Industrialization and globalization has led to major changes in agri-food systems, particularly in the way food is produced, where it is sourced and how it is distributed. There have been pros and cons to those changes. While it means we have increased varieties of produce to choose from - nectarines from Chile, bananas from Ecuador, avocados from Costa Rica - we have also had increased incidences of food contamination - salmonella, E. coli, listeriosis. This has led to consumers taking a vested interest in where and how the food they eat is grown. There has been a growing emphasis on sourcing locally grown food to achieve a perceived "quality control" for consumers as well as fair pricing and treatment for producers.

Have Co-ops flown the coop?

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Co-ops are one of our shopping options -- Co-op Marketplace grocery stores, credit unions, Co-op Gas Bars and C-stores, Mountain Equipment Co-op -- and they are an important part of our economy. Co-ops were also once a major player in western Canada's grain handling industry. At the turn of the 21st century, however, something changed. The grain handling co-ops across the Prairies - Saskatchewan Wheat Pool (SWP), Alberta Wheat Pool, Manitoba Pool Elevators, United Grain Growers - were forced to merge or to restructure into investor-owned firms (IOFs) to salvage their existence. The grain handling co-ops were not alone. Other agricultural co-ops across western Canada (e.g., Dairyworld, Lilydale) and the United States (e.g., Rice Growers Association, Tri Valley Growers, AgWay) also faced bankruptcy or converted to investor-owned firms during the same timeframe. The underlying financial pressures included mounting debt loads, fierce new competition, the need to access capital, the need to reduce member production and price risk, the need to grant members access to their equity and the need to realize the co-op's market value.

With several large agriculture co-ops facing the same issues at roughly the same timeframe, one has to ask -- are these isolated events or are they part of some larger pattern? What can be learned from these events that can be useful to other co-ops? To answer these questions the KIS project approached researchers throughout Canada and the United States to build upon their existing research on restructured agricultural co-operatives. The result is a book titled Co-operative Conversions, Failures and Restructurings featuring thirteen research cases by twenty-two researchers.

Aggregating the stories of thirteen agricultural co-ops provides a number of insights into the strengths and weaknesses of the co-operative business structure. First, some of the conversions were simply due to poor management, or to excessive control by management, problems that can affect all business enterprises. A case in point is the Saskatchewan Wheat Pool (watch the blog site for an upcoming entry on SWP).

Many of the co-operatives were affected by classic co-op problems, including:

·            lack of capital -- co-ops often cannot not raise, from their members, the funds required to expand operations

·            property right problems -- without clear ownership, co-op members do not have an incentive to provide capital or to exercise control

·            portfolio problems -- members were reluctant to put all their investment capital in their co-op, particularly when its fortunes rise and fall with that of their farm operation.

Another key driver for the structural change in many of the co-operatives was the so-called "industrialization of agriculture". The need to move their business further away from the farm gate and into processing and marketing requires capital that co-ops typically do not have; the transition to an IOF means access to capital that can be used for growth and expansion. As some of the co-ops found out (a good example is SWP), gaining access to capital can create another problem -- overspending and unmanageable debt.

In other instances, the role of the agricultural co-op appears to be no longer required. Co-ops often formed initially to provide competitive pressure in strongly oligopolistic markets. Over time, however, markets have evolved with changes in technology, consumer preferences, and policy reform. In this evolution, some agricultural co-ops became just another player in an increasingly competitive world market competing for member patronage (market share). As the co-ops took on new strategies for growth and expansion, they reached a point where maximizing earnings replaced co-op principles and the co-op began to operate like an IOF.

Adding to the dynamics of market evolution is the evolution of the individuals that own and operate the co-ops. While market forces and co-op structure certainly played a large role in the massive restructurings that took place, the members also had an impact. In some cases it was their commitment to the co-op that lapsed, while in other cases the members simply failed to carry out due diligence. In other cases it appears that the members -- and the boards they elected -- may not have had the tools and perspective to oversee the increasingly complex and capital intensive operations that were increasingly becoming the norm.

To read the ebook Cooperative Conversions, Failures and Restructurings or to purchase a paperback copy of the book, visit: http://www.kis.usask.ca/CoopBook.html

This blog entry was authored by Murray Fulton and Kathy Larson. To read additional Illative Blog entries or to leave comments on this entry, please visit www.illativeblog.ca. The Illative Blog is an initiative by the Knowledge Impact in Society (KIS) Project based out of the University of Saskatchewan. Email correspondence can be sent to kis.project@usask.ca

Viterra Australia - What Might Happen Down Under?

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Earlier this year Viterra announced its intention to acquire ABB Grain Ltd. of Australia. Last week ABB Grain shareholders voted 83% in favour of removing the shareholder cap from their constitution; the removal allows Viterra to move another step towards completing a $1.6 billion takeover of ABB Grain. With the purchase of ABB Grain, Viterra is set to become a major grain marketing company with sourcing in two hemispheres; together Australia and Canada account for 37% of exports of wheat, barley and canola. The Australian Broadcasting Corporation (ABC) recently interviewed me about the Viterra/ABB Grain merger. The following are some of my thoughts.

Scenarios for Climate Change

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I was recently invited to participate in a foresight workshop sponsored by Agriculture and Agri-Food Canada (AAFC). The workshop was the third in a series of events designed to explore future paths of climate change impacts and agricultural adaptation in Canada.

Copenhagen Considerations

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I recently was invited to be a respondent at the National Agricultural Biotechnology Council 21st Annual Conference (NABC 21) in Saskatoon. The overall theme of the conference was Adapting Agriculture to Climate Change. The three presenters in the session I was involved in shared their perspectives on the roles of ethics, policy and carbon markets in agriculture's adaptation to climate change.