Fall 1990 // Volume 28 // Number 3 // Feature Articles // 3FEA5

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Pooling Resources for Small-Producer Profits


Tim L. Cross
Extension Economist
Department of Agricultural and Resource Economics
Oregon State University-Corvallis

Randy R. Mills
Extension Agent/Umatilla County
Oregon State University Extension Service

Carl O'Connor
Extension Economist
Department of Agricultural and Resource Economics
Oregon State University-Corvallis

Profitability in agriculture is a major Extension concern and National Initiative. Small producers are especially hard-pressed to maintain their profitability, given the structural changes that have occurred in agriculture. Economies of scale in production and marketing often work against profitability for small and newly established producers.

This article reviews how Extension can contribute to increased profitability of small producers through a combination of technological and organizational innovation. Sheep producers selling less than 200 lambs a year were the focus of our Extension program.

Problem of Scale: Lamb Marketing Example

Sheep buyers prefer to deal with larger volumes of animals in an effort to spread their fixed costs per unit, and they show little interest in small lots of lambs. Forward cash contracting is another common alternative only available to producers with a larger number of lambs. At local Northwest auctions, small lots of lambs typically sell at discounted prices, partly because of the lack of buyer competition, but also because of the cost of assembling the small lots into a commercial size. Small producers faced with these problems have often banded together, forming cooperative marketing organizations in an effort to improve their competitiveness.

Cooperative marketing associations are familiar throughout American agriculture. Historically, 20% to 30% of cash farm market receipts in U.S. agriculture have been generated through cooperative commodity sales by large, powerful organizations such as Land O'Lakes or Sunkist. These cooperatives are owned by the producers who market their products through the organizations. The not-for-profit cooperative tries to increase profits of its owners by pooling products and securing higher prices by improving their competitive position in the marketplace.

We took this same idea and applied it on a smaller scale to the Oregon sheep industry, which is characterized by a large number of small volume producers. A lamb marketing pool was established through the Cooperative Extension Service in 1978. Members of the pool set four to six sale dates throughout the Spring and Summer. On each sale day, producers deliver the lambs they wish to sell to a central shipping point, where they are weighed and sorted. Weights are recorded for each producer, and used as the basis for distributing the proceeds of the sale. Buyers are invited to bid on the pooled lambs, and the highest bidder purchases the lambs.

The lamb pool started with 20 producers. Since then, membership has grown to over 150 producers selling over 3,000 lambs per year. For those administering the pool, this growth meant an enormous increase in responsibility. In fact, the administrative tasks grew to the point where members became reluctant to assume this burdensome responsibility, thus threatening the continued existence of the marketing pool. For example, in 1989, 3,428 lambs were sold in five sales. A total of 150 checks were written for the $235,404 in sales (see Table 1). The time involved in administering the sales and proceeds increased sharply, and members considered hiring management to improve the efficiency of handling these transactions.

Computerized Solution

Extension, in cooperation with the lamb pool leadership, felt a better solution was to computerize the record keeping tasks and retain producer management of the pool. A computerized system could produce reports quickly and accurately. However, no existing software fit the lamb pool quite right.

A small grant provided by the state Extension administration was used to hire a part-time computer programmer. A program was initially developed using dBASE III Plus as a programming language. Pool members specified the inputs and output they desired, and an initial version of LAMBPOOL was developed. The dBASE III Plus program was compiled using Clipper to create an executable program.

LAMBPOOL was designed assuming users had no prior computer experience, and that users would change fairly often. It had to be easy-to-use, foolproof, and accurate for the lamb pool to adopt it. We tested it with pool administrators and identified several problems with the early test versions. These problems were corrected, and LAMPBOOL was used with the first sale in June of 1986. Hand records were also maintained to ensure that members were treated fairly. The backup hand system also provided users with a measure of confidence that LAMBPOOL could actually manage the pool's record keeping. This helped to overcome the initial skepticism that some producers expressed concerning the ability of a computer to handle their money.

The database software manages a variety of tasks for the pool. All members' names, addresses, and phone numbers are maintained, and member mailing labels can be printed. Up to six sales per year can be conducted. Several types and qualities of sheep sales are supported: shorn and unshorn fat lambs, shorn and unshorn feeder lambs, and cull ewes.

The program allows pool operators to specify a buyer, price information, sheep commission withholdings, pool membership dues, and other charges for each sale. Reports are generated showing each producer's gross revenue, discounts, and withholdings. These reports provide all the information necessary for producers to obtain unshorn lamb incentive payments through their local ASCS office. A pool summary for each sale is also produced which provides the pool and the buyer with a summary of total sheep sales, withholdings, discounts, and net sale value. Pool summaries may be produced before a sale date, based on producer's expected sales, to give buyers an estimate of the number and classification of sheep expected to be available for sale.

After printing reports for each producer, checks are printed by LAMBPOOL. These checks, printed on tractor-feed forms, include a stub for the pool to use as proof of payment. A producer's name and address is printed directly on the check, then placed in a clear-window envelope for mailing. This process greatly increases the speed at which checks can be provided to members.

Table 1. Lamb pool sales in north central Oregon, 1985-1989.

Lambs sold Year
1985 1986 1987 1988 1989
Fats 1,626 1,729 1,594 1,792 2,283
Feeders 918 883 1,074 810 1,145
Ewes sold 142 132 78 46 0
Total head sold 2,686 2,744 2,746 2,648 3,428
Total value of sales $177,842 $186,812 $192,812 $165,514 $235,404

Does it Work?

The lamb pool is enjoying great support from members. Sales volume and value for the pool are shown in Table 1, which indicates that the pool is meeting a real need in north central Oregon. A few larger producers (now marketing over 200 lambs per year) initially used the lamb pool to enhance their marketing skills. Several of these producers are now marketing directly to packers. However, the number of small producers consigning to the pool has continued to increase during this period.

Extension was the catalyst for organizing the pool in 1978, and Extension continues to promote its existence. Membership is discussed at producer meetings and in Extension newsletters. Also, direct mailings to members are coordinated by the local Extension office and questions about the pool's operation are fielded by Extension staff. However, the pool has no formal ties to the Extension Service. Responsibility and liability for the pool belongs to its members.

Success in marketing agricultural products is achieved by offering a consistently high quality product to buyers year after year. This means it's necessary to grade each lamb. Extension agents performed this task in the early years, but now it's the pool members' responsibility. Each year, two or three graders are hired by the pool to grade each producer's lambs before shipment on the sale dates.

A critical success factor for cooperatives is administration. Producers must feel they're treated fairly, both in the handling of their products and funds, and in the marketing of the product. Administrators must keep accurate records of lambs delivered for sale and payments due each member.

The real key to the lamb pool is people. Members must agree they share a common problem, and work cooperatively to address it. Graders must be perceived as fair and impartial. Lamb pool administrators need the confidence of members in their negotiation and management abilities. Finally, the LAMBPOOL software must be easy to use and provide accurate, timely information for members and administrators.

The lamb pool project has also been a success for Extension. A problem was identified and an educational program was developed and implemented to address the problem. This educational program focused on, and involved, the producers and their felt need. Today, daily management of the lamb pool remains with the members, but Extension is available to help if needed.

One of the lessons we learned from this project is that organizations fostered by Extension are always changing and have dynamic needs. The lamb marketing pool has provided several educational opportunities not envisioned at its inception. The lamb pool was initially formed to provide a service to producers. Pooling large numbers of lambs attracts more buyers, encouraging competition and thus higher prices. As time passed, early members outgrew the pool and established their own market outlets. Extension continues to work with these producers in evaluating their alternative marketing strategies.

Lamb pool managers are provided educational opportunities for growth as leaders and decision makers through their management roles in the lamb pool. Improving leadership skills wasn't among our initial objectives, but it certainly contributes to sustaining profitability in agriculture through enhanced human resources in the agricultural system.