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Background and Objective:
A great deal of activity regarding the formation of a new generation of cooperatives
took place in the last decade of the twentieth century in the northern plains states of
North Dakota and Minnesota. These cooperatives have been described as "new
wave", "new age" and "new generation". The term "new
generation cooperative" (NGC) has become the description most often used.
In 1995, the Centre for the Study of Co-operatives at the University of Saskatchewan
tried to raise the profile of NGCs and stimulate interest in Western Canada by showcasing
the NGC developments that were taking place in North Dakota and Minnesota. There is now
considerable interest in NGCs as a potential tool for business and rural development in
Manitoba, Saskatchewan and other provinces.
The purpose of the project was to develop an understanding of the role that NGCs have
played in Minnesota and North Dakota, and to determine whether this success can be
transferred to Canada. The goal is to develop capabilities in Manitoba which can serve as
drivers in helping to duplicate success.
Procedure and Project Activities:
The project involved four steps, the first of which was to conduct an overview
of NGCs in nearby northern states. Then key factors were identified in order to explain:
- advantages/disadvantages of NGCs as a corporate choice
- differences between states which may influence the success of NGCs
- differences between Canada and the neighbouring states which may be critical in
predicting the scope and magnitude of success of similar approaches in Canada
Four illustrative cases on NGCs were selected and in-depth case studies were prepared.
The four cases examined were the Dakota Growers Pasta Company, the North American Bison
Cooperative, United Spring Wheat Processors and Northern Plains Premium Beef. Finally, a
web site was created to present and share information gathered in this project. The
address of the web site is
www.umanitoba.ca/afs/agric-economics/ardi
.
Results and Discussion:
NGCs are a distinct type of cooperative, which is in itself a unique type of business
organization. Cooperatives are found in many different sectors of the economy, including
credit and financial services, housing, utilities, health care, child care and insurance.
It is estimated that there are 40,000 cooperatives in the United States, and they are
prevalent in agriculture. The modern international cooperative movement is characterized
by seven guiding principles:
- voluntary and open membership
- democratic member control
- member economic participation
- autonomy and independence
- education, training and information
- co-operation among cooperatives
- concern for community
New generation cooperatives have several features that distinguish them from more
traditional cooperatives found in the Northern Great Plains states. These features are:
- delivery rights that are tied to the level of equity invested
- closed membership
- higher level of initial equity investment
- transferability and the opportunity for appreciation or depreciation in value of
delivery rights.
Initial equity investment required from producers is higher for an NGC than for most
traditional cooperatives, but unlike more traditional cooperatives, NGCs receive a higher
level of equity financing at the start of their operations. The NGC is, therefore, in the
position at the end of the year to return a greater portion of its patronage refunds in
cash to its members rather than retain them in the business as additional equity
financing. Equity shares in an NGC not only assign membership to producers, but they also
allocate delivery rights and obligations.
Producers purchase equity shares that obligate them to deliver a certain amount of farm
product to the cooperative each year. In turn, the cooperative is obligated to accept the
delivery of the product. This assures producers a market for their product and the
cooperative a steady source of its primary input. Quality stipulations of the product are
specified, and if the producer cannot fulfill his delivery commitments with his own
product, then arrangements must be made to purchase the needed product from elsewhere to
fulfill the delivery requirements. The cooperative sells only enough delivery rights
shares so that it is able to meet its efficient processing capacity level. These are
separate from membership shares. Each individual producer holds only one membership share,
but may hold more than one delivery rights share. Voting rights are attached to the
membership share (one member, one vote) and patronage refunds are distributed according to
the level of product each member contributes (delivery rights shares). Members of the
cooperative are typically allowed to transfer their delivery rights shares to other
members or other producers who wish to become members, subject to board approval. The
price of these shares in these situations is negotiated between the member who is selling
and the producer who is buying.
Examination of the North Dakota experience revealed that there is a complex set of
several interdependent factors that influence the success of NGCs. These fit into broad
categories of motivation, capabilities and programs/policies. NGCs are not a "silver
bullet" answer to increasing rural development and to decreasing the decline of
prairie communities. They are not an automatic formula for success. They are, however, a
positive addition to the available set of tools that can stimulate value-added activity on
the prairies.
There are clearly some unique circumstances that propelled North Dakota to the
forefront of NGC development. In particular, the state had potential NGC leaders and
development assistance in place. These factors, when added to other more commonly found
factors such as the soundness of business opportunity, timing of the fund raising and
timing of entry into business, ignited the spark for the North Dakota experience. This
combination of factors explains, in large part, why North Dakota was the innovator and
leader in the formation of NGCs. However, Manitoba has already taken several steps to
encourage the development of NGCs. The following points underline these efforts and
outline additional initiatives to encourage NGC development:
- NGC friendly legislation. The Cooperatives Act (Chapter C223) has recently been
updated and changed in Manitoba. Some of these changes will be more accommodating to NGC
formation than previously.
- A long term strategy. A dedicated process in Manitoba with the goal of defining an
understandable, visible, long-term strategy regarding value-added cooperative development
is necessary.
- Coordinated provincial public sector efforts. A number of provincial departments
currently play a role in NGC development including Manitoba Agriculture and Food,
Intergovernmental Affairs, the Department of Industry, Trade and Mines, and the Registrar
of Cooperatives in the Department of Consumer and Corporate Affairs. It is important that
their efforts and the efforts of other non-government interested parties be centrally
coordinated.
- NGC start-up support. The early legal and consulting costs regarding formation,
feasibility and funding are often modest in the broad scheme of things; however, it is
precisely at this stage when funds are hardest to procure. More start-up support for NGCs
is needed. The assistance provided by Manitoba Rural Adaptation Council and provincial
programs have been important in developments to date.
- Manitoba Cooperative Business Development Centre. As part of the province’s
long-term strategy, a Centre should be developed in Manitoba to provide economic
development programs for NGCs. Ideally, the Centre would be funded and then given the
independence to pursue NGC development without the constraints of government or private
consultants.
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