Co-operating for success
In rural New Zealand, however, there's no doubt that well set up and professionally managed, a cooperative remains an effective way for small players to develop muscle in the world of big business.
Most orchardists are members of one or more cooperatives. Few will be unaware of the advantages that membership of ATS or Farmlands brings, and those who use fertiliser will be among the member owners of Ravensdown or Ballance Agri-Nutrients.
When you're selling the produce of your orchard on your own, you have little or no bargaining power. As costs continue to go up without a corresponding rise in returns, this is becoming ever more evident. You could do better.
Increasingly growers are marketing collectively through a cooperative. 'By becoming part of a cooperative, growers leverage their bargaining power on the supply side – a lot of agricultural co-ops around the world do that quite well,' according to Professor Tim Mazzarol of the University of Western Australia.
Professor Mazzarol is of the view that it's also worth taking a good look at basic supply chain theory. ‘Supply Chain 101,' he notes, ‘is that the success of a business depends to a large extent on the bargaining power it has with suppliers at one end and customers at the other.'
Much of the world's agricultural output flows through a small number of ‘choke points' on its way from the countryside to the consumer. At these points, trade is controlled by a small number of large companies, such as Archer Daniels Midland (ADM) or Glencore and retailers such as Progressive and Foodstuffs.
The only way for small growers to have real business leverage at these choke points is through cooperatives. It doesn't matter how many shares an orchardist holds in an ADM, a Glencore or a Progressive, those businesses see you as simply a supply cost.
Cooperatives exist for the benefit of their members, and because as orchardists you would own the business, your grower-owned co-op would aim to pay member owners the highest possible price.
Joining an existing cooperative is quite different from starting one. How would you come together as orchardists to set up a cooperative, not just to pack and market your produce but also with a view to extract greater value from your fruit in future years? As a first step, read 'Starting a Cooperative, One Step at a Time' – for a copy send an email to firstname.lastname@example.org. Setting up is a difficult process and needs to be done well if the business is to survive and prosper. ‘There are numerous examples of successful co-ops in horticulture,' says Craig Howard, General Manager of Marlborough Grape Producers Cooperative. ‘People who think co-ops are a good idea may not know what's involved in getting one going. It's not a textbook exercise,' he said. Howard told a co-op conference in Wellington in November, 'Your co-op will become a multimillion dollar business up against some serious business people. It's got to have the right business model, the right people, the right reasons for existing, some capital behind it, the ability to have market share, and quality product.'
DEVELOPING THE MANAGEMENT OF YOUR CO-OP
‘The success of a co-op lies between the commitment of its members and the quality of its management,' says Professor Mazzarol. ‘As co-ops get bigger,' he said, ‘they can do downstream valueadding. They start to build their own retail brands and open up export channels, which mean producers, are no longer stuck in their local market. With R&D they can process their members' output into ingredients and neutraceuticals. All that helps to build greater marketing power.' ‘There is a problem with getting producers to collaborate, because a lot of producers are inherently free marketeers and independently minded. A farmer's horizon rarely goes beyond the farm gate, and their farm is their portfolio,' Professor Mazzarol said. ‘But the bigger story is what's going on around the country or the world.The management of a co-op has to look at that, and consider all the farms in the co-op as their portfolio.' Dr Mazzarol is Winthrop Professor at the University of Western Australia (UWA) and a director of the Centre for Entrepreneurial Management and Innovation and founder of the Cooperative Enterprise Research Unit at UWA. Supported by CBH Group, Australia's largest co-op, UWA is offering an Executive Leadership Programme for cooperatives and mutuals in collaboration with the Australian Institute of Management in August 2015. Information on this program can be found at http://s.coop/aimwa.
Co-operatives nearly disappeared during the deregulation frenzy of the 1980s and 1990s.