When co-op leaders consider mergers these days, they’re usually looking at strategies to get and keep great employees or to efficiently enter businesses that benefit their members.
That’s a big change from the financial pressures that drove co-op consolidation in years past.
“The co-ops in Iowa for the most part are making money,” says Keri Jacobs, Iowa State University’s Iowa Institute for Cooperatives economics professor. “Earnings are tightening for sure, but we don’t have that many that are losing money.”
Co-ops get a big financial boost in patronage refunds from regional grain marketing, processing and food cooperatives.
Omaha-based Ag Processing Inc., which operates six soybean processing plants in Iowa and one each in Missouri, Minnesota and Nebraska, distributed cash patronage of $57.7 million in fiscal 2015.
CHS Inc., the grain merchandising, processing, farm supply and food co-op based in St. Paul, is distributing about $519 million in cash to farmers, ranchers and cooperatives based on earnings of $781 million in fiscal 2015.
Land O’Lakes says it returned $184 million to members from its businesses mainly in crop inputs, dairy foods and feed.
=CoBank distributed $467 million from its 2014 results, and had $80 billion in loans at the end of 2014.
“Those four are pushing huge amounts of money back to locals,” Jacobs said.
Absent financial stress, some grain and farm supply co-ops are merging as part of their strategy to build technical and management expertise.
“Technology is exploding” in agronomy, says Dave Holm, executive director for the Iowa Institute for Cooperatives. “No one can possibly comprehend and implement all that technology.”
So farmers are looking for help from their local co-ops.
“That takes really bright talent,” Holm says. “We can hire, train, develop and educate them. They are ready in three or four years for the next responsibility in their career. If we can’t provide that, we just lose them.”
Jim Magnuson, general manager of Key Cooperative, which operates at multiple central Iowa locations, says co-ops adapted as grain movement and competition changed: Iowa’s grain traffic shifted from shipments to distant markets toward heavy in-state demand for ethanol production, soybean processing and feed.
“More so driving consolidation today at the local level is the ability to attract and retain high-quality personnel,” says Magnuson. “You need a certain size and scope and career opportunities.”
Competition for local co-ops has changed over the years. In the past, they competed with nearby co-ops and independent dealers, Magnuson says. Some of those independent dealers have been bought by multinational firms, and neighboring co-ops have been consolidated into multi-location organizations.
Magnuson says consolidation doesn’t mean local co-ops desert smaller customers.
“Each company, whether independent, multinational or cooperative, makes a conscious choice as to how they’ll approach the marketplace,” he says. “And whether they will focus on a segment or segments of the marketplace, or whether they will approach the marketplace in a holistic way.”
He says large-scale customers help Key generate acreage that helps the co-op develop specialized services — which are equally available to mid-sized or smaller-scale customers. And the loyalty of mid-sized or small-scale customers helps spread the back-office and facility costs over more volume to keep the co-op competitive.
Some local co-ops — recently the local cooperative at Elburn, Ill. – have voted to merge with CHS. That local became part of the CHS Country Operations business, which includes more than 400 locations.
“We’re all about providing choices that are right for that cooperative and its member-owners,” says Mark Biedenfeld, a CHS vice president. “In some cases it’s best to partner with neighboring co-ops or a strategic alliance. In the case of Elburn, they chose to become part of CHS.”
Biedenfeld, like Magnuson and Holm, says co-ops are focusing more on developing leaders for their organizations.
When a local becomes part of CHS, it gains economies of scale, back-office support and purchasing power. However, Biedenfeld says, “The model still allows autonomy from a local management perspective and producer board perspective.
“It’s all about keeping the over-all cooperative system strong,” Biedenfeld says. “We can all work together and create a system that works for the farmer.”