Institute of Farm Economics and Agribusiness Management

1. Prof. Dr. Rainer Kühl Institute of Cooperative Science - Managing and Scientific Director - Institute of Farm Economics and Agribusiness Management Strategy and Marketing Management Investment and Finance Cooperative Science - Knowledge and Science Transfer - Email: rainer.kuehl@agrar.uni-giessen.de

2. „Cooperative Leadership: Effective Governance in response to members´ and other stakeholders´ needs“ Content 0. Current observations 1. Perspective I - Members´ and Stakeholders´ needs 2. Perspective II – Success of agri-cooperatives 3. Perspective III - Factors of risk and specific problems 4. Perspective IV - Outside-in and inside-out perspective 5. Perspective V – Final considerations

3. 0. Current observations • Steady growth in turnover • Stabilizing/expansion of market shares • Regional expansion • Export activities • Diversified cooperatives • International acquisitions • Foundations of new cooperatives

4. Dairy Market Germany 2008 (in 1,000 t) Deliveries  29.000 Production  900 Imports Producer- level appro. 18.000 appro. 11.000 Processing- level Non-cooperatives (appro. 40 %) Cooperatives (appro. 60 %) Quelle: ZMP, DRV (2008)

5. 0. Current observations • Steady growth in turnover • Stabilizing/expansion of market shares • Regional expansion • Export activities • Diversified cooperatives • International acquisitions • Foundations of new cooperatives

7. 0. Current observations • Steady growth in turnover • Stabilizing/expansion of market shares • Regional expansion • Export activities • Diversified cooperatives • International acquisitions • Foundations of new cooperatives

8. 1. Perspective I - Members´ and Stakeholders´ needs: Members: Nearly every farmer is member of at least one cooperative Members with trade relationships • Stakeholder: • Cooperatives find customers for their products • For farm input industry cooperatives are reliable partners • Final consumers and cooperative products • Agri-cooperatives as a main driver in the value-added chain • Strong presence in rural areas • Social and sport sponsoring activities

9. 2. Perspective II – Success of agri-cooperatives: • Strong concentration process in all agribusiness segments • Business Performance subject of discussion • Agri-cooperatives in the international context • New foundations of agri-cooperatives • The existence of the traditional cooperative model • Exit, voice, and loyality in cooperatives

10. 3. Perspective III - Factors of risk and specific problems: • Systematic and unsystematic risks: • European market deregulation • Destabilizing of economic environment • Members´ heterogeneity • More individualistic goals • Financing of growth activities

11. 3. Perspective III -… specific problems: Deficits in cooperative governance/leadership (?): External and internal free-rider Investment problems Transaction cost problems Control problems Management problems

12. Dairy Market Germany 2008 (in 1,000 t) Deliveries  29.000 Production  900 Imports Producer- level appro. 18.000 appro. 11.000 Processing- level Non-cooperatives (appro. 40 %) Cooperatives (appro. 60 %) 12 Billion Euro 11 Billion Euro Non-cooperative (appro. 50-55 %) Cooperatives (appro. 45- 50 %) Turnover Quelle: ZMP, DRV (2008)

13. 4. Perspective IV - Outside-in and inside-out perspective • What are the challenges? • The loyality and horizon problem • Impatient management • Diverse interests of members • Different risk attitudes and the cooperative model • Image as an employer „Impatient member“

14. 5. Perspective V – Final considerations: • Requirements for an effective governance: • Improvement of member relationships (identification) • Economic versus behavioral economics • Individualized contracting • Price risk management • Meet producer groups´ needs • More sophisticated decision rules