultural cooperatives.  Agricultural cooperative courses have disappeared 
from many departmental course listing.  In some cases, departments have attempted to 
integrate cooperative related subjects into existing agribusiness courses.  In other cases 
cooperative education has simply been a victim of university down-sizing and re-
prioritization.   The loss of cooperative courses is unfortunate.   A course on cooperative 
not only introduces students to the unique cooperative business model, but it also 
reinforces their understanding of finance, accounting and management principles.  
Discussion of “New Generation” cooperatives introduces a variety of entrepreneurship 
topics that are typically absent in agricultural economics curriculums. 
  Developing and teaching an undergraduate cooperative course can be challenging.  
Cooperative courses are often free electives rather than part of an agricultural economics 
or agribusiness major’s required courses.  Cooperative classes must be perceived as 
unique, fun and interesting before students will enroll.  Unfortunately, many of the 
typical topics of a cooperative course such as cooperative principles, structure, taxation 
and earning distribution are not immediately exciting.  Many of today’s students are also 
removed from both production agriculture and traditional farm supply or commodity   A cooperative course can be attractive to non-agricultural economics (or 
agribusiness) majors.  While these students can help fill out a course rolls, they bring 
additional challenges.  Students outside of agricultural economics/agribusiness typically 
have more difficulty in understanding finance, accounting and taxation issues.  Students 
of all majors often fail to grasp the linkages between the topics covered in a cooperative 
course.  For example, a student may memorize the choices for distributing returns but fail 
to see any linkage between the return distribution decision and cooperative’s cash flow or 
the member’s realized return. 
 
Start Your Cooperative Project at OSU 
  Incorporating activity learning or hand-on activities into the curriculum of an 
undergraduate class is a recognized method of improving the learning experience.  The 
Purdue Agribusiness Management game has been used effectively in undergraduate 
classes (Barnard, 2003).  At Oklahoma State University, a “Start Your Own Cooperative” 
project was added to the undergraduate cooperative class.  The cooperative class: AGEC 
3463, was revived in the Spring of 2001 after an 15 year absence from the department’s 
schedule.  The initial enrollment was 35 students and increased to the capacity limit of 65 
in subsequent years.  Enrollment is typically approximately 50% agricultural 
economics/agribusiness major and 50% other majors within the College of Agriculture 
and Natural Resources.  Outside majors are mainly Animal Science and Agricultural Benefits of the “Start Your Own Cooperative” Project 
  The “Start Your Cooperative” project has several benefits.  It introduces concepts 
of entrepreneurship that are typically not covered in other agricultural economics or 
agribusiness courses.  Students are naturally stimulated by the concept of designing and 
creating their own business.  It also adds relevance to the cooperative concepts covered in 
the lecture topics.  As students realize that they must decide between open and closed 
membership or design a voting structure for their cooperative they are more interested in 
the lecture discussion.   
The “Start Your Cooperative” project also demonstrates the wide variety of 
business activities that can be organized under the cooperative business models.  The list 
of agricultural, business and consumer cooperatives created by students is far richer than 
the examples in a cooperative text.  The instructor can integrate student created examples 
into the lecture and discussion, emphasizing the relevance of the lecture topics.  Finally, 
the “Start Your Own Cooperative” project serves to integrate the various legal, business, 
financial and taxation issues covered in the cooperative class lectures.  In order to 
complete the project students have to simultaneously consider equity structure, profit 
distribution, taxation, leverage, pricing strategies and other issues. 
 
Challenges with the “Start Your Own Cooperative” Project 
  Several problems were encountered in using the “Start Your Own Cooperative” evaluate their final product and also caused them to miss the cooperative related learning 
opportunities.  Even groups with agricultural economics/agribusiness students often 
created projections with internal inconsistencies.  While it was easy to determine that a 
projection was “too good to be true” finding the inconsistencies between initial 
investment, pricing, costs, profits and return on investment was time consuming.  Teams 
with adequate projections were reluctant to examine alternate structures, even when the 
potential advantages were highlighted. 
 
OSU Feasibility Assessment Templates 
  In conjunction with the Agricultural Resource Marketing Center, a team of faculty 
at Oklahoma State University developed a set of feasibility assessment templates (Kenkel 
and Holcomb, 2005).  The templates, which were based on excel spreadsheets included a 
generic template for simple projects and more specialized templates for flour milling, 
commercial bakery, commercial wine making, cotton ginning, and beef slaughter.  A 
template for oilseed processing, refining and biodiesel production is under development.  
The generic feasibility template has been extensively used by Oklahoma State 
University’s Food and Agricultural Products Center by clients examining the feasibility 
of a value-added business project. 
  The generic feasibility template was expanded to reflect the equity structure, 
profit distribution and taxation alternatives of a cooperatively organized business.  The   The template has three input sheets.  Most basic costs and prices are entered in the 
input worksheet.  Information on interest rates, taxation rates and inflation rates are 
entered.  Many other costs are such as insurance, maintenance and employee benefits are 
calculated based on the percentages entered in the basic input sheet.  The input worksheet 
also provides entries for the prices, cost of goods sold and sales growth rates for up to 
four products.  Users can modify the template to include additional products or 
information.  Users also enter information on property plant and equipment in the 
depreciation worksheet and information on personnel requirements and wage rates in the 
personnel worksheet. 
  A number of additional worksheets are based on the information entered in the 
input sheets.  These include worksheets on market projections, loan amortization, 
personnel expense, depreciation expense, expense summary, profit and loss and return on 
investment.  The return on investment worksheet includes common measures of project 
evaluation including net present value, benefit-cost ratio, internal rate of return, return on 
total assets, return on equity and payback period. Various tables of sensitivity analysis 
can be created on the return on investment worksheet. 
 
Cooperative Feasibility Assessment Template 
  While the basic feasibility assessment template modeled a simple investor owned 
business a number of changes were needed to make the template suitable for stock, preferred stock and loan capital.  The user was also allowed to select between a 
closed and open membership cooperative.  When open membership was selected the user 
was also required to select an equity revolvement period.  In the open membership option 
the market value of the stock at the end of the 10 year projection period was estimated as 
a function of the cooperative’s earnings before interest and taxes (EBIT). 
  The input worksheet of the template was also modified to include the profit 
distribution alternatives unique to cooperative businesses.  The user could determine the 
percentage of earnings retained as unallocated reserves, and distributed as cash 
patronage, qualified stock patronage and non-qualified stock patronage.  The percentage 
of member business could also be selected.  Based on these inputs the profit and loss 
worksheet was modified to reflect the taxation impacts of the various profit distribution 
choices, dividends rates on common and preferred stock and the percentage of member 
business.  A separate work sheet, owner’s equity was created which tracked the initial 
equity, additional qualified and non-qualified equity created through patronage stock 
dividends and equity revolvements.  Information on the revolvement of non-qualified 
stock fed back to the profit and loss worksheet where it impacted the cooperative’s 
taxable income.  The equity revolvement information also fed into another new 
worksheet: owner’s return. 
  While calculations in the return on investment worksheet are based on the after 
tax cash flows for the firm, the owner’s return worksheet is based on after tax cash flows closed membership cooperative the owner’s cash flow in the final year of projections 
(year 10) includes an inflow from the sale of the stock at an estimated market value of 
five times the average earnings before interest and taxes. 
 
Using the Cooperative Feasibility Template 
  Starting with the Spring of 2004, AGEC 3463 students began work on their “Start 
Your Cooperative” project beginning with the 2
nd class period.  Students were allowed to 
voluntarily form into groups formed around general categories of cooperatives.  The 
team’s refined the structure of their cooperative as the semester progressed.  The teams 
met periodically throughout the semester and were required to turn in a number of short 
reports on membership, voting system, board structure, mission statement, capital 
structure and market projections.  The major projection report was intentionally separated 
from the rest of the financial projections to try and prevent groups from “back solving” 
for the market volume and price levels that would make their project feasible.  At the end 
of the semester the teams completed a written report, provided a final version of their 
template and made a class presentation. 
  The cooperative feasibility template created a number of “teachable moments”.  
Many teams discovered that their concept of a “reasonable” member investment did not 
generate sufficient equity to fund the property plant and equipment that they deemed 
necessary.  Student teams also frequently designed their profit distribution system from a meet loan principle payments or revolve equity.  The template allowed the teams to 
examine the impacts of alternative profit distribution structures. 
  The owner’s return worksheet of the template proved to be a great learning tool.  
Typically, a team would first work on developing a production and marketing structure 
that generated a profit and an adequate return on investment.  They then found they had 
to adjust the profit distribution structure to generate a positive cash flow.  Teams then 
discovered that the decisions that improved the cooperative’s cash flow reduced the 
owner’s realized return on investment.  As they toggled back and forth between the 
cooperative’s cash flow projection and the owner’s distributions and returns, students 
gained understanding of the unique structural aspects of cooperative businesses. 
 
Instructor’s Perspective 
  My initial concern over providing the cooperative feasibility assessment template 
for the “Start Your Own Cooperative” project was that the teams would generate 
financial projections with no understanding of the inter-relationships.  Instead, I 
discovered that the templates greatly improved the student understanding of financial 
structure and feasibility issues.  Instead of concentrating on the intricacies of generating 
financial statements, the teams spent more time examining alternative structures.  The 
templates also leveled the playing field between agricultural economics/agribusiness and 
other majors.  Perhaps the greatest advantage of the template was that it made it much ensured that loan funds were repaid, stock was redeemed and that tax, maintenance and 
insurance costs were included. 
 
Conclusion 
  Hands-on activities such as the “Start Your Own Cooperative” project are a great 
way to invigorate an undergraduate cooperative class.  Incorporating the “Cooperative 
Feasibility Assessment Template” further enhanced the success of the activities.  The 
template leveled the playing field between agricultural economics/agribusiness students 
and other majors, improved the quality of the final reports, and reduced the workload on 
the instructor.  More importantly, by running multiple scenarios on the template the 
student teams gained a much better understanding of the financial issues related to a 
cooperative business.  Student evaluations of AGEC 3463 have consistently ranked 
among the top four or five courses in the department.  Write in comments from students 
frequently mention how much they like the “Start Your Own Cooperative” project and 
the “Cooperative Feasibility Assessment Template”.  The Cooperative Feasibility 
Assessment Template is available free of charge at www.agecon/okstate.edu/coops 
 
References 
 
Barnard, Freddie L.  “Using a Computer Simulation Game to Teach Agribusiness 
Management”  Journal of Extension, Vol. 41 Number 5, October 2003.  
www.joe.org/joe/2003ocober/tt7.shtml 
 
Kenkel, P., and R.B. Holcomb.  “Feasibility Templates for Value-Added Manufacturing 

Energizing a Cooperative Class with Cooperative Feasibility Software

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