Cooperative Marketing: The three most important questions

As agricultural direct marketing continues to flourish, numerous cooperative marketing options have become available to producers. Small to medium- size operations especially, can benefit from aggregating goods through cooperative CSA operations, combined retail outlets and by membership in local and regional food hubs. While many considerations come into play and to see if this approach will be beneficial to an operation, there are three key questions that will give you a head start on the decision making.
            What will I be responsible for?
Many cooperative marketing programs expect producers to sort, package and label goods before they reach a central distribution point. Knowing in advance what is expected of you and the costs involved are important in planning what you will grow, how much you will grow, when harvesting is required, post-harvest handling and transport to the appointed hub or retail outlet.
Most cooperative programs know their markets and pre-plan orders well enough, so producers have a good idea before planting what their share of the contribution will be. Some groups even provide the seed and other inputs so members are on equal production footing to begin the season.
Asking what type of contract will be required and what will be specified within the contract should be negotiated as a primary consideration. Smaller organizations often operate with verbal agreements, while written commitments give additional assurance of what each party will be responsible for. The primary marketer or distributor should be able to communicate how goods will be marketed, to whom, along with an estimate of how much each distribution point will be ordering. This information will help you decide if the venture has been well planned and is a viable option for your consideration.
            When will I get paid?
It is easy to agree to a cooperative venture when a number of producers share similar interests and want to sell to the same types of markets. Buyers have many types of payment systems. As you have probably learned, selling to a restaurant and to a chain supermarket are two very different systems to negotiate. That is one of the main reasons cooperative ventures offer a safety net. Proceeds come through one channel and are distributed to members from the central hub instead of producers having to negotiate payments from many different sources. Your agreement should outline the specifics of when you will be paid. This may be at set times throughout the production cycle, at set intervals such as monthly or quarterly, or arranged by the product you bring to the operation. Again, this should be part of your overall agreement early on so there are no surprises or disappointments later on.
How much will I get paid?
Centralized distribution services can provide for a number of services along with a paycheck. Some hubs buy supplies in bulk, provide production and quality control training, as well as insect and disease control advice. Hubs and cooperative marketing businesses can negotiate prices based on ready supplies throughout a growing season. With a steady supply base across a season, returns tend to be good. A single operation, or several small farms, will benefit from this aggregation factor, especially when trying to sell to larger chain stores. Before joining a hub, make sure you understand all reasoning about pricing and payment. Also calculate the risk you are taking on in case prices falter or demand weakens. You can obtain retail and wholesale market information locally through produce auctions and retail markets as well as regionally through farm market reporting services. Many print and online agricultural services offer current market prices on a weekly shipment basis. Having an idea of what market prices are trending, allows you to better negotiate with a hub service on how much you expect to receive.
As local and regional marketing chains organize and work to provide locally-sourced foods, direct marketers have an advantage in working with other producers to sell to markets that might otherwise be more difficult to negotiate on a one to one basis. Asking the three essential questions begins the dialog to decide if this type of marketing plan will work to your advantage.
The above information is provided for educational purposes and should not be substituted for professional business or legal counseling.

2015-06-01T10:17:34+00:00June 1, 2015|Grower West|0 Comments

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