WIAS23 Takeaway: Leveraging the Farmer Cooperative Model in Agriculture
By Michelle Pelletier Marshall, Women in Agribusiness Media (January 30, 2024)
Farmer cooperatives (co-ops) are a key part of rural America that help producer-members market and process their products and secure needed production supplies and services, as well as better navigate supply change issues. There are farmer co-ops in 49 U.S. states, with three states being home to more than 100 co-ops each: Minnesota (143), Texas (137), and North Dakota (109).
Almost half of the largest cooperatives in the U.S. are focused in agriculture, representing nearly $188 billion in revenue annually. These co-ops range from farm supply, grain, dairy, livestock marketing, crop production/processing and more, and range from the large scale, like CHS ($38.4 billion) and Land O’Lakes ($14.9 billion), both in Minnesota, to smaller co-ops such as United Farmers Cooperative ($90 million) and MaxYield Cooperative ($205 million), both in Iowa. Many date back to the early 1900s –23.4 percent of all U.S. ag co-ops are 100 or more years old.
And while the number of ag cooperatives has continued to decline over the last decade (much through consolidations), in 2023, U.S. cooperatives achieved the highest revenue year ever on record, breaking the previous record of $246.7 billion from 2014, with $300.6 billion in total gross business volume.
At the most recent Women in Agribusiness Summit, we invited Dr. Keri Jacobs, executive director, Graduate Institute of Cooperative Leadership, University of Missouri, whose passion is to assist cooperatives in elevating their success, to speak on the topic. Her presentation was very well received. Here is an excerpt: (NOTE: if you want to enjoy the entire presentation and those from the many other speakers at WIAS23, become a WIA member for full access and other benefits.)
“Good morning. I want to start with my bias, and that is that I do this work for what matters to me – my ‘why’ – which is producers.
Harkening back, my eight-year-old self thought that I was for sure going to be a farmer, but my grandparents had a different idea about the legacy they built for the lands and a woman's role in that, such as whether or not women should be allowed, or should have access to land, own land, or be a primary producer, because they wanted that land to stay with the last name, the Jacob's last name that they were very proud of. So my path had to change – I could not be a producer, at least in that sense, not on the land that I grew up on. So my bias is producers for this reason. I focused on the cooperative model in agriculture because I think it is a powerful vehicle that can help producers leverage access to margins in their supply chain and allow control of their supply and value chain.
I'm going to start with the definition of capitalism. When we look at definitions of capitalism, we see things like controlled by private owners for profit. A definition might include property rights, control of assets, control of resources, competition, and sovereignty. In my opinion, cooperatives give a unique answer to ‘collect’ capitalism and put that in the hands of farmers.
It comes down to these four dimensions: Who's making the decisions? Who owns the assets? Who provides the capital? Who participates economically? I believe cooperatives make decisions differently with a different purpose and with complete alignment on the ownership, the control, and the residual claims.
On Supply Chains: This is where I really think the value of cooperatives lies – in the ability to control parts of the supply chain. And if you're an organization that is working with a cooperative partner in the same market space, if they are one of your stakeholders, if they are upstream or downstream from you, you should understand that I'm working with co-ops and their boards to help them figure out ‘how much of your supply chain do you need to own and control?’
Is There a Value of Cooperatives Anymore? That’s a fair question. I go back to this – only if there's a value in owning parts of the supply chain. When we think about why a group of farmers would want to collectively own this, we have to think about the value that's generated at each of those levels? What's the benefit of controlling that, and by controlling that, I mean, making decisions over that.
The Challenges That Agricultural Cooperatives are Facing
Consolidation of Farms and Farming. It is a reality that we are losing the middle of farms. We have small farmers, and while that segment is growing, they tend to be mostly hobby farms. The majority of our farmland is being concentrated in the very large growers. The reason this is challenging is that the bigger they are, the lower cost they are to supply. The fewer of them, you have to get into a room to purchase your raw material inputs from them. You'd rather have 10 very large grain producers to buy from, than 1,000 small ones – it just makes buying easier.
As our farms are consolidating and getting bigger, the real challenge for cooperatives is to figure out, how do you serve the very small producer? The disappearing middle? And do you go after the large producer? Those are the questions that are being asked in the boardrooms, at the smallest and the largest cooperatives. Some cooperatives are answering by saying, we're not going to go after the large producer as he or she will be served in the marketplace, they will find a home for their grain, they will find a home for their products, they will find a way probably at a wholesale level to buy those inputs. We're focusing on the middle or we're focusing on the small, which leads to another challenge: how do you, as an organization, compete with all of the companies out there that are not cooperatives that have the license to get big? How do you continue to compete on a national and international scale with competitors in the marketplace that dwarf your capabilities? That's where that's where I think cooperatives have a unique challenge because they come from roots that are ‘we want to be everything to every farmer’, and they are having to abandon that in some cases or take a really hard look at what that means to serve a farmer today, never mind about Gen Z and upcoming generations and how to employ and work with them as farmers.
Growing Sophistication of Co-op Operations: Cooperatives are governed by farmers. Farmers are great at farming, but they don't come to the table with a lot of knowledge about how to run a multi-million, multi-billion-dollar agribusiness. That is a real challenge for them. And as these cooperatives are getting bigger, as supply chains are becoming more complex, as more risk is built into these, and we have cybersecurity and new technology, it becomes a real challenge for producers’ boards to keep up and to move at the pace of business. That is not a cut on cooperative boards. It's just that we know that they tend to operate more slowly than their non-cooperative counterparts.
Increasing Capital and Regulatory Burdens: How can cooperatives possibly move at the speed of business, grow to the scale that they need to grow, invest in the technology, invest in the cybersecurity that's coming at them when they are limited by capital? For most cooperative organizations, they cannot go to capital markets to access investor capital. They're limited. They can get debt capital, but they can't access investor capital. There are models that allow it, but most cooperatives are not organized under those state statutes that allow that, and even if they work, there's a lot of fear from producers of what happens when a cooperative goes to the capital market and all of a sudden has investors who probably expect a return on their preferred shares and may expect a seat at the table. This is a huge challenge that cooperatives are facing because of lack of access to investor capital.
On Being Rural: What happens when you have these rural communities that are disappearing, and you can't find someone who wants to live any longer in Everly, Iowa, and operate that grain terminal or operate that agronomy facility? That is another challenge for co-ops.
On Diversity: Co-ops have some catching up to do in diversity, I will be honest about that. They've got some real challenges there.
We need more women directors. Part of what I do in my work is trying to help directors think about how to recruit women. Regarding the number of female farm operators in the U.S., I think the statistic is 62 percent defined as first second or third operator, which means my mom would have been considered a second operator because she did the books, made the lunches, or ran the grain cart. But dad's name was on the family farm corporation. Cooperatives are changing how they look at who can be a member. It can be Mike or Marla. My hope is that the Marlas of the world start to get the calls for serving on the board of directors, not just the Mikes.”
ABOUT DR. KERI JACOBS
Dr. Keri L. Jacobs is executive director of the Graduate Institute of Cooperative Leadership (GICL) and associate professor and Partridge Chair of Cooperative Leadership at the University of Missouri. Dr. Jacobs’ passion is to assist cooperatives in elevating their success and prominence by partnering to address the unique needs of agricultural cooperatives. Her outreach focuses on the development of governance and financial acumen of directors and employees, and on raising awareness and engagement among cooperative members. Her research considers producers’ opportunities through collective action within their supply chains and the consequences of consolidation in agriculture. Dr. Jacobs was raised on her family’s farm in eastern Iowa and earned her B.A. in economics from Coe College and Ph.D. in agricultural economics from North Carolina State University.