Major changes in agriculture raise big
questions for nation’s cooperatives

By James Baarda, USDA/RBS Economist
James.Baarda@usda.gov

Editor’s Note: The following article is based on a presentation the
author made during the Cooperative Communicators Association
annual institute in Burlington, Vt., this past summer.


embers look to their cooperatives for services and support in both difficult and good times. But cooperatives also look to their members for necessary support, patronage and direction. This reciprocal relationship between members and cooperatives means that whatever affects farming also affects cooperatives. And it means that whatever affects the business and economic environment in which cooperatives operate also affects farmer members. Restructuring by large and small cooperatives, several bankruptcy filings by wellknown cooperatives, and significant transformation of the entire agricultural sector can lead to confusion and uncertainty among producers. This, in turn, may cause cooperative members and leadership to lose a clear sense of direction and purpose. But cooperative leadership cannot afford to succumb to these forces, regardless of the size of the problem.

The first step in facilitating positive, realistic responses to dramatic changes in agriculture is to identify the forces causing the changes that affect cooperative members. This identification process will, at the very least, reduce largescale, invisible trends and concepts into a workable “short list” of factors that are hitting home on your co-op and your members’ farms and ranches. Your task is to establish reasonable expectations of success, based on these forces. Then develop short and long-term strategies, depending on how accurately the “big picture” is perceived. The 12 forces described in the first part of this article offer a basis for further discussion.

The next step is to assess the implications of these forces for farmers and their cooperative. The dozen questions in the second part of this article shift focus from the broad forces to address cooperative issues directly.

The remaining task for cooperatives, directors, management and members is to then establish for each cooperative meaningful connections between the forces and issues, then devise strategic plans that will lead to the cooperative’s cooperative’s successful response and effective service to members.

12 forces changing the face of farming and farmer cooperatives
The following list summarizes major forces affecting U.S. farming and, consequently, farmer cooperatives and their members.

A dozen issues for co-ops
The 12 forces discussed above suggest numerous questions that can be asked about cooperatives and their future in American agribusiness. Some affect cooperatives directly as businesses, other issues impinge on cooperatives because of the impact on farmer-members.

The following list of 12 issues summarizes challenges faced by cooperatives in the changing economy and agriculture sector. They are presented in the form of questions to emphasize that specific answers are needed. The response to such questions can be positive; the questions do not suggest in any way that cooperatives cannot respond effectively to the changing forces faced by members.

  1. Do the forces mentioned and the resulting changes in
    the industry affect cooperatives in a particular way?


    Is there something about cooperatives that makes them susceptible to the forces mentioned above that differs, either qualitatively or quantitatively, from other kinds of businesses? Do the impacts on farmers extend to the cooperative in a significantly different way than for other types of agribusiness? These questions can be addressed for each of the forces because some will most certainly have different impacts on cooperatives than others.

    How do cooperatives respond? On the one hand, the cooperative may have a response comparable to that of noncooperatives. In addition, each force and the response by farmers may be reflected back to cooperatives differently than from non-cooperatives. The latter possibility leads to a general inquiry about cooperatives: of the forces acting on farmers, are some more amenable to solution by cooperatives than any other form of business? Can cooperatives solve farmers’ problems as no other form of business can?

  2. Do agriculture cooperatives exist in a dying sector?

    As economies globalize, does U.S. agriculture face per-manent disadvantages because of high costs, regulations, etc.? To what extent, if any, is agriculture facing contraction, major modification, or extinction? If U.S. agriculture’s existence is challenged, are the cooperatives that serve agriculture also doomed? The issues raised in a recent book that questions the long-term future of U.S. agriculture are timely and are being considered by a surprisingly wide range of individuals.

    One question for cooperatives is their role in these large trends, if such trends do indeed even exist. Do cooperatives have a special role to play in helping farmers and the U.S. economy avoid the “death” of agriculture as we now know it? Do cooperatives demonstrate weaknesses, as well as strengths, in response to sector declines and possible replacement with other commodities or types of economic activities?

    A profound question is what role cooperatives will play in the future of agriculture. Can cooperatives play a unique role, either individually or collectively, in maintaining the strength of the agricultural industry by effectively supporting farmers?

  3. Are cooperative decision-making processes adequate?

    Timing and deliberation-Are cooperatives inherently slow in making decisions in a rapidly-changing environment because of their reliance on member approval? Are decisions made in the right place in the cooperative by the right people? Are these questions, stated as fact by some, real issues, or only unsupported observations?

    Directors-Are boards of directors capable of making timely, correct and forceful decisions? Have co-op boards gathered the expertise needed for modern agriculture, and are boards capable of using this expertise?

  4. Are cooperatives and their leaders capable of playing inthe world arena?

    Sophistication-Are cooperative members and their leaders not sophisticated enough to participate in the dynamic, worldwide agricultural and agribusiness arenas? While we know this is not the case, others do not. As a consequence, the fundamental member-control issue can be undermined and potential cooperative participation in the world markets dismissed as inherently impossible.

    Complexity-Is the business so complex and large that success can only be expected from professional management and planners, regardless of how good at farming members and directors are? Should the field be left to the professionals, or should a new balance of power be explored?

    Both of these queries come to the fore frequently when farmers form new-generation cooperatives that have both a highly complex processing system beyond the board’s technical expertise and a marketing system they are not familiar with. One consequence is that the board of directors, and therefore the members, may rely too heavily on management, may not provide the necessary oversight of management and cooperative performance and may not participate effectively in strategic planning and major cooperative decisions.

  5. Is cooperative business too limited to be successful?

    Sophistication-Are cooperative members and their leaders not sophisticated enough to participate in the dynamic, worldwide agricultural and agribusiness arenas? While we know this is not the case, others do not. As a consequence, the fundamental member-control issue can be undermined and potential cooperative participation in the world markets dismissed as inherently impossible.

    Complexity-Is the business so complex and large that success can only be expected from professional management and planners, regardless of how good at farming members and directors are? Should the field be left to the professionals, or should a new balance of power be explored?

    Both of these queries come to the fore frequently when farmers form new-generation cooperatives that have both a highly complex processing system beyond the board’s technical expertise and a marketing system they are not familiar with. One consequence is that the board of directors, and therefore the members, may rely too heavily on management, may not provide the necessary oversight of management and cooperative performance and may not participate effectively in strategic planning and major cooperative decisions.

  6. Is cooperative business too limited to be successful?

    Diversity-Cooperatives serve farmer-members. This statement defines the breadth of their activities. Many other businesses are successful because they can diversify to reduce risks and take advantage of synergies, something cooperatives cannot do effectively, if at all. How detrimental are the diversification limitations to the long-term survivability and flexibility of cooperatives? Exactly how do these limitations inhibit the cooperative? For example, does limitation on type of product marketed or supplied place the cooperative at a disadvantage with respect to a competitor who can engage in product lines required for the market? An important question to be answered is how cooperatives can respond without losing their character and their close association with farmers’ production processes.
    Service mandate-If prices and costs do not generate profits for a period, cooperatives may not be able to temporarily abandon a line of business, as can other business. Does this place them at a disadvantage? This also raises the question of profitability requirements for co-ops. Given the purpose of cooperatives and the complexity of accurately determining benefits to members, are there situations where a cooperative can operate without “profits” and still be considered a successful business organization? Have cooperatives established suitable alternatives to pure “profit” motive?

  7. Similarly, does service devoted only to members doom cooperatives in times of change?

    In business limited to service to members, and with limited flexibility to expand business, what is the cost to cooperatives of serving only members? How is this cost balanced against the benefits of such service? Who ultimately bears the burdens of the cooperative?

  8. Do member demands and behavior weaken cooperatives?

    Economic demands-Farmer-members bear the burden financing the cooperative. When farmers demand not only good prices, but high returns and a quick equity revolvement, do they set the stage for cooperative failure? This differs from the relationship between a non-cooperative business and its customers. But is it a weakness?
    Loyalty-Are cooperatives placed at a disadvantage with respect to non-cooperative businesses when members shop for prices rather than maintaining a long-term relationship with their cooperatives? Is there any way to tie a cooperative’s loyalty to its members on one hand, and loyalty to the cooperative on the other? These are perennial issues faced by federated and direct-membership cooperatives. Some observers attribute the failure of both centralized and federated cooperatives to member behavior-individual farmers in the case of centralized cooperatives and the local members of a federated cooperative.

  9. Is there a fatal size limit on “true” cooperatives?

    Size concerns-Is there a maximum size to which a cooperative can grow and still maintain its true cooperative relationship with members? Member control, member relations, and response to individual member needs may diminish with increasing size. What roles can cooperative education and good member relations play in this evolving process? capital contributed by members. Limits on capital sources are frequently mentioned by co-op leaders and those who work with them as a major restriction on the cooperative form of business.
    Capital needs-Cooperatives may need to participate in capital-intensive, value-added activities. Are cooperatives so limited in their sources of capital that they may be precluded, by upstream or downstream business, from serving members? Are farmer members able and willing to contribute the capital needed for projects that offer significant returns? What must cooperatives return to members in exchange for higher levels of equity investment?

    User-financing, and, more importantly, non-user or outside financing is a major issue in cooperatives and deserves careful attention. The issues must be addressed from the perspective of both the cooperative and the individual members.

  10. Do cooperatives have structural defects?
    This issues shows two sides of the same coin.

    Too Complicated?-Cooperatives have developed federated systems, centralized systems with complex voting methods, numerous financing techniques (based on the patronage relationship) and complex systems of returning benefits to patrons. Are these complications necessary? Do they serve a needed purpose and have they undermined the cooperative’s relationship with members?

    Too Simple?-Have cooperatives attempted to remain uncomplicated and dependent on member financing, patronage and loyalty to the extent that they cannot respond effectively to changes in the agricultural sector and the economy generally? Have they placed their financial health in the hands of members who may damage the cooperative by self-serving behavior?

  11. Are cooperative benefits identified and recognized?

    Questions about cooperatives and their performance cannot be analyzed or answered without fully understanding the benefits cooperatives offer. When benefits are not identified and explained, cooperatives are at a disadvantage because their benefits are more subtle and more difficult to explain than the benefits derived from other forms of business. Yet these benefits are the foundation for loyalty, continued use and survival.

    Are cooperatives positioned to alleviate pressures on farms, particularly family farms? Are they more capable than other agribusinesses of increasing returns to farmer members, of establishing better prices and pricing systems, of representing farmers’ interests in the market place and of capturing benefits of the marketing and supply chain for farmers themselves? Does the cooperative make its benefits clear to members?

    Are all benefits presented in a form recognized by members as benefits? Are members uncertain why they belong to the cooperative? Does the cooperative have a system in place communicate its benefits to members?

  12. Have cooperatives lost sight of cooperative fundamentals?

    Response to challenges-In responding to the massive changes in agriculture, have cooperatives given up fundamentals to become more like non-cooperative businesses in size, type of business, financing, control or in other ways? What kinds of balances are needed to respond effectively and preserve the cooperative? What are the fundamentals worth keeping?

    Strengths-While couched in terms of questions challenging cooperatives, the list of 12 is also an affirmation of the many strengths of cooperatives. When cooperatives attempt to make fundamental changes to meet challenges, they may weaken themselves by giving up their strengths. How can cooperatives make wise decisions in the face of immediate life-or- death conditions?

    Responsibilities-Who in the cooperative is responsible for keeping co-op fundamentals alive? What kind of management training, board training and member relations are needed to instill solid, yet dynamic, adherence to cooperative principles?

Searching for answers
Members, boards of directors, management, lenders and advisors would like to understand the implications of the forces discussed and would like answers to the questions raised. How can cooperatives address the 12 forces and 12 questions outlined?

First, consider the validity and relevance of each of the big picture forces relative to your cooperative. Then rank the forces according to immediate or long-term impact, whether primarily affecting farmers or the cooperative. Also consider the influence, if any, that the cooperative can exert to modify the problems or divert detrimental consequences. Consider whether the changes are good, bad or neutral for the cooperative.

Similarly for questions about cooperatives-assess each one with your cooperative and its members in mind. How applicable is the question for the cooperative? Has the cooperative (its board of directors, management, members or others) recognized the question as a problem? Should they have?

If questions exist, has the cooperative responded effectively? If not, what steps can be taken to correct problems? What questions might be the most likely to face the cooperative in the future? What is the best mechanism to begin to address problems before they become critical?

It is important to re-emphasize that the 12 questions in no way represent a broad criticism of contemporary cooperatives. They are designed to focus attention on specific problems so that they can be recognized and dealt with in a timely fashion. In fact, each of the questions can be seen in one way or another to be a uniquely cooperative strength or opportunity.

The cooperative’s final task is to understand the multiple environments in which the cooperative and its members operate, consider challenges and opportunities all participants face, and use the unique structure and problem-solving methods of cooperatives to turn challenges into successful responses.


November/December Table of Contents