Magazine article Rural Cooperatives

Use of Joint Ventures by Ag Co-Ops on Rise

Magazine article Rural Cooperatives

Use of Joint Ventures by Ag Co-Ops on Rise

Article excerpt

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Joint ventures and subsidiaries offer alternative ways for cooperatives to test market opportunities or to gain expertise about new industries without having to build a new division within their organizations. In some cases, providing a new service may involve such large economies of size that sharing costs in a joint venture produces substantial savings.

The types of businesses that cooperatives establish as joint ventures are examined in a recent research report, Joint Ventures and Subsidiaries of Agricultural Cooperatives, Research Report 226, available for download from USDA at: www.rurdev.usda.gov/ BCP_Coop_RRs.htm; or, for a free hard copy, send e-mail to: coopinfo@ wdc.usda.gov. This article is based on that report.

Survey methodology

The collection of data for this report combined a mail survey with follow-up by telephone of cooperatives that reported involvement in joint ventures. The 185 co-ops reported having 108 wholly-owned subsidiaries and 209 joint ventures.

The follow-up by telephone interviews identified the names of the joint ventures, enabling the elimination of any duplicate reporting of joint ventures. In addition, details on the types of businesses that cooperatives organized in joint ventures were obtained; the same information was not collected for wholly-owned subsidiaries. The distribution of different types of businesses for joint ventures is presented in the pie chart.

Several distinctive developments are identified in the report, of which three are highlighted in this article: the prevalence of the Limited Liability Company (LLC) as a legal form for organizing, using joint ventures to combine all business operations of separately owned partners and the strategy of spawning new businesses.

Use of Limited Liability Companies (LLC)

Cooperatives have established subsidiaries and participated in joint ventures over many decades, but the availability of the LLC as a legal form of organizing during the mid-1990s significantly increased their number. In a survey from 2010/2011, agricultural cooperatives reported participation in 240 LLCs, of which 172 were joint ventures. A corporation was the second most used form, followed by limited liability partnerships.

A 1975 study of cooperatives involved in food marketing and processing identified 22 joint ventures, as compared to almost 100 federated cooperatives in operation at that time. Comparing those findings with the results of USDA latest research suggests that the LLC form of organization is being used in many cases as a substitute for incorporating as a federated cooperative.

Many cooperatives have joint ventures that include non-cooperatives. Although a federated cooperative can be established with non-cooperatives, it is more common today to have joint ventures instead. The 1975 study identified six joint ventures with both cooperatives and non-cooperatives out of a total of 22 such businesses. By contrast, the recent study showed that there were 83 joint ventures that included non-cooperatives partners out of 175 joint ventures that reported partner information.

The availability of organizing as an LLC may not only increase the frequency of joint ventures but also accommodates more of them between cooperatives and non-cooperatives. Of course, other market forces have also played a part in increasing the participation of cooperatives with non cooperatives in joint ventures since 1975.

Most of the joint venture activity with agricultural cooperatives did not involve numerous partners (more than 20). Joint ventures with 7 to 20 agricultural cooperatives as members were mostly organized for purchasing supplies, obtaining regulatory compliance services or sharing marketing agents.

The survey identified 17 farm supply purchasing joint ventures, with one organized as a cooperative and the other 16 as LLCs. …

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