April 2011
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AFC Focused on Strengthening System through Consolidation

Tommy Paulk addresses the annual Alabama Farmers Cooperative meeting on Feb. 17, 2011.

 
   

After a topsy-turvy year with its share of business positives and negatives, Alabama Farmers Cooperative, Inc., (AFC) has been focusing on some major changes since the dawning of 2011.

That was the message from AFC President Tommy Paulk at the organization’s 74th Annual Meeting February 16-17, 2011, in Auburn.

"We saw progress and we saw disappointments as 2010 proved to be a year of mixed blessings," Paulk said in his keynote address.

Most of AFC’s Co-ops continued to do well in the past year, but some did not and that strengthened the belief of top management that changes are needed and those changes can’t wait.

He used two words—"tough love"—to describe the planned approach in response to the failure of some local Co-ops to excel in categories vital to continued financial stability.

"We love our Co-ops and we don’t want to see any fail," he said, without mentioning any of the troubled businesses by names. "We’ve tried to retrain and redirect management. Failing that, we’ve tried replacing management. Failing that we’ve implemented mergers." Failing that, the final step is closure.

Paulk and his key aides have closely studied those Co-ops with problems and reached the conclusion that "we’re going to have to pull out all the stops to rescue them or close them."

"Individual Co-ops will be graded accordingly," he said at the Auburn University and Dixon Conference Center where more than 300 farmers, Co-op managers and AFC staff from around the state listened intently to his speech.

In some cases, he said, assets from Co-ops that were not performing as expected or hoped for, AFC bought their assets and leased them to other, profitable Co-ops.

"Understand that when we take these drastic steps we’re using money that belongs to stronger Co-ops," he said, adding: "The stronger Co-ops are subsidizing the weak and it’s fair for stronger ones to ask how long is appropriate for us to do this."

Paulk insisted "we don’t believe in sending good money after bad" and pointed out business setbacks are not unusual for agricultural cooperatives through the years across the country.

"All Co-ops in our system, except for one, have at one time or another seen financial difficulties, and we have a good track record of rescuing them," he said. "But, folks, in this environment, those rescues will have to come faster and it’s going to have to be more solid. There is no alternative."

AFC Chief Financial Officer Dan Groscost said the number of Co-ops in Alabama has been trimmed to below 40 and for a variety of reasons.

"We just didn’t see them as being viable and didn’t see any way they could work their way out of their problems," he said. "Some Co-ops had been losing money for a number of years and had gone through much of their equity."

Groscost said almost every one of Alabama’s 67 counties had farming cooperatives at one time, but added that times are changing, leading to decisions affecting their futures, especially if they are to stay in business.

"Actually, we’re really behind other states when it comes to consolidating co-ops," he said. "That’s especially evident in Midwest states."

Referring to an austerity program he initiated three years ago, Paulk said it is continuing and will remain in effect until existing debts are brought in check.

"Good times are easy and fun," he said. "We can have a good time when we’re all making money and have no worries, but the true test of success comes when we are challenged by times that are not so good."

Paulk said AFC has "passed that test," but new ones are around the corner, as they are for all successful business operations.

To put things in proper perspective, Paulk provided an analogy about a farmer who goes to his favorite bank after the harvest is in and he is preparing for the next year’s planting.

"It’s a familiar ritual," Paulk said. "He goes down to the local bank and pays off his operating loan and then sits down with his banker and they discuss plans for the upcoming year."

The two discuss crops and budgets, and the banker approves a loan for the next planting season. The farmer then goes home where he breathes a sign of relief and tells his wife: "Well, they’re gonna let us farm another year."

He followed that example with details about the good and the bad of 2010 and he didn’t pull any punches.

"For the first time in over 20 years, our Bonnie Plants Division sales did not surpass the sales of the previous year and that was a disappointment," he said.

Paulk said the main reason was a decision to "gear up for a huge increase" in sales, only to see, when expectations did not occur, the investment cost factor proved to be more than just a little discouraging.

On the bright side, he said, Bonnie Plants continues to be AFC’s largest division "with modest profits of some $12 million, despite a late spring nationwide, coupled with a temporary deterioration in the relationship with one of our large chain retailers that cost us heavily."

"We’ve made the appropriate adjustments to grow this business and earnings in the future," he said, adding the cooperative continues to search "for the right partner and products to help us take the Bonnie brand into western Europe."

Paulk said another major disappointment during 2010 was BioLogic; "a fairly new division we purchased, but could never seem to get over the hump on profitability."

"We loved the brand and we loved the business," he said. "It’s fun selling to hunters, but facing the stark reality of that industry in these times, we decided to resell a majority interest in that company to our partners at Mossy Oak."

He said his organization’s greatest triumph, "psychologically speaking," was AFC’s grain division, which now pays patronage to member cooperatives.

Paulk used "tough love" several times during his address as he drove home his concerns over economic challenges and how AFC plans to deal with them.

As he concluded his speech, Paulk thanked the farmers and Co-op managers who have supported AFC through the years and said the entire cooperative system would not be successful without that support.

"We need strong support and loyalty from our members," he said. "You’ve demonstrated that, and it’s the only reason we’re successful. I want you to know that we are aware we must continue to earn your trust and loyalty every day."

 

David Sparks (right), regional vice president of CoBank’s Eastern Division, and Terry Barr, CoBank’s senior director of Industry Research and “Knowledge Exchange,” brought AFC members up to date on the changing world market and how they impact individual farming operations around Alabama and the rest of the country.

Terry Barr and David Sparks, executives of CoBank in St. Louis, brought AFC members up-to-date on the changing world market and how it impacts individual farming operations around Alabama and the rest of the country.

"Basically, agriculture is one of the highest risk industries we finance, even more today," said Sparks, regional vice president of CoBank’s Eastern Division.

Barr, CoBank’s senior director of Industry Research and "Knowledge Exchange," said China continues to be the "big key" in future agricultural efforts around the world.

He said that country’s billion plus residents are increasing their diet quality, especially when it comes to soybean consumption.

"Soybeans are converted into meal and oil and used to produce meat and other more desirable foods. What’s left over is shipped to their neighbors," said Barr, who indicated Alabama’s soybean farmers could benefit from those developments in China.

Alvin Benn is a freelance writer from Selma.