The Social Mission of Farm Cooperatives:
What Should It Be and How Can It Be Realized?

Chuck Hassebrook
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Farm cooperatives are forming at record pace to add value to crops and improve marketing. But can the historic cooperative mission of ensuring fairness and providing better opportunities for small farmers and working people also be reinvigorated?

The history of cooperatives is intertwined with movements for social change. The early cooperatives were not started by industrialists. Small farmers, weavers and other people of modest means organized cooperatives to achieve more better terms of trade and retain a fair share of the products of their labor. They were ordinary people acting together for mutual benefit.

That history is not uniformly reflected in today's cooperatives. With age, some of the older cooperative have come to behave like any other business. Some of the newer cooperatives are in essence tax-favored entities for large farmers to invest in industrial facilities. Some drive family farmers out of business by engaging in industrial style livestock production. They have turned the historic cooperative mission on its head.

It need not be that way. A new generation of cooperatives could today play a vital role in reinvigorating family farms and ranches, supporting stewardship and revitalizing rural communities. In short, a new generation of cooperatives is needed to promote the public good. But to do so, the new farm cooperatives must focus on some fundamental principles.

Focus On Building Family Farms, Rather Than Growth of the Cooperative

The decline of family farming reflects a shift in where value is added and profit captured in agriculture. The family farm share is falling, while the share captured by the firms that provide inputs to farmers and purchase their products is growing.

That reflects three factors:

    1. Less of the money received by farmers remains in their pockets. More is used for capital expenditures and input purchases.
    2. Farmers have focused on mass production of generic commodities, leaving processing and marketing to others.
    3. More is being spent to process, package and market products after they leave the farm.

One of the most important things cooperatives can do to strengthen family farms is to assist them in adding more value and capturing more income on the farm.

That is directly counter to the instincts of most managers of big organizations, who tend to be driven to expand the organization. Cooperatives guided by that desire develop strategies to expand their own share of the pie by persuading farmers to buy more from them or adding more of the value in the cooperative's facilities after it leaves the farm.

But some of the new cooperatives are different. They develop strategies by which the cooperative can provide family farmers and ranchers the services or markets they need to add more value and capture more profit on the farm or ranch.

For example, Oregon Country Beef is a cooperative organized by 14 ranches to enable them to earn a consistent price that provides a reasonable profit for producing higher value beef. The cooperative is a vehicle through which its members can achieve some economies of size in marketing lean and natural beef of consistent quality direct to supermarkets.

Members assume responsibilities for marketing their beef to supermarkets, coordinating delivery to a custom packer, managing financing and other functions. Though some members are compensated for their work on behalf of the cooperative, Oregon Country Beef has no salaried managers and no corporate offices to extract income. Instead, the cooperative helps its members get paid for producing and marketing higher value beef.

Cooperatives can also help family farmers and ranchers capture a bigger share of the value-added pie is by assisting them in reducing cash input and capital purchases. For example, farmers could form a cooperative to divide responsibility for developing expertise useful in cutting input costs and share that expertise. The key is using the cooperative to enable family farmers and ranchers to do more for themselves and thereby increase their profits, rather than paying an input provider or consulting service.

Focus on Over Coming Barriers to the Viability of Family-Size Farms

Moderate-size farms face unique economic constraints. New cooperatives can help maintain a future for family-size farms by helping them overcome the disadvantages they face relative to larger operations.

For example it is increasingly difficult for moderate-size farms to make cost effective purchases of big ticket machinery like combines for harvesting grain. Walthill, Nebraska farmer Keith Mahaney has proposed creation of a local cooperative through which moderate-size farmers would jointly purchase and share use of machinery and thereby lower capital costs.

Likewise, moderate-size farmers face significant disadvantages in buying and selling. Because they lack the market power that comes with volume, they pay more and sell for less than the large operations with which they compete. New cooperatives could enable a group of moderate-size farmers to combine their production and negotiate jointly to achieve the same terms as large producers.

If cooperatives are to serve moderate-size farms, they must adhere to the historic p principle of "one member, one vote". Moves by some cooperatives to distribute voting power according to the volume of a members' business would make cooperatives less responsive to the needs of moderate-size farmers.

Make Membership Accessible

Many of the new processing cooperatives are "closed cooperatives". Membership is limited to the farmers who founded them and, in some instances, had the means to invest hefty sums of capital.

The closed cooperative has been the subject of some debate. On the positive side, it allows the cooperative to focus on serving committed members. If members commit to patronize the cooperative, schedule deliveries and adhere to some common production standards, they can benefit from increased efficiency and more effective marketing. In essence, closed cooperatives that operate on a local level can capture the benefits of vertical integration without turning the farmer into the equivalent of a feudal serf.

On the negative side, closed cooperatives with high capital requirements can become vehicles through which larger, well established farmers gain an advantage over their neighbors. If closed cooperatives are to serve family farm objectives, they must develop membership requirements and channels by which moderate-size and beginning farmers can reasonably join, both at the time the cooperative is being formed and later.

Two things could help. First, avenues could be established for moderate-size and beginning farmers to finance their capital investments in the cooperative. Secondly, closed cooperatives with limited expansion capacity could place a priority on bringing in beginning farmers as new members over providing opportunities for existing members to expand the amounts they market through the cooperative.

It is also time to explore the option of allowing long term non managerial employees of farm cooperatives to become members, especially in the new processing cooperatives. Cooperatives processing plants are often touted as a job creation strategy for rural communities. But many of the lower level jobs in the food processing industry are low paying.

One of the central historic objectives of cooperatives has been to enable people who do the work of production (farmers and others) to enjoy a fair share of the benefits. Enabling employees to become members would enable them to build some equity in the business providing both for their own long term well being and enhancing their own incentive and committment to the business.

Membership could be triggered after employees have worked for cooperative for some set period of time. Shares could be distributed as a form of deferred compensation so the interest of an employee in the enterprise would grow over time.

A couple of issues would need to be addressed. Allowing employees to become members along with farmers would require some changes in the legal statutes under which most farm cooperatives are chartered. Secondly, care would need to be taken to prevent employee ownership from contributing to increased control over cooperatives by the hired manager, relative to farmer members.

Support Sustainable Development

There are growing marketing opportunities in farming associated with environmentally sound farming systems. A significant segment of the public is willing to pay some premium for food produced in an environmentally sound way with fewer chemicals in response to both health and environmental concerns.

However, farmers lack consistent and accessible market for such products. Establishing new cooperatives is one way of providing the market infrastructure to tap that potential and reward sustainable production. For example, several new cooperatives have been organized to enable farmers to more effectively market organic grains and oilseeds, both domestically and internationally, and receive premium prices for them.

Cooperatives can also enhance stewardship simply by creating markets for resource conserving crops produced on hand highly erodible land and new crops that provide farmers with meaningful options to diversify and rotate crops. Conclusion

Cooperatives can help to revitalize family farms, improve the quality of economic opportunties in rural communities and support sustainable development. But they must adhere to some basic principles.

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