2. Project No: 2017-1-IE01-KA202-025711
This project has been funded with support from the European Commission.
This publication reflects the views only of the author, and the Commission
cannot be held responsible for any use which may be made of the
information contained therein.
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3. What’s in this Module
• What is sustainability
• Benefits and risks of being member of cooperative
• Why and how to elaborate on strategy for cooperatives
3
4. Aim: to understand benefits and risks as a member of a cooperative and
the importance of strategy
Objectives: By the end of this session you will be able to:
Aims & Objectives
understand benefits and risks of beeing member of cooperative
understand the importance of strategy
elaborate strategy
6. 6
Benefits and risks of being or not
being member of cooperative
• It is worth to be a member?
• Join a cooperative?
• What is the benefit?
• Cooperative as only solution?
7. 7
What are possible benefits?
BENEFITS
Outsourcing
Economy of
scale
Value
added
Share value
and profits
Farmers as
cooperative
co-owners
Better
investments
Prepared
for better
decisions
Stability of
partnership
Support for
local
community
8. 8
1. Outsourcing
• Co-operative can take part in the purchase of raw
materials and production sales operations.
• The farmer will have more time to ensure the production
process.
9. 9
2. Economy of scale
• Co-operatives combine necessary raw material orders
and product sales for members,
• Cooperatives become influential players in the market,
• Obtain more favorable conditions,
• Help farmers to reduce costs and improve profitability.
• Superior Quality Control Capability
10. 10
3. Value added
A cooperative may add value to agricultural products
by several operations:
•pre-processing
•sorting,
•packaging
•processing
11. 11
4. Share value and profits
• Farmer as a member of a cooperative, in the long run,
receives an increase of share value and part of profits.
12. 12
5. Farmers as cooperative co-owners
• Possibility participate in co-operative management and
decision-making.
• Greater impact on processes related to value chain (pre-
processing, processing, marketing etc.) comparing with
the cooperation of private companies.
13. 13
6. Better Investments
• Reduced burden on the farm's finances for less used
machinery and tools
• Cooperative can provide grain drying or specific
technical services
14. 14
7. Prepared for better decisions
• Farmers can socialize, exchange
experience, acquire information, get
training
• Better decisions and preserve the
viability of the farm in long term.
15. 15
8. Stability of partnership
• The principles of co-operation and the democratic
involvement of all its members ensure the stability of the
operation of the company,
• Better than the dependence on investor-type
relationships
16. 16
9. Support to local community
True cooperatives support local
communities by:
•creating jobs;
•buying locally;
•investing in infrastructure
•providing special funds for local development
17. 17
Limitations of cooperatives
• Cooperatives in certain phases need more capital, which
means reduced prices for members;
• Decisions by large number of farmers and my be
delayed;
• Different vision and goals of the cooperative
management and farmers
• Dependance from member commitment;
• Limited objectives
18. 18
Risks
Volatility of market prices
Segmentation of food consumer preferences
Consolidation among agri-food value chain participants
Change in policies and regulations
19. 1. Volatility of market prices
• High volatility in commodity prices, often triggered by variety of factors,
including weather related events and a rise in protectionist policies.
• This puts at risk of losing the ability to pay suppliers and fulfill the bank's
obligations at low price levels
20. 2. Segmentation of food consumer preferences
• Growing demand for higher quality and greater nutritional value is
indicative
• Widespread concern for disease, ethical farming practices
• Increasingly important “traceability” of the food supply chain.
21. 3. Consolidation among agri-food value chain
participants
• Increased competition,
• Intensified international interdependence,
• Technological innovations, particularly in biotechnology, are creating
greater vertical integration and heterogeneity among farmers
22. 4. Change in policies and regulations
• New regulation concerning health and safety, coupled with reduced
price supports and other subsidies from local governments
• Policy instruments support to farmer cooperatives
24. Development projects
Roadmap for new coops
Tool for managemnt work
evaluation
Stability of cooperative
Increased member integration,
builds trust and loyalty
Strenghten competitiveness
Creating cooperative brand
No leftovers for innovation and
development
25. 1. Development projects
• Major changes in co-operative must be carefully
planned
• Potential development could be vertical
integration, geographical expansion, launching
new services, merger, strategic partnership
• Strategy helps to analyse progress of the project
26. 2. Roadmap for new coops
• Define initial strategy, which have to be revised more often than in
mature cooperatives
• Important because clarify new co-operative goals
• Strategy is a good tool for negotiating with potential co-operative
members
27. 3. Tool for management work evaluation
• Lends a framework for systematic handling of operational decisions
• Renumeration system can be adapted according to strategy
• Management performance assessement tool.
28. 4. Stability of cooperative
The strategy helps the company's management to work with members of
the cooperative to keep up with long-term development rather than adapt
to each other's short-term interests.
29. 5. Increased member integration,
builds trust and loyalty
The strategy can promote the integration and loyalty of members. It is not
a secret that differences between members of the cooperative are
increasing, therefore, it is necessary to agree on a common model of
cooperation and to prevent potential disagreements between members in
the future.
30. 6. Strenghten competitiveness
The strategy can help to strengthen the competitiveness of the
cooperative. As competition from private companies grows, cooperatives
need to find new ways to reduce costs and improve efficiency.
31. 7. Creating cooperative brand
• Different identity and brand building to inform consumers and educate
them about the value and sustainability of a cooperative product.
• Create competitive advantage for the cooperative.
32. 8. No leftovers for innovation and
development
To purposefully invest in development, innovation. In the absence of a
strategy, investments in the future are usually left to the last, if money is
left over.
34. Strategy is not “iconic relics” but
living document
• Save money and time in future by creating good strategy.
• Focus on “where you are going” and “how and when you will get there.”
• Strategy is not static but living document for every day use
35. Helicopter view of industry
• Make industry analyses
• Understand five forces underlying competition
36. Shared Strategic Vision first
• Developing a Shared Strategic Vision Prior to developing a strategic
plan, members of cooperatives must organize themselves based on a
central business proposition.
• However, the origins of the cooperative, the physical constraints of
product marketing, member attitudes toward changes in the competitive
environment, and changes in member attitudes toward the central
business proposition uniquely constrain the strategic planning process in
cooperatives
37. Core purpose of the cooperative
• In the process of defining the core purpose, members have an
opportunity to carefully rethink the importance of cooperative values and
make sure they reflect the identity of the organization.
• In a joint effort, mechanisms can then be devised (and revisited on a
regular basis to allow them to evolve) that will bring the members closer
to their objectives and reinforce the core purpose of the organization. In
the context of a strategic framework of cooperatives with diverse
member interests
38. Strategy meet the needs of cooperative
members
• Agricultural cooperatives are the vertical extension of the farm business
and a strategy must encompass this aspect
• Developing a cooperative strategy requires knowledge of members’
needs resources and capabilities. At the same time, members need to
know about the cooperatives’ future range of activities, in order to plan
their enterprises. In addition to this, knowledge of the environment of the
cooperative system is needed by both the cooperative and its members.
39. Harmonizing members’ interests and the
cooperative’s interests
• Harmonizing members’ interests and the cooperative’s
interests is the key to effective capitalization.
• The core problem of capital formation in cooperatives is the
inherent conflict between:
• members’ interests as users or suppliers and
• their interests as investors
40. Most important elements of the strategy
Vision
• big picture idea of what you want to
achieve
Mission
• general statement of how you will
achieve your vision
Core
Values
• how you will behave during the process
42. ABCD tool
The strategic planning
process is divided into
four phases aiming at
different results:
ABCD tool
• A: Building the vision
• B: Assessing the
Current reality
• C: Brainstorming
Actions
• D: Prioritisation
Sustainability starts with cooperative members and their beliefs and principles. Main focus have to be to persons who build cooperative. So we need to be sure that persons have clear vision about benefits and risks of being or not being in cooperative. And cooperative needs a strategy to provide sustainability.
Young farmers are confronted with the question of whether it is worth joining a cooperative. The members of the cooperative ask themselves what is the benefit of being a member of the cooperative. Is it better for everyone to work for themselves or to work together? If you work together, maybe then within a corporation?
DISCUSSION WITH PAPER SHEETS
Each participant get 3 paper sheets and pen. In 7 minutes they have to write one benefit of being member of cooperative to each paper sheet and one risk to one paper sheet of being member of cooperative. After 7 minutes all participants tell their 2 benefits, trainer collect them and group to the board or wall. After benefits participants tell risks and trainer again group them to the board or wall. It is ok that benefits of risks repeats. Discussion part has to be not longer than 30 minutes.
This discussion part is as introduction to next slides. For trainer ir is easier to talk about benefits that maybe are mentioned also from participants.
Some additional questions:
Maybe better opportunity for my farm in long term?
How actively I want to be involved in cooperative?
Do I like the principles of co-operation?
What are my products? How competitive they are?
What cooperatives operating in my area?
How supportive and suited to needs of my farm they are?
How farmer can be sure that being member of a cooperative is better opportunity for his farm in long term? Clearly, the cooperative is not a magic wand that will solve all the problems of a farmer. To a large extent, the result of co-operation depends on the interest and active involvement of the farmer himself. Of great significance is the product produced, the competition level and the stage of development of the cooperative. Equally important are the members, management and strategy of the cooperative. In an ideal world, a cooperative can help a farmer to make purchases and sell products more efficiently.
The outsourcing means delegate to co-operative the purchase of capital goods, such as seeds, pesticides, fertilizers, feed and other inputs. Farmer can reduce irrational time spent on information searching and monitoring. Cooperatives help the family farmer enlarge and operate his production units more efficiently on an independent basis.
Through pooling products of specified grade or quality, many marketing cooperatives can meet the needs of large-scale buyers better than can individual farmers. By joining forces, the farmers are able to influence the market structure and the market behaviour of the buyers and/or suppliers. Almost all agricultural products are of a bulky nature. Therefore unit costs of processing decrease sharply by expanding the operations of the co-operative. Hence, efficiency by economies of scale is the reason for the creation or beeing part of a co-operative. Co-operative auctions in flower, fruit and vegetable marketing have as their core business the market management under conditions of transparency. Market management yields competitive conditions so that the price system is efficient. Farmers would generally pay higher prices for supplies if it were not for competition from cooperatives. By pooling supply purchases, sales, and handling and selling expenses, cooperatives can operate more efficiently-at lower costs per unit-than farmers can individually. A number of cooperatives have developed markets in other countries and their exports provide outlets for more production. In many cases, cooperatives have expanded-or acted to retain markets by processing members’ products into different forms or foods. Major cooperatives have been organized to preserve farmers’ link to a market and to protect their production investment.
To stay competitive, cooperatives—like any business—tend to integrate vertically toward the more lucrative and less price-sensitive consumer goods markets, where there are greater possibilities for product differentiation and market segmentation. Cooperatives have been alert and responsive to the changing demand for convenience foods, good packaging, and effective merchandising. Some conduct dealer and consumer education programs on proper care and handling of their products and ways to use them. The marketing and processing cooperatives provide members market access and help them sell their products to advantage- either in the original state at harvest or later following storage, or in a processed form. These cooperatives help him remain an entrepreneur rather than a contract producer or piece-worker, and retain control of his products further up the marketing chain on the way to consumers.
Through cooperatives, farmers can own and operate a user of service-oriented enterprise as contrasted to an investor- or dividend-oriented enterprise. Farmer ownership allows producers to determine services and operations that will maximize their own farming profits rather than profits for the cooperative itself. Cooperatives help reduce members’ costs for supplies and services by distributing most of their net savings above costs of operation back to member-patrons on a patronage basis. Farmers usually judge the benefit of belonging to a cooperative by its net margins or savings-a tangible measure. More specifically, they look at the amount currently paid to them in cash. Next is the amount allocated to them in noncash forms that may be revolved later. Many cooperatives annually make substantial cash payments of earlier deferred refunds from revolving funds
Cooperatives enable farmers to own and control, on a democratic basis, business enterprises for procuring their supplies and services (inputs), and marketing their products (outputs). They voluntarily organize to help themselves rather than rely on the government. They can determine objectives, financing, operating policies, and methods of sharing the benefits. Farmers have the opportunity to choose as partners other private companies as external service providers. However, in this case, farmers will not have a direct or indirect influence on the policies that this cooperation partner will implement in terms of purchases, infrastructure investments and other fields, as compared to the fact that the farmer work with his cooperative.
The costs of employment and use of agricultural equipments are reduced. Cooperatives are supplying various custom services to help farmers meet labor shortages or to minimize individual investments in equipment
Progressive managers and field staffs of cooperatives provide valuable information to members on farm production and management practices. Advice may be offered on the quality of seeds, fertilizers, and pesticides, and on feeding and cropping practices. Also, many cooperatives provide market and economic information about various products or enterprises. Many cooperatives assist farm advisors in implementing the recommendations.
The ability to treat business profitability as “the rules of the game rather than the objective” also frees cooperatives to invest in and engage in a range of pursuits to benefit their members and their community over a longer period of time without having to worry about earning immediate returns for investors. Cooperatives, due to their nonprofit and service-at-cost nature, tend to push performance closer to the competitive norm. The reason is that they bring more to market at a higher producer price than would be the case if all firms were profit-seeking.
The cooperatives spend money for supplies, utilities, insurance, and local taxes. Successful cooperatives also have substantial payrolls and their employees’ patronage of local businesses adds to the economic well-being of the community. A majority of the farmer cooperative plants and other facilities are located in rural areas-a plus value in stimulating home ownership and retaining rural industry. Participation in cooperatives often encourages participation in other community projects and in country and local government. Cooperatives often provide funds for community fairs, health centers, fund drives, and the like. As a result of working together in cooperatives, members better understand how to unite in solving community problems. And leaders developed in cooperatives also become leaders in other community organizations.
The strategy of vertical integration is especially resource demanding; the cooperatives need more capital, and the capital must ultimately originate from members.
While boards of directors may have authority to make major decisions, they may first wish to discuss them with the membership. This sometimes requires time or delays action.
A lack of commitment by members may greatly limit a cooperative’s ability to fully develop.
Members may organize a cooperative to market only one specific product or to handle only specified kinds of farm supplies. Also, their objectives may preclude handling supplies used by both farmers and non-farmers, distributing patronage refunds to non-farmers, or handling unrelated products on which a net income could be realized.
Some links to case studies about constraints of cooperatives:
Milk cooperatives in France https://journals.openedition.org/rga/2718
Different cooperatives all over the world https://www.mdpi.com/2071-1050/10/4/1271
Dairy cooperatives Europe https://www.researchgate.net/publication/46509079_The_impact_of_cooperatives'_risk_aversion_and_equity_capital_constraints_on_their_inter-firm_consolidation_and_collaboration_strategies-with_an_empirical_study_of_the_European_dairy_industry
Agricultural commodity price volatility is an ongoing concern. Policymakers as well as all the participants along the food supply chain have an interest in the question of agricultural price volatility and need to better understand the expected future evolution. For example, farmers in some countries now face a number of risks that were formerly absorbed by market and price support policies. Agriculture remains exposed to many risks like production, market, institutional, personal and financial risks. Market risk, which is related to uncertainty about the prices that farmers will obtain for their products or pay for their inputs, is amongst the most important.
Most farmers cannot ignore the indirect or even direct relationship to heterogeneous food consumers. Critical and fragmented food consumers have specific wants and needs in terms of product and process characteristics, such as food safety, shelf life, nutritional value, convenience, and palatability. The ability to address food consumers, manufacturers, or retailers with such wants and needs is dependent on the perceived
Agricultural sector is experiencing new pressures and risks associated with increased integration of the global food system. The ongoing consolidation across the agri-food value chain is pressuring farmers to improve efficiency or to pursue product differentiation by becoming
Most countries use multiple policy instruments to regulate the agricultural sector with various objectives. Considering its primary purpose of correcting market failures to benefit both producers and consumers, farmer cooperatives in particular have received much public policy support. In the European Union, the European Commission spurs a favorable policy environment for the formation and development of farmer cooperatives. The same situation is observed in the United States, where farmer cooperatives enjoy antitrust exemption and single taxation treatment. However, the political environment is volatile, and most countries have reduced or removed trade policy instruments to promote free trade
How can we put all benefits and risks together and be prapere for all processes in future? This is reason why we have to talk about strategy? This is one of the main factor to make sustainable cooperative. So in next slides we will talk about Why elaborate strategy for cooperative? And how to do that?
The cooperative wants to take the next development step, which requires significant investment and restructuring. Typically, it could be the processing of agricultural raw materials or the launch of another new business. In this context, the cooperative needs to set goals and agree with its members on performance scenarios depending on the results.
New cooperative, which is in the early stages of development and plans to attract new members and increase administrative capacity. Strategy serves as a road map for the organization
The strategy serves as an instrument for assessing management performance. Management must operate in accordance with the strategy developed by the members, and may also be remunerated for its implementation.
• Lays down growth objectives of the organization and also provides strategies needed for achieving them
• Ensures the organization remains a prepared organization
• Ensures best utilization of the organizations’ resources
• Serves as a coping mechanism against uncertainty arising from environmental change
• Helps the organization to understand trends in advance and provides the benefit of a lead-time for taking crucial decisions and actions.
• Helps avoid haphazard response to environment
• Provides the best possible fit between the organization and the external environment.
• Helps build competitive advantages and core competencies Draws from both intuition and logic
• Prepares the organization to not only face the future but also even shape the future in its favour.
Cooperatives can be seen as a social system since they are engaged in complex work, with diversity amongst members and stakeholders, constantly changing dynamics, and a high degree of uncertainty. Trust is one of the essential elements that holds society together. Other elements, as mentioned in the introduction, are learning, diversity, common meaning and self-organising. Strategy ensures that the organization takes care of needs of the stakeholders
The issue of economic sustainability for cooperatives has different facets. One relates to understanding what the cooperative means when it says it wants to be economically sustainable. The second relates to the aspect of the business and funding model. A third aspect refers to the issue of budgeting in support of spelling out what is required to be economically sustainable and setting up proper administration to track how the cooperative performs against this definition
Strategy formation typically occurs over time as firms realize their position, such as being a low cost or large market share versus a branded food manufacturer. Results show that strategic attributes (market orientation and brand orientation) are more important for cooperatives’ performance than organizational attributes. Value-addition is achieved through an efficient marketing strategy. This means that the basic products need to be transformed into other products which are in high demand in the market. Simple value-addition can be achieved through a careful and systematic handling of the product, its grading, packaging and transportation. Value addition is also achieved through attractive, informative, branding and its contents and pricing clearly described on labels.
Strategic planning is needed because the vision the organisation seeks to realise represents a desired future and lies outside of business as usual. It requires a stepwise transformation of the organisation. Cooperatives are practical organisations; most co-operators are primarily concerned about meeting immediate needs. The cooperative movement, therefore, does not look forward easily into the future. Rather, it instinctively prefers to evolve pragmatically; responding to opportunities and adapting to changes as they occur.
Creating the strategy may seem like a lot of busy work. But, if done properly, they can save money and time and increase the odds that your business venture will succeed. Creating these statements will help you focus on the important aspect of your business. They will force you to focus on “where you are going” and “how and when you will get there.” Think of these statements as living documents that are changed as the needs of the business change. Too often these statements are treated as “iconic relics” to be stored away in a safe place. If you don’t use them, you have wasted your time
Industry analyses are critical for educating boards and managers, who then bear primary responsibility for strategy development
Very often cooperative members understand only one of the five forces underlying competition based on their role as a supplier, but may lack full knowledge on the other forces. Thus, concepts related to barriers to entry and exit, knowledge of the supply chain and how buyers respond, as well as how consumers and ingredient buyers regard substitutes, is important
This phase aims at building the vision of the organisation. Founders need to build a common vision for the cooperative in order to have a strategic direction to follow in the long run. The vision is something the cooperative aims at, something ‘big’, a sort of dream. The research team suggests that the vision includes the thematic areas which are key to the cooperative in order to increase the likelihood of reaching long-term sustainable success.
Each of these three elements is an important aspect of the businesses guiding light.
Once you have developed your mission statement, the next step is to create the following items:
Goals – general statements of mileposts you need to meet to achieve your vision.
Objectives – specific, time-sensitive statements for achieving your goals
Strategies/Action Plans – specific implementation plans of how you will achieve your objectives and goals.
Vision includes the thematic areas which are key to the cooperative in order to increase the likelihood of reaching long-term sustainable success.
Next step involves an in depth analysis of the overall current situation of the cooperative. There are two main areas to analyse, the external and the internal worlds.
During this step, cooperatives brainstorm all kinds of possible actions in order to move from the assessed current reality to the identified vision of success. Actions need to contribute to the cooperative’s move towards the vision.
This stage is to prioritise among all possible actions brainstormed in the previous phase. Only prioritised actions will be implemented by the cooperative. The prioritisation step is delicate as it aims to filter out the most strategic actions for reaching the vision of success.
