Even if the Alliance Group adds to the disappeared co-operatives list, the co-op model remains resilient elsewhere

The list of New Zealand’s once ubiquitous agricultural co-operatives looks set to shrink once more, with the Alliance Group of meat plants looking almost certain to need outside investment to revive its fortunes. 

This development will continue a trend that caused many once flourishing co-ops to disappear into either full or partial private ownership, or to listed status on the share market. 

The prospect of the Alliance Group following this trend was made clear in an address at the co-op's last annual meeting in Gore from Chairman Mark Wynne. 

This speech acknowledged Alliance’s farmer-shareholders, who were asked to recapitalise the loss-making co-op last April, either couldn’t afford or didn’t want to pay the money in sufficient numbers. 

“The board's preference is for Alliance to remain a 100 per cent farmer-owned co-operative,” Wynne told the meeting. 

“However, raising the desired capital from farmer-shareholders now looks extremely difficult. We continue to explore other shareholder funding options.

“We are early in the external capital raise process being led by Craigs Investment Partners. Initial signs are encouraging, with both offshore and onshore interest. How this plays out is too early to say.”

If this process goes ahead as signaled, the Alliance Group will follow the experience of its big rival, Silver Fern Farms, though probably to a lesser degree. It spent 68 years as a co-op called the Primary Producers Co-operative Society (PPCS), but surrendered half of its value in 2016 to the Chinese firm Shanghai Maling for $261 million. There was much nationalistic flag waving by politicians at the time, but the co-op’s farmer-shareholders voted to sell anyway, after painfully paying down debt only to face the prospect of having to pay down a lot more. 

But Silver Fern Farms is not alone. The Talleys-owned private company, AFFCO, takes its name from the initials letters of the Auckland Farmers Freezing Company – which was once a co-op.

Westland Milk ended more than 80 years as a co-op when the Chinese company Yili Group took complete control during a debt crisis and the possibility of a Government bailout in 2019. Other co-ops were formed in each province in the last decades of the 19th century, but most were bought out over subsequent years by investors.

The agricultural co-op lives on

Despite these trends, the era of the agricultural co-op is far from dead. One thriving co-op is the dairy genetics co-op Livestock Improvement Corporation (LIC). It proudly avows its co-operative status, declaring that all its profit goes back to its farmer-shareholders after subtracting money for further research. LIC finances stuttered during the high interest-rate regime of the past few years, but experienced a 34.8% increase in net profit after tax in its latest half year report. 

Other extant co-ops include the fertiliser industry's Ravensdown and Ballance. The former made a profit of $4.8 million before tax and the latter, a commensurate figure of $17.2m. Another co-op is the rural supplier Farmlands, which made a net loss after tax of $14.3 million, due to tight farmer spending during tough times and a significant one-off accounting adjustment. Another agrarian supply co-op, Ruralco, also made a loss and is opting to refocus attention on its core business and its Canterbury region. 

Variations like these are only to be expected in co-ops, according to an agricultural economist at NZIER, Chris Nixon.   He says the issue is a complex one, with evidence pointing to both thriving and struggling co-ops. 

“According to textbook opinion about co-ops versus investor-owned firms, it’s made clear that the latter are more efficient,” he says.

“We find co-operatives have struggled to raise funds because they don’t have the ability to issue shares on the stock market as traditional investor-owned businesses do. That means they have limited access to large pools of capital, which is a difficult problem if farmers are reluctant to invest large sums of money.

“But I think this could be a red herring, because we are talking about businesses – investor firms or co-operatives - making bids in the market and some of those bids will succeed and some will not succeed.” 

Nixon says many currently trading co-ops are doing fine. The problem may stem more from the line of work they are in than from the structure of the business. He cites the sheep meat industry as a struggling sector that would be proving difficult for companies of any structure.

The co-operative movement as a whole is rejecting any suggestion that it is in decline. It has its own lobby group, Co-operative Business NZ, and insists it is fighting fit, with the top 30 co-operatives contributing 13% of GDP and employing more than 41,000 people. 

“There are about 125 companies registered under the Co-operative Companies Act 1996 which are active in New Zealand at the moment,” says the group’s CEO Saya Wahrlich.

“Then, there are a few hundred other member-owned businesses, such as retail groups, provincial organisations, credit unions and mutual societies.

“They all form around people having a common need which feeds into co-operative principles which includes the retention of profit by the members of the group. From a New Zealand economy perspective, the money doesn’t go offshore, it stays in our communities and it supports our communities and particularly our regions.”

Wahrlich also insists co-operatives are no less efficient than investor-owned business – nor do they find it harder to raise capital – “We can go to our banks just like any other organisation.”

Meanwhile, the giant of them all – Fonterra – remains a proud and assertive farmer-owned co-op, but has a sprinkling of investor icing sugar, with non-voting shares tradable on the NZX and ASX via the Fonterra Shareholders Fund. In addition, Fonterra’s sale of its consumer brands such as Anchor, could transfer some economic activity out of the co-op sphere if they are bought by a listed or private company.

 Internationally, the co-op movement is thriving – in fact the United Nations has designated 2025 as the International Year of Co-Operatives. This is overseen by a global body, the International Co-operative Alliance, which serves three million organisations world-wide, with total turnover of $US2.4 trillion. Large co-ops include the French banking giant, Credit Agricole and Dairy Farmers of America, which produces one fifth of the nation’s milk.