Pete Lewis:
Welcome to Co-operative Conversations, the livestream series that connects you with the real stories from Australian primary producers, who are working and growing their businesses together in co-operatives.
Pete Lewis:
Hi, I’m Pete Lewis, and in one way or another for the past 25 years I’ve been helping Australian farmers tell the really good stories that go into producing food and fibre in this country. Tonight we have a very good panel of people to kick around some ideas that we started a little earlier when we caught up with Mountain Milk Chairman Stuart Crosthwaite, about what it takes to form a cooperative out of adversity and keep it going strong in times of financial pressure, corporate squeezes and even the odd pandemic. We heard about sweat equity, the changing face of primary production, which seems the perfect jumpstart into a round table about what makes the co-operative model succeed and sometimes why it fails.
Pete Lewis:
Joining us with Stuart today are three other agribusiness leaders working with co-operative farming models. We have Sean Cole, CEO of CCW Co-op, the biggest grape co-op in Australia. Mark Kebbell, who is the Executive Officer for Dairy Farms Australia, their milk co-op and Melina Morrison, who is the CEO of the Business Council for Co-operatives and Mutuals. Welcome, everybody and thanks again for your time.
Pete Lewis:
Stuart Crosthwaite, thinking about business, the vision is what drives it and gives it its heart and soul, how does this play into the success or failure of the co-operative model?
Stuart Crosthwaite:
Well, I think all good plans get tested at times, but I think under a co-operative theoretically you’re bringing a group of people together as members to form a co-op, it’s about … They want to understand a vision, they want to follow a vision, they want some decent plans to follow. So I think it’s really important in a co-op to have well laid out plans and a vision and something that people can gravitate towards and understand where their business is heading. I don’t think it’s any different to any other business to be honest, whether you’re a co-op or not a co-op, you need to be well-planned and well-organised.
Pete Lewis:
So how important is it to stick to that vision and that plan and what happens when things go wrong? How much have you had to adjust your thinking along the way in the three years since you formed Mountain Milk?
Stuart Crosthwaite:
Yeah, well, I think when we first got together our plans have changed a lot. I think we’ve rewritten our strategic plan, we’re coming up to our third version in three years. So, it’s important that you have the flexibility to adjust and adapt and I think in the dairy industry in the last three years, it’s been a pretty good example of needing to adapt and needing to change and be flexible. So over the last couple of years, and particularly in the last six months, to be honest, we’ve had to make some big changes, but the plan and the strategy have always underpinned where we’ve headed and our direction, so I think it’s important that you’ve got that so you’ve got a reference point.
Pete Lewis:
Thanks, Stuart. Let’s go to you now, Sean, for some insights into your co-operative, as I mentioned ahead of the program, Australia’s largest member-owned wine grape co-operative, CCW in South Australia’s Riverland. Briefly tell us a little bit about what your co-op does.
Sean Cole:
Yeah, sure, Pete. It’s a pleasure to be here. Look, CCW Co-Operative Limited is the largest producer and marketer of wine grapes in Australia by volume. We’re about 11 percent of the entire market, so wine market’s best kept secret really. We’re a fully owned grower co-operative, all grower board except one board member, an independent board member. Our primary activity is pool marketing our members’ grapes. We have individual agreements with each individual member, then we pool that, similar to a grain pool or something like that, get the economies of scale and a bit of advantage and market those grapes or value add them into wine, be it for bulk or retail both the domestic and export markets. In addition to that we also have a viticultural arm. So as part of the viti service we have, the growers have to pay for by levy. We provide world class advice and help our members increase the profitability of their farms at their own individual micro farm level and we also have a few other activities we undertake and most recently we’ve gone into vineyard management which is another revenue stream which helps reduce the cost of running the co-operative and help get larger returns and dividends back to our members.
Pete Lewis:
CCW has been operating for almost 100 years, awful lot of changes in that time and I guess an incredible concentration of ownership of the big wine brands we’ve seen. Do you think your vision has changed with all those changes, from the original vision that the co-op started off with?
Sean Cole:
Yeah, absolutely Peter. I’ve only been with the co-op for now on just nearly three years, but the co-op has gone through many different structures and iterations. It originally began with small holder growers as you normally see how most co-ops start out, it’s growers trying to gain advantage through scale, getting together post World War I and forming a co-operative and originally they would make fortifieds and deliver their grapes to the winery and get paid eight years later. So their payment terms wouldn’t be acceptable in this day and age, but through that they managed to gain scale, get branding and make their way into the market and eventually the co-operative through many iterations turned into a much larger organisation culminating in the formation of a company BRL Hardy and also the co-operative at times owned wineries. Our current structure is that we don’t. We make wine elsewhere and toll manufacture. So look, to say that Australian hasn’t changed would be a complete lie, but I think different economic times call for different economic plans. One thing that does hold true though, is there has to be value for membership and the member’s always been treated as a customer and a proposition to the customer in terms of value and how do we put more dollars in the pocket of the member and I think that’s always held true over the last hundred years or so.
Pete Lewis:
I’m old enough to remember working in South Australia when they had the vine pool scheme, where they were actually paying people to rip grapevines out of the ground. It seems sacrilegious now and then of course as change in tastes, they all went back in.
Sean Cole:
Absolutely. There’s been many market cycles and a lot of turmoil in the industry. Every industry sees it. With Stuart in the dairy industry and I’ve worked in that previously, there’s always challenges, but I think the hardest part for any business is anticipating what the future look like and given we’re in COVID now, that’s what we’re all trying to work out.
Pete Lewis:
Look, a good time to bring Melina Morrison into the conversation. Now farming co-ops have had a presence in this country since the 1850’s. Speaking to your general experience across co-operatives, how critical are business plans in the success of those co-operatives?
Melina Morrison:
Thanks Pete. Well as Stuart was saying, they’re no different to another type of agricultural business in most ways. The business plan is king and just because you’re a co-op, doesn’t mean you don’t need a sustainable business model going forward and I guess that’s really down to good strategy, good business planning, the right finance and good management. There is one thing that’s really different about a co-operative though and that is, it gives the owners, the producers a genuine voice in the direction of the co-op company if you like. And that’s really through the delegated authority that those owners give to member elected boards. So their voice is at the board table and what that means is that the co-op remains focused on returning benefit to the producer. And there’s nothing like that focus, sharpening that focus, when you’re dedicated to trying to get the best farm gate returns for your owners, for your members.
Pete Lewis:
We’ve had a couple of questions come in since we’ve gone live and I think this is one you can probably all have a crack at. But there used to be loads of co-ops. Why aren’t there so many around anymore? Who wants to have a go at that?
Melina Morrison:
Well I’ll jump back in with the data, if you like.
Pete Lewis:
Oh, very good.
Melina Morrison:
Actually co-ops have been through cycles, particularly of demutualisation. Probably the people on the panel might know more than I do about this because you’re actually directly involved in agriculture but we used to have a lot of producer owned co-operatively owned food manufacturers. You know those great brands that we remember and they were demutualised but actually the numbers of co-ops when they drop out of particular sector, new ones come up. We’ve heard that through the story through Stuart, so there are still a good number of agricultural co-operatives, 230 in Australia, around 24,000 farm businesses are members of these co-operatives and they employ many more Australians in agriculture.
Pete Lewis:
There you go. Thanks for that question. Now in terms of success and failure member engagement is consistently listed as one of the crucial things you need Dairy Farmers Co-op has 350 members in four states Mark Kebbell. Tell us what your co-op does and how important member engagement is to your success.
Mark Kebbell:
Yes. Look thank you Pete. So, as you mentioned, we are in four states so geographically, very diverse. But the common thread of course is dairy farming. We were born from the sale of a vertically integrated co-operative and so we’re now supply co-operative. We essentially in many ways a collective bargaining group. So we give our farmers a seat at the table. A seat at the table with the processors and I’ve got to say, a lot lately is in advocacy, in work with political proven institutions, the ACCC had an inquiry. We’ve had several inquiries. We’ve had a whole bunch of stuff and it’s been important for us and our farmers to have a seat at that table too. So look, we’re essentially as I said a collective bargaining group. When it comes down to it, the big pieces are price and milk purchasing policies, so all the metrics that Stuart, you know well in dairying that processes impose on farmers. So it’s about representation and just giving our guys a seat at the table, making sure that the world is fair. You know I think one of the big things that came out of the ACCC inquiry was this whole notion of imbalance of power. And really that’s what we look to address. It’s about making sure that the bigger bodies above us in the supply chain don’t get to pull rank and bully.
Pete Lewis:
You’re obviously comprised of lots of very rugged individuals and as you said you’re spread geographically over a fair area, so there’s obviously a whole range of influences and factors on them. How do you make it all work when they all get a say and they are spread so far and so wide?
Mark Kebbell:
Yes Pete, in the end, the regions are very distinct. We have a region for example in Far North Queensland in the Atherton Tablelands. It has some really unique farming characteristics, processing characteristics. Scale is an issue. Amazingly, oversupply there is our biggest issue at times. So and then right down to the Fleurieu Peninsula in South Australia. So very, very different farming conditions. Engagement comes down to really I can say it varies from region to region and year to year. It comes down to the issues that they’re facing. If drought’s an issue, if water prices are an issue, if milk price is an issue, if the competition are doing something, it’s really heightened when there are big issues to address and they need a voice. They need some getting together and consolidated thinking and representation really. So when times are good, I must say, that the engagement drops.
Pete Lewis:
Stuart if we stay on dairy, just for a moment, you’re obviously on a slightly different scale to dairy farmers, and one of Australia’s newest dairy co-operatives, how do you keep the smaller number of members engaged and in the business and what happens when member engagement is not there and you have disagreements?
Stuart Crosthwaite:
Yeah. So we have a board of five directors and we have eight members in total so most of our members are represented at the board table. So the handful of people that aren’t, it’s just a matter of picking up the phone and keeping them informed. So that’s the Mountain Milk Co-operative as it is today, but prior to that, our family and most of the people in our co-op were members of Murray Goulburn where there were two and a half thousand members. I think that was a good example of where member engagement and communication had completely evaporated. And a lot of that was due to other reasons but in a smaller co-op, it’s really easy and I think that’s our advantage at the moment.
Stuart Crosthwaite:
But I think for Mark’s co-op and even Sean’s and all the other co-ops out there, as you grow, there becomes a real tension around how do you maintain member engagement and as Melina was saying, how do you maintain member engagement via directors sitting at the table and making sure that they’re representing your membership. So I thinks it’s probably one of the key aspects of a co-op, how you maintain that engagement as you grow, there’s a real art to it. Something we’ve started doing, right from the word go, was education, making sure our members really understand what a co-op is. I think that’s something that might have been lost over the generations as co-ops have demutualised and so on. But at every opportunity, we try to educate our members about what a co-op is, the competitive advantage they’re getting from being part of it.
Pete Lewis:
Sean, in your case the geographic area is rather small and discreet but you have almost 600 grower members who produce close to 200,000 tonnes of wine grapes annually. How do you manage to wrangle all these members and keep them engaged and wanted and loved?
Sean Cole:
Yeah, from our side Peter, it can feel like herding cats sometimes. But we actually do have a formal media and member engagement strategy which we’d ratified at board level, has a trickling down effect. So we have regular grower events, certain media engagements that we have to make and it’s a bit like any marketing or advertising, there’s so many touch points that you probably want to have throughout the year and obviously they’re going to vary, depending on the topic of the day. So obviously water was a huge one for us, so our marketing program started leaning very heavily towards water and water advice and having advisory bodies such as AITHER sitting in front of our growers and PIRSA and other representatives. So I think it’s making sure that you do schedule the time and do it. The content of what you deliver on an annual, quarterly or weekly basis is your choice and obviously we try and make it as relevant as possible.
Sean Cole:
We are a small team. We’re not a multinational with a huge marketing department, so you’ve got to get creative. But we have the avenues, such as Facebook, that link in to other people’s pages as well and create content and engagement. But we have a fairly mature grower base too. A lot of our members are north of 50 years of age. They do prefer more in person forums and back to how we handle engagement with the board, we make sure there’s always a very good opportunity to mix physically. Obviously with COVID it’s a bit of a challenge but usually we’d mix physically, the members with the board members and have them attend, especially AGMs and other grower events and grower Christmas parties and things like that are an excellent engagement thing that we need to ramp up as well in the future. So we have a pretty coherent plan with a bit of ad hoc in there as well.
Pete Lewis:
Melina Morrison, members are the shareholders of a co-op. Where does this go right and where does this go terribly wrong?
Melina Morrison:
That’s a great question, Pete. I think really, it goes wrong and maybe Stuart explained this better that I will, but it seems to me, it goes wrong when you treat members like shareholders of a different type of firm, an investor owned firm because that type of company is about dividends. Shareholder in a co-operative sense means a share in the democratic voice or the democratic control of the co-operative and that’s about influence. So you have genuine influence in the co-operative. So we need to think about shareholding in different ways. If it’s about returning benefit to producers, above all else, then the shareholding that you hold in your co-operative is really about that. It’s not about disinterested, distant shareholders, who their skin in the game is about capital return.
Pete Lewis:
Look , we’ve had a very interesting question from one of our viewers and it really touches, I guess, on what we’ve been talking about most recently, and the question is, “When a co-op fails, it said it’s because of the old fashioned and outdated business model but when a private shareholder company goes down, nothing is said about its legal structure whatsoever. It’s just… Do co-ops come in for unfair criticism, do you think?
Stuart Crosthwaite:
Yes.
Pete Lewis:
Go for it Stuart.
Stuart Crosthwaite:
Yeah, I think they do. I think we have close connections with our communities. They’re so embedded within the communities and when it does fail, it’s more than just a structure falling over. It’s the fabric of that community being torn apart and I think you saw that with the Murray Goulburn collapse. There were fair dinkum communities, a lot of them weren’t dairy farmers but a lot of the people were employed in processing or connected some way or another to the industry. So maybe the gravity of the failure is a little bit more far reaching sometimes and as Melina was saying, the shareholders are the members so their wealth and their generations of wealth that have been created, has been dismantled so I think it does have a bit more gravity about it.
Pete Lewis:
A question to Sean, Mark and Stuart. Are there situations where you think it’d be better for the business if you were not part of a co-op?
Sean Cole:
I think the day you stop caring is probably when you need to remove yourself and you’ve got nothing else to offer. I mean, so I’m not a board member of our co-op but I think when you’ve lost the passion and you’ve been in the chair for a while and you haven’t got any new ideas or anything else to bring, that’s probably when your time’s up. And there’s nothing wrong with admitting that with yourself as well, if you are in that position. I’ve seen a lot of directors in my time gracefully leave and contribute for up to 20 years on a board, or a grower board or a co-op board. But yeah, you really need to be passionate about a co-operative and to Stuart’s board, they’re more emotional businesses in my opinion, and that’s the trap for co-ops too, because decision making shouldn’t be overly emotional. Your members will be but I think your business plan needs to be very commercial and you need to realise everyone’s trying to take a piece of your market share, every moment of the day and you need to understand that if you’re not in front of them, they’re in front of you. So, that’s probably my feeling. In general, in business is make sure you maintain your competitive advantage and reassess that often.
Pete Lewis:
What do you think Mark?
Mark Kebbell:
Do you know, sometimes unilateral decision making is quicker. You can be more nimble if you just sitting at the top, caring not a joss about the shareholders, but if every decision you make has to pass the pub test with the members, it does make you pause. We’ve got five farmer directors and one independent director, but they are all necessarily engaged and oftentimes they’ve got to think beyond their own interests for the greater good. It’s a really difficult space to be in and make decisions for 300 odd members around different areas. It may be detrimental to their own business oftentimes. So it makes it hard and you get some compromised decision making I suggest, because of that whereas a managing director of a corporation can be, I’d argue, more nimble.
Pete Lewis:
What do you think Stuart?
Stuart Crosthwaite:
Yeah, no I agree. I think one of the problems with the co-op is that you potentially have quite a homogeneous board of growers and as Mark was saying, you need to surround yourself with professional help and skills, whether that be independent directors or whatever it is. It’s a different model. You’ve got to understand the weaknesses in that. But I think we all agree that the advantages far outweigh that. Yeah.
Pete Lewis:
Melina, do co-operatives succeed or fail at a different rate that any other business structure?
Melina Morrison:
Well the evidence is in that actually co-operatives, when they’re well managed, when the finance is right, when the governance is right, just like any other business and factors that aren’t out of your control are not impeding you like drought, fire, the things that you can’t control, that co-operatives are more sustainable. We know that because there are less failures of those that are well run. We certainly know that in terms of co-operative start ups. Businesses that begin life as a co-operative, are five times more likely to be around than another type of small business. Maybe there’s one reason for that and that is that you’ve got more people that have to be involved in the start of the enterprise as you agree to cooperate and have skin in the game. It’s rational self interest. You’re not going to jump in to a cooperative unless it makes sense to yourself. It’s got to be better to be in a co-op than in another business model. It’s just got to be rational, so they do have to be well run, but they can be highly sustainable. They do fail spectacularly at times as well, but most co-ops are demutualised by sometimes hostile takeovers.
Pete Lewis:
To Mark now, to the casual observer, the dairy industry has really been in the headlines over the last five years or so, for a whole range of reasons. It’s obviously an interesting case study as a subset of Australian agriculture in terms of its business structures and there have been, as we said, several fairly high profile failures recently. How hard is the game, the dairy business, under any structure in Australia in 2020?
Mark Kebbell:
Well gosh, the 2020 piece is probably the highlight of the question there isn’t it? What our farmers have faced, almost across the whole country in the last 12 and 18 months has been extraordinary, with the drought, which was virtually country wide as you all know, the fires in New South Wales, the water prices that came on the back of the drought. There’s been some well publicised supermarket battles and what they’re doing with dairy and the impact the big retailers are having. So increasingly, I think our members want to have a voice and that’s what we provide. We have a seat at that table. It’s that structure that really gives them a feeling that when they’re up against it, that someone has their back. If it’s a price negotiation, if it’s purely commercial, that’s one level, but if it’s just having a voice with a politician, if it’s just having a seat at the table and an advocacy space, it’s super important. So yes, dairy’s had a tough time, but times are a changing, aren’t they Stuart? The seasons are good, prices are good, So let’s hope. Yeah.
Pete Lewis:
Stuart, in a publicly listed or proprietary limited company, success is governed by what the Balance Sheet says. Does the same go for co-operatives or else do you value success?
Stuart Crosthwaite:
For our co-operative, we’re looking at success as in profit for our members. And as all of you in your audience know, profit has two sides to it. One’s the economic income side of it and the other side is the expenses. So we have an opportunity here to deal with both sides of the equation and while we’re small, we’re agile and as we get bigger that’ll be a challenge that we have to manage, but yeah, it’s about creating value. We need to be profitable as a business but how do we maximise value and what’s important to our members. And getting back you your question about member engagement, a lot of your ideas and a lot of your value can stem from their input and their motivations for your business. I think from our point of view, it’s an old saying, but we’re really trying to farm together and wok together as a collective. I don’t know too many corporate processing businesses that we could potentially send our milk to, that would even communicate like that.
Pete Lewis:
Melina, the co-operative legal structure is a bit of a challenge to implement but do you think it is important or can you be a proprietary limited structure and just act co-operatively?
Melina Morrison:
Well, we can all act co-operatively in business, or in government, or in life. We’re seeing a lot of co-operation to do with the pandemic. We saw a lot of co-operation following the bushfires. It’s a natural way to respond to crisis and that’s a good thing because together we’re stronger. But the difference with a co-operative I guess, in terms of business co-operation is that it’s a legal requirement of the co-operative, that you co-operate. It’s embedded in your constitution. It’s an active membership test, seven principles of co-operation. And if you walk away from the legal, binding agreement you’ve made as a member with your co-operative, which is expressed in your active membership, then you aren’t with the co-op anymore and you might leave the co-op or you might be asked to leave, so it’s not left to chance in the co-operative. It’s part of the business model itself. It’s in its DNA.
Pete Lewis:
Got a really interesting question from Steve Barr, and there’s quite a bit of support for Steve’s question, for this one. The co-op model succeeds when expectations of it exists to strongly align. Are there key components that help a co-op succeed for the long term? Who’d like to have a go with that one.
Stuart Crosthwaite:
I will. I think any business needs a healthy culture. We chose the co-operative business structure. We could have chosen a corporate structure. It would have been probably a lot quicker and a lot simpler but the ingredients that are involved in the co-op structure are I think what our members are chasing as farmers and participants in a business. They’re the ingredients. They want to be valued. They want to be part of something. They want to be part of the solution and I think the very fabric of the principles that underpin a co-op are what our members are looking for. They may not necessarily understand them in great detail but when we listen to them and talk to them, that’s what they’re chasing.
Pete Lewis:
Sean it’s been a tricky year for many wine producers. You’ve had fires and the associated smoke taint, locusts, floods, obviously COVID-19. How’s the Riverland fared and has being part of a co=operative helped or hindered you negotiate those rocky roads?
Sean Cole:
Well look I’m almost embarrassed to say Pete, the Riverland came out basically unscathed from those events. We did experience the drought of course but it has been a rough year for the wine industry and there’ll be a lot of producers doing it tough. It will be quite marginal in the next 12 months so I wish them all the best and I hope everyone gets through. From our side though, looking at what can happen, be it smoke taint and drought and things like that, the most important thing we do at our co-op is rather than losing sleep over it at night, we have quite a robust framework of crisis and risk management plans that will be engaged if that happens. So it’s knowing what exit to run through when there is a fire and who’s doing what, so who’s driving the bus.
Sean Cole:
In life, there’s some risks you can’t mitigate and drought is one that’s very difficult obviously. It’s having a coherent plan around that and knowing who you reach to and who you network with at those times and what looking inside your own organisation to see how you can help your members remain in the business and profitable. So I think the crisis and risk management plans are essential and some co-operatives that are smaller will struggle, having very detailed plans and we struggle with resources too. But if it a one page on who’s doing what, when it goes wrong, that’s better than nothing and that might just be the difference making it through the next 12 months, in something like we’ve seen in the last 12 months for some producers.
Pete Lewis:
And as we’ve seen so often and sadly in recent years, when these event, catastrophic as they often are, whether they’re last summer’s bushfires or the catastrophic weather event that flattened the beef industry in Queensland’s north west, there is a remarkable ability for particularly small communities to pull together and I imagine if you are already glued together in a co-op you are going to really start a long way ahead of other communities who’ve got to whip people in and try and get things going. Is that the experience?
Sean Cole:
Yeah certainly Pete. People form tribes. Look at human psychology, that probably why we have co-operatives. We form tribes of like minded people and when you look at depression and other social issues, our growers have got through them a lot better and we’ve actually had members reach out to each other and it’s probably avoided some people doing some silly things they might regret later. So I think that support mechanism is one intangible. You can’t quite measure it but it’s definitely very valuable in a co-operative. You can’t underrate that when times are tough
Pete Lewis:
Look, we’ve got another really interesting question and a good deal of support for this one. Getting a good price at the farm gate makes a lot of sense, but why don’t your co-ops add value to the raw product? How do your co-ops manage these decisions that hold both risk and reward? Good questions. How do you manage that Mark?
Mark Kebbell:
Look, in many ways our business model, where we are as a supply co-operative now, is a result really of us saying it got too hard for farmers to manage big brands, big factories around the country, take on the competition, manage the big retailer relationships. At some point, our founding directors or the directors at the time of the sale said, “Do you know what? Now the time is right. Let’s sell up.” And so National Foods, Sean, bought ACF. So it’s not necessarily the case, that it’s the right place to be. As it the gets bigger I’d argue, it gets harder. Managing big brands is a marketing challenge for the best of them, let alone managing factories and the logistics et cetera, et cetera. It gets tough. So it sounds romantic but it’s not necessarily the only way. You do what you do well and let someone else do what they do well.
Pete Lewis:
Sean you mentioned CCW is not in the winery business anymore although it once was during its evolution, is that aligned to what Mark is talking about, sticking to your knitting?
Sean Cole:
Yeah certainly. I agree with Mark in terms of running big brands. We actually do own a brand. We do add value to some of our product, but we are very particular about how we do that and when we do that. So I think when you look at the global competitiveness of a business and the supply chain, there’s a lot of extra investment that goes in with staff and personnel running a brand, Big M or whatever it is, or Penfolds. If you’re really going to take on big business and go head to head, you need to have a team as good as theirs and connections. It is totally possible but it’s a huge financial investment and it takes along time to build a brand.
Sean Cole:
That’s one way, or you can buy one and the second option is difficult for co-ops because they often don’t have a huge balance sheet, unless they draw that from their members. But we do add a lot of value through wholesale. We found our way in wine as a bulk wholesaler, which doesn’t sound very romantic but its actually quite a nice little value add for our members. So we can do quite a lot of that with a lot less effort than a huge brand portfolio. So there are ways, you’ve just got to work out the biggest bang for your buck, for the least amount of effort to put it that way, and make sure you play to your strengths.
Pete Lewis:
Stuart, it’s very early days for Mountain Milk. You’ve got the logo as we can see over your shoulder. Do you hope that sometime in the future, we’ll see that logo on products that really identify where it’s come from and particularly that will work on a local and regional level to really tie you in to your community?
Stuart Crosthwaite:
Yeah absolutely. We’d love to. Our co-op’s small but they are all family farms. I’m a fifth generation on our family farm. Most of the other people are similar, three, four, five generations. So that’s a great story in itself and as I was saying to you earlier in the night, we see an opportunity to connect to our community via our product through the essence of what a co-op is. Can I just go back a little bit to the previous question. One of the things that we’ve done to try and add value for our members is not necessarily… We want the highest price for our members but it’s how you get paid sometimes and we’ve really tried to focus on how can we create an environment for our members that allows them to make the best decisions, the most profitable business decisions for their specific set of assets. And if you really think about that, we’re not being pushed around by a set of incentives that a corporate’s overlaying on top of us. We’re free to make decisions that enhance our assets and our investment that we’ve already made in our business over those generations.
Pete Lewis:
Yep. Melina, any thoughts on that particular proposition?
Melina Morrison:
Well I think what’s really great about the answers is that the destiny of the co-operatives is in the hands of the owners and they decide how value is being added and where in the life cycle of the co-operative the value adding is seen as sitting. There’s absolutely no doubt that one of the best ways to value add to farm income, is to co-operate. And one thing that co-operatives do is enable scaling. So all over the planet, farm businesses, independent, autonomous, sometimes small family farm businesses come together to scale, to value add, access to export markets, advance food manufacturing if that’s what you’re into. So it’s very much the destiny that’s determined by the owners at the time, And if I just paint one picture for you, just to make sure that we know that co-ops do all sorts of value adding, if you got up this morning and you had and egg and bacon sandwich and you had Danish Crown bacon and you had a glass of Ocean Spray cranberry juice and you used Kerrygold butter. I’m sorry to use all of these global brands. And you put Dairy Farmers milk on your cereal and you had Norco, a Nimbin cheese as a side dish, then you basically ate a co-operative breakfast. So value adding happens in many and various ways in co-operatives.
Pete Lewis:
If you borrowed money, it could be from Rabo Bank, which is a gigantic Dutch born specialist rural lender which grew out of the need to finance farming, way back when.
Pete Lewis:
If we can shift gears a little and look at the question of governance, which we’ve spoken about and alluded to in terms of how things are run and when they run well and when they don’t. Sean, what to you does good governance mean and conversely what does bad governance look like?
Sean Cole:
Look, when you talk about governance, it can be all shades of grey. But essentially, good governance is a board firstly that comes to solely serve with their board hat on, not their own interests. So that’s step one, first principles. But secondly, the board set the culture, the risk appetite and the speed limit for the business and that’s so important with the business, make sure it does endure and a lot of business, as we were talking about earlier, do fail. A lot of start ups fail. That’s just part of life. But I think if you’ve got a board that have their antennae well up and they can anticipate the challenges coming and take good strategic actions and review that regularly, you’re on your way to good governance.
Sean Cole:
And culture is essential, having good cultural fit, culture led by the board down through your organisation is also the main thing you’d be expecting a board to do from the top. Conversely, bad governance is obviously directors that have lot their way a little bit. They may not be contributing. The lines are a bit blurred within a co-operative. That can happen, especially grower owned co-operatives. There’s obviously ways to remediate that. Training is a huge thing you can do to avoid falling into these traps. Say either through BCCM and the courses they offer or an AICD combo. And also good delegations of authorities and understanding who’s doing what in the organisation.
Sean Cole:
Boards sometime try and get operational, which is fine if it’s agreed, but in a lot of situations if you are lucky enough to have a CEO and other execs in the business or other managers, let them do the work and set the KPIs. So really they’re there to set the speed limit and then allow your strategic plan to play out and obviously check that regularly because it’s not set in stone. Things do change and COVID’s a great example of that. But yeah, set the direction from the top and in risk taking, don’t be reckless, be risk weighted with what you’re doing. And make sure that what you’re implementing as a business is well thought out, has business plans et cetera approved by the board, usually have a high rate of success in my opinion.
Pete Lewis:
Stuart, in our chat earlier, one of the interesting points you made is that you rely on, within a relatively small team, a very wide range of expertise and experiences. Is that part of the clue towards honing in on good governance?
Stuart Crosthwaite:
Yeah absolutely. One of the things with starting off a co-op and being a couple of years into it operation is bringing a group of farmers together who are one minute running their own dairy business and the next minute collectively running a second business. That’s quite a mind shift for those individuals and I think it does take a bit of time to get everyone on the page and you need good plans. You need good policies. You need a good foundation of understanding. You need good leadership.
Stuart Crosthwaite:
One of the things we haven’t mentioned tonight, is selecting executives and management that understand the values of a co-op and the co-op structure. I think that’s maybe sometimes the downfall with some of the co-ops that demutualise, that you have a CEO come in who’s trying to run it as a corporate when they don’t really appreciate and understand the co-op. So from our point of view, being small, it’s understanding the plans, so making sure new directors and the directors understand those plans and the strategies, understanding their responsibilities as a director because in our case, a lot of these people, this is the first time they’ve ever been a director and maybe even been on a committee. So there’s a real education piece there. I think it’s important, I think this is the really mature thing, that maybe it’s occurred over a couple of years, but it’s understanding when you don’t have the skills and you’re making a decision about something and you don’t necessarily have the skillset to deal with it.
Stuart Crosthwaite:
So, as you said, we’ve been really lucky to have people come out of the woodwork and want to help us. Mark, who’s on the meeting tonight, we’ve had quite a few chats with him as well. So yeah, I think it’s knowing when you’re short of the skills and getting support and help for that. I think a big part of it, no matter what business structure it is, the values and the culture that you embed and try to build and grow and base your decisions on, they’re really important as well. Yeah, that’s probably my view on the world.
Pete Lewis:
Mark, you’re in the dairy game but obviously operating on a different scale to Mountain Milk. Is there more pressure to find good people, with the skillset that Sean and Stuart have been talking about and having found them, keep them as long as you can, because obviously, people tend to be pretty footloose these days, don’t they?[crosstalk 00:49:10]
Mark Kebbell:
Peter, it is a challenge. It’s fascinating. I think the dairy industry, and I’m sure others are the same, does place a big emphasis on training leaders, emerging leaders. There are lots of programs if you want to find them, Dairy Australia and other[inaudible 00:49:26] bodies will coach and coach people through. We have a program ourselves. We have a layer beneath the board we all the WRACs, Ward Representative Advisory Council. Kind of grand, but that’s meant to be a succession planning piece, so that younger farmers can become leaders in time.
Mark Kebbell:
Do you know the hardest thing in the skillset though really is that as farmers, their strong suit is farming. They may be on a hospital board locally or they might be somewhere else, but effectively they’re farmers. So for us, the independent director has always been a really important role. And if I just take another point, the whole notion of conflict of interest, if we were running a corporate board, we’d have to have the vast majority of our board sit out of the decisions they’re making, because they have an interest. So clearly that can’t be the case, in fact I’ve had someone say to me, “If you haven’t got a conflict, you haven’t got an interest.” You’ve got to be engaged, so it is very different and difficult to manage a group of farmers and really make sure that you have got a skillset that’s making the right decisions. It is a challenge.
Pete Lewis:
In your collective experience, do farmer co-ops embrace outsiders? Are they prepared to maybe take on board the views and the leadership of people who haven’t necessarily spent all their life milking cows or crushing grapes?
Mark Kebbell:
I’ll take that on. I’m an example. I’ve not been in the dairy industry. The closest I can say I’ve been is as I grew up in New Zealand, I went to an agricultural university. So dairy skills around the table weren’t seen by the board as another skillset we needed. It was the commercial, it was managing big relationships and perhaps some other stuff. So our board saw the gap if you like, and didn’t employ someone from within and we worked hard in finding out our latest independent director. John has lots of agribusiness experience and lots of directorship experience but not a huge amount of dairy experience. But I think too, that brings a great strength and the ability to challenge.
Pete Lewis:
Anybody else like to have a crack at that?
Sean Cole:
Yeah, I’d second that. I’m not from a farm. People think I am and I have no problem with that. I’ve spent most of my life with growers but I think a business needs a certain amount of experienced people who’ve been there, done that and then you need people to bring in new skillsets, a broader vision and a broader world of what goes on sometimes. That’s what helps push a whole group forward and eventually you can all move in the same direction with very varied backgrounds and experience. I think that’s a really nice thing in a co-op when you can have people from a very diverse background all thinking the same and heading the same way with a strategic plan so in my experience, I’ve been welcomed to our co-operative and the region and people in the regional areas are particularly friendly and I think they’re very open minded despite what other people might think. I think they embrace new ideas and new technology on a regular basis and Australian farmers are amongst the most innovative I’ve seen around the world and I’ve seen a lot of growers in different countries a lot more backward. So I’d definitely argue that Australian growers are well open to ideas and people from the outside, such as myself.
Pete Lewis:
Stuart, has Mountain Milk got room for outsiders?
Stuart Crosthwaite:
Certainly. Just in our short experience, diversity around the board is important, right? So I think there’s two forms of diversity. So there’s skill and then there’s people and personalities and culture an so on. Just around our board table, I think we do have quite a diverse group of people directing the business, so I think that’s been great and that’s really important. We’ve got different personalities sitting around a table but I have actually been really pleasantly surprised how inviting the group has been of outside skills and people that have no dairy farming experience and they’ve been really welcoming of advice because they know this isn’t the skills that they have. We need some advice, so in a new start up co-op it’s been pretty impressive how welcoming the group’s been around skills and getting advice.
Pete Lewis:
Shifting here just slightly, but to I guess one of the most fundamental things, it’s often said we’re only limited by our imagination and finance. Melina, capital raising is often a road block for farmers. Can co-operatives be a good vehicle for capital raising and is this something that boards should be concentrating on?
Melina Morrison:
Well no amount of wish fulfilment is going to give you a sustainable business model. You’re going to need operating capital. You’re going to need investment capital, particularly if you’re getting into something capital intensive like value adding. So absolutely, boards of co-operatives have to be as focused on access to capital as any other business, depending on what the business plan requires. Co-operatives can be a really good vehicle for capital raising. I mean, they are the original peer to peer lending group. They are a jointly owned company that brings together joint capital to enter an enterprise. Certain legislation has also made it easier for co-operatives to get the kind of capital that they have been restricted from getting in the past and that’s working capital. So they can get equity into the co-operative, without losing control, using these new instruments that are specifically for co-operatives. The main problem is that not enough people know how to do it, including co-operatives themselves. And we together as a co-operative sector, working with government, need to work on that. I mean you can’t find a lawyer or an accountant in Australia really now at the moment that knows about co-operative capital units, because it’s not taught as part of formal education in those fields. Government regulators don’t know enough about co-operative capital so we have some catching up to do, but it’s not insurmountable.
Pete Lewis:
Well the big banks have obviously had a bit of a wake up call through that Royal Commission, are they more receptive to some creative capital raising? Are they tending to listen more, because some of the most compelling evidence before the Royal Commission was really about the way farmers were treated or mistreated and as a discreet lending class? Anybody like to offer a view about whether they’ve sensed a change in attitude among their lenders?
Sean Cole:
Yeah, well look, not particularly with the membership base, but just I think COVID is actually giving a bit of an opportunity to agriculture here is as lowest risk use of finance at the moment for the big four or any other lender for that matter. So you look at retail, you look at other businesses, hospitality. I think banks will be lending increasingly to agricultural based businesses and co-ops, so I think that’s actually a silver lining for all of this is actually ag is pretty safe compared to these other industries. So yeah I think it’s a bit of a wind behind the sail at the moment, Pete.
Pete Lewis:
Well it certainly has been business as usual, hasn’t it and that was really the basis of the National Farmers Federation’s very clever campaign very early in the lockup when of course people were falling over themselves to strip supermarket shelves, the NFF, which you might have seen, came out with a campaign saying, “We’ve got enough food for everybody. We’ve got enough everything for everybody, even enough toilet paper for everybody.” Like we’ve got your back kind of thing. As a performing sector in the Australian economy, farming and food generally, have just been chugging on.
Sean Cole:
Absolutely.
Pete Lewis:
Now look, in terms of the sharing, both of the wisdom and other things, we’ve got to wrap up, we’re getting in the home stretch. But we do have a very interesting question about sharing things and this is a question that says, “Do co-ops share resources like water and can they help manage impacts of drought and climate change?” The dairy game’s obviously very keen for water and irrigation and water rights and where it goes and how it goes. What’s your experience, Stuart, Mark?
Stuart Crosthwaite:
Yeah, we’ve grappled with some of these things, not necessarily to do with water or a drought but we’ve been looking together about how we could reduce our energy costs by investing in renewable. We’ve bought inputs like lime and fertiliser and seed and all sorts of stuff. So I think in our co-op there’s an opportunity to do all of that. Water’s critical. I suppose most of our farms here are rain fed most of the time so it’s quite a reliable climate and seasonal rainfall here so most of our farms are actually dryland farms. There isn’t a lot of irrigation. So in terms of water, it hasn’t been a big issue but I think the underlying question is if there’s an opportunity to invest in some assets, that underpin the performance of your businesses, your members and your co-op, yeah, we’d certainly look at it. And I think that’s the opportunity we’ve got under the co-op banner is, if this makes sense for our members, let’s have a crack. Let’s investigate it.
Pete Lewis:
Mark, are there strengths in being able, in terms of your marketing, in terms of you provenance, to explain to customers that you are doing things a little more sustainably and a little bit more thoughtfully.
Mark Kebbell:
Yeah Pete, look it’s interesting. We supply milk to Lion Dairy & Drinks these days and in many ways, the big brands are the ones that are doing it hard. And it’s perhaps the potential I see, we see, is to disaggregate again and break things down. Milander milk for Far North Queensland and so on. I think the value add story is there and it’s in some way our scale and the big brands’ scale has become a negative in some ways [crosstalk 01:01:31]
Pete Lewis:
Yeah right. Sean in the driest state in one of the driest continents on earth, water issues are always front of mind, aren’t they?
Sean Cole:
Yeah, absolutely. In our strategic plan, we’ve virtually got a particular focus on water. Our official policy is we just want our growers to use water as efficiently as possible but we have rolled out information days. We find it’s actually the information around water that’s hardest to find. I’ve come from an economics and trading background previous lives and water’s one of the most complicated markets, I’ve ever seen and I’ve traded options and futures and you name it. So for a grower to disseminate this is nearly impossible especially because they’re so time poor. So what we try to do is educate so we have regular water wise and as I said before we’ve had AITHER come out PIRSA and it’s just understanding the actual rules around water trading and we also put out non biased advice about water and just the facts on the markets. It’s not coming from a broker that might have a certain motivation on the information source. So we did consider actually buying water in bulk for our members, but that’s also very tricky to do because if you’re on the wrong side of the market you could easily bankrupt the co-op so you’ve got to find a way that’s a value add for your growers, but doesn’t put your balance sheet at risk.
Pete Lewis:
Look if you do get a handle on it, I’m sure the Murray Darling Basin Commission would appreciate some input, if not the state governments of Queensland, New South Wales, South Australia and Victoria.
Pete Lewis:
Look we are pretty much into the home stretch now. It’s been a great conversation. I really enjoyed this roaming discussion and I hope you have as well enjoyed it at home. Great questions, we really appreciate the engagement that we’ve had from you. Just to repeat, Co-operative Conversations is part of Co-operative Farming, a new online educational resource for farmers. For that we need to thank BCCM for being the wind underneath our wings. We want to make sure that you stay tuned and stay engaged with our series and that you tune in to our next interview series where we talk to Larry McHugh, who is the CEO of Marquis Macadamias Co-operative in northern New South Wales and about how they have managed to rebrand and reinvent to become the world’s largest macadamia processing company. Quite amazing. Followed by, once again a round table like this, discussing the challenges and opportunities for value adding Australian produce including meat, dairy, seafood, fruit and nuts, with a veritable who’s who of agribusiness names. That’s all about maximising your produce and adding value.
Pete Lewis:
That’s on 6:30 PM next Wednesday night. You can get all the information by going to the relevant website. Go to conversations.coopfarming.coop and remember all these events, all these programs are available both now and on demand.
Pete Lewis:
I would really like to thank you all for joining us once more and seeing as though it is the 1st of July and I’m going dry for this month I want to toast you with some very clean Queensland water, so thank you very much for your involvement tonight. I’m sure most of you will duck off and have a glass of milk at this point but it is water. Thank you for joining us and I’ll look forward to seeing you next time.
