Alliance Ag & Grain
For years, three full-service co-ops—Right Cooperative Association, Farmers Cooperative Company and Southern Plains Cooperative—competed for members in the same 2,200 square miles of southwest Kansas.
Each co-op had unique assets like specialized storage facilities or access to railways, causing farmers to join more than one co-op at a time.
While this was convenient for farmers, the co-ops struggled to service members efficiently. They ended up forming a loose partnership, in which they shared equipment and delivered grain and fuel on each other’s behalf. Though the partnership ensured good service, it, too, was costly and inefficient.
Farmers were trucking their grain further than seemed necessary to store it at elevators, and co-op employees had to call their competitors for permission to borrow equipment, which slowed down everyone.
In a case of competition encouraging cooperation, the co-ops decided to become one. In March 2016, they formed Alliance Ag & Grain, an LLC that would give them the advantages of working under one umbrella without subjecting them to a new accounting rule that would hurt their bottom line.
Alliance’s CEO, Stan Stark, says the LLC will lead to better service and lower costs for farmers by giving the co-ops more buying and selling power in the grain market, as well as easier access to equipment.
Stark says that moving grain around during and after harvest time is much easier as a single entity because the LLC can transfer grain from elevators in high-yield areas to other locations, keeping the busiest elevators accessible. When it comes time to ship, it can strategically move grain to elevators closest to the railroads.
Joining forces has helped the co-ops outside of harvest as well; Stark says that spraying crop protection chemicals is easier now because the LLC can take its spray rigs from whatever co-op is available and bring it to whatever location needs spraying without having to ask for permission.
“It’s nice to not have to call and ask to use rigs. They’re all of our rigs now,” he says. “This is our first year. Who knows what other benefits there will be next year?”
Why band together?
By forming an LLC instead of merging, the co-ops saved on their bottom line by not having to re-depreciate assets. A 2008 change in accounting rules meant that if they had merged, two of the co-ops would have had to revalue old assets that had depreciated to almost zero. The assets would be reappraised and their value deducted from the new businesses profits.
“In a case where you have a 50 year-old grain elevator that’s depreciated to almost nothing, all of a sudden now it has to be given a value because it’s still being used,” he says. “It makes it hard for us to show a profit because of that extra expense.”
Going into the deal, all of the co-ops retained ownership of fixed assets, like grain bins, elevators and offices, but did have to reevaluate their “rolling assets” such as trucks, tractors and storage tanks which became the property of the newly formed Alliance.
Stark says any facilities built after March 1 will be approved and owned by the LLC, the board of which consists of four members from each co-op.
Putting members at ease
While Stark says members appreciate the savings and service, some are worried about the ramifications.
Agriculture has had a mixed history with consolidation— for the past four decades cooperatives and seed companies have trended toward it as a way to increase buying power and gain stability. But the result, in some cases, is conglomerates that don’t listen to farmers because they have no competition, and so no incentive.
That’s not the case with Alliance, he says. “We’re overloaded with competition,” he says, explaining that Alliance is surrounded by full-service coops that are its size or larger. In addition, several plants and facilities for large, multi-national agricultural processing corporations are located in the heart of Alliance’s territory.
Stark says working together gives the three original co-ops a better business structure through which they can keep delivering local service. In that same vein, he says Alliance is open to having a few other small co-ops join in coming years.
Beyond the dollars and cents, farmers also worry that becoming a corporation means adopting a corporate attitude of quick, impersonal interactions.
“We talk about that internally a lot,” Stark says. “We don’t want to become corporate. We want people to still feel like we’re the same local co-op they’ve always had.”
But it can be hard to grow, work more efficiently and be more competitive, all while keeping a local feel. Stark’s aware of this and says that the only way to make sure Alliance doesn’t lose its sense of tradition is to ask its members for honest feedback.
“We’re going to set up some meetings and focus groups this winter,” he says. “Basically, we’re going to ask patrons, ‘what do you need us to be?’”