Ag Retail Consolidation Math: 1+1=1

In terms of basic math, adding one number with another number always equals two. But in the world of business — and ag retail, recently — adding two different companies together tends to equal something entirely more complex than just a simple answer.

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For example, take the case of one of the most recent ag retail consolidations to happen — Co-Alliance LLP and Harvest Land Cooperative Inc. Both these Indiana-based cooperatives have been very successful over the years. In fact, Co-Alliance and Harvest Land Cooperative have been among the nation’s top ag retailers in terms of yearly revenues, with each perennially ranking as members of the annual CropLife 100 rankings (with sales ranging between $66 million and more than $200 million).

And both cooperatives are similar in overall corporate make-up: Co-Alliance had 24 outlets spread out across three states (Indiana, Ohio, and Michigan); Harvest Land had 31 outlets located in Indiana, Ohio, and Illinois. Each employed several hundred workers as well. By all accounts of a business world view, both cooperatives are profitable, well-positioned ag retailers that would remain successful on their own for many years to come. For Co-Alliance and Harvest Land, the single number math seemed just fine.

Despite this fact, both cooperatives began discussions about adding their assets together a few years ago. These reportedly took a more definite tone during the latter half of 2020. A vote by each cooperatives’ membership was held this past January to determine if a formal consolidation between Co-Alliance and Harvest Land should take place. Once the votes were counted, the verdict was a resounding “yes” for combining, and the companies agreed to merge their operations on February 1, 2021. The newly-formed Co-Alliance Cooperative services customers in Indiana, Ohio, Michigan, and Illinois. It features four core divisions — Agronomy, Energy, Grain, and Swine & Animal Nutrition. Together, the new cooperative will have over 1,000 employees and $1.3 billion in sales.

“Co-Alliance Cooperative brings together two extremely strong cooperatives with a successful history of servicing member-owners at the highest level,” said Kevin Still, who was President/CEO of legacy Co-Alliance and will serve in the same capacity for the merged cooperative. “I anticipate this strong combination will provide synergies and resources that will enhance our customers’ experience and prepare us to meet the needs of our future stakeholders.”

Former Harvest Land CEO Scott Logue — who will now serve as Executive Vice President for the new Co-Alliance — agreed. “Merging Co-Alliance and Harvest Land enriches our ability to embrace the cooperative spirit by focusing on our member’s needs and investing in our local communities,” said Logue. “This historic merger creates a cooperative that can proactively navigate the ever-changing industries we service and provide an environment in which our customers and employees thrive.”

In the bigger picture, says Amy Kinsler, Vice President of Sales and Marketing, the merger of Co-Alliance and Harvest Land represents the latest in a long line of ag retail consolidations to take place in recent years to accomplish the same end goals. “Consolidation is being driven by an ultimate desire to create a superior customer experience,” says Kinsler. “Combining our assets truly allows us to stay relevant in our industry and gives us the size and scale needed to incorporate the technologies, products, services, and expertise needed by today’s customers.”

Lots of Consolidation Math

Truthfully, lots of the “one plus one equals a bigger one” consolidation math has been going on within the ag retail community. These are ranged across the company size spectrum — from GAR Tootelian (a one location ag retailer in Reedley, CA) merging with another one location retailer, Bennett Water Systems, centralizing into a single location under the name GAR Bennett, to a merger of $1 billion-plus giants when Simplot Grower Solutions acquired Pinnacle.

For a brief moment, this left the usual “More Than $1 Billion” seven of the annual CropLife 100 listing with only six members. However, in September 2020, three “More Than $100 million” ag retailers — Agri-AFC, Tennessee Farmers Cooperative, and Greenpoint AG – decided to combine their ag retail operations into a single company. This vaulted the new Greenpoint AG into the More-Than-$1 Billion club as the new seventh member.

Another ag retail active in consolidation math these past few years is Valley Agronomics, Nampa, ID. In 2017, this member of the CropLife 100 merged its operations with another long-standing CropLife 100 company, Wilco-Winfield of Mt. Angel, OR. Then, just as the new year began, Valley Agronomics continued to expand upon its ag retail footprint by acquiring Saddle Mountain Supply Co., an agronomy supply company located in central Washington. The merger included four agronomy centers, fleet, equipment, and the management of Saddle Mountain, which has served the Columbia Basin and its surrounding growers since the 1970s.

“Valley Agronomics has a vision to be the agronomy company of choice in all markets that we serve,” says Richard Lloyd, General Manager for Valley Agronomics, of the Saddle Mountain move. “One reason that we were attracted to the recent acquisition in Washington state is that growers want to do business with a grower-owned company that is focused on their success.”

But, adds Lloyd, this consolidation trend among ag retailers goes much deeper in its overall scope. “The past several years of consolidation at the manufacturer, dealer, and grower levels has put market influence into fewer hands,” he says. “This really creates challenges to stay relevant and profitable for smaller dealers. We are always looking for profitable and strategic growth opportunities.

“Consolidation at the manufacturer level accelerated years ago on the fertilizer side of the business” continues Lloyd. “In the past few years crop protection and seed consolidations have accelerated. Retailers are seeing this on both sides as growers continue to consolidate and more farmland is controlled by fewer entities. I don’t believe that retailers can sit back and think that all the consolidation won’t affect their businesses. We know that it has a big effect both short term and into the future. This does not mean that small retailers are going to go out of business. We all have to adapt and find ways to stay relevant, bringing value to growers. This can be done in many ways such as developing new services or opportunities. One way to survive would be to consolidate with other retailers that could bring strength and find ways to reduce or spread costs.”

Jim DeLisi, owner of Fanwood Chemical and a frequent speaker at industry trade events, also pointed to this earlier “consolidation math among suppliers” trend as a key motivator for today’s ag retail mergers. Speaking at the 2017 AgriBusiness Global Trade Summit in Las Vegas, NV, DeLisi discussed what was then driving large crop protection and seed suppliers to begin tabulating consolidation math. As might be expected, all kinds of numbers were at play.

“The largest driver of agrochemical mergers is the market price for crops such as corn and soybeans,” said DeLisi. “Corn prices in 2008 were $8 per bushel. In 2016, they were $3 per bushel. So in essence, the agricultural market lost $15 billion in value between 2008 and 2016. These kinds of losses have impacted ALL the suppliers to this market. And it’s put most growers in a kind of ‘survival mode’ when it comes to spending money and looking for ways to increase their profits.”

He also added new innovation/product development costs to his consolidation math equation. “New product development costs, for both seeds and chemicals, are in the range of $300 million to $500 million in development and registration globally,” said DeLisi. “Only the latest companies have the resources and leverage to both finance and then recapture this level of investment in an attempt to ‘stay ahead of the weeds and bugs.’ Mergers were chosen as the path to increased revenues to allow for more research and development expenditures while protecting shareholder value.”

Strong + Strong = Stronger

In addition to looking at the consolidation math from industry suppliers, today’s ag retailers are also considering how to stay relevant. And this is not a new trend. In fact, back in 2016, two very large, individually successful Ohio-based cooperatives — Sunrise and Trupointe — decided to merge their companies. When asked why, Sunrise President/CEO George Secor cited this as the reason: “That’s the one word [relevant] I kept using as Sunrise and Trupointe held some 35 merger meetings throughout the two companies during January and February of 2016,” said Secor. “We were both coming off really strong financial years. At the same time, I kept telling our board that with what was going on across the agricultural space, the decks could easily get re-shuffled and we could suffer as a company. In fact, I reminded them that 10 years ago, Sunrise and Trupointe each would have easily ranked in the Top 10 cooperatives in the country based upon our sales volume. However, by 2015, neither of us ranked in the Top 20 among cooperatives anymore, despite doing financially fabulous.”

Of course, says Shelly Kruse, Executive Director, Strategic Relationships for GROWMARK, Bloomington, IL, there are plenty of other factors that can be added to the consolidation math equation. These include the following:

  • The ability to have the size, scope, and scale to deal with so few manufacturers.
  • The continued consolidation at the grower-customer level.
  • Larger growers wanting to spread their business between retailers to control supply risks that pop in the market and the reliability of custom application if/when needed. Growers, however, want to deal with dominate retailers.
  • Overall growers are shifting to an educated/business approach and this takes top talent at the retailer to demonstrate value to the growers. Consolidation allows for sorting out of talent and securing top talent.
  • The need for people resources in business areas that can’t be supported within smaller cooperative structures. Examples of key positions needed that help drive consolidations are human resource manager, technology lead, CFO (instead of bookkeepers), experienced management level positions, and top salespeople.
  • Costs that have increased within the past few years — pension (retirement plans), health insurance, overall insurance costs, and application equipment are driving the need for efficiency improvements to do more with less where consolidations can provide positive impact.
  • Doing business in multiple states is common and requires additional resources.
  • The recent volatility of markets speeding up the urgency of consolidation for leveraged and financially-stressed cooperatives.
  • Growers have experienced financially challenging years within the past five to seven years. This has impacted credit and retail cooperatives quality of aging. The lingering impact of credit and collections will continue as another factor influencing some mergers.
  • The increase in the use of technology tools requires scope and scale to implement and fund. This includes digital sales and other technology-forward solutions.

“We don’t see the following factors changing significantly in the near future,” says Kruse. “Therefore, [this will] support continued consolidations.”

And what about the influence on the consolidation equation from the watchword of 2020 and early 2021, COVID-19? According to industry watchers, the ongoing coronavirus pandemic has had almost no effect on ag retail consolidations.

But that’s not to say COVID-19 has had no impact whatsoever, says Kruse. “COVID-19 doesn’t appear to factor into the decision for cooperatives to merge,” she says. “However, the COVID-19 pandemic has delayed the merger process for some cooperatives. Being unable to conduct in-person meetings has caused delays with mergers that were in process. For those not already in the process, there are delays in bringing together boards and management. And a key element of mergers is developing strong relationships that provide merger partners the opportunity to build trust as they work through an analysis period.”

Despite this slight delay, Kruse expects ag retailers to continue looking hard at consolidation math in the upcoming months and years.

“Cooperatives will continue to look at consolidation opportunities as margin/earnings pressure and the urgency to continue to improve efficiencies continue at the forefront,” she says. “Technology improvements, including increased digital connectivity and business use cases, and securing top talent provide the size and scope required to execute within these areas.

“This year, 2021 may drag slightly because of the complications of holding meetings and working through the required processes,” she concludes. “But 2022 will likely increase from the current market volatility within the grain markets and the impact to crop inputs.”

Co-Alliance’s Kinsler agrees. “As the cost of doing business continues to increase and the needs of our customers continue to become more dynamic, the industry will continue to look for synergistic opportunities,” she says.

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