MOORHEAD, Minn. — American Crystal Sugar Co. is a grower’s cooperative, and the company has instituted policies to keep it that way.
The company on July 29 sent a letter spelling out the board’s “evolving policy” encouraging “active farmer” ownership of shares, whose prices are near-high per planted acre.
The stock ownership policy is “intended to allow American Crystal Sugar to remain true to its cooperative roots of being owned and governed by family farmers,” said the letter, signed by Thomas Astrup, chief executive officer, and David Mueller, chairman of the board.
In an interview, Astrup told Agweek the board had simply “revisited” its policies already designed for the purpose. Agricultural producer-owned cooperatives are afforded certain tax advantages compared to ordinary shareholder corporations, in part because some of the income is shifted away from the company and into the grower/shareholders for tax purposes. As active shareholders have retired from farming over the years, more of the co-op shares had been owned by limited partnerships or limited liability partnerships. (This is often referred to incorrectly as a share “rent” arrangement, a term the co-op discourages.)
The company, in the middle of its 2020 harvest campaign, is a regional and national example of producer ownership of the production, processing and marketing.
Astrup said the policy moves away from simply being “at-risk” financially, to qualifying members by “involvement in the farm.” He said Crystal is in the “middle of the pack” on strictness of co-op rules.
The new policy spells out that shareholders contribute at least “25% of the annual combined labor and management hours of a sugar beet farming operation,” and “at least 250 hours of the annual combined labor and management” of the company. Individuals must keep records on this and the company has a right the request it.
The policy doesn’t go into effect until Sept. 1, 2021. The company is offering time for shareholders, bankers and lawyers to study the policy, and to learn more in informational meetings this winter. The co-op recently announced that its annual grower district meetings and its annual meeting — traditionally the first Thursday of December — are being held virtually.
The real change is for when people die and shares are transferred to beneficiaries.
Chris Griffin is president of Red River Land Co. of Grand Forks, which deals in land sales, farm management, and sugar beet stock sale transfers. A lawyer by training, Griffin said the new rule is an evolution of policies to help encourage producer ownership in shares of the company. He said he thinks the policy was well done.
The new policy will have its greatest effect when a shareholder dies. The heirs — unless they’re active growers — in the future will have to sell their shares before the start of the second crop year after the death of the shareholder.
The crop year begins April 1.
“We’ll see that push quite a few shares into active growers’ hands,” Griffin said. “I think it was the right balance. It’s not going to disrupt the market too much in the near term, but it’s going to have a positive long-term effect, or will reach the goal they’re looking for — that the growers own the shares.”
The company has encountered turning points, as in 2013, when a major decline in beet prices relative to other crops caused some to question whether all the shares would be planted, Griffin said.
“That was when they first put the personal guarantees in place, so if there were non-active growers that owned shares, so that they would be ‘at-risk’ and they would have to — potentially, if shares weren’t planted — pay a penalty, to cover the fixed costs of the co-op,” he explained.
The co-op also instituted more review of joint venture arrangements.
Griffin says the new rule appears just another evolution in that direction.
“It’s hard to find the right balance,” he said.
He said the first joint venture ever occurred in 1974 — the first year American Crystal was in business as a cooperative after farmers purchased it from a Denver-based privately held corporation.