Co-ops are making a comeback

The farming sector has a long tradition of depending on co-operative models that, in essence, offer groups of smaller or medium-sized farmers the same scale of benefits that would otherwise have been available to only large, corporate farming businesses.

Co-ops are making a comeback

The farming sector has a long tradition of depending on co-operative models that, in essence, offer groups of smaller or medium-sized farmers the same scale of benefits that would otherwise have been available to only large, corporate farming businesses.

There are still a number of agricultural co-operatives operating in South Africa, and while most of these businesses have retained a strong focus on being, at least in part, farmer owned, they have grown into larger, more sophisticated business structures.

There does, however, seem to be a new demand in the primary farming sector for smaller groups of farmers to cooperate in a new way.

This new model, which includes farmers embracing the sharing economy (for example, an Uber-type model for farm equipment), is driven by the price pressure that producers are facing.

The fast rate of world population growth that, together with rising incomes in developing countries, has caused food and feed demand to increase rapidly over the past decade, is tapering off.

The Agricultural Outlook for the period 2018 to 2027, published by the Organisation for Economic Co-operation and Development and the UN’s Food and Agriculture Organization, says that world agricultural markets have undergone significant changes since global food prices spiked in 2007: “Production has grown strongly across commodities, and in 2017 reached record levels for most cereals, types of meat, dairy products, and fish, while cereal stock levels climbed to all-time highs. At the same time, demand growth has started to weaken.”

The report explains that, over the past decade, demand growth was driven largely by rising per capita income in China, but this source of demand growth was decelerating and new sources of global demand were not sufficient to maintain overall growth.

As a result, prices of agricultural commodities were expected to experience little to no growth.

Speaking at the recent DeKalb Create Conference in Bothaville, Marcos Fava Neves, professor at the School of Business at the University of São Paulo, said that as a result of the weak price outlook, farmers would have to “think differently” to remain in business, and resist the large-scale corporatisation of primary production.

One of the options that farmers could consider to unlock greater value in their businesses was to engage in more collective action.

This did not have to be limited to sharing the cost of farm machinery and equipment in order to save costs; farmers could also collaborate by forming buyer groups to negotiate better prices for farm inputs, and similarly, by collaborating on marketing, a group of farmers could offer potential clients greater security of supply, while each farmer in the group still had control over his/her own destiny.

Advances in digital technology that support the sharing economy will make it easier than in the heyday of traditional farmer co-ops to ensure transparency for all involved when farmers choose to collaborate.

Neves says: “For farmers to remain profitable in future, we will have to see investment in more integrated businesses, as well as the sharing of assets and actions.”