Cooperatives come with benefits, but this season revealed the risks
As farmers continue to struggle through this historically difficult harvest season, sugar beet farmers in the Red River Valley have been highlighted as having a particularly tough time. Sure, there will be lost acres of other crops, but rumors of American Crystal Sugar charging growers for undelivered beets have put public sympathies squarely with those farmers.
However, that sentiment forgets that the sugar beet growers are American Crystal Sugar, and American Crystal Sugar is the sugar beet growers.
Cooperatives are fairly common to agriculture; if you're in agriculture, you probably belong to at least one. Think of your local farm store or the grain elevator. If you get dividends from it, it's a cooperative. You are both an owner and a customer.
Sugar beet growers in the Red River Valley purchased American Crystal Sugar in the early 1970s, becoming the country's first grower-owned beet sugar cooperative. It's a closed co-op, meaning owners of the cooperative are the only farmers growing beets for its factories.
If you want to sell beets to American Crystal Sugar, you have to own shares in American Crystal Sugar. Those beets, along with grower-contracted beets in Montana and western North Dakota, are processed in factories in Minnesota, North Dakota and Montana. Another sugar cooperative in the Red River Valley, Minn-Dak Farmers Cooperative, operates similarly in southeastern North Dakota.
According to U.S. Department of Agriculture data, American Crystal Sugar in 2017 was the 15th largest cooperative in the nation and the largest sugar cooperative, with $1.421 billion in revenue and $938 million in assets.
American Crystal Sugar says its cooperative shareholders produce about 425,000 acres of sugar beets in the Red River Valley every year. Minn-Dak Farmers Cooperative shareholders grow about 115,000 acres.
The grower-owners sign agreements to bring in their share of the beets to cover factory fixed costs. If they can't deliver the beets, they have to pay in. It isn't a big deal in a normal year. We all know 2019 hasn't been a normal year.
Yes, farmers will feel some pain from this. Some of it will be covered by crop insurance. But the vertical integration of the industry also has provided for economic security for Red River Valley sugar beet growers for more than four decades since the co-ops formed.
The farmers involved knew the risks of their agreements, just as they have reaped the rewards in past years.
We all are hopeful that this year is a blip on the radar, the likes of which we never again will see. But it will give farmers a concrete example of co-op obligations, and the art and political science of making those obligations equitable. It's a worst-case scenario.