Organic farmers increasingly
turn to cooperative business model

Alan Borst, Ag Economist
Cooperative Programs
USDA Rural Development

he organic food market has expanded and matured into a $10 billion industry, with sales growing about 15 to 20 percent each year. Many of the early co-ops that sprang up to serve the market have also matured, while new co-ops continue to be formed to meet the growing demand for organic foods.” — Excerpt from “Organic Co-ops Taking Root,” Rural Cooperatives, May-June 2005.

Since 2005, the U.S. organic products industry has continued to experience remarkable growth, and organic farmers have continued to increase their use of marketing cooperatives. In 2009, U.S. organic food and beverage sales grew 5.1 percent, to $24.8 billion, according to the Organic Trade Association’s (OTA) 2010 Organic Industry Survey.

OTA estimates the total U.S. organics product market — including food and beverages and non-food products, such as supplements, personal care products and clothing — grew 5.3 percent, to $26.6 billion. In 2008, OTA found that organic food sales had grown 15.8 percent from the previous year.

In 1991, the USDA Agricultural Cooperative Service (now the Cooperative Programs office of USDA Rural Development) conducted a survey of U.S. organic producer marketing cooperatives (OPMCs) and found that: there were 10 operating in 1987, with gross sales of $3.3 million; 15 of these co-ops were operating in 1991, with gross sales of $6.38 million and 384 producer-members.

In 1989 there were an estimated 5,328 U.S. organic growers, of which 2,264 were certified. No OPMC data was collected after 1991.

When USDA Cooperative Programs put together an informal OPMC directory in 2010, it found that there are about 45 OPMCs operating. While there has been no actual survey, a few numbers indicate the magnitude of growth. The largest OPMC — Organic Valley — had sales of $520 million in 2009 and a membership of 1,652 farmers in 33 states and three Canadian provinces. In 2008, there were 12,941 certified organic producers in the United States, according to the USDA Economic Research Service. There are certified organic farmers in all 50 states.

Although some skeptics predicted that organic food was a passing fancy, four OPMCs have now each been operating for longer than 20 years: These four OPMCs stand out as successful examples of organic farmers effectively marketing through cooperative associations. Their longevity is remarkable in the relatively young and turbulent organic sector.

OFARM fills bargaining role
Some OPMCs have been organized to increase member market power through bargaining and informationsharing. The Organic Farmers Agency for Relationship Marketing (OFARM) is an association with eight OPMC members. It is an information-sharing cooperative that does not directly negotiate prices or contract terms for its member co-ops. But it allows individual cooperatives to act in concert as they price and market products.

Thus the market power of each individual cooperative is enhanced because buyers are prevented from playing the marketer for one cooperative against that for another. OFARM collects information on inventories, production, marketing and pricing, then shares this information with its members.

OFARM members have recently confronted a very challenging market situation with escalating input costs, the global economic crisis, a softening of organic sales, unfavorable weather and some quality and storage issues.

At its March 2010 annual meeting, OFARM leaders said they would focus on increasing communication with organic farmers, enlisting more membership and improving target prices. Their strategy is to educate the organic sector on the importance of a marketing plan.

Its 10-year track record shows that the financial performance of OFARM members has been in the upper third of the marketplace.

One of OFARMs members — the Kansas Organic Producers Association — is a bargaining cooperative for about 60 organic grain and livestock farmers located primarily in Kansas, with some members also in bordering states. KOP’s purpose is to help build markets for organic grain and livestock and to represent its members in negotiating sales and coordinating deliveries of organic products. These two kinds of cooperatives complement each other in promoting grower market power.

Co-op model used
in many ways Since the 1991 survey, organic farmers have used the cooperative business model in a variety of innovative ways. With the rapid growth of community supported agriculture (CSA) operations, some CSAs have joined with others in OPMCs to lower their production risk, diversify their offerings to consumers and extend their seasons.

Cooperative CSA operations have been established in Washington, Ohio, New York and Pennsylvania.

Some OPMCs specialize in a specific product — such as almonds or cotton — while others have a broader commodity focus in grains, dairy and livestock products or produce. A few OPMCs are distinguished by the nature of their membership, such as the Amish or a specific minority group.

Some OPMCs were organized with significant outside assistance. Among the organizations that have provided such help are the National Farmers Organization, Rocky Mountain Farmers Union Cooperative Development Center, New Mexico Department of Agriculture and New Mexico State University Cooperative Extension.

Over the past few decades, USDA Rural Development, through its Business and Cooperative Programs, has also provided several OPMCs with both financial and technical assistance.

Some of these co-ops are in the very beginning stages of organizing, while others are over 20 years old. Some have membership from all over the country, and even Canada, while others have only local members.

Organic farmers are marketing through cooperative associations more than ever. Beyond this, many more agricultural cooperatives have both conventional and organic farmer members. In the 20 years since the Organic Foods Production Act of 1990 was passed and USDA organic certification was authorized, OPMCs have grown along with the organic market by almost all measures.

OPMCs have performed all of the same functions as their conventional counterparts. It will be interesting to see what the next 20 years holds.

May/June Table of Contents