Cooperatives in the food industryWhat is a cooperativeCooperativesRequirements of a coopSlide 5Slide 6Coop v. Stockholder ownedPurpose of coopsSlide 9Slide 10What coops cannot doTypes of cooperativesMarketing coopPurchasing cooperativesService cooperativesProcessing cooperativesConsumer cooperativesRegions and commoditiesTypes of organizationsSlide 20History and StatusProblems of coopsReasons for coop failureNew Age cooperativesNew Age ClosedNew age exampleValue added corn processorSlide 28Iowa InitiativesCooperatives in the food industryTypes of cooperativesTypes of cooperativesHistory and statusHistory and statusRelative importanceRelative importanceCoop problemsCoop problemsWhat is a cooperativea business voluntarily owned a business voluntarily owned and controlled by its member-and controlled by its member-patrons and operated for patrons and operated for them on a nonprofit or cost them on a nonprofit or cost basis.basis.CooperativesLegal entity that permits Legal entity that permits group actiongroup actionSet up to serve and benefit Set up to serve and benefit those that use themthose that use themStockholders are membersStockholders are membersRequirements of a coopOwnership and control of the Ownership and control of the enterprise must be in the enterprise must be in the hands of those who utilize its hands of those who utilize its services.services.Requirements of a coopBusiness operations shall be Business operations shall be conducted so as to approach conducted so as to approach a cost basisa cost basisRequirements of a coopReturn on the owner’s Return on the owner’s invested capital shall be invested capital shall be limited.limited.Coop v. Stockholder ownedCooperativeCooperative»One member - one vote»Coop returns go to the usersStockholder ownedStockholder owned»Stockholders vote by shares owned»Firms maximize return to stockholdersPurpose of coopsDo what you can’t do aloneDo what you can’t do aloneAct as a competitive yardstickAct as a competitive yardstickPurpose of coopsProvide productsProvide productsStabilize expanding marketsStabilize expanding marketsAllow farmers to move up and Allow farmers to move up and down the food chaindown the food chainPurpose of coopsEnhance returnsEnhance returns»Increased efficiency»Improved market coordination»Greater bargaining powerReduce costReduce costWhat coops cannot doSet price without supply controlSet price without supply controlEliminate middlemenEliminate middlemenIgnore customer/memberIgnore customer/member»Membership is voluntaryTypes of cooperativesMarketingMarketingPurchasingPurchasingServiceServiceProcessingProcessingMarketing coopPerform marketing functionsPerform marketing functions»assembly, grading, packaging36% of farm receipts in 199536% of farm receipts in 1995MilkMilk100%100%GrainGrain41%41%Fruit and vegFruit and veg37%37%LivestockLivestock9%9%Purchasing cooperativesSell inputs to farmersSell inputs to farmers28% of farm expenditures, 199528% of farm expenditures, 1995PetroleumPetroleum48%48%Fertilizer Fertilizer 42%42%Feed Feed 21%21%Seed Seed 11%11%Service cooperativesCommon in the 1930-40sCommon in the 1930-40sProvide what may not Provide what may not otherwise be providedotherwise be provided»REC»Telephones»Farm CreditProcessing cooperativesFarmer owned vertical integrationFarmer owned vertical integration»Sunkist oranges, Ocean-Spray»Sun-Maid raisins, LOL dairy products»Farmland meatsConsumer cooperativesMany of the same motivationsMany of the same motivations»Cost savings»Provide what wouldn’t otherwise exist»Control the inputExamplesExamples»Food (organic), housing, daycareRegions and commoditiesLeading coop statesLeading coop states»CA, WS, MN, IowaPercent of coop salesPercent of coop sales»Dairy 34%»Grains and oilseeds 27%»Fruits and vegs. 13%Percent of suppliesPercent of supplies»Fuel 27%»Feed 24%»Fertilizer 19%Types of organizationsIndependent local associationsIndependent local associations»Relatively small and focusedFederate associationsFederate associations»Coop of local coopsBoth build on Both build on strength in strength in numbersnumbers and and common needscommon needsTypes of organizationsCentralized associationsCentralized associations»Control at top by members and direction given to the localsMixed associationsMixed associationsHistory and StatusActive periodActive period1910-19301910-1930ConsolidationConsolidation1930-19501930-1950»Formed federationsGrowthGrowth1950-19901950-1990»Increased membership»Increased salesProblems of coopsIssues of controlIssues of control»Vote by member or volume»Leadership FinancingFinancing»Can’t sell more sharesReasons for coop failureLack of sufficient capitalLack of sufficient capital»Less than efficient size adds to costInadequate membership supportInadequate membership support»Variability in volumeIneffective managementIneffective management»Competitive market for managersNew Age cooperativesValue added closed coopsValue added closed coops»Ethanol production»Turkey processor»Pork production»Ethanol and beef»EggsNew Age ClosedLimited membershipLimited membershipInvestment and commitmentInvestment and commitment»Cash and productStock appreciates in valueStock appreciates in value»Can be soldNew age exampleValue added corn processorValue added corn processor»Farrow to finish hog production»2500 sows»8 nurseries»18 finishers»$7.5 million for facilities and operationValue added corn processorRequirementsRequirements»40% equity = $3 million»600,000 bu of corn/year100 shares100 shares»$30,000/share»6,000 bu corn/yearValue added corn processorMembers required to deliver Members required to deliver corncornPaid the current market pricePaid the current market priceProfits paid on a bushel basisProfits paid on a bushel basisIowa InitiativesEthanol plantsEthanol plantsIowa Cattlemens AssociationIowa Cattlemens AssociationIowa Premium PorkIowa Premium