Reasons Why Cooperatives Are Merging
The latest uptick in ag cooperative mergers is pitting perception and reality against each another. Ag cooperatives formed as a tool for local farmers to pool together and gain better business scale in both buying and selling. Previous periods of cooperative consolidation occurred in the 1980s and 1990s.
But this time around, it’s different, according to Iowa State professor and researcher Keri Jacobs.
“The co-ops are merging as part of an offensive growth strategy, citing the need to service producers whose operations are growing with enhanced efficiencies and access to strategic resources,” Jacobs explains.
Specifically, Jacobs reports that from 1979 through 2016, the number of ag co-ops headquartered and doing business in Iowa fell from 350 to approximately 55.
“Interestingly, the number of locations maintained by co-ops in Iowa increased, primarily due to acquisition of non-cooperative firms. Instead of each co-op being a one- or two-location company, as in 1980, the average is now approximately 10 locations per co-op. Nearly every rural town in Iowa still has a co-op close by but the co-op is now the same as that in the neighboring town,” she states.
Here’s a sampling of announcements about consolidating cooperatives that have been made in 2017:
· Three Wisconsin cooperatives— Cedar Country Cooperative, Elk Mound; Lakeland Cooperative, Ridgeland; and United Ag Cooperative, Almena—will consolidate effective Oct. 1 and have $180 million combined annual sales.
· In Minnesota, Harvest Land Cooperative/Coop Country will merge and have a new name. The new company will start-up Sept. 1.
· Boards of directors of River Region Cooperative, Sleepy Eye, Minn., and South Central Grain and Energy, Fairfax, Minn., organized a merger study during spring 2017.
· In Wisconsin, Greenville Cooperative members approved a merger with United Cooperative. It took effect April 1. Greenville Cooperative reported $14.2 million in sales in its fiscal year ending Aug. 31, 2016. United Cooperative’s reported sales were $632 million in 2016.
· The boards of directors at Country Visions Cooperative and Kettle Lakes Cooperative have formally signed letters of intent to pursue a merger for the Wisconsin-based cooperatives. Country Visions has sales of $158 million. Kettle Lakes has annual sales of $40 million.
· As of Feb. 13, 2017, Agland Co-op and Heritage Cooperative stockholders both approved a merger with an effective date of Sept. 1, 2017. Heritage Cooperative serves the agricultural needs of farmers and residents in a 20-county area in central Ohio. Agland Co-op Inc. is based in New Philadelphia, Ohio, and serves customers in Ohio, Pennsylvania, West Virginia, Illinois and Kentucky.
The Challenge At Hand. “The merged businesses are no doubt facing a challenge. How do you fashion and knit together a local co-op to service in some cases thousands of diverse members that can compete in today’s markets on a national and international scale and yet retain a ‘local co-op’ feel?” Jacobs asks.
The news of mergers can be viewed as simply business getting bigger and retailers trying to compete in an industry full of consolidation.
Jacobs challenges that sentiment when it comes to cooperatives and thinks a cooperative’s value extends beyond profitability.
“A cooperative brings value to the market and its member-owners that is often overlooked, for example, existence value,” she says. Co-ops maintain assets to serve smaller rural communities that may otherwise not be served at the same local level.
To explain the value of co-ops, particularly during change, Jacobs suggests a deep look at communication. The steps to communicate change with members and employees are building blocks for the merger’s success. Each stakeholder has concerns of its own.
As an example, when Harvest Land Cooperative/Coop Country merged, they detailed the local competitive landscape by providing the number of competitors across the newly merged cooperative’s territory in grain, agronomy, feed and energy.
“Particularly when it comes to growth via consolidation, cooperatives should be transparent with what, why and how they are doing business. Members have a genuine interest in understanding the motives, and the co-op can foster loyalty through communication,” Jacobs says.
Communication Pipeline. “One idea that many have found success with is focusing on small group meetings instead of larger member meetings. For example, board members and location managers invite five or six producers—members or not—from the community to breakfast or lunch. This has been a great feedback mechanism,” she says.