Category: Specialty Topics

I truly enjoyed Phil Kenkel’s Southern Ag Today’s Article “Why Don’t We Start More Cooperatives?” The points and questions he raised got me thinking about cooperative formation opportunities and challenges faced by today’s business owners and society in general. 

Recently, Phil’s article again came to mind when someone interviewed me about what it meant to run a cooperative development center: what were the challenges and opportunities? My answer to this question was that we must make cooperatives more relevant and exciting. 

Relevance

Certainly, the successful cooperatives we have in the United States are prime examples of relevance: credit unions, mutual insurance companies, cotton gins, peanut shellers, dairy processors, and many more.  By relevance, I mean a general awareness of cooperative organization being an option for incorporation.  

I also believe we may be on the cusp of a cooperative resurgence.  Over 200 years ago, the cooperative movement was largely credited as society’s reaction to the Industrial Revolution, when the workforce had to adjust to mechanized production processes. At the same time, the manufacturing and transportation industries were consolidating into very large firms.  

Today, we are amid the Digital Revolution, where society is grappling with information technology and artificial intelligence during a period of consolidation and rapid growth of technology firms, which has immensely changed commerce.  Cooperatives may yet again provide society with a response to these trends.   

Excitement

How does one get excited about a business structure? Well, a cooperative does have the word “cooperate” embedded in it, so that helps.  Also, in its most basic form, cooperative membership equates to one member, one vote, meaning equal voting representation for all its members.  So, a cooperative structure also embodies the principles of democracy.

However, my take is that corporate by-laws (although important) are not an exciting rallying point.  Rather, what is the purpose of groups coming together? To address common social, economic, or cultural needs, as defined by the National Cooperative Business Association? How about gaining additional power and independence in an economic system where smaller actors are having an increasingly difficult time? All the above reasons seem compelling to me!

The local foods movement has provided plenty of excitement and challenges to this space. A “food hub” is a relatively new business model that encompasses the aggregation, distribution, and marketing of local/regionally produced food products (Bartham, 2010).  This definition is remarkably similar to that of a farmers’ cooperative, aside from the fact that some food hubs are non-profit corporations (or other entities) not owned and controlled by farmers. 

At the South Carolina Center for Cooperative and Enterprise Development, we have had good results generating excitement about cooperatives focusing on these current trends. Within the past 4 years, we have started eight new cooperatives, each addressing issues important to their members.  Some examples:

• Aggregation and Collaborative Marketing: SC Beef Marketing Cooperative and SC Cut Flower Growers Marketing Cooperative
• Business Continuity and Shared Ownership: Cape Romain Oyster Cooperative
• Social Purpose/Cultural/Community Improvement: Rural-Urban Cooperative and Freedom Sowers Cooperative
• Value Added Processing and Marketing: Gullah Farmers Cooperative Association, V&M Farmers Marketing Cooperative
• Equipment Sharing and Education: Aiken Prescribed Burn Cooperative (Forest Landowners)

Once started, of course, the work does not end.  Keeping cooperatives running smoothly and efficiently is also necessary.  Thankfully, there are many sources of support.

Assistance for Cooperative Development

Like the SC Center for Cooperative Development at Clemson University, many land-grant universities have cooperative centers that help train new board members and develop current board members. There is also CooperationWorks!, a non-profit that supports both land-grant and non-land-grant cooperative development centers. A map of development centers can be found on their website, along with many good supporting materials. 

The USDA Rural Development encourages cooperative development and helps fund cooperative development through its Rural Cooperative Development Grants, gives priority points to cooperatives on its Value-Added Producer Grants, and provides direct assistance to minority-owned cooperatives through its Socially Disadvantaged Groups Grant.  

Returning to Phil Kenkel’s article with his last line quoted, “Perhaps we just need to recycle some good old ideas!” seems appropriate to repeat. Maybe I would modify it just slightly to “recycle and repackage.” 

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Resources and References

Bartham, J. (2010). Getting to Scale with Regional Food Hubs.  USDA Rural Development website accessed 7.17.2024. https://www.usda.gov/media/blog/2010/12/14/getting-scale-regional-food-hubs

CooperationWorks! The National Cooperative Development Network.  Cooperative Development Locations.  Website accessed 7.17.2024. https://cooperationworks.coop/member-locator/#search

Kenkel, P. (2024). Why Don’t We Start More Cooperatives? Southern Ag Today.  https://southernagtoday.org/2024/05/17/why-dont-we-start-more-cooperatives/

National Cooperative Business Association. (2024). What is a Coop?  NCBA website accessed 7.17.2024 https://ncbaclusa.coop/resources/what-is-a-co-op/

South Carolina Center for Cooperative and Enterprise Development (2024). Website accessed 7.17.2024. https://coopcentersc.org/

South Carolina Department of Agriculture (2022). New Beef Co-op Seeks to Expand Processing, Create SC Beef Product.  SC Department of Agriculture News Release. https://agriculture.sc.gov/new-beef-co-op-aims-to-expand-processing-create-sc-beef-product/

South Carolina Department of Agriculture (2024). New Cut Flower Co-op Working to Market South Carolina Blooms. SC Department of Agriculture News Release. https://cooperationworks.coop/success_stories/new-cut-flower-co-op-working-to-market-wholesale-south-carolina-blooms/

United States Department of Agriculture, National Institute of Food and Agriculture. Land Grant Colleges and Universities (2019).  Website accessed 7.17.2024. https://www.nifa.usda.gov/sites/default/files/resource/LGU-Map-03-18-19.pdf  

United States Department of Agriculture, Rural Development (2022). Preserving Seafood Heritage by Bringing in Next Generation.  Rural Development Success Stories. Website accessed 7.17.2024. https://www.rd.usda.gov/newsroom/success-stories/preserving-seafood-heritage-bringing-next-generation

United States Department of Agriculture, Rural Development (2022). Gullah Coop: Growing Food, Preserving Culture.  Rural Development Success Stories. Website accessed 7.17.2024. https://www.rd.usda.gov/newsroom/success-stories/gullah-co-op-growing-food-preserving-culture

United States Department of Agriculture, Rural Development (2024). Website accessed 7.17.2024. Webpage resources:

Service Center Locator https://www.rd.usda.gov/browse-state

Rural Cooperative Development Grant https://www.rd.usda.gov/programs-services/business-programs/rural-cooperative-development-grant-program
Value Added Producer Grant https://www.rd.usda.gov/programs-services/business-programs/value-added-producer-grants
Socially Disadvantaged Groups Grant https://www.rd.usda.gov/programs-services/business-programs/socially-disadvantaged-groups-grant

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Richards, Steven. “Making Cooperatives More Relevant and Exciting.” Southern Ag Today 4(33.5). August 16, 2024. Permalink

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USDA’s National Agricultural Statistics Service’s (NASS) Census of Agriculture is published every five years and provides data at the U.S., state, and county levels. One metric tracked is the average age of agricultural producers. This information is provided for selected southern states for the Census reporting periods 2017 to 2022, along with the percentage change in average age for that timeframe.

The overall average ages for all producers for 2017 and 2022 for the southern states are indicated in Table 1. In all states, average producer ages were increasing. For 2022, Mississippi and Florida had the highest average ages of producers at 59.6 and 59.5 years old, respectively. Georgia, Kentucky, and Tennessee had the largest percent change increases in average ages from 2017 to 2022. North Carolina had no change.

For this same timeframe, North Carolina had the largest numbers of counties with declines in average age of producers for 52 of their 100 counties, or 52 percent, followed by Virginia, Mississippi, Alabama, and Florida (Table 2). Those with the smallest include Maryland, Tennessee, South Carolina, and Kentucky.

Figure 1 depicts county level decreases (yellow shade) or increases (blue shade) in average age of producers for the states analyzed. Those counties with no changes are depicted in a red hatched fill.

Figure 1. County Level Change in Average of Age of Producers from 2017 to 2022 Census

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Menard, R. James. “Changes in Average Age of Producers in Southern States, 2017 and 2022.” Southern Ag Today 4(32.5). August 9, 2024. Permalink

In October of last year, The Progressive Corporation announced that it would not be renewing about half of its homeowner’s insurance policies in the state of Florida. The notice went into effect last month, with letters going out to homeowners stating, 

“Dear Policyholder, your policy will expire at 12:01 on July 1, 2024, for the following reasons. After careful consideration we are unable to offer you a renewal policy due to a reduction in our hurricane exposure. Please contact your agent to find replacement coverage”.

They were not the first insurer to do so and are not expected to be last. Damage from natural disasters across the Gulf Coast, whether in the form of windstorms, flooding, or hail, has led to a rise in the payouts insurers are making to their policyholders. The Insurance Information Institute’s 2023 annual report wrote of the 28 US weather events exceeding damages of $1 billion, breaking a previous record of 22 in a single year. These disasters led to total insured losses of approximately $60 billion in 2023 (Insurance Information Institute, 2023). To remain solvent these insurers are managing through two courses of action, passing on costs via increased premiums for consumers, and exiting regions where the risk is deemed too high to justify any premium at all. With insurance a requirement for almost all property under lien (commercial, residential, or agricultural), a relatively less stable insurance market threatens a community’s very ability to build capital, by threatening its ability to take advantage of credit. 

Among the policy proposals intended to shore up these markets are new allowances for premium hikes, adaptation policies such as more stringent building compliance codes, and an increased reliance on reinsurance and “catastrophe bonds” intended to spread out risk among global investors. New research has studied the threat of adverse selection in these markets, particularly as it relates to one’s own perceived vulnerability to a natural disaster (Wagner, 2022). In short, natural disaster insurance markets are adversely selected if homeowners with a higher willingness to pay for insurance are also more costly to insure. Akin to the problem health insurers have with smokers seeking insurance without disclosing their smoking, those homeowners who feel most at risk to natural disasters are the most likely to seek insurance for them. When this is the case, an increase in premiums tends to crowd out those with the lowest willingness to pay, which also tend to be those with the lowest risk among policy buyers. If this occurs, no progress is made toward an insurer’s goal of improving the cost/risk profile of their portfolio, while making insurance more expensive for those who remain insured. The administrators of the National Flood Insurance Program considered this a top concern during their latest meetings on long-term authorization (Wagner, 2022).

Reinsurance has long been an effective tool for disseminating local risk to a global investor base. Firms such as Swiss Re and Munich Re are the largest global buyers of natural disaster risk, allowing regional insurers to offload policy risk for commensurate fees. As Gulf Coast disaster risk has grown in recent years due to climate change, so has the cost of reinsurance, to the point that regional insurers find it no longer cost effective to offer certain policies, particularly those with high property valuations and/or low disaster resilience. These tend to be disproportionately located in rural communities and include many agricultural structures, as well as those categorized as “secondary homes”. The increased use of catastrophe bonds is one-way reinsurers have continually enticed third-party investors to assume this risk. If a natural disaster occurs within the bond’s predetermined lifespan (usually three years) then the principal is lost and used to reimburse those impacted, via payments to the reinsurer and then the regional insurer. The trigger for a catastrophe bond can be a natural disaster of a certain size hitting the area under coverage, or damages exceeding a predetermined threshold. If no disaster occurs, then the investors simply get back their capital, with interest (Keucheyan, 2018).

These flexible financial instruments, along with ongoing policy changes, have had enough of a positive impact on insurance markets over the first half of 2024 that some homeowners are seeing insurers returning to areas they had once abandoned. However, this short-term success is one continually threatened by the next set of natural disasters and the increased severity and frequency climate change has imbued them with. 

References: 

2023 Annual Report. (2024). Insurance Information Institute. Retrieved from https://www.iii.org/sites/default/files/docs/pdf/triple-i_2023_annual_report.pdf

Keucheyan, R. (2018). Insuring climate change: New risks and the financialization of nature. Development and Change, 49(2), 484-501. doi:10.1111/dech.12367

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Lopez, Benjamin. “Natural Disaster Insurance and Markets Under Pressure: New Challenges to Managing Risk in Rural Communities.” Southern Ag Today 4(28.5). July 12, 2024. Permalink

The popularity of Community-Supported Agriculture (CSA) has been on a downward trend for over 20 years. As such, the continuous decline of CSAs raises the question of whether their traditional business model can compete with other local food sources. Since the first CSA program was introduced in 1986, CSAs have not changed their core model; farmers and consumers maintain a direct relationship, ensuring financial support for the farmers while providing members with locally grown food. Typically, CSA members pay a seasonal up-front fee ranging from $400 to $800 in exchange for predesignated boxes of raw ingredients, which can be picked up or delivered. Though many CSAs have partially modified their model with up-front pricing policies and CSA box options, their core model has yet to change since its inception. Meanwhile, CSAs became the least favorable option for local food customers (Seo & Hudson, 2023). Many larger retailers provide local food with greater accessibility, diverse selections, and entertainment options like live music. Similarly, farmers’ markets offer fresh local food with a strong emphasis on community engagement & support, and various entertainment, which CSAs typically lack. Thus, the continuous diminishing of CSAs suggests that they need to reconsider their outdated business model to remain competitive and sustainable among other local food sources.

However, the local food model in South Korea sheds some light on how CSA farmers could better position themselves among local food sources. In Korea, numerous small local food shops run by small cooperatives effectively bridge the gap between micro farmers and customers in rural communities. The common thread among these local food shops is their utilization of the Wanju Local Food Cooperative‘s local food model. This model won awards at the Milan Urban Food Policy Pact (MUFP) in Governance for “Local Food No. 1 Project” in 2018 and in Social and Economic Equity for “Equal Healthy Food for All: Wanju Type Food Plan” in 2022. It was also praised by the Food and Agriculture Organization (FAO) as a successful regional food localization strategy (FAO, 2017). As such, the Wanju Local Food Cooperative is an excellent example of how CSAs can revive themselves and become popular once again.

When the Wanju Local Food Cooperative initially started, they used the traditional American CSA box delivery model. Though they still offer CSA boxes to customers, their success began with their first offline local food shop in 2012, right around the same time that the number of CSAs in the United States started to decrease. To launch their first offline shop, the cooperative created contracts with 1,011 local farmers and developed detailed crop production plans to offer customers a small but diverse selection of produce. Since then, the shop has functioned as an open market for micro farmers who have completed training courses and submitted production plans to sell their produce freely. To ensure the highest quality products, the Wanju Local Food Cooperative maintains a strict list of policies, including: 

• Fresh produce must have been harvested the same morning that it is brought to the market for sale

• Farmers independently pack, display, and price their own produce

• Unsold produce is either discarded or returned to the original farmer

• Farmers pay a 10% commission fee to the cooperative 

Furthermore, the cooperative managing the local food shop extends its services to restaurants within the shop, provides online shopping options, offers food processing facilities to farmers, and even enhances community engagement through agrotourism initiatives such as farm tours and cultural events. As a result, it is common to see residents and tourists flock to the shop early in the morning to buy the freshest locally grown produce and enjoy the restaurants serving local food. This successful local food model spread nationally and became a popular community support model throughout Korea. Because the local food shops offer a variety of the freshest produce, good accessibility in residential areas, competitive prices from competition between farmers, entertainment events, and no exclusive membership or up-front fee policy, these local food shops have established their unique place among local supermarkets and farmers’ markets.

The success of the Wanju Local Food Cooperative underscores two pivotal elements for an effective local food model: minimizing market entry barriers for small farmers and offering a diverse range of produce to customers under one roof. Many small farmers struggle to access markets due to quantity constraints, which deter both existing farmers and potential newcomers. The Wanju Local Food Cooperative has overcome this challenge through its open-market approach.Additionally, while local food consumers do seek shopping experiences that support local farmers and foster community engagement, their primary desire is a convenient location to purchase their weekly groceries. In contrast, the traditional CSA model often receives criticism for its limited selection. However, the Wanju Local Food Cooperative addressed this by coordinating farmers’ production plans to offer a broader array of produce, prioritizing variety over quantity to fulfill the objective of convenient grocery shopping. Therefore, if CSAs in the United States seek to remain competitive with other local food sources and genuinely support community farmers to be more than just a produce box delivery service, they should reconsider their traditional approach to running their organizations. 

References

Food and Agriculture Organization of the United Nations. (2017). Wanju: Supporting Local Agriculture 

through Direct Food Marketing, Milan Urban Food Policy Pact Category: Governance, Food and Agriculture Organization of the United Nations (FAO). https://openknowledge.fao.org/handle/20.500.14283/ca0491en

Seo, F., & Hudson, D. (2023). Attributes that Influence Consumers’ Preferences for 

Choosing Locally Grown Food Sources During and After the COVID-19 Pandemic. Journal of Agricultural and Applied Economics. 2023;55(4):626-650. doi:10.1017/aae.2023.27

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Seo, Frank. “Is the Current CSA Model Sustainable? A Lesson from Korea.” Southern Ag Today 4(27.5). July 5, 2024. Permalink

Some people say that growing organically requires a different mindset. Receiving a price premium particularly when demand is high guarantees increased earnings, but many producers shifting to organic put environmental stewardship and personal values at the top of the list. Between 2017 and 2022, the US experienced a notable surge in the organic agriculture sector, with the Census of Agriculture showing increases (about 32%) in organic product sales. However, the number of organic operations dropped from 18,166 to 17,321 (about 5%). 

Growing organic in the South has its own challenges; high pest pressure, high humidity and a region prone to extreme temperatures. As such, organic operations in the South tend to be smaller but are still important contributors to the sector. A closer look at the Census of Agriculture reveals some important changes in organic production for row crops and specialty crops. Arkansas, Georgia, North Carolina and Kentucky about doubled sales, Texas and Florida went up by 50%, and states like Louisiana where organic agriculture does not have a big economic footprint still reported a 12% growth. South Carolina and Texas were the only Southern states reporting a growing number of organic operations.

Another challenge that organic producers face is the USDA certification process. Transitioning to organic requires familiarizing yourself with the certification process and regulations of the USDA National Organic Program (NOP). The recent Census of Agriculture revealed a decrease in the farms with acres transitioning to NOP. Though the numbers may be discouraging, it is worth considering the level of responses the Census received which was low particularly in some states.

Figure 1: Number of farms with acreage transitioning into USDA NOP

It will be interesting to see how producers will respond to the changing production landscape in the near future. As USDA works in amending organic production standards and with the demand for differentiated products continuing to grow will USDA provide more support to organic production? As of now we have seen increased funding in organic production through grants, funding towards development of organic markets under the Organic Market Development Grant program and this is the fourth year that USDA provides cost share assistance for organic certification. Certified organic producers and handlers who have paid certification fees during the 2024 program years may apply for reimbursement of the incurred costs up to 75%. The application deadline is October 31, 2024. For more information see link below: https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/organic-certification-cost-share-program/pdf/2024/fsa_occsp_fact_sheet.pdf

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Bampasidou, Maria, and Juna Dylce. “Transitioning to Organic in the South.” Southern Ag Today 4(26.5). June 28, 2024. Permalink