Join Pete Lewis for an inspiring interview series as he explores the journeys of some of Australia’s most interesting and successful co-operatives. Pete’s long and varied experience as a journalist specialising in agriculture will ensure he gets to the heart of the issues you want to hear about.
A collective advantage
AIRDATE: 15 July 2020 8:15PM AEST (approx 60 mins )
One of the things a co-operative can do is unite a community or collective of producers to work together to overcome adversity. We speak with some different horticultural co-operatives about the challenges that brought them together in the first place and how they have used co-operation to mutual benefit. How can co-ops help producers access shared services and value add through new business ventures and access new markets?
Join journalist Pete Lewis with special guests:
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Doriana Mangili, Sweeter Banana Co-operation from Carnarvon in Western Australia
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Brett Kelly, agribusiness consultant, former CEO of Norco and the Oz Group
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Basil Lenzo, Chairman, Geraldton Fishermen’s Co-op
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Melina Morrison, CEO, BCCM
Pete Lewis:
Welcome to Co-operative Conversations, the livestream series where we connect you to the real stories of Australian primary producers who are growing and working together co-operatively. Hi, I’m Pete Lewis, and one way or another, I’ve been helping Australian farmers tell the great stories of food and fiber production for the past 25 years. And tonight, we’ve assembled a great gathering of co-operative champions. Indeed, each of our speakers tonight are acknowledged within their industry as champions, so it’s fantastic. If you have joined us earlier, you know we had a great natter with Doriana Mangili from the Sweeter Banana Co-operation from Carnarvon in Western Australia.
Pete Lewis:
And we’re delighted that Doriana has been able to stay with us for this round table discussion and talk about what it takes to form a co-operative out of adversary, innovate to keep it strong through the tough times and the heavy competition, and particularly tough farming conditions, if not very trying weather conditions. We’ve heard about the sweat equity and working together which seems a perfect jump start into our round table discussion tonight on the collective vantage and how primary producers can use the co-operative model to their mutual advantage.
Pete Lewis:
And as I said, joining Doriana with us today are a group of agribusiness champions who are working with co-operative farm models right around Australia. We have Brett Kelly, agribusiness consultant, former CEO of two large co-ops [enduring 00:01:48] horticulture, Norco and the Oz Group. Very experienced in managing co-operative farming setups, we’re joined by another Western Australian, Basil Lenzo, third generation lobster fisher and the chairman of the Geraldton Fishermen’s Co-op. And of course, each week, each episode, we’re joined by Melina Morrison who is the CEO on the business council for co-operatives and mutuals. Great to see you again, Melina. So thanks everybody once again for your time, and we’re going to have a great conversation tonight.
Pete Lewis:
But before we start that conversation, if you’ve got a burning question for our panel tonight, ask away via our chat box which is located on the right hand side of this stream. Don’t forget you can also vote for a question via the vote bar. So we’ll try to get to as many of the most popular questions as we can in the time allowed. So put your thinking caps on and follow the conversation closely, and send us a question if you think we need to go there.
Pete Lewis:
Doriana, we’ll start with you again. Change has been quite a constant over the 30 year life of your co-operative. Tell us briefly what you saw as the collective advantage at the outset.
Doriana Mangili:
Well, initially, it was really marketing and creating a brand and putting the product, all our family grown farms product, together and coming up with a collective amount that could then get a scale that we could reach retail as major retailers. So that was the initial concept really. It was really just about branding and being able to sell the product because, at the time, that was the immediate need, being able to get a sale.
Pete Lewis:
And as you explained during our interview earlier, the organization has certainly changed and evolved over that time from the numbers of people who were part of the co-operative right through to the functions and the functionality of your co-operative.
Doriana Mangili:
Yeah. That’s right. So now we do all of the packing for our growers, so we’re ensuring that we have a central packing shed which means that growers can invest their time in growing, and we take care of everything post-harvest. So we back the bananas, we grade them, we determine the markets they go to, and we then pay them for that. So our farmers focus on farming, and we focus on everything past the farm gate. Marketing as well, integrated supply chain, direct relationships, valuating, and increasingly in the regulatory framework, being able to assist our farmers with everything they need to do to keep doing what they’re doing. So certainly has grown and developed a lot and continues to evolve as the business environment does.
Pete Lewis:
And as you indicated to us earlier, even when people drop out of the co-operative, they really keep pace and stay with you and maintain the momentum that the co-operative drives in your community.
Doriana Mangili:
Yeah. That’s right. I mean, we created a product. We created a demand for that product, and that enables people that are in the co-operative to come off the back of that. So, especially with our direct supply relationships, we’re taking product from the market floor out of the market, and that creates opportunity for other people to come in and sell their product within that from the branding, the awareness of the brand, all of those things help everybody in the region whether they’re a member of the co-operative or not. So it certainly… It’s not ideal from the co-operative, but it is certainly doing what it set out to do which is to ensure a sustainable banana industry in Carnarvon.
Pete Lewis:
To Brett Kelly now. Brett, you’ve got plenty of skin in the co-operative game from sort of milk bottles to blueberries. How do you describe the co-operative advantage?
Brett Kelly:
I think the advantage of having a synergy and a focus collectively, having profit-share, not having external shareholders, I think those advantages in a co-operative, in particular farmer-based co-ops, are very, very strong.
Pete Lewis:
Now, clearly there are a number of people in your organizations and as part of the co-operative that are very rugged individualists. How do you keep everybody… What’s the challenge of keeping everybody on the same page and, broadly speaking, moving in the same direction?
Brett Kelly:
Well, that’s a really interesting question. I mean, there’s two things to achieve. One is the commercial objectives, and that’s basically about profitability. That’s got to be the number one focus. The flip side to commercial objectives is what I call the psychology of communication which is politics. So the more successful a co-operative becomes, the more political it becomes. That’s not a bad thing, but the key to it is having a strategy that everybody understands and a plan. It’s not that people plan to fail, they fail to plan. And a strategy has to be based on a point of difference, a competitive edge that’s not based on price because anybody can sell two dollar coins for a dollar and go broke. So if you have those things in place, you have that focus, and you have that clear communication, it works very well.
Pete Lewis:
And from your vantage point, do they do it better in some industries than others? Or you loathe to identify downward commodities.
Brett Kelly:
I think it really comes down to the people. I’ve learned over many, many years, there’s four general rules that I think business co-ops fit into. Number one is people. You’ve got to have the right people in the right jobs. When is [inaudible 00:07:47] what is this? Two is cost. You’ve got to keep your cost down all the time even when you’re profitable. Three is focus. That is making sure that the stakeholders understand where you fit in the business, where they can share [inaudible 00:08:00], where you’re in the marketplace, focus on that will never be distracted. And the fourth one as we just talked about is strategy, having a clear strategy with a story behind it that can sell your product at a premium.
Pete Lewis:
Do you… Now, Basil, your co-operative’s been around for something like 70 years, so it’s clearly undergone significant change from the original, but what has been the collective advantage which has really kept the Geraldton Fishermen’s Co-op a very important and relevant part of the industry in your part of Australia?
Basil Lenzo:
Most definitely, it’s a resource of fishers working for the betterment of fishers. And working together, I think that’s been most important. But if I had to say one particular reason why we’ve been… the biggest collective advantage would have to be our size and the market share that ensues from that. So if I could paint a picture because usually a picture tells a great story, I’ve got two of my favorite slides, and they’re quite easy to explain. So think of a big fish chasing a large school of very small fish, that’s the first slide. And the second slide’s exactly the same except now all of a sudden, the school of small fish are organized, they’ve got some leadership, they’ve got a common goal, and they’ve formed the silhouette of an enormous fish, and now are chasing the same fish that was chasing them in the first slide. So it’s amazing what you can do when you have like-minded individuals trying to achieve something. And that’s why size is important.
Basil Lenzo:
If I can, just flesh that out a little bit more, to put some context behind this and why I believe that size is so important, has been important for years. It’s all primary industry have their own nuances and ours has got a ton as well. It is… Basically a fishery is under quota manage. There are six and a half million kilos of which there are four major players, and our co-operative managers about, controls about 60 percent of that. So the other three major players have got the remainder. So that’s the sandbox we’re playing in. So we’re actually playing a zero sum game. So from that perspective, what I mean is, for every kilo, every percentage share that we gain, someone loses, and vice versa. So in our co-operative, it’s been very important not only to try and grow but actually retain, and you could mention the pressures and the competitive pressures that comes with that. So most certainly that’s, in my opinion, that’s where we’re at.
Pete Lewis:
And in the fishing sectors, we’ve seen over the last 20, 30 years you are almost constantly looking to measure the fishing effort and take people out of the industry to maintain the increased efficiency that you have in being able to catch, in your case, lobsters.
Basil Lenzo:
What do you mean take out? Sorry, mate.
Pete Lewis:
The industry, the sheer number of fishermen has decreased as your capacity and your productivity has increased. So it’s not as if you’re looking at creating lots of extra new members of your co-operative, it’s probably the reverse.
Basil Lenzo:
True. True. A lot of that was forced about 10 years ago because of sustainability and economic reasons. So we actually had to halve the catch. So we’re actually producing half as much we were say 10 years ago. But yeah. Just the economies of scales between fishermen ended up meaning the industry had to rationalize to survive. But yes, we are declining like many other agribusinesses around Australia.
Pete Lewis:
And you’ve made the point that your co-operative shares resources as well as information. How does this contribute and add value to your business?
Basil Lenzo:
Well, recently, yes. We… going with the guiding principle number six which is working with co-operatives with helping another co-operative in South Australia to get themselves established. We are sharing resources with them and information and actually doing some marketing of their lobsters. And from our member perspective, it helps our seafood basket, and that’s one way we’ve been able to do it. With our own members, obviously, newsletters, communication, we cover a thousand kilometers of coastline so all the product gets funneled through one facility so we can maintain quality and the cost is shared across the whole length and breadth, across all the members equally.
Pete Lewis:
Doriana, as you mentioned in our interview, the Sweeter Banana Co-operative still has a very close working relationship with people who are no longer part of the co-operative, and you wear a number of hats. You share resources on a number of levels including right up to the peak body for banana growing in Australia, the ABGC.
Doriana Mangili:
Yeah. That’s right. And I guess for our members, the resource sharing comes to not having to buy or maintain their own packing equipment and everybody having very unproductive packing sheds whereas you can get those economies to scale of having one large packing shed that can operate at low cost. And in fact, we measure our profitability every single day based on our throughput because obviously it’s a co-operative but we’re a business, and we have to number one make money, and as Brett said, we have to keep an eye on costs, so we measure our productivity every single day, week, month. And we know our profit on a daily basis, if we made five dollars or we made 500 for the co-op, and we can track all of that.
Doriana Mangili:
That fine-tuning, those economies, the scale really hard for individual farmers to focus on because it’s a very small part of what they do whereas it’s a big part of what we do, and it’s our sole focus, so back to strategy and things like that. We have a goal for what our packing costs per carton are and what our wages per carton are, and we’re revising that every year. And in fact, it’s been coming down. So when everything else in the world is going up, it’s coming down because we have that focus on that. So yeah. And it stops our growers having to fund all those resources themselves. They can just… Bunchers can leave the farm and they can focus on growing again.
Pete Lewis:
Brett Kelly, has that been… Does that explain the strength of longstanding co-operatives like Norco who you’ve been involved in?
Brett Kelly:
Yeah. I think you’ve got to stay completely focused, understanding the market shares as I said before and not getting distracted. As the business becomes more and more successful, you’ve got to work a lot harder on making sure you stay focused on the core of the business.
Pete Lewis:
As I indicated at the outset, we are running a poll question tonight, and it’s interesting, Melina Morrison, that the most popular responses at the moment about what attracts people and what they think is the most important aspect of working co-operatively is not perhaps the immediate dollar and tax benefits, but in fact, pooling resources. Does that surprise you?
Melina Morrison:
No, it doesn’t surprise me, Pete, because as we’ve heard in abundance tonight in the stories from the panels, really co-operatives are about allowing independence to survive and thrive through co-operation. Co-operatives do allow for smaller and medium enterprises to get a competitive stake in a market that might ordinarily favor a single, larger entrant. So in fact, co-operatives add in corporate diversity and competition to markets. They allow those smaller enterprises to operate as if they were larger, the scaling that Basil talked about, without giving up their own independence. So in fact, they kind of preserve competition in markets. Sometimes it’s thought about the other way, but actually a lot of markets are unfairly monopolized by single, larger players. And one thing that you see under co-operatives is hundreds or thousands of members and their many employees under one [inaudible 00:17:10], but in fact, they are a consortia of smaller enterprises.
Pete Lewis:
Brett, what about the issue of minimizing risk that was also identified as a key player, and I’m sure you’ve had to manage a lot of issues especially with shelf-life sensitive products. So does a co-operative have a particular strength in this area?
Brett Kelly:
I think so, but again, it comes down to the basic principle of how you do business. There’s two ways. I suppose if you’re a large, multinational corporate, the board, the CEO will set a strategy, they’ll sell that to the shareholders. They then might go and put a lot of capital in, set up infrastructure, and off they go. Now, if the strategy doesn’t work or it takes too long, if you’re a smaller business, then you have to potential of bleeding to death for a cash-loan profitability. We saw that very precisely with the debacle with Murray-Goulburn. When you’re a smaller business, a co-op, because there’s a lot of shareholder base, you’ve got to be really careful, so I think you need to stretch, lock in the profitability usually by way of contract, then consolidate, then stretch again. It’s only when you go past and outside of that focus that you risk putting the business at risk.
Pete Lewis:
Doriana, in the example of growing bananas in the Gascoyne, in your part of West Australia, some of the particular risks and exposures, of course, are weather related. The industry and the area is smashed every once in a while by really severe weather. Your co-operative has come up with a very unique and, we’d have to say, pretty successful approach to minimizing risk.
Doriana Mangili:
Yeah. Well, there’s a couple of things. The co-op itself, we set aside our own funds every year for our own self-insurance to ensure that we can operate in the event of a disaster which obviously we had in 2015 with 100 percent of production lost for 18 months. And the industry itself has a fund with all the growers in Carnarvon contributing to that, and that every carton you produce you pay a levy on. It’s measured by the growers themselves, the grower board, and if there is a weather event that causes more than 15 percent damage, then people can claim from that fund based on their productivities. So it stops us asking for a handout. It gets growers back on their feet and able to plant again, and it’s very well managed because it’s managed by industry. The board are very careful about when it does pay out, and it’s very fair. So it just goes to show that if you are working together with a common goal, that you can do things. Which everyone says, “Insurance for crops is impossible.” Well, it can be done, it just needs the will.
Pete Lewis:
Melina, is that an idea whose time should come in other parts of Australia? I mean, there obviously are a set of unique circumstances particularly for banana growers in that neck of the woods, but is the idea of a mutual risk pool… Could it be applied further? Wider?
Melina Morrison:
Well, isn’t risk pooling a great idea, Pete. As we’ve just heard from Doriana, before speculative owners got into insurance, old insurance was mutualised. The idea of pooling risk is the idea of spreading or transferring risks in the case of a farm, from the farmgate I guess, spreading it across a group of owners, so you kind of share the burden of that risk. I think there’s a lot of interest actually in farm mutuals at the moment, but it is quite a complex thing because insurance is based on modeling actuary models, and it really depends whether you’re mutual or some other structure, whether you can actually have the capital base to provide protection against a risk event that’s in the future. And that’s all via modeling. With climate change, with other volatility in farmer incomes, increasingly markets could become uninsured. I think we’re seeing that a lot. That puts farmers on a very tenuous basis, and in order for them to stay sustainable, we’ll have to think of different options, but I think the other panelists have far more insights into the risks around their farm practices. But it’s certainly an old idea that’s making a resurgence in terms of how we provide solutions.
Pete Lewis:
Basil, in every respect I guess, you could say that fishing is a pretty risky caper . How does your co-operative approach this issue, and how do your individual fishers cope with it, fund it?
Basil Lenzo:
From a co-operative perspective, we’ve self-insured for the last 10 years against credit risk because you imagine that we… So we’ve been selling 90 percent export, so we’re actually usually selling it on credit and expecting to get paid. So every time we try to get some premium for it or work out a premium for it, it was just to expensive to do. So we decided 10 years ago to self-insure. So we’ve been doing that, from that perspective. From more our members’ perspective, basically they run their own businesses. We used to actually have a pooled boat insurance where we could do that for our members, and that worked pretty well back in it’s time, but the competitive forces of the big conglomerates made it impossible for us to compete with them. But we have looked at it in the past, but other than that, we don’t do any other self-insurance.
Pete Lewis:
Look, we’ll go to a question from our chat room that’s been submitted. The questioner’s interested, where does the panel believe the big opportunities for co-operative success in agriculture are right now? And what do producers need to bring to the table to make them succeed? Who’d like to have a crack at that for a starter? Doriana?
Doriana Mangili:
Sure. Well, I think the demise of the family run farm is a really, really important issue. So with retailers increasing, there’s a few competitive resources. You’ve got retailers increasingly prefer to buy from one or two big players. There’s the varietal breeds of plants that are patented that producers’ farmers can’t get their hands on because they’re too small. And if you’re not growing the product that retailers want, you’re just not going to be in that space. So I think that family farms, horticulture, such an opportunity for people to group together, engage with people that develop varieties, buy varieties, and then be able to play on that big field. Be able to supply the big retailers because 80 percent of Australians still buy all their fruit and vegetables from the major supermarkets.
Doriana Mangili:
So if you’re not in that space, it’s really hard to compete. You’re left with a low demand, and as we’ve seen through COVID, when hospitality dropped away, so did a lot of that demand for that lower-end product. So I think… And what you have to bring to the table is just a willingness to have a vision and work together for common goals which is your farm to be profitable and sustainable and working with a co-operative. It’s a lot easier to do that working with others than trying to take that on by yourself.
Pete Lewis:
Well, the point of about innovation that you make is a very good one, and perhaps arguably West Australia’s greatest gift to agricultural innovation is the development of the Pink Lady Apple which has obviously taken another part of horticulture by storm and a product of good old government-backed R&D down there in the southwest . Brett Kelly, what do you see when you gaze out on the horizon for the co-operative sector?
Brett Kelly:
Well, I just see huge, huge opportunity in particular with what’s happened in recent times with the COVID-19. The consumers are looking for self-sustainability. They’re looking for fresh. I mean, our whole heritage of our country was built on farming. The credibility of farmers is stronger than anything. So if you put the right story, and basically the truth is your strongest argument. If you put the story together of a farmer-based co-operative producing a product right across the sector, and you give that story, you market it, it will go. It will work. It will support. Australians will support that. So I think even more so now, as we come out of this situation that we’ve all been in, there’s going to be a huge demand. And a lot of people that want freshness and self-sustainability, they’re going to go back into the workforce. Again, it will be flat out they’re going to be focused on looking for an Australian farmer produced product.
Pete Lewis:
Melina, why did… And co-operatives were very much a part of the, and have been, very much a part of the Australian agriculture scene virtually since day one. Why did they become unfashionable? Why did they in some large areas of farming did they become unsexy?
Melina Morrison:
I think they were victim to a bigger trend, especially during the 80s and 90s which had to do with corporatisation, the idea that there was perhaps value, capital that was locked up in business models including co-operatives that needed unlocking, unleashing, and that that was going to drive increased value by bringing outside investment into businesses. So we did see some of our most treasured Australian brands, food processing brands, go the way of many other demutualisations, some of those great corporate names like IMP, kind of not the great businesses before.
Melina Morrison:
I mean, there can be a lot of reasons driving it, but certainly there was a push to change those business models. Some of it in food processing and agriculture had to do with changes in labor cost, the import costs, and competing in a global market where you’ve got to compete on all of those costs. But what’s really interesting now, with COVID, is that government and citizens, consumers and farmers, and other stakeholders are really interested in this idea of reanimating manufacturing, for example. Locally owned manufacturing, food processing, it’s almost going back to what we had before because sovereign capacity, supply chain certainty, and what Brett and Doriana have just been saying about clean, green, paddock to plate desires by consumers are pushing the trend in the other way.
Pete Lewis:
Providence is certainly to the fore. As I said, we’re running a poll in today’s segment of Co-operative Conversations, and the poll question is, For Australian farmers, what do you think is the most appealing aspect of farming in a co-operative structure? And the choices are, very quickly, sharing knowledge, tax benefits, risk management, pooling resources, economies of scale , social values, and capital raising. Click on the poll on the live chat to the right of this screen to select your answer. And I guess that brings us to one of the most frequently asked questions about co-ops, how on earth do you corral all of these passionate, rugged individuals into one direction? Doriana, you had some great stories about the battles in the early days of the Sweeter Banana co-operative to get there. How did you wrangle all those free spirits in a way that you could get where you needed to go?
Doriana Mangili:
Well, I think Brett outlined it. You have to have a strategy, so getting everybody engaged on what that strategy is and why you’re taking these steps, what you’re… not just the overall, not just a motto or a mission statement… real numbers, KPIs, things that can be measured, goals we have, and the steps we’re going to take to get there, and getting everybody engaged and agreeing to those high level goals is the first thing. And then obviously, communicating that and updating that and of course working on keeping your costs low and returns high and all of those things to give your growers value. And then when something goes wrong, because things do, they understand when it’s part of a bigger strategy that this has happened. We’ve had tough times where we’ve taken steps to do something different and we’ve had big learning curves, but we’ve always had that end goal in mind, and the growers will stick with it when they see there’s a result at the end of it.
Pete Lewis:
Basil, your co-operative, your co-operative members obviously needed to make a big leap of faith to accept that lowering catch limits could ultimately be the pathway to some commercial advantage. There must have been a lot of very careful planning about how that discussion was rolled out and obviously some robust discussions.
Basil Lenzo:
Oh, absolutely. We just had to take the lead or the initiative on this and try to corral all the troops and many stakeholders around industry to reach a position that would get us through the situation. And we quickly identified time was what we needed, so we lobbied everyone we could and got industry together and decided to extend the season as well as reducing, forgoing the catch during the closure. So we had a six week closure, and we’re very supply and demand driven. We understand that most our product is exported and for it to be sitting in freezers would be the wrong move, so that was the way we went. But it was a credit to, obviously, to our CO who had worked very hard on this. Matt had done an exceptional job, but these things don’t happen without ministerial agreement. So you’ve got to have those relationships. You got to be able to have their trust. And GFC being 60 percent is seen as a leader in the industry and a minister, if he knows you’ve got 60 percent of the industry on board, he’s more receptive to making a decision. And to his credit, the minister was awesome. The state minister Peter Tinley was absolutely awesome. He made it happen in a timely manner.
Pete Lewis:
And look, in a sense you were ahead of a lot of other areas of farming in that… making those tough decisions, you were then acknowledged with marine stewardship recognition which opens and guaranteed you access to markets in a way that I guess was a little bonus on top of any increase in returns.
Basil Lenzo:
True. Absolutely. One thing about the GFC and the board, I would say that we’ve been through a similar thing during SARS where you become a price-taker if you have to produce product and have it sitting on the shelf because then you can’t differentiate your product. And now, our product is one of the few products that’s worth more in it’s natural live state than it is if we valuate it. So we understood that this was the only… We needed to get back to the closest normality that we had, as soon as possible, and this was the only mechanism that we thought that we could do it. It gave fishers time to plan, but it wasn’t… I mean, it was great for our members because members… The majority of our members do look to GFC for leadership, and if they’ve got trust in the management team and oversight of the board, then they tend to go along with the decisions made. It’s a credit to industry because they made this decision within two weeks of the closure.
Pete Lewis:
Brett Kelly, you’ve obviously been involved in one or two of these [inaudible 00:35:13] when it comes to going along the co-operative journey. What are the best tips to avoid the argy-bargy when there are really fundamental disagreements about the direction that the co-op management believes that their members need to take?
Brett Kelly:
It’s always great to have passion, and people do get passionate when they believe in something. I’ve always believed that when you run into situations, you react. Everyone’s allowed to react. And then you adapt and overcome. But I think again, as we’ve talked about, having a clear strategy, having a plan, having consistent, precise communication. And the other thing of course is that, look, talk is cheap. It is about the bottom line result. At the end of the day, that’s what I’ve always lived by in terms of business. So when that profit and loss comes out on a monthly basis, you want a situation where your members are getting profitability through their fame gate price, and you’re getting an asset appreciation of the business. So I think if you’re sharing this story together, you’re communicating, and the measurement is showing that all the talk, all the hard work, is reflecting in the result that you’re achieving, then you’ll keep everybody together with that focus.
Pete Lewis:
Look at the… Some of the other wider benefits, the community benefits, and you’ve all in one sense or another spoken about some of the add-on advantages of co-operatives in that it really is a community builder and it builds resilience and strength, particularly when you’re tested in those tough times. I guess, from a surrounding community point of view, Doriana, nothing tests you like a dramatic event like a cyclone or floods or fires and so froth. Do co-operatives necessarily help you through those sort of testing times.
Doriana Mangili:
Yeah. I think it’s… You have a reference point. There’s someone to talk to that is going through the same situation as yourself, and obviously, we can help coordinate efforts for recovery, cleanup, those types of things. And then on-going, keeping that communication and, I guess, keeping the spirits up whilst you’re in that downtime until production ramps back up again. It’s giving people a focus on that future. So yeah. Definitely, in practical ways and physical ways and also just the fact that you can come together as a group and be sharing that experience. You’re all in the same boat together, and I think I said before, farming can be pretty lonely. Generally, it’s husband and wife team and you’re on your own. You don’t have a lot of colleagues like people do in offices and other business, and that sense of community you get from all being something together. So when it’s good it’s great because you’re sharing in success. But I think it’s even more important when things aren’t so great that you’re able to share that with other people in the same situation as yourself.
Pete Lewis:
And I guess, Brett, no commodity sector has hogged more headlines and had more column inches written about it than the dairy game over the last 10 years or so. I guess it’s important for people in the communities that supply organizations like Norco, to know that they’re all in it together?
Brett Kelly:
Yeah. Absolutely. I think the strengths of that synergy is second to none. One of the key things now is that the days of just being good at farming are no longer there. I mean, it goes without saying, quality has to be the best farm practice. But you’re actually in a retail business, so on the farm, you have to understand the consumer. You have to understand the retailer. You have to understand the wholesaler. You have to understand the processor. You’re selling a product. It’s a little bit like if you’re developing a major shopping center. You can’t just sign the first person up who wants to sign a lease for a shop. You have to understand their business enough to know that the rent they’re going to need to pay you will make the business sustainable in the long run. So I think, collectively together in the co-op model, you have that strength of that unity. And without having, not that there’s anything wrong with having external shareholders, but the moment you bring in external shareholders like in other types of models, then the cost of business like farmgate is seen as a cost of business. At the end of the day, we need to always keep the focus at only from profit comes a higher farmgate. From that farmgate, it gives our farmers the opportunity to reimburse and have a sustainable future for generations to come.
Pete Lewis:
And when it comes to challenges, nothing’s been more fundamental than the real hurdles that have been thrown in front of farmers and food producers this year through the pandemic. Basil, for such a business that is, as you say, export-focused, what have the last six months produced for you, and how have you been able to be flexible and have to pivot around and try and sort of soften some of those blows?
Basil Lenzo:
Well, to sell six million kilos locally, we knew it was not going to happen overnight, but we made sure that whatever we could, especially with the correction price, that we tried getting to the local community and try and get the consumer to accept the product more. So we’re offering free delivery of product coming up to Easter and through Easter, and we had staff delivering product to people’s houses at prices that we achieved 10 years ago. So you do whatever you have to when adversity hits you, but fortunately for us, we also understood that we still needed to move the product as an export. So then we started to lobby government, and we needed federal assistance, and BCCM again, was very helpful with that, with grants which subsidised some of the freighters so that we could get our fishermen back on the water and catching the product at much lower prices. So we’ve been doing everything we can and including looking at ways to get our members who are invested in the company to invest more going forward.
Pete Lewis:
And Doriana, I guess, one of the upsides of all these challenges is it does seem as though everybody from consumers right through to policy-makers and politicians now have a stronger sense and an appreciation towards the farming community for what they’ve been able to continue to do when other parts of the economy have slowed up or stopped.
Doriana Mangili:
Yeah. It’s been fantastic to be recognized as an industry and to be seen as key and valuable when… Quite often when you do survey and it says, “What occupation are you in?” and agriculture hasn’t even been listed, and it’s not valued. So I think that government has stepped up, and as Melina said, I think manufacturing’s got to be the next thing so we can become more self-sufficient in all things manufacturing. We made a policy decision to buy Australian, so our packaging is all manufactured in Australia which has cost us a little bit financially, but we felt that we’re WA and our focus is local, and that decision proved to be very good for us because we didn’t have any interruptions to the supply chain, but I know for a lot of industries it’s been really, really hard. I think there’s a long way to go in terms of getting Australian manufacturing back, and hopefully co-ops can be a part of that.
Pete Lewis:
And differentiating yourself in a market with what most people would regard as a fairly generic product, a banana, has been one of the strengths of your co-operative. I mean you set out to create a market for a banana that didn’t really have a place in the market.
Doriana Mangili:
Yeah. That’s right. It was the banana that nobody wanted to buy. It was the lower cost one, it was the cheap one, it was seen as inferior, and we set out to completely turn that on its head, and we’ve been able to achieve that. Premium pricing and recognition as premium banana, so that’s been a huge success of the co-op, and it’s why we’re still farming because our small scale means that in lots of ways we can’t compete with the larger businesses in tropical areas that have free rainfall, we pay for water. So we had to be premium, and we had to be able to get better returns to our farmers. So that’s been a big part of the success of the co-op, along with the quality and everything else that we’ve been able to do, accessing those markets. So it all comes together. As Brett said, our farmers are focused on farming and the co-operative helps with everything else about understanding the supply chain and that’s why it works.
Pete Lewis:
Brett, you made the point that farmer-owned is a very big part of your messaging, how important, from your perspective, is marketing and being able to style this into a co-op?
Brett Kelly:
I think it’s critical, and I think the strongest point again, as I said earlier, the truth is your strongest argument. And the co-ops that I’ve been involved with, the key marketing strategy that I’ve pushed is the 100 percent Australian farmer-owned and the story behind it because the consumer… We’re all very busy in our lifestyles and people have got bills to pay, put kids through school. But you know what, the consumer will pay a fair price for a quality product if they know the story behind it, and in particular if they know that you might pay a premium and it may be a premium product, but that extra margin is going back into Australian farmers. So I think the whole farmer story, I mean, it was the word I would use the most around the office, farmer, farmer, farmer. That’s what it’s all about.
Pete Lewis:
Yes indeed. Basil, the rock lobster product is obviously delicious and it’s one of the things that people aspire to… an aspirational kind of meal. How do you style in a business like that? Is it difficult? Or more easier under a co-op?
Basil Lenzo:
I think it’s easier. It is easier, but we’ve really got to understand that to style, it does cost. It doesn’t come free. As a co-op, you can allocate resources, especially if you’re well funded. And you can invest in R&D to facilitate innovation. You can build a great team of employees. You’ve got that ability, and you can really focus on what you want to be and how you’re going to get there. And going back to what Doriana and Brett were saying, if you’ve got a well documented strategic plan with a clear direction and a few strong pillars, you can actually achieve that. But easier within a co-operative structure, I believe. Because the members are invested.
Pete Lewis:
We have been talking tonight about all the significant factors that go into making these co-operatives a success. We’re interested in getting your input. We have poll question running tonight, for Australian farmers, what do you think is the most appealing aspect of farming in a co-operative structure? Follow the link to the side of our live stream tonight, get involved, and give us feedback so we know that we’re on the right track. Melina, I guess you’ve seen heaps of excellent examples of primary producers scaling and succeeding by the structure. When it works well, where does it work well? And is it different to other business structures?
Melina Morrison:
Well, we have heard some great examples, tonight, of scaling. And really I think the story is that when smaller businesses want to do something that they could only do if they were larger or they co-operate, then the co-operative model is a great model. I’m sorry about the echo that’s happening. I don’t know if it’s my end, but I’ll keep going. A co-operative is a corporate vehicle and it has to be well managed, just like any other company. What’s really important is that the co-operative decides what it’s going to return in benefit in any given year and what it needs to retain to invest in it’s future strategy. And I think when farmers or producers in any particular agricultural sector can do that collectively, it becomes a really powerful force. One of the main things that we see as a benefit of scaling is access to export markets that really do demand economies of scale as well as being able to produce a certain volume that allows you to get a foothold in a global market and set a price. And we’ve seen that, for example, with Geraldton.
Pete Lewis:
It’s often said, in this space and in lots of others, that we’re only limited by our imagination and our capital [load 00:50:13]. Obviously when it comes to capital raising, there are very important issues confronting every farm organization no matter how it’s structured. Brett, is capital raising easier or more difficult for a co-operative? What sorts of savings can be made through that collective vantage?
Brett Kelly:
Capital’s always an important part of any business, but again, in a co-operative model, you’ve got to be really careful. If you, as I mentioned earlier, if you were to go down the path of say an IPO and you want to float a brand. To do a successful, you’ve got to have a history of profitability. You’ve got to have a management team integral to that profitability. You’ve got to have the potential to make a lot more profitability. Plus, also, if you bring in external shareholders as I mentioned, quite rightfully, they’ll look at the farmgate as a cost of business, and they want to bring that down. Whereas the farmer lives and dies by the farmgate they want the profit to go into the farmgate. So I think that debt in a co-operative should be driven by profitability such as it is in any other business. The only ship in the shareholding stage would be actual members. History in co-operatives unfortunately in Australia as we know, 99 percent of the member paths go broke. Why do they go broke? When they are doing really well, they pay themselves to much. When they’re not doing really well, they pay themselves too much. So you’ve got to have the ability to reinvest, grow the profitability, and make sure that flows back in. So capital, I think in my opinion, is best driven by profitability by debt with a longterm strategy.
Pete Lewis:
Doriana, you’ve spoken about an almost constant need for capital raising for the kinds of innovations you believe are really important to the success of the Sweeter Banana co-operate.
Doriana Mangili:
Yeah. And I think it’s important, as Brett said, looking at the longterm that you make sure that the growers of today aren’t paying disproportionately for the assets of the growers of tomorrow. So you do it slowly, and you invest… You don’t pay off your loans in one year just because you can. You’ve got to have a keen eye that you still need to return benefits to members and that whatever asset you’ve purchased is going to be useful for the life of the co-op over the next 10 years in keeping that fair. When the co-op first began, we members invested in the form of loans. These days, they would be co-operative capital units so that’s another way of doing it. And if we say we use a co-operative loan structure which enables that capital repayment to be a tax deduction which is an incredible way of doing capital that’s not available to any other business sector. And then once you start to grow your asset base, as you say, each year redetermine how much profit we will retain and how much we’ll rebate to our members, and that changes with the needs of the co-op, the needs of the members, and it’s worked really well because everyone understands that that’s the goal and that’s what we’re doing and it’s proportionate. People get back what they put in, so it’s about being fair as well.
Pete Lewis:
And Basil, what’s the situation for you in terms of capital raising?
Basil Lenzo:
Yeah. It’s similar to what Doriana said. But I mean, there are a few ways to get access to capital. One is from shares. So we’ve got 25 percent of our members who are 100 percent shareholding. So we’ve gone through a stage where when we pay a final distribution, we actually, if they’re lower than a certain amount, we make sure that a percentage of their distribution goes into shares so that we’re balancing the higher shareholders with the new entrants say over the last 10 years. The other way, obviously, is retaining reserves and to strengthen your balance sheet when times are good, as Brett said. And that allows you to leverage using co-operative loans which we have been utilizing for many, many years. I’d class that as a competitive advantage, though I don’t like to tell my competitors that. They all know now.
Pete Lewis:
And I guess, Melina, as more co-operatives work together, the lessons that the Geraldton fishermen or the Northern NSW dairy farmers, or the banana growers of Carnarvon, those kinds of lessons and those kinds of approaches to how people can go about capital raising get shared around and make it a little bit easier than it is often for farmers.
Melina Morrison:
Yes. There’s still a lot of education to do when it comes to co-operative capital. Lawyer’s don’t learn what co-operative structures are. Accountants don’t have to co co-operative capital units as part of accounting degrees. So, also, the kind of professional ecosystem around co-operatives needs some education as well. By and large, though, co-operatives are excellent vehicles for raising capital. They’re very flexible, and as you’ve heard in examples just now, there are various ways of raising debt, member shares, and equity models where you can bring funding in from members as well as non-members without trading your co-operative business model, without giving away influence or ownership in your co-operative. So they are indeed a flexible corporate model, and they’re designed to hold and to manage assets. I think we could all do with more education to think about how we’re going to deploy capital because it’s deployed for different reasons in a co-operative, being a member, benefiting business form… Members decide how much capital they need and what price they’re prepared to pay for that capital, but it’s always to generate the mutual benefit to all of the members.
Melina Morrison:
Pete, we can’t hear you.
Pete Lewis:
Yeah. We’ve got a couple of questions that have come in in the course of our discussion tonight. And the first one is, and the question is open to all of you, are there situations where you think it would be better for the business if you are not part of a co-operative? Who wants to have a crack at that one?
Basil Lenzo:
Obviously none of us think…
Melina Morrison:
Go, Brett.
Brett Kelly:
All right. Look. I think only a few, if you don’t have the right fit for the co-operative. I mean, being in a co-operative, you’re a team player, and it’s a situation where you loan the actual company collectively whether you’re a large operator or a small operator. And you all are working together to build that business in a future of sustainability. So if you don’t have the right, I suppose, attitude, that you don’t want to play in a situation where you’re working together collectively, then you shouldn’t be in a co-operative. I think otherwise, though, a co-operative is a great vehicle for farmers to get together and build their business.
Doriana Mangili:
Yeah. I would concur with that and just say that there is sometimes a short term… Anyone can make short term gain by stepping out. There’s always people hovering, and Basil would probably have this all the time, that are willing to offer you a price that’s better for that week, that month. But in the long term, you’re always going to be better in the co-operative because no one’s going to look after the business like members that have a vested interest. So yeah. The short term, it’s a quick fix, but for the long term, go the co-op every time.
Pete Lewis:
Yeah. What do you say, Basil?
Basil Lenzo:
I concur with my colleagues there. Most definitely. To me, I can’t see any other vehicle… I think everyone should be in a cooperative if they’re in a small business. I mean, there are reasons why it works so well, and the collective wisdom and the collective grouping of individual businesses makes so much sense if it’s economy for scale or if it’s for the benefit of the community or for social aspects as well. Most definitely. I can’t see any other ways.
Pete Lewis:
And clearly in what has been a very character building year for everybody, the co-operative structure seems to be nimble enough to be able to respond to the kinds of challenges that have been thrown out to all of you.
Doriana Mangili:
Yeah. I think-
Pete Lewis:
It goes without saying doesn’t it much? Look, we are pretty much out of time, but I really have enjoyed this roaming discussion. We have gone from one side of the country to the other and across, obviously, a whole range of different food groups and farming operations. I hope you’ve enjoyed it as well, wherever you are, watching this in Australia. Co-operative Conversations is part of the Co-Operative Farming, a new online education resource for farmers. Jump online at conversations.coopfarming.coop to find out more. You can also join the private Facebook group, Farmers, Fishers, and Foresters to ask more questions, more follow-up questions and get information from the co-operative farming team. Search for the Co-operative Farming on Facebook.
Pete Lewis:
Once again, thank you so much to Doriana in Carnarvon in WA, Basil who’s just down the coast a bit, in fact, I think coming to us tonight from sunny Fremantle but normally based at the Geraldton Fishermen’s Co-op, and Brett Kelly over here on the Easter Seaboard, together with Melina Morrison. We really appreciate all your time, your input, your experience, and your expertise. It’s been fantastic. It’s been a great conversation. Big thanks to Doriana, again, for her interview a little earlier, really unpeeling the story of the Sweeter Banana Co-operative and the trials and tribulations that keep everybody over there on their toes. So it’s great. We want to thank you for your input tonight.
Pete Lewis:
We roll on next time with an interview series where we talk to Natalie Browning who is part of a farming family in WA, and she’s also the deputy chair of CBH, Australia’s largest co-operative and a leader in the Australian grain industry really from paddock right through to port. They’ve got operations that extend right along the value chain, so the discussion with Natalie’s going to be interesting, and we will be then teasing out more issues as we have done tonight in our round table discussion after that. So we hope you can join us. That’s coming up in August, followed by the round table discussion, sharing knowledge for the better. The details of those episodes, and to get all the details of our past episodes, tonight and the remainder of the series, go to conversations.coopfarming.coop and really all these are available now that have been live-streamed. They will be available on demand going forward.
Pete Lewis:
Thanks once again. It’s been a great discussion tonight. We hope you’ve enjoyed it wherever you are across Australia, and my message of course is stay safe.