Focusing on changing farmers, talent management important for co-ops

CHICAGO — The two most important forces shaping the cooperative business model are future farmers and talent management.

“Co-ops are in a unique position where their customers are also their owners,” said Brian Briggeman, professor and director of the Arthur Capper Cooperative Center at Kansas State University.

“How they think about adding value to the changing agricultural producer is extremely important,” said Briggeman during a presentation at the Midwest Agriculture Conference, The Changing Landscape for Agricultural Inputs, hosted by the Federal Reserve Bank of Chicago.

“It is a highly competitive labor market and these cooperatives operate in rural areas where there is not a large labor pool to draw from,” he said. “Not only recruiting, but more importantly retaining the right talent is something they think a great deal about.”

Retiring managers are also impacting co-ops.

“When a CEO retires, that’s part of the talent pool and then they need to bring in someone to lead a multimillion-dollar organization,” Briggeman said. “The retiring managers leads to the mergers and consolidation within the cooperative community.”

Other factors impacting cooperatives include growing global economy, persistent market volatility, supply chains, inflation, monetary and fiscal policies, the university professor said.

“Also, weather has a pretty distinct impact on the financial health of co-ops and that varies by region,” he said.

The U.S. Department of Agriculture tracks the number of agricultural cooperatives in the United States.

“In 1929, there were about 12,000 co-ops and there’s been considerable consolidation down to about 1,800 today,” Briggeman said.

“But at the same time, fewer co-ops are handling a great deal more business volume, which has shot up to record-high levels,” he said.

In 2016, Briggeman started mapping the country elevator system for farmer cooperatives.

“In Kansas, about 50% of the grain stored was tied to a local cooperative and the remaining 50% was roughly split between farmers and multinational companies,” he said.

Briggeman’s latest map is from September 2024 and the landscape has changed considerably.

“In the southwest part of Kansas, cooperatives are merging into cooperatives in Texas, as well as Oklahoma,” he said. “In the north-central part of the state, they are merging with Nebraska cooperatives.”

Mergers of Kansas cooperatives are also occurring.

“We went from 81 local co-ops in 2016 to 52 co-ops in 2024,” the professor said. “And I need to update my map again because that number has already dropped.”

There are about 25 local cooperatives in Nebraska, Briggeman said.

“They have experienced a much more rapid consolidation trend,” he said. “Iowa has about 40 different co-ops and that state looks a bit more similar to Kansas.”

For cooperatives that move more volume of inputs or farm supply, there are different volume discounts available to them relative to other cooperatives that don’t have as much volume, Briggeman said.

“That creates a lot of tension so some of the cooperatives’ biggest competitors are other local co-ops that are nearby,” he said.

Technology is an important topic for co-ops to add value for the future farmers.

“Cooperatives are working with the utilization of drones,” Briggeman said. “One co-op in Kansas is starting to utilize more robots for weeding, fertilizer and herbicide applications.”

The see-and-spray technology, the professor said, could transform the ag input market.

“We see cost estimates being reduced to roughly 60%,” Briggeman said. “If those reductions occur at the farmer level, that will have real impact on the adoption of the technology.”

“But this technology is not cheap,” he said. “So, farmer cooperatives are having discussions on how they can be part of providing that service to their member-owners.”

The variability of the financial strength of co-ops across the United States is largely driven by weather, Briggeman said.

“In Kansas we have had two, if not three, consecutive wheat crops that have been completely lost throughout the state and that has an effect on the farmer cooperatives,” he said. “Conversely, looking at the ‘I’ states of Iowa, Illinois and Indiana, we haven’t seen a lot of weather problems.”

Briggeman highlighted a large decrease in the debt service coverage ratio for southern plain cooperatives.

“It’s even gone into negative territory and a lot of that is emphasized by a lack of cash flow, operating cash flow in particular,” he said. “But for the ‘I’ states, we see it fairly stable.”

Agronomy departments of co-ops, the professor said, could experience some significant changes.

“The stressed co-ops could sell off their agronomy departments and I know of one cooperative that has already done that,” Briggeman said.

“Some cooperatives in this depressed farm income era are utilizing input financing through cooperative finance associations as a way to be able to provide that service to their farmer owners,” he said. “But again it really boils down to talent management for co-ops, making sure they have good talent and they’re able to retain that talent.”

From a capitalization standpoint, Briggeman said, co-ops on average are in a pretty good position to absorb losses.

“The landscape is changing and I don’t think we’ve seen the end of consolidation — I feel it’s going to continue to happen,” the professor said. “For co-ops facing financial stress, they are going to have to make hard decisions about what they do with their agronomy departments.”

“The key is the basics of business,” he said. “It’s the boring stuff of building up your balance sheet and focusing on cash flow — in particular, operating cash flow — to ensure we have that positive and growing.”