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 today

Ag Co-op Business Volume $ value has been increasing to $ 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. Marketing Cranberries90% Dairy83% Cotton42% Grains/oilseeds38% Soybean processing20% Fruits/vegs19% Livestock13% Total28%

Estimates of Farmer Co-op Market Shares U.S. Supply Petroleum46% Fertilizer45% Crop protectants34% Feed15% Seed13% Total26%

Estimates of Farmer Co-op Market Shares Iowa Grain75% Rural electricity65%

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 1977Farmland Industries + Farmarco = Farmland Industries 1992Farmers Cooperative (Farnhamville) + Mid Iowa Cooperative = Farmers Cooperative 1993Heartland + Mitchellville + Alleman = Heartland 1995Mid America Dairymen + Dairymen Inc. = Mid America Dairymen 1996Milk Marketing Inc. + Eastern Milk Producers = Milk Marketing Inc. 1997Land O’Lakes + Atlantic Dairy = Land O’Lakes

Examples of Co-op CONSOLIDATIONS Dairy Co-ops  Mid America Dairymen, Inc Dairy Co-ops  Associated Milk Producers Inc. (AMPI) co-ops in N.E. Webster Co.  NEW Co-op 1980Illinois Grain + FS Services = GROWMARK 1985Ohio Farmers Grain & Supply + Landmark = Countrymark 1985Gilbert-Story City Co-op + Roland – Nevada Co-op = Heart of Iowa Co-op 1997AMPI (S. division) + Milk Marketing Inc. + Mid America Dairymen + Western Dairymen = Dairy Farmers of America 1998CENEX + 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 YearAcquiredBuyer 1992Union EquityFarmland 1995United Co-op of OntarioGROWMARK 1998CountrymarkLand O’Lakes (LOL) 1998TerraCHS & LOL 2001Purina MillsLand O’Lakes 2002AgWay Agronomy + Seedway GROWMARK

Examples of Co-op JOINT VENTURES YearFirmsActivity 1985GROWMARK / ADMGrain mktg 1986Agri Industries / CargillGrain mktg 1987Cenex / Land O’LakesAgron, feed, petrol 1996GROWMARK / CountrymarkAgron 1996Countrymark / ADMGrain mktg 1997Farmland Industries / Wilbur EllisCrop protection (Wilfarm) 1998Farmland Industries / CHSPetrol (Country Energy) 2000Farmland / CHS / LOLCrop nutr./crop prot./seed 2001Farmland / LOLFeed (LOL-Farmland Feed) 2001CHS / CargillWheat 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 concerns 2. Religious/ethnic differences 3. Past competition between co-ops 4. Philosophical differences w.r.t. board, management, or patrons 5. Resolving critical issues - location of head office -board composition -asset valuation -director districts -equity revolvement -brand of feed -location closing -product line discontinuance