Millennials are changing the way traditional agriculture marketing cooperatives operate.
The traditional business model, buying from large groups of farmers to obtain volume premiums or discounts, may not be sustainable with the sweeping changes shaped by younger consumers and a food retailer demand-driven system.
An internal industry debate about which model will work best is ongoing. "We're starting to see impacts from consolidations, like Amazon's purchase of Whole Foods, that are creating what are being called 'chain captains,'" says Michael Boland, professor, Agricultural Economics at the Food Industry Center, University of Minnesota. Boland was one of three speakers on a panel about cooperatives at the USA Rice Outlook Conference held recently in Little Rock, Ark.
"These chain captains are dictating what types of specific products they want, based in large part on what customers want."
Millennials, with their buying power, are changing and/or segregating supply chains. "These conglomerates are, for example, wanting products that have been produced with as little carbon emissions as possible," Boland says. "Or they may want a specific GMO product, or products with specific property characteristics."
Boland understands and is recognizing the need for cooperatives to align themselves with these chain captains. Volume still matters, but co-ops will have to find ways to produce what is being demanded by the market.
"Co-ops typically align themselves along the marketing year. It's been a successful model," Boland says. "Why wouldn't you want to be a part of an organization that buys from you (the farmer) at harvest, figures out what the value of that commodity is over the next 12 months and then gives out those proceeds once those values are established?" Boland says.
A new model, opportunity
Panel members agreed the ag industry is in a period driven more by consumer purchases than ever before. "We are moving away from that business model where farmers produce a crop and a co-op will find someone to buy it," says Chuck Conner, president and CEO, National Council of Farmer Cooperatives, and former deputy secretary for USDA, who sees this change as an opportunity.
"My father was a co-op board member, and I can name eight farmers today who are producing more product than the entire co-op handled when I was growing up on our farm."
Do large-scale producers need a co-op? "That's debatable and is in itself the challenge a co-op board has to address," Conner says. "I believe no matter a farmer's scale, they need the benefit of a cooperative's collective operation to survive the kinds of changes that are coming in terms of requirements consumers are placing on the food market."
Conner views today's producers as rock stars. "I say that because I see the collective clout farmers command in both the marketplace and in the policy arena, being as strong as it's ever been," Conner says. "But we have challenges facing us like the importance today's younger consumers place on climate change.
Capitalizing on change
Conner shared a stunning statistic regarding how under 35-year-old consumers view climate change. "This segment of our population believes our world is on a time clock that will expire in 10 years," Conner says. "How do you market to a segment of the population that believes the world will end in 10 years? It's dicey."
The importance of how this segment of the population views agriculture's impact on climate cannot be ignored. "We can't ignore it because they are making up an increasingly larger segment of people buying the products our farmers produce," Conner says. "This and the other challenges facing agriculture must be addressed by a larger, more collective group, and I believe co-ops are in a position to help navigate farmers through to these consumers."
After apartheid in South Africa, a new co-op law was passed allowing anyone to join a cooperative. "Black farmers were small hectare growers, and the white farmers managing large hectare operations were afraid," Boland says. "In the space of three years, eight of the supply and marketing cooperatives de-neutralized."
Co-ops were sold. Some were purchased by multi-nationals and the farmers got a one-time windfall. "Farmers soon began having to drive farther to deliver their harvest and within 15 years, they wanted their co-ops back, but if you lose a co-op, it's gone." Boland says.
The future of co-ops
How will the co-op of tomorrow market to a changing supply chain? "We have to bring in younger board members to help guide our cooperatives," Conner says. "A survey we conducted recently revealed today's young farmers do not appreciate the value of a co-op, and they are less willing to become engaged with it. They don't see the sweat equity their fathers and grandfathers put into building the co-op. That is a huge challenge we face."
Boland says a better job educating younger farmers on the value of co-ops should become a priority. "You have to learn the value of a co-op over a lifetime," Boland says. "The co-op is the only business that will help you farm in your own zip code."