Don’t Merge—Unify! Coops Revisit Combo Vote

The boards of Ipswich-based North Central Farmers Elevator and Aberdeen-based South Dakota Wheat Growers are again asking their members to vote on merging the two cooperatives. The coops mailed ballots to all members on August 29. Members can submit their ballots in person to ballot boxes at each coop’s headquarters by 5 p.m. Wednesday, September 27; to a ballot box at the Eide Bailly office in downtown Aberdeen by 1 p.m. Thursday, September 28; or at the special coop meetings at the DEC in Aberdeen that Thursday afternoon, September 28. (Wheat Growers say their coop meeting is at 3 p.m. on the 28th; North Central says its meeting is at 3:15 p.m.)

Wheat Growers and North Central tried to merge two years ago. Wheat Growers members voted 61% to 39% (1,533 to 995) in favor of merging, but North Central members voted 51% to 49% (809 to 767) against. State law (see SDCL Chapters 47-15 through 47-21, specifically SDCL 47-18-1 and SDCL 47-15-8*) requires a simple majority vote of both cooperatives to approve a merger; thus, 42 North Central members out of 4,104 from both coops voting tanked the deal.

I have no idea how much the coops’ twenty meetings in their service areas, from Eldridge, North Dakota, to McLaughlin, Stickney, and Willow Lake may have moved the needle of member sentiment. An Anti-Merger Alliance lobbied against the 2015 merger online and in the press; a casual search finds no activity on that Facebook page this time and no apparent effort under a different group name.

I do notice, though, one small word choice. This time around, the boards seem to think it is very important not to say the word merger. In their letters to members, statements to the press, and advertising in the Aberdeen American News over the past month, leaders of Wheat Growers and North Central are keen to refer to the merger as unification. In their guest column posted this a.m. by AAN, coop chiefs Rick Osterday of North Central and Hal Clemensen of Wheat Growers say unification nine times. They use merge once, in a pejorative sense against the Big Ag dictators against whom they propose unifying:

There are those few who believe that the proposed unification somehow is anti-competition or will increase costs. Here’s the reality. The producer in today’s local ag economy stands in the towering shadow of several mega-merged organizations that all are intent on dictating the terms for how producers go to market. These profit-driven companies answer to directors elsewhere who have no stake in the performance of individual farmers in rural South Dakota.

To overlook the opportunities and benefits offered by this proposed unification is to ignore the lessons learned over the past 100 years. Unification offers us the best opportunity to step outside of that shadow and pursue the success of all our members. It is producer success that is at the core of why this unification is important [emphasis mine; Rick Osterday and Hal Clemensen, op-ed, “Co-ops: Merger Is for the Common Good,” Aberdeen American News, 2017.09.17].

Goliaths merge; Davids unify—someone must have focus-grouped these words and noticed all sorts of happy twitches at mention of the u-word. Throw in marginalization of the opposition (There are those few…) and antipathy toward outsiders (no stake… in rural South Dakota), and you have a finely crafted South Dakota campaign piece.

AAN columnist Gerald Krueger is apparently one of those few, and he’s not buying the rebranding. Krueger says the 2015 vote should have settled the matter:

“Bigger” doesn’t always solve the problem. What would make the difference if one or both co-ops get bought by some giant conglomerate? They are still too big.

Getting big means the little guys, which includes many of us, just get thrown under the bus. If you’re not big, don’t bother us. And getting too big to manage is always a fear that never really goes away.

…There should be a clarion call to join in the squelching of this really controversial idea. Calling this move a “unification” does not describe this change very well [Gerald Kruger, “The Little Guy Loses in Merger,” Aberdeen American News, 2017.09.17].

Coop members, you have a week and a half to pick your side and submit your ballots.

*Correction 18:53 CDT: I have corrected the statutory citation, which originally referred to the chapter on rural electric cooperatives. However, agricultural coops and rural electric coops are subject to the same requirements: a merger must be approved by majority vote of each cooperative’s members.

17 Responses to Don’t Merge—Unify! Coops Revisit Combo Vote

  1. I don’t hear anybody talking about this one way or the other this time. Not sure which way it will go. Don’t really care. Don’t plan on voting. SDWG hasn’t been a CO-OP for years and is moving further away all the time. Farmers need to get back to the basics on this and start over. I was told by a manager during the last merger attempt that the merger needed to happen to get a better cost position. I heard from the same guy a few weeks later that there’s no way they could beat someone working out of the back of their pickup. Wait, what? Which is it?? The t reason they can’t keep prices down is because they’re too top heavy. They don’t even understand the concept of a CO-OP anymore.

    If farmers were smart they’d start over and form alliances with their neighbors to recreate the CO-OP’s from 100 years ago. Rebuild from the ground up.

  2. Darin Larson

    Chip, I couldn’t agree more with what you said. I will add a few additional thoughts:

    Corporations generally work for the best stock performance for their shareholders–certainly upper management is focused on that. Too many coops nowadays are not focused on the needs of their shareholders–the coop members. They are focused on management salaries and bonuses. They are also not focused on efficiency or customer service to the extent they need to be.

    Competition from other elevators and vendors is generally more beneficial to farmers than being a member of a Goliath coop that doesn’t have any local competition. All that happens is the Goliath coop eats the lunch of the farmer, instead of the farmer benefiting from coop membership. The whole coop model has been turned on its head. Coops used to exist to serve farmers. They used to keep the robber baron private elevators from ripping off the farmer. Now a lot of coops just cut out the middleman and rip off the farmer directly.

  3. Chip, in this case, does widespread voter disinterest translate into an easier time for the Yeas or the Nays?

    NCFE says they have over 2,500 members. That means last time they had around 63% turnout. SDWG claims over 5,400 active members. That means under 47% turnout.

    Chip, I’m intrigued by your suggestion that farmers would be better off abandoning both of these “top-heavy” (Chip’s term) “Goliath (Darin’s term) coops and starting from scratch. Suppose all the Nays from the last vote walked out and formed their own coop (it would be ironic if the SDWG Nays and the NCFE Nays unified in a single rebel coop). They would need to recruit and pay some executive leadership to make the whole operation run efficiently and competitively, wouldn’t they? How much management salary and bonus can they do without while still recruiting quality staff and providing effective customer service?

  4. NCFE attempts to distinguish “unification” from “merger” in a FAQs document posted August 14:

    Cooperatives are unique. Unification of agriculture cooperatives refers to the forming of one new entity, focused on serving its members rather than the needs of its corporate owners. Merger is the term used by corporations and other business entities to describe the legal process associated with combining two companies into one corporation.

    Funny: the state statutes governing cooperatives use the terms merger and consolidation but never unification to describe the legal process on which SDWG and NCFE members are voting.

  5. Also worth puzzling over: Wheat Growers has said that AGP’s new soybean plant in Aberdeen (under construction now; opening 2019) is “great news for farmers in the Dakotas”:

    We anticipate this plant being a very good market for the soybeans we handle, and expect a large portion of the soybeans we will sell will go to this plant. Wheat Growers and their farmer members will benefit from both, better market prices and better patronage streams, with Wheat Growers being one of the member owners of AGP.

    AGP has been a longtime customer, buying beans from and selling meal to Wheat Growers. Wheat Growers is an owner in this federated coop, which is owned by 174* local and regional cooperatives. We have an excellent relationship with AGP, and look forward to helping Dakota farmers utilize this market, as well as, our other markets to maximize their returns on soybeans.

    Yet in its FAQs, North Central, also an owner coop of AGP, cites AGP among a litany of examples of changing market factors that justify revoting on merger with Wheat Growers:

    The most visible changes are lower commodity prices, general downturn in the ag economy and the drought we’re experiencing. But those are fairly usual challenges for producers. This time there’s more at stake. A series of mega-mergers is sweeping across the agriculture community. Consolidations of Monsanto & Bayer, ChemChina and Syngenta, Agrium/CPS and Potash Corp. and Dow and Dupont are limiting the ability of small cooperatives to bring value to their members. We’ve got a new AGP soybean processing plant coming into the market in two years that will change our market dynamics. We’re also experiencing increased competition from large global organizations, as well as from several national and regional firms that all have considerably more clout in the market than we do.

    AGP’s entry into the market increases competition, right? Local farmer coops should need to merge to respond to this market entry, should they?

    *Check that stat! AGP says they have 147 cooperative owners

  6. Cory writes:

    … North Central members voted 51% to 49% (809 to 767) against… thus, 42 North Central members out of 4,104 from both coops voting tanked the deal.

    I have a baccalaureate degree in mathematics, plus some experience with close votes, and I’m pretty sure it only would have taken 22 North Central members, not 42, to change the outcome (i.e. 809-767 against versus 787-789 in favor).

  7. If this merger happen, there will be no going back and forming a smaller coop in my opinion. It takes too much cash to build one of the large unit car train grain facilities.

    NCFE and SDWG are already too large in many people’s opinion. Just because a larger coop could be created, does not mean it can not fail. Actually it is probably more likely to fail as the board members will be less able to keep control over a larger multi-state coop.

    There is a reason why SDWG has so many non flattering nicknames. SDWG membership is also down from a couple years ago.

    VOTE NO!

  8. If I understand correctly, producers can’t sell directly to AGP. AGP is a CO-OP as well and only purchases grain from other CO-OP’s. I’m curious to see where this will end up in the “competition” department.

  9. I see where you’re coming from Scott, but they’re all probably going to be CHS at some point anyways, if they’re not essentially already. And no, a small CO-OP couldn’t afford to build a 110 of their own, but they could definately come to the table with a much larger pile of grain to leverage with. I’m lucky in my area though. I’ve got several different 110s and ethanol plants to haul to.

  10. Kurt, yes, if we assume each vote cast was going to be cast and had to go one way or another, then changing the mind of 22 of those voters would have changed the outcome. However, from a turnout perspective, those 42 voters each made a difference by submitting their votes instead of sitting out.

  11. Scott, do coops have to build facilities like that? Can they provide any useful service to members without such facilities?

  12. I’d written:

    … I’m pretty sure it only would have taken 22 North Central members, not 42, to change the outcome (i.e. 809-767 against versus 787-789 in favor).

    Cory writes:

    Kurt, yes, if we assume each vote cast was going to be cast and had to go one way or another …

    That assumption seems more reasonable to me than an arbitrary assumption that 1,534 of the 1,576 votes were definitely going to be cast exactly as they were cast, but that 42 of the 1,576 might not have been cast at all. (As an aside, there would have needed to be 43 votes in the second category, since a 767-767 tie wouldn’t have changed the outcome.)

    However, from a turnout perspective, those 42 voters each made a difference by submitting their votes instead of sitting out.

    There is no group of 42 (or 43) voters. From a turnout perspective, all 809 North Central members who voted against the merger made a difference, and so did the hundreds of members who could have voted in favor of the merger but didn’t vote at all.

  13. True: win by one vote, and you can’t pick out any one voter on whom to place all the blame.

    But practically speaking, if the pro-merger forces can win this time by getting 43 more NCFE Yeas to cast ballots, getting 43 NCFE Nays to not vote, or convincing 22 NCFE Nays to change their minds.

  14. Cory,

    There are many small coop’s out there providing all kinds of services. Grain marketing thou takes the big coops.

  15. This merger will pass this time, come back in five years and ask the old NCFE producers if they would still vote for it and they will flat say no. I belong to a coop that has merged 4 times. The first two worked well but after that the producer lost big time. The competition is gone and we are left with the lowest grain prices in the area. In the end these mergers never save any money.

  16. We work with one small CO-OP that pays well and has great dividends, but isn’t even on the rail. They’re pretty heavily invested in an ethanol plant, and the rest goes to either a bean plant or the cities to back haul their fertilizer. They don’t have managers of managers like SDWG does.

  17. Cory writes:

    … the pro-merger forces can win this time by getting 43 more NCFE Yeas to cast ballots, getting 43 NCFE Nays to not vote, or convincing 22 NCFE Nays to change their minds.

    Or by getting 11 of each. :-) #Math