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Exploring Collaborative Marketing Collaborative Marketing Group Profiles |
Collaborative Marketing Group ProfilesFarmers throughout Minnesota are forming cooperatives, bargaining associations, and other collaborative marketing groups (CMG). We spoke with 10 of these Minnesota marketing groups and share their experiences, challenges, successes, and motivations below. Each CMG is unique. Membership, operational experience, structure, and organizational development all vary from one group to the next. Contact information for each group is listed in the Resource Guide. Apple Crisp Cooperative
Apple Crisp Cooperative is ambitious, organized, and committed to a long-term future. What started out as a modest marketing idea on an apple farm in Webster, Minnesota has turned into a seven-member collective marketing enterprise with plans to label and process premium and second-grade apples for niche markets. Why market collaboratively - identifying a need and an opportunity Beginning in the spring of 1993, apple grower Ross Nelson began circulating the concept of a marketing cooperative among several nearby small to medium-sized apple growers. Like others, Nelson and apple grower Harry Hoch were concerned about financial survival as a result of changes in the apple industry. Orchards in Minnesota were beginning to expand rapidly in size while major industry consolidation forced smaller-sized growers to compete against one another for sales to a shrinking pool of retail apple buyers. "Smaller apple growers are forced to fight for sales, undercutting one another’s prices and ending the year with surplus apple supplies," Hoch explains. Moreover, large-scale orchards, which typically process and pack their own apples in volume, obtain marketing size advantages over smaller growers. "Even though smaller growers have a quality product, big retailers only want to buy from big suppliers," Hoch says. "A lot of us saw that we were losing ground." As a solution, Hoch and Nelson considered cooperative processing, packing, and marketing that would enable small and medium-sized growers to market surplus apples, improve size economies, and increase bargaining power with large retail buyers. At the same time, they envisioned adding more value to their apples through new processing and labeling ventures. Informal exploration of an idea Together, Nelson and Hoch organized a meeting of 10 apple growers that same spring to discuss industry concerns and to brainstorm cooperative marketing alternatives to promote quality, Minnesota-grown apples. At the end of their first meeting, a handful of growers volunteered to research information on cooperative development and to identify consultants who might work with the group. Hoch, Nelson, and Rick VanLin (another grower) agreed to act as an interim steering committee on behalf of other interested growers. One of the first organizations they contacted was the Agricultural Utilization and Research Institute (AURI). An AURI representative met with the steering committee to outline available grant programs and consulting services, such as those offered by the Cooperative Development Services (CDS). "We hired CDS to create a mail survey that could be used to poll all Minnesota apple growers about a variety of issues," Hoch says. The survey, consisting of 12 questions, probed growers about their financial outlook for the future, their production volume, marketing experience, and promotional ideas such as joint processing and labeling. Included in the survey was a postcard asking growers about their interest in collective marketing, their ability to assist with initial co-op development, and their willingness to contribute $100 as an initial membership fee to cover business planning and incorporation costs. "Of the 44 postcards returned, only one was not interested and just under half were interested in working on the actual development of the co-op," says Hoch. Ultimately, based on strong interest among survey respondents, the steering committee agreed to pursue a long-term strategy that involves three development stages: (1) packing and shipping apples collectively through an existing processor; (2) labeling and marketing collectively; and (3) acquiring buildings and expertise needed to store, pack, and process larger volumes of apples as a cooperative. Formal exploration of an idea and membership recruitment Using the results from their survey, the steering committee applied for and received an AURI grant in Spring 1994 to conduct legal work and to pay for other organizational expenses. They had met previously with a local lawyer in New Ulm, free of charge, for an initial consultation to discuss the group’s ideas and to obtain an estimate of future legal costs associated with cooperative formation. Over the next 18 months, the steering committee worked with a handful of new producers, identified through the survey, to organize as a cooperative. The group elected an acting board of directors and established two teams to work with their lawyer and other consultants on the development of bylaws and articles of incorporation. After a lot of hard work by several committed growers and a series of consulting meetings, Apple Crisp Cooperative was established when they filed their Articles of Incorporation on September 14, 1995. Shortly thereafter, the Cooperative mailed a subscription agreement to interested growers and asked each of them to contribute $300. "The financial cushion provided by grower contributions gave our group one year to put together a marketing agreement and distribute stock to our members," Hoch explains. Seven members joined the Cooperative, ranging in size from small orchards (2,000 bushels per year) to medium orchards (15,000 bushels per year). Challenges Following two years’ worth of difficult decision making, Apple Crisp Cooperative members faced their biggest challenge in 1996 - the creation of a marketing agreement that would enable members to maintain existing markets while encouraging collective marketing at a profitable price. "We had to find a way to keep and interest growers who already had processing facilities and marketing networks. In the beginning, we couldn’t expect someone to give up a market that they had been selling to for 20 years just to join the Co-op," Hoch says, explaining that several growers dropped out of the Cooperative throughout its development process with similar concerns. To help address this, the acting board of directors agreed on a marketing strategy that temporarily permits members to pack and sell as much as they want through the Cooperative while maintaining traditional markets. A fee structure, broken down according to transportation, grading, packing, and marketing, has been developed for all apples sold through the Cooperative. Each seller ships apples to a local packer, Wescott Agri-Products, for on-line grading and packing. Based on the "pack-out" report, which records the number of apples packed, fees are deducted based on whether or not the grower contracted delivery, arranged the final sale independently or through the Cooperative, and for the cost of packing materials. Apple Crisp Cooperative charges a one percent management fee on all apples packed and sold through the Cooperative. With a member marketing agreement in hand, Apple Crisp issued stock certificates to members, endorsed by-laws and elected their first official board of directors in June 1996. Current operations Currently, the Cooperative’s seven members sell a portion of their crop to markets that they’ve developed individually. As anticipated, the remainder of their crop, primarily "orchard run" ungraded apples, are packed and marketed through the Cooperative. "Some growers can get a higher return per bushel if they pack, sell, and deliver themselves as opposed to sending orchard run apples to the Co-op," explains Hoch. "But, there aren’t too many members who could sell their whole crop every year independently so they always end up marketing a portion of their apples through the Cooperative." Apple Crisp Cooperative members meet throughout the summer to estimate the volume of apples that will be marketed through the Cooperative so that fall sales and distribution can be arranged. One Cooperative member, an orchard owner and year-round fruit distributor, acts as the group’s broker. "He is already in all the major grocery markets in the Twin Cities," says Hoch. "He guarantees selling our fruit, something that would not happen without the Co-op. Without a co-op structure, our broker buys from whoever he wants as any independent company would." Member benefits After only two years in operation, the Apple Crisp Cooperative is meeting its short-term goals: guaranteeing an outlet for surplus fruit (based on stock holding) while building member trust and laying the groundwork for future retail sales as buyers require ever larger suppliers. Moreover, Apple Crisp Cooperative members benefit directly and indirectly through a reduction in their own marketing management time, better access to storage and delivery equipment, reduced personal investment in packing, increased cooperation and communication with others in the apple industry, and the long-term potential of belonging to a legal organization that has access to grants and loans - funds that can be used to develop and market value-added products as future opportunities and industry conditions evolve. Future opportunities In the future, Apple Crisp Cooperative may require stockholders to deliver a specified volume of apples and, in return, plans to offer members: (1) the benefits of marketing under a cooperative label; and (2) a profitable outlet for second and third-grade apples. During the fall and winter of 1998, Apple Crisp Cooperative began research on the market demand for sliced apples in Minnesota’s larger cities. "We can use second-grade apples to sell as a sliced product for pies," explains Hoch. "If it looks like we have a good market for the sliced apples, we’ll check into buying equipment for processing and packaging sliced apples under an Apple Crisp label." Words of advice Looking back on his experience with Apple Crisp Cooperative, Hoch says that the most important contributions to the Cooperative’s development were well defined tasks, small committees, and timely communication. "The bylaws of our cooperative are designed to keep the governing body of our group small and efficient," he says. "So, we can continue to make quick, intelligent decisions that can lead to the success of our Cooperative." December 1999 update Apple Crisp completed their market study of frozen sliced Haralson apples, and with the results decided to pursue the institutional food industry market rather than the retail consumer grocery industry. They also found in their market study that there was interest in their product, but not enough to justify building their own processing facility at the current time. While they hope to find a local processor eventually, they decided to use a processor in Michigan, who processes and transports the apples back in the same day. They processed their first semi-load of frozen sliced Haralson apples in November and sold half of the load to SuperMom’s Deli for use in apple fritters and other baked goods. They intend to use the other half to build awareness of their product with other local buyers with the goal of increasing future demand. |