Case Study: NZ Truffle Co-operative

By Cooperative Business New Zealand | September 2023
This case study sets out the various actions taken to enable the establishment of a co-operative, using NZ Truffle Co-operative as an example.

What is a co-operative?

A co-operative is a member-owned and controlled business from which benefits are derived and distributed equitably on the basis of use. Co-operatives operate similarly to other businesses but they do have several unique characteristics. These include:

  • They are owned and democratically controlled by their members – the people who use the co-operative’s services or buy its goods, not by outside investors.
  • They return surplus revenues to their members in proportion to their use of the co-operative, not in proportion to their investment or shared ownership.
  • They meet their members’ needs rather than maximising the co-operative’s profit.

Co-operatives follow the Rochdale Principles, which are guidelines by which co-operatives put their values into practice. They are regularly reviewed to ensure they remain relevant by the International Cooperative Alliance. These are:

  1. Voluntary and open membership
  2. Democratic member control
  3. Member economic participation
  4. Autonomy and independence
  5. Education, training and information
  6. Co-operation among co-operatives
  7. Concern for community

Background of the NZ truffle industry prior to the establishment of NZ Truffle Co-operative

At the time of the establishment of the NZ Truffle Co-operative in 2022, several hundred truffle growers were operating across New Zealand, with only a few dozen operating on the commercial scale. The commercial growers were actively competing with each other for market share. The production of truffles had been increasing significantly in New Zealand and price competition in a restricted market was creating turbulence. Exporting truffles and edible mycorrhizal fungi (EMF) was complex, creating challenges for individual growers to manage.

The representative body for the growers, New Zealand Truffle Association, identified the opportunity to assist in supporting this community to navigate these complexities by establishing a co-operative. The establishment of a co-operative would allow the growers to pool their resources, and so would be effective as a tool to mitigate these challenges. In 2022, a group of 25 growers agreed to work together and establish the co-operative to promote co-operative marketing and exporting. 

The establishment required six months of work by the New Zealand Truffle Association to support this community to set up the New Zealand Truffle Co-operative. The co-operative had four fundamental objectives. Firstly, to assist the development of a truffle industry in New Zealand; secondly, to foster co-operation between New Zealand truffle growers and others interested in the industry; to develop a unified approach to the marketing of New Zealand truffles; and finally, to start exporting New Zealand’s truffles to other markets. 

The process of establishing the co-operative business

Over the course of the year it took to fully establish the co-operative business, the New Zealand Truffle Association provided support to a core group of growers in making a series of decisions to determine the company structure and how it should operate.

Given the understanding that the selected business model would drive the business’ strategy, they agreed that the co-operative business model was the best approach. It was understood this would provide them with an outcome that aligned well with their purpose and objectives, as well as providing the best results for the members.

To assist them in this process, the New Zealand Truffle Association approached Cooperative Business NZ for assistance in establishing the co-operative. As New Zealand’s representative body for the co-operative and mutual sector, part of Cooperative Business NZ’s services includes providing support for start-ups. This comes in the form of offering guidance and resources to assist new co-operative businesses to successfully get established. 

As part of successfully establishing a co-operative business, the growers (members) involved had to draft up their company constitution, which is a time-consuming process, as well as elect an inaugural board and company secretary to run the business. A grower underwrote the business NZ$20,000, and the New Zealand Truffle Association’s CEO Lindsay Esler assisted the co-operative members. Lindsay did 300 hours of work to develop the company. This involved determining how much capital was needed. This was decided as $1000 from each member (also known as shareholders), which at the time of its establishment was 22. 

Other practical requirements had to be decided, such as:

  • Company administration, website, and logistics.
  • How to pay for goods and services.
  • Choose if they needed to hire an accountant to handle tax matters. 

Before starting out, they considered alternative business structures, in case one would be more suitable for their business proposal. However, with advice from the Walnuts New Zealand Co-operative and New Zealand Hops on their businesses, and conducting market research, they were inspired to choose and reaffirm the co-operative structure and developed a business plan.

They conducted this process using weekly Zoom calls, with approximately 20 members attending at a time. This ensured they did not overcomplicate the process by having too many attendees. These weekly calls eventually became fortnightly as important decisions were made. To enable introductions virtually, personal profiles were used, and eventually, a working group of six individuals was established, which was far more convenient and thus more productive. 

Following on from these virtual meetings, they created a document to inform potential investors about the business and set up a Google Drive to house all the company’s documents.

Due to Anti Money Laundering (AML) requirements, they opened a company bank account early on in the process. Separate from their constitution, they established a co-operative agreement in an effort to bring on members, and established an education forum to facilitate new members upon joining. 

To go live, the company was registered with the NZ Companies Office under the Co-operative Companies Act where all the shareholders’ details were logged. 

NOTE: There is no more effort to register under both Acts. However, by doing so, the business can utilise the naming convention of calling itself a co-operative in its naming convention. It is able to utilise the Small Co-operative Exemption Scheme which allows for dispensation from undertaking full Tier 1 Audit requirements, along with completing a full Product Disclosure Statement for future shareholders (members), given their subject matter knowledge, thereby significantly reducing operating costs. There is no requirement to register under the Co-operative Companies Act, however in New Zealand given the benefits associated with the model, many businesses register under both. 

Once this was all achieved, NZ Truffle began trading as a co-operative!

Opportunities provided by the co-operative business structure

There are multiple opportunities and benefits provided by using the co-operative business structure. As recognised by NZ Truffle Co-operative, these include:

  • Co-operatives are a worldwide proven business model. 
  • The model supports the scale of the businesses as they start out, and is efficient.
  • Supports price stability for their members (supplier co-operatives).
  • Stability of supply to the consumer (by operating as a collective, they can ensure the stability of supply through the product being supplied from multiple regions and growers).
  • The ability to regularly and consistently supply large volumes to a buyer.
  • Greater resources and infrastructure to support and manage exporting.
  • Longer season due to the geographic spread of co-operative producers.
  • The volume and stability to be a player in the world market.
  • Creation of speciality marketing materials (branding) to maximise market opportunities.
  • Highly sustainable model, with many co-operatives in New Zealand being some of the most successful enduring businesses (the majority are over 25 years in operation).
  • Shareholders own the co-operative and control their own destiny.

As well as creating structure for NZ Truffle growers to operate within, the Rochdale Principles followed by co-operatives are aligned with the 17 UN Sustainable Development goals. These promise to prioritise people, the planet and profit, committing to three core values:

  1. Committing to the development and empowerment of people and communities.
  2. Putting environmental and social impacts at the heart of their business to serve their communities and conserve natural resources.
  3. The co-operative business model is suited to finding new ways to sustain growth in an uncertain and rapidly changing environment.

Challenges faced by the company

Despite these benefits and opportunities, the NZ Truffle Co-operative still faced challenges when it came to establishing itself. As a time-sensitive project, they had to work quickly to establish a constitution and a business model. Furthermore, the truffle community within New Zealand was disjointed, so they had to work together closely to break down barriers and encourage productive growers to become members of the co-operative. 

Truffles are not the easiest product to produce, with the first production taking 4-12 years. Some years, no product is available. To make matters worse, it is difficult to export the product because truffles last only a week or so after harvest.

However, despite these challenges, the co-operative was successful in establishing itself and meeting its initial goals.

NZ Truffle Co-operative’s future outlook

Due to the relatively recent establishment of the co-operative, there is still much to be worked on to continue the success of the business. Originally not a priority due to its high expense, branding has yet to be decided upon, so this is a potential next step to focus on. It was important to create the set-up and scale of the business first, hence why long-term branding has not yet been decided upon.

The co-operative is also inducting new members, and this will continue to be a priority as the co-operative aims to increase its outreach and scale. With new memberships, and thus more funding and the growing size of the business, the ability to reinvest money back into the business with new investments and technology will also become possible. 

The NZ Truffle Co-operative has exciting prospects ahead, which should expand on its original successes and ensure the continuation of the business in the growing truffles market. Hopefully, New Zealand’s truffles will be exported for the first time. 

Appendices

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