COMMENTARY
More than one way for local co-ops to grow
In a mature industry, such as agriculture,growth often occurs by purchasing
assets of a competitor, or merging two or more neighboring cooperatives. But expansion can also occur through internal growth of an organization that is attendant to members’needs and performs its services at such a high level of proficiency that it attracts more business volume. There are also cases where an opportunity exists for start-ups in areas where cooperatives historically have had low market shares, or where a new industry is budding.
Our cover story on South Dakota’s Valley Springs Cooperative demonstrates
the tenacity of a locally owned co-op that has maintained a strong sensitivity
to the needs of its memberusers and a conservative balance sheet.
The “can do” attitude of management and employees enables it to survive and
prosper without being caught up in the philosophy that merger is the only way
to solve operating problems at the local level.
In many cases, mergers can help coops achieve efficiencies by reducing
overhead and eliminating duplication of effort. But merger is not a panacea,
and an ill-conceived merger can just exaggerate the weaknesses of a co-op’s
component parts. As this article indicates, some locals can do just fine on
their own.
When mergers do occur, rationalization of assets based on your plan of
action is a key step in achieving overall efficiencies. This should be done consistent with members’ service needs and the co-op’s future business success.
The key is pursuing ownership, control and benefits for farmers.
Growth plans require careful analysis of the business environment,
including strengths and weaknesses of the cooperative. This analysis should
also identify new strategies or product lines that can increase member
income. Articles in this issue of Rural Cooperatives examine these critical
issues in detail.
Steps that should be taken to secure financing for a successful value-added
cooperative are discussed in the article on page 17. Careful feasibility analysis from which a business plan is ultimately developed is especially
critical for business start-ups in industries such as ethanol, biodiesel and redmeats. This process is also essential for existing cooperatives that plan to
extend operations into value-added endeavors.
Beware of potential conflicts of interest that can arise in an addedvalue
venture if your cooperative takes on investor-owned firms as partners. David Kolsrud, manager of the Corn-er Stone ethanol venture in Luverne, Minn., questions (see page 14) whether outside partners are even needed by cooperatives in most cases. If they are, how you structure your bylaws may well determine if the farmer, or the outside investor,ultimately will control the business.
The article on page 20 which focuses on key questions members should ask when their cooperatives are facing major changes is also relevant to this question. This article discusses the distinct differences in business objectives between a cooperative and an investor-owned firm. A cooperative seeks to maximize
returns to members by adding value to and marketing their products. An
investor-owned firm seeks to maximize returns to investors by paying
less for the farmers’ input. These differences need to be addressed headon,
including identification of an exit strategy when partnerships are formed, or when management or other elements in the cooperative propose converting the business away from operating on a cooperative basis. Recent decisions to maintain cooperative status by members of Ocean Spray and Welch Foods/
National Grape Cooperative contrast sharply with a recommendation of
management and the board of directors of Dakota Pasta Growers to convert
to a profit-oriented, non-cooperative corporation.
Answers to USDA’s 2000 statistical survey indicate the challenging environment
confronting the farm economy and cooperative management throughout the country (see page 8). It is times such as these that we see the true mettle of the cooperative form of business and the role cooperatives play in representing member interests. Dynamic change in farm markets is a constant and requires an
astute management team (board and management) to navigate the churning waters to keep the ship afloat and to take advantage when the door of opportunity opens.
Randall Torgerson, Deputy Administrator
USDA Rural Business-Cooperative Service
