The growth and importance of farm cooperatives was underscored last week with the completion of the merger of Far-Mac-Co., Inc., into Farmland Industries, Inc.
As a result of the merger, Far-Mar-Co. will become the grain marketing subsidiary of Farmland - which was the nation's largest cooperative even before the combination.
In its most recent fiscal year, Farmland had more than $1.8 billion in sales and net profits of $96 million. Far-Mar-Co., with headquarters in Hutchinson, Kan., already was the biggest grain marketing cooperative in the country. In the year ended Aug. 31, 1976, Far-Mac-Co.'s sales were $1.08 billion and its net profit was $4.8 million.
Together their sales will put Farmland into the ranks of the 100 largest companies in the United States.
Farmland and Far-Mac-Co. are known as "federated regional cooperatives." That is, they are owned by local cooperative associations which in turn are owned by the farmers who trade with them.
Farmland's role is principally that of a wholesaler, with the local cooperatives acting as retail outlets for its farm supplies. Far-Mar-Co is a grain merchandiser, buying grain from its local cooperatives and reselling it to flour millers or companies.
Today's farm cooperatives are only distant cousins of the businesses that began in the early years of this century as small stores where farmers could buy a sack of feed and sell a few gallons of milk or a few dozen eggs.
Now the U.S. Department of Agriculture estimates that five out of six farmers are members of local cooperatives. In heavily agricultural areas it is difficult to find farmers who do not belong to at least one co-op. Secretary of Agriculture Bob Bergland and Billy Carter, the President's brother, are cooperative members.
Farmland's primary business has been providing farmers' with the feed and supplies they use in their operations. While many cooperatives have settled for being farm supply conduits, Farmland has gone much further. Through a group of subsidiaries, Farmland mines phosphate rock for fertilizer, searches for oil around the world and operates refineries, produces natural gas and processes it into nitrogen fertilizer, and manufactuers batteries, steel storage buildings, paint and other supplies.
Ernest Lindsey, the soft-spoken Texan who has been Farmland's president since 1967, said the decision to be a manufacturer as well as distributor has been the key to Farmland's success.
"If we were to choose one decision that has contributed most to Farmland's growth, it probably would be the decision to become basic in the products Farmland supplies," he said. "Being basic means controlling the products from the raw material in the ground through the manufacturing, process to delivery of the product to the local cooperative. Controlling the raw material has always been important. As the world supply of basic raw materials diminishes at the same time that demand for them grows, being basic becomes vital."
Far-Mar-Co, which itself was created less than 10 years ago by the combination of four grain cooperatives, owns elevator storage space for about 106 million bushels of grain. One of its elevators, located in Hutchinson, is reputedly the world's largest, it is nearly half a mile long and can hold about 18 million bushels of grain. In addition to its grain sales and storage operations, Far-Mar-Co processes soybeans, owns a spice production plant in Los Angeles and is deeply involved in food research.
But Far-Mar-Co's biggest current project - and one of the principal reasons for the merger with Farmland - is an attmept to increase its stake in grain exporting. Estimates are that cooperatives receive about 70 per cent of the grain produced in the United States, but have less than 10 per cent of the export market - which has provided an increasingly large share of farm income in recent years.
Traditionally cooperatives have been hamstrung in their export efforts because they have not had the financial resources needed to buy and hold large grain inventories. Most attempts at creating grain pools have failed.
In 1975, before the merger talks began, Far-Mar-Co launched a wheat called "Pro-Mark".
Export sales out of the pool began last fall. Far-Mar-Co officials say the grain sold from the pool has received on the average a higher price than farmers are receiving for grain they market on their own.
The merger of Farmland and Far-Mar-Co has been discussed several times in recent years. The latest round of talks began last May. In late November, the board of each cooperative gave its approval; Farmland's members approved the action in December and Far-Mar-Co's locals followed suit in February. Completion of the merger was held up while the Internal Revenue Service studied a request that the stock exchange involved in the merger be considered tax free. IRS granted the ruling late last month.
Despite the size of the transaction, there was little opposition to the merger. Some farmers grumbled that the merged cooperative might be too big; in some areas. Farmland has a reputation for aloofness. But those arguments apparently were overcome easily. Officials held a series of meetings throughout the Midwest at which they pointed out that most of Far-Mar-Co's members already were also Farmland members.They also argued that greater size is necessary if the cooperatives are to compete with the giant private exporting firms.
The growth of cooperatives has caused some questioning by antitrust officials, but the Federal Trade Commission and the Department of Justice allowed the merger to pass without formal notice. It is known, however, that both agencies took at least cursory looks at the proposal and decided not to take action. Most actions of cooperatives have been exempted from antitrust laws because of the 1922 Capper-Volstead Amendment.
Lindsey makes it clear he is not bothered by the growth of cooperatives and that this merger is not the end of Farmland's expansion.
"Growth, you know, is part of the American system. We're always finding something bigger and better. Maybe sometime we will run out of opportunities. But as for Farmland, we still have only a small market share so we still have lots of potential," Lindsey says.
For example he said, Far-Mar-Co's grain pool likely will be extended to other commodities, perhaps corns and soybeans, because those are the principal crops grown in Farmland's area. Lindsey also said it is possible Far-Mar-Co's processing activities will be expanded.
Lindsey defends growth as being good for both farmers and consumers "I think size . . . assuming it produces efficiency . . . makes us able to hold down farm input costs and provide help in marketing that can help keep food costs down."