Who chooses to invest in a new generation cooperative?

The decision to invest in a new generation cooperative can be complex.  In 1996, researchers at North Dakota State University wanted to determine whether or not there were differences in the attitudes, perceptions, and characteristics of agricultural producers who chose to become members in a value-added cooperative and those who did not.  Their research suggests that producers’ personal and farm characteristics as well as their attitudes were important factors in the decision to invest in value-added cooperatives.
 

The following are some highlights of the research results:

Personal and farm characteristics
 

• Producers who chose to invest in NGCs were, on average, younger, had higher levels of education, and had more off-farm income and higher net worth than those who did not invest.
• In contrast to a traditional cooperative, in which farm size is a strong predictor of the level of producer patronage, average farm size was not indicative of investment in value-added cooperatives

Perceptions and attitudes
 

• The best predictor of NGC investment was how producers viewed themselves in the food system.  Producers who chose to invest in NGCs perceived their role in the agricultural industry to extend beyond production agriculture and into food processing more strongly than nonmembers did.  Investors also anticipated that the time spent in these value-added roles would increase in the future.
• When comparing investment returns and risks of the NGC to similar investments in stocks, bonds, mutual funds, certificates of deposit, agricultural land, and other on-farm enterprises, producers who chose to become members of the NGC considered the returns from the investment in the NGC to be similar or slightly higher than the alternatives.  Nonmembers perceived the returns of the investment in the NGC to be slightly less than the alternatives.  Investors seemed to have a good understanding of the inherent risks involved with investing in new generation cooperatives.
• Producers who chose to invest in NGCs felt more strongly that the NGC was not a last-ditch effort to survive or a get-rich-quick scheme.  They also disagreed more strongly with the notion that NGCs could not compete with investor-owned firms.

 

New generation cooperatives can differ greatly from one another, and so can their members.  The cooperative’s organizers should try to become aware of the type of producers most likely to be interested in investing in the business.  This may help when conducting an equity drive.

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Sources:

Cobia, David W. 1997. New generation cooperatives: External environment and investor characteristics. In Cooperatives: Their Importance in the Future Food and Agricultural System. Proceedings of a January 1997 Symposium. National Council of Farmer Cooperatives and The Food and Agricultural Marketing Consortium.

Kibbe, Theron F. 1998. Value-added contract cooperatives: Investor and noninvestor differences. American Cooperation: 193-97. National Council of Farmer Cooperatives.

Olson, Frayne, Theron F. Kibbe and Gary A. Goreham. 1998. New generation cooperative membership: How do members differ from nonmembers? Extension Report No. 40. North Dakota State University: NDSU Extension Service.