Kim Zeuli
Assistant Professor
Agricultural & Applied Economics Department
The University of Wisconsin
Center for Cooperatives

 Landmark Services Cooperative was first
“Wyoming Co-op Model” in WI.

did they choose to adopt this model?
 Why not just organize as an LLC?

is the model “operationalized”?
 What has been the
of this decision?
 For the cooperative and its members
 For public policy
The University of Wisconsin
Center for Cooperatives

 Wyoming Co-op Model (WCM) background
 The Landmark case: why, how, and results
 The future of the WCM—diffusion of innovation model
 Rural development considerations
The University of Wisconsin
Center for Cooperatives

 1999—Wyoming lamb producers sought to form a NGC to process lamb, but wanted to obtain equity from non-member investor.
 A new Wyoming cooperative statute drafted by Mark Hanson and other Lindquist and
Vennum attorneys.
 Enacted July 1, 2001.
The University of Wisconsin
Center for Cooperatives

 Allows “outside” investors—bigger capital pool.
 Two classes of members:
 Patron members—those who use the co-op;
 Investor members—those who invest in the co-op.
 All members
have the same voting rights, but depends on bylaws.
The University of Wisconsin
Center for Cooperatives

 The statute regulates some member control:
 Patron member votes are counted collectively
 The board must include at least 1 patron member
 Patron member votes  50% of total board votes.
The University of Wisconsin
Center for Cooperatives

Two net profit pools:
1.
Patronage: patron members receive this based on use.
 Patron members guaranteed 15% profit distribution.
2.
Investment: investor members receive this based on equity investment.
The University of Wisconsin
Center for Cooperatives

Define need
Find innovation
Adaptation Clarification Embed
Adapted from Rogers, Diffusion of Innovation
.
The University of Wisconsin
Center for Cooperatives

 “The hardest business to make money in is agronomy.”
• Larry Swalheim, CEO of Cottage Grove Cooperative .
 Labor and capital intensive, with shrinking margins.
 For local co-ops, a lot of duplication, overlap in trade territories.
 Co-op members expect personal service.
The University of Wisconsin
Center for Cooperatives

Feed
Hardware
Stores
Core Divisions
Energy Grain Agronomy
Supporting Divisions
Convenience Stores
Truck Stop
Heating & Cooling
Transportation
Services

Feed
Convenience
Stores
Core Divisions
Energy Grain
Supporting Divisions
Agronomy
Tire Sales
Transportation
Services

The University of Wisconsin
Center for Cooperatives

 Agriliance wanted to sell 4 agronomy centers in the trade area.
 Proposed forming an agronomy LLC with
Cottage Grove and Union:
 Agriliance = 40% ownership (4 centers)
 Cottage Grove = 40% ownership (3 centers)
 Union = 20% ownership (2 centers)
The University of Wisconsin
Center for Cooperatives

 Union unhappy with small ownership stake.
 CG and Union had longstanding relationship; social capital.
 Were looking for partnership opportunities.
 Had already developed a joint venture in Precision
Agriculture.
 Some distrust of Agriliance (no social capital).
 Decided better solution: JV and purchase the 4 agronomy centers.
The University of Wisconsin
Center for Cooperatives

Landmark Services Cooperative organized in October 2001

 Two major factors for choosing WCM over
LLC:
1) Larger pool of future members (for growth); and
2) Business would still have cooperative name.
 Both co-ops believe “co-op” name has positive marketing benefits.
 Their lawyer was involved with establishing other “Wyoming co-ops.”
The University of Wisconsin
Center for Cooperatives

 Each co-op provided half the $3.15 million required to purchase the 4 Agriliance centers.
 Landmark’s patronage refunds based on use
(sales at local plants):
 Cottage Grove = 60%; Union = 40%
 Union can increase patronage to 50%
The University of Wisconsin
Center for Cooperatives

 Landmark is a “virtual” company.
 New equipment is purchased by Landmark.
 Landmark leases existing facilities and equipment from the 2 co-ops.
 Landmark employees are “leased” from the 2 co-ops.
 Cottage Grove administers human resource programs.
The University of Wisconsin
Center for Cooperatives

Union
Director
Union
CEO
Evansville
Employees
Board of Directors
Union
Controller
CG
Director
Landmark
GM
Hub
Managers
Cottage
Grove
Employees
Juda
Employees
CG
CEO
CG
Controller
Edgerton
Employees

 A success.
 2002: Landmark loses money, but expands business.
 Purchases another agronomy center (10 total).
 Typical benefits and challenges from a joint venture: better services, lower prices, loss of control, etc.
The University of Wisconsin
Center for Cooperatives

 Criticism over becoming too large, but no negative reaction to WCM.
 Landmark creation approved by general membership of both cooperatives.
 Were members aware of the implications (i.e., open door for outside investors)?
The University of Wisconsin
Center for Cooperatives

 Hope to establish additional Landmark JVs in other product areas.
 CG and Union relationship strengthened.
 October 2003: Merger of CG and Union 
Landmark Services Cooperative.
 Headquarters at CG
 18 community locations
The University of Wisconsin
Center for Cooperatives

 Wyoming co-op (Landmark Agronomy
Services) still exists; “inactive shell.”
 Ready for future joint ventures with other firms.
The University of Wisconsin
Center for Cooperatives

 Innovation characteristics determine its rate of adoption (Rogers, others):
 Relative advantage
 Compatibility
 Complexity
 Ability to be tried out
 Observability
 Other significant variables: communication channels and promotion by “change agents.”
The University of Wisconsin
Center for Cooperatives

Wyoming lamb producers
Landmark
Source: Rogers, Diffusion of Innovation , p. 262.
The University of Wisconsin
Center for Cooperatives

 Change agents: lawyers, state co-op councils, university-based co-op centers.
 Nothing new for cooperative innovation.
 Similar MN law (308B) enacted Aug 1, 2003.
 Others introduced into legislative sessions in WI and Iowa.
 Early MN adopters (8): health care, software, financial, fertilizer, and ethanol.
The University of Wisconsin
Center for Cooperatives

 For now, debate over the model is at scholarly level, but may start taking place at farm-member level.
 WFU and WFB board member/meetings
 Adoption rate and adopters does
suggest all new co-ops (ag co-ops) will be WCM.
 Is fear that Capper-Volstead protection and
CoBank mission will be challenged rational?
The University of Wisconsin
Center for Cooperatives

 The implications for rural development haven’t really entered the debate over the
WCM.
 The WCM opens the door to many new opportunities for local (community) ownership and control.
 NGC with community investors.
 Non-agricultural ventures.
The University of Wisconsin
Center for Cooperatives

 In agriculture, Wyoming Co-op Model most likely adopted by strategic value-added firms looking at future growth.
 Existing co-ops may adopt for new joint ventures expected to require substantial capital (substitute or pre-cursor to mergers?)
 Rural communities
be considering the
WCM, but will need change agents.
The University of Wisconsin
Center for Cooperatives

Kim Zeuli zeuli@aae.wisc.edu
608-263-3981
The University of Wisconsin
Center for Cooperatives