New Drivers Emerge in Co-op Consolidation Trend
DENVER (July 10, 2019) — Surprising new drivers are emerging in the ongoing consolidation of agricultural cooperatives. Although co-ops continue to consolidate to gain business efficiencies, management succession and employee recruitment are among the new factors driving consolidation, according to a new report from CoBank’s Knowledge Exchange division. The report identifies key drivers of the long-term consolidation trend and includes perspectives from several co-op executives and other experts across the United States.
“Co-ops have continued to consolidate even as the number of farms and farmers has stabilized,” said Dan Kowalski, vice president, Knowledge Exchange, CoBank. “That signals a transition from the defensive consolidations we’ve seen in the past to the offensive consolidations we’re seeing more recently.”
Consolidation among farm cooperatives continues to mirror trends throughout production agriculture. Farming operations are growing larger, with average acreage of 444 acres in 2017, up from 418 acres 10 years earlier. In turn, the businesses that serve American farms are combining forces to compete and serve larger farmers better. Cooperatives often merge or consolidate to create economies of scale. Co-ops may reduce costs, add capital and acquire assets or more sophisticated technology to better serve their membership.
Current economic conditions make organizational efficiencies and synergies even more important. “Many farmers are under financial distress. Depressed incomes and tight margins can affect cooperative viability and make a merger look more attractive,” said Kowalski. “Many recent consolidations represent mergers of equally strong organizations. But in some cases, a stronger cooperative can take over a business that is suffering financially and inject capital to turn it around.”
No matter what drives it, consolidation has a profound impact on a cooperative and its stakeholders. On the plus side, a strong and healthy co-op brings benefits to the community in the form of patronage dividends, equity retirements and capital investments.
While co-op numbers continue to shrink, the number of co-op owned facilities and locations seems to be steady or growing. And the average co-op now employs more than 100 people, a 33% increase over the last 20 years.
“We expect consolidation among agricultural cooperatives to continue as the industry confronts persistent challenges in agricultural markets and the steady pressure to gain scale in pursuit of competitive advantage,” said Kowalski.
CoBank is a $138 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.