As the issues outlined above became apparent, groups have sprung up across the country attempting to innovate on the cooperative model. One of these efforts took the form of the New Generation Cooperative (NGC), which evolved the cooperative model in a number of key ways. Spurred on by low commodity prices during the Farm Crisis, NGCs worked to establish enterprises higher up on the value chain, including meatpacking, sugar refining, pasta manufacturing, and even ethanol production. By establishing farmer ownership over these enterprises, they could capture additional revenue that is normally appropriated by other players in the market.
Moreover, NGCs modified the legal structure of cooperatives to encourage the raising of capital. Unlike traditional cooperatives, shares in NGC’s are closed, non-redeemable, and transferable (Grashuis and Cook, 2018). This means that only a set amount of shares can be in circulation at a time, you can’t cash it in to have your equity returned, and you can sell it to other farmers if you wish to exit the enterprise. Additionally, possession of a share is what entitles you to sell your crop to the cooperative, with the amount defined by the number of shares you own. For example, one share may entitle a farmer to sell one bushel of grain to the cooperative. By linking delivery and ownership rights and requiring more commitment to withdraw, this model encourages more investment from members and keeps them engaged with the enterprise.
The NGC model has shown mixed successes. 23% of NGCs from the “cooperative fever” era of the 1990s survived to 2018 (Grashuis and Cook, 2018). Modes for failure were mundane: bankruptcy, dissolution, and takeover. A few NGCs converted into traditional LLCs, rejecting the cooperative structure to allow members an easier avenue to cash out and to open new opportunities for non-farmer investment. Unfortunately, many NGCs couldn’t outrun the persistent issue of constrained capital.
Another model attempted to resolve the investment issue – the Limited Cooperative Association (LCA). This cooperative form has two types of members, farmers and investors. By bringing in non-farmers, kept in check by a stipulation that a minimum of 50% of profits must go to farmers, more investment could be brought into the business, resolving the equity issue (Grashuis, 2018). While more obscure than the NGCs, this model seems to have had some success in building specialty enterprises, such as cranberry processing or specialty grain milling. While the model doesn’t seem particularly optimized for commodity crops within well-developed markets, it has found its niche in supporting the commercialization of crops in less sophisticated markets.
Add new comment