Hard times breed new livestock co-ops - Brief Article

Rural Cooperatives, Jan-Feb, 2002 by Dan Campbell

James Rhodes, an ag economics professor at the University of Missouri, once described cooperatives as "the children of distress." If so, small wonder the family of livestock co-ops did some growing in the 1990s, which was a very stressful period for the livestock industry, Brad Gehrke, livestock specialist with USDA's Rural Business-Cooperative Service, said during a seminar held at the National Institute on Cooperative Education (NICE) in Atlanta, Ga., this past summer.

Increased interest in livestock co-ops--particularly in new-generation coops -- can be attributed to low farmgate prices--including $8 pigs in December 1998. The ever-widening gap in the farm-to-retail price margins and the plunging number of spot livestock sales markets (which may be completely gone within 2 years, according to University of Missouri livestock economist Glenn Grimes) also have played a part.

Antitrust laws, the Packers and Stockyard Act, price reporting, commodity check-off programs and traditional co-ops have played roles in helping the industry in the past, Gehrke noted. "But producers perceive that traditional strategies are ineffective to address current market conditions." Instead, more are turning to value-added activity and new-generation coops, which have formed as a response to a host of challenges.

Gehrke cited U.S. Premium Beef, Consolidated Beef, Pork America, Prairie Farmers Cooperative and Mountain States Lamb Cooperative as examples of new-generation co-ops born of the recent period of distress.

In the first round of USDA's new value-added grants program, Gehrke said about 20 percent of the applications and 40 percent of the grants (by value) were awarded to livestock ventures. These included:

* Colorado Homestead Ranches--making ready-to-eat, natural meat products;

* Natural Meat Cooperative--feasibility study for a natural meat co-op;

* American Premium Foods--support for a pork processing plant project;

* Iowa Lamb Corp.--making freezer case-ready lamb products;

* Upper Mississippi Family Meats--feasibility study of a cooperatively owned, multi-species processing plant;

* Vande Rose Foods--production of pork jerky snack products;

* Prairie Farmers Cooperative--support for development of a 72,000-head processing plant;

* Eastern Foods--joint venture to process and merchandise pork;

* North American Bison Co-op--developing export sales and marketing division;

* American Native Beef--feasibility study for new-generation beef processing plant;

* Southern States Cooperative--fish farming, processing and marketing of tilapia;

* Valley Organic Meat Co-op--establishing an organic meat co-op.

Quoting from a book by Joseph G. Knapp (former USDA Farmer Cooperative Service administrator) and Edwin G. Nourse, Gehrke said that "failure to educate is the greatest cause for cooperative failure."

Gehrke's co-panelist, Mike Bumgarner, vice president for marketing services with United Producers Inc., Columbus, Ohio, described how his cooperative was formed in 1999 through the merger of MFA and Producers Livestock Association (PLA). In 2000, the co-op purchased selected assets of Interstate Livestock Producers Association (ILPA), and in March of 2001 it acquired the MLE livestock marketing division, of Southern States Cooperative. Today, United Producers has 70,000 patrons, 58 facilities (located in Ohio, Kentucky, Indiana, Illinois, Michigan, Missouri and North Carolina) and 270 full-time employees in 15 states.

Trends such as market globalization, increased market volatility, biotechnology and consolidation in the food industry are requiring the co-op to expand beyond its traditional livestock marketing and credit functions.

The co-op now has three main arms: United Producers Inc., which performs livestock marketing services; Producer's Credit Corp., which provides producers with financing; and Producers Technologies Inc., which provides information and technology services. Most people still think of auctions and sale barns when the co-op's name is mentioned, Bumgarner said, but its new mission is to be a total livestock services business that operates on a cooperative basis.

New information management services include: production and carcass data; collection and analysis and "QuickPig" production modeling software. The co-op is expanding risk-management services, including forward contracting to provide long-term packer contracts, feeder-preference marketing agreements and brokerage services.

Other new services offered through the co-op include a beef improvement service, bull leasing, production coordination to manage pig flows, consulting services and equipment rental (of gear such as livestock chutes with electronic scales and other expensive equipment needed to help collect data). The co-op is also forging alliances with other marketing and producer groups. Most of its new services are not being operated on a patronage basis.

Given escalating food safety concerns, Bumgarner said "we are kidding ourselves" if we don't think a mandatory carcass identification system is coming in the near future. Tagging animals so that they can be tracked through the packing system will also help producers make better management decisions, he noted.