It remains one of the great unanswered questions in business: Do co-operatives perform as well as privately or publicly owned companies?
According to National Bank economist Kevin Wilson, who has studied the performance of New Zealand's largest rural co-operatives, they do.
"Yes, fundamentally they have their farmer shareholder's interests at heart."
He qualified that praise by saying aspects of their financial performance were difficult to measure.
"They do pay rebates, but do they achieve large rebates by charging a bit more in the first place or vice-versa?"
In his paper "A Financial Commentary on New Zealand Rural Co-operatives" released as part of the bank's Rural Report series, Mr Wilson said he found many efficiency performance indicators were what was expected from any company, but there were differences in the levels of equity, capital structure and redemption risk.
"Payment to and prices paid to farmer shareholders are often blurred by non-market income or expenses."
The financial performance of co-operatives has taken on extra significance as Fonterra and Silver Fern Farms (SFF) look for additional capital which appears to challenge the traditional co-operative structure.
Mr Wilson said co-operatives had evolved from relatively simple to quite complex models.
Both Fonterra and SFF have solicited equity from outside their shareholders through bond issues, but have indicated they sought more.
Fonterra failed to get shareholder support for a partial float of the business and was rethinking its strategy.
SFF has indicated it would introduce an annual equity value share, similar to Fonterra's fair value share, which was independently valued each year, and move away from its traditional shareholder investment of $1-in, $1-out.
Mr Wilson said this showed that no one model fitted all.
Traditionally, companies accumulated capital by retaining profits, borrowing or getting it from shareholders.
Co-operatives were no different except they had a smaller pool of shareholders.
The chairman of the New Zealand Co-operatives Association, Millers Flat farmer and Ballance director Peter McDougall, said raising capital was not the issue for co-operatives as some suggested.
Earlier this year, Fonterra attracted demand for $800 million in bonds when it sought $300 million.
SFF also has $75 million bonds on issue, but Mr McDougall said there were other ways the meat industry could raise extra capital.
SFF had a capped shareholding of $17,500 compared with the Alliance Group cap of $100,000.
"There is a huge amount of room for SFF to go back to shareholders and ask investors for more money to go back into the company."
Mr Wilson's analysis of sales growth in the nine co-operatives examined produced some mixed data, especially for processors and manufacturers, reflecting the fact suppliers and shareholders were the same.
For example, sales growth for meat and dairy companies were dependent on volume which was often subject to variations in supply from year to year.
Last year was a boom time for meat companies, which had high throughput as sheep farmers quit large numbers of ewes and ewe lambs as they converted farms to dairying.
Inventory was also difficult to measure.
Dairy and fertiliser companies declared inventory levels, but meat processors did not and Mr Wilson said changes to inventory levels had been significant for all three sectors he looked at.
The various factors which influenced co-operative finances, also showed the peculiarity of co-operatives.
"Increases in price rather than volume provided a huge boost to sales for dairy companies in 2008.
"Meat processors gained volume from a reduction in sheep and deer numbers.
"Fertiliser and merchandise sales in 2008 were boosted by increased revenue from the dairy sector."
All co-operatives recorded a marked increase in sales from 2007 to 2008, Westland leading the pack with a 70% increase.
According to figures provided by Mr Wilson, the other percentage sale increases were: Fonterra 43%, Tatua 28%, Alliance 15%, SFF 7%, Ravensdown 35%, Ballance 31%, Farmlands 23% and CRT 21%.
Mr Wilson said there was insufficient data to analyse gross margins in co-operatives to any depth.
However, dairy company Westland Milk appeared to have the highest margins, which reflected a simple model of low-cost selling of dairy commodities.
The meat industry has traditionally had small gross margins while fertiliser companies have confused any gross margin analysis by diversifying into fertiliser spreading and, in the case of Ravensdown, merchandising.
"It appears that Ravensdown operates on a lower gross margin than Ballance."
Mr Wilson calculated gross margins which ranged from 66% for Westland to 4% for SFF.
Dairy companies had the greatest gross margins, ranging from 45% to 66%, and meat companies the lowest at 4% to 6%.
Gross margins for fertiliser companies were 6% to 11% and merchandise companies 6% to 7%.
The fact some of the co-operatives had been in business a long time suggested they had been successful and were likely to continue to be so, he said.
Mr McDougall said he had not realised until recently the international influence of co-operatives.
Within a week of the signing of the free-trade agreement with China, a delegation representing Chinese co-operative companies was in New Zealand looking to do business.
"Co-operatives trust dealing with other co-operatives."
There were issues facing the structure, such as attracting the right calibre of people on to boards, but the structure was changing with more independent directors appointed.
Co-op facts
• A co-operatives is an autonomous group of people who jointly own a democratically-controlled enterprise which acts in the best interests of its members.
• New Zealand co-operatives tend to be in the rural sector and are large businesses.
• Five of New Zealand's largest 20 companies (or eight of our largest 30 companies) are co-operatives.
• Dairy co-operatives include: Fonterra, Westland Milk and Tatua.
• Meat processors: Silver Fern Farms and Alliance.
• Fertiliser: Ravensdown and Ballance.
• Merchandise: Combined Rural Traders and Farmlands.
