This article analyzes the comparative advantages and disadvantages farmer cooperatives may have in coordinating the marketing of agricultural commodities through the market channel from the farm level to the processed product level. The distribution of risks among producers and integrators under contract integration is discussed, and factors related to the ownership, capitalization, and governance of cooperatives that may limit their vertical expansion are evaluated. Although contract integration by cooperatives may offer some advantages, efforts by cooperatives to limit their financial risks and the market risks of producers could significantly redefine the nature of these organizations and their relationships with members. © 1995 John Wiley & Sons, Inc.

Schlosser, Eric. (2001). Fast food nation: The dark side of the all-American meal, Boston, MA: Houghton Mifflin Co., 356 pp., $25.00 hardcover.In this best-selling book, journalist Eric Schlosser chronicles the history of the fast food industry and seeks to describe the industry's impacts on the economy and American so-ciety+ Schlosser argues that the success of the fast food industry has dramatically transformed the American diet, landscape, workforce, and popular culture and is behind a national epidemic of obesity, the creation of an unskilled and poorly paid workforce, and the exploitation of teenagers and minorities+ It is also responsible, according to Schlosser, for restructuring the agricultural sector, fostering major changes in retail business practices, and propagating American cultural imperialism abroad+In 1975, farm activist Jim Hightower warned of the "McDonaldization of America" in the book Eat Your Heart Out. Hightower was concerned that the emerging fast food industry would threaten independent businesses, lead to a food sector dominated by large corporations, and advance the homogenization of American life+ Schlosser asserts that much of what Hightower feared has since come to pass+ He alleges that the centralized purchasing decisions of the fast food chains and their demand for standardized products have given a few corporations enormous control over the country's food supply+ Furthermore, the success of the fast food industry has motivated other industries to adopt similar business practices+ "The basic thinking behind fast food has become the operating system of today's retail economy, wiping out small businesses, obliterating regional differences, and spreading identical stores throughout the country like a self-replicating code"~p+ 5!+ To understand the significance of Schlosser's arguments, it is helpful to have an appreciation for the size, scope, and growth of the fast food industry+ On a given day, about one-quarter of the adult population of the United States visits a fast food restaurant+ Whereas Americans spent about $6 billion on fast food in 1970, they spent more than $110 billion in 2000+ Americans now spend more money on fast food than on higher education, personal computers, or new automobiles+ The McDonald's Corporation operated about a thousand restaurants in 1968+ Today the company runs about 28,000 restaurants worldwide, opening nearly two thousand new ones annually+ It hires about one million employees each year, more than any other private or public organization in the United States+ As a result, one of every eight American employees is estimated to have worked at Mc-Donald's at some point in their life+ McDonald's is the largest owner of retail property in the world, and it spends more on advertising and marketing than any other brand+ Mc-Donald's is also the nation's single largest purchaser of beef, pork, and potatoes, the second largest buyer of chicken, and one of the largest distributors of toys+ Schlosser's book discusses a broad range of social issues that extends...

Purpose The purpose of this paper is to explore the advantages equity capitalization programs based on retained earnings from patronage sources may provide cooperatives and their patrons that traditional equity financing methods do not offer. Design/methodology/approach The analysis is based on a model used to assess patron benefits from a cooperative that is financed by a combination of allocated equity acquired from noncash patronage refunds and unallocated equity acquired from retained earnings. The level of patron benefits is represented by the present value of the after-tax cash flow patrons receive from the cooperative, and the model is used to determine the combination of noncash patronage refunds and retained earnings that provides the greatest present value given the levels of those parameters that affect capitalization of the cooperative and the distribution of cash benefits to patrons. Findings The analysis demonstrates that only pure plans, i.e., plans based entirely on retained patronage refunds or entirely on retained earnings, will be associated with the greatest present value for any particular set of parameter values. Cooperatives that are characterized by low marginal tax rates and growth rates and whose patrons are characterized by high marginal tax rates and discount rates are those most likely to benefit from equity capitalization programs based on retained earnings. Research limitations/implications The model is based on the assumption of constant parameter values and does not account for the existence of nonpatronage income. Practical implications A useful extension of this work would be the development of a decision aid capable of generating basic operating statement and balance sheet data and enabling cooperative decision makers to conduct experiments concerning alternative financing strategies based on retained earnings. Originality/value The analysis contained in this paper is based on an explicit model and extends across a broad range of values for various parameters that affect the level, timing, and present value of cash distributions from cooperatives. Because the cash flow received by patrons is determined after the cooperative’s planned equity growth is met, cash flow comparisons are equivalent with respect to the capital provided the cooperative. In addition, the revolving period is endogenously determined.

PurposeThis paper presents a model for determining the optimal capital structure for cooperatives and explores the relationship between financial leverage and the ability of cooperatives to retire member equity.Design/methodology/approachA model is developed to determine the optimal capital structure and explore the relationship between capital structure and the rate at which a cooperative can retire member equity. Using data from cooperative financial statements, ordinary least-squares regressions are conducted to test two hypotheses on capital structure and equity retirement.FindingsThe model shows that the optimal capital structure is determined by the ratio of the rate of return on capital employed to the interest rate on borrowed capital and the required level of interest coverage. The regressions suggest that cooperatives choose their capital structure largely according to the rate of return on capital employed and the interest rate in a manner consistent with maximizing the rate of return on equity and that the rate at which cooperatives can retire member equity is directly related to leverage.Research limitations/implicationsThe model does not consider unallocated earnings. Analysis of the relationship between leverage and equity retirement yields results contrary to the assumptions of earlier studies.Practical implicationsCooperatives can use the model because the necessary parameters are easily understood and readily available from financial statements, lenders and industry sources.Originality/valueThe model is developed specifically for determining the capital structure of cooperatives and differs substantially from the corporate model. A theoretical basis is provided for the relationship between leverage and equity retirement.

Cooperatives usually cannot employ market-based methods for valuating equity capital and must rely instead on accounting-based methods. This paper assesses several approaches for valuating cooperative equity and suggests that the rate of return on equity is an appropriate measure of the opportunity cost of equity because it determines the levels of cash patronage refunds, equity retirement, and growth a cooperative can maintain. Simulations are used to explore the relationship between various measures and the rate of growth and demonstrate that the rate of return on equity is the only measure invariant with respect to changes in the growth rate.Calculations for US cooperatives show that the rate of return on equity results in a higher cost of equity than estimates based on the opportunity cost of funds and confirm that equity is more expensive than borrowed capital. A numerical example illustrates the early redemption of member equities at a discount.