Despite the $1.5 trillion a year that agriculture and the activities associated with it bring to the US economy—fully 16 percent of GDP—much of the industry is destroying value. The problem is not only the agricultural boom-and-bust cycle and the vagaries of the weather but also the performance of one of the industry’s traditional business models: agricultural cooperatives. Co-ops, a substantial part of the industry, handle $121 billion annually out of a total of $675 billion (Exhibit 1). With a few notable exceptions, they destroy value—nearly $2 billion in 1999 and 2000—and the destruction continues through both the high and low phases of the agricultural cycle (Exhibit 2).¹

Gone are the days when traditional family farms banded together in co-ops for increased market power in buying and selling a wide range of supplies and services. Farms then had similar and fairly basic needs, and co-ops offered their members a valuable service; indeed, they saw themselves as service providers, not as performance-oriented businesses. But while most co-ops have since changed, the world around them has changed even more: farms are bigger and more specialized, and globalization has encouraged many (and often larger) competitors to enter every part of...