[MUSIC PLAYING] SPEAKER 1: All right. And now we're going to go off the other coast of New York and talk about the Long Island Oyster Growers Association. Take it away, guys.
ANDREW DARBY: Awesome. So, hi, everybody. My name is Andrew, and I'm here with my colleagues Avery, Darius, and Michael. And we're part of the LIOGA Association.
So just to kick us off, a brief overview of what we was talking about today. So first of all, we'll give an intro about what LIOGA is, what they do. We'll talk about the main problem that we've been focusing on this semester. And then we'll detail the solution that we've created to address that problem-- specifically two of our deliverables. And then we'll go into the overall cooperative structure solution that we're proposing here.
So first of all, to give some details around LIOGA as an organization. So it's an association of various oyster growers-- specifically in Long Island. And these oyster growers join this association through a membership with a small fee. And then they're able to leverage various benefits from everything from various marketing tools that LIOGA actually gives to these oyster growers, to things like just leveraging the database and the networking that's available so that farmers can figure out best practices for their oyster growing.
So the main problem that LIOGA has been having recently is that they have been experiencing a real resurgence in oyster demand over the last 20 years. In fact, the industry has more than doubled in revenue. So that's a really encouraging sign-- except a lot of these farmers are not able to expand their operations the way that they want to. And this specifically is because the main problem of distribution. So these farmers are not able to get their product to the locations that they want to.
And this really comes down to a few main reasons. Number one, they're not able to take advantage of the scale and the cost savings that come with that scale. Number two, they're not able to leverage strong relationships with distributors. So a lot of these relationships are not dependable. They're not able to get shipments in when they need to. And then, lastly, there's a high time cost, because a lot of these farmers actually have to drive in their shipments themself. And so obviously this presents a really significant problem for these growers.
And so the solution that we're presenting here today really kind of focuses on three main questions. Number one, is there interest among growers for a cooperative solution? Is a cooperative economically feasible? And is there a structure that we can design that would actually make sense?
And so at the heart of this is an effective cooperative that's addressing this solution. And so we've tailored our analysis around these three questions. And so to first discuss our area of focus, I'd like to pass on to my colleague, Darius, to talk about some of the ways we've approached this.
DARIUS TOM: Yeah, thank you, Andrew. To answer the questions that Andrew just mentioned, we thought to start by understanding how each independent oyster farmer is operating specifically to tackle the problem of distribution in long-distance [INAUDIBLE] to restaurant clients we get in New York City.
And so our starting point is to first review a survey that our client, Susanna, circulated amongst members in late 2020, which indicated positive responses in collaborating and forming a potential cooperative, and targeting distribution as the main problem to be solved. And so we created a survey as a next step in the information-gathering process.
And this survey is composed on two primary parts. The first one is to re-evaluate the level of engagement and interest amongst the community for a cooperative effort. And so questions included-- would you be interested in participating in this, as well as, are you comfortable with putting up a minor equity investment in getting this kick-started. And more importantly, to also gauge a level of engagement amongst members to take part actively in acts of corporate governance, such as serving on the board of directors, which is a very, very important part of this.
And then the second part is collecting operational data, which is really the meat and potatoes of this survey. We really want to have a comprehensive understanding of how the farmers are currently conducting these long-distance--
AVERY PRIMAS: Check the populated values to see how many farms that you're currently checking for. So if you have six farms, for instance, I believe anything above three farms you would work hard with the two drivers. So those are just small tweaks that are added to the model to make it a little more accurate.
Regardless, we have a monthly cost estimate over here, about $872, compared to the original cost that they're expected to be paying right now. So we just subtract those to get cost savings.
But we see, unfortunately, for two farms, we're only seeing $50 and $70 in cost saving. It's not incentivizing to want to join, right? So how do we get that?
Well, we wanted to incorporate a way to make it more equitable for all farmers based on their current use, compared to other farmers' use right now. They would be expected to use the business, because some farmers right now don't hire any drivers, right? So it would make sense for them to receive marginally lower cost savings.
So regardless, this next column, New Monthly Cost, takes those values into account, adds weights to generate new cost savings perform. And this gets aggregated yearly. And then we can see joint yearly cost savings around $43,000, which is quite significant, to say the least, considering we're just trying to get them to collaborate with delivery.
Long story short, these are just the tables. You saw the Assumptions pane. The user can manually adjust this at any time. We also have a field for monthly cooperative expenses that they may realize in the future. So, for instance, if they realize they need to get a joint business license, for instance, right, they can manually put that value in in terms of a monthly dollar value into the field, and we'll subtract from the yearly savings or monthly savings. We also generate a payback period table.
And that's basically it. Pass it off to Michael to speak about our recommended cooperative model.
MICHAEL WASSMUTH: Yeah, thanks, Avery. So just going off a little bit on the cost savings proportional to the patronage of each farmers, we think it's useful to propose a proportional investment cooperative.
So some of the key features of this type of cooperative is the non-transferable ownership. So ownership rights solely belong to member farmers. So that kind of keeps it within LIOGA.
There is a redeemable equity. So if farmers at any time want to leave, they can liquefy their equity.
And most importantly, with this type of cooperative it requires proportional investment based on use. So a member farmer's equity stake must match their use of the distribution cooperative. So we think this helps in earning more cost savings relative to the self-delivery of oysters, which a lot of farmers do currently.
So just on this next slide, we just included some of the steps, or the general steps, to set up a distribution cooperative. So the first step would be potential members must understand the mission of the cooperative, and its capital requirements. So review cost analysis. They should create a business plan and logistics plan. And specifically, for a distribution cooperative, it'd be schedule mapping and long-term commercial parking availability.
And then, at this point, potential members should make an investment to cover the mounting start and filing costs. Then we want to begin drafting articles of incorporation and bylaws, and we should have a legal team review that they're in compliance with New York State law and federal law.
And then hold the first annual meeting to appoint board members. And at this point, once board members are appointed, he manages to be appointed, as well as acquire some of the remaining capital to start the cooperative's operations.
So just for some of the key challenges at our final next steps, the two key challenges we kind of identified, and we think that have to be solved, is there has to be more collaboration and commitment between LIOGA members to have any chance of a viable cooperative. And second, the scaling of the cooperative to make cost savings significant at the individual member level. So as more LIOGA members join, the cooperative has to grow to effectively serve their interests.
So next steps for our client, Susanna, we hope she uses and communicates this cost analysis and survey to LIOGA farmers to better inform and educate them, and arrange preliminary meetings with interested farmers to further discuss the purpose of forming a distribution cooperative.
So with that, I would just like to thank Todd, and our client Susanna, who I think is on.
SPEAKER 2: Yeah, she's on.
MICHAEL WASSMUTH: So open up to any questions. Thank you.
SPEAKER 1: Fantastic. Susanna? Any way we can turn this up? Wait.
SPEAKER 1: Oh, there we go.
ANDREW DARBY: Hi, Susanna.
SUSANNA: Hello to my group. Thank you guys so much for the work that you put in. I will definitely be using that table to help advocate for this. And I appreciate all the time [INAUDIBLE] you guys used because that has helped me form next steps, and given me a much clearer view of what I need to do to get this moving. So I really appreciate all that.
Todd, thank you for working with me on my association.
SPEAKER 1: Absolutely. Susanna, by the way, former-- what year did you take Co-op's?
SUSANNA: Spring 2020.
SPEAKER 1: Spring 2020 it would be.
SPEAKER 1: Oh, wait, spring 2020, the year of--
DARIUS TOM: Yeah.
SUSANNA: It fell apart.
SPEAKER 1: Yeah. Yeah! A lot fell apart in spring 2020. Yeah, so everybody, I'm sure, grasped all of the complexities of that financial cost model. Fantastic, by the way, as a tool that Susanna and LIOGA can use going forward.
The one question I had on it, was there cost associated with somebody doing that? Like, I think, a manager or something that's sort of coordinating deliveries. I mean is there labor of somebody figuring out-- include that in the cost estimates, or is this purely from the cost savings perspective by doing it together? Because then as you go towards the co-op, there's going to be somebody who's coordinating pickups and delivery.
AVERY PRIMAS: Yeah, so essentially the latter. Sort of, I guess, you explain in managerial terms. That would be more in the structuring portion.
SPEAKER 1: Yeah.
AVERY PRIMAS: We were just thinking in terms of the requirements, right? So not only the fiscal requirements, but the capacity requirements for these deliveries. And based on our formulas and our assumptions, depending on the number of farms, there's a certain threshold of drivers you would need for that drive-- the salaries, the wages associated as well. That maybe clarifies that a little.
SPEAKER 1: Yeah, yeah. I mean, many of you folks have done-- I want to make sure I call you [INAUDIBLE]-- did surveys with members or potential members. Developing surveys is tough, right? It takes time, right?
But what would be a survey of some group that said, would you be interested in joining this cooperative? And what would be the general answer?
Well, it depends, right? What's in it for me? Am I going to make money? Can I reduce my transaction costs by doing it collaboratively?
And that is exactly what your cost analysis model was doing. Say, by doing this together, right, we can save individually on our transaction cost. So, great job.
Great job. Any other questions? Comments? All right, let's thank them again.
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Part of the
Grand Challenges curriculum, Cooperative Business Management (AEM3260/5260) focuses on engaged learning with community and cooperative clients.
In May of 2022, ten student project teams presented the results of their semester-long work with community partners. Professor Todd Schmit evaluates.
Project title: Member engagement and cooperative options
Community Partner: Long Island Oyster Growers Association
Student Team: Andrew Darby, Avery Primas, Darius Tam, Michael Wassmuth