Profitable farm cooperatives have strong boards, strategic planning and sales/marketing teams
Good farmers are known for their ability to grow healthy animals and crops. They are stewards of the land. They are the backbone of our nation’s food supply. Their flocks multiply and their fields flourish. They are admired for their resilience in time of adversity.
Most good farmers farm for one main reason — they like to farm. Sales and marketing of farm product, albeit imperative to selling, are usually not the farmer’s specialty. Like my uncle once said, “If I wanted to sell products to consumers, I would have built a store. I farm because that’s what I want to do.”
Sales and marketing is hard work — more than most people realize, and it costs lots of money. It’s easy to see these tasks as jobs for afraid-of-work-type people. The reality is that sales can be the most demanding job in an organization. Without sales, organizations die. It’s that simple.
To counter this challenge and to carve out market share in the highly competitive food industry, many farmers are looking at options of selling directly to consumers. This works for some — but in reality, only for a select few. Because farmers not only want to farm, they also don’t have time to effectively take care of the important tasks of sales and marketing.
With the dawn of commercial agriculture, food processors, grain brokers, etc. are no longer forced to buy from many small farmers. They can now acquire all their grains, milk, eggs, etc. from a smaller number of these commercial farms that produce many times the volume of the historical small farmer. This change in farming landscape forced small farmers to work together as cooperatives. On their own, they could do little to combat the situation. By pooling resources, their voice is heard by the larger customers.
Many farmer cooperatives were formed around the turn of the century to represent groups of farmers for food distribution and direct marketing. Buying cooperatives helped small farmers purchase seed, fertilizer, etc. at competitive pricing. Farmer cooperatives usually start off with a compelling vision to save the small family farm. Unfortunately, their track record and long-term survival is not good.
Markets, weather, government regulation, and low commodity prices are often blamed when cooperatives fail. Usually this is not the case. A more common problem is weak board structure, little or no strategic planning or the lack of a robust sales and marketing plan. These components are essential for long-term sustainability of farmer cooperatives.
At the dawn of the organic movement, certified organic products commanded a strong premium in the marketplace. Organic vegetables could be twisted or knobby but still yield strong market prices. The story is told of a farmer that transitioned to organic and was ready to harvest his first crop. At the end of the first round of picking corn, he heard something banging in his gravity wagon. He stopped the team and went back to investigate. Lo and behold! An ear of corn had fallen in the empty wagon!
This might sound humorous, but it brings out the perspective in the early days of organic farming. Doing nothing for weed control might be organic, but it sure won’t produce a bountiful harvest.
Today, as organic farming gains popularity, consumers demand better quality, more freshness and less price spread between organic and conventional products. Other market differentiators like Regenerative, Certified Humane, Non-GMO, etc. arrived on the scene. “Local” is currently the wild card that trumps all.
Customers and distributors depend on the producer to maintain all food safety requirements. Oftentimes their stringent requirements are not of their own invention but are demanded by customers further down the food chain. Food safety regulations are increasing every year and from all appearance will continue. Either you play by the rules, or you don’t play — it’s that simple. Most distributors prefer to work with cooperatives or large farmers to ensure product quality and food safety compliance on the farm over buying from individual farmers.
Skyrocketing logistics costs impact everyone in the food chain. Food distributors must be creative to ensure all hauling is maximized. Truck load quantity is not optional — it is essential. On-farm pickup is seldom an option for large distributors. Cooperatives are a great tool to communicate with farmers to grow the right crops at the right times to balance supply and demand. Preseason planning is perhaps the greatest key to a successful season. This is especially true in vegetable production.
Once farmers depend on a cooperative and it becomes their means of survival, there is a grave responsibility on the organization’s board and management to ensure viable markets and sustainable prices. Strong communication with producers and members is crucial. Annual meetings are important to update members and producers. Monthly newsletters are a great way to keep producers up to speed on market conditions and the current state of the organization.
Farm marketing networks or cooperatives are often launched by people with a passion for farming. They are the driving force to get the organization off the ground. During the early years, survival is at stake. Without the will of the visionary, most organizations would never survive.
Skyscrapers need deeper footers that silos. Likewise, as organizations grow, the foundation needs to go deeper and wider. New or fledging organizations often can’t afford to hire employees for each sales and management duty. By default, board members or shareholders pitch in to help — often on their own time, with no reimbursement. Without their selfless commitment, many organizations would die.
However, as the wise man Solomon wrote thousands of years ago, “To every thing there is a season, and a time to every purpose under the heaven” (Ecclesiastes 3:1). Visionaries can also easily become the greatest obstacle to success. When organizations grow to several hundred thousand in annual revenue, the board management model usually still works. As annual revenue approaches 5 million (and sometimes before this) a solid strategic business plan needs to be in place. Even the board’s role changes. Previously they were involved in almost every decision. Now that needs to be delegated to the CEO or management team. Failure to do this will cause shipwreck.
Here’s why. Strong leaders will not tolerate boards that constantly meddle in day-to-day operations or get involved in decisions that belong to management. Either the board backs off or the CEO leaves. It’s that simple. Weak leaders are typically okay with board management but will never lead the company to future greatness or true sustainability for its producers, members and shareholders. True sustainability only happens when the board hires a competent CEO that understands and believes in the organization’s vision. His role is clearly defined by the board. He has the authority to make decisions and set principle. He is responsible to create an annual strategic business plan and manage the team. The board will provide the CEO with two things: advice and accountability.
Organizations with weak board structure will struggle for long-term viability. Board member complacency is often present in founding members that continue serving after they made their contribution. If this continues long enough, they will hinder progress and at times eventually ruin the organization. Like someone once said, “It is better to leave when everyone wishes you would stay than wait until everyone wishes you would leave.”
A simple way to avoid this is to have terms for all board members and to limit the number of contiguous terms a member can serve. If the president of United States of America can change every four years, your organization can rotate a member or two in the same timeframe. Organizations may vary, but typically a board should consist of five to nine members who serve three- to five-year terms with a limit of two contiguous terms.
Most important is the vetting process of selecting candidates. Candidates should be interviewed and cross examined to validate their competence before their name goes on the ballot. Existing members should never need to fear a certain candidate gets elected due to his or her lack of competence. The election is usually done by members that don’t personally know the candidates beyond the bio on the ballot. It is imperative that all names on the ballot will make strong board members that will serve with the organization’s best interest at heart.
In his book Good to Great, Jim Collins emphasizes the importance of having the right people on the right seats on the bus. They share a compelling vision. Goals are clear and simple. Their enthusiasm is contagious. You can almost feel the heartbeat of the organization. Having the right people in the right seats works like magic. The two roles that have the most influence on the sustainability of the organization is the board chairman and the CEO. Be sure to have the right people in these seats.
Sometimes the question comes up, “What is most important in a marketing cooperative — the producer, the customer, investors or the organization?”
The answer is, “It’s the wrong question.” All decisions should reflect a balanced view of all. Failure to consider all will result in poor management and decision making. It needs to work for all or it will work for none. Prices need to be high enough for the farmer to be profitable, low enough for the customer to be competitive and profitable enough to sustain the organization.
Building the bridge from farm to market is not an easy task, but it can be done. Develop strong relationships with your customers and fellow farmer members if you have a cooperative structure. The same principle applies to business professionals like your banker, accountant and attorney. They can be great safeguards in your business.
The importance of open communication almost can’t be overstated. Schedule regular communication with your customers and members. Communication can be via in-person meetings, newsletters, email blasts or social media. Use whatever resonates with your audience. Ask advice and seek counsel from those that have run the race.
May your endeavors bring sustainability to the small family farm.
Leon Wengerd currently serves as CEO for Green Field Farms Cooperative, after serving on the board for a few years. Leon is also co-owner of Pioneer Corp, which manufactures horse-drawn farm machinery and other metal fabrication. He enjoys haymaking, forestry management and making maple syrup on the homestead with his wife Rhoda and eight children.
