Ag. and Food Cooperatives in Rural
Development – USDA, ERS Workshop
New Cooperative Development:
The Case of Hudson Valley
Growers Association
June 16-17, 2004
Wash., DC
Brian M. Henehan
bmh5@cornell.edu
Senior Extension Associate
Department of Applied Economics and Management
Cornell University
Cornell
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Enterprise
Program
Cornell
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Enterprise
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MY ROLE AT CORNELL
 Sr.
Extension Associate in Dept. of
Applied Economics and Management
 Past Experience Includes Managing a
Start-up Produce Marketing Cooperative
 Program Leader for the Cornell
Cooperative Enterprise Program
 Secretary for NE Cooperative Council
 www.cooperatives.aem.cornell.edu
Cornell
Cooperative
Enterprise
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Cornell
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Cornell Cooperative Enterprise
Program
 Long
standing relations with Ag.
Cooperatives in region and U.S.
 Teach undergraduate course on
cooperative enterprise
 Conduct applied research
 Deliver extension and outreach program
 Coordinate with the NE Cooperative
Council, (NECC)
Cornell
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Cornell
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NORTHEAST COOPERATIVE
COUNCIL
 20
Rural Cooperatives Operating in New
York State and New England
 Non-Profit Mission: “Addressing
Informational and Educational Needs of
Member
 Two Annual Events:
• Cooperative Leaders Forum
• Future Cooperative Leaders Conf.
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Cornell
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TODAY’S OBJECTIVES
 Review
the Case of Hudson Valley
Growers – A Failed Cooperative
 Identify
Lessons to Be Learned
• Common Pitfalls
• Factors Leading to Failure
 Discuss
Issues Related to Public Policy
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Cornell
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BACKGROUND ON CASE STUDY
MATERIALS & TELECONFERNCE
1
of 3 Case Studies Created for Regional
Interactive Satellite Teleconference
 Broadcast April 2, 1997 to 34 Downlink
Sites in 7 states in NE
 Each Case Involved Structured
Interviews of Members, Directors and
Managers of Start-up Cooperatives
recorded on videotape
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Cornell
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Forming Hudson Valley Growers
 Leadership
From Area Growers
 Facilitation by Dutchess Co. Cornell
Cooperative Extension staff
 Support from Area USDA Soil
Conservation Service staff
 Advice from Cornell Univ. Cooperative
Dev. Specialist
Cornell
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Cornell
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Organizational Support
 County Agent
Trained in Horticulture,
Worked Directly with Growers
 He Saw Marketing as a Critical Issue
 Soil Conservation Staff Saw Maintaining
Farm Economic Viability as an Issue
 County Extension Helped Prepare Grant
and Handled Funds for Pilot Project
Cornell
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Cornell
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Organizing Steps
5
Growers Met to Discuss Marketing
Challenges
 Reviewed Potential for Forming a
Cooperative to Grade, Pack, Market and
Distribute Produce
 Hesitant to Use Word “Cooperative”
• Some Had Bad Experiences
• Used Association as Title of Organization
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Cornell
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Public and Private Support
Some of the Group Were Already Marketing
Independently to Up-Scale Restaurants
 Recruited Support from Culinary Institute of
America, CIA
 Chefs from Famous NYC Restaurants
Supported Concept
 Local County Officials Interested as Ag.
Economic Development Intitiative

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Mission & Vision
 Primary
•
•
•
•
Goals:
“Eliminate the Middleman”
Enhance Marketing Capacity
Penetrate More lucrative Markets
Create Regional Brand Name
 Broad
Range of Products: Fruits,
Vegetables, Meat, Cheese, Wine, and
Eggs from 6 Counties
 Expand Beyond Direct Marketing Sales
Cornell
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Cornell
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STEERING COMMITTEE AND
GOVERANCE
 Committee
Members Selected:
• Well Respected Growers
• Most Were Outgrowing Individual Marketing
Capacity
Governance:
• Members Elect Board
• Directors Hire Manager
• Manager Executes Business Plan
Cornell
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Cornell
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Cooperative Formed in 1988
 Incorporated
under New York State
Cooperative Corporations Law
• Developed Bylaws & Membership
Agreement
 Created
Single Multi-product Marketing
Pool:
• Vegetables, fruit, eggs, meat and herbs
Cornell
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Cornell
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First Two Years
 Effectively
Leveraged Initial Grant
Support
 Hired Talented Manager
 The Start-up Cooperative Venture
Successfully Penetrated New Markets
 Generated Positive Margins
 Grew Sales Volume
 Increased Membership
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Cornell
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CHALLENGES AROSE
All Inclusive Approach to Handling Wide Range
of Member Products Can Dilute Focus and
Resources
 Board Split on Best Marketing Strategy

• Some Supported Expanding Sales to Larger Volume
Farm Stands
• Others Pushed for Increased Sales to NYC
Restaurants
Higher Than Expected Farm Product Assembly
and Packing Costs
 Manager Turnover
 Seasonal Cash Flow Problems
 Accounts Receivable Collection

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Cornell
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ASSEMBLY ISSUES
 Fragmented,
Smaller Scale Producers
Scattered Across a Wide Area
 Marketing A Broad Range of Products
 Attempting to Serve A Diversity of
Customers
 Critical Volume Needed to Support Costs
of Assembly (warehouse, grading,
packing, quality control)
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Cornell
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DISTRIBUTION ISSUES
 Product
Form That Shipped Well and
Maintained Quality
 Understanding Marketing Costs (order
size, managing accounts, handling
complaints, trucking logistics)
 Eliminating the “Middleman” Means YOU
Assume All the Risk and Costs
 Critical Volume Needed to Support
Effective Distribution
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Cornell
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ISSUES OF MEMBER
COMMITMENT
 Some
Members Had Attractive Market
Alternatives
 Mixed Commitment to Ship Through
Cooperative (non-binding agreements)
 Public Support Ran Out and Members
Had to Face Economic Realities
(inadequate member equity)
 Confidence Eroded as First Manager Left
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Cornell
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FEASIBILITY ANALYSIS
 Avoided
Spending Too Much on
Feasibility Analysis
 However, Received Private Grant
through CEO residing in area for Market
Research
 Members of Growers Group Did Much of
Their Own Analysis with Mixed Success
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Cornell
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FLAWED ASSUMPTIONS
 Assumptions
Made:
 Would Achieve Savings on Trucking and
Sales Costs:
• Eliminate transportation redundancy
• Combine sales efforts
 Operate
on 10-15% Gross Margin
• vs. 25-30% charges by brokers
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Cornell
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BUSINESS PLAN
 Submitted
for Grant Proposal, But Not
Updated
 Written to Justify Grant Expenses Not
Necessarily as Working Document
 Analysis Did Not Include:
• per unit cost break down by product
• accurate estimates of assembly and
distribution costs
• scenarios: best, worst, and expected
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Cornell
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MORE INTENSIVE ANALYSIS WAS
NEEDED
 Areas
That Could Have Received More
Attention:
• Cooperative Finance & Member Equity
• Transportation Logistics
• Exploration of Partners in Supply Chain
“Work With Middleman”
• Staffing Needs
• Management Compensation & Equity
Position
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Cornell
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COOPERATIVE DISSOLUTION MAY
NOT BE TOTAL FAILURE
 Member
Interests May Have Been
Effectively Advanced for the Long Term
 It Could Have Successfully Addressed
Market Failure and Outlived Usefulness
 Permanently Improved Terms of Trade or
Product Identity Standards for the Benefit
of Members (and non-members)
 Created a More Competitive Market on
Behalf of Members
Cornell
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Cornell
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POLICY IMPLICATIONS
Allow “Outside” Directors on Boards
 Support Start-up Cooperative Capitalization:

•
•
•
•

Producer Financing for Member Equity
Lower Cost Financing
Accommodate Management Equity Position
Support Costs of Feasibility Studies and Manager
Position
Encourage Applied Research and Outreach on
Rural Cooperatives
• Unique Form of Business

Evaluate Impact of Current Publicly-Funded
Cooperative Development Efforts
• Determine Most Successful Strategies
Cornell
Cooperative
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Cornell
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SUMMARY

Hudson Valley Growers Attempted to Address
Common Marketing Issues:
• Spreading Out Fixed Costs of Handling and
Marketing Farm Products
• Generating Adequate Volume to Serve Larger
Customer’s Demands

Along the Way, Fell Into Some Common
Pitfalls:
• Underestimated the Costs of Becoming the
“Middleman”
• Overworked and underpaid their manager
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Cornell
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SUMMARY cont’d
 Common
Pitfalls:
• Underestimated talent needed to manage
• Lacked Member Commitment (product,
quality, equity)
 Failure
Had Minimal Negative Impact on
Members
 Lesson Learned May Contribute to
Formulating Policy
Cornell
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Enterprise
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Cornell
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RELATED PUBLICATIONS
www.coopersatives.aem.cornell.edu
“Putting Cooperative to Work” – Cooperating
for Sustainability Teleconference
 Considering Cooperation: A Guide to New
Cooperative Development
 Questions Cooperative Directors Should Be
Asking Management
 What Gives Cooperatives A Bad Name
 What Went Wrong at Agway

Cornell
Cooperative
Enterprise
Program
Cornell
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Enterprise
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