Category: Specialty Topics

When speaking to a newly elected director of a cooperative about the challenges they face, I often hear about the typical stresses of responsibility, understanding the cooperative’s financial statements, and, occasionally, comments about board meetings. Sometimes directors view board meetings as an unpleasant task that lasts longer than necessary, lacks focus, full of information without discussion, and generally, does not seem to accomplish anything meaningful. “Why,” they ask, “did I need to interrupt my busy schedule for something that could just as easily been handled with an email?” If this sounds like your experience, I suggest that you are missing out on perhaps the greatest tool your cooperative has for achieving competitive success. Here are four tips to get your cooperative’s board meetings back on track.

1. Know your duty and stick to it.
2. Build connections with other directors.
3. Take the agenda seriously.
4. Speak with one voice.

Know your duty and stick to it.

The responsibilities of a director are often summarized with the phrase, “fiduciary duties”. These duties refer to the trust cooperative members place in their directors to act in good faith on their behalf in an ethical, legal, and prudent manner to the benefit of the cooperative. Your duties as a director are to provide strategic direction, financial oversight, and to set organizational policy. The board is responsible for the hiring and compensation of only one employee, namely the general manager. Any board discussions that address specific managerial decisions, like hiring, raises, inventory, or pricing are in danger of taking the meeting off topic, distracting the board from their true responsibility, and needlessly spending time on decisions that should be left to management. 

Build connections among directors.

A good board meeting thrives on properly focused discussion. However, it is common for some directors to say nothing at all during meetings. This might be due to their personality, a lack of confidence, a lack of familiarity in the topic, or even the participation of another outspoken and highly opinionated director. In any case, silence is not in the best interest of the board. One key to promoting discussion is to create connections among the directors. The psychological or emotional risk from speaking in a group setting is lessened as personal relationships and trust are strengthened. Connected directors not only ask more questions and make more comments, but they are also better listeners. Perhaps the best suggestion for building connections among your board members is to participate in a board retreat or strategic planning session. 

Take your agenda seriously.

One thing that is a frustration to new directors is that meetings don’t start or end on time. To help directors be fully engaged during meetings, you must respect their time. If you find that friendly conversation (which builds connections!) is delaying the start of your meeting, try putting social time on the agenda prior to the start of the meeting. Then, start on time. Some other things to consider – are directors invited to add to the agenda? Do directors see the agenda in the days prior to the meeting? Are times listed on your agenda? If your meeting is going long, do you suggest tabling discussions for the next time, or with group consensus, extend the meeting? The agenda is the best tool for keeping the board on schedule and focused. A proper agenda is set by the board with the help of management. 

Speak with one voice.

Some boards that I work with proudly claim they have complete unity on all decisions. These same board members will also freely admit that they have plenty of disagreements during board meetings. When handled with respect and conscious conduct, disagreements and debates are a healthy part of the board decision process. Not all items require a unanimous vote, but they do require unity once a decision has been properly made. When board members leave the meeting and need to converse with members or the public, references should be about what “the board” decided. Confidentiality is required for board unity. Directors who share board conversations outside the board room or openly criticize board decisions undermine the trust of their fellow board members and destroy open conversation during board meetings. 

What has been described here is a board culture that is conducive to conversation, respect, inclusion, trust, and overall better decision making. Meetings in such a culture will be more productive and leave directors feeling energized, not deflated. Your board chair plays a critical role in leading the board in these efforts. 

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Park, John. “4 Tips for Better Board Meetings.” Southern Ag Today 3(16.5). April 21, 2023. Permalink

Photo by Pixabay: https://www.pexels.com/photo/white-wooden-table-with-chairs-set-416320/

How much can I sell this for? This is a question producers often ask us. It is an important question and one that is not always easy to answer. Usually there are many factors to consider in pricing your farm products. In Part I of our series on product pricing, we discuss factors that may affect what you want to reflect in your product’s price.

• Cost – It can be a challenge to hone in on this number, but it is important to know how much has been invested. The first step is capturing ALL costs associated with carrying on a farming activity. Over time these can be broken down by categories and segmented into individual crops/enterprises. Capturing product cost(s) is done through a chart of accounts and the books and records of the business. Oftentimes at the beginning of the season you may not know exactly how much you will spend. Enterprise/crop budgets are farm management tools that can help fill in the gaps. 

• Price Comparison – Referencing other markets can tell you what comparable products are selling in area markets. Comparable product prices is helpful information to know, but it is not advised to simply match your price to what you see elsewhere. It is better to develop a range for what is acceptable. If you determined that you are profitable at $5.00 per lb. (based on your costs) but you see that a grocery store is selling for $7.00 per lb., that may help you understand what customers are willing to pay. Other places to reference would be farmers markets, grocery stores, USDA reports, market bulletins, and other places where similar products are sold.

• Customers – Evaluating your customer segment is important because you may know what your price needs to be, but you have to find buyers that will support that. That means your customers must be willing and able to pay the set price for your product. Some questions to ask:
  • Do the customers have the means and willingness to pay? If you have premium products, who will be willing to pay for that and where are they located?
  • Is your market local or will you have to travel to reach them? If there are additional costs associated with that market, consider the additional revenue you will need to make it worth it.
  • What’s the capacity of the market? If you and several others are growing similar items but there are a small number of customers, it may be hard to make enough sales to cover your cost. Some markets may even put restrictions on what you can bring to discourage duplicate offerings. At that point, it is not a price problem but having enough buyers available. 

Price for products can be quite variable and experience large variations throughout a season. Farmers can influence the price their customers are willing to pay through successful marketing and branding efforts.  However, other factors such as perishability may add additional market pressure. Knowing your cost, a range of acceptable prices, and opportunities to reach buyers can help net an acceptable return for your crop. 

Part II of this series on product pricing will include an example on calculating price for a Southeastern-grown fresh fruit or vegetable. The related article is planned for release in an upcoming Southern Ag Today article.

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Burkett, Kevin. “How Much Can I Sell This For? Part I.” Southern Ag Today 3(15.5). April 14, 2023. Permalink

Photo by Erik Scheel: https://www.pexels.com/photo/person-giving-fruit-to-another-95425/

Value-Added agriculture is often promoted as a way for farmers to capture a larger share of the food dollar and as a means of rural economic development. Under USDA definitions, farmers capture the enhanced value from either processing or intrinsic characteristics of the product (e.g., organically or locally grown). However, non-farm entrepreneurs within the regional economy can also add value by using local commodities in their products.

The table below provides an example of farm or non-farm entrepreneurs’ ability to capture a higher price and larger profit by processing locally-grown vegetables into salsa. The $1,000 in locally grown vegetables could be included in a jarred product worth almost $6,900. In the salsa scenario, sales and labor income are higher for both direct (entrepreneurs’) and community-wide impacts between businesses (indirect effects) and among households (induced effects). Labor income is double for the entrepreneur and triple for the community.

If a farmer processes the vegetables, s/he creates the additional value and retains the additional profit—a traditional value-added paradigm. If another business purchases the local vegetables, that business lengthens its longer value chain relative to purchasing wholesale vegetables from outside the region. 

Value-added presents promising opportunities to farmers, but it’s not for everyone. Only about 1.65% of US farms reported value-added product sales in the 2017 census of agriculture, and value-added sales were clustered among smaller farms. Farmers interested in value-added processing should consider the costs of labor (including their own), other inputs, and marketing and distribution when evaluating potential products.  

Example Economic Impacts of Raw Vegetable Sales versus Value-added Salsa

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Dudensing, Rebekka. “Value-Added Ag and Food Products.” Southern Ag Today 3(11.5). March 17, 2023. Permalink

Photo by Kunal Murumkar Patil: https://www.pexels.com/photo/bowl-of-hot-mexican-salsa-among-composed-bright-ingredients-3846896/

Agricultural cooperatives are an important part of the U.S. agricultural industry. In 2020, the USDA counted 1,744 farmer owned cooperatives with 9,500 locations, $200B in sales, $8.4B in net income and 1.8M members (USDA, 2021).  Earlier USDA studies indicated that agricultural supply and marketing cooperatives contributed to slightly over 38% of total farm output, (USDA 2004, 2006).  Despite their prevalence, many producers do not understand the cooperative business model.  That is unfortunate because it may prevent them from understanding the economic value of existing cooperatives or considering the formation of new cooperatives to improve their farm profitability. 

Cooperatives can add value at the farm level as well as at the cooperative level.  That is a result of the cooperative having transactions with and providing service to its member-owners.  In some cases, the existence of the cooperative allows producers to grow a more profitable crop.  For example, in the cotton producing regions of Oklahoma, OSU crop enterprise budgets have consistently shown a $100/acre profit advantage for cotton relative to alternative crops (Kenkel, 2021).  This would not be possible without a cotton gin. Further, a producer-owned cooperative may maintain locations that investor-owned agribusinesses might abandon, or offer services or product lines that would otherwise not be available.  Cooperatives can also create farm level benefit through favorable prices.  The common thread of all these benefits is that they are not reflected on the cooperative’s financial statements and the portion of farm profits attributable to the cooperative is not readily observable.  

However, some benefits of a cooperative are more easily observable.  Most agricultural cooperatives distribute profits to members in a combination of cash and equity (that is still redeemed for cash at a later date).  A classic assessment of the return on investment in a cooperative compares the discounted value of member cash flows to value of the member equity (Reynolds, 2013).  Bear in mind that an individual member’s return on equity is unique in that both the cash return and the equity holdings were a result of the amount of business they did with the cooperative. Thus, there was no out of pocket investment.

The revolving equity in a cooperative is, in essence, profits that are distributed to the member but temporarily lent back to the cooperative to fund investment.  Revolving equity creates value by funding infrastructure investments that can enhance existing activities or create new value through market access, risk reduction or new services. In this way, revolving cooperative equity benefits existing members by enhancing future profits, and supports future generations of producers by ensuring the perpetuation of the business.

Perhaps most importantly, cooperatives play a role in keeping markets competitive.  Many U.S. agricultural cooperatives were formed in the New Deal era to offset the market power of monopolists who threatened farmer welfare (Hogeland, 2006).  The existence of these cooperatives kept other firms “honest” or realistic in prices and services.  This aspect of the cooperative value package has often been termed “the invisible benefit of cooperatives”.  Because it is unobservable, the value of a cooperative’s existence is often only appreciated when it is dissolved or exits a market area.

While a common feature in agricultural industries, the cooperative value equation is quite complex.  Cooperative members can benefit at the farm level and from cooperative level patronage distributions.  Cash patronage distributions provide an immediate benefit while equity patronage distributions allow members to build ownership with no out-of-pocket investment.  In turn, that equity funds infrastructure thereby creating future value. By its very existence, the cooperative is likely improving market access and maintaining competitive market prices.  

When should a producer patronize a cooperative?  When it makes economic sense!  In making that assessment it is important to realize that some of the economic benefits are subtle and long-term.  Like any business, we should not assume that cooperatives will be there if we do not support them.

References

Hogeland, J. (2006) “The Economic Culture of U.S. Agricultural Cooperative” Culture and Change, Vol. 28 No.2 Fall 2006.

Kenkel, P 2021. “Economic Impact of Oklahoma’s Cotton Cooperatives” Oklahoma State University Department of Agricultural Economics Staff Paper AE#2021-1 July 2021

Reynolds, A. (2013) “Determining the Value of the Cooperative Business Model: An Introduction” white paper, CHS Center for Cooperative Growth

USDA, (2004), “Farmer Cooperative Statistics 2002” Service Report 592, Rural Business-Cooperative Service, Washington, D.C.: Rural Development, USDA. United States Department of Agriculture 

USDA. (2006). “2002 Census of Agriculture”. Washington, D.C.: National Agricultural Statistics Service (NASS). United States Department of Agriculture (USDA). 

USDA, (2021) ”Agricultural Cooperative Statistics Summary, 2020” USDA Rural Developmet, Rural Business-Cooperative services,  

https://content.govdelivery.com/accounts/USDARD/bulletins/300bab5

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Kenkel, Phil. “The Economic Value of Agricultural Cooperatives.” Southern Ag Today 3(10.5). March 10, 2023.

Photo by Jonathan Borba: https://www.pexels.com/photo/girl-and-elderly-man-picking-strawberries-15672380/

Southeastern U.S. farms growing perishable and seasonal food continue to achieve gains due to economies of scale and scope, largely dependent on management decisions made based on market information. Many produce farms have a corporate structure and grow vegetables nearly year-round on farms located throughout the US & abroad. Such operations have farms strategically located and follow the progression of seasons from south Florida to northern states to provide a year-round supply of produce as demanded by retail and foodservice buyers. Medium size farm operators are finding ways to collaborate to meet buyer needs, and technology-driven tools offer savings in time and resources needed to gather market information. Given that market access and market share drive profitability, exciting new technologies are emerging that reduce the cost of KNOWING and empower the individuals making informed decisions.

One such market-driven database is AgTools, an online platform that provides data for the specialty crop supply chain. A subscription-based service specific to each fruit or vegetable and informed by experienced producers and retail buyers, the AgTools engineers find and organize regularly updated relevant data current and historical. With over 76 variables and 29 years of records, AgTools offers key information to growers to use in daily production and harvest decisions, including price data, import data and trends, fuel and labor costs over time, current and optimal weather, measures of sustainability (food miles), up to the minute news specific to commodity, and a brand-new feature allowing buyers to see real-time growth stages of each crop and any reported disease issues unique to the production region (Figures 1 and 2).

Figure 1. Snapshot of AgTools Procurement Quality Analyzer query for blueberries, 22 February 2023, for Peru, Chile, and Florida, showing reported disease type and prevalence by stage of growth (eleven stages indicated from germination to harvest) specific to each growing region.

Figure 2. Snapshot of AgTools Operations Freight Cost query for strawberries grown in Central and South Florida and shipped to six destinations (Philadelphia, New York, Chicago, Boston, Baltimore, Atlanta) over the time period 23 November 2022 through 22 February 2023 (Note: Highlighted 4 February 2023 data point for cost comparison).

For more information on AgTools, please contact Kim Morgan kimorgan@ufl.edu, or Martha Montoya, AgTools Chief Executive Officer, martha@agtools.com. Visit the AgTools blog to learn more about this database: https://www.agtechtools.com/agtools-blog

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Morgan, Kimberly L.. “Economies of Scale and Scope in Fresh Produce Technologies: Managing Markets Using the AgTools Database.” Southern Ag Today 3(9.5). March 3, 2023. Permalink