Why Market Collaboratively?

There are many ways you can benefit from working with other producers to market what you produce. Following are some common benefits drawn from the experiences of collective marketing organizations here in Minnesota.

Take advantage of size economies

Often, though not always, you can enjoy significant cost savings or command a higher price by marketing a larger volume of product. For example, the 16 members of Central Minnesota Buckwheat Growers formed their cooperative in order to market buckwheat directly to larger buyers in semi-truck loads at a substantially higher price than they could receive marketing smaller quantities individually.

Maintain a steady flow of product

Having your product available at the time your customers want to buy it is essential for successful marketing. Even the best product will quickly lose market share if it is not reliably available. This is true whether you sell directly to customers or into wholesale channels. While a single producer may not be able to maintain a steady flow of product, a group of farmers working together can extend the time their product is available and smooth out the flow in order to minimize periods of shortages and oversupply. This is one of the goals for the members of Apple Crisp Cooperative as they market premium-grade apples to Minnesota retailers.

Preserve an existing market

As the structure of agriculture changes, many are concerned about the disappearance of local markets. In West Central Minnesota a major packer closed a buying station in Dawson that had provided a place for producers to sell small loads of hogs. With no market for their hogs, small farmers in the area were losing an enterprise that allowed them to add value to the corn they produce. Working with the National Farmers Organization (NFO), a group of farmers formed an informal network to keep operating the Dawson buying station. In effect, they assumed costs that were once borne by the packer. While the buying station would not be profitable as a stand-alone business, the benefits farmers gain from working together to keep it open outweigh the service fees they pay to fund the operation.

Create a new market

There are two sides to every market - suppliers who offer a product for sale and customers who offer to buy it. Sometimes potentially viable markets fail to develop if a minimum volume can’t be reached. For example, growers can profitably produce fast growing hybrid poplar trees as a source of wood for paper manufacturing at pulp wood prices that are also profitable for paper manufacturers, if a paper plant is located near the poplar stands. But farmers will be reluctant to commit land that could be used for other crops to long-term tree production without some assurance that there will be a market for their trees when they mature, and a paper manufacturer will be reluctant to build a new processing facility without some assurance that there will be an adequate supply of trees to keep the plant operating. The Minnesota Agro-Forestry Cooperative was established to make a market for hybrid poplar trees possible in Central Minnesota. "The paper manufacturer will build a plant to process the Cooperative’s wood if we agree to supply 100,000 cords (2,500 acres) of wood per year," says Minnesota Agro-Forestry Cooperative board member Joe Dooley. "We figure that if we can recruit 50 members annually who plant at least 50 acres of trees, we’ll be able to fill short-term market needs while building long-term market prospects."

Gain access to knowledge and professional expertise

New product development can be a key to adding value to farm production, but it is costly and risky. It requires an understanding of systems that guarantee raw product quality, processing and packaging technology, logistics and distribution systems, and trends in consumer preferences. Acting independently, farmers have little incentive to make the investments required to access this knowledge and expertise. Working together, they can pool resources for activities that will enhance marketing opportunities for everyone. This was a key reason for the establishment of Prairie Lamb Cooperative, which has used internal resources and grant funds to hire experts from the U.S. and Great Britain to help them develop and introduce new products that can dramatically increase demand for lamb.

Increase bargaining power

Farmers have long used cooperatives and other forms of collective organization to increase their bargaining power in input supply and product markets. Increased bargaining power is a long-term goal for the Dawson Buying Station Network - a CMG made up of 20 hog producers in cooperation with the National Farmers Organization (NFO). Producers deliver hogs once each week to the buying station and NFO negotiates with several packers for the best price. As membership grows, opportunities for negotiating more favorable prices also grow.

Promote a product line

Whole Farm Cooperative in Central Minnesota markets meat, cheese, produce, and craft items from 25 families under a single label. They produce and process individually but market collaboratively by sending a single monthly shipment to a growing list of customers in the Twin Cities. The label makes it easier for customers to identify individual products with a common philosophy and commitment to quality.

Access a broad, diverse customer base

The St. Paul Growers Association was established in 1852. The St. Paul Farmers Market is a community attraction that promotes and educates urban consumers about agriculture in Minnesota. For well over a decade, the Association has drawn new members from immigrant communities. In 1998, Association membership rules were altered to open up membership to any grower in Minnesota. The intent of these changes was to attract a broader, more diverse customer base by offering a wider variety of products.

Challenges to Working Together

hile there are many benefits to be gained through collaborative marketing, there are also challenges that make it difficult to work together. Recognizing potential roadblocks to collective action can help your group work through these challenges.

Lack of a common mission

Shared objectives and common interests are the foundation for most successful groups. Significant differences in objectives and conflicts of interest can keep a CMG from forming; failure to maintain a common mission can cause a once successful CMG to fail. For example, even though they have common values and depend on each other, it may be difficult for organic milk producers and organic grain and forage growers to form a single collaborative grain and forage marketing/purchasing organization if the objective of each group of producers is simply to get a more favorable price for grain and forage.

Lack of commitment

Collective marketing organizations often form at times when market prices are low or market access is limited. Because markets for agricultural products are cyclical and are constantly evolving, there will eventually be short-term benefits for some members to market outside the collective organization. This can threaten the long-term viability of the group marketing effort. For example, a group of farmers that has negotiated a long-term contract to supply a customer in return for a fair, stable price may not be able to meet its contractual obligation if members withhold their production when short-term market prices are high. As a result, a long-term benefit for the group may be lost.

Barriers to entry and exit

In order to avoid problems caused by lack of commitment, an increasing number of CMGs are relying on legally binding supply agreements from their members. Often these are linked to equity investments in the organization with shares corresponding to delivery rights/obligations. Usually, delivery rights are limited so that the supply of product corresponds with market size or processing capacity. When these organizations are very successful, share prices can increase and it may be difficult for new farmers to buy them. On the other hand, when they are not successful, it may be difficult for a member who wants to leave the group to find a buyer for his or her delivery rights/obligations.

Costs of group decision making

As the size and diversity of membership of a CMG grow, the costs of group decision making also grow. Though CMGs are usually governed under democratic principles, maintaining broad consensus is often important for continuing commitment from members. Making the transition from a small group with closely shared values and a high level of involvement by each member to a larger group that relies on a hired manager under the direction of a representative board can make communication and decision making much more difficult. In a rapidly changing market, failure to take quick decisive action can be disastrous.

Are You Ready for Collective Action?

Remember that enjoying the rewards of working together often requires a shift to new ways of thinking and acting. Many producers tell us that this shift in thinking, from independent to interdependent, is one of the most difficult challenges they faced in organizing a collaborative marketing effort. Are you ready for this shift? This is a question that must be considered carefully and honestly before you begin any collective endeavor.

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