Extras

Melina Morrison:

Hello I am Melina Morrison CEO of the Business Council of Co-operatives and Mutuals.

What’s a co-operative I hear you say? It’s a question I’ve heard most of my working life, which is not surprising because we don’t get to hear enough about this great way of doing business.

A co-op is just a business that is owned by its members rather than by shareholders. When it comes to farming that’s an important difference. A co-op is owned by its producer members and only exists to benefit them – the farmer. This puts the sustainability of the farmer and getting the best possible return to the farm gate at the centre of why the business exists in the first place.

I’m a passionate advocate for this way of doing business and I truly believe with everything going on in the world, from global pandemics to climate change to economic shocks, it’s more important than ever to co-operate.

With the current crisis being part of a co-operative can give you certain advantages in coping with crisis and in this series you’ll hear from real Australian farmers about why they have chosen to be in business with other farmers to stay ahead in the good times and in the bad.

This first episode of Co-operative Conversations was filmed at the start of the Covid Pandemic which really set the stage for a robust discussion on farming and the importance of Australian owned farms and food sovereignty.

It’s interesting to look back at that early COVID time and hear the conversation in the context of how  a co-operative business model could support single producers or family farms and their importance to Australia’s food supplies  in times of crisis.

This episode sets the scene for our series with our host, renowned agricultural journalist Pete Lewis talking to a fascinating mix of industry experts and farmers giving insights on how collaborating through a co-operative business model creates strength in numbers.

I hope you really enjoy this episode and don’t forget to subscribe now to the Co-operative Farming Podcast series or you can watch them on our website at coopfarming.coop where you can also find out more about how to set up and run your own co-op.

Pete Lewis:

Tonight we’re here to explore if co-operative business models could be part of the solution by future-proofing our Aussie farmers. To get the ball rolling, we could not have assembled a better lineup to bring us not only the Australian perspective but importantly a global perspective on how things are right here and right now. From the University of Missouri’s Columbia campus, we are delighted to welcome Professor Mike Cook, Jimmy Wilson who is the CEO of CBH, Australia’s biggest grain handler. Fiona Simson is president of the National Farmers’ Federation. Emma Robinson joins us from North Queensland and the Beef Collaboration Project at Charters Towers. Kevin Franey is a partner with TNR, representing the chartered accountants of ANZ, and he comes in from Lismore. Emma Thomas is the CEO of Achmea Farm Insurance, and Melina Morrison, CEO of the Business Council of Co-operatives and Mutuals. Welcome everybody, and thanks very much for your time.

Pete Lewis:

Melina Morrison, co-ops have had a presence in Australia since the 1850s, within really a couple of decades of European settlement here, and the opening up of a new colony for farming.

Melina Morrison:

That’s absolutely right. They’ve been around since before Federation. They’ve been bringing farmers together across the supply chain. They’ve been allowing them to cut out the middle guy, reduce their input cost so that they can get back more of the value to the farmgate. They’ve also been allowing farmers to bring the strength of small businesses together so they can access export markets. They can team up, if you like, to act like a larger player in a market that they wouldn’t be able to access as independent businesses.

Pete Lewis:

BCCM is the industry body for co-operatives. How many do we have here in Australia, and why do you think they are so important in this context?

Melina Morrison:

Well, there’s more than 2000 co-operatives. They’re right across the economy. But if we drill down just on agriculture, there are 230 of those, and they’re right across the farming commodities. So we’re talking fishing, forestry, all types of farming. But also they bring together farmers to control assets like irrigation and port access and transportation. They’re really important to the agricultural economy. There’s about 24,000 independent businesses, farming businesses, that are members of these co-operatives, and they employ many more Australians, seasonal labor so it’s a really significant part of the economy.

Pete Lewis:

Now, co-operatives or farmer-owned businesses necessarily have a different overall purpose and mission statement to investor-owned firms. What’s the co-operative difference, and why is it important that co-operatives are part of the conversation in the future of farming?

Melina Morrison:

Well, the main difference is that they’re member-owned rather than shareholder-owned, which means that they can bring together a lot of independent businesses. They can allow them to scale, to cut out the middle guy so that they can control and own the supply chain right from the paddock to the plate. This is really important not only for Aussie farmers but also for Australians and the Australian economy. At the moment we’re really thinking a lot about food security, we’re thinking about supply chain resilience, and this new term or perhaps it’s an old term, sovereign capacity. And that’s our ability to be able to produce things that are 100% Aussie owned. They’re rooted in their original economies, and they bring the strengths of smaller players together. That’s really the advantage, particularly in an area like farming where you’re trying to smooth out the good and the bad times to make it more profitable and sustainable to be a farmer.

Pete Lewis:

Melina, thanks very much. That’s a really great springboard to get us into the rest of our conversation. Now we switch to Australia’s national farm lobby group, the National Farmers’ Federation, and their president Fiona Simson. Fiona, what are the big issues that really threaten the sustainability of farmers in 2020?

Fiona Simson:

Thanks so much, Pete. Sustainability is about our industry continuing to grow and to thrive, and that’s what the real focus of our sustainability is. And so NFF has a vision for our industry to be at $100 billion worth of value at farmgate by 2030. To do that, we’ve actually nutted out about five different foundation pillars that are at the very core of its sustainability. They’re around customers and our value chain. They’re around growing sustainably. It’s about innovation and how we unlock innovation around people and communities, and about access to capital and risk management. I think all of those pillars are really at the heart of remaining competitive. We are one of the least subsidised agriculture industries in the whole world, right at the bottom of the scale. So it’s really important that we can actually remain competitive, that what we can do is cost-effective and that we can continue as individual farm businesses and also, of course, as an industry to grow, and we hope attain that $100 billion dollars worth of farmgate value or more by 2030.

Pete Lewis:

One of the more interesting statistics that came out of ABARES Insight 2020 was that increasingly large farms are driving the majority of output. What then would be the implications for smaller family operations?

Fiona Simson:

Well, sometimes I think, and there is some change going on at the moment in our industry, and I think sometimes small farms find it hard to get those, what we call economies of scale. Economies of scale are present in every industry, but particularly in agriculture if we’re talking about broad-scale cropping or livestock. Economies of scale can play a much bigger part in terms of getting good costs, in terms of being as efficient as we possibly can and, of course, remaining competitive. Those are the things that are driving some of this move and interest at the moment in co-operatives. Whether smaller farmers banding together to actually seek out some of the savings or efficiencies or retain some of that competitiveness or build the competitiveness is actually possible through a co-operative structure as opposed to just working on their own.

Pete Lewis:

What do you think are the challenges for single producers? What’s the biggest challenges and hurdle they face?

Fiona Simson:

Well, they don’t have the buying power, so in terms of farm input, for example, it is quite hard to actually get the buying power to get the sorts of discounts that bigger producers have. We know that we have absolutely no influence at all on the price per ton of grain that we get, that’s all globally determined. The same as livestock prices. All of these things now happen through factors way out of our own control. So the best way that farmers can remain competitive individually is to try and look at things that they have control over. And they are managing input costs, for example. They are about upgrading and using the latest bits of technology, so on farm now, we are all very focused on sustainability, not just in a financial sense but also in an environmental sense.

Fiona Simson:

Some of the machinery that we’re using on farms now are to attain that sustainability. It’s actually incredibly expensive, and so as a smaller farmer and an individual farmer, sometimes it’s quite hard to actually access that sort of technology if you’re just operating on your own. And so we are seeing new models emerging right now where farmers are banding together to actually try and attain some of that competitiveness and better influence over the cost.

Fiona Simson:

Risk management is another one where, again, we’re seeing new models emerging where farmers are working together to try and attain some control over their risk. It’s very hard to do as a small farmer and an individual farmer, but if people actually work together and band together, then it might be much easier to have some control over risk management. All of those things, of course, are part of these five pillars, and if you actually nut out and go through any of those five pillars, I think you’d see where sometimes being a smaller individual farmer makes it hard to actually make some headway in those pillars. If you actually work together, then it could offer some opportunities to do better in some of those respects.

Pete Lewis:

Fiona, thanks very much for that. You mentioned size and scale, and in the Australian context they don’t come bigger and more established than the CBH Group, Australia’s biggest grain handler. Jimmy Wilson is with us, It’s great to have you join us, Jim. CBH was formed in 1933. What was the original rationale and motivation for that?

Jimmy Wilson:

Thanks, Pete, and thanks for having us here today. Look, during the Great Depression, it was realised that a cheap and efficient bulk handing system would reduce grower costs and strengthen the struggling wheat industry. So the trustees of the What Pool WA and Wesfarmers Limited jointly registered the co-operative, as you said, in 1933, some 87 years ago. I mean, our objective really was simply to move grain from the paddock to the marketplace as cost-effectively as possible. Prior to this, growers were actually transporting in hessian bags and clearly that was unsustainable and something that… The value was actually all in the logistics and the transport. So really CBH was then set up then and has really not strayed from its purpose.

Pete Lewis:

Well, the world, of course, has changed measurably over nine decades. Is the co-operative model still as appropriate and effective today as it has been?

Jimmy Wilson:

Absolutely. We don’t believe the scenario’s changed at all. I mean, it’s really about getting the product, as I said, from paddock to the marketplace as cost-effectively as possible, selling it for as much as possible, and trying to reduce the cost of those inputs to that. Being a co-op has allowed us to maintain the lowest cost storage in Australia. We’re about half the cost of our counterparts over East. This is just really viable today. Specifically also for West Australia where we’re largely export oriented.

Pete Lewis:

With the current challenges that we face, does being part of a co-operative have more benefits? Is there more benefit to being part of a co-operative in this scenario than operating under any other company structure?

Jimmy Wilson:

Absolutely. Look, if you think about it, we represent the growers of West Australia, and the growers of West Australia, they lose control of their outbound logistical chain, and that goes to a corporate. The corporate is not necessarily going to be charging at cost, the corporate is going to be charging at what price they can get. Obviously, they’ll be in a very strong negotiating position because it’s thousands against one and that one has got all the power. The co-operative model is absolutely valid and essential to ensure that those costs are kept low, that outbound logistics cost is kept low, and growers are made as competitive as they possible can. You’ve got to remember that they’re competing against the [inaudible 00:14:44], which is growing. They’re getting their logistical outbound systems improved and that sort of thing, and so there’s a lot of competition out there in those export markets.

Pete Lewis:

Clearly, for farmers in the CBH Group there is strength in numbers. Standing in the horizon, what do you see for the future? What’s next for CBH?

Jimmy Wilson:

Well, look, we continue to… Obviously, we’ve got a very, very comprehensive network here in West Australia. It is important that we deploy capital to sustain that network, to keep it up to scratch, to keep it maintained and in good condition. Growers are being very innovative as well. Even though their hectares are not really increasing or more hectares are going to cropping, the yields are improving because growers are being more and more innovative. They’ve got better equipment. Fiona was talking about this earlier. Now there’s a lot of innovation going into getting more tons per hectare.

Jimmy Wilson:

And so we’ve got to also then take into account that we’re getting around about a 3% growth in the average crops, so we’ve got to grow the network at the same time. We’ve been doing that recently. We’ve grown and will have grown in the last three years and now going out to the end of 2020, about 2,5 million tons in storage. You compare that to the last previous eight years that was 1,8 million tons of growth, so you can see that growth has accelerated. We are rationalising the number of sites down to 100. The objective there is to reduce costs. And of course we’re getting more involved on the input side in fertiliser. That’s where we’re really heading. Quite enthusiastic about the future, Pete. Thank you.

Pete Lewis:

Thanks, Jimmy. We really appreciate your input. From the west of Australia, now we go to the Midwest of the US and to the University of Missouri, the Columbia campus and Professor Mike Cook. Welcome, Mike. It’s great to have you join us. You’ve worked in 60 countries and published over 100 works. I guess there’s probably no one more experienced around the co-operative model than you. Why is the model different to other business models, and what are the parts that really matter to this model?

Professor Michael L. Cook:

Good day, Australia. It’s wonderful to be here. Your question’s a very pertinent one and it’s asked in many different languages, different countries, different cultures, et cetera. The way I try to just communicate with people on how is a co-operative different and therefore who might benefit from it, is I ask three simple questions. Who owns the organisation? Who controls it. Who benefits from it? So who owns? In a co-operative, it is the member, the patron. In a non-co-operative it would be a shareholder. What does that mean? Well, if a member owns the organisation, he will have a different objective function than will a shareholder. A shareholder will want a return on his investment. The member will want a return on his investment at home. He or she will want the co-operative to do well, but the primary objective is to enhance his or her socio-economic wellbeing.

Professor Michael L. Cook:

Now, who controls this entity, this co-operative, this group? It’s usually, depending on the country again and the laws, it’s actually a member has one vote, one important vote. But it is not number of shares owned, it is the member being a member has one vote. Finally, the third issue or difference, let’s say, is who benefits? The benefactor of a co-operative is that user-controller, meaning the member. Therefore, every energy put into owning and controlling the co-operative leads to greater benefit to that member, per se. The shareholder of an investor-owned firm wants it in growth in the value of shares or the value of the shares, right, or a dividend. Whereas in a co-operative, it comes back in the price that the co-operative earns and shares just as in Jimmy’s… If you look at CBH’s, the background of Jimmy where he’s sitting, is that creating and returning value to the grower. That’s a very powerful, underlying difference between co-operatives and non-co-operatives.

Pete Lewis:

Co-operatives have been around, as we’ve said, for quite a long time. Is the co-operative model, is it nimble and flexible enough and progressive enough to adapt to change as it’s required to and when it needs to?

Professor Michael L. Cook:

We’re currently doing a study on that. In the United States we have 2,000 agriculture co-operatives. 250 of them, actually 274, are more than 100 years old. Another 750 are between 75 and 100 years old. Of course, the natural question becomes, why are they so old and if they’re so old, why are they still around? And so this is a very interesting question and it’s a more complex question than one can come up with quickly. I mean, one could say good genes, right? Well, what are the genes of a co-operative per se? Well, what we find is the co-ops that are more than 100 years old, they have what’s called a touch or a process of co-operative genius. I would frame that perhaps that later in another question.

Professor Michael L. Cook:

Another is these members have learned, and they’ve passed down to their daughters and sons how to deal with other producers, farmers in a civil and democratic way. This behavioural aspect is critical in co-operatives. It’s an attribute that can be learned, and that’s something that I think all of us who work in co-operatives, we don’t spend enough time perhaps appreciating how important that is. Why do they have this longevity? As Jimmy Wilson was just saying with CBH, it’s very interesting, they listen very carefully to their members, and they adapt, and they’re very flexible in adapting to the needs of those members.

Pete Lewis:

Now, in most businesses, strategy drives structure, but in a co-operative structure it plays into the strategy. What do you mean by this, and why is this important for those considering establishing a co-operative?

Professor Michael L. Cook:

If we go back to the first question that is, who owns, who controls, who benefits? Well, ownership is by members and most firms, except maybe proprietary firms, where you have a family-owned, the ownership is by a large number of people, shareholders who have proportional votes, all right. That means the control and the ownership is proportional to the ownership of shares. In a co-operative, that’s not the case. And so in a co-operative the strategy, that is what will make that producer better off, that’s the key question, what will make me better off? The strategy becomes very important for a 10-person, let’s say, a 10-hectare farm versus a 10,000-hectare farm, which will be better? And so the strategy and the structure, how does that 10-hectare farmer feel or possess control rights and ownership rights and therefore purport how they benefit is in proportion to us, not investment.

Professor Michael L. Cook:

And so these three things that make co-operatives different, really impact what strategies might lead to affecting the structure and vice versa. The structure affects the strategy. When you listen to all of the people that will be on this program, they have a little less flexibility regarding strategy but they have tremendous flexibility in finding out what their patrons, what their members, what they need. Because those members are willing to share what’s important to them. That isn’t always true with other forms of business.

Pete Lewis:

And as we’ve seen so often, both here and other parts of the world, when those individual producers are strong and resilient, so too are the communities that they’re part of. There is, if you like, an even higher calling for co-ops.

Professor Michael L. Cook:

That’s an interesting observation. In the US, which is known as a very religious country, or used to be at least, the interesting thing is as it’s become more and more secularised, we have found that the co-operatives are becoming the social centre in many of the places where they’re headquartered. This is having a real… We’re going through these very dramatic and disruptive times all over the world, but where you are used to knowing every neighbour, having the co-operative there brings a sense of stability. That sense of stability allows for civil discussion which allows for then, how do we discuss needed changes rather than who’s at fault for what? And so what we’re seeing and considerable amounts of money now are going into groups that are starting this connection between co-operatives and rural and community development and resilience.

Pete Lewis:

Well, thanks so much, Mike. Look, nowhere in Australia does that approach and that philosophy work as well as it does with Norco up in the Northern Rivers area of New South Wales. Let’s have a look.

Video:

It’s the middle of winter, it’s late July, and it’s 26 degrees. And not a breath of wind and not a cloud in the sky. I suspect that’s why we live here.

Video:

Norco has been around in the Northern Rivers for many, many years and indeed, a lot of country towns around here were built by Norco.

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It’s always been owned by the farmers. It’s always been Australian. I get a great delight, I sit on my back porch and watch the cows coming down from the dairy because the dairy is just at the back here.

Video:

I take great pride in the quality of stuff that I do in my cabinet. People know that they’re going to get good quality products when they buy, that includes the Norco milk as well.

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I’ve got 46 neighbours. There’s isn’t one of those people around me that don’t buy Norco products.

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Because it’s owned by people in the community and they’re spending their money here locally, it keeps the community growing. It keeps it going.

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For me, every time I drive to work I drive past the Norco farmer so it doesn’t make sense for me to buy milk from elsewhere.

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Wherever I go out, into a coffee shop, anywhere here, and I tell them I’m a dairy farmer, “And he’s your Norco milk, thank you very much.”

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It’s just been really rewarding to know that our milk is in the bottles, it’s in the local shops. Buying local, extremely important to me. We want people to support us. We want to be able to support them as well.

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You can live it, see it, drink it. It’s lovely. 122 years of Norco, that’s a pretty good earning, isn’t it?

Video:

(singing)

Pete Lewis:

Well, as we can see from the Norco example up there in the Northern Rivers of New South Wales, co-ops can sustain communities as well as industry. Does anybody else have some experience and some insights into that they’d love to share with us?

Emma Robinson:

Pete, the message that I take from the Norco example is that rural communities really need to drive their own visions and their own opportunities. That’s about, yes, making our farm businesses more profitable, but it’s also about creating new businesses and new employment opportunities beyond simply our own farms.

Pete Lewis:

Emma, you’re operating a beef operation Charters Towers in Northern Queensland. You’re passionate about the importance of family farms. Why is that so significant for you and so important for what you do and where you do it?

Emma Robinson:

Pete, so for me, family farming’s always been central to the integrity of our food system. It’s more than agriculture. We’re talking about good food. We’re talking about our environment and our knowledge of the environment. We’re talking about our communities, and we’re taking a multi-generational view. I think there’s a growing sense from our consumers and our communities that the more they support family farmers, the more they know about the food that they’re eating. I think historically there’s always be that intertwine between food and family farming and the environment, and I think at this time we’re seeing that interplay play out more than ever.

Pete Lewis:

Emma, you’ve spent a lot of time studying the co-operative model and you established the Beef Collaboration Project. What did you do that?

Emma Robinson:

I’ve always had a really strong sense of the value of farmer collaboration and I think the impetus for taking that passion further was really the tough drought that we’re just coming out of. We had a situation where we had a globally beef crisis at record high and price that we were getting for our cattle at all-time record lows. So that insight and understanding why that occurs, I guess, is the impetus for thinking differently about different business models and how we can do business. I guess the collaboration project that I founded was really based on three principles. The first one is that we need to be low-cost producers, and collaboration can help us reduce our costs, we can leverage our scale for opportunity.

Emma Robinson:

The second, I guess, principle is that supply chain dynamics are changing. The closer you are to consumers, the more value you can create, the more ability you have to leverage that new value, so we can collaborate to help family farmers get further down the supply chain. I think that’s particularly important in the beef industry where because of the export nature of our market, we need scale. Scale is important. The third principle is the idea around knowledge and knowledge being power, so the ability to integrate farmer insights, farm data, farm analytics through collaboration can enable us to create this new networks, new knowledge, new innovation that makes us able to make better business decisions.

Pete Lewis:

How’s it working out? Are you getting traction?

Emma Robinson:

Through the support of the Collaboration Project and the funding that we’ve had through the Australian government, we’ve been able to implement our business model. That’s really been at this stage… We’ve implemented it locally and for the benefit of our members. And we’re now starting to transition to a formalised structure and a bigger scale. And so we’ve really started the project focusing on what we can control. Most of our activities have been pre-farmgate, laying a foundation for us to then move beyond the farmgate into the supply chain.

Pete Lewis:

Can you see that having established the Beef Collaboration Project you can lay some foundations for something really significant in your part of North Queensland?

Emma Robinson:

Absolutely. It is about farmers and communities taking responsibility for the opportunities that are out there. We’re not about simply squeezing more out of the current model, we want to change the model. My message to farmers is, “Take those frustrations that we’re all feeling at different times of crisis, take those frustrations and do something about it.” Ultimately for our co-operative to be successful, we need to be bigger than our community. We need to think about scale and we need to think about operating at different levels. There’s a great quote that we love to talk about and it’s this idea that if you want to be incrementally better, then stick with competing. If you want to exponentially better, you’ve got to look at collaborating.

Emma Robinson:

And it’s this idea that farmers coming together, where it makes sense to do so, is such a powerful opportunity. I guess I think it’s going to be the next leap for Australian agriculture. The idea of farmers collaborating and the ability to leverage the opportunity that comes out of that is the next big step.

Pete Lewis:

Great to talk to you, Emma. It sounds very exciting times for you and for that project. Back to Fiona Simson now. Fiona, do you think the co-operative model could potentially give smaller producers the ability to compete at greater levels than they could on their own?

Fiona Simson:

Yeah, I think there’s little doubt that when properly structured, the co-operative model certainly offers some amazing opportunities for smaller producers and individual producers to pack a much bigger punch and actually to be able to, in terms of the five pillars that I mentioned earlier, really be able to kick some goals in that space. If we think about attracting talent to your business, about unlocking innovation in your business, about access to markets and getting the best price for your product, about trying to negotiate and use most recent and updated machinery, and about getting actual access to some of the things that big producers take for granted in terms of whether it’s technology or capital or risk management, or whatever it is. I think it does offer a lot of opportunities, and that’s one of the reasons why at the moment we’re really seeing some of these really interesting new models emerge. It’s important, I think, for people to have a really good look at what is out there at the moment and what is possible because the landscape is changing almost every day at the moment.

Pete Lewis:

With around 70% of our produce exported, what do you think is the priority for Australian farming going forward?

Fiona Simson:

Clearly, exports really are important to Australian farmers, and they’re important for competitiveness. We have the domestically, depending on where you live in Australia and what you produce, then sometimes it is hard for a lot of competition or for farmers to see that there is a lot of competition that is actually affecting your price and affecting your market. Exports are incredibly important. In the last decade, we’ve seen hoarder culture, for example, probably experienced double digit growth over all of those 10 years and part of that has definitely been driven by exports. Pardon me. Now, by farmers actually working together and banding together in a co-operative structure, then they’re actually able to access some of those export markets much more readily and much more easily than if they worked on their own. Sometimes the whole thought of exporting your product and focusing on consumers and what they want and targeting your product to that particular market is quite difficult if you’re just a single farmer. Whereas working together, accessing some of that expertise that a bigger operation gives or a bigger co-operative gives, can actually mean that you are able to access a much better price for your product and also some economies of scale and actually at the end of the day be much more competitive yourself.

Pete Lewis:

Thanks, Fiona. One of the points we made at the outset is that although we are in somewhat uncharted waters, agriculture seems to have just ploughed on. The NFF came out with a very interesting campaign, I think, during COVID-19 saying essentially, “We’ve got your back.”

Fiona Simson:

Yeah. We were really pleased to do it in the space of real panic-buying, people really worrying about whether they were going to have access to enough food to eat in Australia. Not just things like toilet paper but some of our stables like pasta and flour and bread and meat, all the things that people take for granted on a daily basis. It certainly underlined to us how important it is that we keep talking to consumers about agriculture, about how much food we do grow here in Australia and about how lucky that is, and to give back a little bit and put a little bit back into that trust bank.

Fiona Simson:

If I look again at my five pillars, customers and the value chain, incredibly important. We need to keep talking to our customers. We need to keep talking to consumers so that they really understand agriculture in Australia, understand that modern agriculture is a fantastic thing and understand that here in Australia we produce so much high quality good food, that they’re never going to run out of food.

Pete Lewis:

Thanks, Fiona. Look, in a sense, we’re only ever limited by our imagination and money so now it’s time to talk finance. We’re delighted that we’ve been joined by Kevin Franey who’s a partner with Thomas, Norman and Russell in Lismore representing Chartered Accountants ANZ. Kevin, is there anything about the co-operative model that makes it effective for agriculture compared to other models?

Kevin Franey:

Hey, hi Peter. Thanks for having me on today. Yeah, certainly I think as all the other speakers have pointed out today, co-operatives are owned by the members, for the members. I think when you’re comparing a co-operative business model to any other corporate model, e.g. a company, the owners share the benefits rather than the shareholders. The co-operative is there to act for its members. It’s there to gain a competitive advantage and it returns the benefits to the members. Not in the form of share growth or dividends, but largely in the form of reduced prices, reduced production costs, better marketing, better export opportunities. It brings that scale to a group of farmers to allow them to solve their problems collectively. But this-

Pete Lewis:

From where… Yeah, go on

Kevin Franey:

Peter, I think probably the other from an accounting perspective and a tax perspective, the co-operative model provides a distinctive advantage in relation to tax benefits. It’s largely similar to a company tax environment but it allows co-operatives in certain circumstances to gain a competitive tax advantage on their borrowings where the government or the Income Tax Assessment Act allows them to claim a tax deduction for the repayment of debt.

Pete Lewis:

Why do you suppose sometimes the model is not considered? Where is it inappropriate?

Kevin Franey:

It’s a very good question. We’re often asked that a lot. I just think it’s just lack of education. People don’t know enough about the model. I think the Business Council of Co-operate and Mutuals is out there trying to spread the word and make it more known to different people in the sector. I think it’s not taught a lot at universities and schools so there’s a bit of a gap in the education chain there. I guess for a number of farmers, small farmers starting up, it’s a little bit daunting. There’s a few hoops to jump through to get it going. You need five members to get a co-operative up and running.

Pete Lewis:

What are the situations agri-business faces that particularly suit the co-operative approach?

Kevin Franey:

Yeah, look, it varies depending on what part of the world you’re in. But if I take the area that we are in, the Northern Rivers of New South Wales, it’s a relatively big dairy and beef operation area, but smaller parcels of land. So how do we get better economies of scale at a smaller parcels of land compared to other areas? Well, we can band together. We can get together, form a co-operative. A co-operative will drive benefits back to the members in the form of education and, I guess, reduced costs. That can give us a competitive advantage at the end of the day.

Pete Lewis:

In your opinion, what sort of regulatory reforms from an accounting and tax perspective would assist in making the co-operative business model more attractive?

Kevin Franey:

I think there’s been a lot of work done in this area of recent years. The Co-operative National Law has brought a better set of rules for co-operatives throughout Australia. Pretty well all of the states and territories have adopted that legislation now and that’s brought some consistency to regulation and reporting. If I think about financial reporting, it’s really, I guess, a relatively good level of consistency and there’s benefits provided to small co-operatives. If you’re under, say, eight million turnover, four million in assets or 30 employees, your reporting costs significantly less than, say, a large co-operative, no ordering cost, less financial reporting red tape.

Kevin Franey:

On the tax side of things, I think there’s a little bit of work to be done there. It’s quite complex in some cases determining whether you can get deductions for your loans, et cetera. I guess there’s a little bit of simplification there could benefit the co-operative movement.

Pete Lewis:

Thanks very much Kevin, appreciate that. Now we get a look at the, I guess, the risk profile of co-operatives. Emma Thomas from Achmea Farm Insurance has joined us. In 1811, 39 farmers came together in the Netherlands to establish the Mutual Farm Insurance Company. It’s now one of the world’s largest co-operative insurers. Emma, what does Achmea look like today? Particularly, what’s its footprint like here in Australia?

Emma Thomas:

Yeah, thanks, Pete. We were started with those 39 farmers. What they did is come together to solve a problem. They saw the rising incidence of haystack fires and wanted to protect each other. What they did is put money into a glass jar in order to compensate each other in the event that there was a loss that impacted those livelihoods and their communities. But also they came together to share knowledge and make sure that they could share the strategies that help protect those farmers. That global purpose we have today with Achmea is to contribute to a healthy, safe, and future-proof society. We do that through the co-operative principles, community, support, and collaboration.

Emma Thomas:

Now, here in Australia we operate nationwide, based in regional communities. We specialise in farm insurance only and we go out direct on farm and visit every farm that we insure. We do that in order to protect and enhance those communities. We’ve recently launched a Keeping Farmers Farming series to show farmers how they can keep safe during the coronavirus situation, whether it be preparing for bush fires, but as a way to help share and distribute that knowledge, and also provide a platform for our clients to share some of their experiences to other farmers to protect themselves.

Emma Thomas:

I think the thing with co-operative heritage is really that some of the speakers where talking about earlier, is around the alignment of interest between the owners and the communities. Our alignment there is to get farmers back up and running as soon as possible, and we understand that farmers need that to be able to continue to produce.

Pete Lewis:

A couple of years back, ABARES identified that Australian farmers manage significant variability, whether it’s climate or commodity prices, in fact, more so than other farmers around the world and compared to other sectors domestically. From your vantage point, I guess you see that variability firsthand. What are your thoughts on this? Does the co-operative model necessarily assist in building sustainability?

Emma Thomas:

Yeah, thanks Pete. We certainly do see that firsthand as a specialist farm insurer. Over the last two years we’ve experienced seven natural catastrophes, so that certainly has an impact on those farming operations. What we look to do is when we’re out on farms talking to clients, we start with what their risk management framework is and have a good discussion around how they’re managing risk. If some of those risks have a negative impact on the continuity of the operation, insurance can be one of those solutions that they look to. Going back to that co-operative approach, it’s using those innovations that we see, and there’s some good examples coming out of the Netherlands. We’ve got a partnership with a company whose digital risk analysis tool, BlueLabel. What they do is they look at sharing knowledge around how susceptible certain buildings are so that they can become more flood-resistant in future.

Emma Thomas:

Another example, I think would be a good one here in Australia is around solar-powered cars that drive around all day charging up and can come back and plug any excess electricity back into the grid. Now for [inaudible 00:48:15] to do that on harvesters around Australia and out when we play on paddocks for most of the day, being able to come back and have a sustainable business operation that can be put back to run the farm sheets, I think, can support that as well. The other thing that I wanted to say there is the Netherlands is also second on the list in that index around significant variability and I think they also being an export country, we share a lot of the same risks that farmers do here.

Pete Lewis:

Appreciate that, Emma. Fantastic. Now, we’re just about out of time but we do want to tell you a couple of very important things about this Co-operative Conversations as part of the Co-operative Farming, a new online education resource for farmers. Melina, was is the program and how can people access it?

Melina Morrison:

Thanks, Pete. It is exactly as you described. It’s a program of education, of support, information, and most importantly it’s a chance to learn from other farmers, as we have today, about the co-operative business farming model. We’ve got into a partnership with the Commonwealth government to deliver this program for the next 12 months, so it goes until July of 2021. You can apply for an education bursary. You can ask for a farm mentor. You can get one-on-one support and bespoke advice around your collaboration or your co-operative ideas. Online, you can access this great [inaudible 00:50:00] of great resources that are all about learning about the co-operative business model, accessing education resources. The website is coopfarming.coop.

Melina Morrison:

But more importantly, we’ll also be talking to farmers right at the farmgate about how they’re doing these collaborations together and really digging down into the challenges that all farmers and fishers face, could be access to capital, risk and insurance as Emma’s described today, it could be about member engagement or how you govern your collaboration or your co-operative. There’s much about farming and the challenges of farming as it is specifically about how you set up and run a successful co-operative.

Melina Morrison:

To listen to more great stories of farmers growing and succeeding together subscribe to our Co-operative Farming podcast series and  don’t forget to rate us wherever you get your podcasts  it will really help others to find us. I look forward to our next conversation. Remember, in a challenging world we are all “better together”.

• Listen to all podcasts
• Watch the video with Pete Lewis talking with local and international co-op leaders, agricultural experts and farmers debating and discussing the future of farming. Find out why the co-operative business model could be an option to protect our home-grown agribusinesses. Featuring Fiona Simson (NFF), Jimmy Wilson (CBH), Emma Thomas (Achmea), Emma Robinson (Beef Collaboration Project), Professor Mike L Cook (University of Missouri), Kevin Franey (TNR) and Melina Morrison (BCCM).
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• Contact the Meet the Co-op Farmers podcast team