An evaluation of changes in supply structure on the economic viability of farm supply cooperatives

Abstract

The volatile economic world of agriculture in the past two decades has had a significant impact on agribusinesses. Among these agribusinesses are farm supply cooperatives. Consolidation of farm supply cooperative stores could help to correct many inefficiencies which they face. This research attempted to create a model which would help cooperative managers consider consolidation of cooperative stores or product lines as a method to correct inefficiencies and lower the costs of doing business. A microcomputer based linear programming model which simulates the product/trade flows of a farm supply cooperative trade area was developed. This model simulates consumer behavior by minimizing the net cost (purchase price plus cost of transport) of purchasing agricultural supplies to the patron. Using the simulated product flows, the financial situation of the trade area was presented. The model was tested by analyzing several consolidation scenarios based on the costs, prices, and asset capacities of a sample trade area. Consolidation of the feed and fertilizer product lines into one location was found to be a very successful cost saving scenario for the sample trade area.