The Cooperative Advantage

By Nichole Gouldie, Communications Specialist

There are reward cards and punch cards. You may have coupons or store cash but very few

MKC Field Marketer, Jared Jones, personally
delivers patronage checks to MKC members,
Jim Schmidt and Ben Schrag.

businesses offer an incentive quite like your cooperative. MKC returns profits to its customers, the members who use its services. That is the cooperative way of doing business.

“Doing business with MKC definitely has its rewards,” said Jim Schmidt, McPherson County producer. “Not only do we get quality and personal expertise, but facilities continue to be improved or new ones are being built, and at the end of the year we see a patronage check for our business.”

MKC Chief Financial Officer, Danny Posch, said we are often asked what does a cooperative do with its net earnings. “One of the primary uses is allocating a portion back to our members based on the business they did with the cooperative during the business year,” he said.


“Patronage dividends are unique to the cooperative system and are the result of the cooperative generating additional earnings for its members from products and services in a competitive market atmosphere,” Posch stated. “It is important to point out a cooperative functions just like any other business, but because it is a cooperative, it will return any savings back to its members at the end of each year.” 

Schmidt operates Emma Creek Farms along with his brother, Bruce, and his son-in-law, Ben Schrag. A member of the cooperative for many years, Schmidt recalls years when patronage checks were little to none. “Basically no money was able to be returned to members sometimes and you weren’t seeing changes to facilities,” he said.

Schrag, who started with the farm full-time nearly a year ago after balancing an off-the- farm job for 10 years sees patronage as a bonus for being loyal. “Patronage enforces the idea that we are member-owners of the co-op,” Schrag said. “The more bushels we haul and the more we use the co-op’s services, the more kickback we get.”

Posch stated MKC ended fiscal year 2013 with $14 million in overall net earnings. “It was another profitable and successful year for our cooperative,” he stated.

According to Posch, MKC returned $4 million in cash back to its members in the form of equity redemptions and cash patronage in the 2013 fiscal year. “Clearly separating MKC and the cooperative business structure from our competition,” he said.

For the 2013 fiscal year, MKC allocated $8.5 million in patronage dividends to its members and more than $24 million for the past four years.

“This year’s allocation marks the highest level of patronage allocated back to the members of MKC,” Posch said. “It is a tremendous benefit to our members and local communities.”

Patronage distributions are based on the February 28 year-end results and the patronage checks are normally distributed in May.  “Because individual patronage allocations are based on the amount of business each member did with the cooperative in that given year, a considerable amount of time is spent verifying the patronage distributions for approximately 3,500 members before the checks are distributed,” he said.

MKC members routinely share in the success of the cooperative through patronage dividends and maintaining capitalization from profits. Schmidt says prices at MKC are always competitive. “Plus the opportunity stands for net earnings to be returned to our farm,” he said.

“We will drive a few more miles to get to a MKC location, knowing the dividends have been better.” Schrag commented. “It adds up.”

A portion of the patronage allocations are returned in cash, the remaining amount is deferred patronage to be redeemed at a later date, Posch stated. “The deferred patronage portion allows MKC to fund growth and asset renewal of the organization,” he said. “This is fundamental to the survival of the cooperative system.”

As a producer, Schmidt agrees. “MKC is doing a balancing act with improving facilities, locations and much more,” he said. “We have seen vast improvements in the last several years and seen record years.”

MKC takes a very deliberate approach in balancing the equity needs of the co-op and the expectations of its’ members. Posch said management and directors follow the guidelines established by the Internal Revenue Service (IRS) for computing patronage dividends.  Under these guidelines, cooperatives are required to pay a minimum of 20% of the patronage allocation in cash.  MKC directors have elected to pay 40% cash for the past 11 years.

Both Schrag and Schmidt believe the MKC Board of Directors makes fair decisions when determining patronage allocation. “We are producers. We want large patronage checks but we want MKC to be profitable, have efficient facilities and overall be successful. They have the producer’s and cooperative’s best interests in mind,” Schrag said.

Posch added over the past ten years, the directors have elected to return $21.8M in cash back to its members - $6.2M in equity redemptions and $15.6M in cash patronage distributions.

”MKC offers many benefits to me and the rest of the members, but patronage is unique because it is the portion of profits generated by and returned to cooperative patrons,” Schrag said. “Patronage is the icing on the cake.”