Exploring the Dynamics of a Honey Co-op
APIARIST’S OPINION: RUSSELL MARSH
There is probably none better placed to understand the dynamics behind a beekeeping co-operative or “collective” as RUSSELL MARSH likes to call a group which could supply an offshore packer, as proposed in these pages last month. His family business, Marsh’s Honey, supplied the now defunct New Zealand Honey Producers Co-operative for all its 33-year existence, while Marsh was formally a chartered accountant and has recently served on the board of Apiculture New Zealand. From his vantage point, he explains some of the lessons learned and considerations required before beekeepers band together again.
I commend John Hartnell for putting forward his honey export and offshore packing concept. I believe there is a solution, or solutions, out there to our current honey supply and demand imbalance and the only way to realise them is creating proactive leadership and detailed discussion.
The last time Kiwi beekeepers formed a collective of any scale was the NZ Honey Producers Co-op, which ran from 1981 to 2014 when it was disbanded. In its final year of operation the co-op turned over $30million of honey, yet when it was disbanded the collective of about 70 shareholders barely got back their initial share value, with next to no capital gain or dividends made on their 30-plus years of investment and commitment.
What John proposes probably won’t be the same structure as the co-op was, but there is a lot in that co-op model that is applicable as a collective will be required to generate honey supply. With that in mind, I don’t have all the answers, but these are some of the main questions I would ask before proceeding.
1. COLLECTIVE DYNAMICS
Size, quality and fit are all crucial. That is, how much honey each of the suppliers can and will commit, what type of honey that is, and how will it fit in with the collective’s or packers’ marketing strategy?
You need to know what you are setting out to do and what your strategy is around supplying it. If it was just manuka, what grade would you be targeting? If it is other monoflorals, what ones? Or what blends?
Making sure individual’s supply lines up with the collective business model is crucial, otherwise there may be opportunities for some to take advantage of those supply dynamics.
2. CAPITAL COMMITMENT
While a collective that can find a market for a lot of honey might be appealing, the small matter of who makes the capital commitment to get it off the ground and how much is required, could be an early stalling point.
With many potential suppliers already struggling to generate their own cashflow, finding players willing to buy into the idea with money, inventory as well as enthusiasm, may be a challenge.
The co-op was established in 1981 using a mix of cash, bank financing and honey supplied by the new shareholders, with the initial honey supply meaning the co-op’s stock buying costs were kept low. This could work again, but if you commit your inventory, where does the liability lie if something goes wrong in that whole equation of export, packing, through to marketing and distribution?
Would suppliers be willing to take that gamble, and would they be able to stump up the cash required to cover setup costs such as legal, accountancy and marketing fees?
3. SUPPLY COMMITMENT
Ensuring consistent supply of the right honey is critical and one of the serious failings of the co-op was beekeepers’ willingness to pick and choose which season they would supply their honey.
What is the legal status of the contracts to ensure you have consistent supply year after year, from the same people, they are not jumping in and out, and supply is not getting varied in terms of its quality?
As John points out, “If you go into it, you have to stay in it”, but what are the rules around that and how are they enforced?
4. THIRD PARTY COMMITMENT AND RISK
If partnering with a packer who operates outside of the supply collective, there is obviously plenty to take into consideration, but for a start: what is the background of the packer? how financial are they and will they always be around? what do they deliver as a collective member? how cost effective are they? how are their costs calculated? what are the trigger points for changes to charges? what is plan B?
Add to all of that, the question of how any new capital projects and working capital are funded – a question co-ops often grapple with – and there is plenty to think about. Would existing shareholders be able to provide the equity to take advantage of sales and marketing opportunities as they present themselves? If so, how would that investment and risk be rewarded on an individual basis?
5. GOVERNANCE – STRUCTURE OF THE BOARD
Having good governance to set a strategic vision and manage speed bumps is key. The co-op was governed and managed, initially, on a shoestring by beekeepers who did not have a full understanding of international markets or adequate business acumen to oversee what ended up being a reasonably complex operation.
That is no longer tolerable in today’s markets. You have to have a well-rounded board that can understand strategy, day-to-day management requirements, and the effects that key decisions have on the industry players involved. Governance needs to be mostly independent of the suppliers, so as to avoid conflicts of interest.
That usually comes at a cost though and the right people might be hard to attract.
6. QUANTIFIABLE POTENTIAL NETT FINANCIAL REWARDS AND WHO BEARS THE INEFFICIENCES
That’s a mouthful I know, but what it boils down to is, how is the honey price determined and if someone stuffs up, does that come out of the collective beekeepers’ estimated realisable value (ERV), aka the price paid for their honey?
Is it as simple as: sales revenue, less sales and marketing costs, less packing fees, less distribution, less overheads, less capital/debt commitments = supplier net value (ERV)?
You need an understanding of these parameters from the start so that everyone is clear on what their job is, what the risks and rewards are, and what they are in the can for. Otherwise, ultimately it may come back to the supplier to cop it.
AT THE END OF THE DAY…
None of these areas of consideration come without solutions, but the solution will require certain things of those who commit to this business model.
We should stay on the front foot and be positive about trying a concept like this. Just because we have a few things that look a bit ugly, doesn’t mean there are not ways and means around it. It just needs a bit of thought without being too naïve, because collaboration can be a great tool when set up properly to deliver realistic, fair and equitable outcomes to those that are prepared to commit.