Adult Educators in Co-Operative Development: Agents of Change
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Social Enterprises Knowledgeable Economies and Sustainable Communities Co-operative Marketing Options for Organic Agriculture Jason Heit and Michael Gertler A research report prepared for the Northern Ontario, Manitoba, and Saskatchewan Regional Node of the Social Economy Suite Funded by the Social Sciences and Humanities Research Council of Canada Conseil de recherches en sciences humaines du Canada Entreprises sociales économies intelligentes et communautés durables CO-OPERATIVE MARKETING OPTIONS FOR ORGANIC AGRICULTURE v We acknowledge with gratitude the financial support provided to this project by the Advancing Canadian Agriculture and Agri-Food Saskatchewan Program (ACAAFS). Dedication This report is dedicated to Walter Nisbet (1930–2008). As a board member of the Canadian Organic Certification Co-operative, he initiated this research partnership and provided valuable direction. Walter was an intrepid co-operative and agricultural pioneer who understood that sustainable rural development requires both organizational and farming system innovation. His leadership is remembered and his wise counsel sorely missed. This paper is part of a collection of research reports prepared for the project Linking, Learning, Leveraging Social Enterprises, Knowledgeable Economies, and Sustainable Communities, the Northern Ontario, Manitoba, and Saskatchewan Regional Node of the Social Economy Suite, funded by the Social Sciences and Humanities Research Council of Canada. The project is managed by four regional partners — the Centre for the Study of Co-operatives and the Community-University Institute for Social Research at the University of Saskatchewan, the Winnipeg Inner-City Research Alliance and later, the Institute of Urban Studies at the University of Winnipeg, and the Community Economic and Social Development Unit at Algoma University. The project also includes more than fifty community-based organizations in four provinces, the United States, Colombia, and Belgium. This particular research paper was administered by the Centre for the Study of Co-operatives, with financial support provided by the Centre and the Advancing Canadian Agriculture and Agri-Food Saskatchewan Program (ACAAFS). The opinions of the authors found herein do not necessarily reflect those of the Centre, ACAAFS, the Linking, Learning, Leveraging project, or the Social Sciences and Humanities Research Council of Canada. CO-OPERATIVE MARKETING OPTIONS FOR ORGANIC AGRICULTURE JASON HEIT MICHAEL GERTLER Copyright © 2009 Jason Heit and Michael Gertler Centre for the Study of Co-operatives University of Saskatchewan All rights reserved. No part of this publication may be reproduced in any form or by any means without the prior written permission of the publisher. In the case of photocopying or other forms of repro- graphic reproduction, please consult Access Copyright, the Canadian Copyright Licensing Agency, at 1–800–893–5777. Cover and interior design and layout by Nora Russell Centre for the Study of Co-operatives Printed in Canada by Printing Services Document Solutions University of Saskatchewan 13 14 15 / 3 2 1 Centre for the Study of Co-operatives 101 Diefenbaker Place University of Saskatchewan Saskatoon SK Canada S7N 5B8 Phone: (306) 966–8509 / Fax: (306) 966–8517 E-mail: [email protected] Website: http://www.usaskstudies.coop The authors would like to acknowledge the financial support provided by the Advancing Canadian Agriculture and Agri-Food Saskatchewan program, the Canadian Organic Crop Certification Co-operative Ltd., and the Centre for the Study of Co-operatives, University of Saskatchewan. Further acknowledgements are found on page xiii. C ONTENTS LIST OF TABLES AND FIGURES viii LIST OF ABBREVIATIONS viii ACKNOWLEDGEMENTS xiii EXECUTIVE SUMMARY 1 The Organic Food Supply Chain 2 Ideas and Issues Relevant to the Co-operative Marketing of Organics 2 Profiles of Organic Marketing Firms Operating in Saskatchewan 3 Analysis of Potential Property Rights Issues in Co-operatives 5 Enterprise Models 5 Lessons and Recommendations 6 Opportunities and Challenges 7 Chapter One INTRODUCTION 9 Project Origins 10 Research Plan and Approach 10 Report Structure 11 Chapter Two THE ORGANIC FOOD SECTOR IN SASKATCHEWAN 13 The Organic Supply Chain 14 Saskatchewan’s Organic Supply Chain 15 A Short History 15 Producers 18 Certification Bodies 19 The Canadian Wheat Board 21 Marketing Firms 21 Processors 22 R ESEARCH R EPORT S ERIES #11–11 VI C ONTENTS Distributors 24 Food Retailers 24 Some Developments Affecting Canada’s Organic Supply Chain 25 National Organic Products Standards 26 Changes to the CWB Regulations on the Sale of Organic Grains 27 Summary 27 Chapter Three ISSUES AND IDEAS RELEVANT TO CO-OPERATIVE MARKETING ORGANIZATIONS 29 Market Uncertainty and Opportunism 30 Incomplete Information 30 Information Asymmetry 32 Producer Co-operation and Vertical Integration in the Organic Supply Chain 34 Types of Agricultural Co-operatives 37 Property Rights Problems Potentially Affecting Co-operatives 39 Principal-Agent Problems 39 Free-Rider Problems 42 Influence Cost Problems 42 Co-operatives and Sustainable Rural Enterprise 44 Summary 46 Chapter Four PROFILES OF ORGANIC CROP MARKETING AND PROCESSING ENTERPRISES IN SASKATCHEWAN 47 Canadian Organic Producers Marketing Co-operative Ltd. 47 Investment Structure 48 Member/Producer Relations 49 Producer Certification 50 Cleaning and Processing 51 Marketing 51 Issues Potentially Contributing to Girvin’s Bankruptcy 52 Marysburg Organic Producers Inc. 54 Governance Structure 54 Investment Structure 55 Member/Producer Relations 55 Cleaning and Processing 55 L INKING, L EARNING, L EVERAGING P ROJECT C ONTENTS VII Marketing 56 Issues Contributing to Marysburg’s Shutdown 59 Choice of Organizational Form 59 Employee Relations 59 Tolerance for Risk 60 Sunrise Foods International Inc. 61 Mark Gimby Enterprises 62 FarmGro Organic Foods Inc. 62 Investment Structure 63 Producer Relations 63 Processing and Marketing 64 Issues Contributing to FarmGro’s Financial Failure 64 Market Repercussions of FarmGro’s Failure 65 The Wroxton Organic Farmers Co-op 66 Farmer Direct Co-operative Ltd. 67 Start-Up Issues 67 Investment Structure 68 Member/Farmer Relations 68 Cleaning and Processing 70 Marketing 71 Opportunities and Challenges 74 Northwest Organic Community Mills Co-operative Ltd. 76 Start-Up Issues 77 Investment Structure 78 Governance Structure 79 Member/Producer Relations 80 Cleaning and Processing 81 Marketing 81 Opportunities and Challenges 83 Prairie Red Fife Wheat Organic Growers Co-operative Ltd. 85 Chapter Five LESSONS FROM THE FIELD: EXPLORING AND EVALUATING CO-OPERATIVE MARKETING OPTIONS 87 Analyzing Property Rights Problems in Co-operatives 87 Co-operative Enterprise Models 91 Outsourcing to a Network of Grain Cleaners and Processors 91 Centralized, Enterprise-Owned, Grain Cleaning and Processing Facilities 93 A Co-operative Marshalling Point 94 Lessons and Recommendations 95 R ESEARCH R EPORT S ERIES #11–11 VIII C ONTENTS Opportunities and Challenges 106 Some Concluding Thoughts 109 APPENDIX A: INTERVIEW CONSENT FORM 111 APPENDIX B: TRANSCRIPT RELEASE FORM 115 ENDNOTES 116 WORKS CITED 120 LIST OF CENTRE PUBLICATIONS 127 LIST OF TABLES AND FIGURES Figure 2.1: The Saskatchewan Organic Directorate and Canadian Organic Growers 17 Table 2.1: Number of Certified Organic Producers in Saskatchewan, 1992–2003 18 Figure 2.2: The Canadian Organic Certification Co-operative Ltd. 20 Figure 2.3: Product Handling and Distribution: A Marketer’s Perspective 23 Table 2.2: Organic Brand Name and Parent Company 24 Figure 3.1: The OPIS Story: Experiments with a Price Discovery Mechanism 32 Figure 3.2: Producer Returns from Different Types of Marketing Organizations 37 Figure 3.3: New Generation Co-operatives 40 Table 5.1: Residual Claimant and Decision Control Problems in U.S. Agricultural Co-operatives 89 LIST OF ABBREVIATIONS ACAAFS Advancing Canadian Agriculture and Agri-Food Saskatchewan CAAQ Conseil des Appellations Agroalimentaires du Quebec CB Certification body CFIA Canadian Food Inspection Agency CIC Crown Investment Corporation COCC Canadian Organic Certification Co-operative COG Canadian Organic Growers COPMC Canadian Organic Producers Marketing Co-operative L INKING, L EARNING, L EVERAGING P ROJECT L IST OF A BBREVIATIONS IX CSC Centre for the Study of Co-operatives CWB Canadian Wheat Board EDC Export Development Canada EU European Union FCL Federated Co-operatives Limited FTC United States Federal Trade Commission GfRS Gesellschaft fur Ressourcenschutz mbH HOMC Heartland Organic Marketing Co-operative IFOAM International Federation of Organic Agriculture Movements IOFs Investor-owned firms JAS Japan Agriculture Standards MACMarketing agency-in-common NGC New Generation Co-operative NOCMC Northwest Organic Community Mills Co-operative OCIA Organic Crop Improvement Association OCPP Organic Crop Producers and Processors OC/PRO OCPP/Pro-Cert OPAM Organic Producers Association of Manitoba OPIS Organic Product Information Service PDS Producer Direct Sale POFs Producer-owned firms QAI Quality Assurance International QMI Quality Management Institute SCC Standards Council of Canada SGGF Saskatchewan Government Growth Fund SOCA Saskatchewan Organic Certification Association SOD Saskatchewan Organic Directorate SFSC Short Food Supply Chain STEP Saskatchewan Trade and Export Partnership SWP Saskatchewan Wheat Pool (Viterra) USDA NOP United States Department of Agriculture National Organic Program R ESEARCH R EPORT S ERIES #11–11 CENTRE FOR THE STUDY OF CO-OPERATIVES