New Crops — To Co-Op or Not to Co-Op? That Is the Question.

An interesting article appeared in the New York Times last week regarding coffee farming in Costa Rica (http://nyti.ms/XOucAv).  At issue:  the pro’s and con’s of cooperative groups – or “co-ops”– which are collections of growers who work together to sell their crops to the market.

The main pro of a co-op?  Growers receive maximal profits because they are taking on more

Here's where your morning brew started off on its journey to your local Starbucks.

Here’s where your morning brew started off on its journey to your local Starbucks.

responsibility in the value chain.  For example, in the case of coffee, Costa Rica-based Thrive Farmers Coffee grows, roasts, packages, and sells coffee to retailers.

The main con?  Growers must bear the costs and the risks of the additional processing, marketing, and sales activities.

So, to co-op or not co-op?  The New York Times frames the discussion in the context of scalability and profits.  Though profits to growers can be larger under a co-op, the process of organization and decision-making among many growers can be arduous and ineffective.

At TerViva, we talk a lot about co-ops within the context of our main crop, pongamia, as well as more broadly in regard to the general category of new crops that are being developed for industrial applications – what we call ”agro-industrial” crops (e.g., oilseeds such as camelina and “energy grasses” such as switchgrass).

Our position is that a co-op is the best route for a new agro-industrial crop because often the crop’s agronomy and its downstream market are developing in parallel.  Therefore, one unified organization across the value chain, rather than multiple independent organizations, can quickly adapt to changes in the fields or in the marketplace.  Beside TerViva, another example of company pursuing this strategy is Aloterra, with regard to miscanthus.

But there is a big catch:  a co-op is difficult to form if the growers do not already possess some familiarity or technical know-how in either the required processing technologies for the crop or the downstream markets.

To make switchgrass (left) into oil, you'll need one of the$e (right).

To make switchgrass (left) into oil, you’ll need one of the$e (right).

In other words, pongamia lends itself to a co-op because our growers are familiar with the crop’s processing and end markets. Pongamia produces oilseeds that are crushed using conventional soybean equipment.  The resulting oil is then usable in a variety of familiar applications for growers – from aerial spraying, to base oils for bio-pesticides, to biodiesel.

Many new agroindustrial crops do not fit as conveniently in growers’ minds — for example, the aforementioned energy grasses.  When used for biofuel, these grasses are subjected to an expensive chemical transformation process to go from biomass to oil.  This process is often the proprietary domain of another company that has invested millions in it; hence this company is not very willing to share its profits with a co-op.

At TerViva, we believe that this breakdown – between growers and companies with expensive processing technologies –has stymied the growth of next-generation biofuels.  At conferences that we attend, we hear people say all the time that biofuels is all about the “feedstocks”.  What they mean is that there is an economic disconnect among crop cultivation, processing, and end markets  — a disconnect that we think can only be rectified through a co-op model.

Naveen Sikka is TerViva’s CEO and spends his days thinking about how to most feasibly restore profitable agriculture to areas where agriculture land is under-utilized or distressed.

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