March 2009
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AFC Leadership Charts Course for Uncertain Times

AFC President Tommy Paulk addressed the 72nd annual meeting of Alabama Farmers Cooperative on February 5 in Birmingham.

Alabama Farmers Cooperative (AFC) had record earnings last year, but that was "yesterday" and AFC President Tommy Paulk has announced an austerity program to cope with dramatically changing times that have not been good.

Details of the plan, which range from curtailing growth, reducing debt, cutting the work force and streamlining operations across the state, were detailed at AFC’s 72nd annual membership meeting on Feb. 5 at the Wynfrey Hotel.

 "We are in uncharted waters," Paulk told hundreds of AFC members. "None of us, with the possible exception of the few among us who lived through and remember the Great Depression, have ever seen times like this."

The austerity program comes in the wake of a weakening economy resulting in millions of job losses, personal spending cut to the bone and worries mounting in homes across the country.

The AFC president began his annual address by commending members for their efforts during 2008, especially in the Grain Division which, in the words of AFC Chief Financial Officer Dan Groscost, had a "spectacular year."

Grain ended the year with revenues of $134 million and earnings before taxes of nearly $9 million. That compared with revenues of just under $50 million for 2007 and earnings before taxes of $2.7 million.

Bushels of grain more than doubled, from 9.8 million in 2007 to 20.2 million in 2008.

AFC’s Bonnie Plants also had a record 2008 with sales of $172 million and earnings before taxes of $18.6 million. Groscost said sales last year were $30 million higher than the previous year while net margins were $3.7 million higher.

To illustrate his presentation of just how far-reaching Bonnie Plants has become around the United States, Groscost displayed a large map of the country on a screen showing Bonnie operations in 49 states along with the Canadian province of Ontario.

He said the division has 51 growing stations and, at its seasonal peak, employs more than 200 workers.

The Feed, Farm and Home Division also had a solid 2008 with sales of $43.7 million and earnings of $1.5 million.

Considering market conditions, Groscost said 2008 "represented solid management throughout all areas of this organization," but he pointed out in his report that "continued discipline and financial management" will be the key in meeting 2009 goals "in a challenging economic environment."

In his keynote address, Paulk said it is not easy to forecast the future, but told members methods that have worked in the past are good examples to use when it comes to preparing for hard times.

Following are some of the steps already set in motion or will be for the rest of the year. Paulk said the new policies are intended to:

*REDUCE the work force through attrition initially, but if that doesn’t work we may have to go beyond that. "We have already begun this process with three retirements in December. Their duties have been assumed by others already on the payroll."

*PASS on any acquisitions and new investments, no matter how attractive they might be. The only growth we will pursue will be in market share and even that must come without the need for new bricks and mortar or expensive inventories.

*REDUCE our seasonal borrowing by moving seasonal debt to term to the extent we have assets to back it. We will sell our corporate offices under a lease-back arrangement, limit forward contracting for grain and, for at least one more year, pay 20 percent of patronage in cash.

*MANAGE accounts receivables with conservative credit policies as well as aggressive collection policies and increased utilization of outsourced credit programs like FarmPlan.

*INSTILL discipline in managing and monitoring inventories, expenses and margins.

*UPGRADE information systems hardware and software so fewer people can access more information and use it to make smarter, faster decisions in managing our Co-ops.

The belt-tightening decisions by AFC directors are similar to steps being taken by private and public organizations around the country in the past year as the unemployment rate reached the 7.5 percent mark the day Paulk gave his "State of AFC" address.

The president offered a "good news, bad news" view of the previous year in his annual report, countering positive with negative results in an effort to balance conditions and present a realistic picture for members.

He said the plan approved by AFC leaders should "help us ride out these tough, uncertain times" and it is not "very pretty or exciting…it’s just necessary."

In addition to reducing debt and curtailing growth in the coming months, Paulk said "we must divest ourselves of under-utilized or non-performing assets."

He also stated it is imperative for AFC leaders to "use our influence and, in some cases, our authority to ensure our member Cooperatives adopt and embrace those same policies."

"Everyone on this team must carry his or her own weight, plus a little extra until times get better," Paulk remarked.

To that end, he said, AFC has contracted with Terracon Consultants to conduct limited compliance assessments for each store in the AFC system "and provide us with recommendations to address any concerns they discover."

Paulk stressed the importance of a team concept; one requiring individuals as well as groups to work together for the betterment of the parent organization.

As an example, he mentioned the importance of each Cooperative to step up its debt collections.

He said when one Co-op fails to "reign in" accounts receivables, the lingering debt "becomes a liability to the rest of us." The same applies to managing inventories, expenses and margins.

Paulk noted Co-ops within the system "have a proud history of generosity" in authorizing AFC to help when one of them has a problem and "stumbles."

"But there is a limit to the amount of help available these days and when self-sufficiency cannot be restored, we are forced to consider mergers and, in some cases, closures," Paulk said.

He said some of those steps have been taken during the past year and "while none of us likes it, we will do what is necessary to protect the viability of this cooperative system and I know you understand that."

Alvin Benn is a freelance writer from Selma.