Co-operatives are a long-established business structure in Australian agriculture and other areas of the economy. Co-operatives and mutuals are receiving renewed emphasis for developing the Australian farming. Co-operatives law has moved towards a national, consistent system with the agreement between States of the Australian Uniform Co-operative Law Agreement in 2010 and progressive introduction of the Co-operatives National Law in New South Wales, Victoria, Tasmania and South Australia and a sympathetic Co-operatives amending Act in Western Australia. Co-operatives are able to operate across borders with increased ease and while Queensland co-operatives law has remained unique to Queensland, it is still possible to access the key benefits of incorporation as a co-op in that jurisdiction.
Kingfisher Law – Specialists in Co-operative Businesses
At Kingfisher Law, we understand how difficult it can be to obtain accurate and expert advice to establish and manage co-operatives effectively in an economic and political environment that is more familiar with listed companies and managed investment schemes. When you retain our services, you have access to our wealth of our legal expertise and years of Australian agribusiness experience, to help you negotiate legal or administrative obstacles you face, and drive your co-operative business forward.
Kingfisher Law is an expert adviser appointed to the Federal Government’s Farming Together Farm Co-operatives and Collaboration Pilot Program to assist groups of farmers identify appropriate business arrangements to maximise returns and reduce input costs in the agriculture value chain.
The legal team at Kingfisher Law have a deep understanding of both Federal and State legislation and laws, and their impact on co-operatives, mutuals, partnerships and sole traders. We see our role as championing this important business strategy, so that there is increased understanding across the economy about corporate and co-operative formation and disclosure, taxation laws, funding, accounting standards and auditing and reporting requirements. We appreciate that while corporate agribusinesses with external shareholders can dedicate large teams of staff to administrative tasks, co-operative farmers are often too busy working the land to keep abreast of the legal ramifications of current legislation. Retaining Kingfisher Law means that we can shoulder this burden, so as to allow you to focus on actually running your farming operation.
Is the Co-operative Model Undervalued?
Under the dominant company model used by corporate agribusinesses, objectives are driven by the balance sheet’s bottom-line and profitability at all cost. Satisfying the demands of shareholders is paramount and drives almost all business decisions. Co-operatives, on the other hand, aim to maximise profitability, while also seeking positive social outcomes for their members and maintaining an ethical approach to the stewardship of the land they work.
Because the success of a co-operative farm is not judged purely on its financial outcomes, there is a public perception that the business model is compromised and that co-operatives in general are less effective business performers than other structures. This has, in turn, led to a devaluation of the co-operatives in the Australian market and inadequate recognition or focus in education and Government policy and regulation. Despite this confusion about the status and value of co-operatives for business operations, significant opportunities exist for agricultural producers and other interests in the food and fibre supply chain to achieve significant cost reductions, savings, create value through intellectual property and increase returns at the farm gate through collective bargaining.
To help you access the benefits of co-operative and mutual business structuring, Kingfisher Law are experienced in helping you navigate the complex interplay of company and co-operatives regulations in and between Commonwealth and State rules, all of which impact financial accounting and reporting, disclosure, capitalisation and fund raising. At the same time, Kingfisher Law is actively involved in parliamentary inquiries and public forums to progressively resolve and streamline the regulation of co-operatives in the interests of farmers, agricultural water service providers and others involved in the food and fibre supply chain.
Working Towards a Brighter Future
Kingfisher Law is an expert legal services provider to the Federal Government’s two-year program, Farming Together, which was allocated almost $15-million. This program’s aims include:
- Understanding how co-operatives, collective bargaining and supply chain negotiations can improve farmers’ returns.
- Improving knowledge of innovative business models and forms of collaboration.
- Improving agriculture-focused access to expert legal and financial advice.
- Encouraging the formation of collaborative groups of farmers and other producers.
The Attraction Of Co-operative Agribusinesses
There are many reasons why Australian farmers choose to form or join a co-operative, but all have to do with returns to the farmer whether as reduced input costs or expanded and better-served markets paying increased revenue to farms. In addition, many are attracted by the governance structure of the model, which enables direct sharing of risk, responsibility and reward and equal participation in decision making. In addition, co-operatives can become key, integrated institutions in regional communities, extending over generations and contributing to sustainable prosperity for local families and businesses.
The Co-operative Principles
- Voluntary and open membership
- Democratic member control
- Economic participation of members
- Autonomy and independence
- Education, training and information
- Mutual co-operation of members
- Concern for the community
The principles outlined to the left, are internationally recognised and form the basis of most successful farming co-operatives, which have a distinct legal and business identity. They enable individual members to become part of a cohesive whole, so together they can benefit from economies of scale and collective bargaining, thus becoming greater than the sum of their parts. Kingfisher Law respect these principles and regularly support members of Australian co-operatives in achieving their goals.
The universal values underpinning co-operatives are democracy, equality, equity, solidarity, self-help and self-responsibility. Co-operatives are controlled and owned by those that benefit from their services and motivated by strengthening the communities in which they operate. The absence of a hierarchical management system means that governance and decisions affecting the community are democratically shared by all. Something that harkens back to a simpler time, when the needs of the many outweighed the needs of the few.
Co-operatives Are Sustainable
It is impossible to avoid the fact that the prevailing economic model, based on unbridled, exponential growth and profit maximisation, is unsustainable within the bounds of Earth’s fragile ecology. Climate change, species extinction, soil erosion and degradation, water and air pollution, plus issues around the disposal of the vast quantities of waste generated, are clear evidence that a fresh approach is needed.
Co-operative farmers incorporate social concerns, ethical stewardship of their land and preservation of the environment into a sustainable business model that remains competitive. It encourages the preservation of habitats, abundant wildlife, attractive landscapes, clean water sources and better carbon storage. The trend in agricultural industrialisation and short-term efficiency is effectively reversed. The new model has room for farms of all sizes, producing a wide range of foods and fibres, while maximising productivity and minimising environmental and social damage. A growing body of scientific evidence debunks the myth that industrial agricultural practices are essential to feed the world. On the contrary, sustainable models have been shown to be equally profitable.
Kingfisher Law know how this large-scale farming puts pressures on our clients, because it often requires more staff and expensive agricultural equipment to prepare the soil, maintain livestock, and facilitate quicker harvesting. There is also a demand that specific fertilisers, herbicides and fungicides be employed, and that fields lie fallow and completely unproductive for a set period.
Environmental sustainability in agriculture aims at the following, by working with nature rather than against it:
International Co-operation in Agriculture
Crop rotation and diversity – planting a variety of crops in the same field (intercropping) is proven to improve soil health and deter pests. Rotation allows soil to recover and become more productive.
Planting cover crops – protects the soil from erosion during off-season when fields could be left bare and exposed to the elements. Replenishes soil nutrients, reduces weeds and the need to use herbicides.
Tillage reduction – avoiding the use of ploughs protects the soil and improves its health. Integrated Pest Management (IPM) – aims to reduce the need for chemical pesticides by using biological and / or mechanical methods of control.
Integration of livestock and crops – industrial farming models separate crop and animal production, meaning manure fertilizers are not readily available. Integration can lead to more efficient and profitable farms.
Agroforestry – introducing new trees and shrubs to the land provides shade and shelter for animals, and a potential new revenue stream if fruit trees are used and harvested.
Internationally, co-operatives have been recognised as being instrumental in overcoming the barriers restricting the economic revolution needed for environmental recovery. The United Nations Framework Convention on Climate Change (1992) sought to combine economic development with sustainability. The Rio + 20 Conference (2012) went a step further, in explicitly acknowledging the role co-operatives play in restructuring the global economic model to foster social inclusion and environmental protection and sustainability.
Kingfisher Law make every effort to keep abreast of international developments in agribusiness, to keep our clients fully informed of how they may affect their businesses.
Current Governance Of Australian Co-operatives
Kingfisher Law welcomed the Australian Uniform Co-operative Law Agreement (2011) which brought a welcome standardisation of Commonwealth laws among all states and territories. It was agreed that New South Wales provide the template for the agreement, under its Co-operatives National Law (CNL). Company legislation remains under the jurisdiction of the Commonwealth.
However, some states have been slow to reform their laws to implement the terms of the agreement, with only New South Wales, Victoria, South Australia, the Northern Territory and Tasmania responding so far. The slow uptake has impeded the objectives of the CNL, namely the reduction in regulatory restrictions intended to enhance the competitiveness of Australian co-operatives, although the impact of the regulatory disunity is difficult to quantify.
The CNL shares similar legal characteristics with company law, including separate legal personality, the privilege of limited liability and the right to raise capital from the public under certain circumstances. It also permits interstate co-operative business without the need for registration with each state jurisdictions. This a huge advantage to producers wishing to trade across state borders, as it requires far less red tape.
The Potential Of Co-operatives
Kingfisher Law see the CNL as a positive step towards increasing the awareness or Australian co-operatives and simplifying their legal registration but there remains a lack of belief in their overall potential. The lack of understanding of the purpose and governance of co-operatives means co-operative law is largely absent from education. This is a situation that must be remedied fast, if the movement is to progress. Such is the systemic under-recognition, one survey found that although 79% of Australians were members of a co-operative, only 16% recognised the fact.
The issue of limited working knowledge of co-operatives was recognised by a Senate Inquiry into Co-operative, Mutual and Member-owned Firms. This was followed by 2015’s Agricultural Competitiveness White Paper, which attracted $13.8 million of Commonwealth funding, aimed at establishing a two-year pilot program, Farming Together, to provide farmers with comprehensive information and materials across a wide range of agricultural enterprises, including co-operatives.
While the CNL has gone some way to alleviating the cost of administrative barriers to Australian co-operatives, it has also resulted in a convergence of company and co-operative business models, as the former have started to incorporate the latter into their own corporate structures. This enables them to score public relations points with new social and environmental initiatives, while diminishing those of genuine co-operatives.
Devondale Murray Goulborn (MG), Australia’s largest dairy foods company, is an example of the above. Alternatively known as the Murray Goulborn Co-operative, it was formed prior to the introduction of Victoria’s co-operatives legislation in 1953, and consequently exempt from the restriction for companies to trade under the name ‘co-op’ or ‘co-operative’. This means that MG is effectively a hybrid entity with a constitution structured around co-operative values.
Co-operative Definitions Should be Tightened
In order to prevent examples like MG from clouding the water, Kingfisher Law would be in favour of a tightening of regulations, to ensure there are sufficient distinctions under law between companies and co-operatives. Failure to do so will damage genuine co-operatives in the long-run and give corporates an unfair advantage, including certain tax breaks available only to co-operatives. It may also serve to mislead consumers into thinking they are purchasing produce from a recognised co-operative.
Government legislation has further added to the confusion, in defining co-operatives as ‘companies’ under two Tax Assessment Acts. This is a situation Kingfisher Law would like to see changed at the earliest opportunity, in order to benefit our clients in with co-operative agribusinesses.
The Issue of Shares in Co-operatives
Co-operatives strive to establish a competitive financial structure, whilst retaining their chosen and advantageous business model. Reconciling the two entities can be challenging but this is an area Kingfisher Law have expertise in.
Shareholding is another area where co-operatives can find themselves at a financial disadvantage. A share in a public company is recorded as company equity and the holder has no rights to the company’s assets until it is wound up. Contrastingly, a share in a co-operative is considered a debt under law and can be reclaimed in full, if the member decides to exit the co-operative. This situation has led to a substantial disadvantage when co-operatives seek loans.
Both corporations and co-operatives continue to operate under the same accounting regime, which fails to reflect their starkly different structural features. Co-operatives possess inherent member accountability, to ensure security upon member exit. Consequently, they are reliant on member shares or external equity shares.
A more recent development has seen co-operatives attempt to raise funds by issuing Co-operative Capital Units (CCU’s). A CCU is defined as: ‘an interest issued by a co-operative conferring an interest in the capital (but not the share capital) of the co-operative’. Possession of a CCU does not convey to the holder the right to vote in matters concerning the running of the co-operative.
In 1993, Norco Co-operative Ltd attempted to raise $10 million in capital by issuing short and medium-term CCU’s (termed NCU’s in this case) to public investors, with the aim of reducing its debt. Unfortunately, they managed to raise only a fifth of the target figure and the outstanding NCU’s were listed as debts. This illustrates the inherent imbalance which CCUs attempt to address – maintaining membership control and interests whilst making co-operatives attractive targets for investment.
Agricultural Co-operative Successes
Despite the economic challenges many co-operatives face, plus the administrative and legal obstacles they are forced to negotiate, there are still several success stories that serve as inspiration for other small producers.
Headquartered in Perth, CBH Group (Co-operative Bulk Handling) handles, markets and processes grain from Western Australia’s wheatbelt. They have around 1,200 permanent employees and annual revenue of over $3 billion. The co-operative was formed back in 1933 and now has the largest market share in its industry. CBH demonstrates the power of the economies of scale needed to survive in a highly competitive market. Through collective bargaining it can negotiate great prices for inputs and outputs without compromising on the autonomy of the individual businesses of which the co-operative is comprised.
CBH has benefited from state sponsorship over the years and it is debatable whether it could have grown to its current size without this support. But now it wields considerable market power and has a virtual regional monopoly over its services. Legislation means the co-operative is exempt from paying tax on surplus income, due to its primary purpose of promoting the development of agricultural resources. Its huge success needs to be viewed in the light of its numerous regulatory concessions.
Diversifying Business Models
Corporations and co-operatives are not mutually exclusive and the existence of both business models is encouraged, to sustain a vibrant and diversified agricultural economy. Large, farmer-controlled, collaborative projects exist in abundance across the world, particularly in the agribusiness sectors of Europe, Asia, North America and South America. For Australian co-operative movements to equally thrive and prosper, coordinated action at Federal and Commonwealth level needs to happen. Funding streams must be made available, and accountancy and governance structures tailored to support rather than hinder co-operative producers.
Internally, co-operatives must improve their abilities in business management, particularly in the areas of finance and marketing. Passion and enthusiasm are all well and good but not sufficient in themselves to sustain a viable agribusiness over the long-term. There is also an issue around producers’ understanding of policy regulations that needs to be rectified. Failure to meet the demands of supply contracts, often by overestimating production levels, can also lead to major problems for farmers and financial sanctions.
The dedicated team at Kingfisher Law has decades of experience in agribusiness and it is their aim to offer co-operative farmers across Australia all the support and legal advice they need to overcome such difficulties. We can help you negotiate the best contracts and negotiate the legislative, taxation and administrative obstacles you will inevitably be faced with at some point.