Food, From Start to Finish

Thirty years ago, long before most supermarket chains had developed extensive private label programs in Canada, Co-op Atlantic retails sold ‘Co-op’ brand products. The national ‘Co-op’ label was—and still is—prominent on the shelves of the Atlantic federation’s 129 consumer-owned grocery stores.

Certainly, Co-op Atlantic stores have always carried products from the region’s farmers. Co-op milk is supplied by 90 percent of dairy farmers in the Atlantic provinces of New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland. Every egg sold is produced in the region. Tons of fruits and vegetables from local farmers stock co-op produce departments. But back in the early 1970s, exactly where the food came from and who processed it were not such major issues as they are today. Concepts such as ‘traceability,’ ‘sustainability,’ and ‘value-added’ were virtually unknown.

But the grocery business is a tough one, and the region is the nation’s hardest hit economically. With the Co-op Atlantic leadership’s interest focused on the long-term health of both the federation and the region, a lot of emphasis was being placed on finding new opportunities to improve members’ financial well-being.
Fortunately, the 77-year old second-tier co-op—a federation of agricultural and consumer co-ops—was able to recognize opportunity in the form of a challenge. As a result, the relationship between ‘agricultural’ and ‘retail’ members has been strengthened. By cultivating Co-op Atlantic’s unique position to connect food producers with food consumers, the economic outlook for both groups has grown brighter.

The farmers’ beef

Many regard what is today identified as Co-op Atlantic’s ‘agri-food strategy’ as having begun in the mid-1990s when some beef producers asked management why, if the farmers were expected to buy all their inputs from Co-op Atlantic, there was not an equal commitment from the Co-op to buy the farmers’ beef. At that time as much as half the beef sold in Co-op Atlantic stores was coming from out West, in part because retailers felt it was a superior product. Atlantic producers disagreed. Their challenge got the ball rolling.

Over several years, surveys were conducted, standards were elaborated, and agreements were negotiated. Ultimately a Co-op Atlantic-owned brand was developed which both farmers and retailers felt proud to stand behind. ‘Atlantic Tender Beef Classic’ appeared in Co-op Atlantic display cases three years ago, and sales have been excellent. The biggest challenge is keeping up with demand. In 2002, Atlantic Tender Beef Classic won first place in the best new product category at the Grand Prix Awards, one of the highest honors for Canadian food producers. (For background on the agri-food strategy, see Cooperative Grocer #108, “Canada’s Co-op Atlantic,” by Tom Webb.)

On a chilly morning in February, Co-op Atlantic CEO John Harvie explained this agri-food strategy to a group of Midwestern U.S. and western Canadian co-op development professionals who came on a study tour to learn more about the branded beef program. They were joined by Gary Steeves, Executive Director of the Regional Co-operative Development Centre; Norma Babineau, East Purchasing Manager of the Co-op’s Agricultural Division; and Bryan Inglis, the Division Vice President.

The group spent several days in New Brunswick and on Prince Edward Island, learning more about the Atlantic Tender Beef Classic initiative and the new processing facility where high quality ‘ATBC’ beef will be produced exclusively for Co-op Atlantic stores by the Atlantic Beef Producers Co-operative. The project has caught the attention of a number of U.S. cooperators, who are re-examining their own models and methods in light of today’s challenges for farm families, rural communities, and retail food co-ops. The tour was sponsored by the U.S. national network of co-op development centers, CooperationWorks!

The missing link

It was no surprise to these co-op veterans that the project has had its fair share of obstacles and challenges. Perhaps the biggest setback came when the only federally certified beef processor in the Atlantic provinces shut down because the operation—a multi-species plant with outmoded equipment and other problems—wasn’t profitable enough to warrant re-outfitting. Farmers had to start trucking their live cattle to Ontario to be processed, then ship the refrigerated beef back home. Although Co-op Atlantic was able to mitigate the financial impact somewhat, the expensive 1,000-mile trip was hard on both the animals (who spent up to 32 hours on the truck) and on the farmers.

It’s worth noting that in the ‘farm to table’ food chain which has become such a popular vision—and which is the reality that underlies Co-op Atlantic’s success—there is one consistently weak link: manufacturing and processing. This is where smaller scale operations have almost completely vanished. Yet this is where the most ‘value’ is often added. In the conventional model, those benefits seldom accrue to the farmers. The closing of their processor partner brought that lesson into sharp focus for the Atlantic Beef Producers Co-operative.

What did they do? They got together with Co-op Atlantic and the governments of New Brunswick, Nova Scotia, and Prince Edward Island and came up with a solution: building their own processing plant.

What could be more obvious? And what could be more daunting! Not only were livestock farmers being asked to join a business enterprise with retail stores—traditionally business adversaries—but they would also be taking on the challenge of becoming their own processing partners. And, they would be taking on provincial government partners as well.

Robert Acton, one of the co-op’s original organizing members, explained his motivation after the group toured the family’s farm, where cattle live in open barns, receive no regular antibiotics, and are fed grass rather than corn or potato waste: “We either have to take all of it on ourselves or we can go to work for Cargill and let them sell our beef for us,” he says. “But if I have to work for a company, why am I farming? I want control, like we have with the co-op.”

Development, cooperatively

From the outset, the farmers drove the branded beef project. The depth of their commitment led to a careful selection of producers: farmers who wanted to be part of a viable cooperative business and who also knew the level of effort and know-how that the enterprise would take. They have 80 percent ownership in the Atlantic Beef Products, Inc. plant.

Producers were expected to buy at least 20 shares or ‘hooks,’ each of which represents the delivery right and obligation of one cattle per year to the plant. Each hook went for $60. In fewer than two weeks, 20,000 shares were sold, the offering was closed, and a waiting list was started. Of the 186 producers who bought in, 32 have herds of more than 500 head; all the rest of the farms are smaller. Farmers follow strict specifications to ensure product consistency and quality.

The cost of the $12 million facility is being borne by a local contractor who will build it and lease it back to the plant owners for 20 years, at which time it will be fully owned by Atlantic Beef Products, Inc. This frees the $4 million raised by the project partners for equipment and other needs and makes the project more attractive to lenders. The producers co-op invested $1.5 million, while Co-op Atlantic kicked in $500,000. The Prince Edward Island (PEI) government has taken nearly $2 million in non-voting preferred shares (to be paid out in seven years), targeted at getting new farmers involved. They have also guaranteed the building debt.

Co-op Atlantic bought in at 20 percent and maintained a key role as an active but not dominant partner. Both Bryan Inglis and Norma Babineau spent many hours in meetings and doing the necessary homework to move things forward. They note that when several provincial governments were contacted to assess their interest in the project, it was PEI who came to the table ready and eager to participate. But at the end of the day, comments the producer co-op’s board chairman Dean Baglole, government support isn’t the make-or-break factor. “We’re designed to be self-sufficient,” he points out.

Leadership by the farmers is cited as a critical factor in the project’s success to date. Dean Baglole elaborates: “In everything we’ve done we’ve left it up to the producers to make the decision. Nothing was rammed down their throats. It took lots of meetings, lots of travelling. It was producers talking to producers. We didn’t let Norma do much of the talking. They would have thrown her out the door, figuring [Co-op Atlantic] just wanted to make money. We had a number of benchmarks, and when we made each one, then we’d decide whether to go forward.”

As the tour group huddles on the red dirt under the unfinished plant’s vast new roof, firing questions at the co-op’s chairman, it is clear that this is a team effort, one in which mutual respect and appreciation are the order of the day. Dean Baglole remarks that they almost think with one mind. Kirk McGrath, the newly hired plant manager, admits he was drawn to the job precisely because he saw a producer, a government agent, and a retailer working so closely together. On the other hand, the five-member board (two farmers, one Co-op Atlantic rep, and two outside directors with specific expertise) is committed to letting the manager do his job. They work hard at helping producers grasp the fact that they really do own the business, but, says Baglole, “we also make it clear they’re not all going to have Kirk’s phone number.”

Beyond the profit motive

In December 2003, the BSE (mad cow) crisis struck and the border between the United States and Canada, for beef products, slammed shut. This directly affected Atlantic farmers in several ways. Markets where Canadian beef had been selling well are no longer available. Drovers aren’t calling; cattle are aging. By-products that were once marketable assets are now liabilities. Sharply accelerated demands for ‘traceability’ of food and changes in the treatment of both live animals and meat products are wild cards that could break the bank.

In their favor, Atlantic Beef Producers Co-op was already up and running when they hit the most recent bumps. Also, they have strong and loyal allies who are steeped in the practices and the principles of cooperative enterprise. Most of all, they have some rich farmland, great cattle, and the collective courage and intelligence of 186 farm families who live in a part of the world where creative, cooperative problem-solving has been a basic survival tool for generations.

Will they make it? As one Midwestern U.S. participant on the tour remarked, “There are several very smart things being done out there.” Reg Clause of Iowa State University Value-Added Agricultural Center wrote in his review of the tour to CooperationWorks! director Audrey Malon: “First, the brand development is well advanced. Rather than building a packing plant and then developing brand and retail relationships, this project has put the priorities in the proper order. This lesson transfers to many projects other than beef. It’s the linkage of producer to retail that is vital to transferring value back up the chain.”

“In a sense,” Clause continues, “this project seems to view the packing plant as an enabler, more than a profit center. While they expect that element to succeed in its own right, the true value of the plant is in linking the producer directly through to the retailer and to the brand’s equity. If this is successful it will be a case study for how these things should be done.”