The Y in the Road
George Siemon—CEO
As CROPP Cooperative matures it is important to revisit our foundations to keep the cooperative vision strong and to understand what our winning formula has been. In discussions with Wayne Peters and Jim Wedeberg about the passing of one of our fellow founding dairy farmers Ray Hass, we all agreed that we need to start writing down some of our foundation principles for the future leaders of CROPP Cooperative. The 'Y in the Road' concept is a classic part of our foundation.
Target Pricing is Key
When the CROPP dairy pool started it was with very strong roots in collective bargaining. There was a frustration with the existing market system whether cooperative or not. The organic milk market was seen as an opportunity to practice collective bargaining and to seek to establish a stable pay price. We decided to take a firm stand on pricing for organic milk and to never sell to any customer below our established target price of $17.50/cwt. Part of our annual budget process, then and now, is to establish target prices for the coming year. To this day we have never sold organic milk below the target price, which is a testimony to our beliefs and the importance of this foundation.
We established some foundation rules for the dairy pool that are still in place today and truly are part of our successful formula. First was the establishment of a target price for organic sales by the pool with input by the management. Second was the fact that the actual pay price would be the blending of the organic sales at target with income from conventional sales. Thirdly, any variations caused by yield or quality are the pool's costs, as they reflect milk components and quality. We all take these risks as owners. The final rule was that the business should run at a minimum profit and maximize pay price to the farmers.
The "Y" in the Road
All these and more were combined into the establishment of what became the 'Y in the road' which came from the early days when all of the dairy funds went through NFO. We established that the Farmer Pool should get paid the target price first, as that was really what the farmers could control and the business could have the balance. So the 'Y in the road' is that first the Pool side gets 100% of the income with the target income staying and then the balance going to the business/operation side.
What this does is give the farmer the assurance that the business in honoring the target price and the only way the pay price would go down is when the utilization goes down or by a Board dictate. Utilization was set up to be a Pool controlled function through supply management policies. Taking on new farmers, expanding bases, farmers' quotas and other milk supply policies is a critical part of the pool responsibility.
The 'Y in the road' also recognizes that the farmer can only control so much, and the real power is at the bulk tank before the business steps in to pick up the milk. Establishing two sides to our business clearly establishes the dynamics of the primary relationship that makes CROPP Cooperative succeed: employees and farmers. The founding farmers recognized the importance of the employees as the other dynamic partner and how with the assurance of the target price the farmers needed to allow the employees to run the business. It was even discussed early on about forming an employee cooperative to represent the dynamics between the 2 groups.
Keeping our Perspective
The 'Y in the road' has been a valuable perspective and a concept that has served us well. Whenever we make a decision at CROPP we are able to see that the decision might benefit one side and not the other. This perspective forces us to consider how our decisions affect the farmer side. We are a farmer cooperative, and of course, the farmer should be considered in every decision. In comparison, most cooperatives take the view that whatever is good for the business is good for the farmers.
Today we still maintain all aspects of the 'Y in the road' at CROPP Cooperative. This causes us to have about twice the cost centers in our reporting systems, which sometimes frustrates the accounting staff, but this is part of respecting and carrying on the good work of our founders.
