MEMBERSHIP POLICY ALTERNATIVES FOR AMERICAN COTTON GRO~/ERS EXECUTIVE SUMMARY

Transcription

1 MEMBERSHP POLCY ALTERNATVES FOR AMERCAN COTTON GRO~/ERS EXECUTVE SUMMARY _: - J ':',)" ~ ~ U \ ~ 11 'i!,l j}) :', VERNON THOMAS L. SPORLEDER AND E. SCHNEDER* A,RESEARCH PROJECT CONDUCTED FeR AMERCAN COTTON GROWERS LUBBocK J TEXAS APRL 1977 *DEPARTMENT OF AGRCULTURAL ECONOMCS TEXAS A&M UNVERSTY AND THE TEXAS AGRCULTURAL EXPERMENT STATON l! COLLEGE STATON J TEXAS

2 -1 NTRODUCTON *BUY-SELL r1arketng-melv1bershp POLCES M.Ql CRUCAL *COMMTTED MARKETNG (POOLNG AND MARKETNG AGREEMENTS) MEMBERSHP POLCES ALL MPORTANT PARTCULARLY NEEDED \t.jhen PROCESSNG NTEGRATED VERTCALLY NTO MEMBERSHP POLCY MUST FACLTATE ACQUSTON OR TRANSFER OF RGHTS MEMBERSHP POLCY MUST ALLO~ FOR GROWTH *MEMBERSHP POLiCY CAN BE ' E.1T1iER...,l. TED N WTH CAPTAL PLAN -CAPTAL PLAN CAN BE METHOD FOR ESTABLSHNG MEMBERSHP POLCY -USED TO DEFNE MEMBER -MEANS OF TRANSFERRNG MEMBERSHP OR PARTCPATON RGHTS 2. SEPARATE FROM CAPTAL PLAN -ALTERNATVE DSCUSSED N THS REPORT

3 -5 CONCEPTUAL ERAf1EWORK *THREE DSTNCT AND SEPARATE CQNSDERATo.NS REGARDNG MEMBERSHP N A LMTED MEMBERSHP Co.o.PERATVE (No.TE: Mo.ST Co.o.PERATVES HAVE NEVER FACED THS PRo.BLEM AS THEY o.perate N A BUY-SELL FASHo.N), 'ESTABLSHMENT o.f A Po.LCY WTH REGARD TO. ACQUSTo.N AND TRANSFER o.f PARTCPATo.N BGHTSJ,E. RGHTS TO. DELVER TO. THE Po.o.L 'FARNESS TO. o.rgnal MEMBERS WHO. SUPPLED THE RSK CAPTAL TO. BULD THE PRo.CESSNG FACLTES 'CAPTAL PLAN Fo.R EACH MEMBER *DAGRAM o.f Co.NCEPTUAL FRAMEWo.RK FARNESS PARTCPATo.N RGHTS 'DAGRAM NDCATES THAT Po.LCES REGARDNG THE CAPTAL PLAN J FARNESS AND PARTCPATo.N RGHTS CAri lle. SEPARATED 'Ho.WEVER J ~TERACTo.N ~ EXSTJPo.LCES REGARDNG PARTC PATo.N RGHTS MAY MPACT o.n FARNESS AND THE CAPTAL PLAN

4 -6 *DEFNTONS 'PARTCPATON RGHTS MEANS u WHO HAS THE RGHT TO DELVER TO THE POOL"...'EARNESSMEANS THAT ALL MEMBERS" OLD AND NEW" PROVDE TH R FAR SHARE OF THE EQUTY,-"' 'CAPTAL PLAN MEANS THE MEMBER EQUTY SCHEME OF THE COOPERATVE

5 -7 PARTCPATON RGHTS ALTERNATVES. *RGHTS CAN BE ATTACHED TO: 'LAND BY DESCRPTON 'MEMBER 'MEMBER AND LAND 'RETANED BY THE BOARD OF DRECTORS ~: N THS REPORT J THS SYSTEM WLL BE CALLED THE NON-TRANSFERABLE SYSTEM *FOUR ESSENTAL ASPECTS OF EACH ALTERNATVE S PRESENTED 'THE PURPOSE OF THE POLCY 'THE MECHANCS OF THE POLCY 'THE ADVANTAGES OF THE POLCY 'THE DSADVANTAGES OF THE POLCY

6 -8 PARTCPATON RGHTS ALTERNATVE LAND BY DESCRPTON *PURPOSE Of Hf POLCY DEFNE THE ACQUSTON AND TRANSFER OF PARTCPATON RGHTS THROUGH LAND ONLY,...,~_~" 'ATTACHED TO.SP.Ec'FtC NUMB-.ER J)F ACRES" USUALLY DESCRBED B ASCS 'WOULD STABLZE MEMBERSHP N COOPERATVE - MAKES ACQUSTON... '.lj..., >.,AND TRANSYER OF-,~PARTCPA::rON RGHTS DFFCULT RELATVE TO OTHER ALTERNATVES 'TED TO LAND OWNERSHP *MECHANCS QE POLCY 'NTAL ASSGNMENT OF RGHTS WOULD BE ON BASS OF NUMBER OF ACRES THAT.BOARDDfCDES: TO, NCLUDE N EACH MEMBERS fshtal ASSGNMENT J! ;,.. ~..._~.,. 'DFFERENT STUATONS COULD ARSE WTH REGARD TO NTAL "ASStGNM tff,: Am).;THE ACQUSTON AND TRANSFER OF EXSTNG RGHTS (SEE TABLE 1) *ADVANTAGES 'MOST DFFCULT SYSTEM TO TRANSFER PARTCPATON RGHTS MEMBERSHP TURNOVER WOULD BE LESS RELATVE TO OTHER ALTERNATVES

7 Table 1. TEM Land by description. STUATON A STUATON B STUATON C. STUATON D OWNER 1000 A A. farm cotton OWNER 1000 A. 500 A. farm cotton LANDLORD-GROWER 1000 A. farm 1000 A. cotton LANDLORD-GROWER looo A. farm 500 A. cotton NTAL ASSGNMENT Acres by descrip Acres by descript ion. Right tion. Right as,:,, assigned to Farm signed to 500 A. Seri a 1 Number A. Option of 1000 A. Acres by descrip "tion. Only landlord is ACG member. Right assigned to Farm Serial Number A. Acres by descrip-' tion. Only landlord is ACG membe~ Right assigned 500 A. to Option of' 1000 A. <.D Sell acres with rights. Sell acres with rights. ACQUSTON OR TRANSFER OF EXSTNG RGHTS Landlord only.

8 -10 "MEMBER STABLTY WOULD MAKE QUANTTY AND QUALTY OF COTTON MORE PREDCTABLE COST OF EDUCATON AND OTHER SERVCES WOULD BE LESS" OTHER THNGS CONSTANT HOWEVER" MAK-NG TRANSFER DFFCULT MGHT BE CONSDERED~~ A DSADVANTAGE FOR THE MEMBER *DSADVANTAGES PRODUCTON WOULD BE FROZEN ON A CERTAN NUMBER OF ACRES AT THE TME THE SYSTEM WAS ADOPTED. COST OF COTTCN PRODUCTON N THE POOL WOULD NCREASE RELATVE TO NON-POOL COTTON.. REASON: -PRODUCTON COULD NOT MOVE TO AREAS WHERE COST OF PRODUCTON S LOWEST -RGHTS TO THE POOL WOULD BE CAPTALZED NTO COST OF PRODUCTON PROBLEM OF ASS GNf-tENT BETWEEN LANDLORD AND GROWER-TENANT 'NEW OR EXPANDED RGHTS WOULD ALWAYS GO TO THE LANDLORD (TENANT MAY CONSDER THS UNFAR) 'COULD LEAD TO ARBTRARY DECSONS ON ALLOCATON OF NEW RGHTS BY BOARD" F POOL ACRES WERE EXPANDED

9 -11 PARTCPATON RGHTS ALTERNATVE ~1EMBER SYSTEr1 *PURPOSE OF SYSTEM 'ASSGN PARTCPATON RGHTS TO MEMBER RATHER THAN LAND -COULD BE DEFNED N ETHER ACRES OR BALES 'AMOUNT OF PARTCPATON RGHTS FOR EACH MEMBER WOULD SMPLY BE CARRED ON ACG BOOKS,'MEMBER COULD. SHFT: HSRGHT~TO SPEC FC ACRES FROM SEAs-oN. TO SEASON *MECHANCS OF SYSTEM -NTAL ASSGNMENT OF PARTCPATON RGHTS WOULD BE EASY RELATVE TO LAND BY DESCRPTON SYSTEM. FOUR DFFERENT STUATONS COULD EXST (SEE TABLE 2). 'RGHT COULD BE SOLD TO ANY OTHER COTTON FARMERJ SUBJECT.O. BOARD APPROYAL, SALE WOULD BE A PRVATE TREATY TRANSFER AT WHATEVER PRCE THE SELLER COULD OBTAN, 'WHEN TRANSFER DD OCCUR RECORDS AT ACG WOULD CHANGE TO REFLECT THE TRANSFER -. J - ''NEW OWN'ER WOULD' HAV-E :;ro :USE PARTCPATON RGHTS WTHN A CERTAN LENGTH OF TME OR LOOSE THEM (EXAMPLE - 2 YEARS) 'EXPANSON N POOL ACRES OR NUMBER OF MEMBERS COULD BE ALLO CATED}'- PROBABLY TO EXSTNG MEMBERS -.~--"---

10 Table 2. TEM NTAL ASSGNMENT Member only. ACQUSTON OR TRANSFER OF EXSTNG RGHTS STUATON A STUATON B STUATON C STUAT ON D OWNER OWNER LANDLORD-GROWER LANDLORD-GROWER 1000 A. farm 1000 A. cotton 1000 A. farm 500 A. cotton 1000 A. farm 1000 A. cotton 1000 A. farm 500 A. cotton Records of ACG show 1000 A. right to deliver to pool specifies acre location annually. Records of ACG show 500 A. right to deliver to pool, specifies acre location annually. Option to show all 1000 A. Records of ACG show total of 1000 A. with split being whatever landlord & grower agree upon. Specify acre location annually. Records of ACG show total of 500 A. with split' being whatever landlord & grower agree upon... ',,: Specify acr~ 10ca!QQ_~~~~~ll~~ Option to show all 1000 A. Prvate treaty transfer at whatever price seller can obtain. Subject to Board approval. Records of ACG changed to reflect transfer. May have time limit on transfer. '#. ~ r...;

11 -13 *ADVANTAGES MPLEMENTATON OF MEMBER SYSTEM WOULD BE RELATVELY EASY. RECORDS COULD BE KEPT SMPLE. DOES NOT FREEZE THE ACRES ON WHCH COTTON CAN BE PRODUCED. COTTON WOULD BE PRODUCED ON ACRES THAT HAD A CO~1PARATVE COST ADVANTAGE. *DSADVANTAGE 'POSSBLTY OF SPECULATON. ACG MEMBER MGHT BUY RGHT N EXPE.C'TATO.N THAT THE VALUE OF THOSE RGHTS WLL NCREASE. -COULD BE CONTROLLED BY LMTNG THE NUMBER OF ACRES OWNED BY ANY ONE MEMBER (EXAMPLE: 5 PERCENT OF O.UTSTANDNG RGHTS).. HOWEVER} "FAMLY BLOCKS" COULD STLL CONTROL A HGH PERCENTAGE OF RGHTS. -POTENTAL SPECULATON MGHT ALSO BE DSCOURAGED - OR CONTROLLED.- BY. REQURNG THAT THE MEMBER ETHER /luse OR LOOSE" HS PARTCPATON RGHTS WTHN A CERTAN TME -"CC"'VALU "OFHRAA1CPATONRJ..GirlT S CAPTALZED NTO THE COST OF-. PRODUCTON BUT NOT LAND VALUES 'MEMBERSHP NSTABLTY RELATVELY HGH}M~Y NCREASE COST OF MEMBER EDUCATON AND COOPERATVE PLANNNG 'ALLOCATON OF EXPANDED PARTCPATON RGHTS S ARBTRARY BOARD DECSON

12 -14 PARTCPATON RGHTS ALTERNATVE MEMBER &LArD PURPOSE OF SYSTEM 'COMBNATON OF MEMBER SYSTEM AND LAND BY DESCRPTON SYSTEM ATTEMPTS TO GAl N ADVANTAGES OF EACH SYSTEt-l -MEMBER STABLTY FROM THE LAND BY DESCRPTON SYSTEM -FLEXBLTY OF ASSGNNG ACRES ON A SEASONAL BASS FROM MEMBER SYSTEM *MECHANCS OF THE SYSTEM. MEMBE.RS ASSGNED RGHTS ~RATli~~THAN LAND. HOWEVER" TRANSfER OF RGHTS CAN TAKE PLACE ONLY WTH SALE OF LAND. 'NTAL ASSGNMENT OF RGHTS UNDER THE MEMBER AND LAND SYSTEM ---WOULD.- BE ESSEN.1JALLY~. J.DEN.TJCAL TO THE MEMBER SYSTEM (SEE. TABLE 3). 'PRMARY DFFERENCE BETWEEN MEMBER ONLY AND MEMBER AND LAND... SY&TEMS S ;rrans.fer OF RGHTS TO DELVER TOc.POOL". E. ONLY WTH THE SALE OF LAND. 'NEW MEMBERS SUBJECT TO BOARD OF DRECTOR'S APPROVAL *ADVANTAGES MORE STABLE ~1EMBERSH P RELATVE TO MEMBER SYSTEM

13 Table 3. Member and land. TEM STUATON A STUAT ON B STUATON C STUATON D OWNER A A. fa rrn cotton OWNER 1000 A. 500 A. farm cotton LANDLORD-GROWER 1000 A. farm 1000 A. cotton LANDLORD-GROWER 1000 A. farm 500 A. cotton NTAL ASSGNMENT Same as member only. Same as member only. Same as only. member Likely it would go exclusively to landlord. Same as only. member ACQUSTON OR TRANSFER OF EXSTNG RGHTS Transfer only with the sale of land. Grower could sell initial right if he Subject to Board approval. Price of first bought land. right is included in the price of. land T rans f er on 1 y 'th th f d W e sa e 0 an. May not want to allow lease of rght. S u b' Jec t t B dip' f 0 oar approva. rice 0 right is includ~d in the price of land. May not want to allow lease of right. --' Ul

14 -lg -DOES NOT FREEZE PRODUCTON ON CERTAN ACRES. OVER TMEJ PRODUCTON WOULD MOVE TO LOWEST COST OF PRODUCTON AREAS. *DSADVANTAGES 'CUMBERSOME TO TRANSFER RGHT 'LEASNG OF RGHT NOT ALLOWED 'ALLOCATON OF NEW OR EXPANDED RGHTS STLL ARBTRARY UNDER SYSTEM

15 -17 PARTCPATON RGHTS ALTERNAVE NON-TRANSFERABLE *PURPOSE OF SYSTEM 'ALLOW BOARD OF DRECTORS TO MANTAN MAXMUM CONTROL OVER MEMBERSHP RGHTS 'NO LATERAL TRANSFERS ALLOWED FROM ONE rjtember TO ANOTHER (ONLY BOARD TO MEMBER., NEfJtBER TO BOARD). *MECHANCS OF THE SYSTEM 'THREE WAYS OF DEFNNG PARTCPATON RGHTS UNDER THE NON TRANSFERABLE SYSTEM (SEE TABLES 4., 5 AND 6) *ADVANTAGES -NUMBER OF ACRES -BALES -"UNLMT.ED"-MEMBER TRANSFER ONE TO- ONE.'.-BOARD- OF.:D:lRECTORS.~ WOULD HAVE MORE CONTROL OVER PARTCPATON OF RGHTS RELATVE TO OTHER ALTERNATVES 'SYSTEM S SMPLE TO MPLEMENT 'PRODUCTON OVER TME CAN MOVE TO LOWEST COST OF PRODUCTON AREAS

16 Table 4. Non-transferable, acreage. TEM S TUAT ON A STUATON B STUATON C STUATON D OWNER 1000 A. farm 1'000 A. cotton OWNE" 1000 A. farm SOOA. cotton LANDLORD-GROWER 1000 A. fa rm 1000 A. cotton LANDLORD-GROWER 1000 A. farm 500 A. cotton NTAL ASSGNMENT 1000 A. rights. 500 A. rights A. rights, split however landlord-grower wish. 500 A. rights, split however and lord-grower wi sh. ACQUSTON OR TRANSFER OF EXSTNG RGHTS To Board if ceases production. Reassigned at discretion of Board, with or without equity transfer. Acquisition of rights by new member only occurs when equivalent amount of rights are turned into Board. Reassigned at discretion of Board, wi th or wi thout" equity transfer. Reassigned at discretion of Board, wi th or wi thout equity transfer. Reassigned at discretion of Board, with or without equity transfer

17 Table 5. Non-transferable bales. TEM STUATON A STUATON B STUATON C S TUAT- ON 0 OWNER 1000 A. fa rm 1000 A. cot ton OWNER 1000 A. farm 500 A. cotton LANDLORD-GROWER 1000 A. farm 1000 A. cotton LANDLORD-GROWER 1000 A. farm 500 A. cotton NTAL ASSGNMENT X~year season! average on yield from delivered acres is used to calculate equivalent bale rights. X-year season average on yield from delivered acres is used to calculate equivalent bale rights. Split of rights is however landlord and grower wish. ACQUSTON OR. TRANSFER OF EXSTNG RGHTS To Board if ceases production. Reassigned at discretion of Board, with or without equity transfer. Acquisition of rights by new member only occurs when equivalent amount of rights are turned into Board. Reassigned at discretion of Board, with or without equity transfer. Reassigned at discretion of Board, with or without equity transfer. Reassigned at discretion of Board, wi th or wi thout equity transfer. J--t U)

18 Table 6. TEM Non-transferable "unlimited." STUATON A STUATON B STUATON C OWNER OWNER LANDLORD-GROWER 1000 A. farm 1000 A. farm 1000 A. farm )aaoa. cotton 500 A. cotton 1000 A. cotton S TUAT ron D LANDLORD-GROWER 1000 A. farm 500 A. cotton Member. Landlord is member. Grower is member 0, NTAL ASS1GNHENT "Size" determined by amount of ACG equity. ACQUSTON OR TRANSFER OF EXSTNG RGHTS To Board if ceases production. Reassignment to any other nonmember, with or without sale of equity. N C> ~} ~ ~.. ;.\:t!t... ~,,,, 1

19 -21 *DSADVANTAGES 'SOME MAY CONSDER BOARD TO HAVE TOO MUCH DSCRETONARY POWER 'ALLOCATON OF EXPANDED RGHTS S ARBTRARY (N.QE.: COllLD BE SOLVED BY A BDDNG SYSTEM) DSCUSSED N NEXT SECTON) -NOT ~1UCH NDVDUAL ME)\"SER FREEDOr~

20 -22 *PURPOSE OF SYSTEM SEALED-BD SYSTEM NON-TRANSFERABLE RGHTS 'MEANS OF BRNGNG N ADDTONAL ACREAGE TO THE POOL N A FASHON EQUTABLE TO EXSTNG POOL GNS 'CURRENT POOL GNS ARE OPERATNG AT VAROUS LEVELS OF CAPACTY~ HENCE COST OF GNNNG 'ALLOWS ECONOMC FORCES TO ALLOCATE NEW POOL ACRES TO EXSTNG GN FACLTES AND MEMBERS 'USES "SEALED BDS" WHENEVER ADDTONAL POOL ACRES WERE DEEMED DESRABLE BY THE ACG BOARD 'SYSTEM WOULD ALLOW GNS WTH A RELATVELY LOW SEASON AVERAGE PERCENT UTLZATON TO NCREASE THER UTLZATON FACTOR BY BDDNG MORE THAN. GNS WTH COMPARABLE TECHNO LOGY BUT WTH A HGHER UTLZATON RATE 'OUTCOME OF BDS DEPENDS ON THE RELATVE PER UNT COST EFFCENCES J GVEN CURRENT TECHNOLOGY AT EACH GN 'THE THEORETCAL BASS FOR THE "SEALED BD SYSTEM~ TRANSFERABLE RGHTS" S SHOWN AND 5. NON N FGURES J 2J 3J 4J

21 Q.) ru..0 L. Q.) U t:1l c: c: c: " ~ N! :.. \.." c.! Volume Q c Capac j ty Figure 1. Typical long run average cost curve for gins of similar technology,

22 a,) m.a C A L a,) 0.. V 4-J V 0 U rn c: c: C ~ c: s (! N.t=" Figure 2. Q A Q B (." Capac i ty Volume Ginning costs per bale for two gins, A and B, with similar technology but differing average util izations Q c

23 (,) ro..c (,) 0. C A 1/1 ~ 1/1 0 U ttl c c cal N c C! c B C 1 B ~ Vi ~ :~ Q Q Q. A A e B C ~ -s:; ;. Capacity ~, Va i Urlle Figure 3. Potential relative changes in ginning costs, given an increase in average utilization, for two gins, A and B

24 C N ~ Q) fl!.d... Q) 0 C M average cost curve for gin N +J V 0 N U O'l C en C C C curve for. gin M Q Q M N QCM C N ~'~\"~"'':' C :~v Capacity <;-',r ':. \ :: ::~r'~.~~1,:;,; ~~.,' ~~:~,'~. r",~ t' Figure Lf. fypical long run av~fage cos~ curves for two gins, Mand N, of different technolog~ and capacity

25 '..., C M l) C1J..c l ll) C. ~ 0 U en c c C). C" N C 1 M average cost curve gin M for average cost curve for gin N N """-J. ~ ---;;... Q Q M M Q N Q' N Volume Figure 5. Potential relative changes in ginning costs, given an increase in average utilization, for two gins, M and N

26 ) -28 *MECHANCS OF THE SYSTEM 'ASSUMES THAT ORGNAL ACG MEMBERS WERE ASSGNED PARTCPATON RGHTSETHER ON A BALE OR ACRE EQUVALENT BASS 'MECHANCS COULD VARY CONSDERABLY 'WOULD BECOME OPERATONAL AT GN LEVEL 'FOR EXAMPLE ACG BOARD DECDES TO EXPAND THE POOL, AMOUNT OF EXPANSON WOULD BE ANNOUNCED UP FOR BDS ONE BD FROM EACH GN. THREE POSSBLE OUTCOMES ARE SHOWN N THE FOLLOWNG TABLE ASSUMNG ONLY 2 ACG GNS ARE BDDiNG FOR NEW ACRES: STUATON 1.. '......, AMOUNT BD (PER ACRE GN A 5 FOR ACRES EQUVALENT) BY GN B 3 FOR ACRES OUTCOME NEW ACRES FOR GN A 2 5 FOR ACRES 3 5 FOR ACRES 3 FOR ACRES 3 FOR ACRES NEW ACRES FOR GN A NEW ACRES FOR GN B POOL EXPANDS BY ONLY ACRES NEW ACRES.FOR GN A NEW ACRES FOR GN B

27 ) -29 'RELATVE BDS REFLECT THE RELATVE COST DECREASNG MPACT ON GNNNG COSTS FOR MARGNAL EXPANSON N GN UTLZATON (m: ACG BOARD COULD REJECT ALL BDS) 'ALLOCATON OF NEW ACRES AMONG MEMBERS OF LOCAL ACG GN WOULD BE DECSON OF LOCAL BOARD OF DRECTORS 'BD BY LOCAL GN COULD REFLECT BOTH POTENTAL GNNNG COST REDUCTON AND THE DESRE OF LOCAL MEMBERS FOR ADDTONAL ACRES 'AT THE DSCRETON OF LOCAL BOARDJ BDS FROM GROWERS OUTSDE ACG GN COULD ALSO BE NVTED TO SUBMT BDS TO BECOME ACG MEMBERS 'REVENUE ALLOCATON, -BDDNG PROCEDURE WOULD BE USED ONLY WHERE ACG POOL EXPANSON S DESREDJ SAY TWCE N TEN YEARS -REVENUE FROM BDDNG PROCESS COULD BE USED TO REDUCE EQUTY REQUREMENT OF EVERY MEMBER, THS MEANS THAT THOSE MEMBERS WSHNG TO EXPAND DELVERES TO THE POOL WOULD MAKEJ N EFFECTJ A TRANSFER PAYMENT TO THE ORGNAL MEMBERS WHO DD NOT WSH TO EXPAND, -OR~ REVENUE COULD BE TREATED AS ACG SALES NCOME AND SMPLY DSTRBUTED TO MEMBERS THROUGH A HGHER FNAL POOL SETTLEMENT AT END OF SEASON -N ETHER CASEJ REVENUE,S SHARED EQUALLY AMONG ALL MEMBERS

28 -30 -NO NET LONG-TERM PRODUCTON COSTS NCREASE WOULD RESULT FROM.THE BDDNG SYSTEM 'OTHER CONSDERATONS *ADVANTAGES -NTEREST RATES AND PRESENT VALUE CONSDERATONS WOULD PLAY MNOR ROLE N BDDNG STRATEGY. REASON: ALL GNS WOULD BE SUBJECTED TO THE SAME PREVALNG NTEREST RATES FOR OPPORTUNTY COST OF MONEY, -THE LONG-TERM CONSEQUENCES OF COMPARATVE PRODUCTON COST ADVANTAGES S TO SHFT PRODUCTON FROM ONE AREA TO ANOTHER, SYSTEM DOES NOT AFFECT THS. 'ALLOCATON OF NEW ACRES REFLECT ECONOMC CONDTONS~ ARBTRARY RULES NOT 'GN CONSOLDATON COULD MOST EASLY OCCUR UNDER THS SYSTEM 'BDDNG SYSTEM RECOGNZES THE NEED FOR LONG-TERM EFFCENCY N THE ENTRE ACG SYSTEM~ NOT JUST THE POOL OPERATON *DSADVANTAGES 'ESTMATES OF REDUCTONS N GNNNG COSTS PER BALE WOULD BE DFFCULT. RECORD KEEPNG COSTS MGHT NCREASE. 'NCREASE COMPETTON AMONG GNS, UNDESRABLE. SOME MAY CONSDER THS

29 -31 'RECORD KEEPNG WOULD NCREASE DUE TO MECHANSM FOR 1) BDDNG SYSTEM AND 2) ALLOCATNG REVENUE 'SOME MAY CONSDER SOME POSSBLE OUTCOMES OF BDDNG TO BE "UNFAR" FARNESS ALTERNATVES *CONCERNED ABOUT FARNESS TO ORGNAL MEMBERS OF ACG 'NTENT S TO ASSURE ALL MEMBERS CONTRBUTE FAR SHARE OF EQUTY OVER TME TO THE OPERATON 'NVOLVES DFFERENTAL TREATMENT OF NEW AND OLD MEMBERS ~ *FOUR MEMBERSHP POLCY ALTERNATVES REGARDNG FARNESS ARE 'BASE CONTRACT SYSTEM 'FRONT-END EQUTY REQUREMENT 'POOL PRCE DFFERENTAL 'MULTPLE POOLS

30 -32 *PURPOSE OF SYSTEM 'REWARD ORGNAL RSK CAPTAL WHLE PROVDNG FOR GROWTH OF COOPERATVE,MAKE USE OF NEGOTABLE (OR MARKETABLE) MA~KETNG RGHTS WHCH ARE ALLOCATED TO ONLY THE ORGNAL MEMBERS 'OVER TME THE VALUE OF THESE NEGOTABLE MARKETNG RGHTS, OR BASE CONTRACTS S THE RETURN TO ORGNAL RSK CAPTAL *MECHANCS OF THE SYSTEM 'CREATES A CERTAN AMOUNT OF RGHTS TO DELVER TO THE POOL WHCH WLL HAVE VALUE OR A MARKET PRCE,BASED ON (SAY) 3-YEAR DELVERY AVERAGE 'BASE ACRES COULD BE SOLD N PRVATE TREATY TRANSACTON AMONG GROWERS 'RESTRCTON--BASE ACRES MUST BE USED OR LOST (SAY) N 2 YEARS 'N CASE OF ACG, BASE CONTRACTS WOULD BE ASSGNED TO ORGNAL MEMBERS, BASE CO~JTRACTS WOULD ACCRUE MARKET VALUE OVER Tr1E "TERM CONTRACTS" AS WELL AS "BASE CONTRACTS" COULD BE USED FOR POOL EXPANS ON, TER~1 CONTRACTS" NOT NEGOT ABLE, HAVE NO SALE VALUE, ALL SHARE EQUALLY N POOL.PROCEEDS,

31 -33 -ONLY PERMANENT MEMBERS OF ACG COULD HOLD BASE ACRES '"TERM CONTRACT" COULD GO TO ACG MEMBERS, THEN TO NON-ACG *ADVANTAGES r--:er~bers j ALLO\'JS FOR ~E\,ARD TO OR G NAL q S K CAP TAL 'FLEXBLE OVER TME N MEETNG SZE REQURMENTS OF POOL. ALLOWS FOR PERMANENT OR TEMPORARY POOL EXPANSON OVER TME NEUTRAL AS FAR AS CONSOLDATON OVER TME WTHOUT ACG *DSADVANTAGES 'POSSBLTY OF SPECULATON N BASE ACRES. No GOOD WAY PREVENTNG SHORT-TERM SPECULATON OF 'SOME GROWERS COULD CONSDER "PRODUCE T OR LOSE T" UNFAR. HOWEVER, NECESSARY PART OF BASE ACRE SYSTEM NCREASED COST OF PRODUCTON FROM BASE AC~ES.BASE ACRE SYSTEM NOT COMPATBLE WTH ALL PARTCPATON RGHTS ALTERNATVES BOARD OF DRECTORS HAS WDE DECSON-MAKNG LATTUDE ibase CONTRACTS MAY PROMOTE STATUS QUO

32 D FFERENTT ~'- R~!JU RE~1E~T *PURPOSE OF SYSTEM -34 FRO~H-ErlD EQU ltv -PROVDES FOR A HGHE~ MEMBERS EQUTY REQUREMENT r:or FUTURE ~CG 'PROVDES AN MEt-1BERS NDRECT RETURN TO RSK CAPTAL or: ORGNAL.REPRESENTS A "FRONT-E~D", ONE-TME PAYMENT BY NEW ACG MEMBER AT THE TME HE JONS THE ORGANZATON 'FRotJT-END EQUTY S SEPARATE FROM EQUTY REQUREMENT UNDER THE CAPTAL PLAN OF COOPERATVE *MECHANCS OF SYSTEM.AMOUNT ESTABLSHED BY BOARD -AMOUNT OF FRONT-END EQUTY BASED ON NEW ACREAGE THAT "ACQURES RGHT" TO DELVER TO POOL -CALCULATONS TYPCALLY BASED ON SAME PERCENT OF CROP VALUE DELVERED FOR THE FRST YEAR AND WOULD BE A PER UNT RETAN *ADVANTAGES -SMPLE -CAPTAL FOR EXPANSON PROVDED AT A LATER TME

33 -35 *DSADVANTAGES 'ORGNAL OWNERS ARE REWARDED NDRECTLY 'HARD TO CALCULATE EXACT"BENEFT TO ORGNAL OWNERS

34 -36 POOL PRCE DFFERENTALS *PURPOSE OF. SY~TEM 'ASSURES RETURN TO THE CAPTAL OF ORGNAL MEMBERS BY PAYNG DFFERENTAL POOL PRCES BASED ON THE AMOUNT OF TME A MEMBER HAS BELONGED TO THE COOPERATVE 'N EFFECT} SUB-POOLS ARE CREATED FOR DFFERENT CLASSES OF MEMBERS 'WOULD ALLOW FOR UNEQUAL PROPORTONNG OF THE MLL PROCESSNG MARGNS PROBLEM: UNDER CAPPER-VOLSTEAD} DFFERENTAL TREATMENT OF MEMBERS MUST BE BASED ON COST DFFERENCES 'WOULD WORK BEST WHERE ALL RAW PRODUCT COMNG NTO POOL S PROCESSED. NOT SO N THE CASE OF ACG. 'WOULD BE DFFCULT TO JUSTFY ON COST BASS N CASE OF ACG. DEA STLL PRESENTED HERE FOR DSCUSSON. *MECHANCS OF SYSTEM 'NEW MEMBERS WOULD BE ALLOCATED A RELATVELY HGHER COST SHARE OF OPERATNG THE PROCESSNG FACLTES; HENCE HE WOULD RECEVE A LOWER POOL PRCE 'DFFERENTAL COULD BE ON A SLDNG PERCENTAGE SCALE BASED ON THE NUMBER OF YEARS N POOL

35 -37 *ADVANTAGES 'NO LUMP SUM REQURED--MGHT BE EASER FOR YOUNG FARMERS TO PARTCPATE N ACG *DSADVANTAGES 'UNLESS COST JUSTFED) LLEGAL UNDER CAPPER-VOLSTEAD 'TAX MPLCATONS NOT CLEAR 'COULD DSCOURAGE NEW MEMBERS 'RELATVELY COMPLEX TO ADMNSTER *PURPOSE OF SYSTEM MULTPLE POOLS 'BASED ON PHLOSOPHY THAT NO FAR WAY EXSTS TO TREAT ORGNAL MEMBERS WHEN EXPANSON OCCURS WTH A SNGLE POOL *MECHANCS OF SYSTEM 'ONLY ORGNAL MEMBERS WOULD SHARE BENEFTS OF CURRENT MLL 'A NEW.. SEPARATE POOL WOULD BE ESTABLSHED FOR NEW FUTURE - MEMBERS OF ACG

36 -38 *ADVANTAGES 'SOME WOULD CONTEND THS S THE MOST FAR SYSTEM TO ORGNAL AND NEW MEMBERS *DSADVANTAGES MANAGEMENT OF MULTPLE POOLS WOULD BE A PROBLEM 'NCENTVES TO JON ACG F MULTPLE POOLS OPERATE MAY NOT EXST 'FRAGMENTATON OF ACG (SUB-COOPS) 'MULTPLE POOLS WOULD NOT RECOGNZE THE NEED FOR EFFCENCY N THE TOTAL ACG SYSTEM 'NOT COMPATBLE WTH ALL PARTCPATON RGHTS ALTERNATVES