| Co-operative Strategies in Response
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The changes and ramifications outlined above suggest that farmers need
to become more involved in the provision of agricultural inputs and the
processing of agricultural products than they have been to date. Lower
prices for grain and oilseed products, for instance, mean that farmers
that continue to be involved only in farm-level production will find
themselves being increasingly subject to control from input suppliers
or agricultural processors.
It is difficult for farmers to involve themselves in the provision of
agricultural inputs and the processing of agricultural products. Only
the most prosperous have the financial ability to invest in processing
or input activities, and even then only at a fairly modest level.
Large-scale involvement in these activities takes much more capital,
time, and expertise than is available to any single farmer.
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One way for farmers to become involved in processing or input
activities is through some sort of joint activity. The New Generation
Co-operatives (NGCs) that have formed in North Dakota and Minnesota are
a good example of farmers getting together to do something they could
not do individually. Curt Watson, president of the hog production
co-operative, ValAdCo, in Renville, Minnesota, puts it very well when
he says that the reason he became involved in ValAdCo is that it was
only by joining together with his neighbours that he was able to own a
large-scale processing operation.
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Curt Watson on
"Raising Capital with Co-ops" |
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Although farmer involvement in processing can take many forms, the
formation of co-operatives must be given special attention.
Historically, co-operatives have been the natural response of farmers
to rapid economic and social change. By allowing farmers to retain
ownership and control, co-operatives have proven themselves capable of
retaining political and economic power for their members. Only by
acting together can farmers address problems of market power imbalance,
undertake processing activities and vertical integration on a
significant scale, or provide sufficient levels of products meeting
closely specified characteristics.
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New co-operative structures are required to meet the challenges of the
new agriculture. The NGCs formed in North Dakota and Minnesota provide
an excellent model. NGCs are producer-owned, restricted-membership
co-operatives formed to process the agricultural products of their
members. Examples of co-ops that have recently formed include a bison
processing co-op, a pasta plant, an organic grain mill, a vegetable
processing operation, sugar beet processing plants, and hog operations.
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Renville Cooperatives
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Capital requirements are met, to a large extent, by members purchasing
delivery-right shares up-front. These shares provide members with a
feeling of ownership, ensure low levels of debt in the co-op, and
promote member commitment. The result is an increased potential for the
long-term success of projects adopting this organizational structure.
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Delivery contracts specify grade, quality, and production standards,
enabling the co-operative and its members to access niche markets
through identity preservation and quality control. Success in niche
markets is dependent on assurances of quality as well as quantity.
Consumers, increasingly concerned with health issues and food safety,
are demanding chemical- and hormone-free foodstuffs. The co-operative
is able to assess consumer preference and pass that information back to
the producer-members, who, with this market information, can adjust
production practices to meet the requirements of the consumer.
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The structure adopted by NGCs parallels many of the changes occurring
in the larger agricultural industry. High equity levels are required
for the capital-intensive activities in which the NGCs are involved.
Delivery contracts, often incorporating tight quality specifications,
achieve the co-ordination required to maximize system performance. Most
importantly, however, producer ownership provides farmers with
information of what is valued in the market and reduces relationship
risk. By owning the processing plant, producers can ensure they have an
outlet for their production and that they obtain the benefits of
providing quality products in a timely manner.
For a more detailed description of the NGC structure, refer to the booklet New Generation Co-operatives: Rebuilding Rural Economies and the video New Generation Co-operatives: Opportunities in Agricultural Processing, which are enclosed in the NGC package funded by AIMS and also available from the Centre for the Study of Co-operatives.
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