Organizing Steps of Agricultural Cooperative Formation

Jack L. Townsend, Sr.

March 2, 2020

With the many upcoming opportunities surrounding Industrial Hemp, it’s worth the time to consider cooperatives as an agri-business model for farmers and producers in this exciting crop. The framework discussed below for organizing an agricultural cooperative comes from excerpts taken, in whole and part, and adapted from USDA, Rural Development, Business and Cooperative Programs, Cooperative Information Report 7.

Further, Chapter 618, Florida Statutes, titled AGRICULTURAL COOPERATIVE MARKETING ASSOCIATIONS provides the statutory basis for this agriculture cooperative business model in Florida. Parts of this statute are incorporated within this article.

Phase I: Identify Economic Need

To have an effective cooperative business the folk(s) with the cooperative idea must explicitly state the economic need to be resolved and then hold an exploratory meeting of potential members. Florida’s Industrial Hemp growers and processors are at the initial stages of entering this exciting agricultural product arena. An Industrial Hemp Marketing Cooperative could provide education to help farmers figure out how to grow the crop in the first place, and then sell the member’s collective hemp harvest to processors using its strength in numbers to bargain for better prices. It could also help with the purchase of seed, juvenile plants, and other supplies in bulk to get better deals. Whatever the need is, the cooperative must have a clear focus on the economic need it is trying to resolve.

Step 1: Determine the Economic Need

The cooperative development process begins with a small group of prospective members—those sparking the cooperative idea—meet to discuss the economic need and the potential of a cooperative to meet that need. What is the economic need the cooperative is trying to solve? This is a critical component.

Step 2: Hold an Exploratory Meeting

Are there enough people who have the same economic need that is not being met? Announce the meeting date, time, and place via newspaper, social media, Internet sites, radio, telephone, at other meetings, by letter, or word of mouth. Invite an outside advisor if one has been found and contacted. If enough with interest come to the meeting, work on defining and clarifying the need analysis and leave the meeting with an identified steering committee to further pursue the cooperative idea. Section 618.02, Florida Statutes, requires three or more persons engaged in the production of any agricultural products, or three or more associations, to form a nonprofit cooperative association under the provisions of this chapter.

Phase II: Deliberate

The steering committee must work through the following steps, and at each level they must adequately and thoroughly asses if the cooperative business model has viability considering the information discovered in these deliberation steps.

Step 3: Conduct a Member-Use Analysis and Initial Market Analysis

Member-use analysis— The steering committee must learn all it can about the cooperative’s potential members and what the cooperative might do for them. It also needs to gain a more in-depth understanding of the marketplace the cooperative will operate in.

Initial market analysis— This analysis, conducted prior to a more formal feasibility study, will identify how well the proposed cooperative’s activities, given the economic need already identified earlier, will fit into the marketplace. Conducting this assessment will also help focus any additional services that the cooperative may be able to provide as a benefit to members.

Step 4: Conduct a Feasibility Study

A feasibility analysis, conducted by an experienced practitioner, will help the steering committee determine if the proposed cooperative is achievable, based on well-determined assumptions, researched information, and the member-use and initial market analysis. This study determines management, marketing, technical, economic, and financial feasibility and presents the entire concept in one document. It will provide the foundation of the business plan if a decision to proceed is made. Section 618.03, Florida Statutes, provides for preliminary investigation where every group of persons contemplating the organization of an association is urged to communicate with the Department of Agriculture and Consumer Services, which will inform it whatever a survey of the marketing conditions affecting the commodities to be handled by the proposed association indicates regarding probable success.

Step 5: Prepare a Business Plan

A business plan is for actual cooperative implementation. It serves as a blueprint not only for the implementation, but also for what actions the cooperative will take during its operations. The business plan usually contains less emphasis on scenarios than did the feasibility study. The business plan should consider and incorporate the probable success outcomes from the Florida Department of Agriculture and Consumer Services, making concessions and changes to increase the chance of success.

Phase III: Implement

After completing Step 5, if the cooperative seems like it is becoming a reality, then in Steps 6 and 7 the cooperative becomes a reality. Now, legal papers are created and formal cooperative meetings take place, including the first meeting of the new cooperative.

Step 6: Draft and Complete Legal Papers

Florida has one or more laws authorizing the formation of cooperative corporations; Chapter 618 governs Florida’s cooperative association and the chapter is restricted to agricultural products. The committee needs to study the laws in the Florida regarding the cooperative to ensure that the right procedures are followed. Legal counsel, experienced in cooperative law, should be employed to assist in the process. The two main legal documents the cooperative needs to draft are the articles of incorporation and the bylaws.

Step 7: Hold First Meeting of Cooperative

After the cooperative has been incorporated by legal filings, the new cooperative needs to hold its first official meeting after proper notice. At this meeting, the bylaws need to be approved and the board of directors elected. According to Section 618.09, Florida Statutes, under which the cooperative is organized, bylaws must be adopted by a majority vote of the members or stockholders. Other matters will be handled as well, legal counsel can and will advise on these matters.

Phase IV: Execute

This phase entails getting the cooperative up and running. Below are concrete “action steps” that make the cooperative operational and its existence becomes a firm reality.

Step 8: Convene First Meeting of New Board of Directors

Once the bylaws have been adopted, the board of directors should meet as soon as possible. Officers of the board are elected, and directors are assigned to individual or committee assignments to implement the business plan. Target dates are established for important events in the business plan such as groundbreaking, construction completion, dedication or open house, and full capacity operations.

Step 9: Hold a Membership Drive

A new cooperative must have enough members to start operations, 3 is the minimum in Florida. But the cooperative still should have enough members to justify existence. Additional members may be needed to financially strengthen the association or increase its volume. Cooperatives that process and market, bargain for price, have contractual agreements, or offer limited services, may have a selective membership policy. Members should feel a need to recommend other possible members who they believe to be qualified users of the cooperative.

Step 10: Acquire Capital

Often the best source of financing for a cooperative is from members but financing a new cooperative with member equity alone is difficult and usually impossible. Therefore, additional sources for funds are needed. Local area banks are good possibilities. Others possible capital providers include CoBank, the cooperative banks of the Farm Credit System, NCB (formerly National Cooperative Bank), USDA Rural Development (for guaranteed loans or other loans), and Federal or State governmental funds.

Step 11: Hire a Manager

The success of the cooperative depends more on the manager than any other individual. The manager directs day-to-day operations, hires and fires employees, and allocates resources for greatest efficiency and effectiveness. Hire an experienced qualified manager.

Step 12: Acquire Equipment and Facilities, Begin Operations

Acquiring a business site, facilities, machinery, equipment and other supplies is a job that takes foresight, analysis, judgment, and timing. The new cooperative’s business plan is the blueprint. The manager must proceed with the business plan and follow through to fully begin operations.

Conclusion: The cooperative agri-business model has a deep history in agriculture production. The enactment of the Capper–Volstead Act (P.L. 67-146), the Co-operative Marketing Associations Act (7 U.S.C. 291, 292) by the United States Congress on February 18, 1922, gave “associations” of persons producing agricultural products certain exemptions from antitrust laws. Since 1922, farmers and producers have used the cooperative business model gain advantages in marketing their products and provide solutions to the needs of the cooperative membership.

Hopefully, as the new agriculture product Industrial Hemp takes root in Florida, the old, historical cooperative agri-business model can provide a platform for success to the actors within this new industry.

About the Author: Jack L. Townsend, Sr.

For over 35 years, Jack L. Townsend Sr., Attorney at Law, has been a trusted name for legal services. Mr. Townsend is a 6th generation Floridian who graduated from the University of Florida, with a B.S. in Agriculture in 1980 and Stetson College of Law, with his J.D. in 1983. Since then he has provided clients with comprehensive legal services obtaining respect and results they deserve. He practices in several areas including business consulting, personal injury, business law, mediation, and more. Mr. Townsend received in 1994, and maintains today, the distinct designation as a Florida Bar Board Certified Attorney--Civil Trial and uses his background in litigation to explore all avenues of business and dispute resolution. Recently, Mr. Townsend returned to school and is pursuing an LLM in Agricultural and Food Law from the University of Arkansas.