External Issues Facing Cooperatives

Phil Kenkel

Bill Fitzwater Cooperative Chair, Oklahoma State University

In a recent national project, academic researchers, cooperative managers and members, USDA, agricultural foundations and other stakeholders collaborated to identify the critical issues facing agricultural cooperatives. A two-stage Delphi survey was conducted, followed by expert panel sessions in Washington, D.C. and Minneapolis, Minnesota. The material below summarizes some of the findings from the project.

Market Volantility
Wide spectrums of issues both external and internal to the firm impact the competitiveness, stability and success of cooperatives. Market volatility is a key external issue. Almost 80 percent of the cooperative leaders surveyed ranked market volatility as an extremely important or very important issue. The increasing volatility of commodity and input markets has created the need for significant, sometimes unattainable increases in equity and working capital. Market volatility increases interest expenses and the cost of accounts receivables, inventories and grain payables. Cooperative members want the highest possible market prices and lowest input costs, making it difficult to generate the margins needed to finance additional working capital.

Global Competition
Global competition is another important issue and one that has not been highlighted in previous efforts identifying pressing issues. Over 60 percent of the cooperative leaders identified competition from global competitors and the ability of cooperatives to compete in global markets as a critical issue. Increasing global demand for food and fiber provides opportunities for cooperatives and for U.S. agriculture as a whole. At the same time, cooperatives are increasingly impacted by global markets. The impact of global supply and demand on the price and availability of fertilizer is an obvious example. The panel perceived that the preferences of consumers outside the United States, for example, European attitudes toward GMO foods, will increasingly impact U.S. cooperatives. Exchange rate risk and risks created by tariff, quota and import restrictions were also perceived as becoming increasingly relevant to agricultural cooperatives.

Other External Factors
Other external factors that were identified as critically impacting cooperatives included competition from non-cooperatives, the concentration of final product, commodity and input markets, environmental regulations and issues, and public policy changes including farm and energy policy. These external forces drive the need for effective strategic planning and cooperatives’ need for increased equity.