OBJETIVO Y PROPÓSITO

The final Supplier-Shareholder-Control subconcept highlighted from the data and included in this conceptual model is Exit and is defined as:

supplier-shareholders withdrawal of patronage (and capital) from the co-operative.

Supplier-shareholder Exit is important for the understanding of actual Board Roles. Exit may come at the expense of Collective-Action (section 7.3.4). The withdrawal of patronage may have severe effects on the co-operative as it not only withdraws raw material (milk) from the co-operative’s operation, it may also withdraw capital³³ which may affect the co-operative’s viability. This may require a board role to try to retain the loyalty of supplying shareholders.

Exit of a supplier-shareholder from the co-operative is achieved in a variety of ways. A supplier-shareholder may sell their dairying operation to a new buyer with all the rights and obligations attached to the farming business carrying on under the new owner. This form of Exit has minimal affect on the co-operative and those supplier-shareholders remaining in the co-operative and as such has minimum effect on Board Roles. If the supplier-shareholder leaves due to dissatisfaction with the co-operative, this may have implications for the exiting supplier-shareholder in terms of employment, housing, and social factors (such

33 Most co-operatives have the supply of milk linked to capital contributions. Withdrawal of milk often leads to the resumption of that (ex-)supplier-shareholder’s capital. The so-called

“redemption risk”.

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as friends, family, children’s education etc.). The board may have a role in understanding that supplier-shareholder’s dissatisfaction.

Exit can also be achieved by supplier-shareholder(s) leaving the co-operative and supplying their milk to another milk processor, either another co-operative or an investor-owned firm (IOF). The supplier-shareholders ability to exercise this form of Exit is dependent on alternative processors of milk within transportable distance of the supplier-shareholder and varies between cases.

Some co-operatives, or geographic areas within a co-operative, are effectively monopsony buyers of milk. Exit to another dairy processing company is therefore very geographically dependent due to spatial monopsonies, as this director succinctly points out:

Well I think it’s important not so much to keep them [supplier-shareholders] on board because it’s difficult for them to jump off the ship [laughter] (B2, supplier-shareholder director)

Different institutional arrangements may also have an effect on supplier-shareholders’ ability to Exit the co-operative. Supplier-shareholder Exit appears easier to achieve for the majority of supplier-shareholders in Australian cases than New Zealand ones:

Probably exacerbated more here in Australia than in New Zealand because here a dairy farmer can leave any day he likes, it is not the 30th June or 31st May or whatever it might be. It can be anytime and they can leave today, join a company tomorrow and if they don't like it in a week’s time they can move again. There is a total freedom of movement (F3, appointed director)

A supplier-shareholder may also Exit from the co-operative, by reducing or ceasing the supply of milk to the co-operative, for instance, by a change in land (or water) use to another form of farming operation. The latter two co-operative Exit options (Exit to another milk processor or from dairying) has a more pronounced effect on the co-operative and its remaining supplying-shareholders. The Exit of supplier-shareholders will starve the co-operative of both milk (raw materials) and capital (varying depending on the constitution).

A critical mass of supplier-shareholders utilising the Exit option will have dire consequences for a dairy co-operative, putting the remaining

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shareholders’ benefits and the co-operative businesses at risk. This suggests a Board Role in identifying and addressing issues that may cause supplier-shareholders to Exit the co-operative.

The most likely cause of Exit is uncompetitive performance; that is, not meeting supplier-shareholders economic needs:

It’s maintaining milk price because you know damn well that if you can't pay the same amount of money for your milk as your neighbour [competing dairy company], you are going to lose the farmers (F3, appointed director)

the implications of this on the co-operative are:

So if you are not competitive you are going to lose milk supply, the moment you lose milk supply you start to lose your fundamental base of operation. And therefore you will see companies stretch their finances and weaken their accounts to maintain their competitiveness (F3, appointed director)

The final outcome could be the demise of the co-operative:

If you have a look at the history of what happened to [another co-operative] it is probably the best example that you can see. They kept paying milk prices that were way beyond their profitability because they had to, to maintain [milk supply] ... without [another co-operative buyer] they basically would have I think been folded up (F3, appointed director)

Supplier-shareholder Exit may also be caused by Exogenous-Issues such as severe drought:

There were a few of them that wanted to sell the place and privatise it (E1, supplier-shareholder chair)

Or different Supplier-Shareholder-Needs/Benefits requirements:

Large farmer with a large number of shares and no next of kin to take over the farm - he has got a certain attitude which is more exit focussed (D1, appointed chair)

The ability for supplier-shareholders to Exit the co-operative may suggest the board has a role in understanding and responding to the causes of Exit. It may also require a role for the board in encouraging member loyalty.

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Due to the commitment, in terms of physical, intellectual and emotional capital of supplier-shareholders to the dairy industry and their co-operative (as outlined above under Supplier-Shareholder-Needs/Benefits, Risk-Reduction), Voice (and possibly Vote) may be used extensively before Exit is considered, as this example of a board’s role in response to a drought and some supplier-shareholders wanting to Exit:

[We went] out there on their patch and explained what we were doing, the problems we had and talked about their problems, we put field staff in basically to go out and service them, to fill in forms to help them with drought aid to facilitate many of the things, that under stress they weren’t handling well. And that in itself took the pressure off a little bit.

Them wanting to tear the place down, there were a few of them that wanted to sell the place and privatise it you know one percent, one percent, two percent. But it was all because of a clear direction by this company and not leaving them out there (E1, supplier-shareholder chair)

Evidence supporting the third Supplier-Shareholder-Controls subconcept of Exit is presented and found to be useful in the understanding of actual co-operative Board Roles.