Voice of experience:
co-ops are resilient
By Scott A.Yates
Editor’s note: this article is reprinted courtesy the Capital Press,
which covers agriculture in California and the Northwest United
States. Yates is that publication’s Washington state staff writer. He
can be contacted at: syates@capitalpress.com.
he question itself was revealing, but according to
Dennis Bolling, the answer is: “Yes, cooperatives
do have a future.”
Speaking at the Joint Northwest Co-op
Council’s annual meeting in Post Falls, Idaho,
the president and chief executive officer of United Producers
with headquarters in Columbus, Ohio, said anybody wanting
to investigate the future of cooperatives should think about
shutting down. That’s what happened to his company.
“If your co-op closed tomorrow, would your members start
it up again?” he asked the roomful of cooperative directors and
managers.
He related the saga of the Midwest livestock cooperative
that got caught in a ponzi (pyramid) scheme, which resulted in
$140 million worth of damages. The house of cards involved
individuals showing banks duplicate cattle inventory as part of
receiving financing.
Two banks lost over $50 million. The cooperative lost $12
million. And that doesn’t count the “boatload” spent on attorneys
during litigation.
“We were rocking and rolling with litigation,” Bolling said.
“I was a little overwhelmed when I came on the board. How
do you think directors of ours felt? ‘And, oh, by the way, here’s
the 50 pounds of legal stuff I have to go through with you.’”
That “legal stuff” will increasingly be part of the future of
cooperatives. That means directors will increasingly be
responsible for ensuring due diligence was performed “when it
hits the fan.”
And don’t think it can’t happen to you, Bolling told the
group. It’s a myth to think that what happened to United
Producers couldn’t happen to any cooperative out there. “We
are a litigious society... [but] it is not just a matter of being
sued. It is a matter of positioning for the future,” he said.
Bolling has taken a business lemon and turned it into
lemonade by helping the directors understand what is necessary
to survive. The future, Bolling said, is a fast-paced one
that has agricultural commodities dealing with the leading
edge of science over problems like BSE, bird flu and other
phytosanitary issues.
And that doesn’t even address the question of getting bigger,
which he said shouldn’t be confused with needing to grow.
“We simply had to handle more widgets. We couldn’t stay
competitive if we didn’t grow,” he said.
But for the farmers his cooperative serves, the real value to
the operation, as revealed in a survey, was the company’s presence
in the marketplace.
“Which is a good thing, because the equity is gone,” he
said, referring to the bankruptcy loss.
“Co-ops can’t be hobbies, habits or the Church in
Wildwood,” Bolling wrote on one of his power point displays.
A model created in the 1930s, it
largely went on the same way for 65
years. Only recently have co-ops
been forced to adapt for the 21st century.
Bolling said it would be a mistake
to think the cooperative structure
isn’t alive and well. Farmers are
forming co-ops right and left, which
suggests the model is healthy. In
Ohio, four new livestock cooperatives
were formed recently.
“We are feeling pretty happy
because we are the big fish, but
farmers have formed these related
co-ops because they are dealing with
issues or needs we weren’t addressing,”
he reminded co-op managers
and directors.
In addition to dealing with the
producer, the input provider, the
slaughterhouse, the wholesaler and
the retailer, today’s cooperative has to
address the consumer, who is king.
“The challenge for us is how do
we connect the farmer further up the
food chain,” Bolling said.
Although farmers can accomplish a
lot on their own, he said, a cooperative
can effect more change. But co-ops
of the future will need market
position, financial capital and leadership
to compete. “We are going to
have to address economic performance,
structural alternatives and intentional
leadership,” he said.
In the process, it’s likely co-ops
will have to change entrenched policies.
For instance, 5 years ago, the
United Producers board would have
reacted in horror to the idea of entering
into a formal supply agreement
with a packer. Now it has one.
“We’re competing on a much different
plane. Our competition is not
other co-ops like us,” Bolling said.
“In reality, our competition is our
customer, the packing companies.”
Co-op progressing
under Chapter 11
Editor’s note: this backgrounder supplied courtesy United
Producers.
United Producers Inc. (UPI), originally formed in the
1930s, is a multi-state livestock marketing, lending and
related services cooperative headquartered in Columbus,
Ohio, governed by a 17-member board. UPI currently serves
over 70,000 patrons in about a dozen Midwest states.
In 2001, UPI was victimized, along with several banks,
cattle producers and agri-businesses, by a third-party cattle-fraud situation. The perpetrators are serving time in federal
prison. UPI suffered significant losses coupled with
legal expenses from related litigation.
UPI filed for Chapter 11 on April 1, 2005, to reorganize its
business and have a forum to ultimately deal with the litigation.
Subsequently, in early October of 2005, UPI’s Plan of
Reorganization was confirmed by the Court. CoBank continues
to provide financing for the cooperative’s operations.
UPI’s core business continued intact during this timeframe.
UPI markets nearly 4 million head of livestock and
has a loan portfolio of over $50 million. Sales volume
approaches $1 billion. Additionally, risk management and
production coordination, including a Managed Beef
Alliance, are provided to the cooperative’s membership.
Leaders evaluate risks of serving
Listening to speakers at the Joint Co-op Council Annual
Meeting and Educational Seminar talk about the obligations
faced by directors of modern farming cooperatives raises
questions about why they serve.
Talk to a few directors from various boards and one of
the first things they mention is the obligation to give back to
the community. For many, it is a responsibility that has been
passed from parent to child.
But to paraphrase an automobile ad of the 1990s, this
isn’t your father’s cooperative. Once a quiet backwater of
American business, co-ops are finding themselves on the
cutting edge of finance, science and society. More is
expected of directors, and more risk is involved.
Hence the need for educational meetings where directors
learn that litigation is only a lawsuit away. Mark Hanson,
a lawyer for Lindquist & Vennum in Minneapolis, which
works with cooperatives, agreed agriculture is more litigious
nowadays, but still much less than any other sector of
the economy.
“I think, unfortunately, the rural lawyers have changed.
They are more willing to sue,” Hanson said.
So is serving on a board worth taking the risk? Wade
McClean of Co-op Supply Inc. in Northern Idaho said you
owe it to the community to help out.
Donald Heikkila, on the Co-op Supply Board in Northern
Idaho, said it’s all about being able to sleep at night.
“I’m not so much concerned about personal liability. All
the decisions we make are based on good, sound judgment,
and I think we all have a clear conscience that our vote is
not only in the best interests of the cooperative, but of its
members,” said the 25-year veteran.
Tim Butler, on the Wilco Board in the Willamette Valley,
said as owners of the company, it’s important to be involved
in the company. Sure, litigation is possible, he said, but
“Board members have made those decisions before me,
and now it’s my turn to make those decisions, and in 5 or 10
years, it will be somebody else making the decisions. It has
to be done.”
Besides, said Bud Dyk, on the board of Midstate Cooperative
in Ellensburg, Wash., it’s important to know how a
cooperative actually operates. He said he was pretty
naive when he first became a director and called his 9
years on the board a good challenge. Some risks are
worth taking.
“I always wanted to give back, and this is one way to do
it. Yes, there is a risk, but you have to weigh it with what
you’re doing,” he said.
Scott A. Yates, Capital Press
