Illinois Investment Network


Recent Blogs


Pitching Help Desk


Testimonials

"This is to inform you that I have already obtained all the investment funds that I need to launch my project. I thank you for doing all you have done for me. I am thrilled beyond measure. Apparently I have a better idea than even I knew."
Jerry Johnston - Mega Clean

 BLOG >> Recent

Production Aggregation [Finance
Posted on February 10, 2016 @ 08:25:00 AM by Paul Meagher

Mark Shepard is the author of Restoration Agriculture (2013). He is a no-nonsense ecological farmer and a business mentor to many Permaculture startups. I listened to a recent podcast featuring him called Permaculture Demand, Starting Up & Organic Valley. This blog was inspired by some of what he had to say.

One topic that Mark Shepard discussed in this podcast is some of his positive experiences as producer number 40 (of 1,800 producers) for the Organic Valley Cooperative.

The Wikipedia page for Organic Valley provides these key details on the cooperative:

Organic Valley (OV) is an independent cooperative of organic farmers based in La Farge, Wisconsin, United States near La Crosse, Wisconsin. Founded in 1988, it is the largest organic farmer-owned cooperative in the world with over 1,800 farmer-owners across the United States, Canada, and Australia. Organic Valley markets its products in all 50 states and exports to 25 countries. In 2014, growing annual sales neared $1 billion.

Mark frequently refers to Organic Valley as a "production aggregator" meaning it aggregates production across farmers so that farmers can access larger and more diverse markets. The need for a production aggregator, according to Mark, can arise because there is a failing market for your commodity or service when you are acting alone in the marketplace. If you are at a farmers market with local grower competition and you can't sell your cucumbers or you can't get your price, then the solution may be for cucumber growers to aggregate production and sell the combined product into the same or bigger market that can absorb it at a price that is acceptable. The market feedback you get when you operate alone may be negative but when you cooperate with other producers the market feedback can be strongly positive and encourage you to grow more cucumbers.

If you combine all your cucumbers together and sell them to a grocery chain then you might be paying a fee to a broker who distributes on your behalf. What if you replace that broker with members of your coop so that any fees you pay are going back into your production cooperative? The fees might allow you to make more income or receive additional benefits (i.e., pension, dividends, internal jobs) and would help finance the evolution of the production cooperative. Note that this is a different model than Uber, AirBnB and other popular "sharing economy" business models that offers a production aggregator service and collects a brokerage fee but without many additional benefits provided. The alternative to the "sharing economy" business model may be something along the lines of Organic Valley or the very successful John Lewis Partnership in the UK. These companies may not be as "explosive" in their growth as Uber but they are showing high levels of growth and considerable growth potential.

There may be significant costs to setting up a production aggregator (e.g., legal, accounting, software, storage facilities, equipment, transportation, dedicated staff, etc...) and the production aggregator might seek investment to cover these costs. The production aggregator might offer to return investors money (plus interest) over a period of time but could also sweeten the deal with a coop membership that allows the investor to enjoy some of the benefits of the venture. Ideally, the investor's skillset would be useful to the company and an investor might end up paying themselves some of the money invested to carry out the required setup and ongoing work.

Setting up a production aggregator would entail some legal work on the company structure. Often they are setup using a legal trust as the formal business structure but some type of partnership structure might also work and be less legally complex to start out with. I do not pretend to be a lawyer or accountant so don't quote me on any of this.

I'm not necessarily endorsing the view that cooperatives are the end-all and be-all. I'm mostly interested in examining what the motivation for production aggregation might be, how the startup phase of a production aggregation service might be financed, and what types of benefits private investors might receive from their startup investment (i.e., payback with interest, membership benefits, payment for worktime invested).

Also worth considering is what types of objects can a production aggregation business model be applied to that it isn't being applied to today? Examples might be timber production, water production, carbon sequestration and other products or services that might be less tangible.

Permalink 

 Archive 
 

Archive


 November 2023 [1]
 June 2023 [1]
 May 2023 [1]
 April 2023 [1]
 March 2023 [6]
 February 2023 [1]
 November 2022 [2]
 October 2022 [2]
 August 2022 [2]
 May 2022 [2]
 April 2022 [4]
 March 2022 [1]
 February 2022 [1]
 January 2022 [2]
 December 2021 [1]
 November 2021 [2]
 October 2021 [1]
 July 2021 [1]
 June 2021 [1]
 May 2021 [3]
 April 2021 [3]
 March 2021 [4]
 February 2021 [1]
 January 2021 [1]
 December 2020 [2]
 November 2020 [1]
 August 2020 [1]
 June 2020 [4]
 May 2020 [1]
 April 2020 [2]
 March 2020 [2]
 February 2020 [1]
 January 2020 [2]
 December 2019 [1]
 November 2019 [2]
 October 2019 [2]
 September 2019 [1]
 July 2019 [1]
 June 2019 [2]
 May 2019 [3]
 April 2019 [5]
 March 2019 [4]
 February 2019 [3]
 January 2019 [3]
 December 2018 [4]
 November 2018 [2]
 September 2018 [2]
 August 2018 [1]
 July 2018 [1]
 June 2018 [1]
 May 2018 [5]
 April 2018 [4]
 March 2018 [2]
 February 2018 [4]
 January 2018 [4]
 December 2017 [2]
 November 2017 [6]
 October 2017 [6]
 September 2017 [6]
 August 2017 [2]
 July 2017 [2]
 June 2017 [5]
 May 2017 [7]
 April 2017 [6]
 March 2017 [8]
 February 2017 [7]
 January 2017 [9]
 December 2016 [7]
 November 2016 [7]
 October 2016 [5]
 September 2016 [5]
 August 2016 [4]
 July 2016 [6]
 June 2016 [5]
 May 2016 [10]
 April 2016 [12]
 March 2016 [10]
 February 2016 [11]
 January 2016 [12]
 December 2015 [6]
 November 2015 [8]
 October 2015 [12]
 September 2015 [10]
 August 2015 [14]
 July 2015 [9]
 June 2015 [9]
 May 2015 [10]
 April 2015 [9]
 March 2015 [8]
 February 2015 [8]
 January 2015 [5]
 December 2014 [11]
 November 2014 [10]
 October 2014 [10]
 September 2014 [8]
 August 2014 [7]
 July 2014 [5]
 June 2014 [7]
 May 2014 [6]
 April 2014 [3]
 March 2014 [8]
 February 2014 [6]
 January 2014 [5]
 December 2013 [5]
 November 2013 [3]
 October 2013 [4]
 September 2013 [11]
 August 2013 [4]
 July 2013 [8]
 June 2013 [10]
 May 2013 [14]
 April 2013 [12]
 March 2013 [11]
 February 2013 [19]
 January 2013 [20]
 December 2012 [5]
 November 2012 [1]
 October 2012 [3]
 September 2012 [1]
 August 2012 [1]
 July 2012 [1]
 June 2012 [2]


Categories


 Agriculture [77]
 Bayesian Inference [14]
 Books [18]
 Business Models [24]
 Causal Inference [2]
 Creativity [7]
 Decision Making [17]
 Decision Trees [8]
 Definitions [1]
 Design [38]
 Eco-Green [4]
 Economics [14]
 Education [10]
 Energy [0]
 Entrepreneurship [74]
 Events [7]
 Farming [21]
 Finance [30]
 Future [15]
 Growth [19]
 Investing [25]
 Lean Startup [10]
 Leisure [5]
 Lens Model [9]
 Making [1]
 Management [12]
 Motivation [3]
 Nature [22]
 Patents & Trademarks [1]
 Permaculture [36]
 Psychology [2]
 Real Estate [5]
 Robots [1]
 Selling [12]
 Site News [17]
 Startups [12]
 Statistics [3]
 Systems Thinking [3]
 Trends [11]
 Useful Links [3]
 Valuation [1]
 Venture Capital [5]
 Video [2]
 Writing [2]