Co-Op or Corp? Understanding the cooperative business model.

Consumers generally have positive attitudes about cooperatives. They are less sure about their level of understanding of what one is, how their purchases benefit members, and how an ownership structure is different from other business models. In this episode, Chris Pearson joins host Kim Olson. At the time of this episode recording, Pearson was the Vice President of Crop Nutrition and cooperative alliances for Winfield United. He's since been promoted and taken on a new role as SVP and President of Animal Nutrition at Land O'lakes, Inc. 

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Transcript

 We are the only business model that gives farmers, farmers, like my great-grandpa and my dad the opportunity to be an active participant, an active voice, and actually govern the retail business that does business for them and with them. Right? No other business model does that. The publicly traded doesn't do that.

The venture capitalist certainly does not. And so that is, that is really, really unique and it has to make a difference in the way we make decisions otherwise. The value proposition of our model doesn't really matter.

Tomorrow. It's never a guarantee unless we take care of today. We are a cooperative, grounded in 100 years of forward thinking ever since our beginning in 1921. It's the pursuit of a reliable food supply, a sustainable future, and vibrant communities for all of us. Rooted in the promise of a brighter future.

This is rooted in Tomorrow, the podcast by Land O'Lakes, Inc. I'm your host, Kim Olsen. Join us for stories of innovators, change makers, and the modern entrepreneurs who work the land.

Perhaps you've heard someone say it's a co-op referring to your local grocery store, a community garden, or the feed store down the highway in your rural town saying it, buying from one. That might make you feel good, but. What is it? In 2019, Forbes published a story in which 76% of people polled would be more likely to support a cooperative, but only 10% can accurately define it.

So when we say we're farmer and retail owned, we mean we work on their behalf. They serve as our board of directors, and they get a percentage of our profits On the pod today is Chris Pearson, vice President of Crop Nutrition and Cooperative Alliances for Winfield United.

All right, well welcome Chris. So good to see you. Yeah, good to be here. Thanks. So I wanna start, um, right away just diving in with this question. Um, so you work for a cooperative, our Cooperative Land O'Lakes, that is owned by both farmers and ag retailers. So not everybody is familiar with what that means.

Um, you know, we all kind of know the word cooperative and cooperate, but uh, can you just explain it a little bit for our listeners? Maybe the most simple way to talk about it is just that the cooperative is a business structure that allows the customer to own the company, and as a result, they have the ability to participate in the governance of the company.

Uh, and they have the ability to, to participate in the earnings of the company when it's successful. Um, and so by those two things, they have influence. Over how that company does business with them and for them. Um, and, and really it's, it's differentiated in its structure for that reason. That's, that's terrific.

It's such a, um, clear answer. I, you know, I, I, cocktail parties I struggle with. Okay. Now how do you explain the cooperative? And I dive so quickly into. We have 3000 member owners and I, I think we are all served, um, so much better by starting at the top, you know, what is, what is it and um, how does it work.

So, um, explain the relationship, if you would, between Land O'Lakes and the local cooperatives. That own our business 'cause we've got, uh, both dairy farmers and local cooperative members. Sure. So if you would think about the local cooperative, most people would understand that the local cooperative is owned by the farmers that do business with them.

And the job of the local then is to really aggregate their volume and then advocate on their behalf in the marketplace, um, to try and gain benefits or do things for them they can't economically do for themselves. That's true at the local level. So if you think about what we do, we do exactly the same thing at the regional level for local cooperatives.

Our job is to work for, for those local cooperatives to be owned by those cooperatives and those producers, and to aggregate their volume and advocate on their behalf to do for them, uh, things that they can economically do for themselves. And so really it's a very similar picture between the farmer and the local.

We have the exact same relationship between the local and the regional who we work for. And it's, um, you mentioned both economic advantage and advocacy and you know mm-hmm. Our, our voices, um, being together. So when you're trying to, um, figure out kind of. Uh, what we're thinking and, um, where we wanna go.

We have this very diverse membership. We've got farmer owners, we've got retail owners. Um, do they ever just like call you up and tell you what they're looking for? Is it, is it that easy or is it a little more complicated than that? It's certainly can be that easy. I've had my share of, uh, of members that.

Call and tell you exactly what they think of, uh, what they need or I bet that's great how you're executing on your job or, or other things. So sometimes it is simply that easy. Um, but then sometimes we need to, uh, to really do the hard work of understanding the customer and. Finding out those things that we need to do for them that maybe they don't talk about or maybe they don't even know we can do.

Alright. So is that, um, how do you do that? If, if they're not just calling you up, how do you do the, the hard work of finding out what they care about and what they need? Well, and at the local level, we always used to say we have a customer focus meeting once a month. And it was called a board meeting, right?

So you would pick up things, uh, during that board meeting sometimes that were out there that maybe we didn't know about. And that's one of the advantages of our structure. Who else gets to have a focus group every single month with the people that do business with 'em? Um, it might be a survey. It might be just, uh, making sure we're staying in touch with the country and our locations and knowing what people are looking for.

Uh, in our case, it's really our customer service group and, uh, figuring out what those needs are. I love thinking about a, um, board meeting as a. Customer focus group. Um, and you know, that is, um, is an interesting, uh, dynamic for you because you really have a history of working in cooperatives. This, this isn't your, your first rodeo as they say.

Um, can you tell me a little bit about that and, you know, do you favor it of. Over other business models and, um, why is that? Yeah, I do favor it. I try and be careful when I'm talking about the differences in mo different business models. I try to be clear to say this doesn't mean one's right or one's wrong.

Mm-hmm. But there is one that I resonate with more than others. And so when I talk about the cooperative system, I often start the presentation with a slide that shows my great grandpa and my dad. In, uh, probably 1973 standing in front of a barn that we still use in our operation today. And the reason I start there when I talk about the cooperative is if you think about our business model, we are the only business model that gives farmers, farmers, like my great-grandpa, my dad, the opportunity to be an active participant, an active voice, and actually govern the retail business.

That does business for them and with them, right? No other business model does that. The publicly traded doesn't do that. The venture capitalist certainly does not. No, absolutely not. Um, and so that is, that is really, really unique. And so again, not right, not wrong, but if you think about farmers, if you think about the people I grew up around, uh, if you think about other farmers in rural communities and all those things, uh, that's really powerful and it has to.

Make a difference in the way we make decisions. Otherwise, the value proposition of our model doesn't really matter compared to any other business. And so when I used to work at the local cooperative, for example, uh, I knew the owners, uh, I know the owners here too, right? We see 'em. Uh, you used to sit by 'em in the, at the basketball game, used to sit by 'em in church.

Um, they were friends of ours. When they were successful, we felt like we played a part. Them being successful. And that's really, really, that, that's a very important connection. Yeah. Um, some people would say, well, it's not personal, it's just business. Well, here, it's not just business. It's absolutely personal and it needs to be that way.

And that's the value proposition that we have. And if we start only concentrating on the. Um, the metrics or the, the value judgements that the privates are publicly traded do in determining the success of our business, then we've given up our value. I love the way you talk about it being personal, and I know that's, uh, something our CEO Beth Ford talks about a bit as well.

Um, you mentioned both your family, uh. And the community connection. Two things that often come up when we're talking about our families and in our communities and our, our friends is, um, you know, purpose and, um mm-hmm. Studies have kind of shown there's this warm feeling around cooperative and, and what they're meant to do.

And, um, there's studies out there that have shown that consumers. They just kind of feel better about buying from a cooperative, but they don't really understand what it is. They're like, oh, that I know the word cooperate. I know cooperative, uh, what I have in my mind, what I think that really is. Um, but from, from your perspective, you know, you talk about.

About the purpose and the connection. Um, but why do you think it is that, that most people have warm feelings about a cooperative, but they really don't know quite exactly what it is? You know, I, I think it goes back to, um, I, I've been talking recently to a few folks, and it's, uh, probably in the last year, a year and a half, I, I've become convinced that we've quit talking about the cooperative and its advantages and why we exist in a clear enough way.

We sometimes I think, get caught in the trap of thinking, well, we can just say farmer owned and everybody will just connect the next five dots and they'll now understand, well, because they're farmer owned, this is how they're gonna act. They don't, they don't necessarily do that. I think we've gotta be much clearer with the story and say, this is why it matters.

Here's how it looks different. Um, and I, I think for those of us, like me, that have been the cooperative system a long time. We tend to stop telling that story 'cause we think, well, everybody already knows that. And in reality, um, in the last year or so, I've, as I've kind of told the story, I've had a number of different people say, you know, I've been here for x number of years and I've never heard that before.

And so, and I think that's true, not just at the regional. I think it's true at at the local level as well. And as we think about generational shift on the farm, generational shift in our employee base. Um, I think it's important that they understand, uh, who we really are. Yeah. Beyond warm and fuzzy feelings, right?

Uh, yeah. And in fact, I think it's, it's a chance to, for competitive advantage for us because as we think about, uh, employees that are coming into the workforce today, what do we always say about them? They are looking for a purpose that's broader than just earnings. Well, who has a better story to tell?

That's beyond just earnings than a cooperative system that can say, look, we impact farmers, local communities, and feed the world. And as we think about coming through COVID and being in what felt like a more food insecure environment for a minute, uh, who do you want participating in the food chain, in a food secure environment, a business who really believes it's their job to grow the food and take care of the country?

Or do you want somebody that's making decisions based off of a stock price? Uh, I would say, uh, the cooperative is the better partner in that case. Yeah, that's, that's an easy, easy choice on, uh, on this end and, and for many of our employees who, uh, come here for exactly that reason. Now you're in a, um, unique position to talk about cooperatives.

We've, we've referred to that a bit, but, um. Let's talk more specifically. So you were the CEO of AG tegra before coming to Land O'Lakes and Ag Tegra is a retail member, owner of Land O'Lakes. So can you talk to me a little bit, now you've been on, on both sides of the coin. Um, what is the collaboration, uh, process like between the two?

I think, um, if I think back to the relationship I had, um. I, I would point to that word exactly. Relationship. Um, when you think about the relationship we had between local and regional, it was tighter. It was, I, I knew the folks that ran, that ran the business. I knew who I could call. Um, I knew, um, who we could run issues past or who we could run opportunities past.

And so that does lead to a lot more collaboration, uh, on a day-to-day basis versus. A company that might also be a vendor of yours that you see, uh, once every two or three years, for example, and really don't know their management folks. And so that was really important for us, um, because they felt like way more like an extension of our business rather than they did just a vendor that was there to do, um, to do a transaction.

I and, and you and I had some projects together, which, uh, which I, we did enjoyed, um, that, that did exactly that. We, uh, did the, um, American Connection Project, uh, worked together. We did, um, American Connection Communities together, um, there in, uh, Aberdeen, an economic development program. Um, can you talk a little bit about those experiences and kinda what.

Um, why they were beneficial to the communities? Yeah, so the one that sticks out the most, obviously we, we did one that with, um, Northern State University there in Aberdeen. And, and the project was really around providing resources so that, um, Aberdeen and the areas rural around there could, um, have better connectivity and be more able to execute in the, uh.

In the, um, online type environment or that kind of thing. And so that opportunity right there would not have happened had Land O'Lakes not been involved and Land O'Lakes would not have been interested, uh, as a corporation, if it were in normal corporation, um, had Ag Tegra not been there and we were not a member of Land O'Lakes.

And so there's a really good case with that example where. Land O'Lakes was able to, um, advocate on behalf of the member and bring an opportunity to the member that never would exist, have existed without it. And created opportunity in rural communities in Northeast South Dakota and Eastern South Dakota that wouldn't have existed otherwise.

That really, I, I think, points out the value of what we're here to do, which is not just drive stock price, but drive quality of life, drive viability. Drive relevancy of, uh, of rural communities and, and our farmers and their families. You hear us say member owners quite a bit on the podcast. Not every one of our members are what you think of as farmers.

We also have retail owners. They are often rural feed stores, grain facilit. Farm and fuel supply stores, or fifth generation family running their own farm shop. At Land O'Lakes, we put our members first. We like to say our success starts with our member success, and we are not successful unless they are successful.

We return to $179 million to our member owners in 2022 and close to 900 million the past five years. They, in turn, are investing in their own businesses, employees, and communities. It's the cooperative way.

What are other ways that people should know that, uh, local co-ops, uh, support and, and repay their farmer customers? Well, I think there's a whole, um, list of things and I, I sometimes think it's actually a little bit more challenging in running the co-op because sometimes we don't. Exactly know what our purpose is.

'cause o others have the advantage of just knowing my, my goal is to maximize bottom line. Right? That's a really easy goal. We don't have that in the cooperative. Um, you know, the job is service. The job is advocating for farmers. The job is all of those other things. But, um, you know, I used to use an example, um.

We, we had a, uh, a rescue team when I was at AG Tegra, and that rescue team was trained all year long on, uh, being able to do rescues, being able to rescue people from a grain engulfment, being able to extract people from a grain man, being able to get those people maybe off of a catwalk or off the top of a grain bin, um, and get them to safety.

And we did that because, uh, rural South Dakota. Has wonderful first responders, but there aren't many of us. And so we have to sometimes figure out how to make do for a minute until they can get there. And so during my time there, uh, my 10 years in South Dakota, I think there was four times we, um, actually saved a life in a Grand Eng Goldman, and, and there's been one again since I left, so five times.

I know. Uh, we were involved directly. In saving the life of somebody who was trapped in a grain bin. Now, how much did we get paid to train those people? We didn't. Um, how much did we charge when we did that? We didn't, the people didn't clock out Our, our employees didn't clock out when they responded to the scene.

We didn't charge the fire departments when we trained them to manage grain engulfment. And so all of those things we didn't charge for and we weren't. Um, it didn't get paid to do, but there was a value there and there was a value to those rural communities to know that we were there and we were able to do that.

And five families in five communities obviously thought that was a huge deal because we, we kept a life, uh, in their community that had, wouldn't have been there without it. And so if you're managing simply for stock price, that's a hard decision to make because that one has cost and doesn't necessarily add value.

The way you might think about value, but for a cooperative and for the way we thought about things, that was a key piece of what we did. And I think that's a good example of some of the things or the way we might think about things that would be different than a company that that wasn't owned by the farmer members, uh, in the rural communities.

Yeah, that's a, a such a moving story. And I, I think, uh, going back to what you said about connection and family and, um. That's a really good example of, uh, a difference that, uh, a cooperative, um, approach kind of would lead to a, an actual example. Um, do you think a co-op inspires innovation and, um, for thinking, are there other things besides connection that you think this, this model really brings?

I think this model helps with that. Frankly, one of our challenges at times, I think as cooperatives is we maybe aren't as forward thinking as we should be. Um, you know, we have plenty of advantages. Uh, one of those advantages is our patient ownership, meaning the farmers own us and we're there for service.

And nobody ever walks into a boardroom and says, you know, we've had a couple of tough years. Maybe we should just, uh, enter a completely different business with a better ROI. We don't even think that way. So we're very patient owners. Uh, the business is gonna go on for a long time, but sometimes that leads us to maybe not have the expectations that we should have.

So maybe at times we need to be more, push ourselves a little further. And I think that's one of the roles regionals can play at times is to bring into our board rooms or our leadership rooms a perspective that's a little broader than our local market that we don't see. Be able to push us a little or, or bring us a piece of information that makes us, gives us an idea of something we can do better.

And so I, I definitely think that's a role. For regional, do you feel like, uh, land O'Lakes is filling that role and bringing some kind of, um, it's a leading question, um, if you will. Uh, are we, are we bringing some of that, um, kind of new thinking and, um, it, it's really new. Context because the, uh, patient business owner piece that you talk about mm-hmm.

Is so valued and so unique. Um, I, you know, most, uh, corporations last about, uh, 17 years on average. Mm-hmm. And here we are at, uh, you know, more than a century. So, um. How do you, how does Land O'Lakes kind of play into, um, that patience, but then also bringing new information, new context, new approaches? Yeah.

Well I think, um, you know, Tru Terra is probably the, the one that comes to mind the quickest, um, without Land O'Lakes and Winfield in that case. Um, the locals don't have Tru Terra all by themselves, and so I think that's been one where. Um, land O'Lakes was able to have a little larger view of the world and the need there and understand, uh, how that business should work and has brought it to the locals, um, to see if we can make that work.

And it's been, been successful and I think it's gonna have, um, more success in the future. Um, I think that's true as you think about our answer plot system. As you think about the products we have and the proprietary products we have. Um, those have really been brought to us by the regional. Yeah.

Interesting. Is there, so if I am, um, if I am a consumer and I'm in the grocery store, just, uh, buying my products, um, do you think the value of a co-op, other than as we talked about at the beginning, that inherent sort of warm, fuzzy feeling, do you think the value of the, um, cooperative, uh, is, um, does it translate for a consumer?

Yeah, I think it does. Um. In my opinion, why use a, as a consumer should feel good about supporting something like that? I think, um, it's in support of a business model that's gonna make decisions based on the interests of, and the desires of the, the member, whoever the member is in that case, right? Whether it's producer, whether it's, uh, a local cooperative.

And so. If we take ourselves, if, if we take cooperatives out of this, out of the equation. And if we were to try and analyze, what would ag business for example, look like? Had the coop never existed mm-hmm. Could we say that was we would be in a better spot from a farmer and, and community standpoint are a worse spot?

I think a way worse spot. Yeah. Right. Agreed. Yeah. Not that, not that the private and the publicly traded don't have their place in the market. But if you just think about taking that advocacy and that, um, financial engine that we have created in cooperatives and, and we take that out of the country.

Mm-hmm. Um, I think all of a sudden our communities look way different than they do today. I think our farmers are less prosperous than they are today because for a century now we've advocated on their behalf. And kept value in the country and kept a quality of life in the country. That doesn't exist if all vendor financial decisions were only made based on maximizing bottom line.

Yeah, agreed. Now, if you're on a business to business side, we have a lot of, um, of our businesses, B2B, what benefits do you think co-ops present in providing, you know, food feed, fiber, fuel to customers around the world? I think if you think about the extended customers, even our vendors for example, I think our vendors benefit from the fact that we're cooperative and the fact that we have a stickiness with our customer, uh, that we're a much, um, more solid, um, channel to the marketplace than they would have otherwise, which I think benefits vendors, if you think about other, uh, customers in an extended version.

Um, I think they benefit from, again, that patient mindset. If you think about our patient ownership, uh, the way we produce is done the same way, the way we think about creating value for our farmers has done the same way, the way we think about creating efficiency at. At the farm level, it's done the same way.

And so I think there's this predictability that comes along with the patient ownership. Again, there's strengths and weaknesses to both, but I think this predictability of the, uh, patients of our system, uh, has a bunch of value to a lot more people than we think about. Do you think it has value globally?

We talk a lot, uh, at Land O'Lakes about, um, global food security and national food security. Do you think it, it translates there as well? Absolutely. I think it does. Um, think about it again. Would you rather have, and, and we got close. We've, we've felt it during COVID, didn't we? Just this Yeah, we did. Almost like is my food is the channel that's creating my food is secure.

Or as predictable as I thought it was. And we ask ourselves those questions as COVID happened and the world asks themselves those questions. Well, who would you rather have as a link in the chain in that production system? Somebody who sees food production and feeding the world as a mission, or somebody who does it to maximize stock price.

Uh, those two different thought processes are gonna make decisions in two completely different ways. For myself, from a food security standpoint, I'd much rather have somebody who believes it's their mission to do things well and right, and intends to stay in the business and be patient about it than I would somebody who looks at that supply or their place in the channel.

As a way to maximize return to some set of investors. I'll never know. Yeah. I, I, I couldn't agree with you more. This has been such a good, um, conversation and you've given us, uh, all, I think a lot to think about. Um, we usually wrap the, uh, the podcast with, uh, the question of how do you see the future of agriculture?

Well, I think we'd all agree, and I'm sure pre previous guests have all agreed that the future of of ag is bright and, and it's very large. As I think about. How cooperatives I think play in that space. I think it's gonna be important for us to continue to figure out how to create the scale as a cooperative system that it's gonna take to stay relevant.

So I think that's, um, uh, one of our largest challenges as a cooperative system as we think about ag. Um, and, and I think the other thing that we need to make sure we do is, um, continue to make sure, and this is not obviously unique with me, but, um, we have a gap in. I think, um, leadership potential, um, between our cooperatives and, and some other companies, uh, nationally and around the world.

And it's really important that we make sure that we continue to bring in talent, that we develop that talent really well. Uh, 43% of our co-op CEOs will retire or reach retirement age in the next five years. Many of our boardrooms look similar. Many of our leadership team rooms look similar. So, uh, leadership is gonna be important to us maintaining a leading position in agriculture as a system, and we need to make sure that we're, uh, in the lead on making sure that we develop that kind of leadership.

I think that's a, a terrific answer. And, um, talking about leadership when, uh, you're looking at the future, makes the most sense of about anything I've heard. So thank you so much, Chris. I really appreciate you, uh, taking time to join us. Thank you for the opportunity. Together we are rooted in tomorrow. New episodes drop monthly everywhere you find your podcasts.

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