Terry N. Barr
National Council of Farmer Cooperatives
Terry N. Barr is currently the Chief Economist for the National Council of Farmer Cooperatives and Vice President of the Cooperative Business Center at the National Council of Farmer Cooperatives (NCFC) — a nationwide association of farmer cooperative businesses located in Washington, DC.
Prior to joining NCFC in 1985, Terry held several positions during his 14 years at the U.S. Department of Agriculture. He served as chairman of the World Agricultural Outlook Board, which was responsible for coordinating the forecasts of USDA. He also served in the Office of the Secretary as director of the Economics Analysis staff, which prepared economic analysis and assessments of alternative farm policy options and decisions.
He was born in the state of Washington and holds a doctorate in economics from Washington State University. He resides with his wife and two sons in Upper Marlboro, Maryland.
Agricultural cooperatives are facing major changes and will need to adapt to them. The U.S. has suffered the loss of farmers and farm cooperatives that serve them. About 60 percent of the decline in the number of cooperatives is the result of farm consolidation. In addition, we have seen high-profile bankruptcies of large cooperatives such as Agway and Farmland.
The difficulties cooperatives face are the direct result of the decline in number of farmers as well as total revenue in the marketplace. Also important is the structural change in the industry that makes the environment for cooperatives much less hospitable than the 1920’s and 1930’s when there was economic stability. Today, 10 percent of farmers produce about 70 percent of farm products. Seventy percent of farmers produce about six percent of these products. The latter category of so-called “lifestyle farmers” are a segment farm cooperatives can serve well in the future.
Serving the commercial farmer segment is getting more difficult as the needs of this segment grow more sophisticated. This “bimodal” structure of agriculture causes many problems for cooperatives. The last five years have produced a “perfect storm” for cooperatives — stagnation in foreign markets, depressed commodity prices, a strong dollar making U.S. goods less competitive, and growing competition from multinational companies that sell to farmers.
Information technology has enabled “just-in-time” business relationships and shifted the advantage to those who can adapt their physical assets to that business environment. Retailers like WalMart have paved the way in minimizing investment in brick and mortar relative to house inventory. This change has been hard on cooperatives which tend to have a high investment in brick and mortar.
The storm is not over yet. All along the food system, companies continue to seek just-in-time supply relationships that reduce their inventory costs. At the same time, consolidation in food distribution and retailing will continue. Cooperatives will be smaller players. By 2005 ten grocery store companies will control 65 percent of the market in the U.S. These companies will redefine how they interface with agriculture and with cooperatives. The average revenue of input manufacturers in the food system is now $22 billion. The average size in terms of revenueof farmer cooperatives is about $3 billion. This disparity makes it difficult for cooperatives to serve these huge players.
Two other trends threaten cooperatives. One is the emergence of companies who use information technology to provide inputs directly to farmers from manufacturers. They own very little in physical assets and are therefore very efficient. Another is the tight control producers of agricultural technology are putting on their intellectual property. It is difficult for cooperatives to have access to these proprietary systems.
The new generation of cooperatives will compete by having high quality standards for farm products rather than being markets of last resort for farm commodities. They will have delivery relationships in the marketplace that can be bought and sold. And, they will exit businesses in which they don’t make money. Many will serve lifestyle farmers. Whether we call them cooperatives or something else, they will be serving farmers with new structures.
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