Lessons for Manitoba: Conclusions and
Recommendations
Note: These conclusions and recommendations
are also listed at the end of the Executive Summary.
Conclusions
1. New Generation Cooperatives are an
important new development tool for rural economies. In future years,
it will be shown thay they were not an isolated phenomenon or oddity peculiar
to North Dakota or Minnesota. The models developed in these states
are spreading to other regions and countries, including Canada.
2. The NGC model is an outgrowth of the
traditional agricultural business cooperative. Forces external to cooperatives
(such as the industrialization of agriculture and globalization), and forces
internal to cooperatives (free rider, horizon, control, portfolio, and
influence problems) present significant challenges to the survival and
success of traditional cooperatives. Traditional cooperatives are
striving to meet these challenges in different ways. For new cooperatives,
the NGC model deals with many of these same challenges.
3. One of the big challenges is the industrialization
of agriculture. The NGC is often well suited to deal with this challenge.
The advantages are perhaps greatest in single commodity niche markets where
there is scarce investor-owned firm involvement or interest. The NGC provides
producers with an opportunity to create a market for their product and
participate in the supply chain for that product beyond the farm (e.g.,
bison, sugar beets).
4. A potential competitive advantage of
the NGC over other firms is the tied integration of processing with the
business of the farm. The farmer owner develops a greater knowledge of
processing and of the demands of the consumer. This knowledge, when applied
back at the farm level, results in improvements in product quality as well
as farmer/processor relations.
5. There are several factors that explain
the high level of interest in NGCs in North Dakota and Minnesota. First,
the NGC may provide a market for the producer which would not otherwise
exist (e.g., American Crystal Sugar Company). Second, the NGC may represent
an attempt to increase local competition for the product and tighten the
“basis”. Third, the NGC may simply be an investment vehicle for the farmer,
allowing the farmer to participate in the investment of his commodity beyond
the farm. The distinction between the farmer-as-owner and the farmer-as-venture
capitalist in many cases may not be great. Finally, the NGC may be seen
as a vehicle for rural development and community renewal.
6. The rural development motive is a two-edged
sword. For the farmer/entrepreneur the compelling reason behind all investment
decisions must be the business case. In the competitive world of agriculture,
developing business solely for social reasons will likely fail. However,
the rural development and community renewal motive is a powerful reason
for both government and the public to participate. They do this by
developing a vision and direction for the province/state, and by facilitating
development of new cooperatives through cooperative development support
and start-up cost support.
7. In some cases, the NGC will be the most
appropriate legal form of organization for the business. In other
cases, different forms of partnership, corporation or traditional cooperative
will be more appropriate.
8. The NGC is an important tool for rural
development but it is not a "silver bullet". Sound business opportunities
must exist and there will be failures.
9. It is important that legislation be
accommodating to NGC formation. For example, legislation that requires
costly and unnecessary steps regarding securities and disclosure can be
a major disincentive to business development.
10. When choosing the legal form of the
proposed enterprise, taxation may be an important factor. In the United
States, cooperatives are accorded single tax treatment status for qualified
profits allocated to members. In other words, the member pays taxes on
these allocations while the cooperative can treat these allocations as
eligible deductions. Similar status has evolved in the United States for
certain types of private investor-owned firms, particularly the limited
liability company.
11. The US experience regarding NGCs was
driven by the coincidence of several factors. Many of these factors
are common to both Manitoba and North Dakota, such as the regions’
strong cooperative heritage, poor commodity prices, enterprising crop and
livestock producers, and the effects of industrialization and globalization.
However, there were several key factors unique to North Dakota. If
these factors can be ranked in importance, the first might be the existence
of the sugar beet industry’s experience with the “American Crystal Sugar”
model and its related impacts (success, knowledge, and experience). The
second was the existence of cooperative development units that were allowed
to operate with a high degree of freedom (in particular, the NDAREC’s cooperative
development specialists). The third factor was the support and financial
assistance provided by APUC, the St. Paul Bank for Cooperatives, the federal
government, and the state-owned Bank of North Dakota. Manitoba’s
success will be determined in part by our ability to develop similar approaches
and competencies.
12. Although there are many critical success
factors, three are highlighted. The most important is the soundness of
the business opportunity. The NGC form of business is no substitute for
good business sense. Second, timing of the fund raising can be critical.
For example, Northern Plains Premium Beef seemed to be plagued by inopportune
timing within the cattle sector. Many ventures in 1995/96 had opportune
timing due to farm program payments and high grain prices. Third,
timing of entry into the business can be critical. For example, the
actions of Dakota Growers Pasta Company were advantageous in terms of industry
timing.
As a closing comment, this study affirms
the conclusion by many that there was a very exciting and distinct environment
in North Dakota and Minnesota in the 1990s surrounding the formation of
this new generation of cooperatives. This environment was highlighted by
a quantum shift in entrepreneurial culture beyond the farm gate. It was
nurtured by government and key organizations. It was aided by the sugar
beet experience, high farm income in the mid-nineties, and several early
success stories. It was implemented by farmers willing to take risks with
their time, their money, and their products. To quote Bill Patrie
(in conversation): “What I like about New Generation Cooperatives is the
direct involvement and commitment by producers with their dollars and their
products.”
Recommendations
There are clearly
some unique circumstances that propelled North Dakota to the forefront
of NGC development. In particular, the state had potential NGC leaders
and development assistance in place. These factors, when added to
other more commonly found factors, ignited the spark for the North Dakota
experience. This combination of factors explains, in large part,
why North Dakota was the innovator and not Manitoba, Nebraska or other
states or provinces. However, when it comes to the adoption of new
approaches it can often be as beneficial to be an adept follower as a successful
innovator. Manitoba has already taken several steps to encourage
the development of NGCs. The following points underline these efforts
and outline additional initiatives to encourage NGC development.
1. NGC friendly legislation
The Cooperatives Act (Chapter C223) has
recently been updated and changed in Manitoba. Some of these changes
to the Act will be more accommodating to NGC formation than previously.
2. A long-term strategy
A consistent, high profile, long-term strategy
toward value-added processing and the formation of NGCs is needed.
In North Dakota, a direction developed with the Vision 2000 process and
was reinforced with the “Growing North Dakota” initiatives. A dedicated
process in Manitoba with the goal of defining an understandable, visible,
long-term strategy regarding value-added cooperative development is necessary.
3. Coordinated provincial public sector
efforts
A number of provincial departments currently
play a role in NGC initiatives. The department of Industry, Trade
and Mines has responsibility for cooperative development. NGCs are
primarily agricultural and therefore Manitoba Agriculture and Food is involved.
Because NGCs provide an additional tool for rural and community development,
Intergovernmental Affairs is involved. Other departments, including
the Registrar of Cooperatives within Consumer and Corporate Affairs, are
consequently becoming interested and involved in NGC development.
Other interested parties include the University of Manitoba, ARDI, Manitoba
Rural Adaptation Council (MRAC), and the Manitoba Agricultural Credit Corporation.
It is important that all of these efforts be centrally coordinated.
4. NGC start-up support
More support for the start-up of NGCs is
needed. The early legal and consulting costs regarding formation,
feasibility and funding are often modest in the broad scheme of things;
however, it is precisely at this stage when funds are hardest to procure.
In this area, the Manitoba Agricultural Credit Corporation is clearly a
key player in the absence of institutions like the St. Paul Bank for Cooperatives
and the Bank of North Dakota. The assistance provided in Manitoba
by the Manitoba Rural Adaptation Council and provincial programs has been
important in developments to date.
5. Manitoba Cooperative Business Development
Centre
In North Dakota, the efforts of Bill Patrie
and others through the North Dakota Association of Rural Electric and Telephone
Cooperative's economic development programs were central to the formation
of many NGCs. As part of the province’s long-term strategy, a Centre
should be developed in Manitoba to carry out these same functions.
Such an approach requires that the Centre be funded and then given the
independence to pursue NGC development without the constraints of government
or the narrower focus of private consultants. Both the public and
private sectors are important. However, such a Centre would complement
these efforts while filling a void that neither can easily fill.
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