Check co-ops for safety

7 June 2002

Check co-ops for safety

By Tom Allen-Stevens

GROWERS are being urged to take a keener interest in the way their grain co-ops function, after Viking Cereals was taken into receivership this spring.

The NFU is developing a detailed guide to help growers ensure they are not over-exposed to risk in future.

"The complex structure and nature of co-operatives are things few farmers deal with on a day-to-day basis," says NFU chief arable advisor Paul Ibbott. "The idea is to arm farmers with the sort of questions and give them an idea of the sort of answers they should be looking for."

That will help growers understand to what extent a pool is taking a position on the market, for example, rather than trading physical grain, explains Mr Ibbott.

"Growers should be asking how the board monitors activities within the business."

Co-op members should also explore the role of credit risk insurance, believes Simon Ward of Cambs-based consultancy Increment. "You need to be clear about whether the group is acting as an agent or principal."

A co-op acting as agent never actually owns the grain, so members should ensure it has adequate credit risk insurance in case the end buyer folds before payment is made, he explains. "If your group is acting as the principal, it is purchasing your grain, so you have to consider taking out credit risk insurance yourself," he says.

Growers should also ensure they get a clear idea of how a co-op uses futures. "Directors should lay down limits on how exposed to market forces they can allow the group to be, and let members know."

Sarah Sharratt, of Cambs law firm Taylor Vinters, believes growers can get a useful idea of how well a co-op is being run by asking just a few questions about procedures.

"Make sure it has good financial and accounting information and that those marketing your grain are properly supervised," she advises.

Members should also push their co-op to provide regular feedback on exposure, she adds.

The NFU guide will be available later this year. &#42

Industry advice to growers:

&#8226 Find out monitoring procedures.

&#8226 Check whether co-op acts as agent or principal.

&#8226 Assess need for credit risk insurance.

&#8226 Make sure co-op explains finances and exposure to risk.

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