A federal bankruptcy court this week gave Farmland Industries the go-ahead for reorganization under Chapter 11 bankruptcy laws. The nation's largest farmer-owned cooperative is moving fast. In addition to closing 16 convenience stores in Arkansas, the company is using some $300-million of "debtor-in-possession financing" to keep its business running.
The high-profile bankruptcy filing sent shock waves through the Heartland. Some analysts view it as a wake-up call for the farmer-owned cooperative. To others, it's merely emblematic of the changing face of the industry.
In the 20s and 30s, farmers banded together to increase their buying power and take greater control of the sales of their raw commodities. Over time, the role of rural cooperatives has changed. Most have become full-service operations supplying everything from cement to soy-diesel fuel.
The first cooperatives reflected the makeup of their member-owners in the surrounding community. Today they tend toward either small niche' operations or large conglomerates where the home office could be several counties away.
Gary Alberts is a consultant with the Iowa Institute for Cooperatives.
Gary Alberts, Iowa Institute for Coopertives:"For the most part I think it's been a good move, we needed more volume through facility, we had facilities in Iowa that were somewhat depreciated out and not of much value, rail lines for grain movement depending on where those rail lines were, some of those rail lines have disappeared in Iowa. That made moving grain to the nearest rail, that promoted some acquisitions or mergers. I think it's all in response to everything getting larger, farmers getting larger, equipment getting larger, the competition getting larger. "
One advantage cooperatives have over other conventional corporate entities is the ability to be more flexible in taking advantage of new business opportunities. This ability does have its downside, as in the case of Farmland, where investors want more cash from the co-op than is available for distribution. Even with the possibility that debt loads could overextend the business temporarily, experts believe the value of cooperatives has not diminished.
Roger Ginder is an economics professor at Iowa State University.
Roger Ginder, Iowa State University:"Well, yeah, I think it's still very much in the choice set of farmers and it does offer some advantages in some situations certainly. If we look at Iowa farmers I think by and large they're very cooperative minded and have used cooperatives to very large extent."