Ocean Spray is among the best known and more successful agricultural cooperatives. What started as a group of cranberry growers looking for marketing answers has grown into an international business.
The National Pork Producers Council is hoping a similar opportunity will unfold for independent pork producers.
First announced last June, the concept of a cooperative that links producers further through the pork chain has begun to take shape. An NPPC task force has worked in tandem with a private consultant to develop the concept. Not all of the answers are complete. Details will come as the process moves forward, but it's worth taking an updated look at the concept.
NPPC has served as the project facilitator, but officials are quick to point out the organization's role ends there. "We create the opportunity," says Al Tank, NPPC's chief executive officer. "This is a business structure, NPPC is an association. Our role is not to run the business, our charge is to come up with the ideas."
The idea is outlined in the accompanying flow chart. At the top tier, participants in a national pork co-op could include individual producers, the membership of existing cooperatives and other producer groups.
Before the year ends, a steering committee will be formed and evolve into the first board of directors. This group will determine the by-laws, governance and membership requirements. Long-term, the board of directors will oversee all management, oversight and decision-making procedures for the co-op. The board also will hire the chief executive officer and any additional staff required.
From the board of directors and CEO, the co-op flows into the real-world business ventures (represented by the pink and blue circles within the diagram). As a strictly hypothetical example, one such business venture might involve a segment of the cooperative's membership who sign up to raise hogs under certain specifications to supply pork loins to a restaurant chain.
The last leg of the flow chart represents industry segments that provide the pork chain links that will put those business ventures into action. For example:
- Existing co-ops: The national pork co-op could team up with existing industry cooperatives to supply hogs for a new or current product line. "These types of agreements could be up and running in six months," says Tank.
- Alliances: This would build on working with existing packers. For example, the national co-op could help match members' pigs with a packing plant that would like to expand to double-shift slaughter, or a packer who needs specific animals for a specific product. Timeline = nine to 12 months.
- New business ventures: These could involve a group of co-op producers who raise organic pork for niche restaurants or pork designated for shipment to Japan. The sky and human imagination is the limit here. Timeline = one to two years.
- New construction: This means building one or more new pork packing plants. While this was the seed behind the original co-op idea, the reality is it would take at least three years to complete – clearly a long-term goal.
"The cooperative's board and interest from pork producers will have the greatest role in determining theses timelines," says Earl Dotson, NPPC's vice president of education, environment and production. "Clearly, this is not your grandfather's cooperative, but rather a new-generation, value-added co-op."
What is a "new-generation" co-op? Dotson notes the following attributes distinguish this new style of cooperative.
- Membership requires equity investment in order to establish delivery rights to a co-op business venture – delivery rights involve hogs.
- Business agreements between the cooperative and the producer commit the producer to the specified delivery amount and type, which is legally enforceable.
- If circumstances, such as a herd health problem, prevent a producer from delivering, he or the co-op can purchase equitable replacement hogs to fill his quota.
- Equity shares can be sold to other eligible producers. Shares appreciate or depreciate in value based on their earning potential. The co-op's board of directors won't set prices, but they must approve all stock transfers to ensure that shares don't end up in the hands of ineligible persons.
- Cash patronage funds are issued annually to producer members. This means you get a share of the pie as the product moves through the pork chain. "Since equity is achieved in advance of business startup, a majority of the net can be returned annually to producers in cash," says Dotson.
What can a new-generation co-op do?
- The value-added investment is designed to process commodities into high-value products and move producers further along the pork chain.
- Provide value-added payments back to the members as they are earned.
- New business ventures and investments will fund co-op expansion. Existing members will have first dibs to participate in any expansion before it's offered to new participants.
- Promote joint ventures with existing cooperatives, private entities, limited-liability companies and the like.
"The co-op would facilitate information and communication between participants – sort of a deal maker," says Dotson. "That's very difficult for individual pork producers to do on their own."
"In 1998, $36 billion went to the end user," points out Tank. "Producers' average return was $82 per pig. We have to reposition producers in this value chain."
In order for a national co-op of this type to succeed, it needs to be economically viable; producers must commit to supply hogs; and you have to have pull-through demand, says Tank.
Poultry is a good example of pull-through demand. The consumer dictates when, how much and what type of product you supply. You identify demand cycles and production cycles then align the packing plant capacity to match.
Membership details still need to be worked out, and that task will fall on the board of directors' shoulders, but Dotson offers an early look at the two-tiered system used in some co-ops.
At the first level, you become a member in the national co-op by paying a fee. This provides you access to information about the cooperative's business deals in which you may want to participate.
At the second level, you commit to participate in an actual business venture. This requires you to invest equity – the amount is established on a per project basis. You then receive delivery rights to the project, and you will share in any value payments that result from the project.
"A producer-owned, value-added cooperative will provide pork producers the opportunity to share in the risk as well as the potential rewards of food production," says Dotson.
Tank goes on to say: "Today, there are two distinct producer groups – the 'haves' and the 'have nots.' The 'haves' are vertically integrated, coordinated or in an acceptable marketing arrangement. A 'have not' is a commodity producer in a value-added world. Most pork producers today are in the 'have not' category."
A national cooperative for pork producers may offer ways to change that. It has for cranberry growers and other commodity producers.
Who's paying the bills?
For an industry that's so short on cash, who's footing the bill to investigate the feasibility of a national cooperative for pork producers?
Where there's a will there's a way. For now, Congress and non-checkoff funds are providing the way.
Congress' agriculture appropriations bill for fiscal year 2000 set aside $500,000 to be used for feasibility studies for national agricultural organizations. Commodity groups have to bid for a share of that pie, which is what the National Pork Producers Council has done on behalf of pork producers. Actual dollars haven't yet been assigned, but NPPC will use that money to advance the national cooperative.
There are other federal funding options available. For example, $200 million is being sought from congressional appropriations to form a "livestock cooperative fund." This fund could then award cooperative grants through a national pork co-op to help finance related business ventures. "It could also be leveraged to attract additional private and public sector funding," says Earl Dotson, NPPC's vice president of education, environment and production.
As for NPPC: "All of the dollars spent to facilitate this project have been noncheckoff dollars,"says Dotson.
Long-term, individual producers will have to contribute some amount and form of equity to participate in any num-ber of the cooperative's business ventures.