Memo 4 ~ Is Mole Valley Farmers really a Cooperative?

Updated 12th February 2007

MVF's legal status as a private limited company under the 1985 Companies Act does not, of itself, constitute a barrier to its operation as a farmers supply cooperative because, with the consent of the shareholders, their best interests can be interpreted as enjoying farm input supplies at less than normal market prices and/or becoming recipients of an annual bonus based on each members purchases.  The extent of these is the true performance indicator of a successful cooperative, in contrast to the majority of private limited companies for which the conventional success markers of growth and profit will be reflected in higher dividends and share values. 

From the early 90's the MVF policy started to be changed in accordance, it was claimed, with the rapidly changing market conditions.  The principal components of change required within Mole Valley were seen to be

•  that is was necessary to generate higher levels of sales in expectation of reducing unit operating costs through economies of scale.

•  that to achieve increased sales MVF needed to take on salesmen for the most effective promotion of the goods and services which could be offered to existing members, but also to many new members in an extended trading area.

•   that to cover the additional costs incurred, coupled with a desire to generate higher levels of profit (to fund even more future expansion), significant increases in the mark-ups applied to purchase prices would have to be made right across the wide spectrum of MVF's business.

•  that when the anticipated economies of scale failed to reach a sufficient level to offset the costs of the expanded sales force, the only resort was to expand Mole Valley into wider areas of the country where competition was less than in the old MVF areas.

•  the most recent results of this policy were the two acquisitions of SCATS and Pye Bibby thereby expanding Mole Valley's “trading area” by around 200%.  It remains to be seen whether the Timac joint venture, with part of its sales force covering yet more distant areas, will become interpreted as yet further Mole Valley” trading area” expansion. 

More critically, it remains to be seen whether the overall impact of these policy changes will leave Mole Valley as a viable farm input cooperative focused on the needs of its hard-pressed farmer members for reducing the cost of their inputs in the south west. 

In spite of MVF assurances on the Company's – or is it the Group's? - cooperative credentials some aspects of recent MVF policy changes seem inconsistent, possibly incompatible, with cooperative purposes, principles and spirit.  These may be summarized as

•  failure to contain the escalation of avoidable overhead costs.

•  abandoning an open and non-negotiable quantity rate pricing structure.

•  reducing pricing information to Members in Newsletters, especially those for major farm input items.

•  seeking higher levels of profitability and of prestige.

•  imprudent investment in subsidiaries which are failing to produce real benefit to farmer members in the south west.  They are more helpful to non-member customers further afield.  In some cases subsidization of the subsidiary by MVF applies.

•  erosion of member trust through flexible pricing from salesmen and branch managers, contrary to declared MVF Board policy.

•  reduction of member-elected Director control through appointing staff on to Boards of subsidiaries.

•  erosion of Mole Valley 'brand' in established feed, fertilizer, seed and mineral supplies to members by subsuming these into Southern Valley Feeds Ltd or Mole Valley Forage Services Ltd being the 50:50 joint venture – half owned by Timac.

•  generating a complex new company structure which will exacerbate present member confusion over MVF's company objectives and wider MVF “Group” objectives.

•  employment of a large farm-calling sales force, involving associated costs in administration and middle management. 

Of the ten inter-related factors listed above, all of them contain serious contradictions in practice to Mole Valley claims that our Company is a cooperative operating in accordance with its original roots.  The last item listed, recruitment of a large sales force, is responsible directly or indirectly for many of the others.  Placing considerable emphasis and in some cases incentives, on achieving increased sales targets results in pressure on management to relax the disciplines on adhering to a pre-determined quantity rate price schedule and payment terms.  Once that discipline becomes eroded, salesmen can persuade management to avoid the straight jacket imposed by publishing too much pricing information in Newsletters - and a similar argument is used against publishing full ingredient declaration - the general case being that effective salesmanship involves persuading the potential purchaser that the salesman is working to achieve an especially keen deal, unique to that favoured customer! 

In addition to the 'non-cooperative' factors listed above there is a residual problem from the MVF division into two types of membership, more recently reflected in the replacement of Trading Members with Trading Shareholders.  The origins of this anomaly are described in memo 3, and no remedy for it has yet been devised.  Perhaps shareholders, whether Ordinary or Trading, can offer suggestions to the company to resolve this one - or give them an airing on this website!  Its long term significance relates to the need to keep majority voting power in the hands of west country farmers who are making maximum use of the company now and in the future. 

Returning to the question posed in this memo, it is my belief that the original purpose was a true cooperative one, even though the Buying Group we formed was classified as illegitimate by the established Cooperatives at the time.  In this respect I am in total harmony with the Chairman's clear and unequivocal statement in his Annual Report 2005 that “Mole Valley Farmers is, and always will be, a FARMERS' COOPERATIVE with its main aim being to provide its farmer members with their farm inputs at the lowest possible price”.  This objective, as defined by the Chairman, coincides with this website's objective for Mole Valley, with the important qualification that “...its farmer members...”should read “...its farmer members in the south west...” 

I have several reasons to believe that this is an important issue.

•  The MVF Chairman interviewed by Farmers Guardian “would like to see the company extend its sphere of influence into other parts of the country...”  I have been unable to obtain any meaningful explanation of this statement.

•  First-hand experience of cooperative practice in the UK contains many examples of expansionist policies being accompanied by offers of lower prices to new “members” in their new growth areas – offers which were effectively subsidized by longer standing members.

• Following the acquisition of SCATS Countrystores plc, the MVF annual Report of the Directors stated that “The Directors are committed to continue the upgrading of Mole Valley Farmers branches, SCATS Countrystores and manufacturing plants so that the group is able to meet all the requirements of its members”.  Note: All the premises SCATS operate from are rented, whereas MVF operates from its own freehold sites. 

Examples in several Memos show that the presentation of Mole Valley’s cooperative image may be impressive rhetoric but is not matched by performance in practice.

Click for Memo 5 >>