- freely available
Sustainability 2018, 10(3), 652; https://doi.org/10.3390/su10030652
2.1. Internal and External Characteristics of Farmer Cooperatives
2.2. Economic Adaptation and Organizational Evolution
4. External Adaptation by Farmer Cooperatives
4.1. Competition and Consolidation
- Louisiana Sugar Cane Products, a raw sugar marketing cooperative, perceived a gradual loss of bargaining power in the 2000s because of consolidation among raw sugar refineries . By 2009, only two raw sugar refineries operated in the state of Louisiana. As management mistrusted the efficiency of price discovery at the New York Board of Trade and feared exploitation in contractual relationships with sugar refineries, the cooperative engaged in vertical integration to solve its loss of bargaining power. In 2009, the cooperative entered a joint venture with Cargill and Imperial Sugar Company to form Louisiana Sugar Refining, thus taking control of the end product.
- Facing increasing competition from international dairy processors on the domestic market, Finnish dairy cooperative Valio expanded its operations to Sweden, Estonia, and Russia . By 2011, Valio maintained a 40% share in the fruit yogurt market in Sweden, and 35% and 55% shares in the butter markets in Moscow and St. Petersburg, respectively. While its domestic sales decreased by 5%, sales in Sweden and Russia increased by 29% and 43%, respectively.
- United Agricultural Cooperative, a multi-purpose cooperative in Texas with cotton, grain, agronomy, fuel, and retail departments, faced increasing competition in the agronomy sector from regional and national companies which sold branded products . Unable to compete on price or quality in the agronomy sector, the cooperative sold its input supply business to Pinnacle. The divestment of the unprofitable business department facilitated an improvement in the overall profit margin of the cooperative.
- In the 1980s, New Zealand accounted for approximately 60% of the global kiwi fruit sales . However, because of poor protection of the name “kiwi fruit”, farm producers in Chile and Italy began planting kiwi fruit orchards and providing low-cost competition. Unable and unwilling to be price takers on the international market, the Kiwifruit Marketing Board developed the ZESPRI brand to pursue product differentiation. Also, to secure a year-round supply, ZESPRI licensed the use of its new kiwi fruit varieties to growers in Europe and South America to expand its market coverage .
- As the largest food retailer in the United States, Wal-Mart has a strong bargaining position in relation to its many suppliers . In the mid-2000s, Wal-Mart mandated its suppliers to make investments in radio frequency identification to improve inventory control. Pacific Coast Producers, which in 2007 sold $400 million per year in canned and packaged fruit products to Wal-Mart and other retailers, was one of the few suppliers which implemented the system by deploying the technology on its packing lines and loading doors. Implementing the system allowed the cooperative to increase its sales to Wal-Mart over the next years.
4.2. Consumer Segmentation
- In response to low margins in the New Zealand lamb sector, a local group of 160 sheep farmers came together to find an alternative outlet in the international market . With an equity investment of New Zealand Dollar (NZD) 40,000 per member, the group formed a new generation cooperative, Atkins Ranch, and discovered a niche market for chilled lamb products in the Bay Area of California. Using its network of local relationships, the cooperative responded to sudden changes in product requirements by leading the adoption of new production technologies on the farm operations of its members.
- Formed in 1987, Organic Valley evolved from a small organic produce marketing cooperative in Wisconsin to one of two national organic dairy product manufacturers . As consumer demand for organic food increased, Organic Valley did not only market its member supplies as fluid milk but also pursued opportunities to respond to develop new organic food and drink products, including eggnog, protein powder, yogurt, and more.
- Euralis, originally formed by French wheat producers in 1936, expanded into food processing in part because of the general trend toward processed food consumption . The cooperative first expanded to the corn sector and subsequently added green beans, sweet peas, and broccoli. Through further diversification, in part accomplished by mergers and acquisitions, the cooperative became a leading producer of foie gras and marketer of corn in Europe. By 2010, farm production contributed less than 50% of the total revenue of the cooperative.
- Faced by stiff competition from Minute Maid (owned by Coca-Cola) and Tropicana (owned by PepsiCo) in the domestic orange juice market, Florida’s Natural uses two credence attributes to differentiate itself . First, the cooperative includes profiles of its orange growers on the side panels of juice cartons to communicate its ownership structure to the consumer. Second, the cooperative also uses commercials and advertisements, as well as labels on its packages, to indicate its juice is made of Florida oranges, which is a registered trademark in the United States.
- Following an increase in the price of almonds, producers added acreage in the early 2000s to increase supply . Anticipating the vast increase in member supply, Blue Diamond recognized a need to develop new almond products. Around the same time, almond demand increased as the public gained awareness of its many health benefits. Since then, Blue Diamond has launched a wide array of new products to cater to different types of consumers and manufacturers, including almond milk, almond flour, and almond snack products. In 2013, the cooperative further emphasized its value-added business activities by establishing the Almond Innovation Center, a research facility with food and drink innovation as its primary purpose.
- In the mid-1980s, beef ranchers struggled to break even as calves only fetched $0.65 per pound on the commodity market . In 1986, 14 ranchers in Oregon formed Country Natural Beef to enter a local niche market. Instead of using another feedlot operator, the cooperative added its own feedlot to finish cattle with non-GMO feed. In response to dynamic consumer preferences, the cooperative also added other product attributes related to animal health and land stewardship.
4.3. Price Depression and Volatility
- As supply increased and demand decreased on the organic dairy market, Organic Valley struggled to manage the surplus milk delivered by its members . The organic marketing and processing cooperative enforced a series of price reductions to reflect dynamic developments in the consumer marketplace. Meanwhile, the cooperative also closed membership access and established a production quota which allowed delivery of excess milk for $20 below the regular pay price.
- In the early 2000s, prices on the fresh potato market did not always exceed the cost of production of approximately $5 per hundredweight . In response to the stagnant demand for fresh potatoes, United Potato Growers used supply management to spur price increases. With 2003–2004 as the base period, the program induced supply reduction by levying a $50 per acre penalty for members who failed to reduce supply by 15%, and a $100 per acre penalty for members who increased supply. The program facilitated an aggregate decline in planted acreage from 415,000 acres in 2000 to 325,000–350,000 acres in 2005–2007. During the next four-year period, growers enjoyed both stable and profitable prices.
- MFA Oil, a supply cooperative in Missouri, lost 70% of its income source in 2014 as CHS completed a buyout of its partners in the National Cooperative Refinery Association, which operated an oil refinery in Kansas . With extreme price volatility on the raw oil market, MFA Oil adapted its orientation toward external growth in the bulk fuel sector. During the 2014–2016 period, the cooperative used the cash flow generated by the buyout to make over ten acquisitions of private propane suppliers in the Midwest and surrounding states to spur regional expansion.
- From 2018 onwards, Glanbia, the largest dairy cooperative in Ireland, is allowing its members to handle milk price volatility by signing five-year fixed-price milk supply contracts . The long-term contract facilitates 10–100% of the milk supply to be locked in at €0.31 per liter. In case of participation in the feed loyalty program, which stipulates feed to be purchased from the cooperative for the five-year period, the contracted milk price increases by €0.02–0.03 per liter.
- The citrus sector in Valencia, Spain, used to be characterized by the speculative behavior of individual sellers who sold the highest quality on the spot market and the lowest quality to the government or the cooperative . In response, citrus marketing cooperatives formed a second-tier cooperative, Anecoop, to increase the collective export capacity and mitigate the negative effect of speculative behavior by obliging member cooperatives to sell through the collective channel.
- Because of thinness in the local cotton market, Plains Cotton Cooperative Association created an electronic cotton marketing system (TELCOT) in 1975 to reduce information asymmetry and improve price discovery for both buyers and sellers . The system enabled the sellers to include all the relevant information, including the price, the location, and the fiber quality, and the buyers to bargain and purchase remotely. Later, TELCOT became the foundation of The Seam, an online cotton marketplace for growers, cooperatives, merchants, and mills.
- In 2008, many supply cooperatives bought fertilizer in advance of the 2009 growing season at high prices . Then, the value of the inventory decreased as the fertilizer price crashed in early 2009, thus exposing many of the supply cooperatives to substantial risk. In response, Harvest Land Cooperative in Minnesota changed its system of buying and selling fertilizer by transitioning to a weekly market as opposed to a seasonal market, thus decreasing its exposure to extreme volatility in prices.
- In the late 1990s, producers of sugarbeet in the Mountain region of the United States had been receiving relatively low prices from Western Sugar Company, a regional sugar refinery and processor . In 1996, Mountain States Beet Growers Association, the bargaining association owned by the producers, had secured an average price of $39.90 per ton. In the next four years, the price increased up to $48.10 per ton and then decreased again to $40.40 per ton as the processor did not improve its margins in the competitive industry. When its parent organization offered Western Sugar Company for sale, the producers formed a new generation cooperative, Rocky Mountain Sugar Growers Cooperative, to purchase the factories and integrate the refining and processing of sugar.
- The global recession in 2008 decreased milk demand both domestically and internationally, forcing dairy cooperatives to respond to lower prices . Instead of supply management, Michigan Milk Producers Association used its capital structure to help members survive the down market. While maximizing the pay price to the best of its ability, the cooperative also increased its monthly advance payments and expedited its patronage cash refunds and equity retirements.
4.4. Policy Change
- Formed only a year earlier through the merger of three companies, dairy cooperative Fonterra represented 96% of the dairy producers in the country . As the global market opened with fewer treaties, regulations, and agreements, the cooperative emphasized the export of bulk dairy products (skimmed milk powder and butter) as well as niche and value-added products. To do so, Fonterra formed partnerships with various companies: Swiss multinational Nestle to sell dairy ingredients in North and South America, Australian cooperative Bonlac, Danish cooperative Arla to sell yellow fats in the United Kingdom, and U.S. cooperative Dairy Farmers of America to produce milk protein concentrates in the United States.
- In anticipation of the abolition of the European quota system, French dairy cooperative Sodiaal implemented a two-tier milk pricing structure in 2011 . To discourage overproduction, the cooperative offered an “A” price for a given volume and a “B” price for a higher volume related to the volatile world price. At the same time, the cooperative invested in its plant capacity to process the projected increase in milk delivered by its members. The cooperative further managed volatility with futures and derivatives.
- Since the 1960s, the European Union supported the sugar industry with import restrictions, export subsidies, and production quotas. As the European Union began reforming its sugar policy in the early 2000s, Tereos pursued a strategy of geographic expansion . Specifically, Tereos entered the Brazilian market through the acquisition of Guarani in 2003. The cooperative also diversified its product portfolio by manufacturing starch and ethanol.
- As the European Union moved toward abolishing the milk quota system in 2014, Belgian dairy cooperative Milcobel began expanding its processing facility in 2012 to be able to handle the projected growth in milk production by its members . The cooperative made large investments in milk drying and cheese manufacturing, increasing its capacity to 15,000 tons of mozzarella.
- In 1999, the United States implemented a three-year tariff-rate quota on lamb meat to protect domestic lamb producers . However, Australia and New Zealand filed complaints at the World Trade Organization, which ruled against the United States. As trade re-opened, lamb producers once again faced stiff competition from lamb producers in Australia and New Zealand who exported high-quality lamb products to the United States. To survive, lamb producers in the Northwest formed Mountain States Lamb Cooperative, a new generation cooperative with dual ownership by farmers and investors. The cooperative soon formed a joint venture with a lamb and veal distributor which controlled 25% of the market. Part of the alliance comprised a quality grid pricing system to induce high-quality production, thus improving the ability of the lamb producers to compete with imported lamb products.
5. The Relationship of Strategy to Cooperative Ownership, Governance, and Finance
6. Summary and Conclusions
Conflicts of Interest
|Australia||Co-operative Development Services|
|Belgium||Nationale Raad voor de Coöperatie|
|Denmark||Danish Agriculture and Food Council|
|Finland||Confederation of Finnish Cooperatives|
|France||COOP de France|
|Ireland||Irish Co-operative Organisation Society|
|Italy||Alleanza delle Cooperative Italiane Agroalimentare|
|Netherlands||Nationale Coöperatieve Raad|
|New Zealand||Cooperative Business New Zealand|
|Spain||Cooperativas Agroalimentarias de España|
|United Kingdom||Co-operatives UK|
|United States of America||U.S. Department of Agriculture|
|Agribusiness: An International Journal|
|Agricultural and Resource Economics Review|
|Agricultural Finance Review|
|American Journal of Agricultural Economics|
|Annals of Public and Cooperative Economics|
|Applied Economic Perspectives and Policy|
|British Food Journal|
|Canadian Journal of Agricultural Economics|
|Case Study Research Journal|
|European Review of Agricultural Economics|
|Feed and Grain|
|Harvard Business Review|
|International Food and Agribusiness Management Review|
|Journal of Agribusiness|
|Journal of Agricultural and Applied Economics|
|Journal of Agricultural and Resource Economics|
|Journal of Agricultural Economics|
|Journal of Business Research|
|Journal of Chain and Network Science|
|Journal of Co-operative Organization and Management|
|Journal of Cooperatives|
|Journal of Food Distribution Research|
|Journal of Rural Cooperation|
|Review of Agricultural Economics|
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|External Adaptation Method||Example|
|Vertical Integration||Louisiana Sugar Cane Producers|
|Divestment||United Agricultural Cooperative|
|Process Innovation||Pacific Coast Producers|
|External Adaptation Method||Example|
|Relationship Management||Atkins Ranch|
|Brand Development||Florida’s Natural|
|Vertical Integration||Country Natural Beef|
|External Adaptation Method||Example|
|Closed Membership Access||Organic Valley|
|Production Quota||United Potato Growers|
|Geographic Expansion||MFA Oil|
|Price Discovery Enhancement||Plains Cotton Cooperative Association|
|Inventory Management||Harvest Land Cooperative|
|Vertical Integration||Rocky Mountain Sugar Growers Cooperative|
|Equity Management||Michigan Milk Producers Association|
|External Adaptation Method||Example|
|Variable Pricing Structure||Sodiaal|
|Mountain States Lamb Cooperative|
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