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Development of Alternatives to Cooperative Mergers and Federated Structures

Bruce J. Reynolds USDA/Rural Development/Cooperative ProgramsNCERA-210 Nov. 7, 2012

• Cooperative Programs surveyed in 2007 about “other ownership structures” (http://www.rurdev.usda.gov/supportdocuments/CoopMag-nov08.pdf)

• Another survey in 2010 added joint venture participation with non-cooperatives

• Mailing problems & survey design problems in not identifying names of joint ventures

• Follow-up telephone survey in 2011 to produce a report (http://www.rurdev.usda.gov/supportdocuments/RR226.pdf )

Table 1 -- Agricultural cooperative ownership of ventures, 2010/11.

Cooperatives reporting 185

Ventures reported 382

Less:

Duplicates reported 48

Condominium grain storage 17

Net number of ventures 317

Wholly-owned subsidiaries 108

Total joint ventures 209

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277 56 333Co-ops Joint Ventures Co-ops Subsidiaries Co-ops Total Ventures

124 1 39 1 144 127 2 5 2 29 214 3 1 3 21 3

1 4 1 4 3 45 5 5 51 6 1 62 7 2 71 11 1 11

Total* 175 46 206

Table 2- Distribution of centralized cooperatives’ joint ventures and subsidiaries, 2007

• There are 206 centralized cooperatives with ventures. The sum of separate reporting of joint ventures and subsidiaries is 221 cooperatives, indicating that 15 have both types of ventures.

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219* 92 311*Co-ops Joint Ventures Co-ops Subsidiaries Co-ops Total Ventures

92 1 43 1 119 123 2 8 2 27 211 3 5 3 18 3

5 4 1 4 8 44 5 5 4 5

6 1 6 1 67 7 7

1 8 1 8 1 89 9 2 9

Total** 136 59 180

Table 3 – Distribution of centralized cooperatives' joint ventures & subsidiaries, 2010/11

* Duplicate joint ventures by reporting co-ops are included.** There are 180 centralized co-ops reporting ventures. The sum of co-ops reporting joint ventures and subsidiaries is 195, indicating 15 have both types of ventures.

Figure 1—Organizational form for separate business ventures, 2010/11

Limited Liability Company, 240

Corporation 54

Limited Liability Partnership, 10

Partnership,6 Other 5

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Figure 2—Composition of joint venture partners with cooperatives, 2010/11

Other cooperatives 92

Non-cooperatives 57

Both 26

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Figure 3 - Percentage share of ownership by cooperatives in joint ventures, 2010/11

1 to 20%, 82 cooperatives

21-49%, 64 coopera-tives

More than 49%, 107 cooperatives

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Table 4 -- Participation in ventures by type of cooperatives, 2010/11.

Cooperatives Joint Wholly-owned

reporting Ventures** VenturesFarm Supplies 70 135 41 Grains & oilseeds 71 104 13 Dairy 14 16 26 Fruits & vegetables 9 13 7 Livestock 5 1 6 Other* 16 11 15 Total 185 274 108 * Includes cooperatives in nuts, cotton, tobacco, sugar, dry beans, fish, and services.** Includes duplicate joint ventures and condo storage ventures.

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Table 5 -- Joint ventures by type of business operation, 2010/11.

Processing 30Agronomy 29Fuel distribution 21Feed mills 21Marketing agent 21Grain terminal 19Farm supply purchasing* 17Ethanol & biodiesel 16Business combinations 6

Other 29

Total 209 * Purchasing agent for multiple types of farm supplies.

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Marketing agent 21

Agronomy 29

Fuel distribution 21Feed mills 21

Grain terminals 19

Supplies purchas-ing 17

Bio-energy 16

Business combina-tion 6

Other 29

Chart Title

Processing 30

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Figure 4 – Joint ventures by type of business operation

1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 20090

25

50

75

100

125

150

175

200

225

Total

Federated

Mixed

Fig. 5 – Federated and Mixed Cooperatives, 1979-2010

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• There were 38 federated and 20 mixed cooperatives in 2010.

• By the 1980s multi-commodity and farm supply federated cooperatives were “full service”– doing all things for all members.

• While federated co-ops have declined in number, they have expanded their membership regions, and are focused on the things they do well.

• Centralized co-ops have increased their size from merging and capturing business from exiting firms.

• Centralized co-ops form subsidiaries or joint ventures to address specific weaknesses of one or two operating divisions.

• Joint ventures are a means of delaying or avoiding more mergers.

• More willingness to joint venture with non-cooperatives and the potential for flexibility in partners is an attractive feature of using an LLC.