Is the Federated Co-op Structure Still Viable? Positioning for Performance October 29-30, 2001 Larry Swalheim CEO Cottage Grove Cooperative

Features Compared Individual Partnership Non- Cooperative Corporation CooperativeLLC Operated for profit? Yes Who used services? Non-owner customers Generally non- owner customers Mainly member owners, but often others also Who owns the business? The individual or partners The stockholders The member owners The stockholders – could be individuals, private companies or cooperatives How is voting done? None or by agreement Usually 1 vote for each share Usually 1 member vote Based upon agreements established when LLC was formed Four Forms of Business

Features Compared Individual Partnership Non-Cooperative Corporation CooperativeLLC Who determines policy? The individual or partners Board of directors elected by stockholders Board of directors elected by member owners Board of directors established by stockholders How are earnings distributed? The individual or partners To stockholders in proportion to stock held To member- owners on a patronage basis Based upon agreements established when LLC was formed Four Forms of Business Continued

Cooperative Types, Structure,and Classification Federated Cooperative Local Co-op Members Local Co-op Members Voting control,ownership,flow of patronage refunds Physical flow of products purchased and or marketed

Cooperative Types,Structure and Classification Con’t Centralized (multiple branch locations) Local Branch Station Members Local Branch Station Local Branch Station Voting control,ownership,flow of patronage refunds Physical flow of products purchased and or marketed

Rural Town USA 1971 Small grocery store Full service gas station Mom & Pop hardware store Small diner Diversified family farm 40 cow dairy

Local Cooperatives 2001 – Who Moved My Cheese? Larger customers – new set of needs Less loyalty Shrinking margins Mediocre earnings Inadequate equity revolvement Change is the norm

Cottage Grove Cooperative 1986 – 2001 Sales History Expense History Earnings History

Cottage Grove Cooperative Sales 1986 – 2001

Cottage Grove Cooperative Expenses 1986 – 2001

Cottage Grove Cooperative Earnings 1986 – 2001

The Local Cooperative in the Future Federated System to be Viable Must Manage change effectively Shoot all dead horses Network with other Cooperatives Create a clearly identified mission Plan Strategically Increase earnings – revolve equity

We MUST market our Cooperative Advantage Member EducationPublic Education Marketing

The Regional Cooperative in the Future Federated System to be Viable Must Shape their future through successful long term local cooperatives Contain overhead costs Build a strong balance sheet Be part of the international marketplace Aggressively pursue business opportunities Embrace beneficial change

The Successful Regional Cooperative Will Make it easy for the local cooperative to do business Develop an accounting system that is 100% accurate Communicate effectively throughout the federated system Develop trust

The future for the federated Cooperative System is Bright if: We remember our grass roots…the one that made it all possible – The American Farmer Position ourselves for performance in the 21 st century

Success