Shawn Stolworthy, Department of Agronomy and Horticulture
Cooperatives can work! Among the many cooperatives that have been organized, only a handful are successful commodity marketers. These successful cooperatives provide examples of how growers can work together to market their commodities profitably. Agricultural commodities have volatile markets. Farmers compete in perfectly competitive markets. Their individual decisions will not affect the market. Growers don’t know what commodity supplies will be when they plant. The determinants of supply are set before growers know what the supply will be. Agriculture can’t turn on and off the spigot of production like other Industries. Once the factors determining supply have been established they can· not be adjusted until the next year; supply for that year is set. Growing conditions change each year, greatly affecting commodity supplies. These factors make It difficult for a producer to know how much to produce, or If he should produce at all. When a farmer plants his crop he doesn’t know if he will sell at a profit or loss. Cooperatives can stabilize a market so the grower receives equitable returns regardless of current supplies. By studyIng successful cooperatives, potato growers can formulate a new marketIng cooperative that is as successful as Sunkist, Ocean Spray, and Blue Diamond.
The cooperatives studied all started because the marketing system prior to cooperative marketing failed to return equitable returns to the growers. Marketing cooperatives are usually massive organizations that Include hundreds, If not thousands of members. A cooperatives goal is to organize a very independent group of individuals. There are many other legal and business aspects that have to be managed if a cooperative is to be organized. Therefore it is very difficult to organize a cooperative, in fact, very few marketing cooperatives have been successful. Growers must be united and work together to make a cooperative work. Most, if not all, start because of dissatisfaction with the prior marketing system. Growers look for solutions when they are losing money. This dissatisfaction tends to unify the farmers and motivates some of them to work to organize. If growers are already making a profit, they will not usually make the effort to establish a cooperative.
Near the turn of the century citrus marketing in Southern California was largely under the control of dealers and speculators who had no interest in the problems of growers. The fruit was handled on consignment or brokerage basis. Consignment sales forced the growers to assume all of the marketing risk. Citrus growers furnished the capital and the distributor assumed virtually no risk. Distributors profits were guaranteed, and the incentive for careful marketing was lessened. Shipments went forward recklessly, demoralizing the markets and returning In many cases a loss to the producer. Moreover, decay in transit, due in part to inadequate transportation facilities, was also excessive. Many growers were forced out of business, and many others became increasingly indebted to packers. Similarly much of Idaho’s potato crop is handled by consignment. The Incentive for packers, handling on consignment, is to handle volume regardless of market conditions. Potato packers tend to flood markets and don’t decrease productions as the markets get soft. It is increasing difficult for potato growers to market for a profit. Most of the growers in Southeastern Idaho have expressed dissatisfaction with the current marketing system.
Each cooperative must have dedicated and motivated founders and leaders. No cooperative studied was without some major start-up problems that threatened the co-op’s existence. These cooperatives each experienced periods where they almost failed. In some instances, such as with Sunkist, there were several cooperative movements which failed before the Sunkist cooperative succeeded. Leaders have to be able to unite the growers and keep them in support of the cooperative movement. They have to be dynamic to excite growers and have to maintain regular contact with the growers in order to sustain support. The leaders need the trust of the growers. Sunkist in order to build the trust of its membership appoints presidents that aren’t paid for their services. A president is select who is a grower and whose reward comes from improving the market for himself and fellow growers.
The goal of a marketing cooperative is to conquer the problem of overproduction. There are basically two ways to combat surplus production: the first is to increase demand, the second is to decrease supply. Cooperatives must fie up a majority of the production in order to control supply. Increasing the grower membership also helps generate more money to promote the co-op’s commodity. The bigger the membership, the more power a cooperative has. Initially Sunkist’s greatest obstacle was gaining enough membership. Sunkist was the result of smaller cooperative banning together because they were too small to control supply alone.
Ocean Spray is probably the best example of a marketing cooperative increasing demand for it’s commodity. When Ocean Spray was organized the market for cranberries was very seasonal. The only market for cranberries was fresh sales near the Thanksgiving holiday. Marus Uran, one of the founders of Ocean Spray, created a cranberry sauce and started canning it for use year round. Shortly after this, the Ocean Spray cooperative was formed to help develop a year-round market for cranberries. A cranberry juice cocktail was then created to broaden their market. Ocean Spray kept developing new products and new ways to market cranberries. Today Ocean Spray, because it has been so innovative, has more cranberry demand than it has supply. Ocean Spray is in an enviable position with sales of a billion dollars. It is listed in the fortune 500 list and is considered the premier juice blender and marketer.
Most cooperatives are not as successful as Ocean Spray at increasing demand. The second alternative is to limit supply. Prorating supply is very difficult to instigate and requires the support of almost all growers. Sunkist is the best example of a cooperative which limited and controlled supply. Sunkist was able to unite smaller cooperatives, and get its membership big enough that it could control the whole citrus market for a time. The prorationing of citrus made growing citrus profitable for growers in and out of the cooperative. The growers outside of the cooperative started expanding because of the new profitability prorationing created. This made it more difficult for Sunkist to control the market. The growers outside of the cooperative were slowly steeling Sunkist’s market share. Sunkist decided it could no longer afford to prorate their production in order to support the whole market. An alternative method was found to prorate supply. Sunkist’s members were able, by a slim margin, to vote in a federal marking order to prorate all citrus grown in the United States. The marketing order is then controlled by a representative selection of growers. This seemed to be a good way to prorate supplies because it controls the whole market, not just the growers in the cooperative. However grower support must be maintained or the representative control board will not prorate supply. A Cooperative must develop a system that benefits members and penalizes nonmembers if it is to succeed for the long term.
Sunkist, Blue Diamond, and Ocean Spray exclusively benefit members by marketing with established brand names. The cooperatives that created these brand names have promoted brand recognition. They have established a high-quality brand that the consumer can depend upon year after year. It is very important to establish a quality control system to make sure that the consumer gets the same high quality product each time the consumer makes a purchase. If the cooperative is big enough, it can promote the brand nationally to give greater recognition and demand. It is easier to get and maintain grower membership when a premium can be offered to them for their commodities. A good brand name increases demand and price at the same time. This is one of the responsibilities of the Idaho Potato Commission. The Commission has done an effective job promoting the Idaho potato. Idaho usually gains a premium in the market place for its potatoes, because the Commission’s work. An Idaho Cooperative can capitalize on this preestablished image.
To maintain customer confidence for a brand name only premium produce is used. Lower quality produce can demoralize the whole market so that the high quality produce will not gain normal returns. Ocean Spray, Sunkist and Blue Diamond all quickly addressed the problems lower quality product creates. All built processing plants to process the lower quality part of the crop and to broaden the market and extend the marketing period. The potato industry in Idaho addressed this issue as well. Idaho has processing plants that efficiently process much of Idaho’s potato crop. This helps to keep the fresh product quality and price up. Processors are innovative and are continuing to expand the potato market such as Ocean Spray. Idaho’s potato processors have been effective at driving down the price paid to growers for raw product. Most grower’s receive less for process grade than it costs to sort it and deliver it. Many growers rely on the fresh pack portion of their crop to subsidize the process portion of the crop. A cooperative with enough grower support can negotiate equitable prices, but need not build their own plants.
I proposed to research grower cooperatives in hopes that a cooperative could be organized to market potatoes. I was going to present the information I gathered to Potato Grower of Idaho Inc. However, shortly after I presented my proposal to the Office of Research and Creative Work, a group of growers started organizing a new marketing cooperative. I became involved with the steering committee when this cooperative was formed. We organized a cooperative called the Idaho Potato Farmers Association [IPFA]. The cooperative was formed in the latter part of December. I was unable to continue working with the steering committee because I returned to school in January. I did keep in contact with some members of the steering committee until the end of school in April. Since then I have been attending IPFA meetings and working to support this cooperative.
The IPFA has had good support from Its inception. Idaho’s potato growers have experienced some poor marketing years. This past year, potato prices reached a record low. This has caused growers to look toward cooperative marketing. Some of the meetings in December and January were attracting over 400 producers from Southeastern Idaho. The group tried to educate growers that the crop they were marketing was not as long as predicted. The IPFA tried to get growers to reduce the volume of potatoes they were selling. Giving this market information to growers seemed to help stabilize the price, but growers didn’t decrease sales as much as the IPFA had hoped. The IPFA kept meeting with growers to gather and to discuss market conditions. Toward the end of the marketing season, a couple of conditions worked to help raise the market price. The IPFA convinced growers the crop was short, and spring rains delayed plantings, extending the marketing season for the existing crop. Then the IPFA asked the remaining growers to reduce sales, and the potato price responded promptly with a immense price increase.
The IPFA is going to concentrate on marketing the process portion of the this years crop. This summer the IPFA has developed a contract and plan to market the majority of process grade potatoes. The cooperative is trying to buy 65% of Idaho’s process grade potatoes. Once the IPFA has 65% contracted, the IPFA will approach the processor and negotiate a price for the whole block. The processors will be asked to buy the cooperative potatoes, before they buy open potatoes or the cooperative will increase the price of its product to penalize the processor. This assures that the nonmember growers will not be able to squeeze the cooperative out of the market. The risks for growers outside of the cooperative increases if processor are required to take cooperative potatoes first; thus encouraging membership. All growers in the cooperative will be paid a base price plus incentives, minus handling and shipping costs.
The IPFA is growing quickly and is becoming a strong cooperative. Meeting have been held across the state, generating a respectable membership. A group of Washington growers have asked to join in the cooperative and will be admitted this year. The IPFA is succeeding and has unprecedented grower support. This next year will be critical for the cooperative, but I expect to see this cooperative functioning for many years. The cooperative is a great tool for Potato Growers.