Cooperatives in the food industry

1
Cooperatives in the food industry

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

2
What is a cooperative

• a business voluntarily owned and controlled by
  its member-patrons and operated for them on a
  nonprofit or cost basis.

3
Cooperatives

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

4
Requirements of a coop

• Ownership and control of the enterprise must be
  in the hands of those who utilize its services.

5
Requirements of a coop

• Business operations shall be conducted so as to
  approach a cost basis

6
Requirements of a coop

• Return on the owners invested capital shall be
  limited.

7
Coop v. Stockholder owned

• Cooperative
• One member - one vote
• Coop returns go to the users
• Stockholder owned
• Stockholders vote by shares owned
• Firms maximize return to stockholders

8
Purpose of coops

• Do what you cant do alone
• Act as a competitive yardstick

9
Purpose of coops

• Provide products
• Stabilize expanding markets
• Allow farmers to move up and down the food chain

10
Purpose of coops

• Enhance returns
• Increased efficiency
• Improved market coordination
• Greater bargaining power
• Reduce cost

11
What coops cannot do

• Set price without supply control
• Eliminate middlemen
• Ignore customer/member
• Membership is voluntary

12
Types of cooperatives

• Marketing
• Purchasing
• Service
• Processing

13
Marketing coop

• Perform marketing functions
• assembly, grading, packaging
• 36 of farm receipts in 1995
• Milk 100
• Grain 41
• Fruit and veg 37
• Livestock 9

14
Purchasing cooperatives

• Sell inputs to farmers
• 28 of farm expenditures, 1995
• Petroleum 48
• Fertilizer 42
• Feed 21
• Seed 11

15
Service cooperatives

• Common in the 1930-40s
• Provide what may not otherwise be provided
• REC
• Telephones
• Farm Credit

16
Processing cooperatives

• Farmer owned vertical integration
• Sunkist oranges, Ocean-Spray
• Sun-Maid raisins, LOL dairy products
• Farmland meats
• US Premium Beef
• Iowa Quality Beef
• Iowa Premium Pork

17
Consumer cooperatives

• Many of the same motivations
• Cost savings
• Provide what wouldnt otherwise exist
• Control the input
• Examples
• Food (organic), housing, daycare

18
Problems of coops

• Issues of control
• Vote by member or volume
• Leadership
• Financing
• Cant sell more shares

19
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

20
New Age Closed Coop

• Limited membership
• Investment and commitment
• Cash and product
• Stock appreciates in value
• Can be sold

21
Value added processor

• Members buy shares to raise equity
• Members required to make or take delivery
• Paid the current market price
• Profits paid on a unit basis

22
New Age cooperatives

• Value added closed coops
• Ethanol production
• Turkey processor
• Pork production
• Ethanol and beef
• Eggs

23
New Age Closed Coop

• Advantage over open coop
• Stock retains value
• Dividends not diluted
• Disadvantage to open coop
• Must patronize
• Higher equity requirement