Strategies for Farm Supply and Grain Cooperatives
Phil Kenkel
Bill Fitzwater Cooperative Chair
Cooperative researchers, just like cooperative managers are always seeking the formula for
success. I came across a copy of a study done a number of years ago which examined the return
on assets of both cooperatives and independent grain and farm supply firms in Indiana, Indiana,
Iowa and Kansas. This represented roughly 60% of the elevators in the U.S. The study
examined the impact of size, diversification, efficiency, pricing strategies, purchasing
effectiveness, density of local crop production and business type. Those variables, which
explained 40% of the difference in performance across firms, can be related to business
strategies. For example one cooperative might pursue a strategy of growth and diversification
while another would focus on efficiency in operations and input sourcing. The strategies also
relate to how the cooperative chooses to serve its members. Do they want to offer a minimum of
products and services at the most favorable prices, or a wider range of products and services
supported by higher prices.
Offering a wider range of products and services, increased financial performance. Cooperatives
should continue to eliminate unprofitable business lines. However, a wider line of products and
services is correlated with financial performance. Larger firms also performed better than
smaller firms but the effect was fairly small. Surprisingly, increased cropping density decreased
financial performance. Farm supply and grain marketing firms in highly productive regions face
increased competition. Effectiveness in purchasing increased performance and had almost as
large as impact as diversification. Not surprisingly, operating efficiency increased performance.
The variables that did not impact performance are also interesting. Multiple location firms did
not consistently outperform single locations firms. Each firm was compared to a cluster of firms
within 50 miles, differences in reported prices for grains, anhydrous, diesel fuel, livestock feed
and fertilizer application and crop drying/cleaning services. Price differences relative to
neighboring firms was not correlated with financial performance.
What can we glean from this research? Meeting producers need’s through the right mix of
products and services, improving purchasing strategies, and monitoring operating costs are the
keys to financial success. Strategies based only on pricing do not appear to be effective. Smaller,
single location cooperatives can be successful. Not to end on a bad note, but the study also
found that the cooperative firms were less profitable than the independents. That is a complex
topic for another issue.
10-013-2009