- Associated Press - Saturday, June 3, 2017

DES MOINES, Iowa (AP) - The merger mania that’s gripped global seed and chemical companies has taken root in Iowa, with the number of grain and farm supply cooperatives shrinking about 45 percent over the past decade.

The co-ops, the hub of hundreds of small towns across Iowa, have dropped from 90 in 2007 to about 50 so far this year, according to preliminary data collected by Keri Jacobs, an Iowa State University economist, who recently released a report looking at consolidation.

Earlier waves of Iowa elevator consolidation were driven by financial shocks, including the 1980s farm crisis, Jacobs said.

Not so this time, even though U.S. farm income this year is expected to decline a fourth year in a row to $62.3 billion, about 50 percent below the peak in 2013, The Des Moines Register (https://dmreg.co/2rcuGmr ) reported.

“They’ve built up pretty impressive balance sheets” before commodity prices declined, she said. “Only in recent years have we seen a drag.”

More recent combinations are driven by multi-billion dollar mergers such as Dow and DuPont, Bayer and Monsanto, and Syngenta and ChemChina.

Some Iowa cooperatives feel they need to get bigger to better negotiate deals with suppliers that are growing in size, she said.

“It’s about how to remain competitive,” Jacobs said. “How can co-ops remain big enough to be equal trading partners with these massive multi-nationals.”

The mergers both locally and nationally have some Iowa farmers worried, says Aaron Heley Lehman, president of Iowa Farmers Union.

The Iowa Farmers Union opposes the massive global agriculture mergers.

Big ag companies say they’re merging to improve efficiencies and cut costs that can reduce seed and chemical prices for farmers, and to more quickly bring innovative products to market.

Lehman’s group doubts that. Fewer companies in the market, he said, will “lead to fewer choices, higher prices, and ultimately less innovation.”

The group takes no position on local mergers, however.

They’ve included Farmers Cooperative Co. and West Central Cooperative combining; MaxYield Cooperative buying the Iowa assets of the private business Andersons Co.; and Western Iowa Cooperative merging with New Cooperative.

Lehman said some members are concerned about potentially losing local services or their voice in the co-op’s operations.

They weigh those worries against the co-op’s ability to provide products and services at competitive prices, he said.

“It’s controversial, similar to when schools consolidate,” Lehman said. “They add a lot of viability for small towns in Iowa. These decisions aren’t made lightly.”

Corn remains king in Iowa, but a look at recent data from the U.S. Department of Agriculture shows soybean production is increasing in the Hawkeye State.

Co-ops are often a small town’s biggest employer, and can be the area’s only gas station and sometimes a source for groceries and hardware supplies.

Unlike the large corporations closing plants or offices to cut costs, local co-op locations have grown slightly over the past decade, Jacobs said, likely through the purchase of privately owned businesses.

Cooperatives are driven by a different mission than publicly traded or privately owned companies, she said.

In addition to co-ops’ financial health, they’re looking at farmers’ profitability and their rural communities’ viability when they’re making decisions.

“Co-ops will maintain facilities in small towns because it benefits their producer members - even though it may not be the most profitable decision,” she said.

They’re also looking the size of their customers. “Another reason agribusinesses are growing is because producers are getting bigger,” Jacobs said.

Iowa farms have shrunk from 121,000 in the late 1970s to 87,500 in 2015, according to the U.S. Census of Agriculture. At the same time, the average farm size has grown from 275 acres to about 350.

Large producers could choose to go directly to companies such as Monsanto or Dow to buy fertilizer and seed.

“Smaller cooperative may not be able to offer the same discounts larger producers can get by purchasing direct,” she said.

Still, farmers need co-ops for many of the same reasons they were established in the late 1800s, Jacobs wrote: To help provide members with “market access and power,” pool risk and more efficiently provide farm services that can range from help selling and shipping grain to buying high-dollar equipment such as sprayers to battle weeds.

Members will decide how best co-ops can serve them, including staying relatively small, Jacobs said.

“It will be different for every cooperative. Some are choosing to position themselves in the market through growth - through acquisitions,” Jacobs said.

Others are “choosing strategically to stay small, focus on core operations - be a very high-touch, high-service.”

“There’s room in this space for both types of firms - small, hands-on cooperatives and some very large ones,” she said.

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Information from: The Des Moines Register, https://www.desmoinesregister.com

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