11 Reasons to Start a Farm Cooperative
Updated: May 28, 2020
Farm cooperatives can help individual farmers achieve goals they might not attain on their own. It makes sense: by working together as a group, co-op members can better compete with larger producers. But what if there isn’t a farm co-op in your area, or there isn’t one that’s a good fit for you?
You might consider starting your own.
Want to reduce costs, increase quality, and more efficiently market your products? Here are 11 reasons why you might consider starting – or joining – a farm co-op.
1. Reduce Costs
Cooperative purchasing of supplies and services mean you can buy at bulk rates. It can also reduce shipping costs by consolidating delivery.
Bulk purchasing can take the form of a buying club, created to purchase anything from feed to seed. Services – like fertilizer blending, delivery, and spreading – can also be purchased cooperatively. Such purchases illustrate the scalable nature of an agricultural cooperative; you can start as small as working with your neighbors to hire a single service.
Other possibilities include the purchase and use of pesticides, the purchase and storage of fuel, as well as repairs, bookkeeping, and consultation (which could include anything from tech support to feed and fertilizer recommendations). You might also consider cooperative purchasing of health insurance, child care, and education.
Not only can forming a co-op result in bulk pricing eligibility, it can also attract providers of products or services that would otherwise be unavailable for individuals in your area. One classic example is the rural electric cooperative.
2. Increase Quality
Of course, when you have more bargaining power you not only have more control over cost, you also gain leverage over the quality of products and services you bargain for.
3. Save on Equipment Expenses
All kinds of equipment can be purchased cooperatively, starting with the smallest of hand tools. While tractors, hay balers, combines, seed extractors, and other machines may come to mind first, don’t overlook other opportunities like sharing greenhouse space.
Especially when it comes to bigger items, shared rental is also an option. Keep in mind that these partnerships don’t have to be limited to your next door neighbors. It’s not uncommon for farms located hundreds of miles apart to share access to equipment for the production of corn, soybeans, wheat, and hay.
Again, everything is scalable, including the types of agreements used. Sometimes a handshake will do; other times a legal document is good common sense.
4. Gain Better Access to Labor
In addition to sharing machines, you might cooperatively hire people to operate them. If several producers each need part-time workers they might work together to hire people full time. There are many benefits to joint hiring, including broadening your pool of applicants and sharing paperwork, housing, transportation, and training.
5. Raise Efficiency in Handling, Processing, and Storage
The economy of scale can provide benefits after production, too. Assembling large production volumes can reduce per-unit handling and processing costs. What’s more, some processes can increase value and are also more efficiently accomplished in volume. These include washing, cooking, drying, freezing, and packaging.
Because the level of cooperative investment is always scalable, you don’t have to start by building a silo. It’s also possible to reap benefits of pooling production without physically mixing it together.
6. Improve Small-scale Marketing
Cooperative marketing can represent many benefits to individual producers.
To start, it can reduce unwanted competition. For example, instead of competing against your neighbor while selling produce at the farmer’s market, you might coordinate your efforts. You could take turns staffing one space at the market rather than competing in price at two. Other opportunities include sharing advertising costs and consolidating your efforts to market to local grocery stores and restaurants.
Of course this same principle also works in larger-scale contexts.
7. Improve Larger-scale Marketing, Too
Collectively selling your products with other farmers allows you to combine your output into larger lots. By representing more volume, a cooperative can increase the negotiating power individual sellers have against larger buyers, resulting in more competitive sales and more stable prices.
With the cost spread across multiple producers, qualified sales staff can be hired.
Representing more volume can open new markets and extend your reach to bigger buyers. It can allow you to bypass middle-men, which increases income.
While on the topic of marketing, some multi-farm CSAs are set up as cooperatives. This can be a great way for producers of both similar and complementary products to reach more customers. Check out “Local Harvest: A Multi-Farm CSA Handbook” for more details.
8. Enjoy Tax Benefits
Thanks to Sec 199A of the Tax Cuts and Jobs Act, creating a cooperative may offer some tax benefits through the year 2025. This article from Iowa State University states that “producers with no or little on-farm W2 wages will likely be able to take a higher deduction by selling to a cooperative because of the deduction pass-through from the cooperative.”
Of course, further research with a tax professional – for every provider involved – is always a good idea. This research can also be done cooperatively.
9. Reduce Risks
Cooperative pooling can also provide increased security in the form of risk sharing. Cyclical fluctuations in price can be shared among all producers in the pool, thus reducing individual risk. Lower-than-average prices are offset by higher-than-average prices. Of course the reverse is also true.
In addition, the diversification inherent in multi-product cooperatives can further expand risk sharing benefits over those experienced by single-product producers and co-ops.
10. Gain Control and Political Power
Starting a cooperative means building a partnership to gain more control over many aspects of your businesses. Together you collectively identify the needs and values that are most important to you.
As a group you can also gain political leverage. Once you collectively identify priorities and develop strategies, you might send representatives to share them with your legislators and regulators.
11. Increase Income and Solve Problems
The ultimate reason for starting a co-op is to solve problems. Most often the solutions are related to increasing income, but there are other benefits as well. Just as pooling commodities can help reduce the peak highs and lows of cyclical price fluctuation, simply sharing your challenges with others in your community can help with the emotional fluctuations of farm life.
USDA Rural Development offers free publications relevant to farm cooperatives. They offer issues of Rural Cooperatives Magazine, short circulars, and in-depth reports on many topics, including Co-ops 101 and How to Start a Cooperative.