PCCA - Plains Cotton Cooperative Association Logo PCCA Commentator Magazine Masthead. Vol. 47, No. 2 | Spring 2017

The Cooperative Advantage Through the Eyes of Experts

Members of the agricultural community have a special bond unlike anything else. When a fellow neighbor faces difficult times, it’s no surprise that the community bands together to finish their crop, cook their dinners and provide moral support to their friends in need. Farmers possess a grand sense of togetherness and loyalty to one another; supporting each other in their business relationships as well as personal ones.

Farmers gin together, market their crops together, and provide security to each other when they use cooperatives. When farmers invest in a co-op, any potential risks are minimized and help provide aid when bad years come around. Co-ops help farmers get through tough times because they smooth out the highs and lows of the market, and each farmer will get the same price for their crop no matter the size of their operation. Co-ops provide members a voice in what happens to their cotton and reap the benefits of their investment each and every year. Executive Vice President of the Texas Agricultural Cooperative Council Tommy Engelke (TE), and Roy B. Davis Professor of Agricultural Cooperation John Park Ph. D. (JP), at Texas A&M AgriLife Extension Service discuss the cooperative advantage.

Q: WHY IS IT IMPORTANT FOR FARMERS TO WORK TOGETHER IN A CO-OP?

TE: It is just like another implement to a farmer. It is another tractor. And many farmers belong to several co-ops. It’s just an extension. This has been in the history books about business model 101 for co-ops for years. It’s an extension of the farmer’s enterprise. Like another tractor or another plow, it’s a tool for them to use out there in their enterprise called farming.

JP: An individual farmer is unable to influence the price of a commodity, and by combining with other farmers by joining a co-op allows them to have the market power needed for a better price and capture other profits as value is added to production. These are things farmers can’t really do by themselves, but as an owner of a value-added business they would greatly benefit from it. Because of that, I think we will always have co-ops.

Q: WHY DO YOU THINK CO-OPS ARE SUCCESSFUL?

TE: There are not as many co-ops as there used to be, but the market share in co-ops is on the way up. The profit made from these operations, whether it be Ocean Spray, PCCA, Land O’Lakes or Sunkist, at the end of the day are returned back to the producers, the farmers who own the business. They actually retain some of those funds for growth in the future. The farmers are the owners and that is the amazing story here.

JP: When the market place is not necessarily serving the needs of the business, there’s four basic strategies that help with any business. They would be to add value, focus on the end user, cut cost, or control price. A cooperative does all of those things for the member. So, for farmers to come together collectively, they do have some control over their destiny and even over price to a degree. As long as that degree is beneficial to the market place, co-ops have a right to participate and to provide that service.

Q: HOW WOULD YOU ENCOURAGE CO-OP MEMBERSHIP?

TE: One of the big things that’s not recognized by many people today is a co-op is a risk reducer. You’re taking a product, you’re taking an industry and you’re spreading that risk. One former president said you can’t turn agriculture on one day and off the next, and it is very true in a very high-dollar, high-risk business like agriculture. So in the co-op business model, you are sort of in it for the long haul. In marketing, if you’re in one day and you’re out the next day you are not going to be a very effective marketer. It takes a long-term commitment ,and with that commitment comes stability.

JP: Just by being a member of a co-op cotton gin, you are already the member of other co-ops because the cotton gin is going to be a member of say the
oil mill or the compress. If you can imagine the benefit of already being the member of your local co-op, then realizing that you expand out. All the local co-ops are then members of other co-ops and that impact just ripples out in the market place. So we have larger services that we definitely couldn’t provide on an individual basis. Say with marketing or warehousing, processing of oils and selling those oils as branded products even on the market place. That’s something an individual farmer couldn’t do, but those things take larger scale in order to make them profitable.

Q: HOW DO CO-OPS BENEFIT THEIR MEMBERS FINANCIALLY?

TE: A good, balanced co-op operation comes with expertise. You have all these cotton gins out there but when you have expertise, if it’s the seed business it’s PYCO, if it’s marketing it’s PCCA, then you have more success. It’s all dependent on where you want to go with your operation. It is just another element that these regional co-ops provide; expertise in a very high-dollar and high-risk business.

JP: Times of low prices lead to times of high prices and vice versa. The trick is to survive between those. If all we are looking for is a quick solution to always have a high price, that isn’t what is going to happen. The markets don’t work that way. A cooperative helps capture some of those profits an individual farmer would not be able to capture. In times of low prices, the next level of processing is going to have a low input price, which is bad for the farmer but it might be good for the processor. If the farmer owns part of the processing, that is a good thing. In the co-op system, you can recapture part of those profits so in the end, those absolutely balance out.

Q: WHY ARE COOPERATIVES IMPORTANT TO THE COTTON INDUSTRY?

TE: I think for farmers, one of the things that co-ops provide all the time is that we have a dependable place for our commodity. If I am a farmer in West Texas, and I am raising cotton, as an example, it is very comforting to know that I am guaranteed a place to market my cotton. I am guaranteed a place to store my cotton. I am guaranteed a place to gin my cotton if I am a part of the co-op system. If you are along the Gulf Coast and you have hurricanes to deal with and you have all kinds of market fluctuations, it is nice to know you have a guaranteed home for your product.

JP: Think about cotton production on the High Plains versus cotton production down on the Coastal Bend where hurricanes come in and threaten the crop. It could be the wrong time of year, and it could be a great risk to cotton. It is very important that we have businesses that are not just there to make money to gin or warehouse cotton but are there to understand opportunity cost of the farmer. I now have a business that will take my cotton when it is wet. I have a place to go to market my cotton and someone is going to be more understanding of how it fits in with my needs. Sometimes a co-op sounds bad because it sounds like they are not maximizing profit. Sometimes they may not be maximizing the co-op profit, but they may be maximizing the member profit. That is sometimes the difference in a bad year.