As farmers' numbers decline, their rural cooperatives are combining forces to stay alive
Farmer cooperatives, like other types of businesses, suffered setbacks during the economic downturn of the last several years and are now facing the challenge of reacting to a changing agricultural market.
For years the farming sector has been hit with escalating costs, declining revenues amid bad weather, a poor economy and a shrinking number of farmers.
``The number of acres (farmed) hasn't changed. It's that the number of farmers has decreased due to consolidations and buy-outs,'' said Tom Brawley, vice president of Universal Cooperatives Inc.'s automotive division. ``The American farmer hasn't had three good years, but this year has been good.''
The farm market ``is no different from any other industry,'' he added, noting that some farm-based operations garnered record earnings while others struggled.
Farmer cooperatives in the U.S. have existed since the late 1800s, enabling farmers to band together to increase their marketing muscle for better prices for their crops and lower prices on supplies, such as seed, feed, propane fuels and equipment, including tires. Individual farmers usually belong to a local cooperative in their county, which in turn bands together with other local co-ops to form a state or regional cooperative.
Regional cooperatives often jointly own an interregional cooperative that can be national or international in scope, such as Universal, a farm supply co-op that is a major distributor of tires, batteries and accessories.
In recent years co-ops at various levels have been forced to merge, consolidate or even fold. In 2002, Farmland Industries Inc., once the nation's largest farm cooperative, and Agway Inc., one of the largest in the Northeast, both filed for bankruptcy protection.
According to the U.S. Department of Agriculture's annual financial survey of the top 100 farmer-owned cooperatives, more than half of the co-ops ended 2002 with lower total revenue than in 2001 and as a whole, revenue for the top 100 dipped 7.5 percent from 2001.
In 1995 there were 4,006 farm co-ops but by 2001 the ranks had dropped to 3,229. The number of farm supply co-ops-those distributing supplies and equipment to farmers-dropped to 1,234 in 2001 from 1,458 in 1995.
``There's been a lengthy period over the past five years of consolidation. And it looks like there is still some ahead, especially among local co-ops,'' noted Terry Barr, chief economist and vice president of agriculture and trade policy for the National Council of Farmer Cooperatives (NCFC). ``Now co-ops, in general, are getting their feet underneath them after going through transition. They are more comfortable now.''
Farmer cooperatives are realizing that to compete amid rapid consolidation and technological innovation, they can't rely solely on the financial support of cash-strapped grower-owners, according to an NCFC report. Many co-ops are looking at other funding sources, such as preferred stock plans and new ownership structures, including the value-added ``new generation'' cooperative. In this type of co-op, farmers purchase a certain number of shares, with each share representing a specific quantity the grower must deliver.
``They realize the environment is more competitive now because there are no more farmers. They are competing for the same farmers,'' Mr. Barr said. ``In many cases, (consolidated co-ops) offer the same level of services just without as much brick and mortar. They might reduce the number of feed mills but still provide feed for the region.''
Farmers Cooperative of Dorchester, Neb., is one such product of consolidation. The cooperative was created in 2002 from the merger of Dorchester Farmers Cooperative and Farmers Cooperative Elevator Co. of Plymouth, Neb. Both co-ops wanted to grow and become more diversified, but their service boundaries overlapped and they were competing for some of the same farmers, according to Brent Colgrove, the co-op's tires, batteries and auto accessories (TBA) manager.
With the merger, the co-op has more buying power and has expanded its service area. The co-op's tire business has been growing as well, with the addition of two more service trucks for a total of seven as well as 13 ``stations''-tire service outlets that do mechanical work, oil changes, and in come cases, sell gasoline. Tire sales increased 2 percent since 2002, he said.
The merged co-op is continuing to look at ways to stay diversified and take on new opportunities to increase revenues, such as buying mini-booms for the service trucks so they can service off-road and construction vehicles. To garner more urban business, the cooperative also updated three of its stores with the ``Mr. Tire'' tire dealership franchise which is offered by Universal Co-op. ``By doing that, the customer doesn't perceive us as a farm business or think they have to be a member. It's helped add new urban business,'' Mr. Colgrove said. About 40 percent of the co-op's tire business involves non-ag customers.
Like Farmers Co-op, other co-ops are always looking for ways to expand services and increase revenue. Monte Vista Cooperative in Monte Vista, Colo., is looking at adding air conditioning service and purchasing equipment for its service trucks to accommodate farmers on site. Tennessee Farmers Cooperative, a regional co-op with 68 co-op members, tries to keep its members competitive by offering new software and training and helping the local co-ops with store design and advertisement design.
While most co-ops with tire stores cater to non-member customers, the percentage increases the closer the store is located to a metropolitan area. But co-op stores tend to stay clear of operating in urban areas, Mr. Barr said, because in the city they face too much competition from other tire dealers.
In rural communities, co-ops are often the major retail entity and provide a primary source for non-members who move out into the rural areas as part of urban/suburban sprawl. Servicing non-ag consumers is a business opportunity for co-ops but the core of their business is still the farm side, he said.
Farm supply has a 30-percent share of farmer expenditures, although that figure varies by region, according to Mr. Barr. In the Midwest states-including Minnesota, Wisconsin, the Dakotas and Texas, where there is a predominance of cooperatives-farmers tend to buy almost exclusively from co-ops, he said. But in other areas, such as the Southeast and California where cooperatives are less commonplace, farmers have to look to independent suppliers for some of their needs.
Universal Co-op is the only national farm supply cooperative that distributes tires, ranging from farm to passenger, and accessories to the ag market. But it still faces competition from other distributors and even manufacturers, according to Mr. Brawley. Tires claim about 40 percent of Universal's business and while he would not divulge sales figures, Mr. Brawley said the co-op increased revenues 4 percent from 2002.
Universal plans to add two warehouses in the next six months and bring in new products, particularly from offshore, as well as offer new and expanded tire lines. In addition to its own private label brands-CO-OP, Goldenmark, Silvermark, Weathermark and Country Squire-Universal distributes Goodyear, Firestone, General, Summit, Remington, Roadmaster and Hankook.
Universal distributes through its Triton L.L.C. unit, which was created as a joint venture between Universal and two of its member owners, CHS Inc., the largest farm co-op, and Farmland, to gain efficiency in marketing and distributing. Four years later, in 2001, Universal took over full ownership.
Universal itself is the result of the 1972 merger of two co-ops, United Cooperatives Inc. and National Cooperatives Inc. While being a national cooperative isn't necessarily an added advantage when it comes to negotiating deals with manufacturers, co-op owners tend to be more loyal than the usual customer, Mr. Brawley said.
In addition to competitive pricing and marketing, co-op members also receive a share of the co-op profits.
In addition to distribution, Universal operates the Mr. Tire marketing program for co-ops and independent dealers who desire a commonality of image and advertising. The concept is geared for businesses that generally cater to consumers.
Currently there are 137 stores carrying the Mr. Tire signage in nine states.
While Universal can supply them with tires and parts, the outlets do not have an exclusive distribution contract with Universal. The program revolves around point of sale signage, advertising, products and training, Mr. Brawley said.