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Corn+Soybean Digest

Co-ops: Friends Or Foes?

Over the past few decades our local co-ops have been our partners in business. They have provided supplies and services that complement what we do. Custom application of fertilizer and pesticides is what they do best. Now some are joining us in what we do best - planting and harvesting.

With purchase incentives from chemical companies and machinery manufacturers, some co-ops are buying tractors, planters and combines. At this point, these competitors are limited in number, but that could change in a few years.

Why would farmer-owned co-ops do this? Who are their target customers? What's wrong with it? Why would some farmers encourage this? I'll try to answer these questions.

In my opinion, it seems strange for farmer board members of a local co-op to agree to purchase a combine for custom harvesting. Most farmers need to expand to stay afloat, so why not let the farmers do the work?

Looking to expand territory and customer base with this service would be the obvious answer. Actually, the co-op is investing the patrons' equity in a service that directly competes with them. When you look at this, it's quite alarming.

Now let's look at it from the other side. If I was close to retirement age and wasn't sure that Social Security and savings would satisfy my financial needs for the years to come, a service like this would be just the ticket. I could sell out and contract with the co-op to plant, spray and harvest my crop and net an extra, say, $50/acre over cash renting the farm. I could make sure that the farm is well cared for and perhaps the biggest bonus would be no upset neighbors who didn't get to rent my farm.

Then there's the farm manager, who wants to make the most for his firm and the absentee landowner. He cuts out the middleman (local farmer) and gets the work done at cost. The landowner increases his return on investment, and the farm management business gets to survive a while longer.

Part-time farmers with good paying jobs in town are a big target. They can't afford large machinery, so the co-op's service would be perfect, even if it was a day or two late.

A producer looking to expand outside of his local area could hire a local co-op to farm the ground that he might choose to cash rent. This would allow a person to expand without the capital overhead of equipment, and offer some geographic diversity to limit production risk for the whole operation.

As an active farmer, I have to know my real cost of ownership for each machine I have. If the co-op can do it cheaper, I should seriously look at what I'm doing and why. All successful businesses outsource phases of their production to the lowest-cost provider. Why should we be any different?

In early December, the delegates at a major farm organization's state convention narrowly passed a resolution to seek legislation that would allow a patron to remove his equity from a co-op that is engaged in a service that competes with him. The opposing argument: The financial institutions that back the co-ops would have difficulty loaning them money if their equity positions are at risk.

This direction of agriculture will be interesting, as "workers" could be doing the jobs that producers had previously felt only someone with "experience" could do.

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