Why Investors Should Consider Farming Cooperatives

Investors might be a little uncertain about the idea of investing in organic farming cooperatives. The reasoning, it seems, is farmers working together and pooling their resources surely can’t be a lucrative endeavor. It sounds too wholesome and too beneficial for land conservation efforts to actually turn a profit and provide a return on investment.

In many cases, that couldn’t be further from the truth. Such farming cooperatives are becoming a big business while still pushing for environmentally friendly initiatives. Investors would be doing themselves a disservice to dismiss these co-ops as money-losing enterprises.

The Facts About Farming Cooperatives

In a nutshell, a farming cooperative is a group of independent farmers coming together in order to reap the benefits of scale for mutual benefit. Each farming cooperative shares different resources, but joining is a good way for small farms to raise equity, manage risk, share expensive equipment, and so on. Some of these cooperatives include a few farmers in a county or hundreds of farmers from across the country.

Some cooperatives only take investments from farmers who are part of the group, but many accept outside investment. This investment, both from the farmers and outsiders, allows the cooperative to build funding reserves, invest in development, and pay bills.

There’s strength in numbers, and these cooperatives can bring in big money. Organic Valley, the world’s largest organic cooperative with nearly 2,000 farms involved, generated more than a billion dollars in sales in 2015. Profits totaled nearly $37 million after taxes, or 3.5 percent of sales. That might not be the most glamorous profit margin out there, but generating a tidy profit while benefiting the environment is something few investments can offer.

Profits and More

Sustainable land management comes in many forms, but in the case of farming it typically means promoting biodiversity, preventing pollution from runoff and using resources like water efficiently. Organic farming has been proven to benefit the environment more than conventional farming.

The downside is the yields from organic farming are less than conventional farming, making it more expensive to invest in.

However, organic farming is more profitable than the alternative despite those lower yields. That’s true not just in the U.S., but worldwide as well. A study published in Proceedings of the National Academy of Sciences found organic farming was 22 to 35 percent more profitable than the alternative.

The study found farmers need to charge at least five percent more for their products than they would for conventionally grown products in order to break even. That’s not a problem as market demand allows organic farmers to charge about 30 percent more, netting a nice profit.

It’s not easy for a farm to become organic despite the lure of higher profits. It takes several years in order to convert over, which means a loss in revenues in the meantime. Farms thinking of converting to organic often have to do it piecemeal in order to avoid financial risks.

Farms are always at risk when it comes to bad harvests, declining crop prices and more. A cooperative helps make those risks much more manageable. For investors, it’s equally beneficial to spread the risk around.

The Reason to Invest

Investing in an organic farming cooperative isn’t like donating to a nonprofit. While there’s an underlying “feel good” motivation from investing in responsible land use management, investing isn’t a mere donation. There’s a good chance of getting a return on your investment beyond the satisfaction of helping out the environment.

Customers have conclusively shown that they’re willing to pay a premium on quality organic products, as 45 percent of U.S. shoppers seek out organic foods. That percentage of customers is on the rise compared to years ago.

That’s a boon not just for the farming cooperatives and the land that they grow their products on. It’s beneficial to investors as well.

Daniel Faris is a graduate of the Writers Institute at Susquehanna University and a current resident of Harrisburg, PA. When he’s not blogging about politics at Only Slightly Biased, you can find his alter ego discussing progressive music over at New Music Friday.