CHICAGO, Ill. – Once formed as a way for the “little guys” to improve their marketing power against large corporations, farmer-owned co-operatives are having to reinvent themselves to survive in the rabid competition of modern agribusiness.
“It’s about creating value,” said Peter Goldsmith, a University of Illinois economist.
“Co-operatives are finding they can be more equal partners in the economy.”
Whether it’s a co-op like Ag Guild of Illinois that grows high-isoflavone soybeans for the health food market,
Nebraska corn farmers who are building a new ethanol plant, or a Wisconsin food co-op supplying eggs to McDonalds, new co-ops are looking for survival in special niche markets.
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For new and old co-ops, the push to survive sometimes means partnering with the large corporations once kept on the other side of the fence, all in the name of capturing better returns for products as they try to move up the food chain.
“A perfect example was when Farmland united with Premium Beef to form National Beef Company to provide value-added products like ground beef already browned,” said Todd Duvick, food industry analyst with Bank of America.
“It’s a way to compete with publicly owned meat processors.”
Such alliances are becoming more common as the biggest co-ops come to resemble the biggest private firms.
Economies of scale in agriculture, and demand for capital, have made “bigger is better” a strategy promoted by the government and driven into every sector by corporate mergers.
Co-ops have been shaped by the same forces. The number of farmer-owned co-ops dropped to 3,466 in 1999 from 3,791 in 1996.
The biggest ag co-ops in the United States include many household names – Riceland, Gold Kist, Land O’Lakes and Ocean Spray. They are profit-making, profit-sharing businesses which, through affiliations, often rank alongside the Cargills and Conagras of the food chain.
The biggest farmer-owned co-op, Kansas City-based Farmland Industries, has 600,000 “farmer-owners” in the U.S., Canada and Mexico. Last year it posted sales of more than $10 billion (US) for grain, meatpacking, fertilizer manufacturing, oil refining, ag chemicals and other activities.
But its breadth demanded ever more capital, and the four-year depression in U.S. farm prices left it exposed.
So last month, debt-laden Farmland let Archer Daniels Midland take control of its 24 grain elevators in exchange for lease payments and profit-sharing on the grain handling.
The deal was the latest in ADM’s policy of “partnering” with co-ops to secure a steady flow of raw materials for its more than 350 grain processing plants. Other ADM deals include links with big Midwest farmer co-ops Growmark and CountryMark as well as Canada’s United Grain Growers.
“The grain business is inherently a capital-intensive, low-margin business that under current economic conditions Farmland cannot continue to operate indefinitely,” Farmland chief executive officer Bob Honse said when announcing the ADM deal.
That sentiment has left some farmers wondering whether farmer-owned co-ops that co-operate with agribusiness giants will really serve their interests.
“The only way for a small- to medium-size farmer to make it and continue in business is to be a member of a co-operative that is successful,” said David Graves, president of the National Council of Farmer Co-operatives.
One option for younger farmers has been to go back to the roots of the co-op movement and focus on local initiatives. That has combined with a goal of producing specialty products such as high-oil corn, a premium livestock feed, or fruits, vegetables and dairy products made-to-order for retailers.
Such “new generation” co-ops have been controversial among older farmers. Usually organized as a limited liability corporation, they require member-farmers to meet specific production requirements and capital contributions in order to join.
Members also decide whether an interested farmer can join, which gets away from the traditional co-op philosophy of democracy, equality, inclusiveness, and openness.
“They get away from the democratic philosophy where each member gets a vote,” said economist Goldsmith at the University of Illinois in Champaign.
New generation co-ops can react quickly to the growing organic market, offer other specialty consumer food products, and provide identity-preserved grains or meats to a growing customer base demanding traceability, Goldsmith said.
Big co-ops are paying attention to this nimbler quality.
“Owned by farmers, co-ops tend to want to be politically correct rather than make good sound business decisions,” said John Johnson, CEO and president of Minnesota-based Cenex Harvest States, one of the largest and most successful co-ops with 400,000 farmer-owners in 18 states.
“Those that use sound economic reasoning, even if it’s not a popular decision, will be those that are successful.”
That task looks no easier. Despite the new-age co-ops and big co-op alliances with corporations, co-op leaders remain under no illusions about competing with corporations.
Dan Kelley, an Illinois farmer and president of Growmark, which has 250,000 farmer members, recently told a U.S. Senate subcommittee that continuing corporate concentration in agriculture will make it more difficult for farmers and their co-ops to compete.
“The practical effect would be simply to lock farmers and their co-operatives into a permanent disadvantage relative to their competitors,” Kelley said. “And in business, if you don’t meet the competition, you won’t be in business very long.”
