The heart of the co-op

Devondale

I have to share what I’d anticipated would be a fairly dry discussion, and was instead a conversation that I am unlikely ever to forget.

Ahead of today’s AGM where our co-op’s board is expected to announce it is considering a partial share market listing, I phoned Professor Tim Mazzarol to discuss the implications of different ownership structures for co-operatives. Around 18 months ago, the professor wrote a story for The Conversation about Fonterra’s restructuring, which may well become a model for our own Murray Goulburn Co-op and I wanted to learn more.

Tim’s title is but he and his team have done some remarkable research on the nature of co-operatives. What it reveals is that co-operative members wear four “hats”:

  1. Patron
    As patron, we are concerned mostly with the transactions we have with the co-op. In my case, that’s sending milk, buying goods at the trading store and so on.
  2. Investor
    As investor, I look at the financial returns offered by the co-op. Once the emphasis is placed heavily on this aspect, Prof Mazzarol notes, there’s often pressure to demutualise.
  3. Ownership
    Quite unlike the traditional investor (or shareholder of a listed company), I have a sense of ownership over the direction of the co-op and a much higher involvement with it.
  4. Effective community
    The co-op provides a feeling of belonging to a broader community.

In other words, a farmer co-operative is much, much more than just a farmer-owned company.

“Co-operatives need to keep reminding themselves of their original purpose,” says Professor Mazzarol. “When managers don’t share the vision, they can shift from a proper co-op to a farmer owned business. If you own the business and have substantial capital in it, you are interested in control.”

Professor Mazzarol believes the Fonterra TAF model, which allows farmers to trade their shares, weakens the role of the co-operative.

“If you separate investment from ownership, you raise the spectre of decisions being made by a board dominated by people with no interest in the members.”

In practical terms, he says, that could mean refusing to collect milk from less profitable suppliers, for example.

What co-operatives offer Australian farmers

“The average Australian farmer has increased productivity by 50% or more in the past decade but captured very little of that,” Professor Mazzarol says.

“The value of that investment is siphoned off by choke points in the supply chain, where there is a concentration of market power. The only way producers can deal with that is to circumvent those choke points by value adding and selling direct or belong to a co-operative with increased bargaining power that will return the value to farmers.”

“MG is acting like a pace-maker co-op, ‘keeping the bastards honest’, and if it disappeared from the market tomorrow, prices would start to fall. ‘Suppliers are treated with respect’ is very different from ‘we exist to maximise returns for our members’.”

The co-operative as community canary

The steady disappearance of co-operatives, Professor Mazzarol says, signals a change in Australian society.

“Co-operatives are a bellwether of social capital,” he says. “A co-operative needs three things: trust, reciprocity and a network. If these break down, so do co-ops.”

A gloomy observation, indeed. Let’s hope that when push comes to shove, trust, reciprocity and community are still alive and well among Australia’s farmers.

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