NOTE: Below is the first of a two columns on a now-collapsing, multimillion-dollar farmer-owned cooperative. While I don’t like “series” stories, this tale and its lessons simply cannot be told in one, 600-word column.
It’s a story nearly as old as Cain and Abel, those Biblical brothers whose farming partnership ended badly.
It goes like this: Farmers, tired of getting bloodied by cheap commodity markets, form a “value-added” processing cooperative to capture the wholesale and retail dimes and dollars they believe agbiz is raking in.
They put up millions for stock, agree to commit some or most of their production to the co-op and borrow millions more to pour concrete.
Problems. Problems – they’re producers, after all, not processors – crop up immediately, and any hoped-for added value often goes to fund weak cash flow. The next few years bring little change, but co-op members remain true; they delay patronage and accept reduced prices to, hopefully, hang on until their baby walks.
Finally, after three or so losing years, members, not the baby, walk. The loss of their equity and cheap throughput puts the co-op into an even steeper downward glide.
All the above has occurred often in farm country and is occurring again at Meadowbrook Farms, an Illinois-based, farmer-owned cooperative pork packer founded by 200 or so hog farmers after the $8 hog market disaster of 1998.
In interviews with more than a dozen Meadowbrook members, all say they now rue the day they joined the cooperative and all request anonymity for fear their co-op will sue them into silence.
Beginning. Good intentions. That’s a long way from where everyone started in 2002 when several efforts to start value-added co-ops across Illinois melded into Meadowbrook Farms.
Soon, plans were drawn to build a 3,000-head-per-day, state-of-the-art hog slaughtering plant in Rantoul, Ill.
The 200 or so mostly Illinois members (a handful were from surrounding states) purchased $13 million, or an average $65,000, in stock that also committed them to send upward of 750,000 hogs per year to Meadowbrook.
Another $20 million, backed by U.S. Dept. of Agriculture guarantees, was borrowed commercially.
In 2004, the newly-constructed $28 million plant killed its first member-owned hog. From the get-go, however, members were paid less – usually $20 per head less – than “open” market price to underwrite the co-op.
“That $20 per head hit was a lot,” says one member now, “but I thought it was worth it to run our own plant and not be beholding to the Tysons” – giant meatpackers – “of the world.”
Two years of mostly less-than-market payments and no patronage, however, sparked unrest.
Downward spiral. In 2006, more than three dozen members, representing an estimated 20 percent of the plant’s contracted hogs, notified Meadowbrook they wanted out.
The co-op responded by suing the disgruntled members in federal court.
“What kind of co-op sues its own?” asks a different member.
“That made me take a hard look at what I’d gotten into.”
What he had gotten into, he admits, was “a deal that’s cost me over a half million dollars in five years;” the total of his stock investment, increased production costs and hog income lost by not selling to an at-the-market packer.
“Joining Meadowbrook was the stupidest thing I’ve ever done.”
He’s not alone. Another member, speaking off-the-record, said his family hog operation is $1 million upside down “in just three or four years with Meadowbrook. It’s the worst decision I’ve made in my career.”
Looking back now, he added, “We made a big mistake. But the idea of owning our packing plant and selling meat instead of pigs was very attractive; still is, really.”
Disagree. I strongly disagree for several reasons – reasons I outlined in an address to 40 or so potential Meadowbrook investors when co-op organizers were shaking the money tree several years ago in Illinois.
More on those reasons, and Meadowbrook, next time.
(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.)