Who's Minding the Farm Co-Ops?


Two of the nation's largest farm cooperatives -- Farmland Industries Inc. and Cenex Harvest States Cooperatives -- have announced they are talking merger.

While Harry Cleberg, Farmland's chief executive, points out that such a merger could save tens of millions of dollars annually in transportation costs through the "coordinating" of trucks, rail cars and barges in addition to saving money by eliminating some duplicate grain-handling operations the proposed merger signals yet another step in the corporatizing of farm co-ops and American agriculture.

Cleberg also claims that such a merger would be better able to coordinate the growing and processing of genetically engineered crops and accelerate a renewed interest in forming an alliance between the combined cooperatives and a crop biotechnology company such as DuPont Co. or Novartis AG of Switzerland.

The combined cooperatives would reportedly generate annual revenues of roughly $20 billion, processing everything from wheat to pigs, and would be "owned" by roughly 900,000 farmers located between the Rocky and the Appalachian Mountains. No cash would exchange hands and the joining of the two co-ops would be handled as a merger of equals. Shares in a new organization would be issued to farmers on a 1-for-1 basis for their existing shares, the cooperatives said. Farmland, of Kansas City, Mo., and Cenex Harvest States, of St. Paul, Minn., each have a book value of roughly $3 billion.

Directors of the cooperatives, the Wall Street Journal reports, say they hope to complete a merger between Farmland and Cenex Harvest States by June 1, 2000. Cleberg and Noel Estenson, the chief executive of Cenex Harvest States, would serve as co-CEOs of the combined cooperative for a while. However, a single CEO would eventually be picked.

As farm columnist Alan Guebert observes: "Today's blockbuster deals are not solely corporate, they're cooperative. too. In a flurry of action, billion dollar regional co-ops are buying, merging and joint venturing with other billion dollar co-ops. In fact, the pace of co-op deal-making is so fast, most farmers can't explain the actual business structure of these new giants -- and they own them."

Observing such a "flurry of action," however, one also sees the ominous consolidating of co-ops with the very forces that they traditionally have opposed and which impelled them to be formed in the first place.

Farmland Industries, for example, currently is engaged in a grain-based alliance with ConAgra, the nation's second largest food manufacturer, providing grain marketing and export activities. That alliance consists of two entities -- Concourse Grain and Farmland-Atwood. Concourse operates two ConAgra export elevators and two Farmland elevators and markets wheat originated by the two companies.

In 1994 Harvest States, a regional Minnesota co-op, also formed a joint venture with ConAgra, through Peavey, the latter's grain company, to operate three elevators in Iowa and two export elevators in Louisiana. In 1998 Cenex and Harvest States officially merged to form a $10 billion co-op that now spreads from Canada to Mexico and from the Great Lakes to the Pacific Coast.

As the Cenex-Harvest States merger was being finalized Harvest States and Land O'Lakes, another large Minnesota co-op, were formalizing a six-state feed processing and marketing joint venture at the same time Land O'Lakes was also entering "much more complete unification" discussions with Countrymark, a regional farmer-owned co-op in Indiana, Ohio and Michigan.

In 1996, Countrymark had signed an agreement with Archer Daniels Midland (ADM) to market its grain and along with a similar relationship established in 1985 with Growmark, another regional co-op, the "Supermarkup to the World" gained access to 50% of the corn and soybean market region. ADM along with ConAgra also jointly operate the Kalama Export facility in Washington State, one of the most modern export facilities on the West Coast.

At the same time ConAgra also has an existing relationship with DuPont whereby ConAgra is currently engaged in the initial commercialization of DuPont's new high-oil corn. United Agri Products, a ConAgra subsidiary, contracts farmers to grow such corn with ConAgra's chicken operations in turn buying the grain for feed. It is also significant that in 1996 Novartis purchased a 50% interest in Wilson Seeds Inc., a subsidiary of Land O'Lakes, to assist in developing specialty corn hybrids for ADM's food and feed markets.

Clearly with the announcement of these new co-op mergers and those mergers taking place in the corporate world our food system, as the University of Missouri rural sociologist Bill Heffernan recently told an Alliance for Democracy-sponsored Food and Agriculture conference in Boulder, Colorado, "is becoming very complicated and difficult to describe; the complication resulting from the fact that there is not a group of individualistic firms out there competing with one another.

"We are especially interested in all the relationships that exist within the clusters and those crossing from one food chain cluster to another. Some of these are the result of firm A having a relationship with firm B and then developing a new relationship with firm C. But some of the relationships crossing cluster boundaries are new. The whole system is woven together by a host of working relationships between firms and, at least for the short run, the system looks pretty fluid. One if left asking the question: just how much competition is there in the system?"

The fact that so many farm co-ops are in the process of being co-opted by corporate agribusiness is also alarming to many. The very act of such merging, explains Greg Stephens, a Kansas State University business professor, suggests today's American co-op "model" is flawed.

As he recently told columnist Guebert, "Over time managers have grown the co-ops through retained earnings. That growth, arguably, is in the managers' self-interest: The bigger the co-op, the more pay managers earn, the more they can justify expansion, et cetera while farmers finance it all. But, you can never grow to the size you need to be," Stephens warns. "It's like buying technology. You never get enough of it and you can go broke trying to stay on the cutting edge."

With the news of the Farmland-Cenex merger there is also the concern whether the action by the two co-ops will in turn undermine any action that the U.S. Department of Justice Anti-Trust Division might attempt to take to block Cargill, the nation's largest grain trader, from acquiring the commodity marketing division of agribusiness giant Continental Grain.

A.V. Krebs is author of The Corporate Reapers, The Book of Agribusiness (Essential Books: 1992)

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