FARMERS, COOPE §t v^ES, AND USDA 'ai ISTORY OF AGRICULTURAL ¿; OPERATIVE SERVICE -< -3Ç ■ FARMERS, COOPERATIVES, AND USDA A HISTORY OF AGRICULTURAL COOPERATIVE SERVICE BY WAYNE D.RASMUSSEN Agricultural Information Bulletin 621 July 1991 Preface July 2, 1991, marks the 65th anniversary of passage of the Cooperative Marketing Act of 1926. This act recognizes cooperative marketing as an implicit part of the Nation's policy prescription for assisting producers of agricultural products to deal with issues facing them. Some of the momentum supporting this approach was altered in the Depression of the 1930's when farm programs were initiated to address a number of the same problems. Now that farm program assistance is being reduced for budget austerity reasons through the 1985 and 1990 farm bills, focus is once again emerging on self-help efforts by producers through their cooperatively owned businesses as a principal means to address farm problems. Furthermore, applications are being explored to other dimen- sions of rural America as a means of enhancing the quality of rural life. The Department's role in assisting producers and other rural residents to engage in self-help activity is worth documenting at this juncture. It demonstrates how a relatively small program, by Federal standards, has had a significant impact on improving farm incomes and market effi- ciency. Cooperation takes on an increasingly important role as inde- pendent farmers face a marketplace characterized by more integration, coordination, and interdependence. Readers should glean from this book how a governmental service-ori- ented program can augment a stronger and more prosperous produc- tion agriculture and rural America. This study was made possible by the cooperation of many staff mem- bers of Agricultural Cooperative Service, particularly Randall E. Torgerson and Gene Ingalsbe, and other members of the cooperative community This book is dedicated to them. Foreword Help supporting self-help is perhaps the finest and most constructive phi- losophy for governmental assistance. The spirit of this form of assistance to farmers was captured in the Cooperative Marketing Act of 1926, which formalized the U.S. Department of Agriculture's service to cooperatively owned businesses throughout agriculture. Through the act, the United States encourages and supports self-help with a program of research and technical, advisory, and educational assistance. This facilitating role con- trasts sharply with governmental programs in other countries that are reg- ulatory in nature with audit and other oversight responsibilities. This book by Wayne Rasmussen, renowned agricultural historian, cap- tures three essential elements in the evolution of cooperation among farm operators. The first is the development of laws encouraging coop- eration among producers of agricultural products as a major and endur- ing farm policy prescription for solving farm problems. The second is the nurturing and growth of the Department's cooperative program under various organizational arrangements including its placement in the Federal Farm Board and Farm Credit Administration before it was given USDA agency status in 1953 during the Eisenhower Administration. The third is its focus on cooperatives as off-farm extensions of farm firms, and how cooperatives continue to require assistance with their problems after more than 100 years of structural change and growth. Cooperation is often rooted in the structural relations of farmers and other rural residents as they face market forces. As such, cooperative action is a pragmatic response that seeks to correct a disparity in mar- keting power, but at the same time strives to enhance market efficiency and coordination. In the 65 years since passage of the Cooperative Marketing Act, the business community has learned to appreciate and respect the role and uniqueness of the cooperative method of doing business, rather than viewing it as social reform foreign to this coun- try. In fact, the cooperative form is used by many businesses today. Farm operators using cooperatives have achieved parity in many cases with other market channel participants and become leading marketers of goods and services in some sectors, and are considered the primary business form in many rural communities. This progress from an idea, and part of a movement advocated by successive farm organizations in the early years, indicates the presence today of a mature and sophisti- cated business system with local, regional, and national levels and an emerging international dimension. New opportunities confronting rural America challenge cooperatives to respond. One is the globalization of the marketplace and the chal- lenges multinational firms bring to cooperatively owned businesses. A second is industrialization of the farm production process that chal- lenges the role of independent farm operators. A third is the restruc- turing of rural America and the opportunity to extend self-help to many services needed in rural communities such as health care, communica- tion networks, housing, utilities, and other applications. Considerable room exists for cooperative growth. Market shares repre- sented by cooperatives are rather modest compared to those held by investor-oriented firms in this country and cooperatively owned agri- cultural businesses in other countries. This book is about USDA's primary program devoted to the use and advancement of cooperatives among producers. This program serves as a model that should be carefully studied and evaluated. Many feel it has broad applications to developing countries, and even to other indus- trialized nations. This book demonstrates that cooperation is an idea that works. Cooperation is a powerful self-help tool forged on the hearth of eco- nomic democracy. When cooperatives are a dimension of a capitalistic economy, markets perform more efficiently and effectively in serving the public. Randall E. Torgerson Administrator Agricultural Cooperative Service, USDA Washington, DC May 1991 Contents Chapter I — AGRICULTURAL COOPERATIVES: WHAT AND HOW 1 Defining Agricultural Cooperatives 1 Definitions 1 Principles 3 Types of Agricultural Cooperatives 4 Early Cooperation 5 Production Cooperatives 6 Marketing Cooperatives 10 Purchasing Cooperatives 10 Service Cooperatives 12 Mixed-Type Cooperatives 12 Cooperatives in Other Nations 12 Need for Cooperatives 13 Role of Cooperatives 16 Maintaining Competition 16 Quality Standards 16 Market Power 17 Small and Isolated Farmers 17 Community Improvement 18 Cooperatives Today 18 Role of Government 19 Agricultural Cooperative Service Vision 19 Chapter II — AMERICAN COOPERATION IN THE BEGINNING 21 From Settlement to the Civil War 21 American Indian Agriculture 21 Jamestown and Plymouth 22 Other Pioneer Efforts 22 Butter and Cheese Cooperatives 24 Civil War and Agricultural Revolution 26 National Grange 26 Cooperative Coopers of Minneapolis 28 Farmers Alliance 29 National Farmers Union 32 American Society of Equity 34 Commodity and Independent Cooperatives 35 Fruit and Vegetable Marketing Associations 38 A Continuing Thread 41 Chapter III — EARLY FEDERAL WORK WITH COOPERATIVES 43 Benign Neglect 43 Report Never Published 44 Country Life Commission 45 Secretary Wilson Acknowledges Cooperatives 47 Research Work Begins 47 Congress Authorizes Marketing Research 50 Office of Markets Established 51 Rural Organization Service 51 Department Consolidates Cooperative Work 52 Federal Farm Loan Act 54 Postwar Reorganization of Cooperative Work 56 CHAPTER IV — FARM DEPRESSION, COOPERATIVES, AND CAPPER-VOLSTEAD 59 Farm Depression 59 Building Farmer Cooperatives 60 Extension Service 60 American Farm Bureau Federation 60 Sapiro and Commodity Marketing 62 Cooperatives and Antitrust 66 Need for Legislation 66 Forces for Legislation 67 Capper-Volstead Act of 1922 71 Provisions for Producers—and Consumers 72 Early Organizational Effects 72 Continuing Interpretation and Impact 74 Chapter V — COOPERATIVE MARKETING ACT OF 1926 79 Division of Agricultural Cooperation 79 Pressure for Legislation for Cooperative Work 82 McNary-Haugen Proposals 82 Coolidge Agricultural Conference 83 Cooperative Marketing Act of 1926 85 House of Representatives Action 85 Senate Action 87 Purpose and Provisions 90 Division of Cooperative Marketing Organizes 92 Programs of Service, Advice, and Research 94 Support Base Is Laid 100 Chapter VI — FEDERAL FARM BOARD AND FARM CREDIT ADMINISTRATION, 1929 - 1953 101 Federal Farm Board 101 Agricultural Marketing Act of 1929 102 Division Organization Within Farm Board 105 Division Programs Under Farm Board 105 Assessing Farm Board Years 108 Farm Credit Administration 110 Cooperative Marketing Division Reorganizes 111 Cooperative Bank Division 115 Cooperative Research and Service Division 118 Postv^^ar Planning 127 Research and Service, 1946-1953 129 USDA and Farmer Cooperatives, 1939-1953 133 Chapter VII — INDEPENDENCE, CHANGE, AND CHALLENGE — 1953- 1969 135 Agriculture's Changing Face 135 Independence for FCA and ECS 136 Background of Conflict 136 Farn\ Credit Act of 1953 138 Secretary Benson and Cooperatives 139 Farmer Cooperative Service Organizes 142 Administrator Knapp 142 Agency Mission 143 Organizational Structure 143 USDA Location 145 Clientele Relationships 145 Challenge of the 1950's — Productivity Revolution 145 ECS — Its First Year 147 Research on Integration 151 Cooperatives and Management Improvement 155 Cooperative Use Grows 156 Decade of the 1960's — USDA Support Peaks 157 Secretary Freeman and Cooperatives