Developing a New Co-Owned Agricultural Business: How do we Start a Value-Added Firm?

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Diminishing government subsidies combined with globalization and increased competition are causing farmers to consider additional and alternative business strategies to increase profit. Common strategies have been to produce a specialized product (such as certified seed), vertically integrate into processing agricultural commodities (such as producing pasta from durum), or produce commodities that are new to the region (such as, vegetables). The resources needed to construct and operate a new agriculture business can be extensive, often requiring more capital, human resources, and risk exposure than one individual can provide or sustain.

An alternative is for farmers to pool their resources of capital, commodities, knowledge, and management skills to develop a business that captures economies of scale few farmers could build individually. A common question is how to shape an idea into a successful business; that is, how to organize investors, assemble needed resources, construct the facility, and initiate operation in response to a market opportunity.

The following discussion suggests a framework within which to consider developing a co-owned agricultural business, whether the firm will be organized as a cooperative, partnership, limited liability company, corporation, or some other business structure. Although the discussion implies an order in which to complete the steps, the sequence of events will vary according to the situation, such as size of the project or number of investors. The discussion also offers.


David M. Saxowsky
David G. Kraenzel
North Dakota State University