Information Possibly Outdated
The information presented on this page was originally released on March 5, 2001. It may not be outdated, but please search our site for more current information. If you plan to quote or reference this information in a publication, please check with the Extension specialist or author before proceeding.
Futures of co-ops depend on change
MISSISSIPPI STATE -- Local cooperatives are as much a part of the agriculture scene as are farmers, but changes in agriculture are prompting similar changes in these businesses.
Darron Hudson, MAFES agricultural economist at Mississippi State University, said co-ops are formed when a group of producers pool their resources to gain a market advantage.
"A cooperative is traditionally a producer-owned organization with the intent to give a group of producers bargaining power for buying their supplies or marketing their products," Hudson said. "Co-ops which thrive and flourish are those that are able to counteract the market power of its corporate competitors."
Noel Estenson, retired CEO of Cenex/Harvest States Cooperatives, one of the nation's largest co-ops, spoke at the end of February to a group of agribusiness professionals at MSU's Owen Cooper Cooperative Executive Forum.
Estenson said agriculture is integrating quickly, and this change will have the same affect on agriculture as the industrial revolution had on this industry. Co-ops are going through the same integration that is affecting the entire agriculture industry.
"Those farmers, co-ops and institutions that think this change will pass will face extinction," Estenson said.
To survive in today's integrated business climate, member-owners of co-ops have to get away from the idea of being totally independent, and they must be willing to become part of an integrated system, Estenson said.
He said industry integration began about 50 years ago with poultry, and now that entire industry is vertically integrated. The hog industry is now almost completely integrated, and grains are next.
"Twenty-five poultry producers have half the U.S. poultry production and 50 hog producers have half the country's hog production. It's not too hard to assume grain will follow this trend," Estenson said.
Consumers are driving this change through the demands they make, Estenson said. In order to provide safe, uniform food products with guaranteed characteristics, companies must be able to trace the identity of what goes into the products. This need for identity preservation is forcing companies in the food chain to coordinate their activities.
Estenson said that farmer-owned co-ops provide an alternative to integrated private companies by managing agricultural and food products from the producer to the consumer.
John Lee, head of MSU's Department of Agricultural Economics, said consumers control the food production chain.
"Those in the system have to adjust to supply what consumers will buy or they will not fit into the system," Lee said.
Most local co-ops are supply co-ops established to help farmers get better prices on the goods they need to buy. These, too, will have to change with the industry integration.
"Today, co-ops see a need to get the attention of big buyers, so they must grow along with the corporations or they lose out," Lee said.
For more information, contact: Dr. Darron Hudson, (662) 325-7998