Unit III. Co-op ID

Part B. Numbers, Business Volume, Market

Shares, and ‘Combinations’

Ag Co-op Numbers

• Peak # in U.S. ~ 12,000 in 1930• The # has trended downward to ~ 2300 today due

mainly to mergers/consolidations (80+%)• The approximate type of U.S. Ag Co-ops is:

• Marketing 50% (about ½ = grain)• Supply 38%• Service 12%

• Same trend in IA: ~ 1000 in 1930 vs 100-120 today

Ag Co-op Business Volume

• $ value has been increasing to $170-200 bil./yr. despite declining co-op numbers

• The 5 leading states are MN (11% of total), IA (10%), WI (8%), CA (7%) and IL (6%)

• Marketing sales are > 2/3 of the total with dairy and grain accounting for nearly ½

• Co-ps’ MARKET SHARE is the best measure (vs co-op #s or $ sales) of their relative economic importance and this has averaged 25-30% over the past 30+ years for products sold and inputs bought by farmers.

Estimates of Farmer Co-op Market Shares

U.S. MarketingCranberries 90%

Dairy 83%

Cotton 42%

Grains/oilseeds 38%

Soybean processing 20%

Fruits/vegs 19%

Livestock 13%

Total 28%

Estimates of Farmer Co-op Market Shares

U.S. Supply

Petroleum 46%

Fertilizer 45%

Crop protectants 34%

Feed 15%

Seed 13%

Total 26%

Estimates of Farmer Co-op Market Shares

Iowa

Grain 75%

Rural electricity 65%

Co-op Unification Alternatives

1. Acquisition (A buys B)

2. Merger (A + B = A)

3. Consolidation (A + B = C)

4. Joint Venture or Alliance

5. Management Contract

Note: Merger and consolidation terms often used interchangeably.

Joint Venture or Alliance

An association of two or more firms to carry out a specific economic activity jointly sharing risks, costs, and profits. The participants remain separate entities keeping their original identities.

Co-op Unification Legal Requirements

1. Acquisitions Members of acquired co-op must approve At least 50% of active members must vote At least 2/3 of voting members must approve

2. Mergers and Consolidations Members of both co-ops must approve At least 50% of active members of each co-op must vote At least 2/3 of voting members of each co-op must

approve Members who object in writing within 20 days must be

paid back the value of: Their stock within 90 days Their deferred patronage refunds within 7 years

Examples of Co-op MERGERS

1977 Farmland Industries + Farmarco = Farmland Industries

1992 Farmers Cooperative (Farnhamville) + Mid Iowa Cooperative

= Farmers Cooperative

1993 Heartland + Mitchellville + Alleman = Heartland

1995 Mid America Dairymen + Dairymen Inc. = Mid America Dairymen

1996 Milk Marketing Inc. + Eastern Milk Producers = Milk Marketing Inc.

1997 Land O’Lakes + Atlantic Dairy = Land O’Lakes

Examples of Co-op CONSOLIDATIONS

1968 31 Dairy Co-ops Mid America Dairymen, Inc.1969 111 Dairy Co-ops Associated Milk Producers

Inc. (AMPI)1972 2 co-ops in N.E. Webster Co. NEW Co-op1980 Illinois Grain + FS Services = GROWMARK1985 Ohio Farmers Grain & Supply + Landmark =

Countrymark1985 Gilbert-Story City Co-op + Roland – Nevada Co-

op = Heart of Iowa Co-op1997 AMPI (S. division) + Milk Marketing Inc. + Mid

America Dairymen + Western Dairymen = Dairy Farmers of America

1998 CENEX + Harvest States = CENEX Harvest States

Heart of Iowa Cooperative

= 1985 consolidation of the Gilbert-Story City Co-op and the Roland-Nevada Co-op

Notes:

1. The Gilbert-Story City Co-op was formed as the result of a 1963 consolidation involving the Gilbert Co-op and the Story City Co-op (reportedly one of the first local co-op consolidations in the state).

2. The Roland-Nevada Co-op had previously (in the 1980’s) acquired the Zearing-McCallsburg Co-op.

Examples of Co-op ACQUISITIONS

Year Acquired Buyer

1992 Union Equity Farmland

1995 United Co-op of Ontario GROWMARK

1998 Countrymark Land O’Lakes (LOL)

1998 Terra CHS & LOL

2001 Purina Mills Land O’Lakes

2002 AgWay Agronomy + Seedway

GROWMARK

Examples of Co-op JOINT VENTURES

Year Firms Activity

1985 GROWMARK / ADM Grain mktg

1986 Agri Industries / Cargill Grain mktg

1987 Cenex / Land O’Lakes Agron, feed, petrol

1996 GROWMARK / Countrymark Agron

1996 Countrymark / ADM Grain mktg

1997 Farmland Industries / Wilbur Ellis Crop protection (Wilfarm)

1998 Farmland Industries / CHS Petrol (Country Energy)

2000 Farmland / CHS / LOL Crop nutr./crop prot./seed

2001 Farmland / LOL Feed (LOL-Farmland Feed)

2001 CHS / Cargill Wheat milling

Co-op Unification Considerations

1. Financial Condition of Co-ops

2. Asset Valuation

3. Business Volume in Trade Area

4. Rail Shipment Capabilities

5. Product Line Differences

6. Fixed Asset Differences

7. Managerial Skills

8. Advantages of Combined Operations

Stumbling Blocks to Co-op Unification

1. Past community rivalries (e.g. schools) or concerns2. Religious/ethnic differences3. Past competition between co-ops4. Philosophical differences w.r.t. board, management, or

patrons5. Resolving critical issues

- location of head office- board composition- asset valuation- director districts- equity revolvement- brand of feed- location closing- product line discontinuance