New Generation Co-operatives for Agricultural Processing and Value Added Projects

Summary

The Challenge of Change

Rural Canada is facing many changes and new technology, changing markets, the end of the Crow Benefit, and changes in trading arrangements present challenges and opportunities. All aspects of agricultural production, processing and marketing are being affected. Farmers have responded by diversifying production into new crops and varieties of livestock and by creating new opportunities for the development of processing and other value-added projects.

These opportunities have led some farmers to become directly involved in owning and operating processing and value-added businesses, thereby improving their own incomes and creating jobs and economic growth for their communities and the province. To finance and organize these enterprises, individuals and groups are considering a range of organizational structures, including co-operatives.

A Co-operative Option

For many years in all regions of Canada, predominantly in rural areas, people have developed co-operatives to do collectively what they cannot accomplish as individuals. The New Generation Co-operative business structure can support producers working together to raise sufficient capital to jointly own and operate value-added processing enterprises.

New Generation Co-operatives share many of the key attributes of traditional co-operatives, including:

• democratic control, based on one-member, one-vote;
• distribution of earnings based on use of service or sales to the co-operative; and
• a board of directors elected by the membership.

The three attributes that distinguish New Generation Co-operatives from traditional co-operatives are:

• a tied-contract, setting out delivery rights/obligations;
• a membership limited to those who purchase delivery rights; and
• higher levels of equity investment by individual members.  

The differences in membership and financial structures are linked to the processing focus of these co-operatives. Membership is restricted to producers who have purchased delivery rights.

Financing a New Generation Co-operative

To finance a New Generation Co-operative, shares are sold. Each share represents a contract between the member and the co-operative, providing the member with the right/obligation to deliver one unit of farm product (grain, vegetables, hogs, etc.). Total membership will be limited by the availability of delivery rights/obligations.

These co-operatives have typically raised 30 to 50 percent of the capital they require through the sale of shares linked to delivery rights. This level of equity is a significant departure from traditional co-operatives, which usually require only minimal capital contributions by members. This higher equity reduces dependence on debt financing and thus should enhance the viability of the enterprise. Additional capital may be raised through preferred share offerings, member loans and other securities.

Developing a New Generation Co-operative

Developing a New Generation Co-operative from an idea to an operating business will require the development of a strong organization and a comprehensive business plan. To assist individuals and groups through the process of assessing and developing a New Generation Co-operative, Saskatchewan Economic and Co-operative Development has prepared a development guide titled "New Generation Co-operatives For Agricultural Processing and Value Added Projects". This guide is available from your local Economic and Co-operative Development office and the following location:

Government of Canada Agriculture and Agri-Food Canada Market and Industry Services Branch 801-1800 Hamilton Street P.O. Box 8035 Regina, Saskatchewan S4P 4C7 Phone: (306) 780-5545 FAX: (306) 780-7360

 

Prepared by: Saskatchewan Regional Economic and Co-operative Development