Mastering A Cooperative System

Can a state or national pork cooperative system work in the United States? "In principle, yes, it can work," says Torben Andersen, procurement director of Steff-Houlberg, Denmark's second largest pork cooperative – Steff-Houlberg's organizational structure has contributed ideas to Pork America's blue print.

"One problem is to be colleagues with other farmers; it's against the American philosophy," says Andersen.

He's right. For the most part, U.S. producers are an independent bunch. Whereas Danish pork producers are used to a cooperative system.

The start of Danish pork cooperatives date back to 1887. At that time, farmers were unhappy with the small, private butcher shops. Plus, Danish bacon was in high demand in England. This led to higher production numbers and the need for large investments in the industry. A group of farmers raised their own money, and with the help of bank loans, established the country's first pork cooperative.

"The basic idea in our cooperatives is that farmers can maintain full control of raw material production, in this case it's pigs," explains Andersen. The only difference here between a cooperative and a private company is that the company profit is taxed when a producer receives a dividend check. "The bottom line is that the farmer gets part of the profit from producing the pig and the other part from producing the food product," he notes.

So, how does a Danish pork producer become a member of Steff-Houlberg? It's voluntary. There are no membership or access fees. The only requirements are – the person must be a pork producer and supply all of his or her hogs to S-H. A producer can stop producing pork for S-H at any time without any penalty. But, if he or she wants to supply another co-op, Andersen says the producer must give two years notice and supply S-H with hogs until then.

"If a producer supplies pigs to another slaughterhouse in Denmark or exports pigs for slaughter, he or she is subject to a fine amounting to 40 percent of the value of the pigs not supplied to S-H," he adds.

The cooperative is based on a democratic principal, each producer receives one vote. Profit belongs to all members and is divided among them according to how many pounds they supply.

Even though participation in Danish cooperatives is voluntary, 96 percent of all pigs are killed at co-op slaughterhouses. The rest go to private packers or are exported live.

Producer-members of S-H are not tied to any special production requirements. However, since the system is driven by market demand, S-H will tailor a product to meet consumer needs.

"In the Danish system, a producer can raise any amount of pigs," explains Andersen. The price is set every Friday depending on the average sale price for pork the previous week. The average sale price is determined by collecting prices on every cut in each market. That data is incorporated into an equation, that includes slaughter and processing costs. What is left is the price that can be paid to the producer.

Overall, Danish pork producers are facing many of the same challenges that you are – increased quality demands, food safety, documentation of the total production chain, differentiation of specialized production, demands for new products and increased environmental demands.

Andersen's group does a lot of marketing and education with grocery store managers. This includes such things as sales meetings where producers will present new ways to cut pork products. He notes that S-H has a catalog containing more than 1,000 different pork cuts.
Besides connecting through the pork chain and gaining profit, Danish producers are much more consumer-active. Andersen says producers actually sit down and talk with consumers in order to make product decsions for the upcoming year. Steff-Houlberg's products range fresh, chilled and frozen pork, to semi-manufactured and processed. These products are sold to industrial, retail and catering customers. "We're not just a slaughter plant, we make a product and sell directly to different outlets," he says.

So, will this type of cooperative system work in the United States? A lot will depend on your willingness to make some changes in your pork production business. One thing Andersen stresses, "through a co-op you can control communication backward and forward." Without that, no system will work.

Adding It Up
At first, there were more than 100 small pork producer cooperatives throughout Denmark. But since the 1960s, many have merged and now there are only three left. Despite the lower numbers, more services have evolved, explains Torben Andersen, procurement director for Steff-Houlberg one of Denmark's current cooperatives.

For instance, co-op members use the Danbred breeding system to help ensure uniform, high quality pork products. Plus, production research is continuously occuring to help producer-members find solutions. Overall, 10 percent of the co-op members supply 90 percent of the pigs, so there are a lot of small producer-members in the co-op. The average size of the farms supplying 90 percent of the pigs is 2,500 to 3,000 pigs per year. The major supplier to S-H supplies 80,000 pigs per year.

Take a look at how the co-op has evolved over the last few years.

1999 1998 199 1996
Co-op pigs, 1,000 head 3.2 2.7 2.5 2.5
Share of national kill 15.9% 13.8% 13.8% 13.8%
Co-op pigs per co-op member 1,026 855 769 669
Active co-op members 3,079 3,149 3,300 3,756
Settlement, including deferred payment DKK/kg 7.56 9.50 11.74 11.04
(U.S. dollars per pound) $0.48 $0.60 $0.75 $0.70
Full-time employees 3,028 2,555 2,533 2,582
In Danish Kroners (currency) per kilogram.

Source: Steff-Houlberg