Pork America: Hog Producers Look to New Co-Op to Gain Market Access COMMENTARY

Rural

COOPERATIVESUSDAUSDA // RuralRural DevelopmentDevelopment September/October 2000

Pork America: Hog producers look to new co-op to gain market access COMMENTARY

Cooperatives: Getting the Job Done

America observed National Cooper- ter chance of surviving the cyclical ative Month during October, a time downturns in the farm economy that when we pause to consider the impact have mercilessly reduced the ranks of of user-owned and controlled business- the nation’s family-owned farms. es on virtually every city, town and vil- Last May, Congress enacted the lage across the nation. There are about Agricultural Risk Protection Act, which 48,000 cooperatives in the United includes provisions for a new grant States generating more than $500 bil- program to provide assistance to pro- lion in annual economic activity. ducers in marketing value-added agri- Whether it’s a credit union provid- cultural commodities. This legislation ing consumer loans to members, a day- compliments USDA’s efforts to bolster care cooperative providing affordable farmer-owned cooperatives. The Act child care, a farmers’ co-op that sells also provides for a pilot project to supplies or processes and markets its develop a resource center to coordinate members’ crops, or a rural utility co-op research, data, business, legal, financial that meets the energy and telecommu- and logistical operations involved in lending institutions to provide more nications needs of rural communities, developing markets for new products. funds to speed the construction of com- cooperatives are getting the job done. The latter is similar to the incubator bustion turbine generators to help meet The U.S. Department of Agricul- concept that is being used widely in peak energy demands in many parts of ture has been assisting rural Americans providing the foundation for new high the nation. Rolling gray-outs and black- in forming and improving the opera- technology business ventures. outs and sharp peaks in energy prices tions of cooperatives for 74 years, and In enacting this provision, Congress that impacted some areas last summer we continue in that role today under recognizes that American producers underscore the need for this effort. the banner of USDA Rural Develop- are without parallel in the production USDA is also working to finance more ment. In addition to USDA’s traditional of agricultural commodities, but fre- renewable energy sources — including role supporting co-ops with technical quently lack the experience and knowl- wind turbines and solar power — to assistance, research and educational edge needed to successfully market lessen the nation’s dependence of materials, a major thrust of the past their products. This is particularly true expensive foreign oil. five years has been to expand USDA’s when developing new markets for new If you want to learn more how USDA rural business programs to help launch value-added products. can help your co-op, or help you form a new cooperatives and to expand the A strong rural infrastructure is also co-op, call our national cooperative office operations of existing cooperatives. critical to the nation’s future. USDA at (202) 720-7558, or call (202) 720- A major emphasis of this effort has Rural Development provided about $2 4323, then press “1” to be connected to been to help finance farmer co-ops that billion last year to help finance the your USDA Rural Development state process their members’ crops and live- expansion and maintenance of the office. You can also visit our website at: stock, thus keeping more of the value- nation’s rural electric systems, most of www.rurdev.usda.gov, which includes added profits at home in rural America. which operate as consumer-owned more than 100 cooperative publications In 2000 alone, USDA provided nearly cooperatives. It provided about $1.5 and past issues of “Rural Cooperatives” $100 million in financing for agricul- billion to build rural water/wastewater on-line. tural cooperatives. That’s up from $29 and telecommunications systems. The million in 1998. later program now includes efforts to Farmers who transition from being spread the Information Superhighway producers of a commodity to being and Distance Learning and Telemedi- owners of a co-op that processes crops cine services throughout rural America. Jill Long Thompson, into value-added products stand a bet- We are currently working with other Under Secretary USDA Rural Development

2 September/October 2000 / Rural Cooperatives Rural September/OctoberCOOPERATIVES 2000 Volume 67 Number 5

RURAL COOPERATIVES (1088-8845) is published bimonthly by Rural Business–Cooperative Service, U.S. Department of Agriculture, 1400 Independence FEATURES Ave. SW, Stop 0705, Washington, DC. 20250-0705. The Secretary of Agriculture has determined that publication of this periodical is necessary in the transaction of public business required by law of 4 Lower commodity prices cause drop the Department. Periodicals postage paid at in co-op sales Washington, DC. and additional mailing offices. Copies may be obtained from the Superintendent of Documents, Government Printing Office, Washington, DC, 20402, at $3.50 domestic, $4.38 foreign; or by annual subscription at $15.00 domestic, $18.75 foreign. Postmaster: send address change to: Rural Cooperatives, USDA/RBS, Stop 3255, Wash., DC 6 Last train leaving? 20250-3255. Some say Pork America represents best, and possibly last, chance Mention in RURAL COOPERATIVES of company and for hog farmers to gain significant market access. brand names does not signify endorsement over other companies’ products and services. By James Matson and Brad C. Gehrke

Unless otherwise stated, contents of this publication are not copyrighted and may be reprinted freely. For noncopyrighted articles, mention of source will be appreciated but is not required.

The United States Department of Agriculture (USDA) 18 Trade takes a tumble prohibits discrimination in all its programs and Cooperative trade plunges 41 percent as Asian markets cool. activities on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual By Tracy Kennedy orientation, and marital or family status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD). 20 New Directions: To file a complaint of discrimination, write USDA, Co-ops help tobacco farmers transition to new crops Director, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, By Pamela J. Karg Washington, D.C. 20250-9410, or call (202) 720-5964 (voice or TDD). USDA is an equal opportunity provider and employer.

Dan Glickman, Secretary of Agriculture

Jill Long Thompson, Under Secretary, Rural Development DEPARTMENTS Wilbur Peer, Administrator, Rural Business–Cooperative Service 2 COMMENTARY Gladys Rodriguez, Director of Public Affairs 12 IN THE SPOTLIGHT Dan Campbell, Managing Editor 16 MANAGEMENT TIP Vision 2000/Kota, Design 25 NEWSLINE

Have a cooperative-related question? Call (202) 720-6483, or On the Cover: Fax (202) 720-4641, Information Director, Gary Ledger is a hog farmer in Williamsburg, Iowa, and a board member of This publication was printed with vegetable oil-based ink. the new Pork America cooperative. He and many other like-minded producers say that without a strong, national marketing cooperative, producers’ ranks will continue to be decimated by market downturns. Story on page 6. United States Department of Agriculture Photo for USDA by Mark Tade, Cedar Rapids Gazette FPO

Rural Cooperatives / September/October 2000 3 Lower commodity prices cause drop in co-op sales Farmer-owned co-op assets hit record $47.7 billion

Editor’s note: Information for this article was compiled by the statistics staff of the Rural Business-Cooperative Service, a 1 division of USDA Rural Development: Table 1 — Farmer Co-ops’ Net Business, 1999 and 1998 Charles A. Kraenzle, Celestine C. Adams, Commodity or function 1999 1998 Katherine C. DeVille, Jacqueline E. Penn Products marketed: Million dollars and Ralph M. Richardson. Cotton 2,083 2,961 Dairy 26,287 25,329 he nation’s farmer-owned Fruits and vegetables 9,707 9,391 2 cooperatives experienced Grains and oilseeds 17,196 21,291 a drop in both sales and Livestock and poultry 9,530 9,555 T income in 1999, reflect- Rice 912 932 ing a general, 9-percent Sugar 2,514 2,445 3 downturn in farm commodity values. Other products 4,420 4,737 However, cooperatives’ combined total Total 72,650 76,642 assets reached a record-high $47.7 billion, 2.4 percent ($1.1 billion) more Supplies sold: than in 1998. Crop protectants 3,082 3,166 The 3,469 farmer cooperatives sur- Feed 4,639 5,405 veyed by USDA account for nearly Fertilizer 4,834 5,170 one-third of U.S. farm output and farm Petroleum 6,388 6,616 supply sales. Seed 781 732 4 Total cooperative business — which Other supplies 3,795 3,462 includes receipts from the sale of crops, Total farm supplies 23,518 24,551 livestock, farm supplies and services — 5 was $100.1 billion in 1999, down 4.4 Related-services and percent from $104.7 billion in 1998 other income: 3,894 3,473 (table 1). Total 100,062 104,667 A 19.2-percent (or $4.1 billion) decline in the value of grains and oilseeds marketed and sharp drops in Note: Preliminary. Totals may not add due to rounding. 1 feed and fertilizer prices were among Excludes inter-cooperative business. Volume includes value of products associated with the major causes for the decrease. cooperatives that operate on a commission basis or bargain for members’ products. 2 Cooperative-provided services Excludes cottonseed. 3 (such as cotton ginning, livestock Includes dry edible beans and peas, fish, nuts, tobacco, wool and other breeding, trucking, etc.) and miscella- miscellaneous products. 4 neous income was a bright spot in the Includes building materials, containers, hardware, tires-batteries-accessories (TBA), farm machinery and equipment, food and other supplies. sales picture, rising an impressive 12.1 5 percent, to nearly $3.9 billion. Dairy Includes trucking, ginning, storage, artificial insemination, rice drying and other. co-ops also bucked the downtrend, with a 3.8-percent gain in sales to $26.3

4 September/October 2000 / Rural Cooperatives The 3,469 farmer cooperatives surveyed by USDA account for nearly one-third of U.S. farm output and farm supply sales.

billion in 1999. Also posting an increase were fruit and vegetable co- Table 2 — Farmer cooperatives’ net income,1 1999 and 1998 ops, up 3.4 percent to $9.7 billion. Co-ops realized $72.7 billion from Cooperative type 1999 1998 marketing farm commodities (selling, Marketing: Million dollars bargaining for and/or processing mem- Cotton 69.9 64.0 bers’ crops and livestock) and $23.5 billion from the sale of farm supplies Dairy 303.9 447.2 (including fertilizer, crop protectants, Fruit and vegetable 99.7 76.9 seed, feed, etc.). Grain and oilseed 323.7 441.4 Total net income of $1.4 billion for farmer cooperatives in 1999 was down Livestock and poultry 62.1 -71.2 19.8 percent from $1.7 billion in 1998 Rice 6.1 7.3 (table 2) — the lowest level since 1993 Sugar -19.3 -12.1 and well under the record of $2.36 billion set in 1995, according to data Other marketing2 94.5 64.0 compiled by the Rural Business-Coop- Total 940.6 1,017.5 erative Service of USDA Rural Devel- opment.Cooperatives earned $940.6 Farm supply 350.5 578.8 million in net income from marketing farm commodities and value-added 3 Related-service 105.7 146.0 goods in 1999, a decline of 7.6 percent; they earned $350.5 million from Total 1,396.7 1,742.3 farm supply sales, 39.4 percent less than in 1998. The number of U.S. farmer-owned Note: Preliminary. Totals may not add due to rounding. cooperatives dropped to 3,469, down 1 Net income less losses and before income taxes. from 3,651 in 1998, reflecting the ongoing trend of mergers, consolida- 2 Includes dry edible bean and pea, nut, tobacco, wool, fish and miscellaneous marketing tions, acquisitions and dissolutions. cooperatives. Memberships in farmer cooperatives totaled 3.19 million in 1999, down 4.8 3 Includes trucking, ginning, storage, artificial insemination, rice drying and other. percent from 1998. The number of memberships is larger than the number of farms (about 2 million) because many farmers belong to more than one cooperative. Agricultural cooperatives are major sources of jobs in both rural and urban areas, employing 172,814 full-time workers in 1999. ■

Rural Cooperatives / September/October 2000 5 Last train leaving? Some say Pork America represents best, and possibly last, chance for hog farmers to gain significant market access

By James Matson and Brad C. Gehrke, Ag Economists USDA Rural Development

Editor’s note: The authors have served as USDA Rural Development’s technical assistance team advising Pork America leaders on cooperative development issues. of it n December 1998, an hap- over-supply of market- pening ready hogs collided with again are Supply I the nation’s limited still there.” chains build slaughter capacity, caus- Independent produc- innovative alliances ing pork prices to collapse to the lowest ers suspect that the 1998-99 market among vertical units in the market level in nearly 50 years. The average crisis has accelerated the trend toward channel with the objective of delivering producer’s portion of retail pork value fully integrated production, as occurred greater consistency, quality, specificity plunged to 12 percent, down from 39 in the U.S. chicken industry in the and reliability to meet or exceed the percent in 1997. The situation has left 1960s. Independent operations are end user demands. pork producers grappling for ways to often as technically sophisticated and Despite the expansion of supply secure a larger stake in the pork mar- efficient as integrated production units. chains by investor-owned firms, oppor- keting chain. Their goal: to share in In addition, they are predominantly tunities still exist for independent pork the returns from the other 88 percent family owned and operated. However, producers to thrive and prosper. of retail value of the $36 billion pork many of these producers question their Growth of global markets offers industry. Many are looking to coopera- ability to remain in the industry under tremendous potential for the U.S. pork tives — including the new Pork Ameri- these market conditions. These fears industry. The Meat Export Federation ca cooperative — as the best way to may not be unfounded. estimates that worldwide pork trade ensure market access for independent The number of pork producers has will increase 36 percent during the next producers and share in returns generat- fallen from nearly 3 million in 1950 to 10 years. The U.S. pork industry, with ed beyond the farmgate. less than 100,000 in 1999. In 1997, 40 the world’s lowest cost of production, is percent of hogs were farrowed and 44 positioned to capture a significant part Crisis for pork producers percent were finished through some of this expansion. “Producers lost between $4 billion form of production contracting. Nonetheless, independent produc- and $5 billion of equity in the last Estimates show that 74 percent of ers cannot simply manage input costs go-round,” said Linden Olson, secre- hogs were marketed by means other and expect to remain competitive in tary-treasurer of Pork America, a than spot markets in January 2000. the supply chain model. Racing to the producer-owned cooperative which This number rose from 59 percent in bottom of the long-run average cost seeks to help producers gain a stake just two years. Independent production curve is not the answer for these pro- in marketing their products. “The sold into spot markets is not the wave ducers. The economic crisis presents factors that brought about the price of the future. an opportunity for independent pro- collapse of 1998 and 1999 have not Pork supply chains — vertically ducers to band together and form pro- changed,” he continued. “In fact, coordinated systems extending from ducer-owned supply chains that will those forces may have consolidated the genetic base of a herd to retail sales increase their competitiveness. and strengthened. The possibilities — have emerged as the industry model. Olson believes “control is not going

6 September/October 2000 / Rural Cooperatives to come through the ability to negoti- especially pork producers, have partici- the profitability of independent produc- ate individual contracts with packers. pated in cooperative marketing efforts ers and keep them in pork production It’s going to be joining with other pro- to a lesser degree than other agricultur- into the 21st century.” ducers and having leverage in the mar- al producers. Evolving industry struc- Agricultural economists at Purdue ketplace.” Marvin Hayenga, Iowa State ture and recent market conditions University, including Don Paarlberg University economist, and others echo might change this. In the past 12 and Michael Boehlje, support the need these producer concerns: “Access to months, independent producers have for livestock marketing cooperatives. markets for independent producers is officially incorporated several organi- “Cooperation and pooled production limited, especially outside the Mid- and marketing appear to be key to off- west. They face the decision of becom- setting the impacts of consolidation ing linked with packers either individ- and integration in today’s pork indus- ually or via cooperative processing or “The factors that brought try.” They recognized, however, that marketing initiatives, or of becoming about the price collapse of “the livestock producing community residual suppliers inherently bearing has little experience and expertise in more risk.” 1998 and 1999 have not using these alternatives and will likely Producers and analysts both feel that need public policies and assistance to independent pork producers must move changed.”–Linden Olson get them functioning.” up the value chain to capture a greater The primary objective of coopera- share of the consumer’s pork dollar. tive pork marketing is to increase mar- zations and many more are considering ket access for independent hog produc- Potential for co-op formation the formation of cooperatively owned ers, and allow them to participate in Increased pork consumption is par- pork marketing businesses. additional levels of the marketing chain tially the result of efforts by those inde- The cooperative concept can directly to increase their net returns. Despite pendent producers who now are resid- address many of the challenges facing increased interest in cooperative initia- ual suppliers. Producer-funded today’s independent pork producers. tives, the economic inefficiency of programs, including the National Pork “Valued-added cooperatives can provide many separate, uncoordinated efforts Producers Council’s “other white producers with the tools required to may still leave independent producers meat” campaign, were designed to capitalize on increasing world demand at a disadvantage compared with larger increase demand. Independent produc- for U.S. pork,” said Earl Dotson, vice investor-owned firms. ers, however, have not been able to president of research, environment and take advantage of the market opportu- production research for the National Task force studies potential nities these programs created. Pork Producers Council (NPPC). He The NPPC’s board of directors rec- Historically, livestock producers, feels that “cooperatives can help restore ognized this and decided to explore the potential of a national cooperative. Al Tank, NPPC chief executive officer, says, “Doing nothing is not an option. Producers cannot stand a repeat of this crisis….” In the spring of 1999, the NPPC formed a 15-member Coopera- tive Task Force to study the viability of a national cooperative. Jack Rundquist, a producer who was instrumental in the formation of the Hog Inc., a regional pork producer cooperative, headed this effort. The task force requested technical assistance from USDA Rural Devel- opment, which assigned two economists to work with them. The closest available models on which to base a national cooperative were found in the U.S. dairy and the Danish pork industries, but both of these groups had achieved their national The number of pork producers in the United States has fallen from about 3 million in 1950 to scope through more than 100 years of fewer than 100,000 today. USDA Photos (pages 6, 7 & 8) evolution. The NPPC staff and USDA advisors worked with the task force to

Rural Cooperatives / September/October 2000 7 explore both governance and operational mittee that would lay the groundwork for structures that would allow a national a national pork cooperative. pork marketing cooperative to function successfully; incor- Pork America emerges porate local, state and Pork America was regional groups as officially incorpo- members; and be rated less than a responsive to the month later, on rapidly restruc- December 29, turing pork 1999, as a industry. stock compa- Last Novem- ny under ber, the task Minnesota’s force presented favorable its findings to a cooperative gathering of more law. John Adams, than 50 producers and a task force and producer groups that founding member represented nearly 20 mil- from Snow Hill, N.C., lion market hogs. The producers says “we needed to move supported the task force’s efforts and fast, we couldn’t survive $8 hogs unanimously voted to form a steering com- again.” The founding board consisted of

Small co-ops and marketing groups formed in wake of hog crisis

By Jeff Jobe, Director, Cooperative Services USDA Rural Development, Iowa

In the midst of the nation’s largest hog producing region, Delaware County Meats — This group of family farm not all producers are thinking big. Forced by the disastrously pork producers grew out of the Delaware County Economic low prices of 1998, many pork producers began a desperate Development Value-Added Agriculture Committee. Delaware search for ways to retain more pork-generated dollars in County Meats has developed nine ready-to-eat products and their pockets. In Iowa and Nebraska, this has meant that two types of bratwurst. Recipes for their products were many family farm pork producers are finding ways in which developed with the assistance of Terry Kerns of the Edge- they can skip the middleman and sell pork directly to the wood Locker. Product is currently being marketed through consumers. Many are forming cooperatives or quasi-coop- Nash Finch Co. food stores and at local food institutions. erative businesses. Here are some examples of what pro- Tabor Family Meats — Is a family-owned business that is ducers in Iowa and Nebraska are doing. selling top-quality pork directly to consumers. The hogs are Eden Farms — Kelly and Nina Biensen are selling high- raised in open lots, and are given no growth hormones or quality Berkshire pork produced in Iowa. Pork is sold antibiotics in the finishing stages of production. Pork is sold directly to white-tablecloth restaurants in Des Moines, either in individual packages or in 12-45 lb. bundles. Chicago and Dallas. Eden Farms pork has been featured in Audubon County Family Farms — Is a group of five small articles in the New York Post and Wall Street Journal. family farmers in Audubon County, Iowa, eager to share their Eden Farms uses a USDA-inspected plant to slaughter its heritage and production from their family farms. Pork is hogs. The pork is then delivered to various processors for processed locally in a state-inspected locker facility and further processing. Eden Farms currently has more than sold directly to consumers in individual packages or bun- 20 different products. The Biensens have developed a dles. Audubon County Family Farmers also sells chicken, long list of fine restaurants in the Des Moines area serv- honey and beeswax candles. ing Eden Farms pork. Northstar Neighbors — Is a group of small farm producers,

8 September/October 2000 / Rural Cooperatives eight members from six states with Jack One of Pork America’s first deci- • Second, Pork America must be a sig- Rundquist, of Butler, Ill., as chairman. sions was to conduct an in-depth nificant national player — this The board asked USDA to continue strategic study. This market plan depends on the ability to control, providing technical assistance and guid- was partially financed through a participate in, drive and create ance during the cooperatives start-up cooperative agreement with USDA. pork-based food activities on a operations. Don Senechal, of Senechal, Jorgen- very significant scale, by participat- Jim Lewis, Pork America’s vice son, Hale and Company (SJH), ing in the top tier of the industry. chairman and a hog producer from which was hired to conduct the Welcome, Minn., described the coop- study, said, “This has more upside Nonetheless, the scope of the pro- erative as “a national umbrella organi- potential that any other plan SJH ject may have slowed membership zation that will facilitate and coordinate has worked on.” recruitment efforts. “We didn’t quite among local and regional groups, as The study identified two keys for realize how difficult it was going to well as individual producers. The coop- success: be, to get everything done on a legal erative will act as a resource center for • First, the organization must be basis,” Olson says. “A national coop- activities related to production, deliv- market driven — Pork America erative had never been done like this ery, and marketing of hogs.” Lewis said must develop innovative, dynam- before. Most of the other national that in this capacity, Pork America will ic models to meet market cooperatives had come together as a address future research and develop- demand, and penetrate the mar- result of mergers of regional cooper- ment needed to assure that the cooper- ket with solid deal making, atives. We’re starting something ative provides quality products precise- through-the-chain alignment and really new.” ly targeted to the needs and wants of carefully structured producer-to- Pork America’s initial activities consumers and end users. consumer coordination; included its Foundation Membership

located around the former town of Northstar, Neb. Northstar Producers Association to determine whether independent Neighbors sells farm-fresh meats directly to consumers or Nebraska pork producers could increase their profitability through farmers markets in Lincoln, Grand Island and Oma- through cooperative marketing of their products. The group is ha. Products can also be shipped by mail. Newsletters are studying the feasibility of building and operating a small pork mailed to customers, asking them to place orders, and then processing plant for marketing under its own label. Family designating a time and place to pick up their purchases. Quality Pork Processors . . . currently has 105 members. Nebraska Farmers Choice —This cooperative is being • • • formed to market and process members’ pork for a greater USDA Rural Development is often contacted by producer profit. It has completed a feasibility study and is developing a groups that indicate they want to sell 30,000 hogs per year business plan to begin operations. directly to consumers. However, they have no idea as to the Iowa Premium Pork Co. — This cooperative was size of market they must have to sell 30,000 hogs. formed as a result of a task force initiated in December USDA makes rough calculations to determine the number of 1998 by the Iowa Pork Producers Association. The task consumers required to support such an enterprise, which tends force was charged with determining whether independent to bring producer groups back to the reality that it may take Iowa pork producers could increase their profitability years of hard work to develop the type of market they desire. through cooperative marketing of their products. Iowa As a result of these many inquiries, USDA Rural Devel- Premium’s initial focus will be on developing joint ventures opment and Iowa State University Extension’s Value-Added with existing packers or processors. In the first phase of office contracted with the Center for Industrial Research operation, the cooperative will provide marketing services and Services (CIRAS) to develop a value-added pork manu- to its members, and will also begin gathering carcass al. The manual is available to the public over the web at: information on members’ hogs to assist the cooperative in iowaagopportunity.org. Call (515) 294-5008 if you need a hard targeting marketing opportunities. Iowa Premium Pork Co. copy. The manual provides producer groups with the tools currently has more than 1,400 members. necessary to determine if niche-marketing their own pork is Family Quality Pork Processors — Was formed as a result feasible for them. It also outlines the steps necessary for of a task force formed in January 1999 by the Nebraska Pork producers to develop their own value-added business. ■

Rural Cooperatives / September/October 2000 9 drive, which closed June 30. These members receive priority to participate in all future Pork America pro- Kentucky hog co-op to jects. Foundation members are from 17 states, and include individual producers and 30 regional and local explore value-added pork producer groups. About 10 million hogs, approximately 10 percent of the alternatives U.S. total, are produced by Pork America’s members. Pork America is accepting members from states where it is reg- istered, and continuing to pursue Securities Exchange By Bill Brockhouse, Agricultural Economist Commission (SEC) registration in other states. USDA Rural Development “The model we are building — the virtual, vertical food company — is somewhat unique,” said John The Central Kentucky Hog Marketing Association McNutt, hired as director of development for Pork (CKHMA) got off the ground in 1991. USDA Rural America after completing his term as NPPC president. “It will primarily operate by undertaking activities Development provided the group with technical through partnerships, alliances, contractual production, assistance to help in its formation. brokerage programs and other arrangements.” The hog producers who formed the cooperative Jim Lewis feels that “success in these types of ventures generally comes from good management, a thor- began shipping truckloads of hogs to a local packer. ough understanding of the industry and significant This was less expensive than shipping individually control of at least one vital segment of the industry. and the 25 members were also able to negotiate a Our ultimate goal as a vertical food company is to participate in every segment of the business. Sharing better base price with the packer. in the risks and rewards of our cooperative value- Even though some members have retired, the added enterprise.” cooperative is marketing more hogs now than when Pork America recognizes that it may require some it was formed. This year the cooperative will sell innovative financing. If producers had considered a cooperative option prior to the economic crisis, Olson says more than $2 million worth of hogs and continues to “…the lost equity could have bought all the processing expand the services that it offers to its members. facilities in the United States; we could have controlled In 1991, producers didn’t realize how the cooper- the whole thing.” Board members believe that the equity needed to ative would help them in other ways. For example, in enter the industry on the scale advocated by the SJH December of 1998, when the hog-price collapse study may exceed the liquid capital pork producer was at its worst, CKHMA hog shipments were never members can generate. However, they feel that Pork America’s leveragable asset is hog production — and turned away by their packer, as were shipments the control of that production through the market from some other small-scale producers. chain. “We have $4 invested in production facilities for The cooperative’s leadership was instrumental in every dollar they have in processing; we need to use that leverage,” Olson says. starting Pork America. Two of CKHMA’s members If these financing hurdles can be overcome, Pork are founding members of the board of directors for America and its independent pork producers believe it Pork America. will be able to operate successfully — generating sustain- The members perceive supply chain manage- able income for producers and retaining those producers and their operations as viable rural businesses. ment and industry integration as potential threats to Pork America has identified five strategies to achieve future viability as independent producers. To com- these goals: bat this, the producers are receiving technical • Increase efficiency by improving producer-to-consumer information flow; assistance from USDA Rural Development to study • Coordinate production, processing and marketing the feasibility of further value-added activities for through real-time internet-based information management systems; the cooperative. Their experience in developing • Develop systems and partnerships to sell as close to their own cooperative is invaluable as they move on retail consumers as possible, including development to a bigger project. ■ of an independent producer brand; • Avoid head-to-head competition with existing

10 September/October 2000 / Rural Cooperatives large players by identifying and supplying nesses to participate in value added beyond the farmgate. underserved segments and niches; and Charles Kraenzle, director of the Cooperative Services Sta- • Support new and existing producer groups and return tistics Division at USDA Rural Development, reports that profits to the local level by developing and supporting nearly one-third of all U.S. farm commodities and products pork merchandising opportunities. were marketed through cooperatives in 1998. Leading the way were dairy cooperatives, marketing 86 percent of U.S. Not everyone in the pork industry feels that Pork milk and milk products. America can succeed. In the June 18 Des Moines Register, Whether the efforts of Pork America or other recently Jerry Perkins recounted his interview with Smithfield organized pork cooperatives prove Luter right or wrong Foods chief executive Joseph Luter III. Smithfield Foods remains to be seen. Still, despite the high level of risk, inde- is the largest pork processor in the world and is an pendent pork producers are motivated by the stories of investor-owned firm. Luter predicted that farmer-owned new-generation cooperatives such as the Dakota Growers pork marketing organizations will fail. Luter declared, Pasta cooperative. The prospect that producers can form a “They’ll have their head handed to them… The idea that a cooperative, build a plant, and develop a producer-owned bunch of farmers are going to get together and build a business that is among the three largest pasta manufacturers plant and make money is laughable.” in the United States is tempting when the only other palat- Thousands of independent producers from other agricul- able alternative is exiting the industry. tural sectors, though, have clearly shown that “a bunch of As John McNutt said, “Pork America may be the last train farmers” can succeed in creating and operating viable busi- leaving the station for independent pork producers.” ■

Finding new ways to market ‘this little piggy’

By Joe Folsom, Program Director High-quality, custom pork products such as barbecued Community and Cooperative Development pork, sausages and precooked products using propri- USDA Rural Development, Minnesota ‘ etary recipes will be high-margin activities for the The small group of Minnesota hog producers who cooperative. formed Prairie Farmers Cooperative has developed a “The flexibility gained from small-scale plant opera- strategy to take advantage of a segment of the pork mar- tions provides an opportunity for the cooperative to ket not being served by the larger meat processors. serve niche market areas rejected by the larger proces- The cooperative is committed to delivering a high- sors,” says Kevin Edberg, marketing director for the quality pork product through a new, 72,000- head-per- Minnesota Department of Agriculture. year slaughtering/processing facility with: Marketing channel attention will focus on direct store • a shorter time interval from slaughter to delivery; deliveries, distributors and food service companies. • a pricing mechanism that reflects the quality of pri- Small local retail chains that market to more upscale mal cuts from each producer’s hogs; consumers, wanting a fresher product not containing • information transfer on production and genetics that moisture enhancements or pumped additives, will be enhances product quality and service; targeted. Products will be targeted for local and regional • flexibility in providing a value-added product mix distributors and food service companies. of fresh and processed products, including Entry into this mature and competitive environment meeting requests for specialized products and will be challenging. “We firmly believe opportunities are packaging. present without going head-to-head with the large Pork cut, wrapped, labeled and ready for the grocer processors and that we will be able to return added val- case is an example of a fresh product designed to ue to our producer members,” said Dennis Timmerman, meet the needs of a retail store without a meat cutter. chairman of Prairie Farmers Cooperative. ■

Rural Cooperatives / September/October 2000 11 IN THE SPOTLIGHT Life in the cooperative lane John Malcheski, Wisconsin’s roving co-op ambassador, spreads cooperative skills and knowledge worldwide

Patrick Duffey, USDA Rural Development

Editor’s Note: In late September, John Malcheski departed for Siberia on his 14th mission for ACDI/VOCA and the eighth country he has traveled to for that organization, which uses American co-op volunteers to help improve the food-production systems of other nations. In this interview, Malcheski relates some of his extensive experiences with cooperatives at home and abroad. Malcheski came from a family back- ground with strong cooperative roots, which became his springboard into a career as a prominent Wisconsin dairyman and cooperative leader in both national and international arenas. Today, at 68, Malcheski still operates a 500-acre dairy farm near his hometown of Pulaski, near Green Bay.

Rural Cooperatives: Where did you gain your strong commitment to cooperatives? Malcheski: My father, Edward, lived and breathed cooperatives. It was a big part of our home life. He was an active leader in Wisconsin agriculture and in 1927 opened a small cheese- making cooperative that served 12 area farmers. This was in addition to his dairy farm operation. After all, he had a wife and nine kids to feed! The cheese factory continued operating until 1947, when big changes began in the dairy processing business. He helped form “Those cooperatives that don’t and was a director of three area cooper- see the changes coming won’t atives: Pulaski Chase for farm supplies; last,” says Wisconsin dairyman the Brown County Production Credit John Malcheski, at home on his Association and Federal Land Bank, 500-acre farm near Green Bay. which provided post-Depression credit USDA photos by Patrick Duffey for farmers; and a Pulaski livestock shipping association to give farmers

12 September/October 2000 / Rural Cooperatives access to better prices at the Milwaukee volunteer or be forced to merge with terminal market. their neighbors. Cooperatives need to The idea of foreign service also tap more of the profits from moving stemmed from my father. Poland, the farm products to consumer markets. former breadbasket of Europe, was Feed and agronomy centers already are demolished in World War II. People creating more efficiencies for farmers. needed food, so the United States And since labor is a critical part of farm introduced the Marshall Plan for operations, cooperatives such as ours rebuilding Europe. It was administered must provide technical services with a by the United Nations (U.N.). My highly trained staff. father headed its farm machinery distri- Although our cooperative’s farm sup- bution program in Poland. While he ply business is larger, we also buy and sell was gone, my mother and the family farmers’ grain. In time, we’ll offer ser- operated the farm. My sister, Helen, vices members want if the cooperative took over the cheese factory and can make a profit at it. Those coopera- became the first woman to be a tives that don’t see the change coming licensed cheesemaker in the state. won’t last. RC: When did you first become RC: How have the Malcheskis sur- active with cooperatives? vived when so many dairy farmers have Malcheski: I was a delegate to Bad- been forced to quit in recent years? ger Breeders (now Genex) and Consol- Malcheski: As evidence of how idated Badger dairy marketing cooper- dairy farm numbers have shrunk on ative and later was elected to the boards This shrine near the Malcheski farm was just our country road, at one time 14 of Pulaski Chase and Consolidated built by Polish Catholic farmers who settled dairy farmers flourished compared Badger. During my 20 years on the in large numbers around Pulaski, Wis. The with only five today. We brought in dairy cooperative board, six of them as town is home to the largest rural church in the second generation and have farmed chairman, we changed its corporate the world. in partnership with my sons John and name to match its popular brand name, Scott since 1996. We developed a Morning Glory. It was the third largest lation related to our broad member- rent/purchase agreement with my sons dairy marketing cooperative in the state ship, much of it with a rural base. In so the cattle, farm and equipment will in 1988 when we merged with Associ- our alliance with Minnesota Associa- eventually flow to them. The milk pro- ated Milk Producers, Inc. (AMPI). tion of Cooperatives, we discuss ways duction average for our 200-cow herd When AMPI was realigned in the early to make our programs more efficient, is 25,000 pounds per cow per year. My 1990s, Foremost Farms dairy coopera- with emphasis on improving coopera- son Steve operates an adjoining farm tive, based at Baraboo, purchased the tive education. The future of young of nearly 100 acres and milks 60 cows. assets of Morning Glory. During my 25 members lies in educating new genera- We market our milk supply to Land years on the Pulaski Chase board, its tions about how cooperatives work and O’Lakes, Inc. (LOL). sales grew from $3 million to $20 mil- why they need to support them. We RC: How has your cooperative ben- lion. In 1978, I joined the Land also want to reinforce the knowledge of efited from the joint agronomy venture O’Lakes (LOL) board, served for 15 those who are already involved with between CENEX and LOL? years and witnessed a lot of changes cooperatives. Our state organizations Malcheski: It made our fertilizer sys- and growth. also cooperate with the Iowa Institute tem more efficient and lowered mem- Our Wisconsin Federation of Coop- for Cooperatives in a common cooper- bers’ nutrient costs that were passed on eratives (WFC) is one of the finest ative development program. in patronage returns. We also built our trade organizations in the country. I’m RC: Wisconsin is served by a num- cooperative’s service base with improved currently in my last term on its board. ber farm supply cooperatives. Is there facilities, delivery equipment, and a With an annual operating budget of $3 any pending consolidation activity? trained staff. Some further centralizing million, it brings together cooperatives Malcheski: Our cooperatives are of local services may be in the offing. from varied interests under one moving in that direction, trying to keep RC: Does your cooperative encour- umbrella. Members range from farm pace with shrinking numbers but larger age young farmers to participate on the supply and marketing cooperatives to size of remaining farms. Fewer coopera- board of directors? those representing insurance, housing. tives in the future will cover larger terri- Malcheski:. We meet twice a year health, rural electrics, town and home tories and provide more technical ser- with local young farmers to provide mutuals and credit unions. vices to create more efficiencies for their crop and livestock production infor- WFC also monitors proposed legis- members. Local cooperatives will either mation and also educate them about

Rural Cooperatives / September/October 2000 13 cooperatives. We also participate in Malcheski: We plant “seeds” by corn, sells it to Burger King and also education programs of regionals and encouraging producers to look at the markets it under the trade name of the WFC. Producers need continuous U.S. cooperative system as a way to Zolty Ameriky, which translated means education about how to use and provide supplies and market produce ‘Gold of America.’ Thanks to another patronize cooperatives and how they and livestock. We sought people with a volunteer, a retired executive with are structured and controlled. The burning in their bellies to move for- Dean Foods at Green Bay, surplus pro- University of Wisconsin Center for ward. When the old state collective cessing equipment was purchased from Cooperatives in Madison also has pro- farms were split, land was returned to the company and installed to update grams for young farmers that encour- original owners or their relatives. the plant in Poland. age them to get involved with their Parcels were small according to the old RC: What was your most memo- cooperatives and serving other mem- European system and often scattered. rable experience with ACDI/VOCA? bers. Those leadership skills often Former office workers, cooks and truck Malcheski: All my trips were mem- pour over into local communities. By drivers were becoming new farmers. orable, but Egypt stands out because of contrast, non-cooperatives offer no We encouraged them to swap parcels its early recorded history, the pyramids such leadership opportunities. to gain more contiguous acres. We also and their culture. I was impressed with RC: How did you become involved worked with government agricultural the Egyptians’ ability to produce food in international development work? ministries to help farmers expand this by irrigation. Canals laid out during the Malcheski: When communism in private sector. days of the pharaohs 4,000 to 5,000 Eastern Europe collapsed along with ACDI/VOCA established offices in years ago are still in use and are helping its centralized food production system various countries and developed con- the Egyptians turn the desert green. in 1989, it left a void. Food costs were tracts with groups or individuals who Four of my 14 volunteer trips were running 60-80 percent of people’s had ideas on helping agricultural orga- to Egypt. I kept getting involved and income. Congress expanded the nizations. Usually, ACDI/VOCA going back on a new project. Egypt was farmer-to-farmer program to include recruited volunteers and provided mon- the most eye opening because of the U.S. support to the former Soviet ey for food and lodging. The host tremendous amount of hand labor states to address food production, mar- recipients provided transportation and required to produce food. The kids keting and finance needs. Dr. Vern translators. It was always nice to find start working at age 6 and 7. Many Freeh, LOL’s vice-president of interna- aggressive persons or groups who want- can’t read or write. It’s very sad to see. tional development while I was on its ed to change or improve their system. So, we need to tie in some basic level of board, was also a director of We found the right person in education in future programs. But, the ACDI/VOCA, which was affiliated Poland and in three short weeks put people we met were very happy and with the National Council of Farmer together Agro-Wisconsin, a farm sup- hard working. Poverty was prevalent by Cooperatives. He invited me to partici- ply and grain marketing cooperative our standards, but they don’t see pover- pate in its program. I was one of the complete with bylaws, elections and a ty as such. Something as common as a first seven to enter the program in manager. The cooperative purchased three-tine pitchfork from an American Poland in 1990. I had seen the failure grain from local farmers. I worked farm would be an innovation in some of communism there firsthand during with Norval Dvorak, a retired execu- countries. If I go again, I’d like to take private visits in 1983 and 1985. tive from Packerland Packing Compa- one along just to show what can be When the Soviet empire collapsed ny at Green Bay. We each invested accomplished with a simple pitchfork. and ACDI/VOCA wanted volunteers, I $100 to give Agro some start-up cash Egypt’s long-standing, two-class sys- was eager to share my farming and coop- flow. The cooperative lasted for a tem is gradually changing with the rise erative experiences with people who were time, but later fell apart due to bicker- of a middle class. But it will take anoth- being introduced to capitalism and free ing on the board. That led to its er 50-100 years to raise the living stan- enterprise. We tried to show the Polish financial ruin. In subsequent visits to dards for a lot of people. My work in farmers that our U.S. cooperatives were Poland by other volunteers, including Egypt was always with different dairy examples of building better agricultural Dvorak, Agro was consolidated with farmers, large and small. We tried to enterprises and markets. The idea was another cooperative, so our efforts offer technical advice to fit particular challenged in Eastern Europe because weren’t entirely wasted. situations we encountered such as cat- producers likened our cooperatives to the Former Agro leader Alex Bohenski tle comfort, milking procedures, nutri- old communist system. It took time to is now the sweet corn king of Poland. tion, feed storage, genetics and raising reeducate them as to the real goal of He slowly began planting sweet corn calves and heifers. To help Egypt cooperatives: to strengthen the hand of and selling it on the streets of major become more self-sufficient, in 1997 producers, not the state. Polish cities and to a government pro- ACDI/VOCA instituted a five-year RC: How does the ACDI/VOCA cessing plant. He now owns the plant, AgLink program. A cooperative will be program work? contracts with farmers to grow sweet in place when the project is completed

14 September/October 2000 / Rural Cooperatives there’s nothing comparable to the agricultural education provided by our Extension Service and other USDA agencies. Some people in this country, with a mouthful of food, criticize these programs. Yet, those programs created our system that produces ample food supplies. RC: What connection did you see between food production costs and national stability? Malcheski: These programs help build the agricultural sector of host countries, but are a small part of U.S. foreign aid, which accounts for four- tenths of 1 percent of the Malcheski explains changes needed in a dairy operation in Egypt during one of this many overseas trips as an total federal budget. We’re ACDI/VOCA volunteer. Photo courtesy ACDI/VOCA getting a good return on our investment. In just so they can help themselves in any area what to us was the simplest of tasks. If a dairying, for instance, as we help others needed. They have a tremendous farmer was running short on hay for improve that sector, we open the door knowledge about dairying in Egypt, his cattle, his herd might be half to expanding our agricultural export but individual farmers don’t share their starved by the time he could get in an markets. Because of our extensive expe- experiences with others. The AgLink emergency supply. By contrast, if my rience, we can help them avoid some of program will change that. The return farm’s hay supply is running low, I can the pitfalls we faced years ago. on investment will be a lot more agri- call a source in Kansas and have a In every country I visited, I tried cultural trade with Egypt. truckload delivered overnight. to find out what percent of an aver- RC: What obstacles did you en- In Lithuania, I worked with Chuck age worker’s income was spent on counter in other countries you visited? Steen from Growmark helping newly buying food. It was shocking — from Malcheski: In Macedonia, about privatized farmers with cattle manage- 40 percent in Egypt to 80 percent in one-third the size of Wisconsin, they ment, improving milk quality and Armenia and Russia. You cannot have had many languages and customs to building design. We’d team up for national peace and stability with penetrate. Armenia was the toughest night meetings to discuss marketing, these conditions. I think the devel- assignment. During my visit, most peo- food packaging, appearance and cus- oped countries such as the United ple had no electricity for a number of tomer satisfaction — things they didn’t States and Western Europe should hours each day due to a fuel shortage have to deal with under communism. devote more foreign aid money brought on by a war with neighboring RC: What other problems do vol- toward improving food production in Azerbaijan. Farming equipment from unteers encounter in host countries? these developing countries. the old collective farm system was in Malcheski: One of the primary RC: Would you encourage others to short supply, so we encouraged the for- impediments is inadequate legal participate in ACDI/VOCA? mation of cooperatives that could rent statutes to assist cooperative develop- Malcheski: Participation brings tilling and harvesting equipment to ment. Others are inflation and high you great experiences and personal farmers. interest costs, unwillingness to invest enrichment. We encountered wonder- Latvia showed the need for more in agriculture, political instability, lack ful people in all of our visits. You’ll open borders between small countries of marketing information and trans- learn more than you think and you’ll to allow freer movement of supplies portation, government price setting like sharing ideas. It will enrich your and produce. The farmers had a and poor transfer of research from soul and you’ll come back really labyrinth to penetrate to accomplish universities to farmers. Worse yet, appreciating the USA. ■

Rural Cooperatives / September/October 2000 15 MANAGEMENT TIP

Net savings dipped in 1999 for most corn-soybean and wheat-barley co-ops

By David Cummins, co-ops in the Corn Belt. This was pri- For medium-sized local grain coop- Agricultural Economist marily because of continuing declines eratives in the Pacific Northwest, the USDA Rural Development in grain prices and higher operating plunge in average net savings that expenses. occurred in 1998 was reversed in 1999, et savings averages were Lower net savings in 1999 was report- largely because of poorly performing generally lower in 1999 ed by 64 percent and 62 percent of the co-ops going out of business. than in 1998 for local large and medium-sized grain co-ops, Positive factors on the grain N grain cooperatives in the respectively, in the Corn Belt. Compara- income side were increased grain Corn Belt and Pacific ble percentages for the Pacific Northwest volumes marketed and improved Northwest, particularly for large grain were 70 percent and 25 percent. grain margins and margin rates. Table 1 - Compare your corn-soybean cooperative with averages for similar cooperative operations

Total sales group (million dollars) Group/Item Unit 5-14.9 15 or more 5-14.9 15 or more Your (1998 Data) (1998 Data) (1999 Data) (1999 Data) Cooperative Storage capacity Million Bu. 1.288 5.471 1.597 6.477 ______Grain marketed Million Bu. 2.013 9.079 2.665 10.793 ______Turnover rate Times 1.56 1.66 1.67 1.67 ______Proportion grain Percent 75.9 71.0 76.2 69.3 ______Total assets Million $ 3.448 16.086 3.839 18.530 ______Long-term debt1/ Percent 6.7 12.5 9.4 13.8 ______Member equity1/ Percent 60.1 47.3 58.5 47.0 ______Total sales Million $ 9.712 44.633 9.899 42.736 ______Margins on sales Million $ .573 3.206 .640 3.634 ______Total expenses Million $ .859 4.364 .994 5.096 ______Net savings (losses) Million $ .174 .909 .168 .816 ______Labor of total expenses Percent 44.7 46.2 45.7 46.6 ______Net savings paid in cash2/ Percent 34.5 33.7 37.2 35.3 ______Current ratio Number 1.48 1.24 1.42 1.21 ______Debt/assets Ratio .15 .20 .19 .27 ______Net savings(loss)/tot. sales Percent 1.8 2.0 1.7 1.9 ______Gross margins/total sales Percent 5.9 7.2 6.5 8.5 ______

1/ Of total liabilities and member equity. 2/ Of total patronage allocation.

16 September/October 2000 / Rural Cooperatives Farm supply sales and farm supply average prices received by local grain co- across the board in 1999, and repre- margins and margin rates were higher ops in both areas in 1999 were the low- sented a significantly higher proportion in 1999. Except for the slight increase est since the mid-1980s. of total assets for corn-soybean co-ops for the medium-sized grain co-ops in Loss rates for the medium-sized than for wheat-barley co-ops. the Corn Belt (where corn-soybean co-ops in 1999 were about the same co-ops predominate), total sales aver- (about 12 percent) as in 1998 in the Benchmarking your co-op ages were lower there and in the Corn Belt and sharply lower in the Benchmarks are common in busi- Pacific Northwest, where wheat-bar- Pacific Northwest (29 percent to 12.5 ness management to measure how well ley co-ops are most common. percent). In contrast, no losses were your cooperative is performing. How- The most damaging negative factor reported in both years by the large ever, such figures don’t reveal how your was the sharp drop in commodity prices co-ops in the Pacific Northwest and cooperative compares with others. in 1999. The weighted averages of prices the rate rose only slightly (from less If your cooperative is primarily a received by large and medium-sized than 3 percent to over 4.5 percent) in first-handler of wheat and barley or local grain co-ops in the Corn Belt were the Corn Belt. of corn and soybeans, comparative 21 percent and 23 percent, respectively, Total assets and member equity data for 1999 are available below. lower than in 1998. Corn, oats, wheat averages were higher in the Corn Belt. Tables 1 and 2 contain average finan- and soybean prices ranged from 19 per- For wheat-barley co-ops in the Pacific cial and structural data compiled cent to 26 percent lower. Comparable Northwest, total assets and member from a survey of Pacific Northwest lower weighted averages for grain co-ops equity averages were higher for medi- and Corn Belt cooperatives market- in the Pacific Northwest were 15 per- um-sized co-ops, but lower for large ing wheat and barley and corn and cent and 13 percent. In fact, weighted co-ops. Total debt averaged higher soybeans, respectively. ■

Table 2 - Compare your wheat-barley cooperative with averages for similar cooperative operations

Total sales group (million dollars) Group/Item Unit 5-14.9 15 or more 5-14.9 15 or more Your (1998 Data) (1998 Data) (1999 Data) (1999 Data) Cooperative Storage capacity Million Bu. 4.344 8.932 4.324 9.807 ______Grain marketed Million Bu. 3.036 9.945 2.937 10.766 ______Turnover rate Times .70 1.11 .68 1.10 ______Proportion grain Percent 93.0 81.9 80.5 87.6 ______Total assets Million $ 2.702 12.732 3.736 11.080 ______Long-term debt1/ Percent 1.1 6.2 4.0 8.4 ______Member equity1/ Percent 89.6 58.7 73.0 63.8 ______Total sales Million $ 10.381 40.813 10.051 35.281 ______Margins on sales Million $ .226 1.972 .579 1.767 ______Total expenses Million $ .784 3.994 1.060 3.169 ______Net savings (losses) Million $ .022 .849 .171 .825 ______Labor of total expenses Percent 45.9 44.6 40.7 46.0 ______Net savings paid in cash2/ Percent —- 40.3 33.0 41.7 ______Current ratio Number 4.46 1.42 2.34 1.67 ______Debt/assets Ratio .04 .16 .18 .23 ______Net savings(loss)/tot. sales Percent 0.2 2.1 1.7 2.3 ______Gross margins/total sales Percent 2.2 4.8 5.8 5.0 ______

1/ Of total liabilities and member equity. 2/ Of total patronage allocation.

Rural Cooperatives / September/October 2000 17 Trade Takes a Tumble Cooperative trade plunges 41% as Asian markets cool

Tracey L. Kennedy, a 76 percent concentration among the five largest coopera- Agricultural Economist tives exporting in 1997. USDA Rural Development Cooperative exports were down from 1997 in all major product groupings: bulk commodities, intermediate products Editor’s note: The Rural Business-Cooperative Service of USDA and consumer-oriented products (figure 2). Demand for bulk Rural Development began an annual survey of cooperative involve- commodities in particular showed the effects of the Asian ment in international markets in 1997. Prior to 1997, cooperative downturn, falling 54 percent to $2.5 billion. exports and imports had been measured at five-year intervals. An Exports of intermediate products — partially processed or overview of survey findings for 1998, with comparisons to 1997, is ingredient products — fell 24 percent to $308 million, while presented here. A follow-up article in a future issue will provide consumer products, including fresh and processed fruits and further detail. vegetables, meats and other food products, turned in the smallest decrease, falling by just 10.8 percent to $1.78 billion. gricultural exports by U.S. cooperatives were U.S. cooperatives also reported exports of nonagricultural down more than 41 percent in 1998, reflecting products — mainly farm inputs — valued at $83.5 million, declining demand and the subsequent fall in for a total of $4.68 billion. A commodity prices in Asian markets, as well as Bulk commodities continue to account for the largest the economic pressures related to currency — albeit a shrinking —portion of all cooperative exports, devaluations and other policy changes in other regions. accounting for 53.7 percent in 1998 compared with 69.6 Cooperative exports had climbed to a record $7.8 billion percent in 1997. Intermediate and consumer-oriented in 1997 before falling off to $4.59 billion in the wake of products gained in importance in 1998, rising from 5.2 to worldwide economic woes (figure 1). Participation in exporting has remained relatively steady Figure 2 Agricultural Exports by Cooperatives, 1997-98 with 96 cooperatives reporting exports for 1998. Magnitude of export sales ranged from less than $100,000 to more than Millions $1 billion. 6000

Exports continued to be heavily concentrated among a few 5000 cooperatives, with the top five exporters accounting for 60 percent of all cooperative exports. However, this compares to 4000

3000 1997 1998 8.0 Figure 1 Agricultural Exports by U.S. Cooperatives, 1980-98 2000 7.0 1000

6.0

0 Bulk Intermediate Consumer 5.0

4.0

Billions 6.7 percent and 25.3 percent to 39.6 percent, respectively,

3.0 of all cooperative exports. After establishing a record 13.8 percent share in 1997, the 2.0 cooperative share of U.S. agricultural exports fell back to 8.8 percent in 1998. Cooperatives accounted for 12.8 percent of 1.0 all U.S. exports of bulk commodities, down from 23.3 per-

0.0 cent in 1997. 1980 85 90 95 97 98 Cooperatives’ consumer product share dropped to 8.8

18 September/October 2000 / Rural Cooperatives percent from 9.5 percent in 1997, while their share of million. Sales to Middle Eastern markets increased 7.5 per- intermediate product exports fell from 3.2 percent to less cent from $236 million to $254 million. than 1 percent. Imports by cooperatives Where the markets were Cooperatives import a variety of products, mainly non- Trade patterns and flows for cooperative exports showed agricultural and consumer-oriented products. In 1998, coop- significant change in 1998. Although Asia continued to be eratives imported products valued at $203 million, down the most important destination for cooperative exports, markets in this region accounted for only 31 percent of all cooperative exports, compared to almost 50 percent in Figure 4 Imports by U.S. Cooperatives, 1997-98 Millions 1997. Significantly, the second largest regional market for 400 cooperatives was Latin America, accounting for about 20.5 350 percent of cooperative exports, vs. 10 percent in 1997. European markets increased marginally in importance from 300 1997 17.7 percent to 20.2 percent. 250 1998

200

Figure 3 Cooperative Exports by Destination, 1997-98 150

Millions 100 4000 50 3500 0

3000 Bulk Non-ag Consumer 2500 Intermedieate 2000 1997 from $252 million in 1997. Non-agricultural products — 1500 1998 mainly fertilizer and petroleum products, along with farm 1000 supplies, equipment, and machinery — accounted for 67 per- 500 cent of cooperatives’ imports. 0 Consumer-product imports — primarily of fresh and Asia Africa Canada Europe Oceania Latin America Middle East Unidentified processed fruits and vegetables — accounted for almost 30 percent of the total, while intermediate product imports (pri- Canada fell from almost 9 percent to about 6 percent, marily sweeteners and frozen bovine semen) accounted for a while Africa became a more significant player, increasing little over 2 percent (figure 4). A negligible amount (less than from 5 percent to 8 percent of cooperative exports. 1 percent) of grain imports accounted for all bulk agricultural The impact of much of the global economic situation is commodity imports. clearly reflected in changes in trade flows to most major regions The majority of consumer products — mostly horticultur- from 1997 to 1998, with the only gains in Latin American, al products — originated in Latin American countries (46 Middle Eastern and African markets (figure 3). As expected, percent), while Canada was the largest originator of non- exports to Asia experienced the most significant drop, down 63 agricultural products (42 percent). percent from $3.9 billion in 1997 to $1.4 billion in 1998. It remains to be seen whether 1998, the height of the Exports to Canada fell almost 60 percent, from $684 mil- world economic instability, has had a long-lasting impact lion to $275 million, while sales to Australia and New on cooperatives’ activities in international markets. A fol- Zealand (Oceania) fell almost 54 percent, from $57 million to low-up article in a future issue of this publication will take $26 million. On the other hand, export sales to Latin Ameri- a more detailed look at 1998’s results and look ahead to can markets increased 20 percent, from $796 million to $957 1999 and 2000. ■

Rural Cooperatives / September/October 2000 19 New Directions: Co-ops help tobacco farmers transition to new crops

By Pamela J. Karg Field Editor

obacco quotas have been cut by more than 60 percent during the past T two years, leaving Ken- tucky with 110,000 acres of quality farmland that’s “basically up for sale as farmers try to figure out what they’re going to do next,” says Jim Mansfield, horticulture/aquaculture program director for the Ken- tucky Department of Agriculture. While some Americans have applauded recent court settlements levied against the tobacco industry, it’s the small farmers across 20 states — stretching from Minnesota to Florida — who are paying the ultimate price. The 1997 USDA Agriculture Census count- ed 89,706 tobacco farmers in the United States and approximately 286,500 farms with assigned tobacco quotas. This year’s quotas, announced at the begin- ning of 2000, dropped throughout the tobacco industry. So did prices. A migrant laborer from Mexico harvests tobacco in Virginia. USDA photo by Ken Hammond. In 1999, Congress appropriated $328 million under broad farm disas- ter legislation to help compensate A huge challenge farmers for cuts made in tobacco “Tobacco is a crop that is non-per- quotas. USDA, under the Tobacco ishable, fairly easy to grow and harvest, Loss Assistance Program, administers you know the value per acre and you this one-time-only compensation know what you’re going to get paid for fund. In late June and early July, it before you even plant it. To replace farmers also received checks from that is going to be a big challenge,” their state governments through the Mansfield says. $5.15 billion Tobacco Growers Trust, But he believes some farmers do established by tobacco companies to Karen Calhoun (above) is making the switch to help cushion the fall for farmers. The aquaculture to offset a two-thirds reduction in her tobacco quota. Photo courtesy of Kentucky State checks can be spent any way a farmer University. Opposite page: University of Kentucky horticulture specialist Jim Mansfield (center) dis- sees fit, but many officials hope farm- cusses the fine points of growing eggplant, one of the vegetable crops seen as an alternative to ers will use the money to find an tobacco. Photo courtesy of Kentucky Dept. of Agriculture. alternative to tobacco.

20 September/October 2000 / Rural Cooperatives have options. They just need to be ing the past three years. She could raise local consumers. Because she’s the first willing to consider new crops, change more beef cattle, but that requires more in her area to begin an aquaculture how they are farming and work with land, and good farmland is something enterprise, the shrimp harvest generat- neighbors to market these new agri- that doesn’t come cheap. And she also ed a large amount of publicity, attract- cultural products. That’s a tall order, has limited access to labor. ing consumers eager to buy Kentucky- but one that was not lost on Karen Calhoun found her niche, with assis- bred “seafood.” The high demand for Calhoun. tance from the Kentucky Department her shrimp surprised Calhoun, who The Harrison County, Ky., tobacco of Agriculture and Kentucky State Uni- plans to lease the remaining tobacco and beef cattle farmer had her burley versity. “I’m trying new things. I am portion of her farm this year so she can quota cut by more than two-thirds dur- now in the farm-raised shrimp business, concentrate on beef cattle and shrimp, and some vegetables and pumpkins.

Writing on the wall Mansfield says shrimp production is just one example of aquaculture endeavors open to Kentucky tobacco farmers. The state also has projects and financial programs that support trout, catfish, paddlefish, minnows and bass production farms. “We have a progressive group of farmers. They see the writing on the wall that they’re going to have to be changing their business because they can’t just hang their hats on tobacco any more,” Mansfield says. Cooperatives and quasi-cooperative organizations are playing a large role in helping farmers make the transition to new crops. Working with the Kentucky Agriculture Department are groups such as the Commodity Growers Cooperative Association; the Kentucky Center for Cooperatives; Kentucky Network for Sustainable Agriculture; the Kentucky Farm Bureau and state Resource, Conservation and Develop- Where tobacco plants once grew, Jill Streck helps harvest shrimp, a new crop her ment councils (RC&Ds). aunt hopes will replace lost tobacco income. Photo courtesy of Kentucky State University. In fact, the Jackson Purchase RC&D Foundation received a state value- and it looks to have some real poten- added grant for $194,650 to pay for tial,” says Calhoun. two efforts: construction of a catfish To help spur the business, the state processing plant, to be owned and provided a $149,528 grant to the uni- operated by the newly formed Pur- versity to help build a shrimp hatchery chase Area Aquaculture Cooperative at its Frankfort research facilities. This Inc. (PAAC), and establishment of a infusion of money into the state’s agri- revolving loan fund for aquaculture cultural infrastructure enables Ken- infrastructure development. tucky farmers to buy seed stock from a The PAAC has a goal of producing nearby source rather than shipping it in 1 million pounds of fish within two from Texas and running the risk of years. The plant will create approxi- high mortality. mately 20 new jobs and is expected to Within an hour-and-a-half of har- need production from more than 100 vesting her first shrimp crop, Calhoun farmers who will convert low-produc- had sold out her entire crop directly to tion soil into fishponds to meet PAAC’s

Rural Cooperatives / September/October 2000 21 need for 2,000 acres of water. including beef and “This alternative to tobacco should hog production, rais- aid many local farmers and will also ing dairy heifers for help our grain farmers, as there will be export (especially for a need of 750,000 bushels of grain each the Mexico market), year for feed,” said Robert B. Johnson and grain production. of the Jackson Purchase RC&D. But in southeast- ern Kentucky, grain Other alternatives have potential production is limited In addition to aquaculture, Ken- due to a lack of suit- tucky tobacco farmers are switching to able land and storage greenhouse and nursery crops, willow facilities. Most of the trees, meat goats, beekeeping, grapes corn grown in the and wine production, Christmas trees area is fed to local and other fruits and vegetables. Still cattle. others are switching to more traditional Research conduct- farming endeavors, says Mansfield, ed at the University

Grower co-ops to coordinate marketing USDA photo

Faced with a cut of more than 50 percent in their growers’ cooperative. Owensboro farmers, together with tobacco quota, farmers of the Owensboro, Ky., area representatives from the state agriculture department responded by forming the West Kentucky Growers and the University of Kentucky, traveled to Florida and Cooperative (WKGC) to help them produce and market entered into an agreement with the Pioneer Grower sweet corn and other vegetables. Cooperative of Belle Glade. “These farmers have taken action to ensure the “Pioneer Growers Cooperative has corn growing strength of agriculture in their region as well as the con- in Florida and Georgia, and wants to become year- tinuation of their own agriculture-based economy with round marketers of sweet corn,” Mansfield said. the founding of this cooperative,” Kentucky Agricultural “There is a 10-week period through July and August, Commissioner Billy Ray Smith said at the opening of a however, when they are unable to produce sweet new farm market facility this spring. corn. This is where the West Kentucky Growers The Kentucky Department of Agriculture approved a Cooperative comes in.” grant for $100,000 to assist the West Kentucky Growers The Kentucky cooperative will grow 1,000 acres of Cooperative (WKGC). It now joins cooperatives already sweet corn that will be marketed by the Florida coopera- established in Georgetown, Horse Cave and Monticel- tive. A third of the corn will be tray-packed in Kentucky lo/Russell Springs, Ky. and sold as value-added corn. Two-thirds will be sold to “We think there is a major opportunity for Kentucky in retailers. the produce industry,” says Jim Mansfield, director of Patrick Rupinen of the Commodity Growers Coopera- Kentucky’s Division of Value-Added Horticulture/ Aqua- tive in Lexington, Ky., says that more and more tobacco culture. “Now is the opportune time to establish a net- growers are learning about the cooperative way of doing work of facilities with coordinated sales and value- business. Some are realizing that by pooling their added processing.” resources and their bounty, they are able to tap into The WKGC leases a large facility originally built by more retail markets. the J.C. Ellis family in Stanley, Ky. The plant has ample “And if farmers can sell directly through some of cold storage space, hydro-coolers, icemakers and a these retail channels, that will mean better prices for slush-ice injection unit suitable for produce grading, them,” Rupinen said. In addition to corn, the Kentucky packing and cooling. co-op is selling 150 acres of mixed vegetables grown by But the enterprise doesn’t stop there. WKGC is the Owensboro farmers, although a different distributor extending outside its borders to cooperate with another will market it. ■

22 September/October 2000 / Rural Cooperatives of Montana suggests that echi- explains Jim Lacy of the Kentucky ers’ markets through its Certified nacea — an herb which propo- River RC&D Council. “So more and Roadside Farm Markets program. nents claim has medicinal prop- more of our farmers are looking to erties — could be an alternative grow vegetables to supplement their Interest high in vegetable co-ops crop for tobacco farmers. Other income from the lost tobacco In Lewis County, Ky., the Vegetable research is focusing on the poundage.” Growers Association was formed in industrial hemp market. A farmers’ market was established November and had 18 farms sign on “We want to diversify and in Campton, Ky., to allow producers for the season. They received a grant stabilize the number of farm to sell their crops at a central loca- for just over $7,000 for vegetable pro- enterprises that generate tion. The state Farm Bureau has duction demonstration equipment used income for our farm families,” assisted in the formation of new farm- in connection with the farmers’ market.

End nears for tobacco warehouse co-ops

By Isaac J. Bailey glimpse of the price they can expect when they do. The The Sun News strong scent of tobacco — sweet to some noses, over- Myrtle Beach, S.C. whelming to others — permeates the entire place. Signs imploring farmers to keep their tobacco clean decorate For more than 30 years, Robert Boyd, a tobacco mar- warehouses. ket sales supervisor, has heard the rumors. For more than ``Whole families used to do it, so this was a big day,’’ 30 years, the anticipated demise of the auction-style said Sarah Strickland, who was in Loris Tuesday to sell tobacco sale has been exaggerated. But time may finally her aunt’s harvest. ``You had snow cones and saw every- be catching up to the event that has for decades been a body you knew. Now, they just sell and go.’’ celebration of bountiful harvests for farm families. The farmers sell when they feel a fair price has been Warehouses, such as Twin City Farmers Cooperative offered, and many sold tobacco in mid-August at the two Inc., where Boyd is supervisor, may become storing hous- warehouses in Loris. es, he said. Tobacco companies are signing more farmers At Brick Tobacco Warehouse, 157,421 pounds of to contracts, with which a given company pays farmers a tobacco were sold for $249,743.90, an average of $158.65 determined amount, rendering useless the time-honored per 100 pounds. At Twin City Farmers Cooperative Inc., tobacco auctions. 251,505 pounds of tobacco were sold for $400,986.30, an Companies want to better control the quality of crops average of $159.43 per 100 pounds. The total figures for and the harvesting process, Boyd said, and better farm Loris tobacco markets by Aug. 15 were: 408,926 pounds equipment has caused some of the changes. of tobacco sold for $650,730.20, an average of $159.13 per ``The number of farmers is decreasing every year,’’ he 100 pounds. said. ``And companies want to get more mileage out of Representatives of Dimon, Export Leaf, Standard Com- their tobacco.’’ mercial and J.P. Taylor tobacco companies walked up Next year, or maybe the one after, could be the last of and down rows of tobacco bidding on baled and loose- the auctions, but maybe the end will never come, Boyd leaf crop, sometimes pushing prices more than 20 cents said. above the minimum listed. They followed Steve Ivey, who ``For the entire 35 years I’ve been in this business, I has been an auctioneer for 25 years. heard that every day,’’ Boyd said Tuesday, sitting on an ``Dollar bill, dollar bill, dollar bill,’’ Ivey uttered in a 800-pound stack of baled tobacco during the opening of voice distinguishable only to the trained ear. A bale here markets in Loris. ``It may continue indefinitely. But it sold $170 per 100 pounds, a pile there sold for $160 per appears now it is closer than it’s ever been.’’ 100 pounds, another for $155 per 100 pounds. The scene of families gathering in the warehouses, Loris farmer Marcus Gerald has seen a lot in the 25 maybe eating hot dogs and drinking lemonade, on open- years he’s grown tobacco. While farming has been good ing day has been replaced by lone farmers checking to him, Gerald said, all the change has made him feel prices marked on small pieces of paper on the tops of uncertain. tobacco piles. ``You don’t know whether to keep investing in farming Some visit on days when they aren’t selling to get a or not,’’ he said. ■

Rural Cooperatives / September/October 2000 23 “Commercial vegetable farming is a Now the CGC is collaborating with Rupinen says. “You have to understand new challenge to our producers. A high the Kentucky Center for Cooperative that tobacco farmers didn’t really have level of management is required,” says Development to award $80,000 in to work together with other tobacco Lacy, of the Kentucky River RC&D. grants to conduct market feasibility farmers. Now that they’re looking at With a grant from the Wolfe County studies by groups interested in form- other crops, cooperatives are slowly Conservation District and the state ing cooperatives. The deadline is Sep- forming. It’s a new idea for them that agriculture department, the RC&D tember 2001. will come about as they realize that council received money to purchase “We have a lot of interest by some they can share equipment or facilities, mulching equipment so farmers could people — people who are willing to and do more coordination to get the begin converting to commercial veg- take a chance on something new,” job done.” ■ etable farming. However, if every tobacco farmer sells fresh produce, there’s the possibility of a glut in the marketplace that would drive down prices. Or Pursuing other uses for tobacco production could fail to adequately The Burley Tobacco Cooperative Association Inc., in Lexington, Ky., is par- target what consumers want to buy. ticipating in a pilot program with Star Scientific Inc. to experiment with low- That’s why more grower associations nitrosamine burley tobacco. One hundred farmers in central Kentucky and the are being formed, and these groups Owensboro area have entered into an agreement with Star to produce the are coordinating their production low-nitrosamine tobacco. and marketing with other coopera- Nitrosamines are thought to be one of the major carcinogens in tobacco. tives — even some outside their Farmers will have to prime the burley tobacco and cure it in special curing region, says Mansfield. (See related structures. If the experiment is successful, Star plans to expand its efforts and story, on page 22) include more farmers next season. “We have really been asking our- Farmers also have the option of converting from chemically intensive selves how we can form more market- tobacco production to organic production. Willing buyers exist, such as the ing alliances and partnerships to have Santa Fe Natural Tobacco Co. in New Mexico, but with a three-year resting better coordination of our value-added period before soils can be certified as pesticide-free, few growers have products,” Mansfield adds. explored that possibility. The Commodity Growers Coop- A versatile crop, tobacco leaves can be used to create ethanol or bio- erative (CGC) in Lexington methane, alternative energy fuels. Biomass tobacco, a minimal-nicotine crop addresses both the dependence of that is converted to fuel, not smoked, can thrive in poor soil and a wide range Kentucky’s farm families on tobac- of environments, is not labor-intensive and also requires minimal chemical co and the need for a local, sustain- treatment. Tobacco can also become animal feed. ■ able food system by providing market development assistance to farmers who are trying to diversify their crops. The CGC has already developed markets for family farm products — primarily in the horti- cultural area — by building a base for locally grown products. These efforts, due to the support of many partners, have greatly increased Kentucky’s commitment to diversification initiatives, says Patrick Rupinen, CGC administrative manager. “Kentucky is the No. 1 one burley tobacco producer, and we have 40,000 farm families out there producing it. We don’t want 40,000 burley tobacco growers to suddenly disappear. So there are a lot of us trying to help farmers USDA photo find alternatives,” Rupinen says.

24 September/October 2000 / Rural Cooperatives NEWSLINE

Florida’s Natural breaks sales record — again! Record sales for the 10th consecutive year have been announced by Florida’s Natural Growers fruit cooperative, based at Lake Wales. Sales for fiscal 2000 were up 10 percent from 1999. Photo courtesy Florida’s Natural Growers The record $605 million sales included an average of 1 mil- soared in 1996, the farmers sought to Co-ops Blend Feed Lines lion cases of juice, or about 3 million void the 1995 contracts they signed In a further consolidation of their gallons boxed and shipped per week, with Tri-Valley Cooperative and Great farm supply businesses, Land O’Lakes and 23 million cases of citrus processed Plains Cooperative. The farmers and Farmland Industries have formed during the year. alleged that the contracts outlined no a joint venture, called Land O’Lakes The cooperative exports to 40 coun- definitive delivery date and that they Farmland Feed LLC, to consolidate tries, primarily in Europe, Japan and the had the right to defer delivery. all aspects of their feed businesses. Caribbean. The booming sales are relat- The court disagreed, ruling that the Annual feed production will be about ed to growing popularity of not-from- farmers had knowingly entered into the 9 million tons and, based on 1999 concentrate (NFC) juice, said Steve contracts that were clear and unam- sales, will have initial sales of about Caruso, chief executive officer. In June, biguous. The court noted the contract $1.6 billion. The venture will be gov- Florida’s Natural completed a $7.2 mil- contained no provision for indefinitely erned by a management committee lion purchase of Sun Pac Foods’ citrus deferring delivery. Great Plains, having an equal number of representa- processing plant in Barrow. It can because of financial trouble, was forced tives from each cooperative. It will be process 5.5 million boxes of juice annual- to merge with Aurora Co-op Elevator. managed under contract by Bob ly into frozen concentrate. However, the The settlement money will be used to DeGregorio, vice president of the cooperative will gradually convert it to pay off any outstanding debts of Great LOL feed division. The venture will process NFC juice. The cooperative’s 12 Plains. Any remaining funds will be create North America’s largest live- grower organizations represent 1,100 divided among former customers. stock feed company. Products sold will grower-owners with more than 60,000 A similar case involving 10 farmers carry current trademarks and brand acres of citrus. who reneged on their contracts in 1996 names used by each cooperative. with North Central FS, in Hampton, Neb. court backs co-ops on hedge- Iowa, is being appealed to the Iowa USDA fruit buys help TVG to-arrive contracts Supreme Court. The Franklin County California’s Tri Valley Growers The Nebraska Supreme Court has District Court awarded the cooperative (TVG), currently operating under decided unanimously that eight $3.18 million in damages. Both parties Chapter 11 bankruptcy protection, got Nebraska farmers who reneged on agreed to the amount so it could form a boost in the form of $9.1 million in hedge-to-arrive grain marketing con- the base of the appeal case. Claims canned fruit purchases by the U.S. tracts in 1996 will have to pay a total of against another farmer were dismissed Department of Agriculture. The cans $2.3 million in damages to two cooper- after he and North Central reached a of mixed fruit and peaches were ear- ative grain elevators. When grain prices settlement. marked for USDA’s domestic food

Rural Cooperatives / September/October 2000 25 assistance programs. The cooperative Electric Cooperative Association and is buying only 70 percent of its mem- Nationwide Insurance. Glickman was bers pear crop, 85 percent of their cited for his work in promoting and peaches and 33 percent of their toma- securing resources for cooperative toes due to an unexpected reduction in development. Under his leadership, the its operating loan. U.S. Department of Agriculture has USDA also has committed to buy increased funding for the Rural Coop- tomatoes from TVG to ease the finan- erative Development Grants program, cial strain on the cooperative’s 500 thus providing critical help to groups to grower-owners. TVG’s three tomato promote and support new and existing canneries remain shut under the bank- cooperatives. ruptcy protection program. In a related development, California Southern States expands aquaculture Canning Peach Association’s tree- business with NMFS fisheries loan pulling program has removed 1,000 With an eye toward a greater pres- vested. Aquaculture — the controlled acres of peach trees from production. ence in the food industry, Southern cultivation of finfish, shellfish and Members were paid $160 per ton for States Cooperative (SSC) at Richmond, aquatic plants — will have to take on an their average production, with pay- Va., has received a $10 million loan to expanded role if demand is going to be ments capped at $3,500 per acre. The expand its presence in the aquaculture met in the next decade. aim was to prevent a glut of peaches on business. The loan came from the SSC currently has 28 independent the market, particularly when TVG, National Marine Fisheries Service tilapia grow-out facilities in operation, the intended fruit recipient, has cut (NMFS), an agency of the U.S. under construction or on the drawing production. Department of Commerce’s National board in southeast Virginia, northeast The Federal Land Bank Association Oceanic and Atmospheric Administra- North Carolina and southern Georgia. of Yosemite is providing $8 million in tion. Program Director Brian Squyars SSC’s goal is to expand the program’s low-interest loans to its borrowers who said SSC “will use most of the money availability beyond the initial locations as also are TVG members and to other to help farmers finance state-of-the-art business conditions permit. Though its TVG members who qualify for a loan. closed systems for tilapia production Farmer’s Catch Division, SSC completed TVG will use its $270 million that we have been developing for sever- the development work Aquaculture can finance package to cover part of the al years. Construction of a fingerling help protect farm income through crop $400 million it owes to more than 1,000 nursery and a processing plant will diversification and can supplement creditors, with the rest used to process account for the rest.” incomes threatened by low commodity fruits and vegetables this season. Tilapia, also known as St. Peter’s prices, plummeting demand for tobacco fish, is a popular, high-protein, low-fat and weather-devastated crop yields. Glickman named ‘Honored fish known for its mild, white-meat fil- Participating farmers will purchase a Cooperator’ lets. NMFS Director Penny Dalton said 6,000-square-foot production facility National Cooperative Business the SSC program was a way to encour- that is constructed on a five-acre farm Association age environmentally sound aquaculture. plot. Producers supply labor (about two has awarded “About 30 percent of the seafood the hours per day) and utilities and are paid U.S. Agricul- world currently consumes is produced part of the wholesale farm-gate price, ture Secretary through aquaculture. We are looking based on individual contract terms. SSC Dan Glick- for ways to encourage U.S. production provides the fingerlings, feed, technical man its hon- that expands sources of healthy seafood expertise, training, grow-out facilities, ored coopera- and also could help ease the strain on insurance and financing plus transporta- tor award. wild stocks.” tion, harvesting and marketing. Participating The world fish catch in oceans and Agriculture Secretary sponsors were inland waters has increased more than N.Y. grape co-op enters marketing pact Dan Glickman, with CoBank, five-fold since 1950 and reached 93 Westfield Maid Grape Cooperative Under Secretary for Land million tons by the mid-1990s. That at Portland, N.Y., has signed a 25-year Rural Development Jill marketing agreement with Cliffstar Long Thompson looking O’Lakes, demand will rise to an estimated 115 on, receives the Honored Kansas Coop- million tons annually by 2010. Howev- Corporation. All Concord grapes con- Cooperator award. Photo erative Coun- er, only a small increase in the wild har- tracted with Westfield will be delivered courtesy NCBA cil, Federa- vest is predicted because many of the to Cliffstar, which dominates the pri- tion of world’s major fishing grounds are vate-brand segment of the market. Its Southern Cooperatives, National Rural stressed and stocks of fish are overhar- sales have almost doubled in the past

26 September/October 2000 / Rural Cooperatives five years. The president of the 60-year- of a pair of artificial insemination (AI) Thorgan, Select Sires general manager. old cooperative said the corporation’s cooperatives. Sire Power Inc., “We will be able to lower our collective “willingness to commit to both the 25- Tunkhannock, Pa.., has merged with costs and, in turn, increase returns to year contract and to annual price nego- Virginia-North Carolina Select Sires to our member patrons.” The Select Sires tiations will be important in stabilizing become Select Sire Power, part of the federation will offer a 40-percent the Concord grape market.” The West- Select Sires federation based at Plaines, expansion in sampling capacity, using field cooperative is one of the oldest in Ohio. The merged cooperative serves 360 bulls per year, believed to be the the Lake Erie grape belt. producers from New England and New pool largest in the United States. York and along the east coast to Flori- Select Sire Power formed da. Merger talks began five years ago. Lamb co-op conducts equity drive Higher member returns brought on “With the fiscal efficiencies we gain, Having completed a business plan by reduced duplication and improved Select Sires will be the most price-com- and identified markets for premium markets are expected from the merger petitive A.I. organization,” said David and natural lamb, Dakota Lamb Grow- ers Cooperative embarked on an equity drive in three states in September. The cooperative will hire a chief executive officer and begin selling lamb products in niche markets. The cooperative attracted 126 grower-members from North and South Dakota, Minnesota and Montana when it formed in April of 1999. Each initially invested $100 to become members. North Dakota’s Agricultural Products Utilization Com- mission, area banks and other organizations also have made contributions.

NorthStar expands services NorthStar (dairy herd improvement) Cooperative Inc., at Lansing, Mich., will expand services to new Wis- consin members following a favorable merger vote by the Fox Valley DHI Co-op, Appleton, Wis. Mike Bills, NorthStar general manager, said the majority vote “showed their strong support in these organizations becoming more value-driven. We feel this continues to build on our long-term strategic vision of being a total service provider to our owners.” Fox Valley had about 300 members and operated a milk analysis lab which will now serve NorthStar customers. Fox Valley customers will be issued one share of voting common stock or 20 shares of non-voting preferred stock. To be eligible “Wags and Whiskers” is a new publication of Tennessee Farmers’ Cooperative, for either stock offering, a Fox Valley which will provide consumers with information on pet-care products, from flea member must use the association’s ser- control to pet food. About 25,000 copies are being printed annually to be used as vices, including DHI testing, for another an in-store sales tool, and for sales staff to leave with farmers when making house year. Those qualifying will be issued stock calls. The inaugural issue, above, is 31 pages, but next year’s edition should be on June 1, 2001. Meanwhile, BioStar considerably larger. Research, a subsidiary of NorthStar, is working to develop a complete animal health testing program.

Rural Cooperatives / September/October 2000 27 NorthStar is one of 10 regional ration and Midwest Agri-Cooperatives. Olympics Committee, hosting the cooperative members of the Select The two marketing cooperatives are 2002 winter Olympic games, said Dia- Sires federation. In another develop- owned by Minn-Dak and other coopera- mond products would figure promi- ment, North Star has been approved by tives. Krabbenhoft has appointed a com- nently in the recipes five dozen chefs the American Embryo Transfer Associ- mittee of directors to search for perma- will use in preparing meals for the ation to export embryos internationally, nent president candidates. athletes, sponsors and spectators. with no restrictions. Kelley succeeds Frozen dough co-op boosts Webb as production Growmark An industrial line of equipment president installed at Value-Added Products, Glenn Webb, lva, Okla., has increased its produc- chairman of the tion capacity from 3,000 pizza crusts board and presi- per day to 4,400 per hour. Plans are dent of Growmark being made to add a third shift by the Inc., Bloomington, end of the year and to increase Ill., and a strong employment to 70 people. The advocate of coop- agribusiness is owned by 750 wheat erative education, producers and investors and uses has retired, ending Glenn Webb (left) receives Cooperative Hall of Fame Award from wheat for the pizza crusts. his nearly 20-year Growmark CEO Bill Davisson at the National Press Club in Washington, D.C. Photo curtesy of NCBA tenure as a Grow- Pasta plant lender named mark officer. He Farm Credit Services (FCS) of will continue to North Dakota has been named as lead remain active on lender for Semolina Specialties, a coop- the boards of erative planning to buy a pasta plant at CoBank and Crosby, N.D. The cooperative will Archer Daniels make specialty shaped and flavored pas- Midland. In April, ta. FCS will disseminate information, Webb was induct- prepare papers and maintain open lines ed into the Coop- of communication between the compa- erative Hall of ny and lending agency. FCS has been a Fame. lender for other value-added coopera- Dan Kelley, a tives throughout its operating territory. grain farmer from Half of the needed funds will come Normal, Ill., was from member stock purchases and the elected to succeed Diamond of California walnut products were a popular item on the rest from local lenders, with help from Webb as chairman athletes’ menu at the Sydney Olympics and will also be featured in state and federal government agencies. and president for a foods served at the upcoming winter games in Salt Lake City. USDA Rural Development is providing one-year term. an 80-percent loan guarantee. Kelly has been on Diamond buys Berner nut the board since 1995 and was one of Caspers named interim leader at Diamond of California, the Stock- two vice chairmen for the past two Minn-Dak ton-based walnut marketing coopera- years. He earlier served as a director of Minn-Dak Farmers Cooperative has tive, has purchased Berner Nut Co. of Evergreen FS Inc., a Growmark mem- appointed Steve Caspers as interim pres- Illinois. The purchase is expected to ber company, and as a director at First ident following the retirement of Larry add $50 million to the cooperative’s Farm Credit Services of Bloomington, Steward, the cooperative’s president and fiscal 2001 sales. The pact makes Dia- and as chairman of Agribank FCB at St. chief executive officer since 1990. mond the nation’s leader for in-shell Paul, Minn. He has also been active in Caspers has been executive vice presi- nut sales to consumers. Meanwhile, the Ag Guild of Illinois, a group of dent and chief financial officer since plenty of Diamond’s walnuts were farmers seeking ways to capture added 1985. He joined Minn-Dak in 1974 as an present at the summer Olympic value from the commodities they pro- accounting supervisor. He is also presi- games in Australia, just as there will duce. Kelley farms 2,080 acres. dent of Minn-Dak Yeast Co. and serves be at future Olympic games through Growmark showed a dramatic busi- on the boards of United Sugars Corpo- 2004. A spokesman for the Salt Lake ness turnaround during fiscal 2000. It

28 September/October 2000 / Rural Cooperatives will pay $10 million in cash and stock tives, Dairy Farmers of America and patronage to its member co-ops. Esti- Land O’Lakes Inc., are among initial mated after-tax earnings were $10 mil- investors in the new Internet lion, a major improvement on the 1999 website called Dairy.com, to be loss of $9.9 million, caused by the used for trading milk within depressed farm economy and the low- the dairy industry. The est commodity prices in 20 to 30 years. business-to-business The change was attributed to cutting exchange is expected to overhead costs by $13.8 million since lower costs by bringing 1998, as well as to operating improve- widespread buyers and ments and increased sales of $180 million to reach $1.3 billion. The cooperative’s business strategy is to increase sales $500 million over the next five years. Toward that goal, Grow- mark has expanded with agronomy and energy sales beyond its traditional territory of Illinois, Iowa, Wisconsin and Blue Anchor closing operations Ontario into Nebraska, Kansas, Indiana, One of California’s oldest fresh fruit cooperatives, Blue Anchor Ohio and Michigan. Grain division vol- Inc. at Sacramento, is closing its operations. It cited a declining ume was up 5.6 per cent, focusing on grower base, dwindling fruit volume and continued consolidation specialty programs aimed as both pro- pressure on the retail and supply side of the produce industry. cessing and export markets. For the 14th Blue Anchor, which will shut down within a few months, was formed consecutive year, MID-CO Commodi- in 1901 as the California Fruit Exchange by several Sacramento tree fruit ties, a hedging and market advisory ser- growers. The closure will not affect Mayflower TCLA, of Exeter, Calif., vice for member companies, will pay a fruit marketing cooperative that had an alliance with Blue Anchor. $625,000 in patronage refunds based on increased earnings of $974,000.

Riceland completes trade with Iraq sellers together and reducing paper- DFA returns $20 million in equity Riceland Foods Inc., at Stuttgaart, work. The exchange is slated to open A $20 million equity-retirement Ark., sold 1 million bushels of rice val- April 1, 2001, with live trading of milk, package — including $10 million to ued at $5 million to Iraq in a food-for- cream and other commodities. Although fully retire the equities of 9,300 inac- crude exchange. It was the first Ameri- the founding members are financing the tive members of predecessor coopera- can rice sent to Iraq since international startup, the exchange will be open to tives — has been announced by Dairy sanctions were imposed a decade ago. any producer or dairy industry company. Farmers of America (DFA), the nation’s The cooperative recently shipped 20 The group is looking for a chief execu- largest dairy cooperative. Those equi- tons of rice to Guantanamo, Cuba, to tive officer for the business. A headquar- ties covered marketings with the coop- help residents suffering from a ters site has yet to be selected. eratives before 1991. DFA — created drought. Dick Bell, Riceland’s presi- by the consolidation of four regional dent and chief executive officer, said Calif. co-op/community parley slated dairy marketing cooperatives — began that in addition to helping people with The University of California’s Cen- operating on Jan. 1, 1998. a food shortage, the shipment will help ter for Cooperatives will sponsor its Charles Beckendorf, chairman of the the cooperative if trade restrictions annual cooperative and communities DFA finance committee and a dairyman against Cuba are lifted. conference Nov. 17-18 at Preservation from Tomball, Texas, said the new coop- In other Riceland news, K. Daniel Park in Oakland. erative wanted to return equity of former Kennedy has been named the new exec- The program is aimed at both members in a timely manner so that pre- utive vice president and chief operating experienced and new cooperators sent equity is supplied by active mem- officer. He will focus on the day-to-day who will share cooperative success bers. The board’s modified equity plan operations of the cooperative. Most stories. Conference topics will cover calls for all inactive accounts to be paid recently he was vice president of North director education, accredited legal in the 10th year following last activity in American markets at Monsanto Co. courses and innovations in coopera- the account. Those who last shipped tive development. For further infor- milk in 1991 can expect full payment of LOL, DFA join Dairy.Com mation, check the center’s web site: equity accounts by next August. Those Two major dairy marketing coopera- http://cooperatives.ucdavis.edu. with accounts less than 10 years old may

Rural Cooperatives / September/October 2000 29 apply for early redemption at a discount- of Agriculture has purchased 5.5 mil- this fall to stabilize prices. A spokesman ed rate. Last year, DFA’s 24,000 dairy lion pounds of cranberry sauce from for the 804-member Ocean Spray farmer-members in 45 states marketed Ocean Spray Cranberries cooperative cooperative said the real pressure will 43 billion pounds of milk which generat- at a cost of $2 million. The cranberry be on the cooperative to increase ed sales totaling $7.5 billion. sauce will be distributed to the nation’s demand through its own efforts. Prices schools, food banks and other pro- paid to growers have plummeted to $11 Ocean Spray gets boost from USDA grams that feed the poor. per barrel from $60 two years ago. In an effort to bolster a cranberry In the face of over-production, industry sagging under crop surpluses USDA has ordered growers to cut pro- Sunkist sells Argentine lemons and falling prices, the U.S. Department duction or dump 15 percent of the crop Sunkist Growers has agreed to market about 400,000 cartons of Argentine lemons in the United States this year. The fruit is coming from two principal growers who have given Sunkist exclu- sive marketing rights in the United A Creed for Cooperative Members States, said Sunkist President Victor Lupinacci. Al Williams, chairman of Editor’s note: This set of guidelines outlines how members should react to their the 6,500-member cooperative, said the cooperatives. It was popularized by the late Dr. Joseph Knapp in 1963 while purchase was essential for Sunkist to administrator of USDA’s Farmer Cooperative Service. It is appropriate to review continue meeting challenges and them again during this year’s National Co-op Month observance. Consider sharing opportunities in the global market. The California-Arizona citrus industry will this creed with members in your cooperative’s publication: produce an estimated 20 million cartons of lemons in the U.S. this year. • I will keep myself informed on the affairs, problems, and methods of Allied Seed buys Agribiotech my cooperative so as to be an intelligent and constructive member. Future supplies of legumes, forages • I will exert my influence to see that my cooperative has the best possi- and turfgrasses for cooperative mem- ble directors and officers in terms of general competence and integrity. bers of Southern States, Tennessee Farmers and Agway Inc., have been • I will faithfully support my cooperative with my patronage and encour- assured by the purchase of certain age my friends to use it, because in volume there is strength. assets of a bankrupt Nevada firm. The cooperatives and a group of former • I will help build and maintain my cooperative by contributing my share employees of Allied Seed Cooperative of essential capital. recently formed Allied Seed LLC. It purchased seed processing facilities in • I will insist that full information be provided me on the operations and Idaho and Wyoming owned by financial condition of my cooperative, based on accurate accounting Agribiotech Inc. of Henderson, Nev. and proper auditing. These facilities can handle about 230 million pounds of product annual- • I will not expect miracles from my cooperative, but I will insist on ly. Allied Seed President Dave receiving from it honest values and efficient services. McWilliams says research is constantly developing new varieties of forages and • I will refrain from asking my cooperative to give me favors in the form turf seeds. Although new equipment of credit or other special services. will be installed in the Idaho plant, Allied Seed is already operating. • I will take pride in my cooperative and use my influence to see that it assumes a fair share of community responsibilities. Potato growers OK dividend • I will stand by my cooperative in its days of adversity and help protect The board of directors of Maine Potato Growers (MPG) Inc., has it from weaknesses which come from prosperity. approved a patronage dividend payment • I will always remember that my cooperative is ME, and others like of $200,000 to its members. They will ME, and that its behavior is as reflection of MY behavior. receive a dividend equal to 1.4 percent of their purchases from MPG during fiscal 2000. The dividend will be made in a combination of cash and Class A

30 September/October 2000 / Rural Cooperatives stock. Dividend payments of $300,000 shrimp. The Farmland Catfish cooper- ing rights to market about one-fourth will be paid to shareholders and grower- ative servers catfish growers in the Mis- of the fed cattle sold in Texas each year. members. Formed in 1932, the coopera- sissippi Delta. The joint venture will Facing an Oct. 1 deadline, the cooper- tive serves the needs of Maine potato operate out of a Farmland Catfish plant ative planned to have 1.5 million head of and blueberry growers. at Hollandale. Farm Fresh has four cattle enrolled and to begin marketing other plants in the Delta. soon thereafter. Organizers recently dis- Catfish processors merge cussed their marketing plans to gain high- Two catfish processors looking for Consolidated Beef forming er prices with the Nebraska Cattlemen’s more market power have merged to Feedlots and individual producers Feedlot Council. Traditional cattle sales form Fresh Aquaculture LLC, to be from Texas, Oklahoma and New Mexi- have only generated average prices, Hitch headquartered in Hollandale, Miss. co have agreed to join the new Consol- said, even for quality beef cattle. He said Farm Fresh Catfish Inc. merged with idated Beef Producers, a marketing the cooperative seeks to enroll members Farmland Catfish Processing Inc. John cooperative based at to improve their bargaining power by Gentry, Farm Fresh chief executive, Amarillo, Texas. Chairman Paul selling more cattle instead of smaller lots. will be president of the new company. Hitch, Guymmon, Okla., said the He said the cooperative wanted to get the The company may also consider raising group seeks to match the market clout best price by matching cattle to specifica- other species of farm-raised fish or of the four major meatpackers by secur- tions meatpackers prefer. ■

AGP ad wins plaudits: This advertisement developed by Ag Processing Inc, an Omaha- based soybean processing cooperative, won first place honors from the Cooperative Communicators Association for the powerful, succinct message it relates regarding the “cooperative difference” of member-owned businesses.

Correction: The article on the 65th anniversary of the Rural Electrification Administration in the July/August issue said that the REA was initially part of USDA. Actually, the executive order, signed on May 11, 1935, created REA as an independent agency. When the permanent legislation was passed into law May 23, 1936, it continued the REA as an independent agency of the federal government. REA was placed under USDA in 1939 as a result of the Government Reorganization Act of 1939. With the advent of World War II, REA headquarters was moved to St. Louis in 1942.

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