Enhancing the Sustainability of Producer-Owned Organizations

Enhancing the Sustainability of Producer-Owned Organizations

Summary

Producers practicing sustainable agriculture increasingly seek to develop new organizations to collectively market their products and capture profits from downstream levels. To increase their long-term profitability, producers introduce innovative mechanisms that create incentives for individuals to invest. Preliminary situational case studies indicate the horizon problem investment constraint should be explored by examining diverging member preferences within the producer-owned organizations. Preliminary analysis of the data collected through producer-member surveys suggest the horizon problem exists but is manifested differently based on the effectiveness of alternative cooperative structures in dealing with the tensions that arise from increasing heterogeneity among memberships.

Objectives/Performance Targets

• Short term: –Increase knowledge about horizon problem –Make management aware of organizational techniques to ameliorate horizon problem Intermediate term: –Incorporate mechanisms to align member investment with patronage –Develop cooperative design with incentives for member investment –Possible change in state legislation regarding cooperative policies Long-term: –Increase farmers’ economic well-being –Enhance the quality of life for farmers

Accomplishments/Milestones

To increase knowledge about the horizon problem (an investment constraint in producer-owned organizations), two situational cases and member surveys were conducted. The criteria to select the organizations were variability in size of member’s farm; variability in lengths of membership horizon; and variation in attributes of equity acquisition and redemption policies. Upon selecting the organizations for consideration, the chief executive officer and chairman of the board of directors were contacted to request participation in the project to evaluate the strategy/structure interface between the cooperative and its members. The situational cases summarized industry and business specific issues about the producer-owned organization gathered from public sources. The organization’s management team reviewed the situational case for accuracy and tone. The researcher met with key individuals from the organizations to clarify observations made in the situational case. In addition, the management team provided their expertise in the review of the suggested questions in the member survey.

After approval of the final draft of the survey, the researcher mailed the survey to identified segments of the membership. The survey was returned to the researcher in a business reply envelope. Preliminary descriptive statistics and correlations suggest some comparisons and differences among the investment preferences held by the respondents in each of the organizations. Preliminary analysis of the data collected through producer-member surveys suggests the horizon problem exists but manifests itself differently based on the effectiveness of alternative cooperative structures in dealing with the tensions that arise from increasing heterogeneity among memberships.

Further statistical analysis of data on the horizon problem needs to be conducted. After the analysis is complete, the researcher will share the results with the respective cooperatives. In turn, the researcher will present the results at regional or national producer conferences or at customized programs for cooperatives and workshops for producer leaders and boards of directors.

Impacts and Contributions/Outcomes

This research indicates that producer-owned organizations should gain a clear understanding of their members’ investment preferences to align the strategic preferences between all members and the cooperative. Many of the investment constraint issues across industries have a common basis in diverging farmer investment preferences, but particular market conditions and business organizational structures lead the issues to manifest themselves differently. Once the membership preferences are identified, then the producer-owned organizations can implement mechanisms that are aligned with their membership. Although this process will take time, producer-owned organizations that align their members preferences with those of the organization will be able to better attract and reward equity capital to the producer-member. In turn, this will increase the farmers’ economic well-being in the long term.

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