New Generation Co-operative Model

The New Generation Co-operative (NGC) model is a business structure that allows farmers to increase their incomes and to offset some of the negative impacts of recent changes in agriculture. Saskatchewan's NGC Act makes it possible to achieve all the benefits of the NGC model.

Agriculture has been affected by changes in technology, institutional structures, regulations, integration of value chains, and the globalization of agricultural markets. Consumers today are demanding food products that offer choice, quality, consistency, and value. Saskatchewan farmers have also been impacted by the loss of the WGTA, or “Crow” subsidy. If agriculture is to survive in this province, it will require new strategies, different organizational structures, and creative attitudes.

The New Generation Co-operative model fulfils all of these requirements, providing opportunities for farmers to invest in ventures that add value to their raw commodities. The model is based on the many successful NGCs in the United States that process commodities including Bison, durum, organic grains, soybeans, eggs, and edible beans.

New Generation Co-operatives adhere to the basic principles of co-operation set out by England's Rochdale Society of Equitable Pioneers in 1844: democratic control and one member, one vote. The NGC share structure is characterized by three classes of shares: membership, equity, and preferred. The membership share gives the holder the right to vote and the right to purchase equity shares, which are attached to delivery rights. Only producers of the commodity can hold membership shares, thereby ensuring that control of the venture remains in the hands of the producers. Voting rights are tied to membership, independent of the level of investment. This ensures that no one member can exercise control over the group.

Each equity share gives the member the right and the obligation to deliver one unit (e.g., one bison or one bushel of durum) of product to the co-operative for processing. It is a two-way contract; the member is committed to deliver and the co-operative is committed to take delivery. The contract sets out the standards for quality, and delivery is regulated to keep the plant running at capacity. In the event that a member is unable or unwilling to make delivery, the co-operative will purchase the amount of the product covered by the contract and charge the cost towards the member's equity account. This strategy ensures that the co-op will have a consistent quality and quantity of product, and can focus on developing markets.

The purchase of equity shares represents both a significant investment on behalf of producer-members and a critical infusion of equity for the co-operative. The sale of delivery rights, in fact, is a mechanism for securing start-up capital, with member equity investment typically representing 35-50% of the start-up costs. This structure provides the obvious benefit to the co-operative of low debt, which is further augmented by member commitment. The loyalty of members is locked in through the contract and the investment; the member has made a large investment and will act to ensure the success of the venture. Equity shares are tradable and transferable; they have value and can be sold to other producers with the approval of the board of directors, as well as being passed on to the next generation.

The preferred share allows the co-operative to invite investment from non-producers, who cannot vote except in certain circumstances described in the legislation. The preferred share offers a limited, fixed rate of return. Communities and non-producers choose to purchase preferred shares because they want to support development in their communities and encourage job and wealth creation close to home.

NGCs are select- or closed-membership co-operatives. The feasibility study determines the most efficient plant size, which, in turn, determines the amount of product the plant can accept. Equity shares are issued to members based on the capacity of the plant. Once the allotment of shares is sold, the membership is closed. New members will be accepted and additional equity shares issued if the plant expands. Comprehensive feasibility studies and business plans are critical to the success of these ventures. NGCs often operate in niche markets, where it is important to understand the type, quality, and quantity of product demanded. A clear understanding of markets and consumers has enabled these ventures to serve markets that large corporations cannot.

Brenda Stefanson

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Further Reading

Stefanson, Brenda. 2001. “New Generation Co-operatives: An Introduction.” In New Generation Co-operatives: Resource Materials for Business Development Professionals and Agricultural Producers. Saskatoon: Centre for the Study of Co-operatives, University of Saskatchewan.