Most people involved in the pork industry today agree that something different must be done to supply consumers with pork. The old pieces of the supply-chain puzzle no longer fit together as well as they used to.
The latest fix-it attempts involve cooperatives that add value to the pork you produce. But these co-ops are more than just trendy new ideas. If the pieces fit together in the right way, they could entirely rebuild the supply chain.
Pork producers in Iowa are among the most recent to form a marketing co-op. The group came out of a task force formed by the Iowa Pork Producers Association in December 1998. The project began as a search for short-term solutions to $10-hogs, but producers quickly realized they needed a long-term effort.
The task force set the research phase in motion. It looked at possible business structures and producer opinions. The results of a producer survey showed about 70 percent of Iowa producers supported the idea of such a co-op.
“What’s fueling me is that there is a fundamental need for the co-op,” says Roger Coon, interim task force president.
The task force drew up a resolution outlining the co-op proposal and submitted it to producer delegates at IPPA’s annual meeting last month. At press time, the resolution had not yet been voted on.
The resolution calls for a two-phase co-op. Phase I involves developing hog marketing pools, information sharing, risk management programs and using quantity as marketing leverage. The number of producers and number of hogs in the co-op will determine what Phase II looks like. Coon foresees the co-op trying to partner with a processor who can move the producers further along the food chain, rather than building their own packing or processing plant.
“None of us have any experience in processing, plus it takes at least three years to build a plant,” Coon says. “We might as well use the expertise of current packers and processors.”
The project will be organized as a New Generation Cooperative, which means producers must invest in the venture to become a member, and memberships may be bought and sold. (See “Not Your Grandfather’s Co-op” in the December 1999 Pork for more insight into New Generation Cooperatives.)
Coon reports strong producer interest so far.
If the Iowa co-op plans sound familiar it’s because they reflect the efforts of a committee organized to pursue a national pork cooperative. Both groups want to move producers further along the pork chain. Things like a branded product, working with current co-ops, packers/processors and producers, and the prospect of building a packing plant have been discussed.
The Iowa group fits in well with plans for a national co-op, which will act as an umbrella organization for other groups who want to participate.
At last year’s World Pork Expo announcement of a national co-op, the big story was the prospect of building one or more packing plants. While that’s still a long-term possibility, it’s taken a back seat to more immediate goals of banding producers together to market their hogs more efficiently.
The project is moving along with interim board of directors in place. Jack Rundquist, a producer from Butler, Ill., will chair the interim board. Other members include: Brad Bradley, Del Rio, Texas; John Medley, Springfield, Ky.; David Meeker, Columbus, Ohio; Jim Lewis, Welcome, Minn.; Linden Olsen, Worthington, Minn.; and John Adams, Snow Hill, N.C.
The national cooperative completed the incorporation process at the beginning of this year, and announced the co-op will go by the name of Pork America. On the agenda for Pork America is determining membership criteria and recruiting members. That is expected in the first few months of 2000.
With packing plant blue-prints on the back burner, the Iowa co-op and Pork America will need to work with existing packers and processors. One model that can provide guidance is U.S. Premium Beef. This group involves beef producers who formed a cooperative and invested in Farmland National Beef Packing Company, the nation’s fourth largest beef processor, in a partnership with Farmland Industries. Members of U.S. Premium Beef buy one share of stock in USPB, which means they have the right and the obligation to sell one animal to the company, annually. Shares may be bought and sold.
A similar arrangement may fit the pork co-ops’ needs. However, no official talks have occurred between any packers and either cooperative.
“Producers today are looking for ways to access margins further up the food chain,” says Wayne Snyder, president of livestock operations for Farmland Industries. “There’s a feeling that margins at the production level may be counter-cyclical to margins at the packing/processing level and a good strategy is to have margins from both profit centers.”
Working with existing co-ops such as Farmland is part of the Pork America’s official strategy. Snyder says Farmland’s willingness to provide more direct ownership access would benefit a national pork co-op, but Farmland’s own status as a producer cooperative is irrelevant to any additional alliances.
“Farmland supports the national pork co-op effort, we believe it recognizes the need to align with the ultimate customer,” says Snyder. “It recognizes the need for producers to work closer together in a more organized way.”
A co-op from Missouri is taking a different approach. Rather than working with an existing packer they plan to build their own plant with capacity to kill 1,500 head per day in Shelbina, Mo.
The co-op, Family Farms Pork, plans on at least half of the equity for the $7 million to $8 million plant will come from its members. Its interim board is currently working on membership criteria and the articles of incorporation.
Family Farms Pork has begun the environmental and regulatory work and expects the plant to open six to nine months after construction begins. The plant is currently slated to open late this year or early in 2001.
“We have enough wheels turning now, working with engineers and regulatory agencies we feel we can get construction started fairly soon,”says Mark Russell, advisor to Family Farms Pork.
These examples are just a couple of ways developing co-ops could help form a new and improved pork chain. It’s always wise to look at several pieces of the puzzle to find the right fit.
On a Mission
For a national pork cooperative to succeed, its board of directors and members must remain focused on the goals at hand. The interim board has set the following criteria for the co-op:
- Be flexible to react to industry opportunities.
- Control sufficient hog numbers to attract alliance partners.
- Maximize returns on producer investment.
- Be able to react to rapidly changing markets.
- Assure that market opportunities are actively sought for the benefit of the co-op’s members.
- Create access to key markets.
- Maximize cooperation between the national co-op and regional co-ops.
- Respond to consumer needs and desires.
- Develop a proactive position in the pork industry.
- Indentify investment opportunities in pork chain business entities.