Episode 31: What is a cooperative? With Brian Ricker
To understand what a cooperative is, it’s important to go back to 1916. At the time, World War I was in full swing, the first self-service grocery store opened, the National Park Service was formed, and Woodrow Wilson was re-elected as president. In that same year, the Federal Farm Loan Act was signed into law, providing long-term credit for farmers and marking the official start of the Farm Credit System.
“Agriculture, and rural enterprises in general, are essential to this country in many different ways,” says Brian Ricker, AgCredit CEO and President. “Food, fiber, fuel, and those types of things that agriculture provides, are essential to a strong and stable America.”
In the early 1900s, it was difficult for many farmers to find the credit they needed. Not to mention, agriculture was a volatile and cyclical environment much like it is today. It was risky, and so a better system was needed.
The cooperative business structure was born out of the necessity to provide for rural communities and still exists today for the same reason.
“Cooperatives are very commonplace in agriculture,” explains Brian. “When you think about farmers in general, there are a lot of individuals out there and cooperatives allow them to come together.”
More simply, Brian describes a cooperative as a business owned by those who use its services.
“Cooperatives are structured in a way that the members own it and govern it, and then ultimately the profits are returned back to those who are the owners,” says Brian.
The governance structure is just one of the key principles of a cooperative that distinguishes it from other kinds of businesses. In addition to its members setting policies and making decisions, another key benefit is that patronage, also known as the business’ profits, are usually given back to its members.
“For AgCredit, this will be the 36th consecutive year that we have paid patronage to our members,” says Brian. “It’s a trend we’re really proud of, and even if you go back and look at the numbers, it’s been over 100 basis points on average.”
While most cooperative structures are built on these same guiding principles, Brian shares the ways in which AgCredit has set itself apart. A few of those examples include closing 1,300 Ag-LINK loans to save customers 1.5 to 4% on their operating loan rates and providing SBA PPP loans during the height of COVID.
“When it comes to serving and caring for our customers, sometimes it’s the little things,” says Brian.
Here’s a glance at this episode:
- [01:24] Brian Ricker shares his background in agriculture and how he got started at AgCredit.
- [02:43] Brian shares a brief history of the Farm Credit System.
- [04:49] Brian answers why rural enterprises like the Farm Credit System are essential.
- [06:34] Explaining the acronyms for Production Credit Unions (PCA) and Federal Land Banks (FLB), Brian shares how the merge of these two entities during the 1980s farm crisis was critical.
- [10:11] Brian explains why and how associations are divided between geographical areas and across the country.
- [14:16] Brian defines the cooperative business model and some of its key principles.
- [17:03] Brian shares the benefits and value members receive from being a part of a cooperative and AgCredit specifically.
- [22:14] Discussing patronage, Brian shares a few trends on the numbers paid back to members.
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Guest Brian Ricker
Brian grew up on a family farm near Fort Jennings, Ohio in Putnam County. His family raised purebred hampshire and yorkshire hogs, tomatoes, pickles, corn, soybeans and wheat. Brian graduated from Ohio State University in 1991 with a BS in Agriculture and he began his career with AgCredit in 1997 as an account officer in the Van Wert branch and became the CEO of AgCredit in February 2014. Brian resides with his wife Julie and their 4 children ages 16 to 9 in Findlay, Ohio.
Host Phil Young
Phil is an account officer for AgCredit serving Van Wert County. He’s been in ag lending for over four years but his agricultural background goes back much farther. He grew up on his family’s farm where his father raised a large herd of sheep. Currently, he helps with the family farm raising corn, soybeans and wheat. Phil likes working at AgCredit because he can help people achieve their goals. Whether that is purchasing a new piece of farm ground, updating a piece of equipment, or helping a borrower understand their financials, helping his clients succeed is always his goal.
Host Libby Wixtead
Libby has been an account officer for eight years serving AgCredit members in Marion County. She grew up on a 200-acre grain farm and was very active in 4-H and FFA. Today, Libby and her husband operate a 2,400-head swine finishing barn. Her favorite part about working at AgCredit is working with local farmers from the same area where she grew up and seeing their operations thrive. She loves working in agriculture and helping her customers be successful year after year.
Voiceover (00:08):Welcome to AgCredit Said It. In each episode, our hosts sit down with experts from all parts of the agriculture industry to bring you insights and must have information on all things from farming to finances and everything in between.
Libby Wixtead (00:28):We are back with another episode of AgCredit Said It. I'm Libby Wixtead with Phil Young today.
Phil Young (00:33):Howdy.
Libby Wixtead (00:34):And today we have a very special guest. Don't we, Phil?
Phil Young (00:37):We do.
Libby Wixtead (00:38):We have AgCredit CEO and president, Mr. Brian Ricker. Brian is joining us today to discuss the Farm Credit System, cooperatives, and much more.
Phil Young (00:48):Now, Brian, you have the distinct honor of being inducted into what I call the AgCredit Said It second-timers club. It's a big deal, and it's your second time on here and we've never had a return guest come back to the podcast. So I think that's high praise for you. We're excited to have you back. Something to look forward to if you come back five times, I don't know if you ever watched Saturday Night Live, but they get a five-timers jacket, and so if you come back three more times, we'll get you a jacket.
Brian Ricker (01:17):Well, hey, thanks Phil. It feels great to be invited back. I certainly appreciate that to be the repeat guest here.
Phil Young (01:24):So Brian, you were on one of our first episodes way back. Can you just refresh listeners a little bit about yourself and how you got started at AgCredit?
Brian Ricker (01:33):Sure. Phil, Libby, I grew up on a farm in Putnam County and came from a large family, youngest of eight kids. And of course growing up, just like so many of us here in northern Ohio, we grew up with soybeans and corn and some livestock, and then that was me. And we had hogs, that was our livestock. And of course went to Ohio State and majored in agriculture. And one thing led to another, and after a couple different jobs, Bob Evans Farms and Ohio Farm Bureau, landed right here at AgCredit as an account officer in your area in Van Wert and then I worked some in Ottawa as well. And just loved it. I loved working with farmers and providing credit and those lending needs. And it's been very, very good. I've been blessed.
Phil Young (02:25):Nice. Yeah.
Libby Wixtead (02:27):So we see all of these BioStars everywhere. We have heard of the Farm Credit System and that AgCredit is part of the Farm Credit System, and we've heard of other Farm Credits around. Can you share the history and how the Farm Credit System got started?
Phil Young (02:42):Yeah.
Libby Wixtead (02:42):Way back when.
Brian Ricker (02:43):That's great, Libby. And I do not consider myself a historian by any means, but I'll give up my best here. And so it wasn't that long ago, Farm Credit, we celebrated our 100th anniversary, and that was 2016. So in 1916 is when Farm Credit officially started. And so it started with the signing of the Federal Farm Loan Act. President Woodrow Wilson was the president at that time. And so that created the twelve Federal Land Banks and provided long-term credit for agriculture.
(03:24):But you even need to back it up a little bit before 1916, because that's what really set the table for Farm Credit. And it was around 1908 and President Theodore Roosevelt, he appointed a Commission on Country Life. And what that did is there was a lot of disparity, a lot of gaps between city and country and rural life at that time. The roads were poor, not a lot of electricity, all those things. And so this study provided a lot of things that rural life and country life needed to improve upon. And one of those was getting a better supply of credit to farmers and to those living in the rural areas. And so that was the start of trying to figure out a way, a system to provide that credit for this country. And so that was the start of it.
Libby Wixtead (04:23):Seems like there was a lot happening in agriculture during that time, with FFA starting about that same time. So there really was a need to put agriculture out there and on the map and that the government was recognizing that is pretty important to where we are today. So you've answered it a little bit in that last answer, but why do we exist? Why is AgCredit here? Why are Farm Credits across the nation and every county here?
Brian Ricker (04:49):Sure. Well, rural enterprises in general, and agriculture, especially the last three or four years with COVID and all, we've come to realize how essential we are to this country in many different ways. We know how volatile and how cyclical agriculture can be. We've all lived through some of those cycles, but food, fiber and now more recently with fuel and energy and those types of things that agriculture provides. Those are essential to a strong and stable America. It's our security. I've heard the phrase that food security is national security. And as we look out in the world right now with just different conflicts and things going on, I think we can all relate to its importance.
(05:37):And so that alone is important enough to make us realize that we need security in that area. We need credit. So ultimately, that was some of the formation of the Farm Credit System. Way back in those early 1900s, it was difficult for many farmers to find the credit that they needed. As I said earlier, it was risky, it was cyclical, and there were a lot of failures. And so a lot of high rates were being charged at the time. And so a better system was needed. And so that's why we exist, to provide all that for our rural community and for agriculture and for our farmers.
Libby Wixtead (06:19):Phil, I think you and I both, being farmers ourselves, are happy.
Phil Young (06:23):Oh yeah.
Libby Wixtead (06:23):That we can obtain our credit for our operations ourselves today, whether we work at AgCredit or not and put on our farmer hats. I mean, that is an awesome thing as young beginning farmers.
Phil Young (06:34):Oh yeah, for sure. And one of the things, I grew up in an ag community and the older generation, when I first started working at AgCredit, they always have said the acronym PCA or they'd talk about Federal Land Bank. And I guess, can you touch on that? Maybe if there's some older generations out there, they've heard that. And I know you said you're not a historian, but can you touch on that a little bit? What those were?
Brian Ricker (07:01):Well, yeah, acronyms in general.
Phil Young (07:03):Right, right.
Brian Ricker (07:03):I think every business has them and we sure have our share too.
Libby Wixtead (07:07):Yes.
Brian Ricker (07:07):And so when you mentioned PCA, of course that stands for Production Credit Association. And we mentioned Federal Land Bank as well. FLB would be another acronym for that. But ultimately, when the system first came about with the Federal Land Banks, that was only for longer-term type loans. And so back in 1916, actually, 1917 was when the first loan was finally made, that was a long-term loan. So it involved real estate, mortgage and those types of things. And it took many years later, 10 to 15 years or so, before short-term lending was established. And that's where the PCA, the Production Credit Association, came about.
(07:52):And so for many, many years, up until the 1980s, that's what we saw. We saw two separate entities. We saw one entity called the Federal Land Bank, and that provided those mortgages, long-term lending, and we saw production loans being made through PCAs, Production Credit Associations. And so locally here, some that might be my age or a little older, or you hear it from your parents, would remember names like Marion Production Credit Association, Marion PCA. We had Northern Ohio PCA. So those are some of the names. And at the same time, we had Marion Federal Land Bank Association and Bowling Green Federal Land Bank Association. Ottawa was my area – Ottawa, Ohio – Federal Land Bank Association. So those are some names that I recall my dad and my mom mentioning through the years.
Phil Young (08:45):And I've heard stories, and correct me if I'm wrong, that a lot of these, if you had a Federal Land Bank office and a PCA, they were almost in the same building a lot of times.
Brian Ricker (08:53):Yes, they were.
Phil Young (08:53):And I heard stories, they'd be like, "Yeah, I'd go make my farm loan payment and then I'd walk across the hall or walk next door and make my equipment payment or my operating loan payment." Is that true?
Brian Ricker (09:02):Yeah. That is true. So I mentioned they lasted until 1980s or so. And of course, we had the farm crisis in the 1980s, and there was some restructuring that happened. And so nearly all PCAs and Land Banks eventually kind of went together, merged into the Agricultural Credit Association. So ACA is the new acronym or the new term.
(09:26):And in many ways, it was needed. When you think about diversification of loans and trying to reduce risk and all that, it would just make sense that a portfolio of loans would have both short-term production loans as well as long-term just to handle that risk and mitigate it and work on that concentration of risk. So that eventually happened. The farm crisis of the 1980s spurred that on. And so that's where we're at today.
Phil Young (09:56):And probably just a lot of efficiencies happen too. You're just doing double paperwork for two different offices sometimes.
Brian Ricker (10:01):Yeah, sure. And I think, too, from a customer standpoint to have to go across the hall and just meet with different people. Yeah, it's definitely more efficient today.
Phil Young (10:11):And I guess, can you talk about territories? I know that's something a lot of my customers ask me about too. They try to wrap their mind around the fact that maybe there's a lot of different associations out there and we're all maybe divided up into different territories and just want to know why and how that was structured, I guess.
Brian Ricker (10:31):Sure. Yeah, of course. In the early formation of the Farm Credit System, you can imagine as I was going through all those names, there were a lot of different entities out there, PCAs, Land Banks and whatnot. And the Congress, when they allowed the system to be established, the charters and statutes and the law basically provided that each of these different associations, these entities were going to have a certain area, a certain geographical area that they were going to cover. And so that's just how it started.
(11:08):And then through the years, obviously there's been change, mergers have happened, there's been some consolidation. And so those charters with the specific geographic territories have simply went with all the different mergers through the years. And so today, I think we have roughly 60 or so associations across the country, so much less than it was 10 or 20 or even 30 years ago and so forth.
(11:35):But ultimately, those charters, those geographic territories just continue to go right along as mergers have happened. And I think the structure of the system, it just made sense in some ways that there was... It would probably implode if all these different entities were theoretically competing with each other all the time. And it wouldn't be a positive experience probably for the future of the system. It wouldn't be long-lasting or long-standing if that was allowed to happen.
(12:12):So probably the forefathers thought of that and realized that that's not going to be a long term thing. It would be relatively short-term, and everybody would be going after each other, so to speak. And it's not really the cooperative model either. The cooperative model is to get along and help each other, be of service to one another. That's one of those principles too. So anyhow, in my mind, that's probably what they were thinking. And it's helped the system be where it's at today and be over a hundred years old.
Libby Wixtead (12:47):And I think with some of those associations with some of the customers that I have in my portfolio, you look at those other associations as partners because we're all trying to do the same thing. And even with our district, we have a lot of partners, and it's nice to have somebody else to work with each other and be in the same boat as us when we're trying to do some different things.
Brian Ricker (13:09):It is. You know what, I reach out. You mentioned that, Libby. I reach out to CEOs all the time to collaborate and get ideas and compare and contrast different things. And just being able to do that, it's helped us through the years to get through different scenarios, different challenges and whatnot. So obviously if that wasn't the case, if we were against each other all the time, those partnerships wouldn't be formed and that trust wouldn't be there either.
Libby Wixtead (13:38):Yeah, collaboration is key. I think we've all learned that even within our branch offices here.
Libby Wixtead (13:43):We are going to take a short break, and we'll be back in just a minute.
Voiceover (13:47):As a farmer-owned cooperative, we at AgCredit know that a little extra capital can make a big difference in your operation, paying for new equipment, eating unexpected expenses, and covering payroll. That's why we're returning 21 million dollars to our borrower-owners through our patronage program. What other lender does that? At AgCredit, we're proud to share our profits with our members. Visit agcredit.net to learn more about how it pays to do business with us.
Phil Young (14:16):You've mentioned the word cooperative multiple times. How would you define a cooperative, and I guess how does it benefit agriculture to be in a cooperative?
Brian Ricker (14:26):A cooperative in my mind is a type of business structure where the business is owned by those who use its services. And as I mentioned earlier, the Farm Credit System was set up as a cooperative system way back in 1916, because Congress ultimately felt that it was the best structure to ensure that the system could fulfill its mission in providing that credit for the future, for agriculture and for rural America.
(14:59):So cooperatives are very commonplace in agriculture. And when you think about farmers in general, there's a lot of individuals out there and cooperatives allow them to come together, join together, and form these businesses that can help their individual business to provide a market, whatever service that they need that they're short on, that cooperative can fill that void.
(15:26):One of the things with cooperatives that I think is really interesting is just some of the key principles of a cooperative. And so one of those is voluntary and open membership. And so anybody who needs that service can be a part of it. Democratic member control's another one. So we're having an election coming up here in another couple weeks. Our board of directors, we got a couple spots there that are going to be open. So there's the ability if you're a member of the cooperative, to serve on the board. And then economic participation, so you can receive some of the capital of the profits of that.
(16:08):So anyhow, those are just a couple of the principles of the cooperative and how important that is. And like I said, these cooperatives are all over the place. They're companies that you may not even be aware of are a cooperative, and they are. And that's just the way they're structured. And the cool thing is that the members own it and the members govern it, and then ultimately the profits are returned back to those who are the owners.
Libby Wixtead (16:40):There are a lot of companies in agriculture that are cooperatives that you would have no idea. And if you look it up, I think everybody would be surprised what companies truly are cooperatives. So you've talked about what that is, and you've talked about a lot of benefits that a cooperative creates for our members or for its members. What benefits and values do our members receive for our cooperative?
Brian Ricker (17:03):Yeah. Well, maybe I kind of touched upon it earlier, but a couple... Governance structure. Our board of directors, as I mentioned earlier, is comprised of our own members of AgCredit. And that's unique in any business structure. And so to me, that's a big one, a big benefit of value. It's the governance of how we are operated and they set our policies, approve those, and so that's great. The other big one is just having the ability to receive the profits of the cooperative. And we're going to be paying out a patronage of course, again this year. And having the ability to not only run and help govern the cooperative, you get the profits as well. And so those are a couple key ones.
(17:58):Then I see extra value in there, too. And these are the little things that each cooperative can do themselves, sets them apart maybe from their competitors or other cooperatives in the area. And I always think back to when I first started, we had a tagline that said, "Big enough to serve and small enough to care." And so how do we serve and how do we care? And so how do we do that here at AgCredit? And there's a couple things that come to my mind when I think of serving and caring for our customers, our owners, and sometimes it's the little things.
(18:42):And one of them just happened last year and we continue to do it into this year, and that is we have been very good with closing a lot of Ohio Ag-LINK loans. And so these LINK loans, and when we closed them in 2022, they have saved anywhere from 1.5 to 4% on an operating loan rate. And we all know what happened last year with the prime rate and just rates in general. They were going up. And I give a lot of credit to our team for being willing to spend the extra time to close these loans, to care for our customers and do that. We closed over 1,300 loans, 249 million dollars of operating loans with these LINKs. So that's extra value that we as a cooperative, when we put our members, our owners first, it's those types of things that come out.
(19:46):A few years ago, back in 2020 and 2021 during COVID, those SBA PPP loans was another area of value that our team came together and provided that. And not every financial institution does LINK loans. Not every financial institution did those PPP loans. But our team, we realized that that's something that's going to be pretty important for our members, our owners, and we need to do that.
(20:15):And then also, too, just historically when rates have declined, we as AgCredit have been very good with repricing loans to get a lower interest rate and just charging modest fees to do that. And so that's another area where we have served our customers and did our best to care and do what's right. I think just that extra touch there is something that provides us, our customers, perhaps the value and the benefits that we would think of with a cooperative.
Libby Wixtead (20:56):Yeah.
Phil Young (20:57):I think about, you mentioned that we talked about the board. I always love thinking about who's on our board. Not only are they users of our product, but they are in agriculture themselves, they're farmers. They know the opportunities that are out there and they know the challenges that are out there. So it's just a really cool idea to think about when you think of who's sitting on our board.
Libby Wixtead (21:18):And just the value piece of it that we care. I mean, we do truly care for our customers because ag is our livelihood of an operation and it's generational. And so we are looking out for our members and trying to bring them products that can serve their operation. And as AgCredit, we want to make loans, but we also want you guys to do well. And that's where I feel like doing the PPP loans and the note mods and doing the LINK loans, I know that's made an incredible impact on a lot of young beginning farmers. I mean, for my husband and our farm personally as well. And I feel like that is a big value of we do truly care, and many of us are farmers and we see that value as well. So you mentioned patronage, and we do have patronage coming up. So how can borrowers use their patronage money?
Brian Ricker (22:14):They can use it in a lot of ways. So ultimately, of course, it's paid out either through a check or an ACH type payment, but it's all over the board. It's their money. And so we've seen it used maybe for a down payment on a farm, a down payment for equipment to purchase equipment, vacation, college for the kids. Obviously the sky is unlimited. You could use it for what you want.
Phil Young (22:45):Dinner…
Libby Wixtead (22:45):Oh no. Some of my guys, our patronage check goes to their wife. So that's at least what they tell me, that their wife is always looking for that patronage check to come.
Phil Young (22:54):They love this time of year, definitely.
Brian Ricker (22:55):It is a good time of the year.
Phil Young (22:57):Yes, for sure. With the patronage payment, I mean, has AgCredit been doing patronages for a long time? What's our history with that?
Brian Ricker (23:05):Oh yeah. I was just counting it up the other day. This will be the 36th consecutive year that we have paid patronage. So we're really proud of that. And it's quite a trend. And I think even if you go back, when you look at the numbers that we've paid back, it's been over 100 basis points. And hopefully everybody knows what a basis point is and all that. We're getting a little technical here. But for 27 years now, the return on an average rate has been over 100 basis points. So that's 1% is what it amounts to, 100 basis points equals 1%. So basically if your average rate was 5%, that meant that your rate after patronage was 4%. That 100 basis points. So it's been substantial. And if you've got a real estate loan for a couple 100,000 or more that's big money, it can add up pretty quick.
Phil Young (24:04):Good. Well, Brian, it has been awesome to have you as a guest. And welcome to the second-timers club. You're the one and only thus far, so you can brag about that to whoever you want.
Brian Ricker (24:17):Okay, thanks. Hey, I just want put a plug in for you guys and say thank you for doing this, doing these podcasts. I love it. It's just great to have you guys do this, and it means a lot to our association. So thank you.
Phil Young (24:28):Thank you, Brian.
Libby Wixtead (24:29):Thank you, Brian. And with that, we close out another AgCredit Said It episode. Please make sure to subscribe and follow us so you guys will get a notification for every new episode that comes. And you can also follow us on all of our social media platforms. We'll see you guys next time on AgCredit Said It.
Phil Young (24:47):See you guys.
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