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Capitalizing on co-operation

Agricultural co-ops are chasing new goals with the times. Could it be time for you to join a land-trust co-op? Or a branding co-op?

“Co-ops are a product of the times,” says Co-operatives First’s Audra Krueger. Today, that means adopting the goals of young, business-minded farmers.

At first, this example might seem on the edge, but it illustrates a bigger point. When Chris Bodnar and Paige Dampier started farming in 2007, finding affordable land was a major roadblock. So, as founders of Close to Home Organics, they purchased a share in the Glen Valley Organic Farm Co-operative, which provided them affordable access to productive farmland and housing in Abbottsford, B.C., to grow organic fruits and vegetables.

“We purchased a $5,000 share to join the co-op and we lease land from the co-op,” Bodnar explains. If they’d had to compete for land on their own, they might never have been able to get off the ground, he says. “A land co-op was a much more affordable option.”

It’s a sign of how ag co-ops are changing. And it begs the question: If you can set up a co-op to access land, what can’t they do?

In these days when so many more farms are incorporated, it can be most useful to think of co-operatives in a corporate context.

A co-operative is simply a shareholder-owned corporation that serves a common need such as access to land, equipment or inputs. Or it could be to assist its shareholders with product marketing, or to obtain professional or financial services for them.

Farmers purchase ownership shares and elect a board of directors to set policies and oversee co-op management. Then, income from the shares and from annual fees covers operating expenses and, in for-profit co-operatives, profits are distributed among members.

In Canada, co-operatives must incorporate under federal, provincial or territorial acts that govern their operations and establish rules about ownership, governance and distribution of profits.

So, getting back to the question, Audra Krueger, executive director of Co-operatives First, a Saskatoon-based group that encourages and supports the development of co-operatives across Western Canada, says, “Co-ops increase bargaining power, introduce new market opportunities, lower costs, decrease risk and take advantage of economies of scale.”

“We work in the startup space,” Krueger says. “There is a lot of interest in ag co-ops and co-ops that support agricultural communities and industries.”

The early days

A group known as the Rochdale Society of Equitable Pioneers is credited with starting the co-operative movement in 1844. A group of 28 weavers working in cotton mills in Rochdale, England, pooled their resources to purchase staples such as flour, oatmeal, sugar and butter in bulk and to sell them to co-operative members at reduced prices, with any profits passed on to shareholders as dividends.

In Canada, the first agricultural co-ops were created so farmers could purchase seed at reduced prices. Dairy farmers also banded together to create co-operative creameries. Between 1860 and 1900, Canada was home to 1,200 dairy co-ops. In 1906, grain growers in the Prairies organized the Grain Growers’ Grain Co., the Saskatchewan Co-operative Elevator Co. and Alberta Farmers’ Co-operative Elevator Co. soon followed, allowing farmers to access lower cost inputs and gain access to international markets.

Although Canadian farmers have been participating in agricultural co-ops for more than 160 years — and research shows that 83 per cent of Canadians would rather purchase their products from a co-operative than a corporation — there are just 1,200 agricultural co-operatives nationwide that retain less than 20 per cent of the market.

The model might have fallen out of favour but Krueger believes interest may be on the verge of an upswing.

“Co-ops are a product of the times,” she says. “Over the last 20 years, there’s been a new contingent of young people interested in agriculture and in collaborating and working together, to pool together their resources, and support one another but also to enter into some kind of organized relationship so they could be successful.”

Old model, new interests

Getting back to Close to Home, Bodnar found becoming a member of a land co-op allowed him — and the other farmer-shareholders working the land as part of Glen Valley Organic Farm Co-operative — access to farmland that would have been out of reach.

“The co-op was formed 22 years ago for the specific purpose of purchasing the piece of land where we farm,” Bodnar explains. “(The founders) chose the co-operative model because it allowed them to raise capital to purchase the land through the sale of membership shares… and to make sure there was no incentive for future generations to cash in and sell the farm.”

Bodnar estimates that the 50-acre farm, purchased for $500,000 two decades ago, is now worth more than $8 million. The co-op ensures that the land will be available for farmers for generations.

Although land co-ops are less common than producer co-ops — a model that allows shareholders to combine their harvests and sell them under a single label to access larger markets and more favourable contracts — Kreuger suspects that the ever-increasing value of Canadian farmland could popularize land co-operatives.

“The price of land has really increased so it’s not going to happen for a beginning farmer who’s not going to inherit the land,” Krueger says. “We’re seeing land trust co-operatives… having the resources to go and purchase land and turn it into a conventional farming asset that fits with their values so farmers can do something together but also still make a living.”

Building infrastructure

The coronavirus pandemic also sparked interest in establishing co-operatives to improve infrastructure. Kreuger points to a group of ranchers in British Columbia who struggled to get their beef to market due to COVID-19 outbreaks in local processing plants.

“In Canada, 85 per cent of our meat production is taken on by three big meat packing plants, which puts us in a vulnerable position if there are infections in the plants, which is what happened with COVID,” she says. “These meat producers in B.C. see the co-op model as a way to aggregate their production and… reach new markets and have some kind of security and consistent availability.”

Westlock Terminal in Westlock, Alta., is another new-generation co-op. The capital raised from 270 shareholders, including grain farmers, allowed the co-op to maintain and expand a needed grain terminal in rural Alberta. It provides grain cleaning, storage and trucking to ensure that farmers can get their grains to market.

In the United States, the number of co-ops is falling while the number of farmers participating goes up, pointing to fewer but larger co-ops.

Canadian agricultural co-operatives like Sollio Cooperative Group, Agropur and Gay Lea Foods Co-operative have all grown through acquisitions.

Bodnar believes that larger co-ops offer some advantages such as the ability to make significant capital investments and provide access to global markets, but it can also be harder for individual farmers to feel their needs are represented.

“Consolidation of co-ops is not necessarily antithetical to the interests of the growers,” he says. “Farmers still have control of those organizations and when the co-ops are profitable, it goes back to the growers, but the larger the co-op, the more important the focus on good governance so all members feel represented.”

When Big Marble Farms became larger than all of the other growers combined, the co-operative decided to shift its branding to take advantage of their name recognition. photo: Big Marble Farms

New in Alberta

RedHat Co-operatives in Redcliff, Alta., has also pivoted to meet market demand.

RedHat started in 1966 with a group of 10 tomato growers who combined their harvests under a shared label to access bigger markets. The co-op has evolved to include 30 growers who grow tomatoes and a range of other fresh produce for retailers across Western Canada. In 2014, the co-op introduced a “Misfits” line of misshapen produce to decrease waste and increase revenues.

The co-op also updated its approach to marketing. Starting this year, all of the produce sold through RedHat Co-operatives will be marketed under the Big Marble Farms label.

Big Marble Farms, one of the original co-op members, became larger than all of the other growers combined. The co-operative decided to shift its branding to take advantage of their name recognition.

Even though Big Marble Farms is the largest in the co-op, the farm still has one share, the same as smaller growers, and it’s this “one share, one vote” approach that makes co-ops valuable for small farms.

“You might be able to grow things really well but not know the first thing about getting a product to market or creating packaging or distribution or shipping logistics or all of the other things required to make a go of it,” explains Jonathan Schow, vice-president of sales and marketing for Big Marble Farms.

Co-op membership might be less attractive to certain growers. For example, large farms might not think they benefit as much. As well, growers wanting to sell new produce to the co-op might bristle at the need for board approval, and some growers might not meet the co-op’s quality standards.

Despite the challenges, Bodnar believes co-operatives are an essential part of the farming landscape in Canada.

“Co-ops are businesses that were started to meet the needs of members; those needs change over time and co-ops must continue to innovate,” he says. “Even without the structure we call a co-op, we co-operate every day; a co-op just formalizes that. It says, ‘We do things really well together, let’s keep doing that,’ and I don’t see that going away.”

6 Questions to ask before joining a co-op

1. How can the co-op benefit my operation? Ask about markets, prices and membership fees. Then, run the numbers to confirm the return on investment.
2. What are the expectations of growers? Will you be asked to provide a certain volume or grow certain types of crops?
3. What is the capacity of the co-op? Not all co-ops can take new members or have the market demand to support additional production.
4. How much are the fees? Co-op members must purchase a share to join the co-op and might be responsible for additional fees such as marketing and packing fees.
5. Who are the other co-op members? Understanding who belongs to the co-op can help you determine where your farm and products fit into the mix.
6. How are decisions made? The process should allow all members to have a voice and the bylaws should ensure that there are provisions in place to protect your voice.

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