New research suggests that US agricultural co-operatives are growing stronger. Compiled by financial services provider CoBank, the report suggests the number of agri co-ops has been declining due to mergers and consolidation.
According to the report, the pace of co-op consolidation has quickened during the current downturn, averaging 4% annually in 2016 and 2017.
With farmers demanding better and more diversified services from their co-op, the sector started consolidating for the purpose of scale and relevance. The report reveals that over the decade from 2007 to 2017, on average, 70 co-ops were consolidated annually.
From 1992 to 2017 the number of co-ops and co-op membership fell by more than 50%. However, while co-op numbers continue to shrink, the number of co-op owned facilities or locations seems to be steady or growing.
Co-ops merge with other co-ops as well as non co-ops, while others dissolve and some restructure into non co-operative businesses. From 2003 to 2013, on average, more than 70% of co-op consolidation resulted from co-ops merging with or being acquired by another co-op.
The research also highlights that over the four-year period from 2014 to 2017, nearly 3 out of every 10 co-op consolidations resulted from bankruptcy or dissolution.
Consolidation also led to an increase in the number of co-op employees. Between 2005 and 2017 US co-ops added roughly 7,700 employees and the average co-op now employs more than 100 people, a 33% increase in two decades.
Since 1952, co-op business volume has also grown at a compound annual growth rate (CAGR) of 4.3%. Co-ops have also increased their sales volume. If in 1983 90% of co-ops had sales of less than US $15m (£12.33m), at present that figure is only 50%.
The report argues that co-op income is much stronger and more stable than in the past, making the sector more sustainable and adding a boost to local tax bases.
“We expect consolidation among agricultural co-operatives to continue as the industry confronts persistent challenges in agricultural markets, evolving farmer demographics and management style, and the steady pressure to gain scale in pursuit of competitive advantage,” concludes the report.
