During a meeting Tuesday of the Commons standing committee on finance, the president of Quebec-based Sollio Co-operative Group shared plans to limit consequences of the COVID-19 pandemic on the agrifood supply chain.

Sollio employs more than 15,000 people and has three agri-food divisions, including meat packer Olymel.

President Ghislain Gervais told MPs the government needs to invest in increasing productivity by improving its automating and robotizing infrastructures, while continuing to support exporters through investments in food processing.

The company is also calling for the fast deployment of telecommunications infrastructure to ensure the different regions of the country remain strong.

Sollio also listed the need for supporting a “sustainable economy” which, according to its submission, involves “significant support for the digitization and performance of agriculture, as well as promoting and supporting the co-operative business model.”

Citing ongoing labour challenges, the company also requests the federal government promote front-line trades to ensure the industry has enough workers.

“Canadian government support must be well targeted and sustained to protect our supply chains,” Gervais told the committee. “Supporting us in our investments, in a context of scarce resources, means ensuring that Canada will be able to increase its food self-sufficiency, as well as better protect its capacity and its reputation as a world-class exporter.”

Gervais finished his testimony by telling the committee members the COVID-19 shock was just the latest challenge for supply chains, noting the CN strike, rail blockades and difficulties accessing the Chinese market were all recent issues.

The finance committee has met regularly to discuss the financial impacts of the pandemic since the start of April, hearing from dozens of witnesses since.

At its meeting a week earlier, Denise Allen, CEO of Food Processors of Canada, told members “the COVID-19 pandemic has placed extraordinary strain on our entire supply chain.”

She said her organization’s members have spent an approximate $1 billion in added operational expenses to mitigate the pandemic’s impact. She called for more funding to assist in operating expenses and an injection of working capital “to backstop a minimum of three to six months’ worth of food orders to offset the receivables risk to distributors and discourage changes to payment terms.”

Other groups representing the agri-food and agriculture sectors have also testified before the committee, including the Canadian Federation of Agriculture and the Canadian Cattlemen’s Association.

— D.C. Fraser reports for Glacier FarmMedia from Ottawa.

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Gay Lea Foods said Monday it has completed a deal to buy Thornloe Cheese from its current owner, Guelph-based dairy genetics firm EastGen, for an undisclosed sum.

Thornloe Cheese on its website says the business takes in over three million litres of milk per year to make cheese, curds and butter and “remains an outlet for local dairy producers who wish to ship to a northern Ontario location.”

The cheese business was founded in 1940 by producer Rene Laframboise at Thornloe, a small northeastern Ontario community about 175 km north of North Bay, and has changed hands several times since then.

It was picked up in 1978 by Balderson Cheese, which in 1982 became part of Ault Foods, which in 1997 was bought up by Parmalat, which went on to make plans to shut down the Thornloe business. Dairy A.I. co-operative Gencor stepped in to buy Thornloe in 2007.

The cheesemaker came to EastGen in 2011, when the genetics company was formed through a merger of Gencor with Eastern Breeders of Kemptville, Ont.

Thornloe now employs about 30 people, serving wholesale customers including retail and foodservice buyers in northern Ontario and Quebec. It also operates its own central retail store in its home community.

The cheese company, Gay Lea said, is “celebrated for its specialty cheeses,” among which are the first to be made with milk sourced from Dairy Farmers of Ontario’s (DFO) Verified Grass Fed program.

More recently, Thornloe noted, it began developing new cheeses for ethnic markets as well as for the “emerging functional food market.”

“Thornloe Cheese has a long and storied history in northern Ontario and holds a special place in the hearts of northern dairy farmers and consumers alike,” Gay Lea Foods chair Rob Goodwill said in Monday’s release.

“We are pleased to keep Thornloe Cheese in the hands of a wholly Canadian dairy farmer-owned co-operative and help keep northeastern Ontario’s rich agricultural legacy alive.”

The Mississauga-based Gay Lea dairy farmers’ co-op has been in both acquisition and expansion modes in recent years. It stretched its membership to Manitoba in 2017 when it partnered with Vitalus Nutrition to set up a milk processing operation in Winnipeg.

Gay Lea in September this year also bought North York, Ont.-based Western Creamery from General Mills. Other recent acquisitions include Alberta Cheese Co. in 2017 and Stirling Creamery and Black River Cheese in 2016.

The co-operative in 2016 also announced plans to set up a nutraceutical-grade dairy ingredients hub and research and development facility in its home province. — Glacier FarmMedia Network

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Agropur Co-operative announced Friday it plans to close the former Les Aliments Lebel plant at Lachute, Que., just northwest of Montreal, in August 2020 and transfer the plant’s operations to other Agropur sites.

The co-op said the plant closure, which is expected to affect 177 employees, is meant to allow Agropur to “optimize its ice cream manufacturing operations,” as it “needs to make the requisite efforts in a highly competitive market.”

The Lachute plant, which makes ice cream and frozen novelties, was run by Les Aliments Lebel until 2015, when that company was taken over by Truro, N.S.-based Scotsburn Co-operative Services. The Lachute plant at the time was Quebec’s largest for making ice cream and frozen desserts.

Agropur in turn bought Scotsburn in early 2017, including its plants at Truro and Lachute and the Scotsburn brand name. That deal was announced in 2016 but was delayed pending approval from the federal Competition Bureau.

After closing that deal, Agropur “made a strategic decision to concentrate its ice cream manufacturing operations at two other Canadian facilities” in Truro and Edmonton, the co-operative said Friday.

Longueuil, Que.-based Agropur said Friday it’s “aware of the impact this decision will have.”

Affected employees, the company said, will be able to take advantage of available programs, such as severance packages employment opportunities at other Agropur sites, and an assistance program for workers and their families. — Glacier FarmMedia Network

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Saskatoon-based FCL said Thursday it had received notice from Calgary Co-operative Association that it would “discontinue the procurement of all products for their grocery stores from FCL” at that time.

The Saskatoon StarPhoenix newspaper on Wednesday quoted a Calgary Co-op spokesperson as saying the grocery chain “operates in an increasingly challenging economic and competitive market” and will “reflect our members’ needs” by “positioning our food business model for unique differentiation.”

The Calgary association told the newspaper it plans to continue working with an increasing number of local producers.

FCL, which is owned by retail co-operatives across Canada’s West, said Calgary remains an FCL member co-op and its decision affects its grocery procurement alone.

Calgary Co-op, FCL said, continues to be part of the Co-operative Retailing System (CRS) and will continue to get its fuel supply from FCL.

The CRS serves member co-ops’ grocery stores, gas stations, convenience stores, agro centres, home centres and liquor vendors.

“Working together is at the heart of Co-op, which is why this news is so disappointing,” FCL CEO Scott Banda said in a release Thursday.

“It’s sad to see (Calgary Co-op) moving away from the co-op family they’ve helped build, and that has supported them in the past, but our senior leadership team and board of directors had prepared for this possibility and we’re now evaluating impacts and planning our next steps.”

That review will look at impacts from this decision on other local co-ops across Western Canada, FCL said, and at the “hundreds of positions” at FCL’s distribution centres in Calgary, plus the “business support positions (at FCL) that are largely dedicated to serving Calgary Co-op and its grocery business.”

Banda said Calgary’s move will have a “short-term impact” on the CRS, but FCL “remains committed to ensuring that local co-ops continue to provide high-quality food store services in their communities.”

Calgary Co-op grossed $1.3 billion in sales across its various business lines in 2018, including food, fuel, liquor, home centres, health care and cannabis products. Of that, $671.55 million was in food alone.

Calgary Co-op, in its 2018 annual report, said it holds about 10 per cent of the shares in FCL. Calgary Co-op’s total purchases from FCL in 2018, across all business lines, were valued at $720.5 million, representing about 70 per cent of the Calgary association’s total purchases that year. –– Glacier FarmMedia Network

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The two co-ops announced the combination Wednesday, noting it’s already been approved by Granny’s producer members in a “unanimous” vote taken in May, and by the federal Competition Bureau in a decision last month.

“The main objective is to create a large co-operative that will be a leader in the poultry sector in Canada with operations in Quebec, Ontario and Manitoba, while keeping its ownership in the hands of producers committed to serving their customers well from coast to coast,” Exceldor said in a release.

The majority of the two co-operatives’ customers handle procurement nationally, and a merger allows Exceldor and Granny’s to more effectively serve markets in the West and East respectively, Granny’s CEO Craig Evans said Wednesday.

The plan for the merged business, he said, is about “How do we stay a co-operative, and how do we create a national poultry co-operative… serving national customers?”

Exceldor, based at Levis, Que., has plants at Saint-Anselme, Saint-Damase, Saint-Bruno-de-Montarville and Saint-Agapit, Que. plus the former Parrish and Heimbecker turkey processing plant at Hanover, Ont., as well as a new $35 million Montreal-area distribution centre at Beloeil now under construction.

It also co-owns three Quebec meat companies — Unidindon, Volailles Giannone and, since April, Les Viandes Lacroix — and has a stake in processor Golden Valley Farms at Arthur, Ont.

Granny’s, meanwhile, has its corporate office and hatchery facilities in Winnipeg and a major processing plant just north of Steinbach at Blumenort, Man., where the company undertook a $37 million expansion in 2016.

The two co-ops will operate under the Exceldor name, with combined membership of about 400 producers in Quebec, Ontario, Manitoba and Saskatchewan — and are expected to reach the $1 billion mark in annual sales and a staff count of over 3,450 employees across Canada.

For Granny’s farmer members, Evans said, the unanimous vote shows their enthusiasm for the deal, which he described as an opportunity for the co-op to “stabilize earnings” and better reach and serve its customers.

Asked about possible synergies in the deal, Evans said one of the biggest will be in terms of freight cost savings. Neither co-op’s production facilities are expected to close, he added, although the plants might not continue to produce all the same product lines they’ve handled up until now.

Exceldor, in its release, said it “feels strongly that recent partnerships will allow it to improve its position within an industry that is experiencing marked changes and thus, to become an even stronger and more agile organization in a highly competitive market.”

With this merger and its stakes in other meat companies, Exceldor “is becoming a key player across Canada, enabling us to better serve our customers nationally and to generate value for our members, employees and partners,” CEO Rene Proulx said in the same release.

The merger, Granny’s said in the same announcement, is “securing the future of the co-op and ensuring continued stability and growth for Manitoba poultry producers.” –– Glacier FarmMedia Network

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For St-Albert and about 25 other farmer-owned co-ops active in Ontario, several factors rise to the top when looking at the keys to success.

Why it matters: Co-operatively governed enterprises are a way small businesspeople can maintain decision-making power and ensure profit isn’t the only goal. But they face the same pressures as for-profit companies, which creates difficult choices.

“First and foremost, our cheese recipe has endured the test of time,” said St-Albert’s Business Development Director Éric Léveillé, when asked about the company’s continued vitality.

Léveillé was clear that St-Albert knows those outside influences well. Having survived a devastating fire in 2013, (with considerable help, from co-operative, but community minded competitor Gay Lea Foods), the 34 dairy farmer member/owners of the award-winning cheesemaker now face threats from international trade deals.

“Conditions have never been as unfavourable to small- and medium-sized co-ops as they are now,” Léveillé said. “With CETA (Comprehensive Economic and Trade Agreement between Canada and Europe) and now NAFTA (North American Free Trade Agreement) coming into play, these agreements are putting greater strain on our ability to get a return on our investments. St-Albert may have done better than most, but we are concerned about our fellow (small) cheesemakers in Canada.”

Léveillé is certain that the company’s “strong bond to the French Canadian culture of eastern Ontario” will, “protect us from being swallowed up by larger entities.”

“Our members had turned down many offers over the years to sell St-Albert because it is part of our community’s fabric and they want to preserve it as they do their culture,” he told Farmtario.

The value of community

Erin Morgan, executive director of the Ontario Co-operative Association, says being tied to a rural community isn’t confined to French-speaking farmers, or to eastern Ontario.

It’s true that back in the 1860s, French-speaking farmers were pioneers in Canada’s co-operative movement — a movement that eventually spawned over 1,200 co-operatively-run creameries and cheese factories stretching from Windsor, Ont., to Windsor, Nova Scotia and beyond. Another key piece of co-operative history in Canada came in 1900 when Alphonse Desjardins originated Quebec’s system of caisses populaires (credit unions), which operate under similar principles and now stretch across the country.

Morgan’s first job out of school was managing the OntarBio organic farmers’ co-operative, which went on to become the Organic Meadow co-op. The co-op was later forced to sell the Organic Meadow brand and Guelph-based dairy processing plant.

After stints with Ontario Bean Growers and the Grain Farmers of Ontario, Morgan returned to the co-operative sector more than two years ago as executive director of an umbrella lobby organization representing more than 1,500 co-operatively-run businesses in all sectors of the province’s economy.

“For me, I had only worked for one co-operative, so it didn’t expose me to the depth of the co-op sector,” she said.

Co-operatives don’t leave

She did, however, understand the value of farmers owning the business and being involved in the decision-making and she was already aware of the seven business principles that come along with operating as a co-operative, set out back in 1844 by a group of innovators gathered in Rochdale, England.

“It opened my eyes to how versatile the co-operative model is” and to all the different ways that organizations can incorporate those key co-operative values into day-to-day business and longer-term business strategy.

More than a year into her new position, Morgan recalls having an “ah-hah” moment when speaking with then-opposition MPP Ernie Hardeman as part of the Co-operative Association’s “provincial co-op caucus” initiative, Morgan learned of the long-serving Oxford MPP’s own experiences dealing with co-operatively held businesses in his home riding.

“What he said to me is that the value of co-operatives is that they don’t leave. They are community-based organizations that rely on the well-being of the community to remain strong, so they’re committed to giving back to that community and helping that community stay strong.”

With Hardeman now occupying the office of Minister of Agriculture, Food and Rural Affairs, Morgan hopes this places the co-operative movement on solid footing in terms of provincial government support.

The veteran MPP’s assertion that co-ops care about their communities, meanwhile, has no stronger backers in Ontario than the leadership at Gay Lea Foods. The Guelph-based co-op recently celebrated 60 years in business.

“A lot of these co-ops really strive to improve the economic landscape of rural Ontario for everybody, no matter whether you’re a (co-op) member or not,” Morgan said.

Gay Lea faced a difficult choice whether to upgrade an older factory in Teeswater, where the co-op started in 1958, or expand its Guelph plant, which was probably more cost effective. It chose Teeswater.

“It showed they have a much more holistic view of growing their business; something totally different from another kind of business that would just be looking at pure profit,” Morgan said.

After being nominated by Morgan, Gay Lea was handed the 2018 Large Co-op of the Year award by Co-operatives and Mutuals Canada.

“It’s important that we have good economic jobs in communities (like Teeswater)… It’s way too easy to be able to consolidate plants, move them into the greater Toronto area and ignore what happens north of Highway 401. But it’s not what our values are. It’s not what we’re investing in,” said Gay Lea chief executive officer Michael Barrett in his acceptance speech.

“It’s about recognizing that we’re of the community, by the community and for the community.”

The others of the original seven co-operative principles are voluntary membership open to all socio-economic strata; one member one vote; patronage dividends to member/owners; autonomy for member/owners; support of training and education; and co-operation among co-operatives.

Financial rewards for owners

The practice of paying annual dividends is sometimes cited as a drawback to co-operative business models because in years when the company loses money, co-op bylaws require that the executive at least consider rewarding owners financially.

But Appin-area crop farmer Richard Tanner, who has served on the board of directors of the AGRIS farm-inputs co-operative (or on the board of one of its two predecessor organizations, the Orford Co-op) every year except two since 1995, insists declaring dividends makes co-ops stand alone in the marketplace.

“It may not always have been in cash, sometimes it has only been in new shares in the co-op, but I believe for every year in recent memory we’ve paid patronage. It’s not something you see nearly as much in the private sector,” he said.

The past few years has seen AGRIS pay out a combination of cash plus new shares to the owners of the co-op, with the amount based on how much business they do with AGRIS and its affiliates.

Co-operation among co-operatives is critical, Morgan said. She cites Gay Lea’s granting of processing capacity after the St-Albert fire, as well as AGRIS’s financial start-up support for the Cellulosic Sugar Producers Co-operative.

She said 22 companies are classified under provincial guidelines as “agricultural co-ops,” representing $455 million in annual revenue. This makes them the fifth largest co-op sector in the province, behind Insurance, Credit Unions, Manufacturing and Wholesale Trade.

Gay Lea is currently classified as a manufacturing company under the government’s tracking system. If Gay Lea is moved into the agricultural sector, it becomes the third largest co-op sector in Ontario.

Keys to success

Other keys to success, according to Tanner, are good employees — and good customers.

“And in order to have loyal customers, you’ve got to be competitive in the marketplace.”

A business can’t expect to charge significantly more for products and services just because it’s a co-op.

Co-ops are prone to the same economies of scale that influence for-profit businesses. As in many other sectors of the economy, there has been a trend in agricultural co-ops for mergers leading to larger and fewer companies.

Morgan’s former employer, Organic Meadow, is now owned by British Columbia-based, farmer-owned co-operative Agrifoods International. The Ontario-based co-op that formerly owned the Organic Meadow brand and processing facility continues under the name Ontario Organic Farmers Co-operative, but without the benefit of what used to be its predominant source of income.

Amalgamations, not takeovers

Many former members of the United Co-operatives of Ontario group of companies are now part of the massive United States-based Growmark network of co-ops. AGRIS is an amalgamation of two farm-input co-ops that resisted that Growmark trend, the former Orford and Pointe-aux-Roches co-ops, which joined in 2006.

But this is a positive trend, said Tanner, especially if the alternative is to sell into the private sector or cease operations altogether. Amalgamations, he said, allow the companies to maintain frontline staff and maintain economic presence in their communities, while decreasing middle and upper management costs — something that might not be good for all middle and upper managers, but generally is good for the financial health of the co-op and its owners.

“In today’s world, if I had another Pointe-aux-Roches co-op that came along and wanted to amalgamate, I would do it in a minute,” he said. “It’s not like in the private world where you might buy another company and totally change it. We’re buying another co-op, and they’re just like us. We’re exactly the same.”

Five keys to success for agricultural co-ops

1. Good employees
Business is business. With co-ops, the only staffing decision typically made by the board of directors is for the top job, but from that top job trickles down the message to all other staff people. So it’s crucial that the board of directors gets it right.

2. Co-ops helping co-ops
This is one of the original seven principles of co-ops first set out in 1844 in Rochdale, England. Ask St-Albert Cheese after Gay Lea Foods offered processing capacity following a devastating 2013 fire: Help from other co-ops, even if they’re direct competitors, can be a lifesaver.

3. Active in the community
Whether you view community as the town and region in which you operate and provide employment, or you view community as the entire farm sector that you’re a part of, being supportive is a signal that you’re here for the long term.

4. Competitive in the marketplace
It might be good public relations to sponsor community projects and help out other small businesses, but that only takes you so far. If you charge significantly more for products or services than private competitors, you can’t expect financially strapped customers to remain loyal.

5. Annual dividends
It’s what sets co-ops apart. Member/owners buy shares, usually inexpensive, with the expectation that they’ll share at least a small part of the bounty on an annual basis.

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Private crop handlers — including the “big four” merchants Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus — fear they will struggle to buy grain supplies when the next harvest season comes if the provision is not overturned.

Lawmakers have admitted they made a mistake by including the clause in last-minute changes to the bill.

The new code has pushed the private companies to spend thousands of dollars to form co-ops or find alternative ways to get their hands on billions of bushels of U.S. corn and soybeans.

In Minnesota, private handler Minn-Kota Ag Products is among the companies establishing a co-op so farmers can supply grain to the company and still receive the tax benefit. The move, which involves legal filings and setting up a board, could cost up to US$100,000, chief financial officer Dale Beyer said.

“It’s wasted money,” he said. “It makes us inefficient but it’s what we have to do for this law.”

President Donald Trump signed into law in December the Republican tax overhaul that allows farmers a 20 per cent deduction on payments for sales of crops to co-ops, but not for sales to private or investor-owned grains handlers.

The provision is the latest challenge for merchants such as Cargill and ADM. They are also facing a supply glut that is making it tough to turn a profit on their core business: buying, processing and selling corn, soybeans and wheat.

Cargill is planning for ways to remain competitive under the tax provision, spokeswoman April Nelson said, without providing details. As it stands, the rule “would create a proliferation of co-ops,” she said.

ADM is also working on options to offset the rule, after suffering a minor commercial impact from it, the chief executive said last week.

Some farmers and grain companies believe lawmakers will craft legislation to fix what they call the unfair advantage for cooperatives. Still, many say they cannot wait to make alternative plans.

In Minnesota, farmer Kirby Hettver said he will start committing grain he will harvest this autumn to a local co-op, instead of to Cargill, if the tax issue is not fixed by the time he starts planting crops in April.

“It’s just creating turmoil and this uncertainty is just driving everybody crazy,” said Bob Zelenka, executive director of the Minnesota Grain and Feed Association, a trade group that represents co-ops and private companies.

Crops flow to co-ops

The provision was introduced to compensate co-ops and their farmer owners when Congress eliminated a part of the tax code that had benefited them for more than a decade.

On Wednesday, Republican U.S. Senator Orrin Hatch said he and other senators were working toward “a solution to this issue that does not choose winners and losers.”

Since the provision was approved, Chicago Board of Trade corn futures have climbed about five per cent and soybean futures have gained about eight per cent, prompting farmers to increase sales of crops they harvested last fall.

Citizens LLC, a privately held grain elevator in Michigan, has seen its share of those sales fall as farmers have booked more deals with co-ops because of the tax rule, said Angie Setzer, vice president of grain.

Citizens is working on a deal in which its customers would technically sell crops to the company through a local co-op, she said. The arrangement would allow the elevator’s customers to receive the tax benefit. However, Citizens would have to pay the co-op a fee for each bushel of grain under the deal.

“It is not an easy fix and it is not a clean one so I hope we do not have to do it,” Setzer said.

U.S. ethanol producer Green Plains Inc., which buys about three per cent of the nation’s annual corn harvest, recently obtained approval to operate a co-op in Indiana, Minnesota and Colorado, CEO Todd Becker said. It is awaiting approval in other states.

Green Plains has not yet activated the co-op because Becker is holding out hope lawmakers will address the imbalance. However, the company could do so quickly if business is suffering or it appears there will not be a legislative solution soon, he said.

“We can’t be at such a significant disadvantage to the co-operative down the street,” Becker said.

— Reporting for Reuters by Tom Polansek and Mark Weinraub.

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A provision in the Republican tax overhaul that President Donald Trump signed into law on Dec. 22 allows farmers a 20 per cent deduction on payments for sales of crops to farmer-owned co-operatives, but not for sales to private or investor-owned grain companies such as Archer Daniels Midland and Cargill.

That has driven fears among U.S. ethanol producers and privately run crop handlers they could be squeezed out of the competition to buy farmers’ harvests.

Senator John Thune told reporters that lawmakers are aiming to get a solution into spending legislation that Congress would need to take up next month. That would replace a measure to keep the government funded through March 23, which lawmakers hoped to adopt on Thursday.

“We haven’t gotten consensus within the stakeholder community on the language, but we have I think probably as good as we’re going to get at a solution,” the South Dakota Republican said.

He declined to disclose details of the prospective solution.

Thune and other Republican lawmakers from grain states have been working to find a solution with interested parties for about six weeks.

“What we found was trying to satisfy co-ops and private grain operators was a challenge, and trying to get both of them to agree on final language has been a real challenge,” Thune said.

Lobbyists initially expected an agreement to be attached to one of the short-term funding bills that Congress has considered this year.

But Thune said it could find a home in a longer-term spending measure, if Congress can agree on a proposed two-year spending plan now before lawmakers.

“It’ll give us a little more time to perfect it. But I think … we’ve got it about as good as we can,” he added.

— Reporting for Reuters by David Morgan; additional reporting by Tom Polansek in Chicago.

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It was included during final revisions of the tax bill that passed the Republican-controlled Congress last month. The restructuring of the tax code, the biggest in 30 years, handed President Donald Trump his first major legislative victory since taking office.

The provision gives farmers a 20 per cent deduction on payments for sales of crops to farmer-owned co-operatives, but not for sales to private or investor-owned grains handlers such as Archer Daniels Midland, Cargill and Bunge.

The modification was introduced to compensate co-ops and their farmer owners when Congress eliminated a part of the tax code, known as Section 199, which had benefited them for more than a decade.

Republican Senators John Hoeven of North Dakota and John Thune of South Dakota are among the lawmakers whose offices said their attempt to create an equivalent to the old tax code had backfired by incentivizing sales to co-ops at the expense of others in the market.

“Sen. Thune is now aware of the unintended situation this new provision could create in the agriculture industry,” his spokesman Ryan Wrasse said in a statement. He added that Thune believes tax laws should not sway where farmers sell their harvests.

The government wants to correct the disparity, and the U.S. Department of Agriculture said on Friday it expects a solution to be forthcoming.

“The federal tax code should not pick winners and losers in the marketplace,” Greg Ibach, an undersecretary at the USDA, said in a separate statement.

ADM and Cargill, two of the world’s top agricultural traders, joined talks with Hoeven, Senate aides and trade associations that represent co-ops and private firms to come up with a way to even the playing field. Representatives of grain companies and lawmakers met in Washington twice this week in a sign of the urgency of the matter.

If legislators don’t address the provision by the autumn harvest, private grain companies could lose out on deals to buy billions of bushels of corn and soybeans. Farmers already are looking at how they can transfer grain stored at private elevators to co-ops to take advantage of the new law.

“It’s a massive issue for people like us, ADM, Cargill, all the private ethanol buyers and on and on and on,” said Dale Beyer, chief financial officer for Minn-Kota Ag Products, a private grain handler in Minnesota.

Thune and Hoeven began hearing in early January that the provision would influence where farmers sell their products, according to the National Grain and Feed Association, a trade group that has met repeatedly with the lawmakers’ aides this month to discuss the issue.

The association told members in an email that it learned of the provision in late December, after it was included in the final version of the tax law, and immediately asked tax experts for advice. The group then met with Thune and Hoeven staffers to learn why the senators included it in the law.

The association, in a separate statement with the National Council of Farmer Co-operatives, said it was working with Hoeven, Thune and Senator Pat Roberts of Kansas, also a Republican, to reach “an equitable solution” that preserves benefits formerly available to co-ops under Section 199.

Tensions rise

Farmers generally decide to whom they want to sell their grain based on the prices offered by different handlers, how close they live to delivery sites and personal affiliations.

However, the wording of the new provision wrongly assumes that all farmers deliver their grain to co-ops, said Bob Zelenka, executive director of the Minnesota Grain and Feed Association, a trade group that represents co-ops and private companies.

“It tells me that someone who wrote this is unused to how things work in the ag industry,” he said.

Efforts to adjust the provision have some co-ops pushing back out of concerns farmers could lose tax benefits.

Chris Pearson, chief executive of the South Dakota Wheat Growers co-op, said on Twitter on Wednesday that the law “gives farmers some nice tax advantages when doing business with the ORGANIZATION THEY OWN!”

Pearson did not respond to calls and emails seeking comment.

“I would hate to see private companies raise our farmers’ taxes!” he tweeted on his account @CEOWheatGrowers.

— Tom Polansek reports on agriculture and agribusiness for Reuters from Chicago; additional reporting by David Morgan in Washington.

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Until now, the co-operatives, private companies and publicly traded firms had a more even opportunity to handle the grain supply used in everything from loaves of bread in supermarkets to livestock feed.

The changes mean massive grain traders such as Archer Daniels Midland, Bunge and Cargill could find it difficult to source corn, soybeans and wheat.

The perceived threat to these companies stems from a provision included in the final stages of the law’s passage in December. It gives farmers such a big tax deduction for selling their produce to agricultural co-operatives that private firms fear their grains supply will dry up.

The provision was championed by Republican farm state senators including John Thune of South Dakota and John Hoeven of North Dakota.

Privately held Cargill said on Tuesday it was surprised the provision was added to the bill at the last minute and is evaluating its potential impact.

Rival ADM, which also produces ethanol, said it too was evaluating the provision and “various potential solutions” to it.

The new tax law allows farmers and ranchers to claim a 20 per cent deduction on all payments received on sales to co-operatives.

“It is going to put us out of business as a private if something is not changed right off the bat,” said Doug Bell, president and general manager of Bell Enterprises, which operates grain elevators in central Illinois.

“There is just no reason whatsoever why a farmer would do business with anyone other than a co-op.”

The deductions could come as a massive boon to cash-strapped U.S. grain farmers, who have struggled for at least four years amid a global grain glut and sluggish commodity prices.

Some farmers seeking to take advantage of the new deduction are already asking about transferring grain they have stored at private elevators and selling it to co-operatives, Bell said. An association that represents co-operatives also has received questions from people who want to open new co-operatives.

The change focuses on a provision in the federal tax code that cuts taxes on proceeds from agricultural products –- whether corn and soybeans, or milk and fresh fruit –- that farmers and ranchers sell to farm co-operatives such as CHS Inc.

There is no comparable provision for farmers doing the same business with private or investor-owned companies.

“The advantage for the farmer is probably at least five times larger selling to a co-op versus not selling to a co-op,” said Paul Neiffer, an accountant at CliftonLarsonAllen in Yakima, Washington.

Neiffer said he has received hundreds of calls and emails from private elevators upset about the law.

Chuck Conner, president and chief executive of the National Council of Farmer Co-operatives, said his organization had begun to receive calls from people asking questions about starting a co-op to take advantage of the deduction.

“The producer/member deduction is more generous than most of us thought possible a few months ago,” he said in an email to members.

The number of U.S. farm co-operatives has been steadily shrinking in recent years, as they scramble to consolidate and stay competitive amid the merger frenzy of major seed and chemical companies.

There were 1,953 farmer, rancher and fishery co-ops in 2016 in the U.S., down 4.6 per cent from a year earlier, according to the most recent U.S. Department of Agriculture data. They handled $44.3 billion in net sales of grains in 2016, down 33 per cent from a $66.3 billion peak in 2013 (all figures US$).

CHS, the largest U.S. agricultural co-operative, said the new law ensures that “co-operatives continue to be a driver of economic growth in rural America.”

— Reporting for Reuters by Mark Weinraub and Tom Polansek in Chicago; additional reporting by P.J. Huffstutter in Chicago.

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