Cooperatives in the food industry

1. Cooperatives in the food industry • Types of cooperatives • History and status • Relative importance • Coop problems

2. What is a cooperative • a business voluntarily owned and controlled by its member-patrons and operated for them on a nonprofit or cost basis.

3. Cooperatives • Legal entity that permits group action • Set up to serve and benefit those that use them • Stockholders are members

4. Requirements of a coop • Ownership and control of the enterprise must be in the hands of those who utilize its services.

5. Requirements of a coop • Business operations shall be conducted so as to approach a cost basis

6. Requirements of a coop • Return on the owner’s invested capital shall be limited.

7. Coop v. Stockholder owned • Cooperative • One member - one vote • Coop returns go to the users • Stockholder owned • Stockholders vote by shares owned • Firms maximize return to stockholders

8. Purpose of coops • Do what you can’t do alone • Act as a competitive yardstick

9. Purpose of coops • Provide products • Stabilize expanding markets • Allow farmers to move up and down the food chain

10. Purpose of coops • Enhance returns • Increased efficiency • Improved market coordination • Greater bargaining power • Reduce cost

11. What coops cannot do • Set price without supply control • Eliminate middlemen • Ignore customer/member • Membership is voluntary

12. Types of cooperatives • Marketing • Purchasing • Service • Processing

13. Marketing coop • Perform marketing functions • assembly, grading, packaging • 36% of farm receipts in 1995 Milk 100% Grain 41% Fruit and veg 37% Livestock 9%

14. Purchasing cooperatives • Sell inputs to farmers • 28% of farm expenditures, 1995 Petroleum 48% Fertilizer 42% Feed 21% Seed 11%

15. Service cooperatives • Common in the 1930-40s • Provide what may not otherwise be provided • REC • Telephones • Farm Credit

16. Processing cooperatives • Farmer owned vertical integration • Sunkist oranges, Ocean-Spray • Sun-Maid raisins, LOL dairy products • Farmland meats

17. Consumer cooperatives • Many of the same motivations • Cost savings • Provide what wouldn’t otherwise exist • Control the input • Examples • Food (organic), housing, daycare

18. Regions and commodities • Leading coop states • CA, WS, MN, Iowa • Percent of coop sales • Dairy 34% • Grains and oilseeds 27% • Fruits and vegs. 13% • Percent of supplies • Fuel 27% • Feed 24% • Fertilizer 19%

19. Types of organizations • Independent local associations • Relatively small and focused • Federate associations • Coop of local coops • Both build on strength in numbers and common needs

20. Types of organizations • Centralized associations • Control at top by members and direction given to the locals • Mixed associations

21. History and Status • Active period 1910-1930 • Consolidation 1930-1950 • Formed federations • Growth 1950-1990 • Increased membership • Increased sales

22. Problems of coops • Issues of control • Vote by member or volume • Leadership • Financing • Can’t sell more shares

23. Reasons for coop failure • Lack of sufficient capital • Less than efficient size adds to cost • Inadequate membership support • Variability in volume • Ineffective management • Competitive market for managers

24. New Age cooperatives • Value added closed coops • Ethanol production • Turkey processor • Pork production • Ethanol and beef • Eggs

25. New Age Closed • Limited membership • Investment and commitment • Cash and product • Stock appreciates in value • Can be sold

26. New age example • Value added corn processor • Farrow to finish hog production • 2500 sows • 8 nurseries • 18 finishers • $7.5 million for facilities and operation

27. Value added corn processor • Requirements • 40% equity = $3 million • 600,000 bu of corn/year • 100 shares • $30,000/share • 6,000 bu corn/year

28. Value added corn processor • Members required to deliver corn • Paid the current market price • Profits paid on a bushel basis

29. Iowa Initiatives • Ethanol plants • Iowa Cattlemens Association • Iowa Premium Pork