Yenda Producers Coop

One of Australia’s oldest continuously operated co-operatives and one of its largest by annual turnover

Interview by Prof Tim Massarol, Centre for Entrepreneurial Management and Innovation (CEMI) - first published in 'Australia's Leading Co-operative and Mutual Enterprises in 2019'

Yenda fast facts (2018)

  • Established: 1925 in Yenda, NSW
  • Turnover: $83.3 million
  • Member businesses: 1,500
  • Employees: 100 full and part-time

The Yenda Producers’ Co-operative Society Ltd (YPC) is one of Australia’s oldest continuously operated co-operatives and one of its largest by annual turnover.

Operating as a group, the co-operative provides a range of professional services and agricultural supplies such as fertilisers, chemicals, biologicals, seeds and hardware.

YPC is a fantastic example of the economic and social benefits that the co-operative and mutual enterprise business model can deliver to regional communities.

…by setting up the co-op the [founders] were essentially setting up their own infrastructure and logistics. This was the same for marketing. The buyers who were there at the time were going to rip them off, so the co-op could be there to help them get their fruit to market, provide packaging and logistics for them.
- Nayce Dalton, Chair, YPC 2019

 

HISTORY AND FORMATION

The town of Yenda is located in the Riverina district of New South Wales (NSW) within the traditional lands of the Wiradjuri Aboriginal people. The hot, dry, semi-arid climate can only sustain relatively large populations and high levels of agriculture, horticulture and viticulture due to its ability to draw water from the Murrumbidgee River system.

The town experienced major growth from 1919 when returned service personnel from WW1 were provided with government assistance to settle within the district on typically small allotments only suitable for small scale dairying and intensive horticulture. Many soldier settlers were undercapitalised, lacked the skills needed for successful farming, and faced problems such as poor soils and drainage.

Throughout the early 1920s the community of Yenda struggled to make a living, forming several co-operatives in order to assist them with the processing and marketing of tobacco, hay, grain and grapes.

However, by 1924 the two most successful of these businesses were the Yenda Producers Ltd, and the Yenda Settlers Ltd that agreed upon amalgamation in 1926. State government support at the time encouraged soldier settlers to join co-operatives, which may explain why the newly merged entity was registered with the Co-operation, Community Settlement & Credit Act, 1923 rather than the Companies Act.

Probably the two drivers were the community’s desire for a better deal, so the community got together to form the co-ops to self-service and on the other side of the coin, many of the existing suppliers and buyers were probably ratbags who were ripping them off. So, the co-operatives were a way of protecting themselves, with one on the supply side and the other on their product sales side.
- Nayce Dalton, Chair, YPC 2019

TIMELINE

20s and 30s
Throughout late 1920s and into the 1930s the YPC and its members battled fires, floods, drought and the financial distress caused by the Great Depression. However, progress was made, and the co-operative expanded into the packing and export of fresh and dried fruit.

World War Two
Following the Second World War (1939-1945) and the arrival of many skilled immigrants from Europe, the prosperity of the co-operative and its members grew. Large-scale farmers were investing in fat lambs and making good profits and small scale horticultural producers were growing stone fruits, (e.g. apricots, peaches, pears, figs, quinces), citrus, vegetables (e.g. tomatoes, beans), nuts and berries as well as producing grapes and fortified wines.

60s, 70s and 80s
The co-operative’s retail operations expanded during the 1960s and further expansion took place through the 1970s and 1980s as a shift into bulk handling and mechanisation from harvesting to storage, processing and packing, increased productivity.

90s
By the end of the 1990s the co-operative operated branch stores in several towns including Leeton and Griffith. YPC acquired a locally-owned stock and station agency and began offering real estate agency, insurance broking and agency in livestock buying and selling, and providing support for water trading, livestock production, motor vehicle and general insurance.

The “Millennium Drought”
The 1996-2010 drought severely impacted the ability of the co-operative’s members to grow their crops and by 2002 rice production had fallen by 50% and was reduced to virtually nothing by 2008. Compounding this problem was the decision by the NSW government to “separate” the irrigation water from the land, essentially pooling the ownership of water rights into a water market.

The semi-arid conditions remain as the critical strategic challenge that has faced Yenda Producers throughout its history:

"Yes, this issue continuously raises its head, particularly when we go into dry periods. On the back of climate change, which I don’t think anyone is seriously arguing that the climate is not changing, with more severe dry and wet, with more unpredictability of weather now common," said Peter Calabria, Managing Director, YPC.

2000s
The combination of drought and low water allocation resulted in the co-operative starting a joint-venture with Riverina Water Engineering (RWE). Based in Griffith, the RWE Yenda Producers Irrigation business commenced trading in November 2004 and has grown to a turnover of more than $10 million and employs around 25 full time and casual staff offering design, installation and maintenance of irrigation systems and a retail outlet for irrigation products and emergency break-down services for customers.

2010s
In 2015 the co-operative formed another joint venture between itself and grain trader Origin Grain to help its members secure access to niche grain markets (YPC, 2019).

At that time, we’d been involved in grain for about 10 years, but we really didn’t have a strong presence in grain. Our focus was on grain transportation and delivery, farm to silo, but nothing else. It probably filled in a bit of the canvas to say, well if we can close a bit more of the loop and offer additional services to the members this would be worthwhile.
- Peter Calabria, Managing Director, YPC

GOOD MANAGEMENT AND GOVERNANCE

“Management and governance are the two factors that have given it the rollercoaster ride since the 1920s. When there has been good management and good governance things have gone alright, but if you get a period of bad governance you also get bad management. Yet that seems to be something that goes back to the 1950s, and there are still fellas today who will tell you something that happened in the 1960s, times when things were very close to failure”  – Dalton.

“During that period, that is the 1950s era, there were a number of unscrupulous people within the Yenda community and there were a number of fires that were essentially insurance claims. These almost meant that the business certainly wouldn’t have survived. However, they found some funds, restructured themselves and maybe kept some good governance for a while…In fact, there was a period when insurance companies would not offer any insurance for buildings in the Yenda area due to what were called ‘Saturday night fires'” – Calabria.

The strong growth that YPC experienced during the late 1980s and through the 1990s was due to a “fairly aggressive” CEO who was willing to take on a degree of risk, and with the assistance of some good seasons, helped to strengthen the business. During that period, the co-operative went through a transformation, from a reseller of products, to a collaborative partner to its members. This involved going out and working directly with the members through the provision of professional advice across the businesses that form the YPC Group.

According to Dalton, this physical “on farm” presence of the co-operative assisted with the process of enhancing member engagement. It “helped to give a sense of ownership to the co-op” within the minds of its members.

However Dalton and Calabria said that during this period the board tended not to question the executive. Since that time the YPC has significantly improved its approach to governance and compliance. Managing Director Peter Calabria joined YPC in 1995 and spent seven years as Company Secretary before taking on the role. Calabria reformed accounting practices, addressed high overtime volumes and improved WHS compliance and policies.

Under its constitution YPC doesn’t have independent directors on the board, but it has widened the gender balance on the board by the appointment of female directors. In addition, the co-operative is taking steps to widen the diversity of the board through the appointment of younger directors. Given the diverse nature of the members’ farming businesses, the co-operative had traditionally sought to get representation on the board from different types of producers, although this was now changing:

“It used to be very much commodity-based with directors from areas such as wheat, sheep, prunes, grapes, etc. However, now we’re looking more at skills.” –  Dalton.

In addition, the co-operative now requires its directors to undertake Australian Institute of Company Directors (AICD) courses within 12 months of their appointment. Now that most of the board has completed at least a short program via AICD, they have, according to Dalton, begun to see their roles differently:'

So, we’ve got everyone through at least the three-day course with the AICD and it has made a real difference. They now don’t see themselves as business advisors anymore.
- Nayce Dalton, Chair, YPC 2019

MANAGING MEMBER DIVERSITY

Since foundation YPC has had a diverse membership base reflecting the varied agricultural, horticultural and pastoral business activities in the region. The membership base includes large corporate farming businesses, which turnover more than $100 million per year, down to individual householders who shop at the co-operative’s retail stores and cultivate their local vegetable gardens.

Total membership 1,500

  • 300 broad acre irrigation farmers
  • 50 dryland farmers
  • 450 horticultural producers
  • 700 members that comprise businesses, residential town-based residents and small-scale hobby farmers

The management of such diversity in the membership base is a challenge for most co-operatives and this is the case for YPC:

“So, we are very mindful of the need to offer everyone something, so in addition to having agronomists on the ground, we’ve also got horticulturalists who go out and advise into cherry crops, garlic crops or grapes and nuts. This might also include animal health advisory, irrigation, corn, cotton or rice production although this can sometimes spread our resources very thin.” – Dalton

YPC covers a geographic area of around 100 km radius from the town of Yenda with facilities and offices in adjacent towns such as Griffith and Leeton. Although the original boards were predominately from the town of Yenda, over the years the co-operative tried to ensure that it had a good representation from all parts of its membership and not too focused on a single town or community group.

This diversity requires the co-operative to invest time in building and maintaining positive relationships with all its members, including larger members:

“Because they’re corporate, they have to justify to the blokes above them and their board why they’re shopping with the co-op. The numbers have got to stack up. So, for us, and for them, part of the drivers are the rebates and the dividends. And for most of these bigger corporates we’re pretty skinny on the margins, and we’ve got to be if we want to keep them.” – Calabria

Even though the profit margins generated by some of this corporate trade are modest, the overall through-put of products such as chemicals and fertilisers helps to deliver better pricing for all members regardless of size. The capital structure of the co-operative is important in this regard. Traditionally, dividends have been paid at a rate of 5% for any share capital, and rebates are paid at a rate of 2% per annum. Both dividends and rebates are paid to members as cash once a member has reached the co-operative’s 35,000 x $1 share limit. This means that most of the value a member will derive from the co-operative is through patronage.

BUILDING AND COMMUNICATING THE MEMBER VALUE PROPOSITION

A critical issue for YPC is the need to get all the co-operative’s staff to fully understand the value the business can offer to members and for staff to be able to communicate this to the membership and the wider community:

“As a co-op we do support a lot of community events and organisations. We do try to be out in the community. Although we could probably do this better, by which I mean that when we are doing this, we let everyone know, without beating our chests, that we are doing it, and that will help to strengthen the overall sense of belonging from our members” – Calabria

Another key point of difference that YPC could identify for its Member Value Proposition is that it is locally owned and managed business that has been a long-term economic and social contributor to the region. According to Dalton:

“There is a huge concentration of ownership in our area of agricultural reselling following the mergers of several large companies. So, this is a point of difference that we can communicate, namely that we are a local and locally owned business, and not one of the big corporates” – Dalton

YPC plans to be more proactive in communicating its co-operative advantage and getting the community to understand the role and value of the co-operative.

THE FUTURE OUTLOOK FOR YENDA PRODUCERS

Climate change and the future of water supply for irrigation is the most important threat facing YPC:

“Climate change and what is going to happen with water is pretty much out of our control, but it is a threat to our business because without water we simply cannot maintain the level of sales and turnover, plus the same level of staff longer term” – Calabria

Other threats include changing demographics within the farming community. As older farmers retire family-owned farms transition to corporate ownership, changing the member relationship:

“Just the changing ownership of farmland too is an issue. Every farm that goes up for sale gets absorbed into an existing one, so we are seeing much more concentration of ownership. What this means is that our top 10 clients will represent around 50% of our income” – Dalton

The co-operative remains optimistic about the future. One opportunity identified by YPC is to get “in-front” of the major things that are shaping agriculture, particularly in the light of water scarcity and climate change. The limited availability of water and the available return on almonds has led to an increase in the production of nuts:

“We need to get in front of what’s changing in agriculture, and what I mean by that is with the water prices where they are and the limited availability of water, new crops like nuts are becoming big and this seems like it won’t go away in the foreseeable future. So, we can see opportunities in these newer areas, particularly if we can be in front of our competitors for a service that’s of value, as well as anything else our members feel is valuable” – Calabria

YPC has a number of strengths upon which to build the future. The co-op has employed a lot of local people and has a recognised name and positive reputation with the community. The diversity of the membership base is also a strength helping to spread the risk across a broad range of members.

Visit yendaprods.com.au

An extended version of this case study is presented in T Mazzarol, Australia’s Leading Co-operative and Mutual Enterprises in 2019, which is part of the CEMI Discussion Paper series. You can access the full discussion paper from the Centre for Entrepreneurial Management and Innovation website.

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