Financing Agricultural Co-operatives

1. Financing Agricultural Co-operatives Challenges & Innovations

2. Overview • recently completed study of co-ops’ contributions to: • competitiveness • adaptability • sustainability • co-ops enhance the C-A-S of their members, rural areas, and the agriculture sector in a number of important ways • research report may be released by AAFC-RCS

3. Methodology • three main sources of information • literature review: journal articles, co-operatives’ literature, and “grey literature” (reports, popular press) • interviews with co-operative representatives • representatives from 18 of Canada’s largest agricultural co-ops • inquiries with co-operative experts • invited to contribute by addressing a series of questions about how co-ops enhance C-A-S and the challenges they face • carried out case studies of ten co-ops across Canada as a second component of the research

4. Barriers & Challenges • one of the goals of the research was to identify the barriers and challenges facing agricultural co-ops • investigate how these barriers keep co-ops from better enhancing members’ and/or ag sector C-A-S • barriers & challenges were broken down into two broad categories • legislative/regulatory • “other”

5. Legislative/Regulatory Barriers • needless regulation/red tape • “why do we need a policy on how to climb a ladder?” • securities issuance regulations • e.g. limits on capital that can be raised before securities must be issued • biofuels mandates • nearly impossible in some provinces to blend enough biodiesel in summer to cover winter requirements • supply management: a blessing and a curse! • lack of coherent, integrated regulations across provinces & between levels of government

6. General Barriers • lack of access to capital: most often cited barrier • lack of human resources (professional & unskilled) • particularly of concern in rural areas • lack of flexibility/responsiveness in co-op structure • declining rural population • lack of development resources • lack of understanding of the co-op model • despite the enviable success rate of co-op startups compared to privately held firms • divergent member interests • young vs. old farmers; small vs. large farms

7. Capital Access as a Barrier • lack of capital makes start-up more difficult, preventing good ideas from getting off the ground • difficulties in acquiring equity investment can cause co-ops to become highly leveraged & prone to failure • good ideas that do get off the ground can be plagued by a lack of operating capital/cash flow

8. Innovation in Co-op Financing:Nova Scotia’s CEDIFs • Community Economic Development Investment Funds • program founded in 1999; 121 CEDIFs issued as of 2011 • feature a 35% provincial income tax credit that can be carried back 3 years or forward 7 years • RRSP eligible • shares issues as part of a CEDIF must consist of newly issued common stock with voting rights

9. Local Capital Success Story:ECO Milk • East Coast Organic Milk Co-operative: four-member organic dairy co-operative in Nova Scotia • currently two members certified organic; have two more “transitioning” to organic production over next two years • raised $120,000 under Nova Scotia’s CEDIF program • used their initial capital for a variety of purposes • business & product development • marketing • operating capital

10. ECO Milk • official product launch was October 18, 2012 • homogenized milk, 2%, skim • hope to introduce half-and-half cream soon • partnered with Cook’s Dairy in Yarmouth for processing • organic processing runs require special cleaning, etc. • partnered with Farmers’ Dairy to handle other business items: distribution, merchandising, invoicing, collections

11. Lessons Learned & a Path Forward • developing innovative capitalization models for co-ops will be critical moving forward • reduction in resources for the sector necessitates this • who’s responsible for developing new strategies? • co-ops enjoy survival/success rates higher than other types of business organizations • increasing their numbers thus seems like a logical goal • lack of development resources and financing options for co-operatives are hindering increased adoption • rural areas may end up paying the price for this

12. Thank you for your time! Questions/Comments?