The need for agricultural co-operatives to move from a political consortium structure to a more business-oriented model
Carmichael Fisher’s Head of Practice for Food and Agribusiness, Ruben Meyer speaks about the Agri co-operative industry
Agricultural co-operatives started in Europe as small-scale ventures during the 18th and 19th centuries. Most were structured in a way similar to political consortia or associations, with a committee structure making key decisions and expertise coming from the founding farmers. In the 21st Century, the 100 largest in Europe contribute +200 billion Euros per year to the economy. There are large-scale agricultural co-operatives across Europe such as InVivo in France, FrieslandCampina in the Netherlands, Lantmännen in Sweden, DLG in Denmark and Glanbia in Ireland. The sector is a substantial one. The basic challenge they face is the same as the one faced by cooperatives historically – to get the best return for farmers by adding value to products along the production process. The difference now is one of scale. Some cooperatives feel they have yet to meet that challenge fully and want to bring their organisational structures into the 21st Century. Now, agricultural co-operatives are also facing several external challenges.
The first is the end of EU quotas – on milk in 2015 and sugar in October 2017. This change is being faced differently across Europe. Some cooperatives welcome this decision and have been preparing for this moment by reorganising their approach to the market by becoming more global and selling into other industries such as chemicals. Whereas some others see this end of an era as a new threat. Then, of course, the second is the uncertainty surrounding the Brexit negotiations. Without knowing whether there will be a Norway or Switzerland-style deal, it’s difficult to tell how big an impact there will be from the UK leaving the EU. As these changes happen, agricultural co-operatives know they must also compete with large companies – the major Agrochemical businesses are currently merging (Monsanto-Bayer, Dow-Dupont, ChemChina-Syngenta) – particularly if they want to sell their goods globally. If you take the example of milk producers in Europe, they are looking to tap into a growing marketplace in Asia, particularly in China.
That means some agricultural co-operatives are looking to change their focus. Several found they must act more like a traditional business to compete and get a foothold in these markets. They feel the need to become more organised. Some agribusinesses are realising they could be losing out on sales because of their organisational structure.
What can agricultural co-operatives do to get more organised?
Bringing in private company expertise could kick-start the change co-operatives are seeking. That could be recruiting process experts, executives experienced in logistics, or those who have experience in the specific markets or areas the co-ops wish to target. As a headhunter, I have placed several executives from the automotive, the aviation and the chemical sectors in agribusinesses. They bring a wealth of different experience to complement the leaders of the co-operatives because they are process-driven. The organisation of manufacturing processes and transportation is key to ensuring the future of any agribusiness.Getting the produce from field to fork successfully is a vital ingredient in business transformation.
Process expertise also assists co-operatives which want to adapt to modern farming technologies. Smart farming uses information technology to help farmers get the maximum yield from their crops. Data is collected and analysed on crop yields, fertilisers, weather patterns, and animal health. Sensors with GPS technology are used for monitoring animal health and reproduction. Drones are now used in soil analysis, planting, crop spraying, crop monitoring, and irrigation. Having people with experience of implementing these technologies in other industries is a huge benefit for co-operatives. Some European co-operatives such as InVivo in France, BayWa in Germany, and RWA in Austria are leading the way in this precision farming, often partnering with or acquiring startups with these skills.
Does change inevitably mean moving to a shareholder system?
The type of structure needed depends on each individual business. Each has a different history, different needs, so each has to make the decision about the best way forward, the best structure to help them get things done. In the Netherlands, ForFarmers is now listed but the farmers – through From Farmers coop – still own 60%. This, of course, allows then to grow and expand. In contrast, France’s premier co-operative InVivo opted to retain the same ownership structure but brought in expert skills. New recruits from the agricultural chemicals industry revamped their process organisation.
In the past, some banks and investors have seen agricultural co-operatives as an investment risk. Moving to a model which is more business-oriented means it is easier to raise private equity funds, and there are several private equity companies dedicated to the agricultural sector. Many of those private equity companies share the same commitment to agriculture – they believe in fostering agribusinesses, rather than seeing them simply as a way of making money. At the end of the day, the priority is to be more business-minded and less focused on internal politics.
Does changing the focus means ripping the heart out of an agricultural cooperative?
For me, the answer is a resounding ‘no’. Farmers have a tangible attachment to their land and are, understandably, sometimes reluctant to change the structure or bring in new skills because they fear it compromises the founding principles of their co-operative. However, that does not need to be the case. The key is in recruiting the right people to organisational roles within the co-ops. This isn’t simply about who is experienced and qualified, it’s about finding people who understand the ethos of the business, its founding values, and who buy into that.
That creates a best-of-both-worlds scenario. Those recruits bring with them the sort of expertise farmers simply do not have, but they also bring a commitment which matches that of the founders. It’s no good simply finding someone who ticks all the boxes. They must have the right mindset.
Published – 22nd Aug 2017