Serving Member Interests in Changing Markets: A Case Study of Pro-Fac Cooperative
Henehan, Brian M.; Schmit, Todd M.
Since the inception of Pro-Fac Cooperative (PF) in 1960, the cooperative has undergone significant structural and organizational changes. The PF case presents a unique opportunity to examine the changes in the processed fruit and vegetable industry and the strategies adopted by a producer-owned cooperative to best represent member interests in the face of the industry structural changes over the past fifty years. PF is an agricultural cooperative that markets crops primarily grown by its member-growers, including fruits (cherries, apples, blueberries, and peaches), vegetables (snap beans, beets, peas, sweet corn, carrots, cabbage, squash, asparagus and potatoes), and popcorn. Members are located principally in the states of New York, Delaware, Pennsylvania, Michigan, Washington, Oregon, Iowa, Nebraska, Florida, and Illinois. PF?s history can be generally broken down into three distinct time periods, each representing a significant phase of restructuring. Particular attention is given to the decision to enter into the most recent and current phase of operations. Adequate financing of operations and value-added enterprises were dominant foci over all three periods and each phase involved a different approach. A variety of strategies were also used to enhance the market security for products produced by members. Initially, PF was formed to help preserve the fruit and vegetable processing industry in New York State. At that time, owning the processing facilities was a logical strategy. The development of alternative cooperative structures is often pursued to ameliorate financial constraints, while attempting to maintain member control. The evolution and restructuring of the PF cooperative can also be described using an ownership control rights typology framework (Chaddad and Cook 2004). Drawing from the property rights and incomplete contracts theories of the firm, Chaddad and Cook argue that alternative cooperative models differ in how ownership rights are defined and assigned to the agents of the firm, i.e., members, patrons, managers, and investors. In the current phase, investors acquired ownership rights in a separate legal entity that is partly owned by the cooperative, i.e. a cooperative with capital seeking entities (Chaddad and Cook 2004). As time progressed and economic conditions changed, PF members were not able to adequately capitalize value-added operations. An arrangement was struck with a private equity firm to provide a needed infusion of capital. The case examines to decision made by the board of directors to enter into this agreement. PF has increased its capacity to serve as a preferred supplier to those firms that can afford owning and operating plants while divesting its majority, ownership position in processing assets.
WP 2009-09 February 2009
Charles H. Dyson School of Applied Economics and Management, Cornell University
agricultural cooperatives; fruit and vegetable processing; private equity firms; boards of directors; financing