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Treegrowers' Co-operatives
THE KEY TO THE FUTURE OF FARM FORESTRY

Paper delivered by Tony Gill to the
'Money, Marketing and Management' Farm Forestry Conference,
presented by the Corangamite Farm Forestry Project, Victoria, Australia, October 1997.


ABOUT THE AUTHOR

Tony Gill has had an interest in forestry issues since 1980. Back then, he saw at first hand the devastating effects of soil salinity on wetlands and agricultural land in northern Victoria. At the time, Tony was also developing an interest in co-operatives as a structure for implementing initiatives to address tree decline in Victoria.

Since 1980, Tony has been involved in a number of reforestation related initiatives -

  • Assisted in forming 3 treegrowing related co-operatives in Victoria; Central Victorian Tree Planting Service Co-operative Ltd (1982), Gippsland Wood Products Co-operative Ltd (1994) and Paulownia Growers' Co-operative Ltd (1999).

  • Established and managed Australia's first tree planting contracting and nursery business organised as a worker owned co-operative, 1982-83. The Central Victorian Tree Planting Service Co-operative Ltd planted over 5,000 trees on farm and council land in its first year of trading. The co-operative also supplied 10,000 trees which were planted as part of the Yarrawee Flora Reserve project.

  • Secured Victorian government funding (A$100,000) to organise and manage an urban forest project to create the 8 hectare Yarrawee Flora Reserve within the City of Ballarat, in collaboration with the Ballarat City Council and the Victorian Lands Department, 1982-83.

  • Compiled a Starter Kit for a Treegrowers' Co-operative for Australian Forest Growers, 1999.


CONTENTS

  Introduction
  Market conditions affecting primary producers
  The effect of market conditions on treegrowers
  Advantages of co-operative action
  What is a co-operative?
  Functions of co-operatives in plantation forestry
  Essentials for a successful treegrowers co-operative
  Conclusion
  Links to Australian Forestry Co-operatives

INTRODUCTION

Private forestry has the potential to expand significantly over the coming decade. With Australian consumption of forest products exceeding production and the world supply gap predicted to widen, state and federal governments are encouraging private landowners to invest in plantation forestry.

Private landowners, using land for mixed purposes, occupy a predominant position on Australian land that is suitable for plantation forestry. However, in it's Survey of trees on Australian farms: 1993-94, ABARE found that less than 2% of farmers in both the wheat-sheep and high rainfall zones listed the production of timber and non timber products as the main functions of tree plantings in the period 1991-92 to 1993-94.

ABARE suggested potential barriers may include low farm cash incomes, high debt levels, lack of technical and economic information, lack of suitable markets, and uncertainty about being permitted to harvest trees. [1]

The barriers to developing a viable private plantation forestry industry are similar to those confronted by primary producers in the development of other agricultural industries. Primary producers around Australia have overcome many of these barriers by forming co-operatives. Over the years, co-operatives have come to dominate the dairy, rice, fishing, grain, wool, cotton, and sugar industries, with many having grown into multi-million dollar businesses exporting a diverse range of products.

This paper argues that co-operatives can play a key role in achieving a viable plantation forestry industry in Australia. By forming co-operative's treegrowers can secure fair prices for their timber.

The paper first examines the marketing conditions confronting primary producers in general and the effect of these conditions on treegrowers. The advantages of co-operative action are then discussed, followed by a description of a co-operative and the functions of co-operatives in plantation forestry. The paper concludes by identifying a number of key issues for a successful treegrowers co-operative.

MARKET CONDITIONS AFFECTING PRIMARY PRODUCERS

To appreciate the benefits that a co-operative can bring to treegrowers, one needs to understand the market conditions that affect all primary producers.

In the economic sense a market exists where an agreement as to price can be made between a buyer and seller and a transaction takes place as a result. This over-simplified, but for our purpose sufficient, definition has several important implications for primary producers.

The first is that the buyer must want and be willing to buy the produce of a seller. Willingness to buy will be determined by any specifications as to kind and quality, as well as price, a potential buyer may set in regard to what they want to buy. It follows that, to be able to sell, a seller has to offer what other people want and are prepared to pay.

The second is that there has to be an agreement as to price; a meeting point at which one party is willing to sell and the other willing to buy. It is this price fixing mechanism that creates a market where transactions can take place because agreements are being made. Many factors influence price agreement but the basic consideration on either side is to make a profit. The seller needs to sell at a price that makes production profitable for them; the buyer needs to buy at a price on which they can make a profit. To that extent the motivations of each are at once the same, but also antagonistic. The producer is seeking the highest price they can obtain and the buyer the lowest.

The third important implication is that the prices will be influenced by the relative bargaining strengths of buyers and sellers. If there are urgent financial or other reasons for sellers to sell or if supply levels are high and demand low, the advantage lies with the buyers. If the contrary is the case, the advantage lies with the sellers. If there are a lot of small sellers and few buyers, the advantage will lie with the buyers.

The fourth implication is that the prices offered and accepted can be substantially influenced by information, or perhaps more importantly lack of it, as to prices available at markets in other places.

It is these fundamental features of any market situation that creates the need for co-operative marketing arrangements. [2]

THE EFFECT OF MARKET CONDITIONS ON TREEGROWERS

The effect of these market conditions on treegrowers can be illustrated by the following observations from Tasmania.

According to Henderson and Leech [3] , private non-industrial forest owners have for the most part been at the mercy of an industry used to buying an undervalued resource. Many treegrowers had tried unsuccessfully to secure markets at satisfactory returns for their mature resource, commercial thinning was basically non-existent and native forests were the traditional resource of the small sawmills.

As most treegrowers only plant, tend and harvest once in a lifetime, they lack forest management and marketing expertise. Individual treegrowers also lack influence on prices, practices or even actual payment, and once the resource has been harvested it is hardly possible to withhold further supplies to ensure payment.

The formation of treegrowers' co-operatives in Tasmania was preceded by many factors including:

  • Irregular fragmented supply that was of limited value to processors no matter how big or small.
  • No apparent markets for an increasing pine resource.
  • Repeated examples of extremely low and in some cases no royalty at all being paid.
  • Repeated cases of poor forest practices, half completed projects, failure to clean up other related malpractices.
  • Frustration - growers had been encouraged to plant, tend, prune, etc. only to be unable to sell or be ripped off.
  • Direct marketing was not working.

ADVANTAGES OF CO-OPERATIVE ACTION

It was described earlier that if there are a lot of small sellers in a market and few buyers, the advantage will lie with the buyers. The timber industry reflects this market condition, where there are a growing number of small treegrowers compared to relatively few timber processors.

The treegrower is in a very weak position in the market compared to the buyers of the timber resource . As a matter of protecting their own interests, the treegrower needs to secure bargaining strength in the market at least equal to that of their potential buyers.

The treegrower needs ability to:

  • Negotiate prices from a position of strength;
  • Access market information;
  • Take their produce elsewhere if prices are better; or
  • Wait for a more advantageous time to sell.

Membership of a co-operative offers all these advantages.

WHAT IS A CO-OPERATIVE?

A co-operative is a product of the market economy, often established in response to market failures or imbalances. It is not an alternative to the market economy.

A co-operative is an incorporated enterprise that is owned and controlled by the persons who use its services. Membership of a co-operative is voluntary, and is usually based upon a specific group of persons who have a unifying interest. Members can include individuals and/or corporate bodies.

In forming a co-operative, members agree to make use of its services and contribute capital to fund the enterprise, usually by purchasing shares. Funds are contributed not for capital gain but for service or trading benefits. Members may receive dividends on capital contributed, but these are secondary to the trading benefits derived.

The affairs of a co-operative are controlled by its members. Every member has one vote only, irrespective of the capital contributed or the volume of the business transacted. Members exercise their control by electing a board of directors charged with management of the co-operative, by approval of the rules by which the co-operative operates, and by the passing of resolutions at general meetings.

FUNCTIONS OF CO-OPERATIVES IN PLANTATION FORESTRY

Co-operatives are very flexible organisations that can provide a diverse range of services to treegrowers. The following outlines a number of functions that a treegrowers' co-operative could perform. [4]

1. Marketing

The primary function of a treegrowers' co-operative is securing sales and negotiation of contracts. The co-operative may either purchase from the grower and then resell, or facilitate direct transactions between suppliers and buyers, deducting a levy for the services of the co-operative (either as a percentage of the royalty, or as a fixed amount per tonne).

The co-operative may or may not utilise contracts between producers and the co-operative. Some co-operatives employ sole agency agreements to market timber for a given period; others rely on member loyalty without formal contracts.

2. Market development

A treegrowers' co-operative can actively explore markets for various grades and species of timber and other types of timber products. It will also explore various techniques of marketing.

3. Forest management plans

Market development tasks will be integrated with the preparation of forest management plans for members. Management plans will cover matters such as choice of species, mix of species, choice and method of forestry practices, harvesting and planting schedules over a medium to long term time frame. Management planning of this kind will be either directly provided by the co-operative through its staff to its members, or made available on a contractual basis via the co-operative.

It may maintain, on the member's behalf, an inventory and valuation of the member's resources, or it may assist the members in these tasks.

4. Arrangements with contractors

A treegrowers' co-operative may enter legal arrangements with contractors and hired labour, assuming responsibility for legal, insurance, worker's compensation and related matters on behalf of its members.

5. Timber harvesting and transport

A treegrowers' co-operative may co-ordinate and supervise the harvesting and transport of timber to suppliers, contracting with loggers as required. It may assume responsibility for ensuring that harvesting occurs in accordance with prescribed forestry practices. It may establish and operate holding depots for timber as required.

6. Financial transactions

A treegrowers' co-operative may centralise financial transactions such as invoicing, payment and credit systems. It may acquire and utilise computer technology for this purpose.

7. Pooling equipment purchases

A treegrowers' co-operative may purchase forestry equipment, technology, and office requirements on behalf of its members.

8. Discounts on bulk purchases of supplies

Forestry supplies and services may be purchased in bulk, attracting volume discounts.

9. Advice and information to members

In the early stages of development of the private forestry industry, government agencies have undertaken to provide extensive management advice and marketing information. As the industry develops, this provision is likely to be withdrawn, leaving the industry to function in a more self-reliant manner. The advisory and information providing role of treegrowers' co-operatives will acquire greater significance as this process of government withdrawal occurs.

10. A voice for members in control of their business

Members of a treegrowers co-operative exercise control over the policy of their enterprise, and possess a voice in its operation. Treegrowers who deal independently with major companies or government agencies are not so enfranchised.

ESSENTIALS FOR A SUCCESSFUL TREEGROWERS CO-OPERATIVE

  1. A committed group of enthusiastic treegrowers to facilitate the new co-operative.

  2. A well researched and constructed business plan. As with all business functions, the basis of a good marketing system is founded on planning, control, and adequate information.

  3. An inventory of members' forest resources to enable tactical planning and a 'resource level' inventory to plan strategically and understand the potential market opportunities. This is a fundamental issue and should be undertaken to the point where a logging programme can be planned, prior to any sales being undertaken. This should also include 'signing - up' all potential sellers with a complete infrastructure in place.

  4. Persuading the buyers of timber that their requirements would be best served by routing their timber purchases through a co-operative.

  5. Adequate communication to growers, processors & contractors of the co-operative's policies and procedures.

  6. Having administrative procedures that ensure both timber and cash are properly accounted for.

  7. Having an informed and dedicated board of directors.

  8. Having sufficient establishment funds and working capital to finance the co-operative.

  9. Having suitability qualified staff including, at a minimum, a person with an industrial forest background, a marketing manager and administrative staff.

  10. Having hand-picked contract harvesters. The training of an 'elite' workforce who are self regulating and highly skilled both operationally and silviculturally is highly desirable. The cost of supervision is too high and the business end of a chain saw or logging machine can make or break any operation.

  11. All contractors must carry adequate public liability cover, worker's compensation, personal accident and sickness for the principal and machine cover. All insurances must be sighted with a valid certificate of currency and noting the co-operative by name as a party.

  12. All operators must have the appropriate training and produce current training certificates and wear all necessary safety equipment.

  13. Establishing a trust fund into which all payments from buyers are made. Funds are then dispersed to the treegrower, contractors and the co-operative.

  14. The treegrower is subject to marketing conditions similar to that faced by other primary producers. Through the action of pooling their members' timber resources, a treegrowers co-operative gains the volume to market more effectively than can be achieved by its individual members.

  15. There are also advantages for buyers acquiring timber through a co-operative. The common requirements of large consumers of timber are resource security and reliability of supplies. Also, there is the problem for the potential buyers of controlling and disciplining supplies from a large number of geographically dispersed independent treegrowers.

CONCLUSION

By using a co-operative, treegrowers can achieve stable and economically advantageous markets, and buyers can achieve reliable sources of timber from disciplined suppliers.

While co-operatives have unique features that will fulfil the needs of treegrowers and buyers, it is important to remember that a co-operative must pass all the same economic tests as other businesses. For this reason, those who seriously consider starting a treegrowers' co-operative will have to carefully address feasibility questions before developing the new co-operative.


[1]   Wilson, S.M., Whitlam, J.A.H., Bhati, U.N., Horvath, D. and Tran, Y.D. 1995, Survey of Trees on Australian Farms: 1993-1994, ABARE Research Report 95.7, Canberra. p. 20, 21
[2]   Bottomley, T., Farmer-Centred Enterprise for Agricultural Development , Oxford, 1989. p.105-106
[3]   Henderson, R., Leech M., Timber Growers Co-operatives, the Tasmanian Experience, Tasmania, 1994
[4]   Hughes, V., Co-operative Opportunities in Farm Forestry , Co-operative Federation of Victoria Ltd, 1997
 
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