Agway, Inc. History

Address:

333 Butternut Drive
De Witt, New York 13214
U.S.A.

Telephone: (315) 449-7061
Fax: (315) 449-6008

Website: www.agway.com

Private Company
Incorporated: 1964 as GLF-Eastern States Association
Employees: 6,000
Sales: $1.66 billion (1996)
SICs: 5159 Farm-Product Raw Materials, Not Elsewhere Classified; 5172 Petroleum Products, Not Elsewhere Classified

Company Perspectives:

Agway is all about.... Agriculture. Our values and farm heritage are our foundation. Responding to customers with speed and flexibility. Creating successful partnerships and growth opportunities that will enhance profitability and add value to our membership.

Company History:

Agway, Inc., is one of the largest agricultural cooperatives in the United States. Its 85,000 members populate 12 northeastern states, but, through its diversified food businesses, Agway markets many of its products nationwide. Like most major cooperatives, Agway is divided into several different operations. Agway Agricultural Products provides farm services and supplies, including fertilizer and bulk feed, through 217 locations. The Country Products Group buys products from growers to process and market. Agway Energy Products supplies heating oil and propane to both farmers and nonfarmers in the Northeast. The Agway Insurance Group furnishes a broad line of insurance, including property, automotive, liability, and health. Agway Retail Services sells yard and garden equipment, pet food and supplies, farm-related equipment, and farm products; operates some 114 stores; and employs 337 franchised dealers. Agway's subsidiary Telmark finances leases in 27 states.

1960s Origins as a Merged Concern

Agway was created in 1964 from the merger of three regional cooperatives serving the northeastern United States. The oldest of the three, Eastern States Farmers Exchange, was founded in 1920 and headquartered in West Springfield, Massachusetts. The second, the Cooperative Grange League Federation Exchange (GLF), was founded in 1920 and headquartered in Ithaca, New York. The third, Pennsylvania Farm Bureau Cooperative Association (PFB), was founded in 1934 and headquartered in Harrisburg, Pennsylvania. Cumulative sales for the three totaled $375 million. The idea to merge first arose in January 1960 at the annual meeting of the National Council of Farmer Cooperatives in Atlanta. There the general manager of GLF, Edmund H. Fallon, invited the assistant general manager of Eastern States, William H. Prigmore, to his room for a private discussion on the future of agriculture, particularly as it affected cooperative activity in the Northeast. The men agreed that one large cooperative might better serve the area than the three already in place. In later informal meetings, at Fallon's request, PFB was included in the plans for consolidation. In June 1960 the presidents and the general managers of the three co-ops met at GLF headquarters and launched the "PEG" study (named after the initial letters of the three businesses).

The PEG study offered a cautious approach to merging. Its guiding principle was to discover whether profitability could be enhanced by joint operation of some or all of the facilities of the parent corporations. Another reason for proceeding cautiously was the difficulty of merging three different governing boards, with varying goals, into some new organizational system. However, within three years, an executive study committee had reported that the best and most workable solution was complete consolidation. GLF and Eastern were committed to proceed rapidly, but PFB had, during the interim, contracted with Cooperative Mills of Baltimore to run one of its mills. Furthermore, PFB's committee member, L. A. Thomas, Jr., had neglected to participate in feed deliberations, the primary focus of the PEG study.

GLF and Eastern decided to hammer out an initial merger and then include PFB at a later date; a merger of all three at once, had it been possible at the time, would only have multiplied the many logistical problems that were due to arise. As explained in Nathaniel E. White's "The Birth of Agway," GLF and Eastern "were structured quite differently. GLF was a stock cooperative with the farmer's membership validated by the ownership of common stock. Eastern States was a membership cooperative with no securities outstanding--the farmer's membership was activated solely by patronage." Negotiators for the two co-ops proposed that the new requirements for membership be that a person not only farmed but held common stock in the company and was a user of the company's products and services. The board was to be large at first (27 members) and then reduced over time to the recommended number of 18. Following unanimous adoption of these and other settlements by the directors of both co-ops in November 1963, the first merger was incorporated in January 1964 under the temporary name of GLFEastern States Association. A month later Agway, Inc., was approved by the new board of directors as a concise name signifying the general enterprise while not indicating any geographical restriction. A final mandate for the merger was awarded in a landslide vote by members of the two co-ops. By July a makeshift headquarters had been established in Syracuse, and Fallon became Agway's first general manager.

Challenges of Merging PFB

Now only PFB remained to be merged. "In many respects," writes White, "the PFB merger was more difficult than the initial merger of GLF and Eastern States. The federated PFB system was made up of 35 separately chartered agricultural cooperative corporations consisting of a regional cooperative, a marketing cooperative, and 33 county cooperatives." However, by June 1965, all obstacles had been overcome--including the 32 mergers within PFB--and PFB's assets were transferred to Agway. A year later all securities transactions were complete and Agway was beginning to operate as a single entity.

During this initial period another co-op, centered in upstate New York, was launched under the auspices of Agway. Named Pro-Fac (from produce facilities), this cooperative of fruit and vegetable farmers was also the result of a merger. In this case, Curtice Brothers Co. and Burns-Alton joined to form the public company of Curtice Burns, Inc. (later named Curtice Burns Foods, Inc.), while the New York farmers, many of them Agway members, joined to form the Pro-Fac Cooperative. A perfect symbiotic business relationship resulted. James Cook, in a 1981 article, explained it this way: "Curtice-Burns, Inc., of Rochester, N.Y., is in a class by itself. Not because it ranks as the fastest-growing branded foods company in the country these days.... What makes Curtice-Burns so special is that it is the public half of Pro-Fac Cooperative, Inc., an 880-member, tax-exempt agricultural cooperative that sells its output exclusively to Curtice-Burns."

Because of this special arrangement, Curtice Burns quickly became the most visible barometer of growth for Agway as a major foods company. Between 1971 and 1981 the food-processor and marketer acquired no less than eight other companies, including Nalley's Fine Foods, Comstock Foods, National Brands Beverage, and National Oats Co. Annual sales, which in 1962 totaled just $13 million, now approached $400 million. Aside from unusual and highly beneficial funding arrangements available through Pro-Fac, Curtice Burns attained its elite status by focusing on successful regional brands. "Here's a company," according to Barron's, "that seeks out markets that aren't ever going to be big. But the secret is that sauerkraut, say, is only a $60 million market&mdashøo small to interest the big players and too tiny to carry national advertising budgets that the company isn't large enough to match." The success of Curtice Burns led Agway to explore other public company/co-op partnerships, including H. P. Hood Inc., a Boston-based processor and distributor of dairy and other food products which Agway purchased in 1980.

Challenges in the 1990s

In 1990 and 1991, declining sales for Agway resulted in two years of overall losses. In 1992, under new Chief Executive Officer Charlie Saul, Agway pledged itself to an internal reorganization and revitalization project, but could not move quickly enough to stem a loss of $58.8 million for the year. Agway incurred a $75 million restructuring charge against fiscal 1992 earnings, including the cost of a voluntary early retirement taken by 800 employees.

Other components of the revitalization plan included refocusing attention on Agway's core businesses, consolidating service centers, and eliminating operational inefficiencies: in one key development, Agway revamped its ordering system for feed and crop inputs to allow customers to call in their orders directly to 15 regional service centers, rather than working through retail outlets. Saul stated that he planned to increase sales to large commercial farms without neglecting mid-sized farms, and while overhauling the structure of the cooperative, he kept the number of consumer stores stable at about 600 franchised and company-owned outlets. Agway Energy Products, however, divested itself of eight fuel distribution businesses in Massachusetts, Connecticut, and New York.

In 1993 Saul announced that the revitalization measures undertaken the previous year were already taking hold, and that Agway would report strong results for the year ending June 30. According to Saul, revenues from feed sales showed a sharp increase, crop input sales improved despite bad weather, and the leasing business did exceptionally well. The following year, Agway sold its stake in Curtice Burns to the Pro-Fac Cooperative.

In January 1995 Saul was succeeded by Donald P. Cardarelli as CEO and general manager of the cooperative. Cardarelli had been with Agway since 1984, serving as chief financial officer and executive vice-president of the Agway Insurance Group and as executive vice-president, treasurer, and chief operating officer of Agway, Inc.

In September of that year Agway reported a $15.9 million loss. Cardarelli stated that agriculture, the cooperative's most problematic business, "showed significant improvement over last year and is continuing" to improve, and noted that Agway's other business segments remained profitable. He suggested that H. P. Hood was responsible for some of the loss. Agway had earlier tried unsuccessfully to sell the subsidiary to its employees, and was in the process of seeking another purchaser. The subsidiary was finally sold in December 1995, removing $134 million in assets and $136 million in liabilities from Agway's balance sheet.

By the end of the fiscal year ending June 30, 1996, Agway had turned the tide, posting net earnings of $11.6 million on total sales of $1.66 billion. Agway Agricultural Products showed the biggest turnaround, with a 17 percent increase in revenues and an operating improvement of $23.4 million. Agway Retail Services had an operating improvement of $8.5 million, Agway Energy Products was up seven percent, leasing revenues were up by 16 percent, and Agway's Country Products Group reported excellent results.

CEO Cardarelli and Chairman Ralph H. Heffner stated that while they were pleased with the progress to date, they had even higher hopes for the future. Noting that the company had "learned how to embrace change as the vehicle for progress, growth, and profitability," they vowed to build on their accomplishments to better serve their producer-members as well as their customers.

Principal Subsidiaries: Telmark Inc.

Agway, Inc. History

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