Shrinking farm incomes pressure Kansas co-ops to consolidate
Garden Plain ? Kansas farm co-ops are feeling pressure to merge as shrinking farm incomes have producers looking for ways to cut their costs.
In about six weeks, Farmers Cooperative Elevator in Garden Plain will vote on whether to merge with co-ops in Anthony and Kiowa. Andale Farmers Co-op voted in December to merge with Kanza Co-op, a large operation based in the Pratt County town of Iuka.
The number of co-ops in Kansas has fallen from about 350 in 1950, to about 80 today, Kansas State University professor Brian Briggeman told The Wichita Eagle.
Briggeman said the pressure to consolidate grows when farm income margins tighten. Net farm incomes nationwide are expected to be down 56 percent this year from their 2013 peak, according to U.S. Department of Agriculture estimates.
Co-ops, which are owned by their farmer members, are regular businesses that are expected to turn a profit. Members are encouraged to do business with and sell their harvest to the local elevator.
The grain co-ops buy from farmers is sold to large grain companies, earning a small margin for the co-ops. They also sell fertilizer, chemicals, fuel and tires.
Bigger co-ops can increase efficiencies and lower costs. In the same way farm equipment and farms keep getting bigger, so do farmers’ co-ops, said Terry Kohler, general manager of Garden Plain’s co-op.
“We’re dealing with fewer farmers and a lot larger farms spread across wider geography,” he said. “There is some greater purchasing power in size and some efficiencies in rolling stock.”
Garden Plain announced the possible deal to its members in December, and the boards of the three co-ops have tentatively set a merger vote in mid-May, just before wheat harvest, Kohler said. No job cuts are expected, but some roles may change, he said.
The latest round of mergers won’t be the last, said Bruce Krehbiel, CEO of Kanza Co-op, a large co-open that recently merged with Andale Co-op.
Co-ops are somewhat different from most companies because they are co-ops, with strong geographical loyalty from their farmer-owners. Not all mergers make sense, Krehbiel said, such as if one co-op has a lot of debt and the other doesn’t.
Farmer-members also don’t necessarily like to think of their co-op getting gobbled up, he said. The also worry that consolidation will cut down on the competition that allows them to do price shopping.
Still, the consolidation trend is far from over, Krehbiel said.
“There is a limit to the economies of scale,” he said. “We haven’t got there yet.”