A Convergence of Interests

From forestry to local foods, multi-stakeholder co-ops gaining in popularity

By Margaret Lund
e-mail: lundsteller@iphouse.com

Editor’s note: Margaret Lund is a consultant with the Cooperative
Development Center at Kent State University in Ohio, which recently
published a new manual on multi-stakeholder cooperatives: Solidarity as a
Business Model: A Multi-stakeholder Cooperative Manual. USDA
Rural Development’s Rural Cooperative Development Grant program
helped provide support for the project. The manual can be downloaded from
the Center’s website at: http://oeockent.org/index.php/

wenty-five years ago, the town of Sacre-Coeur in Quebec faced a daunting situation familiar to many rural communities. Located far away from major population centers, this community of 2,000 people thrived or declined based on the tumultuous fortunes of its single industry: forestry.

In 1984, the forestry industry was in a deep slump. The local sawmill, the town’s major employer, was facing its third bankruptcy under as many management teams. It appeared the mill would soon be permanently closed. The bank that held the sawmill’s mortgage couldn’t even find a buyer for the assets.

But local community members then came forward with a different plan. Banding together under the banner of the Sacre-Coeur Development Corporation, they secured the assistance of their local credit union (itself another cooperative success story) as well as a grant from the provincial government to help buy the sawmill for the liquidation value of its assets.

After considering several options, the development corporation decided to reincorporate the mill as a single company owned in three equal parts by a cooperative of millworkers, a cooperative of loggers and a consortium of local businesses and other community members. The resulting company — Boisaco Inc. (“bois” means wood, or timber, in French) — has been successful beyond anyone’s expectations.

Three months after reopening in 1985, with the benefit of new management and a recovering lumber market, the company had earned enough revenue to retire its modest debts.

Three-way split for profits
Company profits are divided among the producers, workers and community members. An unusually high share (more than 50 percent) of profits is directed for research and development, or kept as reserves. This practice of investing heavily for its long-term future has allowed Boisaco to expand its economic base beyond the original sawmill operation. It has begun to acquire other local businesses, a strategy that has helped it weather the boom-and-bust world of the lumber industry much more successfully than its predecessor companies had.

These businesses include: Today, Boisaco directly employs 200 people, with another 400 working in other forestry-sector jobs nearby. It is a source of local pride that the company has achieved its economic success without resorting either to high levels of debt or periodic layoffs caused by intermittent shut-downs that are common in the lumber industry when demand tapers off.

A key ingredient of the remarkable success of the Boisaco venture is the strength of its ownership structure. The uniting of producers, workers and community members — forced by dire circumstances to put aside their differences and work together — helped to ensure the survival of their community when its future seemed much in doubt.

Such multi-stakeholder cooperatives (or, as they are known locally, solidarity cooperatives) have been popular in Quebec for a decade or more. This co-op model is also finding increasing favor in the United States — especially in smaller communities struggling to find new ways to survive and thrive in difficult economic times.

Co-op joins farmers with healthcare sector
In Canada, the majority of multi-stakeholder cooperatives are involved in the healthcare or social service sector. In the United States, most of the interest to date has been in the local foods and alternative agriculture sectors. A case that has received national attention for its innovative business model is the Producers & Buyers Co-op of Eau Claire, Wis.

Unlike Boisaco, Producers & Buyers was not born in an environment of crisis, but rather from a conviction that “there has got to be a better way.” Sacred Heart Hospital in Eau Claire was used to ordering pretty much any food item it wanted, in quantities large or small, and having the food delivered directly to the hospital door within 24 hours.

The convenience of such a system was unquestionable, but some felt it was not without its costs. There was a desire to secure fresher, healthier foods for patients. In some dire situations — such as an outbreak of salmonella food poisoning — it can take weeks or months to track down the offending produce, which may come from thousands of miles away.

What might be an inconvenience to some could be a life-threatening issue for vulnerable hospital patients, as Sacred Heart CEO Stephen Ronstrom viewed the situation. He felt more freshly picked or packaged local food could benefit patients. Despite being located in one of the nation’s most productive farming areas, it was not always easy to buy food being grown just down the road.

With a “directive from the boss” to start buying local, Sacred Heart’s food service director Rick Beckler in January 2008 challenged attendees of a local food and agriculture conference to help him spend $200,000 a year on local foods. That was about 10 percent of Sacred Heart’s annual food budget.

The offer sparked a partnership with a local nonprofit, which helped the hospital staff connect with local producers. A series of meetings were held that eventually resulted in the formation of the Producers & Buyers Co-op. Interested parties met for more than a year to build a shared vision and overcome distrust from earlier unsuccessful attempts at local food sourcing. USDA Rural Development’s Margaret Bau, cooperative development specialist for Wisconsin, offered valuable advice to the group.

Membership class expands
The membership of the multi-stakeholder cooperative that eventually evolved from these meetings includes not only institutional buyers, such as Sacred Heart, and local farmers, but also other key stakeholders in the local food system, including meat processors and distributors. The co-op also includes a membership category for local community supporters who are neither institutional food buyers nor producers, but are still interested in contributing to an effort to rebuild their local food system.

Working together on a common enterprise has been an education for all concerned, as producers working through the co-op sought to match as much as possible the convenience that institutional buyers were accustomed to. At the same time, buyers came to better understand and acknowledge the constraints under which small-scale producers must operate.

Producers and processors who sign up for the co-op must agree to abide by growing and animal husbandry practices that are healthy for the land, the animals and the people eating the food. Buyers must agree to pay the real costs of having such standards in place, plus cover a small profit for producers. Buyers must also agree to exhibit flexibility when it is not possible to meet every production goal. Producers agree to participate in, and maintain, a system in which each meal can be traced back to the farm, and even the cow it came from, if necessary.

While there have been some bumps and a lot of learning along the way, Producers & Buyers has now expanded to include two other hospitals as institutional buyers, which are supplied by 20 local farmers and processors. The co-op has provided a boost to the local economy, food quality has never been better at the hospital and co-op leaders are being sought by other groups across the country to share their expertise in rebuilding local food systems.

Co-op practices can be complex
Unlike traditional cooperatives — made up exclusively of buyers or producers or workers — multistakeholder cooperatives can be made up of any of these groups, or combinations of them. They may also include new categories of membership, such as “community supporters.” The simplicity of the definition of “multi-stakeholder” — i.e., two or more groups of different types of members coming together to pursue a common goal — belies the complexity of the practice.

Consciously choosing to focus on commonalities, rather than differences, does not always come naturally to people. As the members of Boisaco and Producers & Buyers Co-op soon found, there are few high-profile role models for this approach.

Replacing animosity or indifference with understanding and common purpose requires a set of communication and interpersonal skills that not everyone may naturally possess. It also generally requires that members adhere to a timeline that is longer than a single transaction, or even season of transactions, and that they commit to a vision that is broader than the success of one’s own family or farm.

Multi-stakeholder co-ops require all members to look beyond their immediate short-term interests and join with their business and community partners to envision a system where everyone’s interests will be met in different ways over the short-term as well as the long.

This may seem like a daunting order — so much so that some co-op observers have predicted failure for the multi-stakeholder approach. Interestingly, however, recent research from Canada suggests that such conclusions are not supported by empirical evidence.

Multi-stakeholder cooperatives are now the fastest growing class of cooperatives in Quebec, itself a bastion of innovative and successful cooperative practice. What little cross-sector research as has been done has found that multi-stakeholder cooperatives are succeeding at rates that are at least equal to that of traditional cooperatives.

Whatever inefficiencies or difficulties are presented by the time and effort required to build relationships and understand alternate perspectives, is made up for in practice by the high quality of products or services produced. There are also benefits from reduced transaction costs, made possible by increased trust between parties and a high degree of local knowledge and commitment.

It should also be noted that even a singleconstituency cooperative may very well mask major differences between members of a common class. Large and small producers, for example, often have very different needs from their cooperative. In worker or producer cooperatives, younger members may have different, even opposing, interests than do those who are nearing retirement age. Credit unions, one of the largest and strongest cooperative sectors worldwide, must embrace the conflicting interests of borrowermembers who desire low interest rates and depositormembers who favor higher rates.

Key governance issues
In addition to deciding which classes of members should be included in the co-op governance structure (consumers, producers, workers, community supporters or other important players), multi-stakeholder organizers also face important decisions regarding: While each member within a membership class (consumers, for example) will receive an equitable proportion of voting rights in a multi-stakeholder co-op, the distribution of voting rights (or transfer rights or surplus) will not necessarily be equal between the classes of memberships. In fact, they may be quite different. For example, in some multistakeholder co-ops, community members receive a higher allocation of surplus (either directly or through dividends on preferred shares) because of their higher monetary investment, yet they have claim to a smaller proportion of governance rights.

In other multi-stakeholder co-ops, community members receive no allocation of surplus at all. In some such co-ops, worker-members receive the majority of any surpluses. In other co-ops, including Boisaco, the majority of profits are kept internally to help the co-op advance its shared mission for the future.

There are no right and wrong answers to these important questions. Examples can be found of multi-stakeholder cooperatives coming to quite different conclusions. The important thing is that allocation decisions should be well thought out and that they support and sustain the ultimate mission of the co-op, which is what brings diverse parties together in the first place.

Considering each of these important issues from the perspective of the different players, then codifying the agreed upon checks and balances clearly in the co-op’s organizational documents, will help build trust and ensure that parties from the different groups each feel their perspective is acknowledged and that their concerns are addressed.

Information, dialogue and a lot of “sunshine” and transparency are often cited by practitioners as necessary ingredients to make multi-stakeholder cooperatives a success. A good dose of patience helps as well. But with these key elements in place, small communities have shown they can achieve impressive results.

March/April Table of Contents