Is there a future for the traditional multi-purpose co-operative?

He recently presented his report at the 2014 Nuffield Ireland conference.

This is his report summary*:

Introduction

Supply growth of dairy produce in Ireland by 50% post the abolition of EU milk quotas in 2015 is envisaged in the Irish policy document “Food Harvest 2020”. This will put existing small to mid-tier farmer multi-purpose dairy co-operative models under pressure. Already a number of mid-size co-operatives in Ireland seen as successful models in their own right up to recently no longer exist with others likely to come under scrutiny in the near future. This is an international trend which will accelerate during periods of growth.

Scope

The purpose of this study is to see whether in fact there is a future for existing mid-tier multi-purpose farmer owned co-operatives in Ireland given the globalisation of milk marketing. The research involved travel to a number of countries to study the co-operative sector during phases of growth and interviewing senior industry figures as well as a literature review of the topic.

Conclusions

While recognising the global success of global players like Fonterra, Friesland Campina, Glanbia and Kerry to mention but a few, this author feels there is still room for the small to mid-tier local co-operative that creates value and maintains its relevance in a supply chain fully controlled by its members. The model of federation for milk processing can provide scale of processing, flexibility of product mix and strength of marketing in the global market place for small to mid-tie co-ops without loss of sovereignty.

This and other key findings from the authors’ travels include:

Collaborative Business models suit the small to mid-size co-op especially in milk processing

Cohesive collaborative or federated groups of co-operatives evident in Valio, Finland, Carbery Creameries, Ireland or indeed the Irish Dairy Board, Ireland offer the most sustainable model for the small to medium size co-operative. With good leadership and structure, as well as trust and clear communication in place, a federated structure should secure scale in the global market place, while allowing each member co-op to focus on its key area of service. Fusion of the milk processing structures of a number of regional co-operatives into one structure under shared ownership to create scale in the global market place should be put on the agenda of co-op boards.

Small to mid-size co-ops need to work harder on Membership Development Initiatives

The viability of the small to mid-size agricultural co-operative is dependent on the economic, social and environmental sustainability of its members. Economic sustainability of its members and the ability to attract new ones is the lifeblood of co-op. Co-operatives in Ireland are communicating the shared message with Teagasc promoting technologies such as grass measuring and the EBI breeding index to mention but a few through joint programmes such as Greenfields and Better Farms. Co-ops will, will however need to take more responsibility for development within their own catchments by leading mind-set change and connecting with members in areas like share-farming and contract rearing and sustainable expansion. There will be a role for a specific farm development manager in many co-ops who can assist new entrants or existing dairy farmers directly in new projects or major expansion, or more the importantly the efficiency of the existing unit. A co-ops goal should always be to create or preserve the maximum amount of economic activity to build wealth in its catchment area and promote engagement and betterment of its members through education, one of the key principles of co-operation.

People Development at executive and board level needs to become a key focus

In a predicted era of unprecedented growth in the Irish Co-operative Sector, skills development of both directors and senior executives will need to become a key focus for all co-ops and may involve ICOS in its role as the apex organisation for the Co-operative movement.

Executives: “There is a war for talent out there” - Skills development of co-op executives will become a critical limiting factor during a prolonged period of expected growth in the industry. The implementation of a 2-3 year graduate training program to attract the best young graduates offering experience in a number of sectors across a number of the ICOS members should be a priority. This has been the secret ingredient of the Kerry Group.

Directors: ICOS in conjunction with UCC offer the excellent Diploma in Corporate Direction, Food Business to educate board members on their responsibilities, corporate governance. However it is not compulsory across ICOS members. Furthermore the process of electing the best board members for senior positions could be improved by putting a “talent matrix” in place assessing potential board members going for senior positions in a similar fashion to co-operatives such as Fonterra and Arla. Co-ops are going to need stronger farmer leaders than ever before during a rapid growth phase.

Engagement through stronger communication with stakeholders to encourage co-operation

A co-ops survival is based on a new generation of engaged co-operators who trust in the model and being connected with the people is one of the key strengths of the small to mid-size co-op. Directors and senior executives of co-ops must make every effort to have an “open door policy” and be available to listen to the needs of existing members and potential young farmers during a rapid period of growth to maintain or earn loyalty. Otherwise co-ops risk losing one of the key advantage of the small to mid-tier co-op where the member feels someone in the co-op is “answerable” which in itself confers loyalty and engagement.

*Seamus’s full report will be released by Nuffield Ireland in the coming weeks.