PowerPoint Presentation

How To Start A Cooperative(and why!)Constance L. FalkM. Eugene Sundt Honors ProfessorNew Mexico State UniversityDepartment of Agricultural Economics and Agricultural Business

Presentation to the Idaho Women in Agriculture ConferenceMarch 2, 2013Why start a cooperative?Agricultural cooperatives enable producers to Create a more democratic ownership/management business structureJointly purchase in bulk (input supply cooperatives)Reduce input costs (hay for livestock growers, seed)Market output jointly (marketing cooperatives)Increase market powerIncrease pricesAccess different marketsHire marketing professionals, so farmers can farmCreate a branded product line, manage quality control easier

Why is this possible?Capper-Volstead Act of 1922.This law exempts farmers from prosecution under the Sherman Anti-trust Act.

Arthur Capper, former governor of KansasSource: Wikipedia

Andrew Volstead, US congressman from Minnesota and father of prohibitionSource: WikipediaSource of the principles of cooperatives1844, a group of 28 weavers and spinners, formed the Rochdale Society of Equitable Pioneers, for the purpose of jointly buying food together. They created these eight principles of cooperation, known as the Rochdale Principles, that are the basis of the modern cooperative movement.http://weaversway.coop/index.php?page=rochedale_principles

Rochdale Cooperative Principles OPEN, VOLUNTARY MEMBERSHIP.

DEMOCRATIC CONTROL. (one member, one vote)

LIMITED RETURN, IF ANY, ON EQUITY CAPITAL. Share capital should only receive a strictly limited rate of interest.

NET SURPLUS BELONGS TO USER-OWNERS. Profits are typically distributed among the members in proportion to their transactions (patronage dividends).

HONEST BUSINESS PRACTICES. Cooperatives should deal openly, honestly, and honorably with their members and the general public. 6. ULTIMATE AIM IS TO ADVANCE COMMON GOOD. The ultimate aim of all cooperatives should be the advancement of the common good.

7. EDUCATION. All cooperative societies should engage in education of their members, officers, and employees and the general public in the principles and techniques of cooperation, both economic and democratic.

8. COOPERATION AMONG COOPERATIVES. All cooperative organizations, should actively cooperate in every practical way with other cooperatives at local, national, and international levels.

Adjustments in the cooperative modelOpen membership, democratic control, and limited returns on investment in the modern cooperative movement have become sources of dissatisfaction.Hybrids have emerged: New generation or closed cooperatives. Members can only join during the membership drive, and not after, unless they buy stock from an existing member. New generation cooperatives tend to focus on creating and selling value-added products, not commodities.Shares in NGC usually carry delivery rights and obligations, so that members are obligated to deliver product to the cooperative according to the number of shares purchased. Those shares and delivery rights/obligations are tradeable.

HOW to START A COOPERATIVE (USDA CIR 7, 1996) http://www.rurdev.usda.gov/rbs/pub/cir7/cir7rpt.htm 1. Invite leading potential member-users to meet and discuss issues. Identify the economic need a cooperative might fill.2. Conduct an exploratory meeting with potential member-users. If the group votes to continue, select a steering committee.3. Survey prospective members to determine the potential use of a cooperative.4. Discuss survey results at a second general meeting of all potential members and vote on whether to proceed.5. Conduct a needs or use cost analysis.6. Discuss results of the cost analysis at a third general meeting. Vote by secret ballot on whether to proceed.7. Conduct a feasibility analysis and develop a business plan.8. Present results of the feasibility analysis at the fourth general meeting. If participants agree to proceed, decide whether to keep or change the steering committee members.9. Prepare legal papers and incorporate.10. Call a meeting of charter members and all potential members to review and adopt the proposed bylaws. Elect a board of directors.11. Convene the first meeting of the board and elect officers. Assign responsibilities to implement the business plan.12. Conduct a membership drive.13. Acquire capital and develop a loan application package.14. Hire the manager.15. Acquire facilities.16. Begin operations.

A few more details1. For marketing cooperatives, assess production capacity among likely producers, including volumes and any seasonality. 2. Examine markets: locations, volume requirements, interest in purchasing from a cooperative, local and organic premiums if relevant, packaging requirements, prices offered or pricing system used, transportation costs.3. Conduct a financial feasibility analysis that incorporates what is learned in steps 1 and 2. The analysis should include several scenarios, or what-if analyses, in which prices, volumes, and costs are tweaked to examine the impact on financial results. The model should provide results for at least three years. You will need to have a clear business concept before undertaking this step, including location of the business.4. While 3 is underway, begin examining financing options. Co-Bank? Incorporate cost of capital into the financial feasibility model.Get a lawyer who knows cooperative law to prepare legal incorporation papers and paperwork that meets SEC regulations on financial securities.

Business PlanningMission StatementWhat is the vision?Marketing StudyWhat are the product lines, pricing strategies, target markets, consumer characteristics, advertising strategy, promotional budget, packaging requirements, volume expectations?Organizational PlanWho will manage this company? What are their qualifications? How will the company be structured? What are the lines of reporting and responsibility? Do you have an organizational chart? What kind of business will this be? (Private corporation? New Generation Cooperative? Closed cooperative?)Financial Feasibility Study (my specialty)Will this be profitable? Under what circumstances of volumes, prices, costs? How much financing is needed?Financing PlanHow much financing is needed? What will it cost? What will be the combination of debt or equity financing? Who can provide this financing?Why are cooperatives especially relevant to farmers today?The viability of medium-sized farms is increasingly tenuous. Fred Kirschenmann, distinguished fellow at the ISU Leopold Center for Sustainable Agriculture, has highlighted this problem of the disappearing middle.The disappearing middle in Iowa

11Slide # 4. Iowa, in the heartland of American agriculture, serves as a compelling example of the speed at which the "middle" is now disappearing. According to the 2002 USDA Agriculture Census data, typical "family" farms, those with gross sales of between $50,000 and $499,999, have been disappearing most rapidly---a 22.5 percent decline in just five years!Agricultural Quadrants Value & ScaleValue-AddedCommodityVery SmallVery Large1. Specialty2. Opportunity3. Price & Scale4. Death Zone12Examples of ParticipantsValue-AddedCommodityVery SmallVery Large1. Specialty2. Opportunity3. Price & Scale4. Death ZoneFarm StandsFarmers MarketsCSAsOrganic ValleyOregon Country BeefEarthbound FarmCommodityFamily FarmersADM; Con AgraBrazil; China13Option #1 Get BigValue-AddedCommodityVery SmallVery Large1. Specialty2. Opportunity3. Price & Scale4. Death ZoneOption #1Get BigCommodityFamily FarmersBuy Out FarmsConsolidateIndustrial Inputs14Option #2 Convert to SpecialtyValue-AddedCommodityVery SmallVery Large1. Specialty2. Opportunity3. Price & Scale4. Death ZoneOption #2Convert to SpecialtyCommodityFamily FarmersSwitch to Specialty CropsSell via Specialty MarketsConvert to Organic15Option #3 Create New OpportunityValue-AddedCommodityVery SmallVery Large1. Specialty2. Opportunity3. Price & Scale4. Death ZoneOption #3AFFCommodityFamily FarmersDifferentiate with Value-added Attributes.Preserve local / regional focus.Aggregate value chains.16What is a value chain? A value chain is long-term network of partnering businesses working together to maximize value for the partners and the end customers of a particular product.FarmersPacker (Primal cuts)Fabrication(Portion Cuts)Vet ServicesInput SuppliersDELIVERYFood Service Distributor MarketDELIVERYDELIVERYMarketMarketValue chain farmer as partnerSupply chain farmer as input supplier17Organic Valley Family of Farms

18Organic Valley Family of Farms TM_________________________________________________________Begun in 1988, and has become the largest organic farming cooperative in North America and one of the largest organic brands in the nation.

Started with seven Wisconsin farmers.

More than 130 organic products available, including milk, cheese, butter, spreads, creams, eggs, produce, juice and meats sold in food cooperatives, natural foods stores and supermarkets throughout the country.

Web site is www.organicvalley.coop/index.html

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20Resources for CooperativesUniversity of Wisconsin-Madison, Center for CooperativesCooperative Development CentersUSDA Rural DevelopmentUniversity of Wisconsin-Madison, Center for Cooperatives2009 Study: Research on the Economic Impact of Cooperativeshttp://www.uwcc.wisc.edu/

Rural Cooperative Development CentersUSDA RCDCs are competitively-funded cooperative development centers (by the USDA Rural Development). There were 40 as of mid 2012. Who covers southern Idaho? I asked Dan Hobbs, who works at the Rocky Mountain Farmers Union. He recommended:Diane Gasaway at the NW Cooperative Development Center of Olympia.

The list of all the RCDCs can be found here:http://www.extension.org/pages/63092/name-website-url-and-phone-number-of-us-rural-cooperative-development-centers

The USDA Rural Development State Office in Idaho is:

Wallace Hedrick, State Director9713 West Barnes Drive, Suite A1Boise, ID 83709Voice: 1 (800) 632-5991 (toll free) or (208) 378-5600 Fax: (208) 378-5643

www.rurdev.usda.gov/id/

Mondragon Cooperative, Basque region of Spain83,000 employees9,000 studentsLargest Basque company, 7th largest in Spain85% of industrial workers are members (owners)Four major areas: Industry, Finance, Retail, KnowledgeWithin Industry: Consumer Goods, Capital Goods, Industrial Components, Construction, and Enterprise ServicesWithin Consumer Goods: Refrigerators, Washing machines, dishwashers, ovens, office furniture, home furniture, sports equipment, bicycles, sporting guns, and fitness equipment.

Mondragons retail sales since 1991

change in combined acre cat0.0923346598-0.1492226286-0.15779394870.13878602480.3670982483

% changePercent Change in Number of Farms and Land in Farms in Iowa, 1997 to 2002

change in combined sales cat0.244165907-0.1549054374-0.1504619819-0.1808024735-0.18549607320.169992609

Percent Change in Iowa Farms Based on Sales Category, 1997 to 2002

change in land and farms-0.0669836927-0.0188600507

Percent Change in Number of Farms and Land in Farms in Iowa, 1997 to 2002

Percent by sales 20020.25984729790.04133106780.05449389850.10327250260.11057660480.1286272260.24945384730.052397555

Percent of Iowa Farms by Sales Class, 2002

percent by acre cat0.05316989210.17972284130.26753756870.27251362620.14404086770.06852836680.0144868372

Percent of Iowa Farms by Acre Category, 2002

per change in acres full set-0.20979456320.1817177236-0.0930386011-0.2043807442-0.15779394870.13878602480.3670982483

Percent Change in Iowa Farms by Acres, 1997 to 2002

per change in sales cat complet0.2804976434-0.3334223171-0.2269690221-0.1602564103-0.1771103572-0.2207068108-0.2277411650.1452937461

Percent Change in Iowa Farms by Sales Category, 1997 to 2002

days off farm 20020.45688152350.54311847650.371174173

Percent of Iowa Farms by Days Worked Off the Farm, 2002

PO in 20020.68305492420.3169450758

Percent of Iowa Farms by Principal Occupation, 2002

Sheet1Iowa Census data from 2/13Percent change200219971997*2002 to 19971997 1997*Farms906349670590792-7%0.0611447185Land317149733231311931166699-2%0.0354784693PERCENTAcresOF TOTAL1 to 94819583050495%-21%0.1339622642% change10 to 4916289133291158018%18%0.13121764571 to 5021108191599%50 to 17924248265042452527%-9%0.074667974650 to 5004894756251-15%180 to 49924699297472891827%-20%0.0278683565500 to 10001305515115-16%500 to 99913055151151483314%-16%0.01865696331000 to 20006211534914%1000 to 19996211534951147%14%0.04393344552000+131383137%2000 +13138317731%37%0.069795427290634967051Sales category< 250023551169451319126%28%0.2215402774< $5,000272972194024%2500 to 49993746499545774%-33%0.0836836837$5,000 to $25,0001429916920-15%5000 to 99994939606058785%-23%0.0300330033$25 to $49,9991002211797-15%10000 to 249999360108601050710%-16%0.0325046041$50 to $99,9991165814231-18%25000 to 4999910022117971144811%-18%0.0295837925$100 to $499,9992260927758-19%50000 to 9999911658142311373513%-22%0.0348534889> $500,0004749405917%100000 to 49999922609277582752325%-23%0.00846602789063496705> 5000004749405939335%15%0.03104212861days off farm workNone41409423114076746%-0.02178270420.0364916925Any49225494744540854%-0.00505840530.0821845818200days +33641318532867337%0.05314943080.0998336106Note: 1997 and 1997* do not equal total for none and any137%POFarming61908581245625668%0.06112295660.0321381873Other28726385813453632%-0.34306899670.10484435341

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