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Cooperatives and Land Ownership

Greetings Readers

The removal of Enza’s monopoly on the export of apples from New Zealand demonstrates the complex status of a protected cooperative producer organisation.

It seems that the Minister of Agriculture has thwarted the moves of two associated corporates to influence the future of the industry with an eye to profiting from the effect of their presence in the management of Enza.

Certainly most of the fault lies with the original shareholding rules structure of Enza, which allowed growers a shareholding unrelated to throughput. But that may also reflect the sectional opinions of growers to the value of Enza at the time of its restructure.

A cooperative is a peculiar beast but none more so than when its worth is measured in return on capital rather than price paid for production placed through the organisation.

The Foodstuffs supermarket group is an excellent example of a highbred cooperative vastly removed from its original roots. Formed by the hundreds of small Four Square storeowners to satisfy a need to centralize purchasing for lowest cost trading.

This structure has grown to the stage where relatively few storeowners are its shareholders and the cooperative not only owns the centralised warehousing but also owns a number of large supermarkets – the original reason for the existence of the cooperative.

Such vertical integration could theoretically mean this trading cooperative could end up with no trading shareholders to own the valuable organisation.

The likely interest of corporate investors in dairy farm ownership and milk processing facilities following industry deregulation, invites such a scenario in vertical integration in dairy production and marketing.

Although now not as likely with existing cooperatives, because almost all the small dairy cooperatives have been merged out of existence. It may have a place, as new investors appear to establish a presence in a deregulated industry.

The possibility of the development of variant cooperatives formed by a few large volume producers in conjunction with corporate investors must have appeal. But the interest lies in possibility of exiting landowners selling to a well-healed cooperative because that may be the way to maximise the value of the dairy property.

The mega merger has focused on vertical integration from the farm gate to consumer as a means of improving efficiency. Perhaps the final integration includes the farm. Particularly when security of milk supply becomes the predominant weakness of the cooperative trying to ensure a continuous supply of product to a limited niche market.

Would it be desirable and would it matter? But it is certainly a possibility.

Good farming

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