April 24, 2016
Written By Adam Buckallew
Every February, MFA Oil Company members have something to look forward to finding in their mailboxes: annual patronage checks. This year’s patronage was the largest in the history of the company at $23.7 million. These patronage refunds are one of the primary benefits of MFA Oil membership and an example of how it pays to belong to the cooperative.
“Patronage is part of the beauty of the cooperative business model,” says Mark Fenner, MFA Oil president and CEO. “It allows our member-owners to share in the company’s profits in proportion to their purchasing volume with the cooperative. In other words, it rewards our members for doing business with the company.”
How is Patronage Determined?
MFA Oil members are eligible to receive patronage on a percentage of the total money they spend on products such as gasoline, diesel, propane or lubricants purchased through our refined fuel and propane plants, as well as Petro-Card 24 locations. The amount of patronage each member receives is also dependent upon the performance of the cooperative.
At the end of each fiscal year, the company conducts a formal accounting of its income and expenses. When MFA Oil makes a profit, the Board of Directors, which is made up of farmer-members, decides how to best use the money. Usually a percentage of the profits is kept on hand to help fund the cooperative’s operations. The remainder is distributed to the membership via patronage refunds. For example, the MFA Oil Board of Directors decided to distribute 80 percent of patronage for the 2015 fiscal year in cash. The remaining 20 percent will be held in equities to be paid to the membership in 10 years. Fenner says the percentage of patronage paid in cash and the time frame for distributing future equities can fluctuate in any given year, depending upon the financial condition of the cooperative.
“This year, we recommended to the board that we pay 80 percent of our patronage in cash because of the excellent financial position of the company,” Fenner says. “Our balance sheet is very strong and we could afford it, so the board agreed with our recommendation. That’s great for our farmer-owners and for the company. It means we have less of a financial commitment to plan for down the road.”
Serving the Membership
Patronage refunds create a mutually beneficial relationship that encourages and incentivizes member purchases. Because profits are returned in proportion to purchases, MFA Oil members can trust that the cooperative is not unduly profiting from their purchases.
“We’re committed to offering competitive pricing to our members and customers,” Fenner says. “There’s a perception that some cooperatives have to overcharge in order to be able to pay patronage, but that’s not the case for us. We know there are lots of options these days, and if you aren’t competitive, you’ll quickly become irrelevant. We owe it to our member-owners to deliver the best pricing we can.”
Fenner likes the way MFA Oil stacks up with the competition, especially when patronage is considered.
“The companies we compete with that are privately owned or publicly traded are always going to be more concerned with their bottom line than their customers,” Fenner says. “That’s another area where cooperatives shine. Our duty is to our membership, and our focus is on doing what’s best for the customer. For us, that means we’re providing our customers with quality products at competitive pricing and with great service. When you add up all of those factors plus our patronage refunds, I don’t see how you could afford not to buy from MFA Oil.”
MFA Oil’s competitive advantages compare favorably against other cooperatives as well.
Benefitting All Members
No matter the size of a farmer’s operation, patronage is something that benefits all members.
“Big or small, patronage is there for you,” Fenner says. “Everyone who qualifies for membership should take advantage of the opportunity to earn patronage and equities in the cooperative. Those checks really start to add up, especially if you look at it long-term.”