New Generation Cooperatives

[ValueChainFX]

A short note about New Gen Coops'

There have been several new generation cooperatives being discussed. Some of the keys that you should be asking when looking at these plants.
If you are looking at delivery contracts (a key) make sure you are not so locked in that you can’t take advantage of a strong market.

Be sure that your investment is tied to the operation in such a way that you always retain the tangible assets of the plant.

Be sure you do not have a board that can stifle the operation and that you have a means of temporarily controlling a rouge board member.

Be sure the operation is set up to give you extra value, not just commodity type value as per usual.

Be sure that information you provide even in the form of numbers or customer info is not able to be pirated by bigger producers.

Ensure that there are checks and balances especially for third party quality assurance.

Talk to someone that has worked in these organization before and ask the hard questions.

Be sure there is a training component that can retain good people that are able to work for you today and into the future.

These are just some of the things to look at. A producer cooperative must be like something that works for the producer first. If the plant makes profit and the producer doesn't .... What's the point!!! I believe the AVCC has a plan that works outside the traditional role and for the producer, so far I haven't seen another new gen cooperative that does, but am always open to discuss this point with anyone that believes they are on the right track no matter what part of the world they are from!

Valuechain@telus.net

[rsomer]

ValuechainFX" you said "If you are looking at delivery contracts (a key) make sure you are not so locked in that you can’t take advantage of a strong market."
I disagree. My view is that the point of investing in a packing plant is to vertically integrate up from a primary producer to a producer of branded beef products. It could be compared to a barley producer deciding to build a hog barn to add value to at least a portion of his production. Once the barn is built the producer has is in effect committed that portion of his barley to the hogs. He cannot expect to sell that portion of his barley instead to the open market when prices are high and let his hog barn sit idle, the producer would loose more than he gains.
It is the same with a beef producer vertically integrating into the packing plant business. Obviously the producer would be committed to deliver a certain number of animals, but not necessarily his/her entire production to the plant, just the hook spaces he has invested in. Otherwise the Tyson Foods and Cargills in the marketplace could break the new gen coop plant at any time they choose by temporarily raising the price of live cattle. The point is the producer is now vertically integrated and on that portion of her cattle production she has committed to the packing plant she no longer is concerned with the commodity market price of cattle rather he/she sees their profits come from the selling of a branded beef product. The bottom line purpose of investing in a new gen coop is to avoid having to sell into a commodity market.
Re your comment "Be sure that your investment is tied to the operation in such a way that you always retain the tangible assets of the plant." Wouldn’t the producer also want his investment tied to the intangible assets of the plant, specifically the good will in the brands that are developed. That is where the real profit lies, not in the machinery of the packing plant.
You also said "A producer cooperative must be like something that works for the producer first. If the plant makes profit and the producer doesn't .... What's the point!!!"
The point is the producer has moved beyond selling into a commodity market into selling a value added branded beef product. Look at Tyson Foods, are they a producer of chickens or a chicken processing plant. They are both, they are a vertically integrated producer of protein to the world. Our beef producers have an opportunity to be Tyson Foods themselves and capture their fair portion of the food dollar that is now going to Tyson Foods and Cargill.

[cowman]

I have to agree with rsomer on this one. You can't have a producer co-op that is open to interference from the IBP and Cargills because they will break the co-op everytime. Their predatory business practices are well documented and they will take a loss for quite awhile if they can see a monopoly situation on the horizen.

[ValueChainFX]

I will agree with both of you, in fact looking at business as usual you would be both right! But if we are not dealing in commodity products in the mainstream Cargill and IBP can only undercut their own product (since the product coming from a plant such as suggested isn't available from their operations) Your points bring out some of the most basic challenges of a new business model. Rest assured when you get into the complexities of how to protect the producer investment, both in terms of tangible and intangibles you need to use the new gen coop intricacies to accomplish this.

My suggestion is that when meetings are held your pointed questions need to be asked to see how these things are done (and why they are done) Most new gen coops miss these things! I believe that the team that has put together the plan to make this work have done an excellent job. I hope the job is open and continues to improve, but at the moment I believe it is the most comprehensive available. This is one reason I have opened communication to any others working on developing a new gen coop so we can share ideas!

If we are going to make a difference it will be done together not one person by themselves!