Farmers Question Co-op Merger
Chris Clayton DTN Ag Policy Editor
Mon May 18, 2015 08:30 AM CDT
(Page 1 of 3)

MELLETTE, S.D. (DTN) -- Lannie Mielke is leading a group of farmers in north-central South Dakota who want to buck the trend of local farmer cooperatives merging just because bigger is better.

The South Dakota Wheat Growers Association grain elevator in Mellette competes with a North Central Farmers Elevator in Northville, just 4.5 miles away. Management at the cooperatives want to merge to reduce what they see as inefficient competition, but local farmers note at times one elevator might offer them a better deal over the other. (DTN photo by Chris Clayton)

Mielke and others don't see the benefits of their two local farmer co-ops merging. Instead, they view the merger as a loss of local competition in South Dakota. They haven't been swayed by the pitches made at 46 local meetings explaining why bringing together South Dakota Wheat Growers Association and North Central Farmers Elevator is a good idea.

Opponents of the merger question the rationale when they see two local competitors that are healthy and strong. For Mielke and others concerned about the merger, local competition is the central issue.

"We have no issues with the co-ops," Mielke said. "We love the co-ops, but in this day and age, one less competitor is a big thing."

Mielke later added, "I want to stress we are not against the co-ops. It's just the opposite. We want it to stay the same."

The cooperatives signed a letter of intent to merge in early March and announced at that time that they had been analyzing the situation since last spring. The merger would combine more than 30 Wheat Growers locations with 24 North Central locations. The new cooperative, which would be named CentraGro, would have a territory stretching from central North Dakota to southern South Dakota, though the dominant coverage area would be the central strip of South Dakota running east and west of Highway 281.…

South Dakota Wheat Growers Association is ranked as the 11th-largest cooperative by USDA based on 2013 revenues of $2.1 billion. North Central Farmers Elevator is ranked as the 40th-largest cooperative in the country with about $906 million in revenue in 2013. Based on those 2013 figures, the combined cooperative would be somewhere in the top eight largest cooperatives in the country, if the merger is successful.

Stephen Briggs, senior vice president of agronomy and corporate marketing for Wheat Growers, said critics aren't looking at the growing competition the cooperatives face from various grain companies building facilities in both North and South Dakota. Briggs points to facilities owned by Cargill, ADM, Gavilon, as well as the Japanese firm Mitsui and Co., which have all more aggressively built elevators and locations in recent years.

"Since 2010, 17 of these elevators have been built by what I call non-local, multi-national companies in our trade area -- 17 shuttle loaders," Briggs said. "They are all around us."

From an agronomy side, Briggs said there are 174 competitors in the trade area selling seed, fertilizer and chemicals. "We are not without agronomy competition."

Briggs said those companies are coming in, competing and taking money out of South Dakota. Thus, backers of the merger -- including unanimous support from both cooperative boards -- see the need for the cooperatives to provide greater efficiencies in both inputs and grain sales. Briggs said opponents are failing to look at the bigger picture of competition. Right now, farmer-owners are paying for duplication and redundancy with both cooperatives.

"What's happening now in our trade area is we're starting to waste -- call it waste -- farmer money because we're starting to duplicate a lot of assets. We're driving by each other's elevators with our own trucks to get to our own elevators, instead of going to the nearest elevator. We've got people spreading fertilizer almost in neighboring fields sometimes, and that's terribly inefficient."

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