There is the loss of local investment from locally-owned and locally-operated companies plus the patronage dollars that go to producers who do business with the cooperatives (although those are not guaranteed to members each year). Add to that the local control for the end-user or market for the grain. Cooperatives can and will work with local mills or value-added companies. Large corporations are usually vertically integrated in some way so the end-user for the grain is already pre-determined. But probably most importantly, cooperatives serve regions - not just specific communities - when those coops are removed from the market, many communities/counties/regions are left unserved because they are not attractive enough for private industry - but still need some kind of infrastructure or market for their grain. That puts the burden on farmers to either increase on-farm storage or haul grain to a market. We see this is Southeast Kansas. They have a very weak - almost non-existent in some counties - coop system. There are some private actors in the region but not enough. On-farm storage is much more common there and folks are trucking grain sometimes hundreds of miles to get it to a terminal or inland port. We also have to keep in mind that on-farm storage is not always insured so any kind of natural disaster can do major damage to storage facilities and decimate an entire crop.
That's a great question and I'm not sure I have the answer but here are some thoughts . . .
I think you will see - and can see - a few different solutions surface. The first will be farmer-led with groups of producers coming together to create a new business/facility/cooperative system that serves a very niche market or region. For example, there is a group of farmers in far NW Kansas that are proposing to build a new flour mill. They believe that a new buyer will increase demand for wheat acres in that part of the state and because of its location along I-70 could help move flour products into the western part of the U.S. But the proposed facility is expensive and will require considerable investments at all levels. The only downside of that solution is it does not deliver a new market or overall services for other crops such as corn and grain sorghum. But a rising tide lifts all boats, right?
We are also seeing private industry come in and fill voids not unlike the example above. The difference being that again, there is little local control or investment into the local communities. It does, however, bring new demand for a crop and that's a win for farmers.
Finally, I think we go back to the big getting bigger and we will see some established coops leapfrog into new regions. They already have front-off/management staff and can potentially even revive existing infrastructure in the unserved region. That provides them more acres to market - possibility more diversity in their grains - and spreads out risk for producer-owners.
The unknown is the larger public infrastructure - roads, bridges and railroads - that are essential to the function of all agricultural-related services but require state/federal investment. The ROI for these regions never looks good on paper and rural America continues to struggle to make its case for public investment. It's a chicken-and-egg problem that I don't see being resolved anytime soon.
I agree with your thoughts on the corporate "Goliaths" however, I would note - at least here in Central Kansas - agricultural cooperatives are facing a David vs Goliath fight with the bigs getting bigger and the small getting smaller. The disruptor is private industry offering the same products and services for customers - often with the added bonus of technology. This is not only pulling farmers from cooperatives, but is straining already tight labor markets. For those cooperatives that can step up to match corporate services and technologies, the future looks good. But too many cooperatives are failing or simply unable to match the private company options and are therefore losing customers and acres. I love the competition for my grain that has developed through a network of private companies and coops growing outside of their inherent territory, but I know someone or something will give. The smart farmer will take in all options and choose wisely and the smart coop will find opportunities to pivot and customize in ways large corporate players simply cannot.
This is a really interesting scenario. What are the implications of more local coops going away? Less competition for grain so lower pricing likely….what else?
There is the loss of local investment from locally-owned and locally-operated companies plus the patronage dollars that go to producers who do business with the cooperatives (although those are not guaranteed to members each year). Add to that the local control for the end-user or market for the grain. Cooperatives can and will work with local mills or value-added companies. Large corporations are usually vertically integrated in some way so the end-user for the grain is already pre-determined. But probably most importantly, cooperatives serve regions - not just specific communities - when those coops are removed from the market, many communities/counties/regions are left unserved because they are not attractive enough for private industry - but still need some kind of infrastructure or market for their grain. That puts the burden on farmers to either increase on-farm storage or haul grain to a market. We see this is Southeast Kansas. They have a very weak - almost non-existent in some counties - coop system. There are some private actors in the region but not enough. On-farm storage is much more common there and folks are trucking grain sometimes hundreds of miles to get it to a terminal or inland port. We also have to keep in mind that on-farm storage is not always insured so any kind of natural disaster can do major damage to storage facilities and decimate an entire crop.
Thanks for articulating that so clearly! What do you see as the solution of how best to serve those communities/regions?
That's a great question and I'm not sure I have the answer but here are some thoughts . . .
I think you will see - and can see - a few different solutions surface. The first will be farmer-led with groups of producers coming together to create a new business/facility/cooperative system that serves a very niche market or region. For example, there is a group of farmers in far NW Kansas that are proposing to build a new flour mill. They believe that a new buyer will increase demand for wheat acres in that part of the state and because of its location along I-70 could help move flour products into the western part of the U.S. But the proposed facility is expensive and will require considerable investments at all levels. The only downside of that solution is it does not deliver a new market or overall services for other crops such as corn and grain sorghum. But a rising tide lifts all boats, right?
We are also seeing private industry come in and fill voids not unlike the example above. The difference being that again, there is little local control or investment into the local communities. It does, however, bring new demand for a crop and that's a win for farmers.
Finally, I think we go back to the big getting bigger and we will see some established coops leapfrog into new regions. They already have front-off/management staff and can potentially even revive existing infrastructure in the unserved region. That provides them more acres to market - possibility more diversity in their grains - and spreads out risk for producer-owners.
The unknown is the larger public infrastructure - roads, bridges and railroads - that are essential to the function of all agricultural-related services but require state/federal investment. The ROI for these regions never looks good on paper and rural America continues to struggle to make its case for public investment. It's a chicken-and-egg problem that I don't see being resolved anytime soon.
I agree with your thoughts on the corporate "Goliaths" however, I would note - at least here in Central Kansas - agricultural cooperatives are facing a David vs Goliath fight with the bigs getting bigger and the small getting smaller. The disruptor is private industry offering the same products and services for customers - often with the added bonus of technology. This is not only pulling farmers from cooperatives, but is straining already tight labor markets. For those cooperatives that can step up to match corporate services and technologies, the future looks good. But too many cooperatives are failing or simply unable to match the private company options and are therefore losing customers and acres. I love the competition for my grain that has developed through a network of private companies and coops growing outside of their inherent territory, but I know someone or something will give. The smart farmer will take in all options and choose wisely and the smart coop will find opportunities to pivot and customize in ways large corporate players simply cannot.
This is a really interesting scenario. What are the implications of more local coops going away? Less competition for grain so lower pricing likely….what else?