FCL refutes Nutrien CEO’s co-op comments

Federated Co-operatives Ltd. is refuting comments by Nutrien that co-ops are too small and old-fashioned to remain competitive in the crop input business.

Mike Frank, chief executive officer of retail with Nutrien, recently told shareholders at the company’s 2019 Investor Day that Nutrien will spend billions of dollars over the next five years consolidating the industry in North and South America by acquiring vulnerable competitors.

“Today, our retail competitors are operating in the 1980s model of ag retail,” he said.

“In fact, most co-ops and independents don’t have the resources or scale to make the investments needed to serve the growers of today or the future.”

Ron Healey, vice-president of ag and consumer business with FCL, said the co-op retail system in Western Canada is no wilting flower.

FCL is owned by 170 local co-operatives operating 1,530 sites in 580 communities. It has 25,000 employees and 1.9 million members.

FCL posted $10.66 billion in sales in 2018, including $1.07 billion in its crop supplies segment generated by its 141 agro centres.

“Do we have the size and scale to compete? I think we do,” he said.

Murray Fulton, fellow in co-operatives and public policy with the University of Saskatchewan’s Centre for the Study of Co-operatives, said co-ops have been thriving in the crop input business in the United States.

Twenty years ago they didn’t have much of a role in the business but the multinationals seemed willing to turn crop input retailing over to co-ops and other competitors.

“Those companies are relying an awful lot on co-ops to fill in parts of that supply chain,” he said.

Fulton said crop input retailing is a low-margin business that is better suited to the co-op model, partly because the farmer members can easily keep tabs on their local co-ops and know when improvements are required.

“Farmers are better at doing that monitoring than other mechanisms, which would be boards of directors,” he said.

Fulton also believes FCL and other large co-ops south of the border have the wherewithal to make the necessary investments to remain competitive in the crop input business.

Healey said FCL and the local co-ops have invested $3 billion in capital projects over the past five years, including many agriculture-related projects.

It has built large fertilizer terminals in Brandon and Hanley, Sask., and has one under construction in Grassy Lake, Alta.

FCL has acquired or built nine new agro centres across the Prairies in the last year.

“Ag has really grown significantly. It has outpaced the growth of most of our other commodities,” said Healey.

Nutrien is the top crop input retailer in Western Canada, followed by Richardson International and then the co-ops.

He said FCL’s local co-ops have a market share ranging from 15 percent to the low 20s depending on the province.

Healey said the co-op system was mired in financial turmoil in the early 1980s.

“The facilities were old and tired, balance sheets were strained and we were not returning much patronage to our members,” he said.

Co-ops were preoccupied with surviving the present rather than planning for the future.

Today’s co-ops are in much better financial shape. Balance sheets have improved and there is more collaboration between the locals and FCL. There is a bigger focus on offering services in addition to products, he said.

Part of the turnaround can be attributed to the success of the agro centres. Crop input sales have doubled over the past five years.

Healey said there are some important differences between co-ops and Nutrien.

Co-ops offer a wider array of services to farm customers including groceries, lumber and fuel.

And there is a long-term focus to business operations.

“We’re not chasing the quarter as a publicly traded company tends to do,” said Healey.

Co-op profits stay in Western Canada in the form of investment and patronage refunds and the owners of the system are western Canadians.

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