New generation cooperatives represent
the most recent wave in the efforts of agriculture producers to pursue
and shape their own future. Agriculture has undergone radical change
in recent decades. The structure of agriculture is changing primarily
because of advances in technology and changes in consumer preferences.
One aspect of this transformation is the industrialization of agriculture.
Industrialization often means large scale or industrial scale production
processes. But it also means the adoption of system wide processes
over the entire marketing chain or supply chain to coordinate activities
within the food distribution system. Commodity markets, in which
commodities are gathered from autonomous producers, mixed, and sold to
processors, are increasingly being replaced by full supply chain approaches
that are characterized by producer contracts, outsourcing, and vertical
integration. This has become especially evident in the poultry and
pork sectors. Many experts assert that these approaches are finding
their way into the grains and oilseeds sector as well.
Primary production of commodities is rapidly
becoming part of an industrialized food system. Traditionally, farmers
perceived agricultural production as an independent stage of the food chain.
Their involvement with the food chain was often perceived to end at the
farm gate. Today, farmers increasingly view themselves as part of
an integrated system that moves food from the farm all the way to the final
consumer’s dinner plate. Farmers understand that decisions at all
stages of the food system must be interconnected so that consumer demands
are met. The dilemma for the farmer is this: Will the farmer be a
contract agent for other parties who control and manage the supply chain
or will the farmer play a larger role in the ownership and control of the
supply chain?
One of the outcomes of industrialization
and other changes taking place has been lower per unit returns to primary
agricultural production. In addition, western Canadian farmers have
had to deal with public policy changes, most notably the elimination of
the Western Grain Transportation Act (WGTA) in 1995. The elimination
of the WGTA has led to higher transportation costs for western Canadian
farmers to ship their grains and oilseeds to port. It was hoped that
this change in legislation would assist in the development of value-added
processing activities on the Prairies. As a result, farmers are looking
for ways to add value to their grain here on the Prairies rather than ship
it as a raw commodity to export markets. In addition, changing World
Trade Organization (WTO) rules are beginning to have effects on sectors
characterized by supply management. Producers are looking for ways
to sell their product directly to processors outside of the supply management
system. Changing WTO rules lessen the reliance on government regulation
as the buyer and seller of product.
Through new generation cooperatives, producers
have the opportunity to share in two income streams: revenue from the sale
of the raw agricultural commodity as well as revenue from the processed
product. New generation cooperatives therefore allow producers a
chance to gain a greater share of the consumers’ food dollar and move up
the value chain. New generation cooperatives can be particularly
adept at capturing niche market opportunities. Niche markets involve
low volume products such as bison or exotic oilseeds that don’t fit well
in high volume marketing strategies followed by larger, established processors.
As a result, there may be opportunities in these markets for new generation
cooperatives. Although small in volume, niche markets may provide
the opportunity to earn high margins.
The changing structure of agriculture has
raised many questions concerning control and power in the industry.
As contracting and vertical integration become more common, it is likely
that producers will have less control over their production and marketing
decisions.
Producers must ask themselves how they
will fit into the modern food distribution chain. New generation
cooperatives are one possible tool to help producers broaden their participation
and ownership in today’s agriculture system. Forming a new generation
cooperative represents a method of maintaining producer independence—by
agreeing to cooperate with each other and become owners of their own value-added
business, producers can avoid the loss of control to outsiders concerning
production and marketing decisions.
The purpose of this sourcebook is to assist
farmers and others to evaluate the opportunities and to succeed in those
efforts where a new generation cooperative is the best approach.
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Sources:
Agriculture and Agri-Food Canada. 1998.
Bi-weekly
Bulletin Vol. 11 No. 20 October. Market Analysis Division, Policy Branch,
Adaptation and Grain Policy Directorate.
Centre for the Study of Co-operatives.
Web site. New Generation Co-operatives. http://coop-studies.usask.ca/NGC/NGCmodel.html
. Retrieved May 2, 2000. University of Saskatchewan.
Stefanson, Brenda and Murray Fulton. 1997.
New
Generation Co-operatives: Responding to Changes in Agriculture.
Centre for the Study of Co-operatives: University of Saskatchewan. Saskatoon,
Saskatchewan.
Urban, Thomas. 1991. Agricultural Industrialization:
It’s Inevitable. Choices Fourth Quarter. Reprinted in The Best of Choices
1986-1996: Ten Years of Food, Farm, and Resource Issues, pp. 70-72. American
Agricultural Economics Association.