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Fortnightly Magazine - August 2001
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Douglas Beresford's article on IPOs for rural co-ops is an interesting concept, particularly his identification of five problems facing co-ops today, but the fundamental underpinnings of his argument are weak and his conclusions from a cooperative programmatic standpoint are wrong. In the work conducted by Management Consulting Services over the last six years we have consistently found a number of truths about co-op distribution service that counter Mr. Beresford's article:

The co-op capital structure is appropriate for their needs and most important can be several hundred basis points lower in cost than that of an IOU. Mr. Beresford states that cooperatives have an inflexible capital structure. Co-ops are limited in their ability to raise equity capital other than through "retained earning" (referred to as patronage by cooperatives), but this is rarely an impediment. Distribution co-ops often carry a higher percentage of debt; they pay no return on equity capital and pay no income tax. The math is fairly simple. Converting to a for-profit, taxable form of ownership would add to the co-op's cost. Virtually all cooperatives are credit worthy and can borrow at favorable rates for system improvements. Several co-ops have successfully undertaken significant acquisitions in the last few years, some achieving 30 to 100 percent growth in a single transaction.

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