(NOTE: Below is the second of a two columns on a now-collapsing, multimillion-dollar farmer-owned cooperative.)
Several years ago, an Illinois organizer for a just-beginning, farmer-owned pork packing cooperative – that later became Meadowbrook Farms and was highlighted in this space last week – asked me to address an informational meeting for 40 or so potential farmer-investors.
Since I had strong views that farmers should not invest in most value-added ventures that compete head-on with billion-dollar global corporations, I agreed.
Not so funny. I opened my remarks with a joke I’ve told to similar meetings for decades:
What’s the first thing two farmers talk about after saying hello?
Answer: Pouring concrete.
A weak chuckle bubbled up, then faded into cemetery silence. Few thought the joke funny because it hit too close to the truth.
Everyone there wanted to do something – anything – to avoid another farm-busting debacle like 1998 when packers wouldn’t buy their hogs despite the insanely low price of $8 per hundredweight.
If that “something” meant building a packing plant to remain independent and, hopefully, profitable, that’s what they’d do. I knew that when I arrived, but I had come to tell them to run as far and as fast as they could from this all-but-doomed effort.
The reasons were many.
Reasons. First, despite what all the farm groups and Land Grant folks say, I told them, you are not pork producers. Smithfield and Tyson are pork producers; they raise, slaughter and package hogs that then are sold as pork.
You don’t. You produce hogs, not ham.
Second, you can become pork producers by building a slaughter plant. If you do, however, understand that your multinational competitors – Smithfield, Tyson, Cargill – make more money in blood than in pork.
In fact, the meat-packing game is all about blood; in short, putting it on the floor faster than anyone else.
Unless you have a billion or so bucks to match their efficiency and scale, in the future some of that blood is going to be yours. But you’re going about it differently, right?
Maybe sell specialty cuts or antibiotic-free meat; perhaps source-verified or exports?
Good ideas, but not new ideas.
Risk. The Big Boys do these things, also, and these niche markets are really commodity markets. You’re in a commodity business, hogs, now. Getting into a second one doesn’t cut your risk; it increases it.
But you’re going to build this plant and, because of this certainty, you should build it state-of-the-art so when it goes broke – and the odds are overwhelming that it will – the plant will be worth 25 cents on the dollar instead of a dime.
The sermon ended with little applause. Follow-up questions and comments made it crystal clear the farmers were going to pour concrete. And they did, building a $28 million slaughter plant in Rantoul, Ill.
Three years since its 2004 start-up, however, Meadowbrook has yet to return one penny profit to any of its original 200 farmer investors.
One penny, ironically, is what the co-op is now paying to repurchase the one-time $900-per-share stock from members who want out. (Those getting out, however, must deliver slaughter hogs – for up to four years – to Meadowbrook in order to leave.)
Unlike Meadowbrook, many farmer-owned, value-added co-ops can, and do, make money.
Sugar beet processing and ethanol co-ops are two handy examples. The underlying commodities for both, however, are subsidized by government price supports and, even better, ethanol has a government-mandated market.
Anyone home? Meat-packing co-ops rarely succeed.
Indeed, as the lead to a 2003 National Hog Farmer magazine story on Meadowbrook, states, “Of the 33 pork producer packing plant endeavors the Agriculture Department was involved with since 1998, Meadowbrook Farms Cooperative is virtually the only one left standing today.”
That bloody record speaks for itself.
(Alan Guebert’s Farm and Food File is published weekly in more than 75 newspapers in North America. He can be contacted at email@example.com.)
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