Co-Ops Respond to Consolidation, Global Volatility

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Volatility in the global economy and rapid consolidation in the agribusiness markets are placing unprecedented demands on farmer cooperatives. How can cooperatives innovate and grow?

The 14th Annual Farmer Cooperatives Conference, held in Minneapolis in November, provided a forum for cooperative leaders to assess their business environment and discuss new strategies to meet the needs of their members.

Terry Barr, senior director of industry research for CoBank, kicked off the conference with a review of trends in the global marketplace. The balance between emerging and advanced economies will continue to change as the emerging economies drive the demand and economic growth of the future, he said.

This trend is benefiting the agribusiness sector, which is increasingly becoming more export-dependent. Significantly lower levels of liquidity in the global credit markets, along with continued volatility and geopolitical and economic uncertainty, is expected. Agriculture continues its strong performance, Barr said, but will need to explore new marketing arrangements to manage the risk that is being passed up and down the supply chain.

As populations increase, food sovereignty concerns are driving foreign economies to seek more control over their food supplies. Many countries are now active international agricultural investors, purchasing land and making investments across the globe.

Private equity funds have also entered the market. Mark Palmquist, CHS executive vice president and chief operating office for Ag Business, described how the cooperative is responding to this focus on asset acquisition that is driving prices skyward. The CHS system strategy, he explained, builds on a strong cooperative system domestically and is growing its global origination footprint.

Palmquist noted that the cooperative farmer ownership structure provides CHS a competitive advantage, and he looked forward to continued growth opportunities.

Consolidation has local and regional impact

As agribusiness operations consolidate to maintain competitive advantage, there are impacts for cooperatives at the local and regional level. The general managers of three local and regional cooperatives described how their cooperatives have adjusted to meet the changing marketplace.

Jeff Nielsen of United Farmers Cooperative (UFC) in Minnesota emphasized that strong earnings are necessary to invest in the infrastructure needed to compete globally and to allow the co-op to maintain and improve its member equity revolvement program. Partnerships have allowed UFC to be part of the global marketplace but keep production and capital local.

Frontier FS Cooperative in Wisconsin merged into Growmark in 2010. Sam Skemp described some of the advantages and challenges posed by this significant structural change.

He noted the need to attract and retain high-caliber employees who are necessary to provide the service quality its customers expect. To help meet some of these challenges, Frontier has instituted better employee benefits and a new equity payout system with a higher cash/stock ratio.

Sunrise Ag in Illinois is a diversified co-op with agronomy, grain, transportation, energy and retail divisions. It has also pursued joint ventures and is participating in an LLC to strengthen its competitive position vs. larger agribusinesses. Rich Vanderpool described how this diversification has been complemented by a successful producer-finance program, which helps differentiate Sunrise Ag from other competitors. …