blog

Out with the old

Tue, 17 Nov 2009 23:20:00 +0000

After winning the prize for Most Improved Publication in the 2009 Cooperative Communicators Association competition for the redesign of Cooperatives News, an interview with CCA News editor Lynette Alcorn for their member newsletter is now online.

You can find it at
http://www.communicators.coop/CCA/subpage.aspx?cmid=MiwyMDUsMA==

Here are some of the judges' comments on the new design:

* Clean, fresh, contemporary look
* Colorful without being distracting – I love the blue and green
* Beautiful, sharp photos (even desk or meeting shots – which are usually boring -- are done well)
* Font selection gives this an attractive, professional feel – more credible than the old
* Nameplate – modern and appealing
* Efficient use of page space – feels open, but not jammed
* Good use of white space makes it more readable

Here's what they said about the text:

* Fresh, concise
* Brief
* Good use of bylines – increases the “ownership” and build credibility with readers

And their overall view of Cooperatives News was

* Great variety
* Good use of calls-to-action
* Topics of interest and value to most readers
* Easy for readers to engage and see the value of items and how they can use it

What are your views on the Association's newsletter?

VINZ members were correct to demutualise

Sun, 08 Nov 2009 03:30:00 +0000

That this heading may not be a popular statement among cooperators I realise, however...

Set up as an investor-owned firm in 1995 by vehicle importers to inspect used vehicles coming in from overseas, Vehicle Inspection New Zealand converted to a cooperative in 1998.

The cooperative structure was eminently suitable for the group of motor vehicle traders who used the services of VINZ as and when the boat came in, who bought the co-op’s services and received an end-of-year rebate according to how well the co-op had performed and how many vehicles they had each had inspected.

While waiting for the boats to come in, the inspection centres needed to be kept busy with other work, so they started to offer COF and WOF tests on passing vehicles, which were in the main owned by non-members.

Over the years, casual testing at the VINZ network of testing stations grew, contributing significantly to the co-op’s turnover, to its profit, and to member rebates.

As stricter regulations were introduced, the market for used imports started to dry up, which meant many members were importing less.

They could see their co-op starting to move away from them, with the likelihood of having their member shares returned to them if they were dry.

And if they weren’t putting vehicles through the co-op, then they weren’t getting a share of the surplus being created by the other work.

Demutualisation was not just on the cards but inevitable. It was the right thing to do.

VINZ members now have investor shares, and while it will still be inspecting the trickle of used vehicle imports, it will be better positioned to take on some of the other players in the market for other work.

The lesson? Cooperatives work brilliantly when the activity they conduct is a cooperative activity.

The VINZ board could see that to survive the co-op needed to diversify, did so, and the members thanked them for it.

With the demise of the original cooperative activity, members saw the need to change the structure of their business and did so. Quite rightly.

I wish them success in the future, and wonder what other co-ops might arise within the motor vehicle industry – emission testing perhaps?

– from the August/September 2009 Cooperatives News

Comparing apples with apples

Tue, 29 Sep 2009 03:40:00 +0000

As a small child, I read the Daily Express my dad brought home from work avidly, to begin with spreading the broadsheet on the ﬂoor and kneeling on it because I wasn’t big enough to hold it.

The voice of Canadian Max Aitken (later 1st Baron Beaverbrook), I remember scratching my head when the paper would contrast “democracy” with “communism”, as this to my young mind was not comparing two similar things.

Surely, I felt, they should be comparing either capitalism with communism as economic systems, or democracy with totalitarianism as political systems.

What brings this to mind? One sign, I believe, of a successful cooperative is the way it communicates with members. CRT does this excellently with their monthly magazine CRT Agline.

During this year, they have been running a superb series of articles in CRT Agline in which directors explain what co-ops are and how they work.

The July article, “Cooperative versus corporate”, however, got me thinking. The content is superb but the title does not compare apples with apples: a cooperative is an economic entity which can be large or small, while a corporate is actually a form of social structure, generally large.

The comparison should, I feel, be between cooperatives and investor-owned ﬁrms.

A corporate I understand to be a large business, which could be compared with small and medium entities.

There’s no doubt that comparing co-ops with investor-owned ﬁrms gives a very real understanding of the beneﬁts of the cooperative and mutual business model.

Comparing cooperatives with “corporates”, though, muddies the water.

I hope they put this excellent series of articles on their website at www.crt.coop for all to access.

– from the August/September 2009 Cooperatives News

Sulphur Jack's Son

Tue, 29 Sep 2009 03:34:00 +0000

Ravensdown sales rep Mike Davey’s father was known as Sulphur Jack to his work colleagues who alleged there was no blood in his body, just a potent blend of adrenalin and fertiliser.

Interviewed by the Taranaki Daily News on 30 April, 2009, Mike tells of following his father into the fertiliser industry as a sales rep, starting with investor-owned New Zealand Farmers’ Fertiliser in 1965.

The two businesses might sell similar products but it’s how they treat the farmers that shows they are light years apart:

“...there is a marked difference between working for a corporate and a cooperative, says Mr Davey, who recalls a dramatic change in culture when Ravensdown [the cooperative] bought out New Zealand Farmers’ Fertiliser [the corporate, or investor-owned ﬁrm] in 1998.

“In my father’s day with New Zealand Farmers’ Fertiliser, it was basically a distribution industry. Today, it’s totally different,” he says.

“We actually recommend the right product to suit individual situations and if the farmer concerned doesn’t need fertiliser, we will advise them accordingly.

“The farmer is our prime concern rather than the sale. It is a complete reversal to what it was back in the 1960s.

“I have been with Ravensdown for 11 years and the philosophy is completely different. I had come from a corporate background and it wasn’t easy to adjust.

“Under the old regime the aim was to get as many sales as we could. With this company that is not the case because every farmer is our shareholder.

“It was difficult for a start, but I actually buy into that philosophy because if a farmer doesn’t need fertiliser then I think the professional and prudent thing is not to sell it to him.”

Have you seen a clearer understanding of why people decide to be part of a cooperative?

– from the June/July 2009 Cooperatives News

Bank report on rural co-ops proves sadly lacking

Tue, 29 Sep 2009 03:27:00 +0000

In his eight-page report A Financial Commentary on New Zealand Rural Cooperatives, National Bank rural economist Kevin Wilson demonstrates an understanding of cooperatives which might not be shared by co-op members.

The title entices. Finally, it seems, mainstream economists are taking cooperatives seriously. It will, however, sadly disappoint those who are co-op shareholding members.

The author examines publicly available information on nine significant cooperative businesses: Fonterra, Westland, Tatua, Silver Fern Farms, Alliance Group, Ballance Agri-Nutrients, Ravensdown, CRT and Farmlands, dividing them into what are described as four “natural groups”:

● dairy – Fonterra, Westland, Tatua
● meat processors – Silver Fern Farms and Alliance Group
● fertiliser manufacturers – Ballance Agri-Nutrients and Ravensdown
● merchandise cooperatives supplying farm inputs and services – CRT and Farmlands

On the surface this appears logical, but actually is not useful in understanding what motivates people to join and, more importantly, continue being involved with them, and why they are so successful.

To better understand what drives these nine businesses they should be seen as either producer co-ops or purchasing/shared services co-ops.

● Producer cooperatives are owned by those who produce similar types of products: farmers who milk cows, raise sheep, deer and cattle, or grow crops, or by artisans and craftspeople. By banding together they are able to leverage greater bargaining power with buyers. They also combine resources to market and brand their products more effectively, improving the incomes of their members.

Dairy co-ops Fonterra, Westland and Tatua along with meat processors Silver Fern Farms and Alliance Group are the producer cooperatives examined in this report.

● Purchasing and shared services cooperatives are owned and governed by independent business owners who join together to enhance their purchasing power, lowering their costs and improving their competitiveness and ability to provide quality services. They operate in all sectors of the economy.

This accurately describes the fertiliser and the farm supply co-ops. At the same time it describes a large number of non-agricultural co-ops, such as Orb Communications, Mitre 10, Independent Timber Merchants and Foodstuffs.

Putting these nine cooperatives into two rather than four groups would therefore permit us a far clearer understanding of their performance.

I would also criticise the author’s use of profitability as a measure of performance for cooperatives.

Unlike investor-owned ﬁrms (IOFs), cooperatives are not profit-maximising entities. They need to make a fiscally prudent level of profits and allow for sufficient retained earnings, but more than that and they would not be serving their members well.

As evidence of this, I’d hazard that while many New Zealanders know Fonterra’s milk price, very few indeed would be able to say how much profit the cooperative made in any given year. It’s just not a relevant statistic.

For co-op members, aside from the level of payment for what they produce or rebate on purchases, the best measure of performance is to look at what is happening in the market place outside the co-op.

Look, for instance, at the competition between farm supply businesses in South Canterbury – between co-op and co-op, and between co-ops and IOFs. This is not something that is easily measurable.

Also, IOFs maximise profits by externalising costs, worrying less for instance about pollution than would a locally-owned cooperative which is part of a community, and which has a direct interest in not messing up their own back yard.

So why has this report been produced? At a guess, because as The National Bank is New Zealand’s largest rural bank, their owner, Australia’s ANZ Group, are concerned about how much money they can repatriate to fatten a precarious balance sheet.

(ANZ National Group proudly claim on their website that, based on their proﬁts and assets, they are New Zealand’s largest company.)

This document is thus best understood as a moneylender’s risk analysis. In the current financial recession, the risk from lending to a cooperative is clearly more political than financial, seeing as a bank has the ﬁrst call on the co-op’s revenue while the owners who transact iwth it are unsecured creditors.

Let’s face it, with Fonterra’s milk payout being in the region of $10bn, there is, in reality, little or no problem for the banks.

A realistic examination of the financial risk from these cooperatives would show that they are likely to survive with their assets more or less intact long after individual farmers who own the co-ops go under, in particular those at the margin who find it more difficult to survive in this recession.

Should you read this report? Most deﬁnitely. It could in fact usefully be discussed by co-op members in small groups.

However, as well as analysing annual reports and financial statements, a useful exercise in itself, this report shows that your cooperative businesses remain, sadly, misunderstood.

Download the report from
http://www.nbnz.co.nz/rural/information/ruralreport/pdf/200903.pdf.

– from the April/May 2009 Cooperatives News

Irish dairy farmer’s scathing comments on NZ co-ops

Tue, 29 Sep 2009 03:12:00 +0000

Writing in NZX AgriFax, Irish dairy farmer and Nuffield scholar Jason Rankin had strong words for what he found in New Zealand cooperatives:

“One of the major items on my agenda was to find out ways of releasing the value of the wealth of my own cooperative, which is barely expressed in the nominal shares… In the end I left New Zealand with a far different set of conclusions than I thought I would when I arrived.”

He continued, “I have to say that among the senior ﬁgures in the industry many have a mental image problem with being involved in a cooperative. A common attitude is ‘We are a co-op because we are owned by our suppliers/customers but in every other regard we operate like a PLC.’ They see cooperatives as being wimpish and socialist and somewhat running against the grain of the New Zealand free enterprise spirit.”

Could it be that what he has observed are cooperatives acting as profit-maximising entities with the stated aim of distributing profits to members as rebates?

Given that the members of most NZ co-ops are themselves profit-maximising entities, they may of course not see anything wrong with this.

However, the relationship between a cooperative and its members – its suppliers or its customers – and that of an investor-owned business and its suppliers and customers is quite different, Jason might argue.

Investor-owned businesses buy cheaply and sell dear, the difference supplying the profit that investors ultimately receive.

Cooperatives either buy dear and sell dear, or buy cheaply and sell cheaply with the intention of making a profit of course, but not maximising profits.

He concludes his article: “the real value of a dairy cooperative is to secure the best price it can for its members’ milk this year, next year and in ten/twenty years’ time…

“Allowing retiring farmers to take far more money out of Fonterra then they ever put in, while creating enormous hurdles for new entrants, is simply unethical. While it itself is only a few years old, Fonterra is a culmination of decades of hard work by generations of New Zealand dairy farmers.

“Perhaps we should think as they did and treat our cooperatives not as something we inherit from our fathers, but rather borrow from our children.”

– from the October/November 2008 Cooperatives News

Why cooperatives thrive

Sat, 20 Dec 2008 07:00:00 +0000

Found on the U.S. National Cooperative Business Association website at www.ncba.coop, the following tips on how cooperatives are successful have been gleaned from articles that first appeared in the NCBA's CBJ Cooperative Business Journal, and the U.S. Department of Agriculture's magazine for cooperative business, Rural Cooperatives.

● providing only the goods and services members use

● ﬁnanced by the members – the greater the ﬁnancing (risk capital) supplied by the members, the more efficient the cooperative

● using all major ﬁxed assets at the 75 percent level, or more

● members who do the majority of their business with the cooperative

● low administrative and overhead costs

● more individualised and specialised services, particularly in the marketing area

● maintaining an open line of communication with members – individual members will then become more inﬂuential

● selecting and developing a quality management team

● placing more emphasis on electing business-oriented directors

● developing and implementing a systematic method of cooperative education for members, employees, directors and paid management

● aggressively positioning for changes in operations, markets and member needs.

What are your thoughts? What makes your cooperative successful? Post your comments.

How cooperatives fail

Sat, 20 Dec 2008 07:00:00 +0000

Also found on the U.S. National Cooperative Business Association website at www.ncba.coop, the following tips on how cooperatives have failed were gleaned from articles which first appeared in the NCBA's CBJ Cooperative Business Journal, and the U.S. Department of Agriculture's magazine for cooperative business, Rural Cooperatives.

● poor selection of directors, especially those who fail to support their cooperative

● members who join but never use their cooperative and bypass it for a small gain elsewhere

● members who use cooperatives but fail to take responsibility – each member must be ready to accept responsibility when asked, or as the need arises, and every member should have an equal opportunity to be chairperson of the cooperative

● members who never ask questions and who let a few persons make policy

● members who don’t attend annual meetings and directors who fail to attend board meetings

● lack of consistent membership education about the problems cooperatives face and the challenges they must meet

● not supporting the cooperative with enough money (risk capital) to get the job done

● low-cost management – it’s the most expensive item for a cooperative, while high-priced management is usually the least expensive item

● not closely watching the formation of cliques and special interest groups within the cooperative

● concealing facts about a cooperative; all facts, both good and bad, should be placed on and not under the table

● errors in financial policy, such as over-extension of credit, too little capital, poor accounting records, lack of a financially sound, systematic programme for reimbursement of equity

● errors in educational and social work – this begins by failing to teach cooperative ideals to members unfamiliar with how cooperatives function, neglecting general educational programs, failure to develop member loyalty or countering the development of factions within the co-op

● management errors, such as inadequate inventory, poor location, improper equipment, neglected appearance of physical facilities, employee dishonesty, ineffective management, incompetent directors, nepotism, poorly conducted meetings, admittance of disloyal and dissatisfied members.

So, what are your thoughts about these? What do you think makes a cooperative fail? Post your comments.

Cooperatives as religion?

Wed, 13 Aug 2008 04:03:00 +0000

At the evening meal after one of the recent cooperative education workshops, Orb Communications director Chris Haunton made an interesting comment: he talked about how the tone of some of that day’s seminar reminded him of Sunday School.

What brought this to mind, he said, were the points that were being raised about the ethics and values that make a successful cooperative business, successful. This, Chris felt, was not the usual language of business.

These comments set me thinking. From time to time, I come across a cooperative “believer”, an upholder of a faith in cooperatives that mostly they don’t express well and often are unable to rationalise. They just “know in their hearts” that co-ops are the appropriate form for whatever business they’re doing. Some have a dogmatic belief that cooperatives are inherently infallible, forgetting that they’re run by humans.

Funnily enough, there is a religious group which includes cooperatives among its three main tenets – Proutist Universalists – the other parts of their trinity being spirituality and self-restraint.

Getting back to Chris Haunton’s comments, what is it about cooperative business that makes ethics and values important, I wondered?

The answer I came up with – and tell me if you disagree – has to do with the way that a co-op operates in the market in relation to its members. It’s about proﬁt: how it’s obtained, and who gets it.

Investor-owned businesses are proﬁt-maximising entities, buying cheaply and selling dear. Part of this margin provides investors with their dividends, so it’s in their interests for the company to buy as low as possible and sell as high as possible.

A cooperative, however, either buys cheaply and sells cheaply, or buys dear and sells dear. It needs to make a proﬁt to stay in business, so it is a proﬁt-making entity, but it’s clearly not proﬁt-maximising. These proﬁts are then distributed to members according to their participation in the cooperative, effectively reducing even further the margin between buying and selling.

It’s from this relationship to proﬁt that the need arises for cooperatives to behave ethically and have a set of values which members know to be appropriate for their relationship with the co-op they own. As an aside, whether the type of business the co-op does is “ethical” in the modern sense of “ethical business” is another story.

However, given that the members of most New Zealand cooperatives are businesses themselves, this means that proﬁt-maximising entities are members of a proﬁt-making entity. Confused? I was for a while. Actually, the relationship is quite straightforward.

This perhaps explains why those with a desire to demutualise a co-op sometimes find it not so difficult – they simply appeal to the member businesses’ proﬁt-maximising instincts, without pointing out that the fundamental basis of their cooperative is quite different.

Association chairperson Peter Macdougall tells of a farmer acquaintance who chides him and other co-op members as being “communists”. Could the way that successful co-ops have a focus on values and ethics not only explain Chris Haunton’s perception of the seminar but also explain this farmer’s sad misunderstanding?

Adding your two penn'worth

Sat, 12 Jul 2008 17:53:00 +0000

This is the executive director's space to comment on cooperative issues. In short: a blog.

Approved members or approved employees of a member cooperative of the New Zealand Cooperatives Association, are invited to contact us with a request to be issued with a username and password. This will give you access not only to the blog but also to the member area of the Association web site.

In addition, the Association's executive director has the discretion to allow people who are not approved members or approved employees of a member cooperative of the Association access.

All comments are mediated; we reserve the right to allow or disallow comments. You are expected to identify any comments you make with your full name. This is not a place for anonymous commenting.

The Association's site now uses a content management system called Silverstripe. Developed in Wellington this CMS will not only make it a lot easier for the site to be updated but eventually allow members to contribute more content – this is what Web 2.0 means.