Working with Producer Groups

Gerald Ely

Cooperative Development Specialist

USDA Rural Development (PA)

Issues/Keys to Success

Recognition of Problem/Economic Need Leadership Group Commitment Understand Complexity of Market/Industry Different Business Structures Capitalization Understand & Plan for Variability Common Development Pressures

Recognition of Problem/Economic Need

It takes time to understand problem or economic need

Then need to reach agreement on solution Time and effort increases with group size Commitment requires group trust and

confidence Understanding and agreeing on

expectations important for ultimate success

Leadership Group

Appropriate Advisory Team Clarify Roles and Expectations Recognize Leadership will Change Bottom Line - YOU NEED IT!

Commitment

Commitment of those who will be participants in proposed business is Critical for Success

“Stop” points include:Steering CommitteeProducer SurveyPre-Membership AgreementEquity SubscriptionMarketing Agreement

Understanding Complexities of Market/Business/Industry

Desperation is a poor base for new business – yet this is reality

Markets/Business are Complex Economic Phenomena of “supply/demand”

“economies of scale” and “comparative advantage” are real & hard to defy

“Middleman” myth holds unrealistic promise

Understanding Complexities of Market/Business/Industry (con’t)

Industry Concentration, world economy, political/regulatory issues are complex and create uncertainty

Must understand needs of customers and the distribution system

Regulatory issues complex, costly and difficulty to ignore

Learning/training is expensive

Different Business Structures

There are alternatives to cooperative form No matter what structure need to agree on

mission, feasibility analysis, business plan, management

LLC’s may have advantage of “outside” capital but at what price

Stigma of cooperative failures resulted in increased interest in other alternatives – for wrong reasons

Capitalization

Hi-tech facilities and equipment are hi-cost Proper capitalization essential Costs of “Doing it Right” are high However, costs of “Doing it Wrong” may be

higher

Understand and Plan for Variability

Feasibility analysis usually based on “average”

Extremes occur in agricultural production frequently

Test the importance of variable factors on the project

“Plan B” can be critical for success – HAVE ONE!

Common Development Pressure

Pressure to develop too quicklyMeet a crisis situationPlant/facility/business closingMarket opportunityManager/staff availability

Business development steps are important to follow

Threat to competitors Pressure to begin with minimal capital Pressure to ignore pessimistic feasibility reports

Role of Outside Agent

Important, but do NOT substitute local participants

Roles include:EducatorObjective Observer/SkepticProject ChampionTechnical Advisor