Economic and Marketing Information
FOR INDIANA   FARMERS
Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana
August 30, 1963
Should Marketing Cooperatives Consolidate?
by E. M. Babb and H. L. Moore, Agricultural Economics
Records of the Farmer Cooperative Service indicate
that over 170 cooperative consolidations occurred in the
U. S. in the 4 years 1957-1960. These consolidations took place in 37 different states and included almost
every kind of cooperative.
The strong current interest in consolidation stems
from benefits which cooperatives believe will result from
growth and larger organizations. These desired benefits
are largely  economic.
Potential Benefits of Consolidation
Bargaining Power—Bargaining power means the
ability of individuals or organizations to take actions
that materially influence the outcome of issues in such
a way as to improve their welfare. To date, cooperatives
have made the strongest effort in the field of bargaining. This bargaining has not only been for price and
terms of sale, but in a broader sense for programs to improve producer income. Given the degree of buyer and
seller concentration in many agricultural processing industries, cooperatives must expand if they are to be
large and powerful enough to deal with buyers on an
equal basis. Producers need strong and effective representation at regulatory proceedings, bargaining sessions
and in other phases of marketing activity.
It is clear, however, that consolidation does not assure
increased bargaining power. First, vigorous leadership
and strong producer desire for goals are required to bargain. A single cooperative in the market may greatly
improve bargaining power. But, several strong cooperatives deeply divided on many issues may do more for
their respective members than a single cooperative with
weak, indecisive leaders.
Second, if cooperatives are to bargain for higher prices,
far more control of supply will be needed than is now
the usual case, or will result from just the act of consolidation. Short-term member contracts and the voluntary nature of association does not enhance supply control.
Last, legal questions have been raised concerning cooperatives making acquisitions aimed at controlling supply and increasing market power. Recent court decisions
have caused a great deal of alarm among cooperatives
who have grown through mergers and have been engaged
in practices that might be considered in restraint of trade.
Efficiency—Consolidation may benefit members
through improved efficiency. Efficiencies may be achieved
in marketing, particularly where there is duplication of
service and areas of overlapping membership. The consolidated cooperative may find it feasible to market the
products of its combined membership at a lower total cost.
This may be possible by improved collection systems, bet
ter use of marketing and processing facilities and greater
coordination in moving products through available outlets.
There may be internal economies associated with consolidation. Large organizations can provide and maintain better facilities, services and management at a lower
per unit cost. With the large outlays of capital necessary
to obtain top flight facilities and management, it is an
economic necessity that cooperatives maintain a large
volume of business.
Member Services—The consolidated cooperative should
be able to provide improved and additional services to
members. Such services might include improved market
information, testing programs, aids for improving production or quality of product, financial assistance and
lower cost services or items needed for production. Many
small cooperatives cannot provide adequate services for
members because of personnel limitations. The consolidated cooperative may make personnel specialization
possible.
Marketing Programs—The consolidated cooperative
may be more effective in instituting programs for the
market such as advertising and promotional programs
to improve quality. Many such programs require market-
wide support and are ineffective on a piecemeal basis.
Some Disadvantages of Consolidation
Cooperative management, directors and members
should carefully consider the possible benefits of consolidation, but they should also be aware of certain disadvantages of consolidation. Producer members of all
the consolidating cooperatives may not receive exactly
the same degree of improvement from each of the various advantages of merger. Some of the possible disadvantages which should be considered include loss of
identity, communications, personnel problems and loss
of local interests.
Loss of Identity—One or both cooperatives may be
hesitant about losing the identity of an organization that
has functioned well in the past. Steps can be taken to
lessen this disadvantage, but producer members must
come to feel a part of the new group.
Communications Breakdown—Communications may
not be as good or as prompt under the consolidated cooperative. This is perhaps the most serious problem in
consolidations. Open lines of communication must be
established among members, directors and management.
Otherwise, members may wish to return to small scale
organizations where communications might have been
better.
Personnel Problems—Some directors or personnel may
not be needed. The composition of the board and coopera-