[EDITOR’S NOTE – Our Ag Finance column is written monthly by Rhonda L. Uzzolino, Marketing Manager, AgSouth Farm Credit. She welcomes your questions about ag finance – just address them to firstname.lastname@example.org and look for the answers here.]
Imagine getting a competitive upfront rate on your loans – and then getting 22 cents back on every dollar you paid in interest for the year. Seem impossible? Not with a cooperative.
Farm Credit operates as a cooperative, which loosely defined means a group of people united to meet a common need through a jointly owned business.
For Farm Credit, being a cooperative means our customers own us and are eligible to share in the profits each year. The nationwide Farm Credit System is comprised of 77 member-owned lending institutions called associations. Each association operates independently under the Farm Credit umbrella, and each distributes profits to its members through a profit sharing program known as “patronage.”
In 2016, associations in the AgFirst district – which serves much of the East Coast, including the Carolinas, Alabama and Florida – averaged a 22 percent return to customers from its annual profits. That’s a healthy return – $163 million in cash to be exact – to members that has a profound impact on the communities served by the associations within the AgFirst district.
Patronage “is an example of dollars put to work in our agricultural industry and rural communities as a result of strategic vision and focus on efficiency, with a team of people who care about the customers and communities they serve in a globally competitive environment,” according to Dr. Dr. David M. Kohl, professor emeritus of Agricultural Finance and Small Business Management and Entrepreneurship at Virginia Tech.
Kohl estimates that every dollar Farm Credit returns to its customers has an estimated economic impact of $5-$10 in the communities served by the associations as a result of possible investment, spending and employment. Using those factors, last year’s $163 million cash distribution had an estimated impact of $815 million to $1.63 billion on the Southeastern rural communities served by the associations within the AgFirst district.
The impact of patronage nationwide is enormous. Farm Credit members have come to rely on patronage checks year after year as a means of effectively lowering already competitive interest rates.
While all associations share profits with their members, because they operate individually, each has its own formula for computing the disbursement of profits. At the end of the fiscal year the Board of Directors of each association analyzes the financial position of the cooperative to determine whether the association is sound enough to pay a patronage dividend. If so, the association retains a portion of its profits from the previous year to keep the association strong and financially healthy and then returns the remainder of the profits to its members.
The results speak for themselves. So do co-op members.
“No other bank refunds part of my interest paid,” said Dr. Todd Benton. “It means a lot in these tough economic times.”
Mike McCravy says, “I like doing business with [Farm Credit] because of the patronage program. Every year they put money back into my pocket.”
Jeff Lageman summed it up best: “Getting money back is icing on the cake.”
When you get a portion of your interest returned to you each year – and then spread that money throughout your community by purchasing goods and services locally – it becomes a never-ending cycle that serves each point it touches. It’s the cooperative way. It’s the Farm Credit way. You and your neighbors reap the benefits.
To find out about the Farm Credit association that serves you and get information on financing for everything from land purchases to home construction to farm improvements and operating expenses, visit FarmCredit.com.