Direct Marketing Plan for Keota Farmers Cooperative Association

Situation Overview

The Farmers' Cooperative Association of Keota (FCAK) is a farm supply and grain marketing cooperative located approximately 40 miles southwest of Iowa City. In 1997, it had gross sales of more than $22 million and a membership of 668. It employed 47 people, making it one of the larger employers in Keota. FCAK has a partnership with Farmland Industries through an innovative program designed to help reverse the decline in Iowa's hog industry.

In 1997, Iowa ranked first among all states in hog production, accounting for 22% of the nation's hogs. Production has been shifting to the South and Southwest, and many producers feel that their operations need to change. Over the past several years, Iowa farm numbers have fallen while the remaining operations have grown larger. This decline is a major concern because hog production adds value to the state's corn crop, creates a market for other feedstuffs, and generates demand for farm services and equipment. Hog farms also create jobs in the marketing, slaughter, and processing sectors.

New technologies in production have led to the construction of large-scale, low-cost hog production farms designed to meet consumer demand for leaner, more consistent pork products. Meat packers need large numbers of uniform-quality hogs from a single source. In addition, an increasing percentage of the nation's food supply is distributed through highly integrated agribusiness firms. Larger-scale hog operations have seen tremendous benefits from these trends. The traditional hog producer with fewer than 500 sows is struggling to compete with these mega-farms. Capital costs and associated market risks prevent many young people from entering hog production (Generating rural progress, n.d.).

Market, Competitor, and Customer Research

FCAK found itself losing business to competitors offering various services to farmers, such as record keeping. The cooperative's board approached Farmland Industries for assistance and met with an Iowa State University Extension specialist to discuss possible responses to the structural changes occurring in hog production. Farmland manages a swine program for independent producers known as an alliance farm system.

In the past, farmers retained ownership of production facilities and their hogs, accepted all risks, and reaped all returns from production. The alliance system offers a way to help smaller operations greatly expand their hog production. This includes construction guidelines for buildings, simplified financing, and access to high-genetic-quality feeder pigs. Farmland offers marketing agreements that include market price-risk sharing programs, futures contracts, and carcass merit pricing. They also provide access to swine specialists to assist with management, as well as feed and services provided by the local farm supply cooperative.

The alliance system requires that a hog farmer purchase feed from the local cooperative if the farm is located within a 25-mile radius of the cooperative. This agreement holds for a period of ten years, after which the farmer is free to purchase feed from an alternative supplier. The local cooperative benefits through growth in feed sales and other services arising from these contractual arrangements (Cropp, 1998).

The management of Farmers' Cooperative observed how the hog industry in Iowa was changing. An Iowa State University Extension swine meeting focused on the structural changes in hog production, and information from that meeting confirmed the thinking of management and some board members that action was required to ensure that hog production would remain in the local community. Not only were the number of hog farmers declining, but competitors were offering various services — record keeping, for example — to hog farmers and drawing them away from Farmers' Cooperative. The board decided that Farmers' Cooperative also needed to provide hog producers with new services. Farmland was approached for assistance, and a swine specialist was hired by Farmland to provide management services to Farmers' Cooperative members (Cropp, 1998).

Research into why members of Farmers' Cooperative of Keota have participated in the alliance program showed that members want:

Strategy and Alliance Program Benefits

The research clearly shows that becoming a member of the alliance program is very beneficial. The alliance system offers smaller operations ways to expand hog production, including construction guidelines for buildings, simplified financing, and a source of high-genetic-quality feeder pigs. In order for livestock marketers to be successful, it is important that they:

The impact on Farmers' Cooperative has been very positive. The cooperative now has a modern feed mill that efficiently and competitively serves its members. Without the swine program, feed sales would not have justified the capital investment in the feed mill. Members who are not involved in the contractual swine program, but who produce hogs or other livestock, also benefit from this modern feed mill operating near capacity. The expanded feedstuffs and feed management expertise made possible by the expanded feed business benefit all hog and livestock members. The expanded hog production in Keokuk County has also improved the market for corn grown by crop farmers, as local corn prices are stronger as a result. Farmers' Cooperative has hired a grain marketing specialist and is expanding into precision agriculture services for its members (Cropp, 1998).

The Keota Farmers Cooperative Association will provide information about these benefits in an effort to increase membership. The information brochure will highlight the importance of the alliance program. Special advertising will promote the facilities and features available to members. An open house will be held so that potential members can ask questions and receive immediate answers, enabling them to make better-informed decisions about the future of their businesses. Results of new membership will be tracked in a database program.