Co-op leaders focus on
strategies for success

By Kimberly Zeuli,
Assistant Professor,
University of Wisconsin-Madison


eading major newspapers lately, one might get the erroneous impression that all agricultural cooperatives are in trouble. A recent New York Times article stated: “The collapse of Farmland has some farm groups worried that co-ops are losing their ability to compete with big food companies” (Sept. 16, 2003). The demise of Farmland and Agway has been the subject of many similar articles. Still others have focused on financial issues at Land O’Lakes, governance problems at Ocean Spray and the conversion of such notable co-ops as Dakota Growers and Birds Eye to investor-owned firms.

Is the agricultural cooperative sector close to collapse? Are successful cooperatives fleeing a sinking ship? Whatever happened to the optimism and missionary-like zeal that surrounded the wave of new generation cooperatives created during the 1990s?

This challenging, changing business environment requires innovative thinking and tough decisions. Cooperative executives and board members are being called upon to redefine their cooperative’s vision and to create new, competitive strategies. To help them in this process, the sixth annual Farmer Cooperatives Conference, Executing Vision and Strategy with Success, was held in Kansas City, Mo., Oct. 30-31. Each year for the past six years, co-op directors and CEOs, government representatives, financial and legal professionals and cooperative scholars have met at this conference to think broadly and critically about the future of agricultural cooperatives.

The University of Wisconsin Center for Cooperatives (UWCC) established this conference series in 1998, with financial support from Farm Foundation, to provide a forum for the exchange of ideas on a timely set of issues affecting the agricultural cooperative sector.

Implementing these strategies to make the vision a reality can be more difficult and time consuming than cooperative leaders and members anticipate. By addressing the constructive and successful action some co-ops have taken, the conference offered a counterperspective to the press reports.

Speed of execution
According to Chris Peterson, ag economics professor at Michigan State University, cooperatives need to pay particular attention to a new trend: ever-shorter product and operational cycles. Agribusinesses are being forced to respond faster and faster to customers and changes in the marketplace. “The key to success in the new agribusiness world is to either be big or be fast, but never get caught in the middle,” Peterson said.

Steve Montgomery, executive vice president at CoBank, and Jack Gherty, president and CEO of Land O’Lakes, agreed that co-ops are competing in a fast-paced, tough marketplace. Montogomery said the recent bankruptcies of Farmland, Agway and TriValley have led many to wonder if the cooperative model is broken. But, he noted, the failures of Enron, MCI Worldcom and other investor-owned companies have not caused similar questions about the future viability of the corporate model.

All agribusinesses face a “new reality” an economy that has evolved from being industrial-based to one that is knowledge-based, driven by management, technology and customer demands. Success requires navigating this new reality with a strong board of directors and management team executing a strategic business plan with measurable objectives.

Montgomery warned co-ops: “… if you are not adding value for your members, then why should you remain in business?” Gherty added: “Change…You don’t have to do it. Survival is not mandatory.”

Non-traditional equity arrangements
Many cooperatives are looking into alternative equity strategies. Mark Semmens, managing director of investment banking at D.A. Davidson, compared alternative capital structures that allowed co-ops to compete with other business types in capital markets. Using CHS Inc. as a case study, Semmens explained how co-ops can successfully use perpetual preferred stock to achieve their capital objectives.

David Swanson, of the Dorsey and Whitney law firm, said changes in the co-op model in some states were driven by a desire for greater flexibility in raising capital, tax treatment and member- equity liquidity. Without greater flexibility, more cooperatives may convert business structures, he said.

Steve Wright, CEO and general manager of Pro-Fac, a Rochester, N.Y. based fruit and vegetable growers’ cooperative, provided an overview of recent changes at the co-op. In August 2002, the Pro-Fac board of directors accepted a private infusion of equity from Vestar Capital Holdings, which invested roughly $175 million in AgriLink Foods. AgriLink had been a wholly owned subsidiary of the co-op, but Pro-Fac had to seek outside capital due to the heavy debt load it accumulated when purchasing AgriLink and Dean Foods’ vegetable operations (Birdseye Foods). The co-op is now a minority (40 percent) owner in the food company, which has been rechristened Birdseye Foods.

Closing local plants and branches
Jeff Stroburg, CEO of West Central Cooperative in Iowa, kicked off a trio of presentations by discussing the difficulties involved with closing local plants and branches. Smaller margins, he said, are forcing co-ops to investigate unprofitable sources in the business. All local plants and branches need to be assessed in terms of their ability to create value; they should not remain open simply because they are a “legacy location.”

David Fuhrmann, president of Foremost Farms in Baraboo, Wis., discussed the tough decisions facing the dairy co-op. Confronted with declining regional milk production, excess manufacturing capacity and “devastating” milk prices following the 9-11 terrorist attacks, Foremost pursued a “plant-rationalization” strategy. Fuhrmann explained that these actions require cooperatives to “plan, plan, plan, and communicate, communicate, communicate.”

Building brands
Don Schriver, executive vice president of Dairy Farmers of America (DFA), said “a cooperative’s brand is the face it presents to the world.” According to Shermain Hardesty, Director of the Center for Cooperatives at the University of California, only a limited number of cooperatives have nationally prominent brands. Some structural characteristics of cooperatives seem to impede brand building, she noted. Several presentations discussed the importance of brands to cooperative growth and innovative strategies for achieving strong brand names.

Keys to success
Mark Hanson, attorney at the Lindquist and Vennum law firm, said there are four keys to successful cooperatives: leadership, a solid and focused business plan, an efficient capital structure and member liquidity. Hanson said that cooperatives need to distinguish between an income business model, in which earnings are distributed, and a business growth model, in which earnings are reinvested. Co-ops also need to understand where their capital is coming from not through assumption, but by close observation.

Mike Maranell, senior vice president at Ag Processing Inc. (AGP), an Omaha, Neb.-based soybean-processing co-op, provided these “take-home concepts” in his conference wrap-up:
  1. It is important to understand the “purpose” of a business, particularly your business.

  2. The success of execution depends on the following key ingredients:

     • a clear vision of what you want the business to look like in the future;

     • a formalized, strategic plan that involves multiple stakeholders;

     • alignment of the board of directors and management;

     • finding the right people for coop leadership positions.

  3. The cooperative system has, and will continue, to evolve.


Previous Farmer Cooperatives Conferences
have addressed the following issues:

 Post-conference summaries, programs, and some presentations can be found on the UWCC Web site (http://www.wisc.edu/uwcc/farmercoops03/index.html)




January/February Table of Contents