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CoBank Examines Drivers of Co-op Consolidation Trend
USAgNet - 07/11/2019

Surprising new drivers are emerging in the ongoing consolidation of agricultural cooperatives. Although co-ops continue to consolidate to gain business efficiencies, management succession and employee recruitment are among the new factors driving consolidation, according to a new report from CoBank's Knowledge Exchange division. The report identifies key drivers of the long-term consolidation trend and includes perspectives from several co-op executives and other experts across the United States.

"Co-ops have continued to consolidate even as the number of farms and farmers has stabilized," said Dan Kowalski, vice president, Knowledge Exchange, CoBank. "That signals a transition from the defensive consolidations we've seen in the past to the offensive consolidations we're seeing more recently."

Consolidation among farm cooperatives continues to mirror trends throughout production agriculture. Farming operations are growing larger, with average acreage of 444 acres in 2017, up from 418 acres 10 years earlier. In turn, the businesses that serve American farms are combining forces to compete and serve larger farmers better. Cooperatives often merge or consolidate to create economies of scale. Co-ops may reduce costs, add capital and acquire assets or more sophisticated technology to better serve their membership.

Current economic conditions make organizational efficiencies and synergies even more important. "Many farmers are under financial distress. Depressed incomes and tight margins can affect cooperative viability and make a merger look more attractive," said Kowalski. "Many recent consolidations represent mergers of equally strong organizations. But in some cases, a stronger cooperative can take over a business that is suffering financially and inject capital to turn it around."

No matter what drives it, consolidation has a profound impact on a cooperative and its stakeholders. On the plus side, a strong and healthy co-op brings benefits to the community in the form of patronage dividends, equity retirements and capital investments.

While co-op numbers continue to shrink, the number of co-op owned facilities and locations seems to be steady or growing. And the average co-op now employs more than 100 people, a 33% increase over the last 20 years.

"We expect consolidation among agricultural cooperatives to continue as the industry confronts persistent challenges in agricultural markets and the steady pressure to gain scale in pursuit of competitive advantage," said Kowalski.

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