“Cooperatives must dare to chose – Do you go for the best price through operational excellence or do you excel at launching new products? Or are you working on a total solution tailored to the customer’s needs?”
In this article from Trends (Belgian economic Journal) of 13 August 2020, we address these issues, which we also discussed at the yearly Belgian Forummeeting for Agricultural Cooperatives – an organization of Cera in partnership with Boerenbond – in 2019 with Bram Desmet, professor at the Vlerick Business School. “But, as a cooperative, it is extremely important to manage your member diversity while choosing your market strategy, and so, to have a member commitment strategy”, says Hannes Hollebecq, cooperative entrepreneurship advisor at the Belgian cooperative Cera. Paul Demyttenaere, Gaston Opdekamp and Eddy Leloup testify from practice how they deal with these issues in the Belgian agricultural cooperatives REO Veiling, Coöperatie Hoogstraten and Milcobel respectively.
During the corona crisis the supermarkets are doing well, in contrast to the farmers and horticulturists. But what about the agro cooperatives? Will their model weather the storm? “The survival rate of cooperative enterprises is higher than that of comparable non-cooperative enterprises,” says Hannes Hollebecq of Cera.
The cooperatives are feeling the corona crisis, but there are big differences between them. This is shown by figures from Cera, a cooperative society that informs and advises cooperatives from various sectors.
“For cooperatives in some parts of the retail and business services sector, the crisis brought growth of 20 percent, but for cooperatives in hospitality or in carsharing there was a loss of 80 percent,” says Hannes Hollebecq, advisor cooperative enterprise at Cera. In the agriculture and horticulture sector, turnover of the supermarket chains increased, while farmers and horticulturalists did not do particularly well. “The sector was able to continue to function, but a survey by the Boerenbond shows that there is an average loss of turnover of 25 percent. We also see big differences between the agro cooperatives, joint ventures with farmers and horticulturists as shareholders”.
For the fruit and vegetable auctions the picture is rather positive. Especially during the stockpiling period in March&April 2020, sales grew by around a fifth, Cera says. “That may be a temporary effect, but the cooperatives have in the meantime solved their logistical problems and sought alternative European outlets. Short chain initiatives, often smaller cooperatives, also did well”.
The dairy sector fared less well. Milk prices fell on the international market. The impact was most visible at Milcobel, where the chairman and vice-chairman were voted down at the general meeting in mid-June. “Milcobel is having a difficult time”, says Hannes Hollebecq. “But during the crisis, the cooperative did offer its members clear advantages, such as guaranteed collection and processing.
For the agricultural and horticultural cooperatives, the crisis comes on top of other challenges such as the increasing pressure on margins and changing consumer behaviour in recent years. In addition, the essence of the cooperative system is under pressure: mutual solidarity between the partners in order to be stronger in the market. The more diverse the cooperative is, the more of a challenge it is to demonstrate that it is acting in the best interests of all its members.
“It is important to organize this diversity in a well-considered way,” says Hannes Hollebecq. “This requires an intense dialogue between the cooperative and its member producers, so that the latter can bring their company’s strategy in line with the whole. That gives the members clarity and perspective for their investments and business operations”. That sounds logical, but the challenge is not insignificant. The choices that have to be made in the short term during a crisis must also be translated to the long term. Moreover, making accurate strategic choices is more difficult if those choices have to benefit every partner in the cooperative. This can cause an existential crisis in the cooperatives, says Bram Desmet, deputy professor of operations and supply chain management at Vlerick Business School. “Membership diversity and solidarity are good building blocks, but they can lead to the agricultural and horticultural cooperatives getting stuck between the major basic strategic choices.
“Cooperatives should dare to choose”, he continues. “Do you go for the best price through operational excellence? Or do you excel in launching new products? Or are you working on a total solution tailored to the customer’s needs? If you want to do your best for all members, there is a chance that as a cooperative you cannot make a clear choice”.
The fruit and vegetable auction of Coöperatie Hoogstraten proves that a definite choice can pay off. It focuses on three products: strawberries, tomatoes and peppers. “We want to be or to become the market leader in those products,” says Gaston Opdekamp, the director of Coöperatie Hoogstraten. “Thanks to our focus, we can work in depth. We talk a lot with customers about what we can do for them. That brings you very close to creating a total solution tailored to the customer’s needs. What’s more, our growers want to be among the largest in the country. That also helps us move forward. Thanks to that strategic focus, the organisation has been financially healthy for several years now. The cooperative ended 2019 with a turnover of almost 242 million euros, or almost 10 percent more than the previous record year 2017. In volume terms, 2019 was also a record with 153.5 million kilos. “The combination of a narrow product range and large volumes enables us to reduce costs,” explains Opdekamp. But doesn’t that also make the operations very vulnerable? In case of a bad year for strawberries or tomatoes, the auction has few other options. “That’s right,” says Opdekamp. “Tomatoes account for 35 percent of our turnover, strawberries for 45 percent. If both crash in the same year, we have a significantly poorer year. But you have to look at a crop over five years, and then you see that tomatoes and strawberries can earn you a living.”
Born out of misery
How does an agricultural cooperative with many more members and many more crops do business?
REO Veiling in Roeselare sells more than seventy types of fruit and vegetables. Moreover, with around a thousand producers it has many more members than Coöperatie Hoogstraten, which has to take into account a few hundred member producers. So how can you still do good for everyone? REO Veiling came up with its answer during a moment of crisis. When tomato cultivation was in dire straits in the mid-1990s, the cooperative opted for a product leadership strategy. “Our Tomabel quality label was born from misery,” says director Paul Demyttenaere. “The cooperative grew convinced that the existing model would not solve the problems. Therefore, we opted for a new dynamic, with respect to the parent cooperative”.
Twenty or so producers have joined forces under the Tomabel quality brand, a non-profit organisation with its own specifications that works closely with REO Veiling. The participants remained cooperative members. “All members of REO Veiling were given the opportunity to participate,” says Demyttenaere. “That is very important in a cooperative. Solidarity in a cooperative does not mean that everyone is equal, but that everyone is given equal opportunities”.
Gradually, this approach has become decisive for the operation of REO Veiling. In recent years, Tomabel has also launched the Fine Fleur quality mark, which focuses on authentic cultivation and high quality. Together, these two brands account for 30 percent of the cooperative’s turnover. REO Veiling recorded record sales of 208 million euros in 2019. REO Veiling’s approach also involves risk. Demyttenaere says: “Your brand must be clear. “Tomabel stands for top quality, reliable production and competitive marketing. Not all growers and products fit in. By tackling it this way, you leave the cumbersome nature of the large cooperative behind you, but you do lift the market power of the parent cooperative with you”.
In 2018, the dairy cooperative Milcobel realized a profit of 2.3 million euros from a turnover of 1.3 billion euros. Its internationally operating competitor FrieslandCampina generated 203 million euro profit from 11.6 billion euro revenue that year. But can we just put these figures side by side? “For a dairy cooperative, profit is not a good indicator,” says Hannes Hollebecq. “The added value is largely due to the milk price. Moreover, much depends on the future plans: planned investments, depreciation and so on”.
The fact that Milcobel has a turnover in excess of 1 billion euro shows where the organisational challenge lies. How difficult is it to set up an intense dialogue with 2600 member producers who, in their daily operations, have less to do with the competitive logic of actors on such a scale?
At Milcobel, every strategic plan at the board of directors and the management ends at a meeting of a forty-member cooperative council. Given a positive advice, a sounding are taken from the boards of the nine member circles, from which a list of pros and cons follows. This enables the cooperative council to confirm its advice to the board of directors. “During that round of discussions, we meet up to 270 dairy farmers, or 10 percent of our members,” says Eddy Leloup, director of cooperative affairs at Milcobel.
So Milcobel is a democracy in miniature, which is based on solidarity. “The basic rule is that each partial initiative, for example the separate collection rounds for specific types of milk, must benefit the community. Those who take part in such an initiative receive a bonus to cover the additional costs of participation,” says Leloup.
The rules of the game at Milcobel are clear, but do they also help to raise the price of milk? That’s not clear. At the end of last year, Landbouwleven reported criticism of the internal democracy in the cooperative and Milcobel decided to part company with its CEO, Peter Koopmans. However, unrest about the persistently low milk price persisted at the dairy cooperative. In June, chairman Dirk Ryckaert and vice-chairman Kris D’haemer were not re-elected at the general meeting. In order to raises prices Milcobel among other things hopes to produce with a higher added value. “After previous strategic exercises, for example, we launched Powder Plus, a higher quality milk powder that can serve as an ingredient for baby food,” Eddy Leloup offers as an example.
In spite of all these challenges, the cooperatives’ turnover figures during the corona crisis have developed to comparably those of other similar companies, concludes Hannes Hollebecq.
“Most cooperatives like to be financially independent and can therefore rely on their equity capital for a while. But their strength is above all in cooperation and solidarity. The idea that you don’t have to go through the crisis alone should not be underestimated. As a group, you enjoy economies of scale, while sharing knowledge and creativity between the partners can help to set up innovative crisis ideas. In our view, it is no coincidence that the survival rate of cooperative enterprises is higher than that of comparable non-cooperative enterprises”.
This article has been published in Trends on 13/08/2020