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  • Writer's pictureJohn Ikerd

Vertical Cooperation for Sustainable Local Food Systems

The success of current initiatives to create a new sustainable food system will depend on a fundamentally different approach to business management, including a new approach to investing and lending. Our current unsustainable food system reflects a myopic emphasis with the economic bottom line. The result is a global industrial food system that is very economically efficient, but is neither ecologically nor socially sustainable. Since all economic value ultimately must be derived from nature by way of society, our current food system is not even economically sustainable.

Some progressive businesses have responded to the challenge of sustainability by adopting a triple-bottom-line approach to management.  They attempt to balance the need for short-run profitability with ecological integrity and social responsibility in an effort to ensure long-run economic viability. To ensure economic sustainability, they willingly forego opportunities to maximize short run profitability that compromise their ecological and social integrity.

The cooperative model of business organization seems ideally suited to support the triple-bottom-line approach to business management. The foundational principles of cooperative organizations include democratic ownership and control, member education and training, and concern for the broader communities and societies within which cooperatives function. Unfortunately, cooperatives have sometimes felt compelled to sacrifice their social principles in order to compete economically. Over time, many have become little different from their corporate competitors. That being said, the cooperative business model provides a promising platform for sustainable business organizations.

Sustainability in food production requires cooperation that goes beyond the historic commitment of cooperatives to social responsibility. They must also be committed to ecological integrity. Sustainable agriculture requires healthy soils and agroecosystems to sustain production of healthy foods. This requires “vertical” cooperation. Traditional cooperatives are “horizontal,” in that they organize at a single level or stage in the production process – consumers, processors, distributors, “or” producers. “Vertical” cooperatives include multiple or all levels in the production process – consumers, processors, distributors, “and” producers. The shared values of cooperation must span different functional levels.

The Prairie Roots Food Cooperative is an example of such a cooperative. They are expressly committed to: “Providing a fair return to farmers who use sustainable and humane practices, paying employees fair wages and benefits, and providing healthy, high-quality food to people of ordinary means.” The success of vertical cooperatives, such as Prairie Roots, depends far more on their ability to maintain harmonious, productive relationships among their members at all levels in the supply chain than on the economic efficiency of their organization. The sustainability of cooperative relationships depends a commitment of members at all level to a common purpose and adherence to a common set of deeply-held social and ethical values or principles. A vertical cooperative is not simply a supply chain, it is a “values” chain.

Vertical cooperatives are created to perform functions that cannot be performed by vertically integrated corporations or open market coordination. Those at every level in a vertical cooperative willingly foregoes some measure of short-run profitability or economic advantage in order to gain the non-economic benefits of ecological and social integrity, which ensures long run economic viability for the systems as a whole. A vertical cooperative is a triple-bottom-line or “socially responsible” business organization.

Social responsibility is a term often used to describe businesses that function for the long run benefit of society in general as well as their individual investors or members. The people who work for vertical cooperatives might be called “socially responsible workers,” because those motivated solely by economic incentives rarely seek employment or remain in socially responsible organizations.  Whenever socially responsible businesses need to rely on outside sources of capital to pursue their purpose, they must seek out “socially responsible investors” or “socially responsible lenders.”  While socially responsible investing is relatively well known in financial investment circles, socially responsible lending seems less commonly understood.

Socially responsible lenders, like socially responsible investors, willingly forego some opportunities to maximize economic returns or minimize economic risks. In return, they receive the non-economic benefits of knowing they are supporting socially responsible economic enterprises that contribute to the long-run well-being of society.  That being said, socially responsible businesses must be well managed and ever vigilant of their economic bottom-lines, as well as their social and ecological bottom-lines, if they are to remain economically viable over time. So, socially responsible investing or lending is not a matter of neglecting profitability, but instead viewing economic performance from a long-run perspective.

When making investment or lending decisions, potential investors or lenders to consider not only the economic performance of the cooperative but also the social and ecological benefits the coop provides to their communities and society. I realize that some investors and lenders are committed to focusing solely on the economic bottom line. However, I believe there will be increasing economic opportunities for socially responsible financial institutions that make values-based commitments to socially responsible vertical cooperatives with whom they share common social and ethical values. Economic performance undeniably is important; but in business, as in life, everything does not ultimately boil down to economics – society and nature are even more fundamental.

John Ikerd

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