Cooperatives in the Food Industry Chapter 13 “Either we stand together or we hang separately”

 Types of cooperatives  History and status  Relative importance  Coop problems

What is a cooperative  A business voluntarily owned and controlled by its member-patrons and operated for them on a nonprofit or cost basis.

Cooperatives  Legal entity that permits group action  Set up to serve and benefit those that use them  Stockholders are members

Requirements of a coop  Ownership and control of the enterprise must be in the hands of those who utilize its services.

Requirements of a coop  Business operations shall be conducted so as to approach a cost basis

Requirements of a coop  Return on the owner’s invested capital shall be limited.

Coop v. Stockholder Owned Corporation  Cooperative  One member - one vote  Coop returns go to the users  Stockholder owned  Stockholders vote by shares owned  Firms maximize return to stockholders

Worksheet  Types of Business Organizations

Video  Midwestern Farmer Cooperatives

Purpose of coops  Do what you can’t do alone  Act as a competitive yardstick

Purpose of coops  Provide products  Stabilize expanding markets  Allow farmers to move up and down the food chain

Purpose of coops  Enhance returns  Increased efficiency  Improved market coordination  Greater bargaining power  Reduce cost

What coops cannot do  Set price without supply control  Eliminate middlemen  Ignore customer/member  Membership is voluntary

Types of cooperatives  Marketing  Purchasing  Service  Processing

Marketing coop  Perform marketing functions  assembly, grading, packaging  36% of farm receipts in 1995 Milk100% Grain41% Fruit and veg37% Livestock9%

Purchasing cooperatives  Sell inputs to farmers  28% of farm expenditures, 1995 Petroleum48% Fertilizer 42% Feed 21% Seed 11%

Service cooperatives  Common in the s  Provide what may not otherwise be provided  REC  Telephones  Farm Credit

Processing cooperatives  Farmer owned vertical integration  Sunkist oranges, Ocean-Spray  Sun-Maid raisins, LOL dairy products  Farmland meats

Consumer cooperatives  Many of the same motivations  Cost savings  Provide what wouldn’t otherwise exist  Control the input  Examples  Food (organic), housing, daycare

Regions and commodities  Leading coop states  CA, WS, MN, Iowa  Percent of coop sales  Dairy 34%  Grains and oilseeds27%  Fruits and vegs.13%  Percent of supplies  Fuel27%  Feed24%  Fertilizer19%

Types of organizations  Independent local associations  Relatively small and focused  Federate associations  Coop of local coops  Both build on strength in numbers and common needs

Types of organizations  Centralized associations  Control at top by members and direction given to the locals  Mixed associations

History and Status  Active period  Consolidation  Formed federations  Growth  Increased membership  Increased sales

Problems of coops  Issues of control  Vote by member or volume  Leadership  Financing  Can’t sell more shares

Reasons for coop failure  Lack of sufficient capital  Less than efficient size adds to cost  Inadequate membership support  Variability in volume  Ineffective management  Competitive market for managers

New Age cooperatives  Value added closed coops  Ethanol production  Turkey processor  Pork production  Ethanol and beef  Eggs

New Age Closed  Limited membership  Investment and commitment  Cash and product  Stock appreciates in value  Can be sold

New age example  Value added corn processor  Farrow to finish hog production  2500 sows  8 nurseries  18 finishers  $7.5 million for facilities and operation

Value added corn processor  Requirements  40% equity = $3 million  600,000 bu of corn/year  100 shares  $30,000/share  6,000 bu corn/year

Value added corn processor  Members required to deliver corn  Paid the current market price  Profits paid on a bushel basis

Iowa Initiatives  Ethanol plants  Iowa Cattlemen’s Association  Iowa Premium Pork