FARMERS, COOPE §Tv^ES, and USDA

FARMERS, COOPE §t v^ES, AND USDA 'ai ISTORY OF AGRICULTURAL ¿; OPERATIVE SERVICE

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■ 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 efficiency. Cooperation takes on an increasingly important role as independent farmers face a marketplace characterized by more integration, coordination, and interdependence.

Readers should glean from this book how a governmental service-oriented program can augment a stronger and more prosperous production agriculture and rural America.

This study was made possible by the cooperation of many staff members 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 philosophy 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 regulatory 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 cooperation 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 marketing 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 country. 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 challenges multinational firms bring to cooperatively owned businesses. A second is industrialization of the farm production process that challenges the role of independent farm operators. A third is the restructuring 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 represented by cooperatives are rather modest compared to those held by investor-oriented firms in this country and cooperatively owned agricultural 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 economic 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 160 Cooperative Month 163 Administrative Changes 163 Administrator Angevine 165 Agricultural Fair Practices Act 168 Chapter VIll — GOOD TIMES FOR FARMING: THE 1970's 170 Changing Administrations and Organizations 171 Secretary Hardin and Cooperatives 173 Secretary Butz and Cooperatives 173 Secretary Bergland and Cooperatives 174 Administrator Thor 175 Administrator Knutson 177 Administrator Torgerson 178 From FCS to ESCS to ACS 184 Strengthening Cooperatives in the r970's 190 Identifying Cooperatives' Problems 190 Competition, Antitrust, and Taxation 193 Mergers, Consolidations, and Integration 196 Renewed Bargaining Emphasis 198 Encouragement for Exports 201 Toward a New Decade 203 Chapter IX — FARM DEPRESSION AND RECOVERY: THE 1980's 205 Administration: Cooperative Support Cools 205 Fight for ACS Funding 205 Secretary Block and Cooperatives 208 Secretary Lyng and Cooperatives 211 Secretary Yeutter and Cooperatives 212 Agricultural Cooperative Service Organizes 212 Location in the Department 213 Cooperative Program Review 215 Organizational Changes 216 Helping Cooperatives Survive a Depression Decade 219 Identifying Problems and Programs 220 Educational Emphasis 220 Capital Formation and Finance 223 Mergers and Consolidations 225 Continuing Attacks on Capper-Volstead and Cooperatives 226 Marketing: The Export Opportunity 229 Helping Producers Organize Cooperatives 232 Recovering from the Decade 235 CHAPTER X — AGRICULTURAL COOPERATIVE SERVICE: TODAY AND TOMORROW 238 A Future for Cooperatives 239 ACS and the Cooperative Community 242 National and State Cooperative Associations 244 Individual Cooperatives 246 Working with Federal Agencies 252 USDA Partners 253 Farm Credit System 253 Rural Development Opportunities 254 State Universities and Experiment Stations 255 Educating Industry and the Public 258 Tomorrow's Problems 258 Structuring for Change 259 Making the World Connection 261 Looking to the Future 261 Broadening the Mission 262 Farmer-Driven Farm Policy 263 Greater Research Emphasis 263 Education on Cooperatives 263 And a Few Final Thoughts 264 LITERATURE CITED 266 APPENDIX A — Agricultural Cooperative Service: A Chronology 277 APPENDIX B — Capper-Volstead Act of 1922 282 APPENDIX C — Cooperative Marketing Act of 1926 284 APPENDIX D — Agricultural Fair Practices Act of 1967 287 APPENDIX E — Number of Farmer Cooperatives, Memberships and Farms 291 APPENDIX F — Farmer Cooperative Business Volume 292 Agricultural Cooperatives: What and How

cooperative, n. (1883) An enterprise or organization owned by and operated for the benefit of those using its services. — V^ebster's Ninth Collegiate Dictionary

Agricultural Cooperative Service (ACS) is responsible for carrying out programs Congress established by the Cooperative Marketing Act of 1926. In passing this law, the earlier Capper-Volstead Act, and the Agricultural Marketing Act of 1946, Congress recognized that agricultural cooperatives were beneficial to the economic and social organization of the Nation. It also recognized that an agency such as ACS was, like cooperatives, in the national interest. Defining Agricultural Cooperatives The definition of an agricultural cooperative is of more than academic interest. Whether a cooperative meets a particular definition decides whether it is entitled to particular benefits and subject to specific restrictions under Federal and State laws. Defining a cooperative can also help the public determine if an organization is a true cooperative established to benefit its members and society. At the same time, definitions reflect, at least to some extent, how cooperatives have changed over time.

Definitions. Cooperatives have been defined in many different ways. The definition dating from 1883, used by Webster's Collegiate Dictionary, is both clear and valid. When Congress passed the Capper-Volstead Act in 1922, sometimes called the Magna Carta of cooperation, it did not use the word ''cooperatives'' but spoke of ''associations" of persons producing agricultural products. A definition developed by Farmer (now Agricultural) Cooperative Service in 1965 incorporated what was considered the essential principles of a cooperative:

''A cooperative is a voluntary contractual organization of persons having a mutual ownership interest in providing themselves needed service(s) on a nonprofit basis. It is usually organized as a legal entity to accomplish an economic objective through joint participation of its members. In a cooperative, the investment and occupational risks, benefits gained, or losses incurred are shared equitably by its members in proportion to their use of the cooperative's services. A cooperative is democratically controlled by its members on the basis of their status as member-users and not as investors in the capital structure of the cooperative'' (Savage and Volkin).

''A cooperative/' as defined by ACS in 1988 in a study requested by the United States Senate, ''is a user-owned and controlled business from which benefits are derived and distributed equitably on the basis of use" (FC, Jan. 1988, p. 10). A more complex definition, published in 1989, defined a farmer cooperative as one that meets the following requirements, which follow closely the requirements listed in the Capper-Volstead Act for associations: "(1) Membership is limited to persons engaged in the production of agricultural and aquacultural products and associations of such producers; (2) no member of the cooperative is allowed more than one vote despite the amount of stock or membership capital owned, or the cooperative does not pay dividends on stock or membership capital in excess of 8 percent a year, or the legal rate in the State, whichever is higher; (3) the cooperative does not deal in farm products, farm supplies, and farm business services with or for nonmembers in an amount greater in value than it handles for its members, and (4) the cooperative operates for the mutual interest of members by providing benefits on the basis of patronage'' (Richardson, p. 6). These are definitions usually followed, sometimes with minor variations or further elaborations.

Principles. The accepted definitions of cooperatives reflect special principles that set cooperatives apart from investor-oriented corporations. While cooperatives are quite similar to other business corporations in organization, they are operationally unique because of ''cooperative principles/' Such principles have been discussed, defined, and rede- fined ever since an English consumer cooperative known as the ''Rochdale Pioneers" issued its set of rules in 1844. The Rochdale Society of Equitable Pioneers was founded by 28 persons, including 9 weavers. They formed a consumer cooperative selling primarily consumer goods such as food and clothing because of dissatisfaction with the merchants in their community. Their slogan was "honest goods at honest prices." The Society drew up a set of rules, based upon what the members knew of cooperative practices in England and perhaps in other European countries where cooperatives were developing. This formal statement was the Society's major contribution to the cooperative movement, a contribution that still influences the way cooperatives are organized and managed (Barton, 1989). Modern farmer cooperatives generally follow four principles: (1) Cooperatives are owned and democratically controlled by those who use their services. (2) Net income is distributed to users in proportion to their use of the cooperative. (3) Returns on ownership capital are limited. (4) Cooperatives are financed substantially by those who use their services. The way members control their organization has been one of the clearest differences between other business organizations and coopera- Chapter 1

tives. Traditionally, control was exercised on a one-member, one-vote principle, and this is still required by many State laws. However, others permit voting on the basis of business done with the cooperative or patronage-based voting. As cooperatives become larger through merger or expansion, as they must if they are to compete in a business world dominated by large multinational corporations, it may become essential for all cooperatives to move to voting on the basis of business done with the cooperative (Baarda, 1986, pp. 1-5, 21-25). Nevertheless, cooperatives face a challenge in reconciling democratic control, however carried out, with the need to extend and enhance the diverse business interests of today's farmers (Staatz, pp. 50-53). Types of Agricultural Cooperatives Agricultural cooperatives, as they have developed in the United States, have been essentially of four types: production, marketing, purchasing, and service. In the early 1990's, however, many cooperatives were of a mixed type, combining two or more of the functions traditionally carried out by separate organizations.

Agricultural Cooperative Service provides assistance to a wide range of cooperatives serving agriculture and rural America in terms of size, function, structure, and commodities handled. Pictures on the next few pages illustrate this variety.

Interregional petroleum refinery — National Cooperative Refinery Association, McPherson, KS. AGRICULTURAL COOPERATIVES: WHAT AND HOW

Two major groups of cooperatives, rural electric and farm credit, are service cooperatives closely related to agriculture. Rural electric cooperatives were fostered by Rural Electrification Administration, USDA, and farm credit cooperatives by Farm Credit Administration. ACS works with both on programs of mutual interest as is detailed later but has no responsibility for their programs. Thus, they are not discussed at length in this book.

Early Cooperation. Farm cooperatives developed in America's earliest history. Many American Indian tribes hunted and farmed cooperatively. Some of America's first settlements by Europeans, including Jamestown and Plymouth, were organized to farm and carry on other activities cooperatively. About 200 years later, the changing economic environment growing out of the Industrial Revolution led social reformers, first Europeans and then Americans, to seek new forms of society based upon working and sharing together rather than on the search for profits. Some of these reformers established agricultural colonies, all destined to survive only a few years.

Interregional fertilizer manufacturing facility, Plant City, FL — CF Industries, Inc., Long Grove, IL. Chapter 1

Robert Owen founded a colony in New Harmony, IN, in 1825. It lasted until 1828. A number of colonies based upon the ideas of Charles Fourier, a French philosopher, were sponsored by Albert Brisbane and Horace Greeley in the 1840's. The Wisconsin Phalanx in Fond-du-lac County, which existed from 1845 to 1850, is the best remembered of the Fourier-type colonies because it embodied many of today's ideas as to what constitutes a true cooperative organization. Brook Farm, estabhshed by a group of New England intellectuals, was the best known of the exper- imental communities. It was based upon common ownership and labor, and lasted, with at least one major reorganization, from 1842 until 1846.

Production Cooperatives. Other colonies or settlements, based upon people farming together and dividing equally what was produced, have been established over the years. However, nearly all have failed, except those whose members were bound by strong religious ties. Basic problems were that these types of settlements did not allow for individual dif-

Regional port grain elevator, Superior, MN — Harvest States Cooperatives, St. Paul, MN. AGRICULTURAL COOPERATIVES: WHAT AND HOW

ferences and offered no incentives or rewards for individual efforts (Knapp, 1969, pp. 5-19). In general, production cooperatives never developed into an important part of the agricultural economy.

Headquarters of regional citrus fruit cooperative — Sunkist Groioers, Inc., Van Nux/s, CA.

Regional agronomic service cooperative — Servi-Tech, Inc., Dodge City, KS Regional feed mill at Sangerfield, NY, one of 20 owned by Agway Inc., Syracnsc, NY.

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Waumandee cheese plant owned by regional cooperative Wisconsin Dairies, Inc., Baraboo, WI. Independent local-area cooperative — Culpeper Farmers' Cooperative, Inc., Culpeper, VA.

Local-area craft cooperative — Watermark Association of Artisans, Inc., WATERMARK ASSOCIATION OF ARTISANS. INC Camden, NC. crafts NEED TRAINING CENTER

AgriPride, Inc., Nashville, IL, member cooperative of Growmark, Inc., Bloomington, IL.~ Chapter 1

Marketing Cooperatives. Marketing cooperatives, where members collectively sell their products through a cooperative, have been the most important of the four major types of cooperatives. This was recognized by Congress in 1926, when the act establishing what is now ACS was entitled the Cooperative Marketing Act. Marketing cooperatives developed later than the first production cooperatives and have been much more successful. The next chapter emphasizes the rise and growth of marketing cooperatives.

Purchasing Cooperatives. Purchasing cooperatives, as noted in the next chapter, were organized early in the nineteenth century, more among city consumers than among farmers. Many of these were patterned upon the Rochdale Society of Equitable Pioneers, a consumer organization

Land O'Lakes member local - Creameries Blending, Inc., Little Falls, MN.

10 AGRICULTURAL COOPERATIVES: WHAT AND HOW

established in 1844 in England. Its success attracted the attention of various writers, who studied it and wrote about its rules of operation. The success of the Rochdale group greatly influenced the subsequent development of agricultural cooperatives' unique operating characteristics (Ingalsbe and Groves, p. 109). After the Civil War, the National Grange encouraged the organization of purchasing cooperatives. At least one major mail order firm, Montgomery Ward and Company, got its start by selling to such cooperatives. Today, purchasing cooperatives deal primarily in the materials necessary for farm production, such as feed, seed, fertilizer, petroleum, and agricultural chemicals. ACS maintains an active program of research and technical assistance for such cooperatives.

Farmland Industries, Inc., member local — Ottawa Cooperative Association, Ottawa, KS.

11 Service Cooperatives. Service cooperatives offer many varied services to other cooperatives and to individual farmers. Some national and regional credit cooperatives, for example, make loans to other cooperatives, which in turn make loans to their individual farmer members although some, mainly Banks for Cooperatives, make loans to member- cooperative borrowers for their own business purposes. Auditing, financial, management, transportation, and agronomic service cooperatives also deal with other cooperatives. In contrast, pest management, artificial insemination, and most insurance cooperatives deal directly with individual members or patrons. Problems with finance and management have led to the break- down of many cooperatives. To help overcome this problem, ACS has encouraged the growth of service cooperatives providing financial and management services.

Mixed-Type Cooperatives. Many cooperatives today are multifunctional in operations. This trend is becoming more pronounced as restructuring takes place to keep cooperatives competitive with investor-oriented firms. Many farmers find it more convenient to market what they produce and buy what they need for production from one cooperative rather than from two or more. This is true of cooperatives concentrating on one commodity as well as for more general organizations.

Cooperatives in Other Nations. The modern cooperative was first developed in Europe and then spread to other industrializing nations. It is estimated that cooperatives are found in 140 of the world's 171 countries. The International Cooperative Alliance, made up of cooperatives from 72 countries, has agreed on a desired set of principles that businesses must follow to be considered cooperatives. These are: open membership, democratic control, service at cost, limited return on capital,

12 duty to educate^ and cooperation among cooperatives. Cooperatives in many nations do not meet all of these standards. In some nations, cooperatives operate from the top down and are controlled by the central government. In others, ownership cannot be traced to individuals and membership is closed. Some cooperative systems are more highly organized than those in the United States. U.S. associations might learn from them, for example, in the areas of greater cooperation between agricultural cooperatives and the exploration of international cooperative development efforts through government agencies. These are areas to which ACS has given attention. ACS has helped organizers of cooperatives in developing nations and holds training sessions on cooperative organization and management for foreign cooperative staff members brought to the United States. This is an area, as noted later, in which ACS could provide much more in the way of needed education (Hoyt, pp. 82-94). Need for Cooperatives A far-sighted agricultural economist, Edwin G. Nourse, recognized in his day as the Nation's outstanding authority on agricultural cooperatives, foresaw as early as 1918 that a ''new'' agriculture was developing, one that was scientific, capitalistic, and commercial. This could result in corporation farming dominating food production. Cooperatives offered an alternative, where "the individual farmer, whether owner or tenant, continues as master of his own business with his personal interest and fortune bound up in its success or failure. This form of organization performs the specialized services required by farmers at minimum cost" (Nourse, 1918, pp. 94-97). Nourse made a substantial contribution to cooperative theory when he said cooperatives would provide a competitive yardstick in the

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business world — a measure against which to judge traditional investor- oriented businesses — and thus would enhance competition. This idea has found wide acceptance by farmers, consumers^ and public policy makers (Manuscript, ''E. G. Nourse and the Competitive Yardstick School of Thought/' by Randall E. Torgerson, July 17, 1978, in files. Agricultural and Rural History Section, Economic Research Service). Subsequently, Nourse saw cooperatives aimed at centralized market control as ''extremely bad" for the whole movement. Instead, cooperatives aimed at ''decentralized business organization for the more efficient standardization, assembly, and market distribution of farm products" would benefit their members and the public (Nourse, 1922, p. 81). During the 1920's, Aaron Sapiro, a California lawyer, urged the organization of large cooperatives along commodity lines, a proposal that differed markedly from Nourse's concepts. His basic idea was to have cooperatives control a large enough proportion of the crop to be a dominant factor in the market, which meant they had a degree of monopoly power. Sapiro helped organize a number of large cooperatives. Many of them failed, but many, particularly those in California, survived. His idea of "pooling" commodities by grade rather than dealing with a large number of small lots has influenced cooperative organization. The Canadian wheat pools are an example of this approach. Today's cooperative theme of "orderly commodity marketing" reflects Sapiro's proposals of seven decades ago. Even though Sapiro emphasized the economics of cooperation, he also wrote that "the justification of cooperative marketing is that it has been the means of a more progressive form of living and a superior type of citizenship, as well as an economic remedy." (Manuscript, "Aaron Sapiro School of Cooperative Thought: Its Relevance to Contemporary Cooperatives," by Randall E. Torgerson, June 10,1986, in files. Agricultural and Rural History Section, Economic Research Service).

14 Sapiro's idea of organizing by commodity and gaining control of the marketing of a large enough supply of the commodity to influence the market may be the trend of the future, in part at least because the firms purchasing commodities tend to be large multinational organizations with substantial control of the market. Nourse's idea of community cooperatives under local farmer control, often handling a number of commodities, while effective for some groups, particularly in the Midwest, faces problems in today's economy. Such local cooperatives seldom control a supply of any commodity large enough to influence the market, while direction by local farmers often limits the ability of the cooperative to develop marketing strategies and to become larger and more effective through expansion or consolidation. Another prominent leader in the cooperative movement, E. A. Stokdyk, wrote in 1940 that 'The three broad economic objectives of lowering costs, improving quality, and rendering improved service are common to most cooperative associations." He continued: ''After a cooperative has become established and attains efficient operation, its existence forces competitors to narrow their margins and render better service'' (Stokdyk, p. 691). These early statements and ideas, taken together, still present relevant reasons for encouraging the continued existence of agricultural cooperatives. Today, though, the changing structure of American agriculture is bringing new forces to bear on farmers, processors, consumers, and cooperatives (Lacy and Busch, pp. i-iii). Cooperatives are changing in response to these forces. The problem of control, as noted above, is changing from the "one-member, one- vote'' concept to control in proportion to business conducted with the organization. An early feeling that almost anyone could manage a cooperative has given way to an understanding that capable, trained management is a necessity to survive in today's business world. Some early

15 cooperatives were organized on a social rather than an economic basis, with the idea that the undertaking should be nonprofit. Today, the social reform aspects have virtually disappeared and economic forces drive virtually every cooperative, with emphasis on increasing the incomes of its members. Without economic survival, which means making a profit, social goals become meaningless. Yet it is important to note that while the profit motive exists, it is decentralized and operates at the individual or family farm level of the system. In other words, the goal of today's cooperative is not to make a profit for the association as such, but, as has just been stated, to make a profit for its members. Role of Cooperatives Maintaining Competition. The structure of markets is changing, with fewer and fewer firms processing and marketing farm products. Much of the trade is in the hands of a few large multinational corporations. The same is true of the suppliers of commodities such as fuel and fertilizer needed for farm production. Thus, in some regions, farmers have virtually no choice as to whom they sell their products and from whom they purchase their means of production. Cooperatives provide a choice in the marketplace. In doing so, they act as a competitive yardstick, a term that Edwin G. Nourse used time and again. Cooperatives and investor-oriented firms existing more or less side by side tend to force each other to be competitive. This is important in our present age of corporate takeovers and increased industrial concentration.

Quality Standards. The California Fruit Growers Exchange (now Sunkist Growers) built its reputation among both growers and consumers not by price but by insistence upon quality. Other cooperatives have succeeded in the same way, by building reputations for quality products

16 and by being innovative in both quality and the type of product offered. Ocean Spray, which has built a reputation for quality cranberry products, has developed many drink combinations, some in aseptic pack- ages with attached straws. Such cooperatives set quality standards that consumers appreciate and that investor-oriented firms are often forced to meet. Over the years, research by ACS has shown that cooperatives gain measurable benefits by producing high-quality products.

Market Power. A theme running throughout this volume is that no individual farmer has effective power in the marketplace. It has been said that farmers buy on an open market, that is, pay whatever suppliers want to charge, and sell on a closed market, taking whatever buyers wish to pay. By combining forces in buying and selling, farmers can have an influence in the marketplace, or, in other words, exercise market power. This is a key reason why farmers have united in cooperatives and is a reason for their continued existence. Both the farmer and the public benefit because the cooperative serves as a deterrent to monopoly control and monopoly pricing by investor-oriented firms. The public is protected against ''unduly enhanced'' prices being set by cooperatives by the Capper-Volstead Act of 1922, a limitation not imposed on other businesses.

Small and Isolated Farmers. A small cranberry grower in Massachusetts who depended upon his bog for his living said recently: ''After I joined the co-op, I knew I was no longer alone." Working together, the members get to know each other and learn from each other how to handle problems. The sense of isolation experienced by many farmers can be overcome through the association. The cooperative also offers the small or isolated farmers a way to market their commodities. Farmers producing a relatively small amount

17 . «^ -~ f~^ •*■ c ^7, -i^^ '■fé-'- -^"-c "i- 4 i*'' ^T^'^'i

of a commodity often find it difficult to market what they have produced. By uniting, farmers can offer a sufficient quantity of a product to attract buyers. This might include arranging transportation to get the commodity to market/ something small farmers could not do on their own.

Community Imiprovement. During the farm depression years of the 1980'S/ cooperatives were a vital force in the survival of many communities. Made up of people who lived in the communities, cooperatives, as is detailed subsequently in this account, acted as agents for rural development, bringing together resources from outside and inside the communities. Cooperatives are locally owned and locally controlled and are thus in a position to bring local people into stable organizations to solve local problems. During the 1980's, ACS worked within many communities, assisting in developing cooperatives to replace investor-oriented firms that were closing down and to establish and find markets for new farm-based industries. Rural community revitalization could be a major responsibility for cooperatives and ACS in the 1990's.

Cooperatives Today In 1989, the Nation had 4,799 farmer cooperatives with 4.1 miUion memberships. Marketing cooperatives numbered about 2,550; supply, about 1,803; and services, 446. The number of cooperatives and cooperative memberships reflect a long downward trend, a matter for examination later. However, as cooperatives and memberships declined in number, cooperative size and business volume grew steadily until the decade of the 1980's when the agricultural recession had a leveling effect. Net volume, excluding business done between cooperatives, peaked in 1984 and net income was highest in 1980. Business recovery started in 1987 and by 1989, net volume was third highest at $71.1 billion and net income second highest at $1.85 billion. %r %H^^ r ^r^ - ^ .f ,1 1^% j-

Role of Government Research and technical assistance for agricultural cooperatives by State universities and agricultural experiment stations and by the Federal Government began more than a century ago but was undertaken on a lasting basis in the 1920's. This emphasis on cooperatives began in part as an effort to solve the farm problem of the 1920's, which was similar to the situation farmers faced in the 1980's. It was also undertaken in part as a possible way to control what seemed to be a continuing drive by investor-oriented firms toward monopoly. At the same time, it seemed equitable to offer farm associations research and other assistance similar to that being provided for other businesses. Thus a program began that Congress considered essential then and essential today. This is the program of today's Agricultural Cooperative Service, Agricultural Cooperative Service Vision The vision of Agricultural Cooperative Service is 'To be the recognized premier source of knowledge about and professional assistance to agricultural and other rural cooperatives.'' Its mission ''is to promote understanding and use of the cooperative form of business as a viable option for agricultural producers and other rural residents,'' ACS is the only Federal agency directly concerned with the well-being, indeed, of even the existence, of farmer cooperatives. It strives to meet its goal and accomplish its mission through research, education, and technical assistance. Research conducted directly and in cooperation with universities has been of key importance in keeping cooperatives as an effective alternate to investor-oriented firms. Educational programs have made Americans aware of the importance of cooperatives to the national economy, although much remains to be done. Technical assistance programs have been the "bread and butter" work of the agency, contributing to

19 m^^^^^ ^^^ilie^Ä^S*Mi^Äii^fi?i

the survival of the family farm and the rural community through the development of cooperatives. Together, these ACS programs have contributed to keeping the concept of cooperation a vital part of the national economy and to helping cooperatives contribute to the national well- being. How the Service developed and what it has done and is doing to reach its goal and carry out its mission is the theme of this book.

20 American Cooperation in the Beginning

Cooperatives have been a part of American life since the continent was first inhabited by humans. The first cooperatives, those of the American Indians and the first European settlers, were informal, a way of survival. About the time of the American Revolution, formal organizations began to develop, and by the time of the Civil War, associations similar in many ways to present-day cooperatives were in existence. After the war, cooperatives took off, fostered by the first national farm organizations.

From Settlement to the Civil War American Indian Agriculture. When the first European explorers arrived in the New World, they found it sparsely populated by American Indians, members of tribes living in villages. The villages were sometimes permanent, sometimes temporary in nature. While many of the Indians lived by gathering wild plants, hunting, and fishing, many others had a rather efficient agriculture. Some Indians farmed, hunted, and fished cooperatively, while others worked as families. Cooperation was not formal or organized in the way of a modern agricultural cooperative. Rather, the Indians cooperated in tasks best performed by several people working together. As one authority has written regarding the New England Indians, 'They were a society con- tentedly functioning — on a communal basis in some respects, individ- ualistic in others" (Russell, 1980, p. 206). For example, the members of a particular village might work together in clearing land, seining or trap- ping fish, or driving wild animals as part of the hunt.

21 The most comprehensive cooperative projects among Indian farmers were the irrigation canals built in the Southwest, beginning about A.D. 800. The Hohokam tribe constructed major systems that stretched for some 150 miles. During the 1870's, Mormon settlers in the Salt River Valley cleared the weeds, silt, and wind-deposited soil from several of these early Hohokam canals and used them for irrigating their own fields (Hurt, pp. 23-25).

Jamestown and Plymouth. The first settlers at Jamestown and Plymouth were saved from starvation by obtaining supplies of corn from the Indians and then learning from them how to grow their own crops. The settlement at Jamestown was organized much like a modern American corporation, but the one at Plymouth began as a communal endeavor. The settlers worked together to burn weeds accumulated on fields abandoned by Indians, to break up the soil, and to plant corn in hills, fertilizing each hill with a fish or two. After the harvest, celebrated with the Indians in 1621 with a Thanksgiving feast, the corn was shared equally among the settlers. This communal system failed. It was dropped in 1623, and each family was assigned its own parcel of tillable land, 1 acre for each person, to cultivate for its sole benefit (Russell, 1976, pp. 12-15).

Other Pioneer Efforts. Subsequently, other settlements were established as communal or cooperative endeavors. None of them succeeded except for a few where the settlers were bound by strong religious ties. However, cooperation among farm people took many forms, including working together on such activities as building schools and churches, constructing roads, making quilts, and importing purebred cattle. There were reports of cooperative business activities among farmers early in the nineteenth century, but none of these had any long-term impact. Meanwhile, urban producers' and consumers' organizations, sim-

22 23 ilar to later cooperatives, were growing in several parts of the United States, first in New England and then in New York, Pennsylvania, Minnesota, and other States. Most were cooperative stores, such as the Protective Union Stores established in the 1840's in New England. Nearly all of these failed because of inadequate capitalization, over-expansion, and inexperienced leadership. None of the States in which the first cooperatives were established offered them legal protection or encouragement. In general, depending upon how cooperatives were organized, they fell under laws governing partnerships or corporations (Bemis, et al.). In 1865, however, Michigan passed a law recognizing the cooperative method of buying and selling, while New York had provided for cooperative mutual insurance companies a few years earlier. In the 1860's, several cooperative stores were founded on the principles developed by the English Rochdale Society. Basically, the Rochdale stores sold at market prices and returned savings to their members at the end of the year in proportion to the volume of their patronage.

Butter and Cheese Cooperatives. The first farmers' cooperatives approx- imating modern cooperative organizations were devoted to making butter and cheese for the market. It has been said that farmers in Goshen, CT, organized such a cooperative as early as 1810, but no formal record of its existence has been found. The first such enterprise of which we have found a record, and there may have been others, was on the farm of A. Pickett, near Lake Mills, WI, in 1841. He and his neighbors had about 30 cows that were grazed together and were milked in Pickett's cow yard. Mrs. Pickett and her son made cheese from the milk. The milk was carefully weighed and credited to each farmer daily. In the fall, the cheese was divided among the farmers in accordance with the milk that each had contributed (Erdman, 1962, pp. 82-83).

24 By 1850, cheese was being made by a number of farmers in Oneida County, NY, and was being marketed commercially. One such farmer, Jesse Williams, was making a quality cheese that he was selling for considerably more than the market price. His son, who had his own farm, wanted to join in the enterprise but was afraid he could not make cheese of superior quality. After some discussion, it was agreed that he would haul his milk to his father's farm, and the father would make the cheese. Soon, other farmers wanted to join the undertaking. Williams agreed. Buildings were erected and fitted with equipment. Each farmer received payment at the same rate when the cheese was sold in accordance with the quantity of milk delivered. The enterprise was so successful that a number of other factories were organized in the same way. The pattern became known as the associated dairy system (Willard). Mutual fire insurance companies developed in both urban and rural areas, one of the first being established in Philadelphia in 1752 as the Philadelphia Contributionship for the Insurance of Houses from Loss of Fire. It was proposed by Benjamin Franklin and was conducted so efficiently over the years that it is still operating today. Each member contributed a payment related to the value of the house covered when joining and made no further payments for 7 years unless a general fire disaster required an additional assessment. The Hartford County Mutual Fire Insurance Company, chartered in 1831, is remembered because it brought a different concept to the way in which losses would be covered. Unlike some of the other cooperative insurance companies, it did not rely upon assessments to cover losses by members but charged premiums just sufficient to cover costs. The mutual fire insurance companies were followed by mutual life insurance companies. The successes of these enterprises demonstrated that carefully organized and managed cooperatives could succeed and set a precedent for other cooperatives (Knapp, 1969, pp. 7-15).

25 Civil War and Agricultural Revolution The Civil War marked the change from man power to animal power on farms, particularly in the North, but even more, it marked the change from a somewhat self-sufficient agriculture in the North and West to a market-oriented agriculture. The war created a tremendous demand for farm products, while, at the same time, it took young men away from the farms. Those remaining, mainly older people, adopted the new horse- drawn machinery such as grain harvesters, grain drills, mowing machines, hay rakes, and other machines to meet the demand for increased production and to profit from markedly higher prices. With new machines, farmers were able to cover more land than before, so many bought additional land, often going into debt for both machinery and land. The Federal Government took steps to encourage increased production by passing the Homestead Act, the Morrill Land-Grant College Act, and the act establishing the Department of Agriculture. With the end of the war, most farmers, willingly or not, found themselves a part of commercial agriculture. They had to produce for the market to pay off their debts. This became difficult as farm prices declined sharply with the end of the war (Rasmussen, 1965).

National Grange. The National Grange, organized as the Patrons of Husbandry by Oliver Hudson Kelley in 1867 as a national fraternal order of farmers, provided the framework for the first widespread organization of farmer cooperatives. While farm families continued to value the social aspects of the new organization, they also turned to it for economic relief. Kelley recognized this as early as 1868 and began calling for a network of Grange marketing cooperatives. He saw the Grange as a shield against business monopoly and a means for farmers to establish the price for their products (Barns).

26 The earliest cooperative activity under Grange auspices began in Minnesota in 1868. The first buying cooperatives were simply members of a local Grange agreeing to buy all of their goods from a local merchant in exchange for substantial reductions in prices. Soon, however, the Granges found it helpful to appoint a buying agent who might deal with local merchants or with wholesalers or manufacturers. The Minnesota Grange appointed a State buying agent as early as 1869. By 1872, the national office accepted cooperation as a major feature of the order. At about that time, the business agency system began to give way to the establishment of local Grange stores. These were usually financed by members subscribing for one or more shares of stock, with each stock- holder having one vote regardless of how many shares of stock owned. Some large companies offered special discounts to Grange stores. The firm of Montgomery Ward, for example, got its start by making a special appeal to Granges and Grange stores, which were really a type of cooperative (Knapp, 1969, pp. 46-57). The early successes of many of the Grange stores led some leaders to take a further step — that of manufacturing items needed for farm production, particularly machinery. Various manufacturing enterprises were planned in several States, but only a few got into production, and most of them failed after a comparatively short time. In general, the failures resulted from difficulties involved in raising sufficient capital and in finding and retaining efficient managers. After a few years, many of the Grange stores ran into difficulties, in part because of intense competition from local merchants. These merchants lowered their prices to hold trade, and farmers found there was no longer any advantage in buying from the Grange store. Some leaders pointed out that prices were lowered only because of the Grange, and that if the Grange store failed, merchants would raise their prices. However, the stores continued to decline.

17 Beginning in the mid-1870's, the National Grange urged local Granges to adopt the Rochdale system. Many new stores were started under this plan, and many of the old stock-financed stores shifted to the plan. While the Rochdale-type stores were also financed by stock held by Grange members, the emphasis was upon charging current prices for products sold and then declaring a year-end refund to members in accordance with the amount of goods purchased. However, the Grange itself was declining in membership and influence, and most of its stores stayed in business only a short time. Marketing cooperatives organized under Grange leadership had histories similar to those of the buying cooperatives, although some present-day groups have Grange antecedents. Southern Granges concentrated on marketing cotton. Some made particular arrangements with existing firms, while others, such as the Alabama and Mississippi Granges, established their own agencies. Kentucky Granges sponsored warehouses for receiving and marketing tobacco. Midwestern Granges were more concerned with grain handling and marketing. Forty Grange cooperatives in Iowa were operating elevators in 1871, while the California State Grange exported wheat in the 1870's, However, as the Grange declined, so did the cooperatives it sponsored, with only a few surviving (Abrahamsen, 1981, pp. 4-6).

Cooperative Coopers of Minneapolis. The Grangers were not alone in turning to cooperatives. A number of farm and food industry related workers also saw cooperation as a means of achieving a better opportunity for making a living. The coopers of Minneapolis are an example. Cooperage, the making of barrels, became an important occupa- tion in Minneapolis after the Civil War with the rise of the flour milling industry in that city and the need for barrels for shipping the flour. Barrels at this time were handmade in small shops employing a dozen or

28 two skilled workers paid on a piece-work basis. When four coopers decided to establish a cooperative shop in 1874, they had to overcome the active hostility of the private shops, which did their best to keep the new Cooperative Barrel Manufacturing Company from securing a contract with a miller. Unfortunately, some businessmen equated cooperation with socialism and communism. However, the company received a contract with the Pillsbury mills and began operation. Members of the cooperative were paid regular wages and received a share of the earnings or were assessed for losses in accordance with work completed. Each made a small investment in stock when joining and then invested a regular sum weekly until a share of stock was paid up. A worker leaving received a note, payable in 6 months, for money invested. The first cooperative was so successful that others were organized, and within a few years cooperatives dominated the industry. This continued until hand workers were replaced by machines (Bemis, et al., pp. 193-241).

Farmers Alliance. As the Grange declined and farmers were hit with another depression, the Farmers Alliance movement got under way, first in Texas and then in a number of States, and flourished. Some local Alliances began as protective associations aimed at helping their members keep their land out of the hands of 'Tand sharks," who used various plans to obtain titles to farms. These local associations gradually took on other activities but maintained an economic orientation. It was only natural that this interest turned to cooperatives as a way to improve the economic situation of farmers (Knapp, 1969, pp. 57-59). Local Alliances began to organize as State Alliances and then as regional and national associations. Eventually, the National Farmers' Alliance and Industrial Union became the dominant group. The Alliance cooperatives had a similar diffuse history. Most were organized to mar-

29 ket products of their members, but others established purchasing or manufacturing cooperatives. For example, the Iowa Farmers' Protective Association was organized in 1881 with the help of the Iowa Farmers' Alliance to fight the ''barbed wire trust." It contracted with a local barbed wire factory to take its entire production. Eventually, the factory became an Alliance operation. While the factory could not supply all the wire needed by the Association's members, the action had the effect of forcing the monopolists to reduce their prices to remain competitive (Bemis, et aL, pp. 344-349). However, after about 10 years, the Supreme Court ruled that the Association was in violation of patent laws (Hayter, pp. 228-245). While the National Alliance and its cooperatives developed slowly and in a rather irregular fashion, it held national conventions beginning in the 1880's. The convention held in 1886 denounced ''arrogant capitalists and powerful corporations" and called for railroad regulation, monetary inflation, and greater legal rights for cooperatives (Dyson, pp. 194-195). This demand for greater legal rights was particularly important in that it moved the matter into the political arena. Early cooperatives associated with the Alliances were usually organized much as those established by the Grange, although the Alliance turned away from the Rochdale plan and emphasized strong State direction of the cooperatives within a particular State. The Farmers' Alliance in Texas, for example, established the Farmers' Alliance Exchange of Texas in 1887, under the leadership of C. W. Macune, who was to become a nationally known leader of the Alliance. The Exchange started out by selling cotton and grain and buying farm implements for its members. It anticipated moving into other activities but failed after about 2 years because of a lack of capital and poor management — almost a universal problem with early cooperatives (Saloutos, 1960, pp. 89-93).

30 An Alliance Exchange was begun by the Los Angeles County Farmers Alliance in 1890. Its goals were to find new and remunerative markets for southern California farm products and to buy all farm supplies, including implements and machinery, in wholesale lots and provide these supplies to individual members at nearly cost. The manager urged all members of the Alliance to patronize the Exchange. He also wrote: 'The main consideration is to convince the merchants and manufacturers that the Alliance movement is no ephemeral affair, but has come to stay, and by a spirit of fairness and liberality not only help the farming classes in the commercial transactions, but also stimulate trade by enlarging and developing our horticultural and agricultural resources'' (Sherer). The Exchange continued in operation for a number of years. Alliances in a number of States sponsored specialized terminal marketing agencies. In 1889, for example, the State Alliances of Kansas, Nebraska, and Missouri formed the American Livestock Commission Company. It began with a couple of big years, but the livestock exchanges refused to grant it membership. This effectively ended its operations. The Farmers' Mutual Benefit Association in Illinois was more successful over a period of several years. It pooled grain for shipment directly to central markets. The Dakota Alliance entered the fire, hail, and life insurance industry in which cooperatives in a number of eastern States had had success. It achieved good results, at least temporarily (Hicks, p. 133). Florida citrus growers formed the Florida Fruit Exchange in 1885 under the auspices of the Alliance. It developed relationships with commission agents in a number of cities, established auction markets, and performed other services. However, heavy freezes in 1895 and 1896 so limited the crops that the Exchange was forced to dissolve (Gardner, pp. 9-11).

31 Many leaders and members of the Alliance came to feel that with the Federal Government dominated by business interests, the Alliance must turn to political action if its cooperatives and other economic projects were to have any chance of success. As Saloutos has written: ''Farmers seeking substantive economic reforms in a democratic society were obligated by sheer necessity to seek their goals by means of direct political action" (Saloutos, I960, p. 102). By 1890, some Alliance leaders were entering politics. Within a few years, the National Alliance had become an integral part of the Populist Party. The new party enjoyed some initial successes but failed in the election of 1896. Thereafter, the Populist Party and the Alliances as well were no longer a force in American political or economic life. However, some of the goals of the Populists and Alliances were achieved by others in later years. Joseph G. Knapp wrote: ''The Alliance experience offered an inescapable lesson that cooperatives cannot become engaged in political controversy without jeopardizing their strength as economic organizations'' (Knapp, 1969, p. 67). Nevertheless, the major national farmers' organizations and cooperatives active in the 1990's are involved in political activities, although they state that these activities are nonpartisan in nature.

National Farmers Union. The Farmers Educational and Cooperative Union of America, best known as the Farmers Union, was founded in Texas in 1902. In many ways, it was a successor to the Alliance and, like the Alliance, gave emphasis to economic matters, including cooperative buying and selling. In fact, cooperative enterprises became the cor- nerstone of Farmers Union policy. Early in its history, it called upon its members, then concentrated in the South, to plow up at least 10 percent of their cotton and to hold back their cotton from market until a particular price was offered. By 1910, the Farmers Union had more than 1,000

32 cotton warehouses in every cotton-growing State in the South (Barrett, pp. 128-129). The Farmers Union then began teaching farmers how to grade their cotton and organized a number of companies to sell members' cotton direct to spinners. While the Union first emphasized cotton marketing, cooperative buying soon took hold. At first, local Unions negotiated with firms for cut prices in return for all the business of Union members, but State business agents followed, as did the establishment of local stores owned by the Unions or by Union members. In 1907, the Georgia Farmers Union set up a farm implement plant and a fertilizer factory. Other State offices emphasized the purchase and distribution of fertilizer and implements. About 1910, the Farmers Union began to decline in the South but to grow rapidly in the Midwest. By 1919, more than one-half of the Union's membership was in Kansas, Nebraska, and Iowa. The first emphasis in the Midwest was cooperative buying, particularly on the Rochdale model. However, both local and State unions soon turned to marketing, establishing elevators and grain marketing and livestock shipping associations. The Union's strength grew in Minnesota and in North and South Dakota with the rise of grain marketing facilities and farm supply cooperatives. As local enterprises developed, terminal marketing and purchasing agencies were formed in Omaha, Kansas City, Minneapolis, and other market centers to serve them. Livestock commission companies were also estabhshed in several centers. Since virtually none of the States had laws for cooperative incorporation, most of the Farmers Union enterprises were established as farmers' stock corporations. The Farmers Union, however, was influential in persuading the legislatures in some of the States to pass State cooperative laws (Knapp, 1969, pp. 177-182). The period before World War I was essentially a formative time for the Farmers Union. Its greatest influence in establishing coopera-

33 tives was to come later. Cooperatives sponsored by the Farmers Union and the Union itself are still strong in the Midwest.

American Society of Equity. The American Society of Equity was organized in 1902 in Indiana, at just about the same time the Farmers Union was being formed in Texas. It never attained membership equal to the Grange, the Alliances, the Farmers Union, and, later, the American Farm Bureau Federation. However, it promoted cooperatives and a number of Equity-inspired cooperatives are still in existence. Harvest States Cooperative in St. Paul, the first successful cooperative facility in the terminal grain markets, began as an Equity enterprise. The Society was founded by J. A. Everitt, a newspaper editor in Indianapolis, with the basic idea of persuading farmers to unite for the purpose of fixing prices, agreeing, once the minimum was fixed, to hold all crops until the market advanced to the desired level. In May 1903, the price of wheat was set at $1 per bushel and, through a chain of for- tuitous circumstances, it reached that level in February 1904. Everitt claimed that Equity was responsible for the rise, but this was the only time that withholding and substantial price increases took place together, except possibly for tobacco in 1905. While Everitt was not a strong advocate of cooperatives, a number of local and State Equity units organized commodity cooperatives, particularly for wheat and tobacco, as a means for holding surplus crops off the market until prices rose, as well as a tool for shipping and marketing crops. These activities antagonized Everitt and led to a split in the Society, with one part keeping to the idea of withholding and the other emphasizing marketing through cooperatives and the establishment of cooperative terminal markets. With the split. Equity lost much of its limited influence, and both the cooperative group and the original Equity eventually merged with the Farmers Union (Bahmer, pp. 33-63).

34 Commodity and Independent Cooperatives. Even as the Grange, the National Alliance, the Farmers Union, and some units of the Equity were encouraging and assisting their members to establish marketing and purchasing cooperatives, groups of farmers in different parts of the Nation were independently arriving at the conclusion that their activities could best be carried out through cooperative organization. Activities among dairymen have been mentioned, as have the early cooperative fire and life insurance organizations. After the Civil War, a surge of immigrants to the Midwest brought people, particularly from northern Europe, who had grown up in communities where cooperatives dominated the economy. It was natural that many of these new Americans would apply their knowledge of cooperatives in the ''old country" to life in the New World. Grain marketing, also mentioned earlier, received much attention, particularly after settlement began in the Great Plains, where wheat production dominated the economy. The railroads, elevator operators, and grain traders often seemed to be in collusion to profit as much as possible at the expense of the farmer, while effectively stifling outside competition (Larson, pp. 55-117). Farmers in a number of grain-growing States, including Minnesota, the Dakotas, and Iowa, independently organized grain marketing cooperatives. While some failed, in part because of efforts of established commercial enterprises to drive them out of business, many continue to be effective to the present time, often as larger cooperatives resulting from the mergers of smaller organizations (Knapp, 1969, pp. 72-77). From the 1880's through World War I, some farmer cooperatives continued to be organized outside the general farm organizations. Nearly all of them were devoted to the marketing of a particular commodity. Livestock growers, as mentioned earlier, organized a number of marketing cooperatives. The first cooperative cotton marketing programs

35 Chapter 2 AMERICAN COOPERATION IN THE BEGINNING

Farm organizations such as the National Grange, Farmers Alliance, American Society of Equity, National Farmers Union, and later the American Farm Bureau Federation were strong proponents of economic as well as political cooperation. That support was visible in the names of many cooperatives, some that continue today.

TIRES -BATTERIES COMPLETE OREASINO SER lílJlilJ.l.M'k

37 were organized by the Grange, but some grew up on their own. However, cotton growers kept increasing the supply in the face of almost constantly declining prices, which would lead later to attempts to organize cooperatives to control or reduce the amount of cotton being produced and coming to market. Local shipping associations, mostly devoted to grain and livestock but some to other commodities, were organized in many communities, often without organization support.

Fruit and Vegetable Marketing Associations. Unlike wheat and cotton, the production of some fruits and vegetables was limited, prinnar- ily by climate, to particular regions of the Nation. Growers of these commodities began organizing marketing cooperatives, most of them independent of general farm organizations, very early. The first association for the marketing of fruit began operations in Hammonton, NJ, in 1867. It expanded in 1884 to include cooperative purchasing and continued in operation until 1897. The New Jersey Cranberry Growers Association, organized in 1872 and later consolidated with other cranberry cooperatives, is a precursor to Ocean Spray. The Delaware Fruit Exchange, organized in 1881 to handle peaches, was in existence for about 10 years. Grape growers in New York organized a cooperative marketing association in 1885 that went through several reorganizations but set a precedent for subsequent cooperatives (Knapp, 1969, pp. 77-81). Most prominent today is the National Grape Cooperative Association, owner of Welch Foods. A California newspaper reported in 1885 that local organizations of growers were springing up all over southern California. In that same year, the California Fruit Union, made up of growers of deciduous fruit, was established primarily as a shipping organization. It was successful for about 10 years but then disbanded, in part at least because it had lost its character as a growers' organization. However, experience gained

38 AMERICAN COOPERATION IN THE BEGINNING

Some cooperatives developed City, MO, which built the independent of farm organiza- world's first complete coopera- tions, such as Consumers tive petroleum refinery in Cooperative Association (now Phillipsburg, KS, in 1940. Farmland Industries), Kansas

39 by the Union was valuable in the establishment of the present-day California Fruit Exchange in 1903. The Orange Growers' Protective Association was organized in 1885 to furnish information to growers and to direct shipments to particular markets. However, after a few years, it ceased operation. Citrus growers established a number of other cooperative organizations, most of which failed. In the late 1880's, T. H. B. Chamblin organized the Pachappa Orange Growers Association of 11 neighbors who united to sell their fruit in a pool. Other local associations grew up and combined in 1893 as the Riverside Fruit Exchange. Meanwhile, a similar effort was being made by Claremont growers. In 1893, the Riverside and Claremont organizations combined and brought other California growers into the Southern California Fruit Exchange. The organization later became the California Fruit Growers Exchange and is now known as Sunkist Growers. The organization became an integrated marketing system that not only provided the usual marketing services, but undertook a nationwide advertising campaign to increase the demand for ''Sunkist" citrus fruit. This cooperative enjoyed outstanding success because, in the words of Knapp, ''there was a happy conjunction of intelligent farmers and unusual leaders who were confronted by a unique situation responsive to a program of cooperative action" (Knapp, 1969, p. 471). Other important cooperatives were also being organized in California during this same time period. The California Dried Fruit Association was organized in 1888 by dried fruit, nut, and raisin producers. Raisin growers established a separate cooperative a few years later, but both groups failed. The formation of the California Raisin Association in 1898 marked the permanent development of cooperation in the raisin industry. Prune and nut growers organized cooperatives.

40 which, although failing after a few years, pointed the way for more per- naanent associations some years later, such as Sunsweet (prunes) and Blue Diamond (almonds). A Continuing Thread Agricultural cooperation has been a thread running throughout American history, from those first Americans, the Indians, to today's productive farmers. The first cooperative activities among the Indians were probably informal in nature. The Pilgrims who settled in Massachusetts began with a formal communal structure that failed because of its rigidities. It was not until after the Civil War, when farmers had to undertake a market-oriented agriculture, that cooperatives as we know them today began to become an important factor in the American economy and in farming operations. Four major farm organizations, the Grange, the Alliance, the Farmers Union, and the Society of Equity, were major forces in establishing cooperatives prior to World War I. The greatest emphasis was on marketing cooperatives, although purchasing cooperatives received some attention, particularly from the Grange. The American Farm Bureau Federation would emerge in the coming decades as a major farm organization fostering cooperatives. Many farmers welcomed cooperatives, agreeing with J. A. Everitt, organizer of the Equity, when he pointed out farmers were the one group in the Nation that had no voice in establishing either the prices they paid or the prices they received. Nevertheless, many businesses, particularly the local monopolies, would adjust prices and access to markets to lure farmers away from the cooperatives and to drive cooperatives out of operation. Cooperatives were also handicapped by the fact that few States recognized them as distinct from other enterprises and forced them to operate under laws applicable to traditional businesses. This

41 period was marked by a growing awareness that special legislation was needed for both the survival and regulation of cooperatives. However, cooperatives continued to increase in number and in influence. By 1890, there were some 1,000 agricultural cooperatives. Of these, 75 percent marketed dairy products, 10 percent grain, and 10 percent fruit and vegetables. By 1929, about 12,000 farmer cooperatives were operating. Of these, 10,546 were marketing associations, and 1,454 were production supply associations (Kraenzle, et al.. Cooperative Historical Statistics pp. 8-20).

42 Early Federal Work with Cooperatives

For almost a half-century after its establishment, the Department of Agriculture did almost nothing to encourage the establishment and growth of agricultural cooperatives. However, by World War I, stimulated in part by the Country Life Commission, the Department was beginning research and educational programs in the field of cooperation. Benign Neglect Although literally thousands of agricultural cooperatives, both marketing and purchasing, were organized between 1870 and 1900, the Federal Government gave them scant attention. Even the Department of Agriculture rarely mentioned them in its many publications. When cooperation was discussed, it was usually in a context other than farmer cooperatives as we know them today. For example, the director of the Department's Office of Road Inquiry reported in the 1895 Yearbook that a number of States were ''cooperating" with the Department in its good- road building program and that localities were establishing ''cooperative projects" to carry on the work. A report by Elwood Mead in the 1899 Yearbook on irrigation, though, came nearer to discussing present type cooperatives. Mead stated that the irrigation works developed by the Mormons in Utah were cooperative in nature. Later, he said, cooperative colonies in Colorado and California constructed irrigation canals and other public utilities on a cooperative basis. However, irrigation in California soon became, according to Mead, corporate and speculative. This "spread like a con- tagion throughout the West."

43 An exception to Government's relative neglect of problems relating to agricultural marketing and cooperatives came in 1898 when Congress created the United States Industrial Commission. Nothing was said about the marketing of farm products in the act creating the Commission, but in 1901 it issued a report on that subject. Even though the report said little about cooperatives, the author stated that the commission method of sales was demoralizing in its effect upon the producer. He then continued: ''Cooperative methods have not yet fully proved themselves available as substitute methods, though the Californian system of marketing their crops of deciduous and citrus fruits is a successful development in the right direction" (U. S. Industrial Commission, Report, Vol. 6, p, 7).

Report Never Published. The Department's first comprehensive study of cooperatives came in 1901 under the leadership of George K. Holmes, statistician in the Division of Statistics. The Department compiled a list of "many thousands" of cooperatives in the United States and then asked each to fill out a statistical schedule. Although a majority of the cooperatives did not reply, a substantial number did. In addition to filling out the schedule, many people sent letters explaining the successes or failures of the particular cooperatives with which they were involved. Holmes made full use of the data collected. He compiled tables showing types of cooperatives, the value of sales and purchases, capital investments, and other matters. He also discussed the history of cooperatives and traced the development of various types in different regions of the Nation, Holmes concluded from the materials he received that the primary causes of cooperative failures were a lack of sufficient capital, the want of business ability in the management of the cooperatives, dishonesty, and poor credit policies. He also concluded that most of the cooperatives established as communities or colonies had failed as had

44 cooperatives based upon some ideal social or industrial pattern. The successful cooperatives were those based upon economic need and with ''business results which they could measure at once and in money and subsistence/' This has held true to the present time. Holmes prepared a 432-page manuscript and marked it for publication by the Government Printing Office for the Department. It was never published. The reasons why seem to be lost in time. However, a few typewritten copies have survived. They provide our best picture of agricultural cooperatives as they existed at the turn of the century.

Country Life Commission. President Theodore Roosevelt appointed a Commission on Country Life in 1908 and charged it with investigating "the present condition of country life, upon what means are now available for supplying the deficiencies which exist, and upon the best methods of organized permanent effort in investigation" and in correcting the deficiencies. When the Commission was appointed, it was both praised and criticized. Its final report was largely suppressed, in part because Secretary of Agriculture James Wilson was opposed to it. He apparently felt that some of its proposals would dilute the authority of the Department of Agriculture. In more recent years, it has been criticized as seeking cheap food for the cities' industrial workers despite the opposition of farmers to its proposals (Danbom, pp. 143-145). Nothing was done for some years to carry out the Commission's recommendations, yet eventually most of them were adopted. President Roosevelt appointed nationally known men identified as farm spokesmen and leaders to the Commission. While they believed farmers should increase productivity through application of science, they realized this would not solve the major problems of farm life. Rather, they were committed to a formula developed by Sir Horace Plunkett, an Irish agricultural reformer. A sound agriculture depended upon "bet-

45 ter farming'' (application of science), ''better business" (organization of farm cooperatives), and "better living" (better schools and modern con- veniences). It is the second point, "better business/' that is our particular concern. In his summary of the Commission's report, President Roosevelt said the first great need of country life was "effective cooperation among farmers, to put them on a level with the organized interests with which they do business." But Roosevelt saw cooperation as going beyond business. As he put it: "The introduction of effective agricultural cooperation throughout the United States is of the first importance. Where farmers are organized cooperatively, they not only avail themselves much more readily of business opportunities and improved methods, but it is found that the organizations which bring them together in the work of their lives are used also for social and intellectual advancement." It has been said that the Commission itself "embraced cooperation in a gingerly fashion, and hoped that it would further national ends like product standardization, distributive rationalization, productive efficiency, and rural political conservatism while helping farmers" (Danbom, p. 45). However, the theme of cooperation ran throughout the Commission's report, even though there were few specific recommendations for particular types of cooperative organizations. The Commission called upon each State to enact laws to stimulate and facilitate the organization of cooperative associations, giving them all the advantages given to corporations. It stated that it was "not unlikely that Federal laws may also be needed to encourage cooperation." The Commission particularly urged the importance of cooperative credit. In addition to providing loans on the best possible terms and with the utmost freedom consistent with safety, a cooperative farm credit system would keep money in circulation in the open country rather than permit it to be drained off to the cities. These recommendations

46 were a factor in bringing about the eventual passage of the Federal Farm Loan Act of July 17, 1916 (39 Stat. 360).

Secretary Wilson Acknowledges Cooperatives. At about the time the Country Life Commission was writing its report, James Wilson, who had been Secretary of Agriculture for 12 years, discussed cooperatives for the first time in his annual report for 1908. It may be that his previous indifference was overcome by the knowledge that the Commission's report contained favorable references to cooperatives. Wilson reported that ''farmers' economic cooperation" had developed "enormously during the period under review," with more than half of the Nation's 6.1 million farms represented in associations. Insurance cooperatives, numbering about 2,000 with 2 million members, were the most numerous. There were more than 1,900 cream- ery cooperatives and 260 cooperative cheese factories. Cooperatives were found in all parts of the United States and were devoted to marketing many different products. Buying cooperatives were not as numerous, but there were many telephone and irrigation associations. Wilson wrote of cooperatives in a favorable though factual way. Although he stated that farmers were great organizers, he did not suggest that the Department give them advice or assistance in organizing cooperatives. In his annual reports for 1909 and 1910, Wilson repeated his general endorsement of cooperative marketing.

Research Work Begins Perhaps encouraged by Wilson's expression of interest and by his own background, G. Harold Powell, a pomologist and acting chief of the Bureau of Plant Industry, undertook a study of cooperation in the handling and marketing of fruit. Reporting the results of his study in the Yearbook for 1910, Powell pointed out that the handling and marketing

47 Chapter 3

President Theodore Roosevelt's Country Life Commission, appointed in 1908, stirred national interest in cooperatives. Articles on agricultural cooperatives appeared in the 1910 and 1912 USD A year- books. President Woodroiv Wilson continued the study of cooperatives by appointing a commission to analyze and report on agricultural cooperation and rural credit in Europe in 1913.

48 of crops through cooperative associations was more highly developed in fruit growing than in any other agricultural industry in America. He discussed the principles of cooperation, how to organize a cooperative, and what must be done to make one successful. He pointed out problems, similar to those pointed out by Holmes in 1901, that were faced by any cooperative and discussed the citrus producers' cooperatives in California as examples of successful organizations. It was in Wilson's secretaryship that the first specific cooperative project was established in the Department. The project, authorized in the Bureau of Plant Industry in 1912, was known as the ''Farmers' Cooperative Cotton Handling and Marketing Project." Charles J. Brand, who was to become one of the Department's best known marketing specialists, was its leader. He planned four lines of work: devising a simple form of cooperative organization; compiling State laws relating to ginning and warehousing cotton; surveying freight rates; and surveying cotton-handling mechanisms. Brand sought to achieve the objectives of the project by persuading each community to grow a single variety of cotton; by encouraging the organization of units of such size that the cotton could be sold in commercial lots of uniform grade and quality; by urging improved ginning practices; and by advising the cooperatives to establish their business responsibility to protect the spinners and cotton merchants who dealt with the associations. Brand emphasized these points and the opportunity that cotton producers' cooperatives had in an article in the 1912 Yearbook. In the same Yearbook, L. C. Corbett, a horticulturist in the Bureau of Plant Industry, devoted most of an article entitled "A Successful Method of Marketing Vegetable Products" to a description of the cooperative system. He asserted that "Experience has demonstrated that the results derived from true cooperation are sufficiently important from a commercial stand- point to justify the method even though no other results were obtained."

49 Congress Authorizes Marketing Research. Between 1911 and 1913, a number of bills directing the estabUshment of marketing research in the Department of Agriculture were introduced into Congress (Malin). Several of them provided specifically for research on cooperative marketing. The House of Representatives and the Senate could not agree on a bill for setting up a new agency but agreed on a clause in the appropriation bill for 1913 directing the Secretary to secure from Department agencies ''reports relative to systems of marketing farm products, cooperative or otherwise/' and to transmit to Congress recommendations for further investigations in marketing. Data were gathered and the report was prepared under the direction of George K. Holmes, who had prepared the 1901 study on cooperatives. The report, entitled ''Systems of Marketing Farm Products and Demand for such Products at Trade Centers/' stated that a division of markets could help farmers organize marketing associations and could help improve those already in operation (USDA, 1913, p. 21). In fact, the report outlined some of the functions being carried on by Agricultural Cooperative Service some three-quarters of a century later. By the spring of 1913, a number of new bills to establish a division of markets or to take similar action had been introduced into Congress, Previously to this time, the Department, under the leadership of Secretary Wilson, had been reluctant to give much attention to marketing, holding that such matters were commercial and not agricultural. However, attitudes were changing, particularly after David R Houston succeeded Wilson as Secretary on March 6,1913. Even before that. Congress, unable to reach agreement upon substantive legislation, had appropriated funds for the 1914 fiscal year for the Department to undertake marketing work (37 Stat. 854). The bill was approved by President Taft on March 4,1913, just before he left office. It was up to President Wilson and Secretary Houston to carry out its provisions.

50 Office of Markets Established. Houston quickly held two major conferences with outside marketing experts and those in the Department who had been carrying on research in marketing or related areas. As a result of these planning sessions, Houston established an Office of Markets on May 16, 1913, with a chief responsible to him. He appointed Charles J. Brand, who was directing the cotton marketing project in the Bureau of Plant Industry, as its chief (Sherman, pp. 293-295). Brand outlined a program for the new office, with a project on cooperative marketing. It was to include the promotion of marketing organizations and assistance to existing organizations, and a compilation of laws affecting cooperatives. Work by the new office was limited by its small appropriation — a fact recognized by the General Education Board, a philanthropic organization endowed by John D. Rockefeller. The Board granted the Department $30,000 ''for the study of co-operation, including rural cred- its and the general organization of rural communities for economic, social and educational purposes" (Knapp, 1969, p. 151).

Rural Organization Service. Houston established a Rural Organization Service, headed by Thomas Nixon Carver, a sociologist at Harvard University, with the grant money. Established on May 1,1913, it gave particular attention to the social aspects of cooperation, while Brand and his Office of Markets emphasized practical economic issues. Although the Office of Markets was nominally a part of the Rural Organization Service, Brand reported directly to the Secretary (Baker, et al., pp. 73-74). Thomas Nelson Carver stated in an article in the 1913 Yearbook that a permanent agency in the Department of Agriculture should be charged with looking after the interests of the farmer cooperatives scattered across the Nation so the number of failures might be diminished and the number of successes increased. He suggested that such an agen-

51 cy could formulate the general principles followed by successful organizations. It might also work with cooperatives to help farmers improve their business methods. Since access to adequate credit was a problem for many farmers, the proposed agency could take the lead in developing cooperative credit agencies that, in addition to making credit available, could help farmers make wise use of credit (Carver, pp. 253-258). Carver returned to Harvard University after a year as head of the Service, Some of his ideas were carried forward by the Office of Markets and Rural Organization, later the Bureau of Markets, while the proposal for farm credit agencies developed along a somewhat different path. His sug- gestion for an independent agency to work directly with cooperatives was eventually realized and is continued today as Agricultural Cooperative Service. The General Education Board decided not to fund the Rural Organization Service for a second year, and its responsibilities were assigned to the Office of Markets, which received a substantial increase in funding in the appropriation act for the 1915 fiscal year. On July 1, 1915, the Service was formally merged with the Office of Markets to form the Office of Markets and Rural Organization (38 Stat, 1111). Two years later, it was designated the Bureau of Markets (39 Stat. 1162).

Department Consolidates Cooperative Work. The scattered work in agricultural marketing, including research on cooperation, that had been taking place in the Department during Secretary Wilson's administration was brought together in the Office of Markets. In his first annual report as Chief of the Office, Brand indicated that work with the cooperative cotton associations had yielded some rather tangible results and that data on marketing, including cooperative marketing activities among farmers, had been collected. Secretary Houston in his annual report said ''the individual farmer, acting alone, is helpless. Nothing less than con-

52 certed action will suffice. Cooperation is essential." However, he warned that cooperatives that attempted to establish a closed market and fix prices would be condemned. He stated that the Department, in cooperation with the General Education Board, was determining the principles and practices of the best forms of cooperation. Under the aggressive leadership of Brand, the Office of Markets received many new assignments and grew rapidly. For example, it became responsible for the administration of the cotton futures act and other acts regulating agricultural marketing. It also established a market news service. During World War I, it secured supplies for the armed forces and our allies, as well as materials needed for farm production. One of these duties, the purchase and distribution of the fertilizer nitrate of soda, encouraged farmers to organize local cooperatives to work with the Office of Markets. By July 1,1917, when the office became a bureau, it was one of the larger agencies in the Department. The number of employees reached 2,289 in 1918, although most were assigned to projects only vaguely related to cooperatives. Nevertheless, a rather substantial number of projects directly affecting cooperatives had been planned and carried forward. A survey of cooperative organizations was completed. The first bulletin giving complete statistical information on agricultural purchasing and marketing cooperatives was published in 1917. It was found that many of the cooperatives did not have a strong business base. Bulletins on better business practices were published, but even more to the point, representatives of the office gave direct personal assistance to existing and prospective cooperatives in Maine, Michigan, Oregon, Colorado, Kentucky, and many more States. Among other actions, it assisted cooperatives to install standard accounting systems. A proposed State cooperative law was drafted and released in 1917 (Knapp, 1969, pp. 155-160).

53 At the war's end, the chief of the Bureau of Markets indicated that work with cooperatives had been seriously interrupted by the resignation of speciaHsts, enlistments in the military forces, and reassign- ments to other war work. However, Secretary of Agriculture Houston reaffirmed his belief in the value of agricultural cooperatives in his annual report for 1919. He wrote: 'There should be in every State one or more trained market specialists of the Department of Agriculture, working in cooperation with the proper State authority, to stimulate cooperative enterprises and to aid farmers in their marketing work by helpful suggestions as to plans and methods." Federal Farm Loan Act Meanwhile, a determined effort by many people had brought one of the Country Life Commission's stronger recommendations into being. On July 17, 1916, President Woodrow Wilson signed the Federal Farm Loan Act (40 Stat. 755). David Lubin, who had been active in California agriculture and in organizing the International Institute of Agriculture, was a leader in the effort to establish cooperative land banks in the United States as had been recommended by the Country Life Commission. While at a meeting in 1912 of the Southern Commercial Congress, Lubin persuaded Congress to set up an "American Commission" of two delegates from each State to study European credit and cooperative systems. The Southern Commercial Congress also carried on a publicity campaign for improving farm credit in the United States. A number of leaders interested in carrying out the recommendations of the Country Life Commission continued to urge the establishment of land banks. As a result, the Republican, Democratic, and Progressive parties endorsed the idea of establishing better rural credit facilities. After the election. Congress appointed a "United States Commission" of seven persons to work with the American

54 Commission. When they returned from their European investigations, the two commissions prepared a joint report and two separate reports proposing the estabUshment of a system of land banks. The three reports reviewed favorable European experiences with land banks and suggested that the United States draw upon these experiences in establishing a system in this Nation (Baker, et al., pp. 86-87). A large number of rural credit measures were introduced into Congress in 1914 and 1915. In general, the supporters of the bills proposed three different lines of action. One group advocated direct loans to farmers from Government funds. A second group proposed Federally chartered but privately owned joint-stock land banks. A third wanted to establish cooperative local associations that would borrow from district Federal Land Banks, initially capitalized by the Federal Government. Congress compromised in the final bill. It provided both for land banks to be ultimately owned by farmers through their local National Farm Loan Associations (later Federal Land Bank Associations) and for joint- stock land banks to be owned by private investors. It established a system of 12 district Federal land banks under the supervision of a Federal Farm Loan Board. The Board also had general supervision of the cooperative associations and the joint-stock land banks. The last Federal Land Bank was chartered on April 3, 1917. By the end of that year, farmers had organized 1,839 National Farm Loan Associations, and nearly 2,000 more were in the process of being organized. By the end of 1919, there were more than 4,000 associations (Hoag, pp. 211-217). The growth of the Federal land banks and farm loan associations was temporarily slowed when in 1919 the constitutionality of the Federal Farm Loan Act was challenged in the courts. The law was declared constitutional in 1921, and the associations again began to increase in number. A long-term difficulty was in maintaining the involvement of bor-

55 rowers in the cooperative associations' development. Once their loans were obtained, borrowers often ceased to participate actively in the affairs of the associations. This problem also affected the directors of the land banks, the majority of whom were to represent the farm loan associations. This requirement was modified by an amendment to the act passed in 1923 (Olsen, et al., pp. 198-208). Postwar Reorganization of Cooperative Work George Livingston, who succeeded Brand as chief of the Bureau of Markets in 1919, said in his first annual report that progress had been made in developing a system of accounting for cooperatives and that a model State law had been drawn up for farmers' mutual fire insurance companies. Much of the work in assisting in the formation and improvement of cooperatives, however, had been assigned to State representatives of the Bureau. Secretary Houston, who had been a strong advocate of cooperatives, was succeeded in 1920 by Edwin T. Meredith, an equally vocal supporter. In his annual report for 1920, Meredith stated: ''The department recognizes fully the importance of the cooperative movement and its potentialities for good in the general marketing scheme...This work should be extended and developed." However, since he was in office for only a year, he had no major impact on Department policy respecting cooperatives. Meredith was succeeded by Henry C. Wallace, who, like Meredith, was a successful farm journal editor and publisher. Wallace was interested in economics and found as he took office that Congress had already provided for reorganization of that work through an appropriation act. Under this act the Bureaus of Markets and Crop Estimates were consolidated on July 1, 1921, as the Bureau of Markets and Crop Estimates, with Henry C. Taylor as chief (41 Stat. 1341). However, Wallace

56 appointed a committee of economists to consider further consolidation of the Department's economic work. The committee recommended the consohdation of all economic research and service activities into a Bureau of Agricultural Economics. The new bureau was established on July 1, 1922, under authority of another appropriation act (42 Stat. 531). Wallace, like Houston and Meredith, favored cooperatives even though he represented a different political party. Over the years, neither the cooperative movement nor the agency in the Department of Agriculture established to work with cooperatives has been identified with a particular political party, although at times particular political parties have seemed to claim cooperatives as their own creations. Meanwhile, Henry C. Taylor, chief of the Bureau of Markets and Crop Estimates, in his annual report for 1922, indicated that some work on cooperative marketing was being carried out in connection with several commodities. The major activities were in the Costs-of-Marketing Division under the direction of H. E. Erdman and in the Division of Cooperative Relations under the direction of L. S. Tenny. The Costs-of-Marketing Division gave particular attention to livestock marketing cooperativ^es and collected a large volume of data. The Division of Cooperative Relations emphasized research, which was carried out in 19 States by three persons who were to win widespread recognition in the cooperative field and were to serve over a period of many years: R. H. Elsworth, A. W. McKay, and L. S. Hulbert. Among the research projects carried out was a survey of the possibilities of cooperative marketing of Vermont maple sap products, a study of the cooperative features of European agriculture, a study of large cooperatives, a survey of cooperative milk marketing, and major studies of the legal aspects of cooperative marketing. The division was also active in collaborating with the States in marketing work, including cooperative marketing.

51 The work of the Bureau of Markets and its successor agencies with cooperatives foreshadowed a period of much more intensive effort during the 1920's. Their activities initiated the fulfillment of a commitment by Congress and by the Department to carry forward work on agricultural cooperation. This commitment was to help transform American agriculture.

58 Farm Depression, Cooperatives, and Capper-Volstead

The future looked bright for cooperatives as the 1920's began. They had helped American farmers produce and get to market the food supplies needed by the Nation during World War I. The Extension Service, established in 1914, was helping farmers organize cooperatives, and the new Bureau of Agricultural Economics was conducting research on problems facing cooperatives in the early 1920's. Recent Secretaries of Agriculture had all recognized the need for and importance of cooperatives. A new national farmers' organization, the American Farm Bureau Federation, was dedicated to promoting cooperatives even more strongly than the Grange, the Alliances, and the Farmers Union. Nevertheless, the great farm depression of the 1920's drove many farmers and some farmer cooperatives out of agriculture. Yet the depression and proposals to combat it were important factors in bringing about passage of the Capper-Volstead Act. Farm Depression In 1921, farmers were getting just about one-half the prices they had received for their major commodities in 1919. At the end of the war in 1918, the U.S. Government had purchased large quantities of food for shipment to Europe to prevent starvation. The program came to an end in 1920. At the same time, the European nations had not recovered sufficiently to buy American farm products. Thus demand fell off markedly, yet American farmers were geared up to produce for a wartime market. Even as farm prices were falling, the prices of what farmers had to buy to produce — farm machinery, fertilizer, fuel, and other commodi-

59 ties — were going up. The result was a farm depression that was to continue, with ups and downs, throughout the 1920's. Its severity was such that it was a major cause of the Great Depression of 1929 and the early 1930's. Building Farmer Cooperatives Extension Service. The Cooperative Extension Service was established in 1914. From its beginning, its county agents had worked with existing agricultural cooperatives and had helped farmers set up new ones where they were needed. But the Extension Service had just become well organized when it was called upon to devote its energies to helping farmers produce the food and fiber needed for the war effort. After the war, county agents took part in the organization and promotion of many successful marketing associations. These included wool pools, creameries, truck marketing associations, poultry and egg marketing associations, and livestock shipping associations. They also worked with purchasing cooperatives such as seed and fertilizer associations. County agents were active in establishing the Dairymen's League of New York and large cotton associations in the southern States. In 1923, county agents worked with 926,000 farm families and 6,000 cooperative associations on marketing problems. Despite the advice of State and Federal leaders, county agents sometimes acted as managers for local cooperatives, particularly those that were too small to afford a manager (Rasmussen, 1989, pp. 81-82).

American Farm Bureau Federation. In its early days, the Cooperative Extension Service worked closely with the Farm Bureau at local. State, and national levels. There had been a continuing relationship between the two beginning in 1911 when the Binghamton, NY, Chamber of Commerce established a "farm bureau" with a farm agent in charge. Its goal was to encourage farmers to adopt improved practices. The Chamber got sup-

60 port from the Federal Government, the State Government, and local business for this activity. The idea of cooperation among the three groups was so successful that it was made part of the Smith-Lever Act of 1914 establishing the Extension Service. From then on, many Extension offices, both State and local, organized ''farm bureaus'' to serve as the local sponsor for the county agent. Within a few years, a number of local farm bureaus united to form State farm bureaus. In 1920, several State farm bureaus, after a series of preliminary meetings, united to formally establish the American Farm Bureau Federation. Its first president was James R. Howard, a man dedicated to cooperative marketing. The Farm Bureau's first effort to move into large-scale cooperation came when it invited its own people, leaders of other farm organizations, and officials of elevator associations to meet in Chicago in July 1920 to discuss the cooperative marketing of grain. After controversial discussions, Howard appointed 17 men to a Farmers' Grain Marketing Committee (Howard, pp. 145-154). The Committee agreed early in 1921 to organize a national grain marketing organization to be known as the United States Grain Growers, Incorporated. The Grain Growers started off in a whirl of publicity, but it never got off the ground. It encountered stiff opposition from grain dealers and the commodity exchanges. Its applications for seats on the Chicago and Omaha boards of trade were rejected on the grounds that patronage dividends would be an illegal rebate (Howard, p. 152). In addition, it was difficult to persuade farmers to change their ways of doing business, particularly by signing contracts to deliver their production over a period of years to the cooperative for marketing. This was a key point advocated by Aaron Sapiro, a successful California lawyer who specialized in organizing cooperatives. The Grain Growers was absorbed in 1924 into the Grain Marketing Company (Knapp, 1973, pp. 35-39).

61 The Farm Bureau was more effective in the marketing of other commodities, especially livestock. President Howard called a meeting of livestock producers in October 1920 and then appointed a committee to develop a marketing plan. A plan was adopted in 1921, and the National Live Stock Producers' Association was established. The Association set up subsidiary commission houses in the major livestock markets and began operations in 1922. The commission houses competed with privately owned firms for the best prices available, charging the regular commission rates. Profits were set aside for substantial patronage refunds. Other commodities for which the Farm Bureau organized cooperative marketing associations included milk, wool, fruits and vegetables, and cotton. Over a period of years, some of these were successful, but some of those caught up in the ''Sapiro movement" failed, in part because they tried to do too much and in part because of the continuing farm depression (Howard, pp. 145-156).

Sapiro and Commodity Marketing. Aaron Sapiro had been associated with Harris Weinstock in organizing commodity cooperatives in California. He was, by all accounts, a dynamic speaker who was successful at persuading farmers to join cooperatives and to commit themselves to selling their crops only through the cooperatives. His ideas were particularly suited to California's specialty crops since they were limited to particular areas, and a successful cooperative could exercise considerable influence over both marketing and pricing. By 1920, after he had helped organize a cooperative wheat marketing organization in the State of Washington, he concluded that what had worked in California could be almost universally applied. The essential features of Sapiro's plan included 11 points, many of which are still regarded as basic to the success of almost any cooperative. These were: (1) organize on a commodity basis; (2) restrict mem-

62 FARM DEPRESSION, COOPERATIVES, AND CAPPER-VOLSTEAD

Aaron Sapiro was an early-day dynamic organizer of cooperatives whose influence is evident in commodity-specific cooperatives, particularly in California and Canada. However, his approach of organizing producers on a national basis was not successful in U.S. grain marketing.

Elevators such as this one in Kearney, NE, formed as the result of his efforts, soon failed.

63 bership to farmers; (3) employ democratic control of the cooperative by members; (4) maintain long-term, ironclad contracts with members; (5) organize a large market share before contracts become effective; (6) pool products according to grade; (7) use professional experts in management and other technical positions within the cooperative; (8) adopt sound merchandising principles and techniques; (9) organize on a centralized basis with direct membership; (10) legally incorporate on a nonstock association basis; and (11) maintain orderly marketing (Manuscript, ''Aaron Sapiro School of Cooperative Thought: Its Relevance to Contemporary Cooperatives/' by Randall E. Torgerson, June 10, 1986, in files. Agricultural and Rural History Section, ERS). Sapiro spoke at the first meeting of the Farm Bureau's conference leading to the organization of United States Grain Growers, Inc., and had some influence over the way Grain Growers was organized. At about the same time, the recently organized American Cotton Association, not affiliated with the Farm Bureau, called a national convention to develop a plan to protect the interests of cotton growers. Sapiro presented a positive plan. He proposed that State cooperative marketing associations be set up in each cotton-producing State and that the State organizations form a National Cotton Exchange. The exchange would provide marketing, warehousing, financing, transportation, and other services for the State associations. Two points of the plan, to control deliveries by a long-term binding contract with growers and to control a sufficient proportion of the entire crop to be a dominant factor in the market, split the growers. However, Oklahoma and Texas went ahead with statewide plans based upon the Sapiro concepts (Knapp, 1973, pp. 7-11). The State farm bureaus in several States then organized Sapiro-type State cotton marketing cooperatives. Several of these combined under auspices of the American Farm Bureau Federation in 1921 as the American Cotton Growers Exchange (Knapp, 1973, pp. 7-

64 11, 40). The Exchange enjoyed several useful years of existence. Sapiro was also active in organizing tobacco growers into cooperative marketing associations. The American Farm Bureau Federation adopted a resolution at its December 1922 annual meeting that ''went all out for cooperative marketing/' However, during 1923, some of the large cooperatives ran into problems and the Farm Bureau itself began to lose members. Leaders who generally opposed the Sapiro-type cooperatives took control of the Farm Bureau at its 1923 annual meeting and modified the all-out statement of support for commodity cooperatives that had been adopted in 1922. Sapiro was no longer a force in the organization. Some leaders of the Farm Bureau made a final effort to convince other leaders and farmers to unite in a new wheat cooperative marketing venture. They established the Grain Marketing Company, with options to buy large Chicago and Kansas City elevators. The company began operations, but the Illinois Commerce Commission refused to permit the company to operate as a cooperative. The company was liq- uidated, but investors were paid off in full (Howard, pp. 198-203). Experience with the Sapiro-type cooperatives had shown, at least for that time, that it was virtually impossible for a cooperative to gain enough control of the marketing of a widely grown crop to have much influence over price. By the late 1920's, many of the cooperatives that Sapiro had organized had gone out of business. He was credited with organizing or representing 55 cooperative associations with a half million members in 10 States. Those successful and still functioning are highly centralized marketing organizations handling specialty crops. The Canadian wheat pools, which credit their success to following Sapiro's precepts, are another Sapiro success story. The first efforts of the Farm Bureau to establish cooperatives also demonstrated that expert management was essential to success and that

65 State and Federal legislation recognizing the organizational structure of cooperatives was essential to their survival. Cooperatives and Antitrust Need for Legislation. When the American Farm Bureau Federation was organized in 1920, various large-scale cooperative marketing efforts were beginning to be challenged in the courts. Dairymen were under indictment in Chicago, Cleveland, and St. Paul, charged with selling their milk cooperatively in violation of the Sherman Antitrust Act. Shortly afterward, the Illinois Commerce Commission refused to permit a major grain marketing company to operate as a cooperative. Some of the press was warning the public that successful farmer cooperatives would become monopolies and force up the price of food beyond reason. The Sherman Antitrust Act of 1890 had been passed in part because of pressure from the Alliance. It made no reference to cooperatives because there were no large farmer cooperatives in existence at that time. However, within a couple of decades, regional cooperatives were being organized. These were now being threatened. The Clayton Antitrust Act of 1914, passed to strengthen the Sherman Act and to clarify the position of cooperatives, was the earliest Federal law to address special needs of farmer cooperatives. Section 6 of the act states that nothing in antitrust law forbids the existence and operation of ''agricultural organizations, instituted for the purposes of mutual help, and not having capital stock or conducted for prof it...nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws." Although the law provided some protection for cooperatives, it left those formed on a capital stock basis subject to challenge (Baarda, 1989, p. 400). Furthermore, the Federal Trade Commission Act of 1914

66 stated in part ''unfair methods of competition...and unfair or deceptive acts or practices...are hereby declared unlawful." This act was used to threaten cooperatives just as the Justice Department was also moving against them. Many of the milk marketing cooperatives were being harassed, and some of the California cooperatives were threatened by actions being brought under these acts. Secretary of Agriculture David Houston gave them no support. Also, many State laws did not recognize cooperatives formed on a nonstock basis, although this situation was changing (Guth, pp. 69-72).

Forces for Legislation. In 1921-22, conditions seemed encouraging for securing the passage of a Federal law favorable to cooperative organization. In 1919, the National Cooperative Milk Producers' Federation, under the leadership of Charles W. Holman, had supported a bill drafted by John D. Miller of the Dairymen's League to amend the Clayton Act to give capital stock cooperatives the same consideration given nonstock cooperatives. The bill was strongly opposed by some commercial interest groups, but after being rewritten and introduced by Senator Arthur Capper of Kansas and Congressman Andrew Volstead of Minnesota, it passed both houses in 1920. However, the two legislative bodies could not agree on a final version, and Secretary of Agriculture Edwin Meredith did not take a position on the legislation (Guth, pp. 76-77). Nevertheless, it seemed but a matter of time before it would pass. The organization of the Farm Bloc in Congress in 1921 made passage of such farm legislation more likely. The Farm Bloc was a group of senators and congressmen, mostly from the Midwest and South, who were determined to support legislation favorable to farmers, regardless of party lines. The Farm Bloc worked closely with the American Farm Bureau Federation. Meanwhile, as noted in an earlier chapter, the Department of Agriculture, with Henry C. Wallace as Secretary and Henry C. Taylor as

67 chief economist, was giving cooperatives greater attention than ever before. Studies were made of organizational successes and failures that might give cooperatives some guidance on their programs. Particularly important, though, from the viewpoint of prospective legislation, was the assignment of L. S. Hulbert, then of the legal staff of the Department but later assigned to the Bureau of Agricultural Economics, to undertake studies of the legal problems of cooperatives. At the same time. Secretary Wallace took a strong stand in support of the Capper-Volstead legislation. By early 1921, the plight of agriculture had become so marked that the two houses of Congress, urged by the Farm Bloc, set up a Joint Commission of Agricultural Inquiry. The Commission made a general investigation of agricultural conditions and their relationship to the rest of the economy. One of the principal recommendations in its four-part report was that legislation should be enacted to strengthen the legal position of cooperative marketing associations (Baker, et. aL, pp. 117). Shortly after the Commission's report appeared. Secretary Wallace secured permission from President Warren G. Harding to call a National Agricultural Conference for January 1922. It was organized by Henry C. Taylor and other staff members of the Department of Agriculture, with the economists assigned to the cooperative work taking a major part. While those at the conference made a number of recommendations, the more important were those recommending legislation designed to further the progress of cooperative marketing associations and of legislation in their support. President Harding, in an address to the conference, saidï ''American farmers are asking for, and it should be possible to afford them, ample provision of law under which they may carry on in cooperative fashion those business operations which lend themselves to that method, and which, thus handled, would bring advantage to both the farmer and his consuming public.'' The general manager of the California Fruit Growers Exchange, G. Harold Powell, said: 'There should be an affirmative statutory recognition that farmers have the right to organize, to do those things that are vital to the economical and orderly conduct of their business...The legality of a cooperative marketing agency should not be made to depend upon the mere form of its internal organization" (Knapp, 1973, pp. 22-25). The report of the Committee on Marketing, adopted by the Conference, stated: ''We...urge that Congress promptly enact affirmative legislation which will permit farmers to act together in associations, corporate or otherwise, with or without capital stock, for purposes connected with the production, processing, preparing for market, handling, and marketing in interstate commerce such products of persons so engaged with specific statements of their rights, powers, remedies, and limitations, and which will permit such associations to have marketing agencies in common and to make such contracts and agreements as are necessary to effect such purposes.'' Meanwhile, on May 4, 1921, the House of Representatives had passed a redraft of the Capper-Volstead bill by a large majority. The Senate Judiciary Committee, chaired by Thomas Walsh of Montana, who was more conversant with the western copper mines than with the eastern wheat fields of his State and who spoke favorably of cooperatives while opposing the Capper-Volstead proposal, held extensive hearings. The committee then reported an amended bill that, in the minds of cooperative leaders, left cooperatives with greater legal uncertainties than they had faced under the Clayton Act. Statements were circulated by both supporters and opponents of the House version of the bill, but the Senate did not vote on the bill during 1921. The strong support for legislation of the type passed by the House voiced by the National Agricultural Conference led the Senate to bring the bill up for debate early in 1922. The debate centered on the possibility of an agricultural cooperative becoming so strong that it would

69 Chapter 4

70 FARM DEPRESSION. COOPERATIVES, AND CAPPER-VOLSTEAD

Stifle competition, establish a monopoly, and unduly enhance prices. Senator Cummins felt the real issue was preserving competition. Senator Lenroot said: "We are compelled to choose as to permitting in the case of cooperative associations, such an association as may, on the face of law, permit monopoly, but which every senator knows will not result in monopoly because there is no necessity of life today which is produced upon the farm which can be made the subject of complete monopoly." After several days of debate, the House version of the bill was passed on February 8, 1922, with a minor amendment. The House concurred in the Senate amendment. President Harding signed the Capper-Volstead Act into law on February 18, 1922 (Knapp, 1975, pp. 4-11).

Capper-Volstead Act of 1922 Sen. Arthur Capper of Kansas The Capper-Volstead Act has sometimes been called, perhaps with a bit of exaggeration, the Magna Carta of Cooperation. For a number of years, it protected cooperatives from legal attacks as they organized. However, despite some feeling to the contrary, it never granted cooperatives the right to establish monopolies with complete immunity from the antitrust laws. As some cooperatives became larger and controlled a part of the market for particular commodities, antitrust legal actions were brought against them for alleged misuse of the protections from antitrust suits that the act did grant. Courts have ruled that cooperatives may not engage in predatory practices to grow or to acquire a larger share of the market. Nevertheless, the Capper-Volstead Act places no limits on the size of cooperatives. Courts also have ruled that cooperatives may grow by voluntary membership until all producers of a product belong to the cooperative, giving it a 100-percent share of the market (Baarda, 1989, pp. 403-404). Continuing questions as to exactly what protection the courts Rep. Andrew Volstead will continue to grant cooperatives under the Capper-Volstead Act are of Minnesota discussed in subsequent chapters.

71 Provisions for Producers—and Consumers. Section 1 of the act stated: ''persons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers may act together in associations, corporate or otherwise, with or without capital stock, in collectively processing, preparing for market, handling, and marketing in interstate and foreign comn\erce, such products of persons so engaged. Such associations may have marketing agencies in common..." The act required that the association must be operated for the mutual benefit of members, must limit each member to only one vote, and could not pay dividends on stock or membership capital in excess of 8 per- centum per annum. The amendment to this section resulting from the Senate debate read: 'That the association shall not deal in the products of nonmembers to an amount greater in value than such as are handled by it for members." Section 2 provided a unique regulation of cooperatives under the act. It authorized the Secretary of Agriculture, if and when he found that a cooperative had "unduly enhanced prices," to order it to cease and desist from enforcing such prices. If it neglected to obey the order, an action at law should be instituted by the Attorney General requesting the court to enforce the order.

Early Organizational Effects. The meaning and scope of the Capper- Volstead Act was quickly brought to the attention of farmers and their cooperatives by Lyman S. Hulbert of the Department's legal staff and by economists in the Bureau of Agricultural Economics assigned to cooperative work. Hulbert's bulletin. Legal Phases of Cooperative Associations, was published in October 1922. In giving Federal recognition to the cooperative form of business operation, the act provided a set of work- able definitions that could be used, particularly by the predecessors of Agricultural Cooperative Service (ACS), in compiling statistics, in

72 reporting on legislation, and in regulations relating to cooperatives (Knapp, 1975, pp. 12-13). The new law encouraged the development of strong, well-organized, and well-financed nnarketing cooperatives, operating either as federated or centralized organizations. With the knowledge that their right to exist was protected, they could bargain more effectively with large-scale commercial companies. Within a few years after the act was signed, the number of large marketing cooperatives, promoted by Aaron Sapiro and others, had increased substantially even though the continuing farm depression soon led a number of them to go out of business. The act, according to Joseph G. Knapp, gave cooperatives a sense of cohesion that led in turn to the development of national cooperative organizations. Earlier, in 1916, as a result of many legal actions charging dairy bargaining cooperatives with being in restraint of trade and of constant harassment from milk dealers, these cooperatives had united as the National Cooperative Milk Producers Federation. The next year, the Federation joined the new National Board of Farm Organizations, which included the National Grange and the Farmers Union. However, the Board never became the major voice for agriculture or for agricultural cooperatives that its organizers had hoped (Guth, 1974, pp. 418-419). Encouraged by passage of the Capper-Volstead Act and the success of the commodity marketing associations, leaders, including Aaron Sapiro, called a national cooperative marketing conference for December 1922. The conference voted to establish an ''umbrella" organization as the National Council of Farmers' Cooperative Marketing Associations. While the Council held additional cooperative marketing conferences, it began to decline when some of the new large cooperatives failed, and it col- lapsed in 1926 (Dyson, pp. 181-184). It was not until 1929 that a successful umbrella organization came into being with the establishment of the National Cooperative Council, discussed in a subsequent chapter.

73 Meanwhile, Charles W. Holman, secretary of the National Cooperative Milk Producers Federation, was proposing to other cooperative leaders that a major program of education in agricultural cooperation be undertaken. Such a program would be aimed at keeping the cooperative community up to date, but, even more important, would tell the American people what cooperatives were and what they do for farmers. After some discussion, it was agreed that a yearly institute might be the means of accomplishing these goals. At a meeting of cooperative and farm organizations in 1924, it was agreed to go ahead. Secretary of Agriculture Henry C. Wallace, who was present at the meeting, promised the full cooperation of the Department. As a result of the meeting, the American Institute of Cooperation was incorporated as an educational institution in January 1925 under the laws of the District of Columbia. If the new institute was to succeed, it had to offer a program of vital interest. The group secured the services of Edwin G. Nourse, a leader in the field of cooperation, to develop the program. The cooperative staff of the Bureau of Agricultural Economics was called upon to help plan the program and staff the Institute. The first session of 4 weeks was held in the summer of 1925 at the University of Pennsylvania. It was successful. Institutes continued to be held largely at universities throughout the Nation (Knapp, 1973, pp. 79-87). AIC, as a separate entity, ended in 1990 when its educational functions were assumed by the National Council of Farmer Cooperatives. Over the years, the staff of Agricultural Cooperative Service assisted with planning and participated in AIC programs.

Continuing Interpretation and Impact. The Capper-Volstead Act continued as a base upon which cooperatives were built and operated into the 1990's. The act has been interpreted in somewhat varying ways by different Government administrations and courts, sometimes broadly

74 and sometimes narrowly. ACS and its predecessors have kept the cooperative community inform^ed of the varying interpretations. In recent years, the continued abiUty of the law to adequately protect modern cooperatives has been questioned. While the law itself has been attacked by some business groups, many of those attacking the law have incor- rectly assumed that Congress in passing the Capper-Volstead Act had not anticipated the emergence of large cooperatives such as has taken place since World War II. In fact, market shares for some associations were larger prior to the act's passage than they ever attained in subsequent years (FC, Jan.-Feb. 1980, pp. 21-23). The right of farmers to organize and operate strong cooperative marketing associations under the Capper-Volstead Act was affirmed by the Supreme Court in 1928. In Liberty Warehouse v. Burley Tobacco Growers Cooperative Marketing Association, the Court said: ''Congress has recognized the utility of cooperative associations among farmers in the Clayton Act..., the Capper-Volstead Act..., and the Cooperative Marketing Act of 1926...These statutes reveal widespread legislative approval of the plan for protecting scattered producers and advancing the public interest..." The Supreme Court placed a limitation on cooperatives in a 1939 decision in Li. S. v. Borden Co. It held that the Capper-Volstead Act did not permit cooperatives to join with noncooperative organizations in activities generally prohibited by the antitrust laws but from which cooperatives were to some extent exempt. During the 1940's and 1950's, there were many attacks on cooperatives because of their tax status and because it might be possible for large cooperatives to exercise major controls over prices. These attacks are discussed in subsequent chapters. In 1960, the Supreme Court, in U. S. v. Maryland and Virginia Milk Producers Association, stated that under the law "individual farmers should be given, through agricultural cooperatives acting as entities, the same

75 unified competitive advantage — and responsibility — available to businessmen acting through corporations." The cooperative, according to the Court, was not permitted to buy out a competitor to ''suppress competition by and among independent producers and processors." For the future, this meant cooperatives were not limited in growth, but were under some limitations in how they achieved that growth. Two years later, the Supreme Court held in Sunkist Growers, Inc, V. Winkler and Smith that Sunkist Growers and its two wholly owned subsidiaries were exempt by Capper-Volstead from the conspiracy provisions of the antitrust laws with respect to their interorganizational dealings. This offered encouragement to the federated type of cooperative in its marketing activities (Knapp, 1975, pp. 19-30). During the 1970's, additional suits were filed against Sunkist Growers and against some of the milk cooperatives. In fact, a number of major attacks were made on cooperatives by regulatory agencies, the Department of Justice, and private trade groups. In the August 1980 issue of Farmer Cooperatives, Lee R. Kolmer, then Dean of the College of Agriculture, Iowa State University, asked: "Why Are They Attacking Capper-Volstead?" He stated that the Capper- Volstead Act was under siege and that the attacks had become more intense during the 1970's. Perhaps the opposition was renewing its attacks because cooperatives were merging and undertaking large-scale operations. The percentage of farmers in cooperatives' total patron mix was declining and more cooperatives were selling branded products at the retail level. The result was that cooperatives were becoming indis- tinguishable from their corporate competitors. Cooperatives cited their ownership patterns as making the difference, but critics charged that the operating philosophies and patterns were the same. Kolmer urged cooperatives to get the actual farmer-owners involved in management. Most cooperatives, particularly the larger

76 ones, needed to get more information to their members and to get them involved in policy decisions. If members did not control a cooperative, but left everything to hired management, the organization v^ould lose the loyalty of its members and even lose its position as a cooperative. Cooperatives needed to inform Congress and the executive branch of the Government, as well as the American public, what cooperatives were and what they did. It was necessary, as well, to show the importance of cooperatives to the economic and community life of rural America. Kolmer also pointed out the public benefit of cooperatives that can market farm products to retailers: ''...the public, or their elected representatives, or the citizens' representative in the bureaucracy must be convinced that a cooperative's retail market activity is in the citizens' long-term interest. Retail marketing helps cooperatives maintain strong family farms that are competitive and have the capability of producing and marketing food and fiber at a cost lower than would be the case if cooperatives were not in the retail market." At the end of 1980, the Second U. S. Circuit Court, in Fairdale Farms, Inc. v. Yankee Milk, Inc., held that "Capper-Volstead gives farmers the right to combine into cooperative monopolies. The Act places no limits on combinations, it does not forbid farmers from combining after their cooperative reaches a certain size." In March 1981, a U. S. District Court judge in Georgia in Kinnet Dairies, Inc. v. Dairymen, Inc., agreed with the ruling of the Circuit Court. A more optimistic view of the future than that of Kolmer was expressed by Randall Torgerson, Administrator of Agricultural Cooperative Service, in the May 1981 issue of Farmer Cooperatives, He wrote that "Recent court interpretations indicate farmers' basic Federal cooperative marketing statute — the Capper-Volstead Act of 1922 — continues to carry authorization for farmers to market jointly as if they were one. Furthermore, these decisions strengthen the already existing

77 body of case history with the most lucid interpretations to date/' This meant that farmers must organize effectively and judiciously use the market power they had gained through their cooperative marketing and bargaining associations. Torgerson pointed out that an implicit distinction in ''monopoly'' po^wer held by farmers through their cooperatives as opposed to other businesses is that farmers comprise a dispersed ownership agriculture and one in which farmers, not cooperatives, make their individual production decisions. Without effective control over aggregate supplies, cooperatives cannot operate in traditional business monopolistic fashion. At the same time, in Section 2 of Capper-Volstead, Congress stated that if a cooperative should act in such a way as to unduly enhance prices of agricultural products, legal remedies could be invoked to cause the cooperative to "cease and desist." No permanent law existed to act against noncooperatives for unduly enhancing prices. Attacks upon Capper-Volstead will likely continue into the next century. To counter these attacks, cooperatives must continue to educate the American people as to their value. They can be aided in this effort by national associations of cooperatives and ACS. As James R. Baarda of ACS has put it: "In a world of multibillion-dollar mergers and corporate takeovers, multinational corporations, and incredibly complex intercorporate arrangements on every conceivable subject, it seems strange indeed that farmers need concern themselves with antitrust laws when creating and operating a cooperative for purely economic purposes. Antitrust concerns are, nevertheless, important" (Baarda, 1989, p. 397). Cooperatives must continue to prove their value to the American people as farmer-controlled enterprises that are distinct from and competitive with organized-for-profit big businesses.

78 Cooperative Marketing Act of 1926

From 1922 to 1926, research and educational activities were carried out in the Bureau of Agricultural Economics without any particular authorization from Congress for the work. Representatives of cooperative organizations sought to have the activities recognized and enlarged through legislation. After a few years, they succeeded when Congress passed the Cooperative Marketing Act of 1926. Division of Agricultural Cooperation The Bureau of Agricultural Economics (BAE) was established on July 1, 1922, with the Division of Agricultural Cooperation, headed by Lloyd S. Tenny, as one of 16 divisions (42 Stat. 531). The Division of Agricultural Cooperation included three main projects: economics of cooperation, headed by A. W. McKay; statistics of cooperation, headed by R. H. Elsworth; and legal phases of cooperation, headed by L. S. Hulbert. All three project leaders had worked with cooperatives and brought highly specialized skills to their assignments. The new Bureau was headed by Henry C. Taylor, often called the ''father of agricultural economics.'' From 1901 to 1919, Taylor pioneered in the development of agricultural economics at the University of Wisconsin. He joined the U.S. Department of Agriculture in 1919, with the goals of bringing all economic work together and of making it a vital force in bettering American agriculture. He left BAE in 1925. Taylor wrote some years after leaving that the Bureau did its early work in the field of cooperation in a conservative manner. He

79 stated the situation was complicated at that time because many types of cooperation were being advocated and ''the movement was in the evangehstic stage/' Claims were being made for cooperation that could never be realized. Under such conditions, the Bureau could not take an active part even on the educational side of the movement. Taylor was skeptical of the centralized type of cooperatives being advocated by Aaron Sapiro and by the American Farm Bureau Federation. Thus, it seemed wise to Taylor to devote energies of the Bureau staff assigned to cooperative work to study causes of successes and failures, to the statistics of cooperation, to the laws and legal status of cooperation, and to answering such questions as were put to it (Taylor, pp. 642- 645). This was the path taken by the Division of Cooperation for the next several years. The Division issued one major publication in 1922 — Legal Phases of Cooperative Associations, mentioned earlier as being particularly useful with the passage of the Capper-Volstead Act the same year. Case studies of two cooperative organizations, the California Fruit Growers Exchange and the American Cranberry Exchange, were made to illustrate the principles and practices of successful cooperatives. Three bulletins resulted. Other cooperatives, both successful and unsuccessful, were studied. The records of some 1,050 cooperatives had been examined when the project ended in 1924. A study of agricultural cooperation in Denmark resulted in a bulletin analyzing cooperatives in that country This was followed by a summary of agricultural cooperation in the United States, In January 1923, the Division began the semi-monthly publication of a mimeographed newsletter entitled Agricultural Cooperation, It had a mail distribution of 3,000 by 1925 and contained information on the activities of farmer cooperatives, brief reports on research being carried out in the Division, and summaries of legal cases and decisions affecting

80 cooperatives. The newsletter was successful in carrying out the Division's responsibility for getting information to cooperators and to the public. In June 1924, Chris L. Christensen was placed in charge of the Division of Agricultural Cooperation. Under his direction, the Division began to emphasize working in cooperation with the State agricultural colleges, an approach that proved fruitful and has continued to the present time. One of its early projects was a study of management and operating costs of cooperative cotton gins that was carried out jointly with the agricultural colleges of North Carolina and Texas. A survey of cooperatives in California was conducted in cooperation with the University of California. Other studies were undertaken on the cooperative marketing of cotton and of fruits and vegetables and on operations of cooperative grain elevators in North Dakota and Minnesota. A new approach to making information available came in 1925 with the release of the first motion pictures dealing with cooperatives. These were Cooperative Marketing — Cotton and Cooperative Marketing — Tobacco, The Division addressed issues of Federal policy. Staff members conferred with income tax officials and formulated statements to help clear up misunderstandings regarding the payment of Federal income tax. Technical assistance to cooperatives was an important aspect of the Division's services. Work on accounts and business practices was particularly useful to smaller cooperatives, and the requests for such services were greater than could be met immediately by the staff. A few comprehensive studies were made, such as one of the Western New York Fruit Growers Packing Association. The Association adopted the major suggestions made in the report. Other studies of individual associations included the Staple Cotton Cooperative Association, Greenwood, MS, and two large California cooperatives marketing citrus and deciduous fruit (McKay and Abrahamsen, pp. 19-25).

81 The annual report for 1926 of the Bureau of Agricultural Economics gave the following justification for studies of individual associations: ''The object in conducting analysis of the business of individual associations is primarily to accumulate a sufficient number of cases to set up operating ratios and standards for cooperatives handling various commodities, and to study by a case system the economics of cooperative marketing. The development of methods that will enable the cooperatives to study their own problems is also a valuable service/'

Pressure for Legislation for Cooperative Work The Division's project for helping cooperatives adopt better business practices won much support. Its work with individual cooperatives led to more requests than the Division could handle. At the same time, support the Division received from the Bureau and the Department depended upon the attitudes of Bureau chiefs and Secretaries of Agriculture. One problem leading the administration to move carefully in this area was that some people considered cooperatives subversive to prosperity and even radical. Trade journals and spokesmen for middlemen told the Department and the agricultural colleges that they had no business using taxpayers' money to help farmers set up cooperative enterprises to steal away business of the private middleman (Black, p. 337). The matter was further complicated by the fact that Congress had never directed the Department to carry out work with cooperatives even though it had appropriated funds to be used for that purpose and had passed the Capper-Volstead Act in support of cooperatives.

McNary-Haugen Proposals. A deepening depression in agriculture, even though the general economy was prospering, acted as a catalyst to bring about legislation directing continuing Federal research and technical assistance for cooperatives. At the same time, there were many

82 proposals for direct Government intervention in the farm economy to overcome the depression. The most prominent were the McNary-Haugen bills, introduced repeatedly by Senator Charles L. McNary of Oregon and Representative Gilbert N. Haugen of Iowa. These bills would have the Federal Government establish a two-price system for farm products, guaranteeing a ''fair exchange value" for products for domestic con- sumption and selling surplus agricultural products at world prices. The McNary-Haugen bills were supported by Henry C. Taylor, who was forced to resign as Chief of the Bureau of Agricultural Economics because of that support. They were strongly opposed by President Calvin Coolidge, Secretary of Agriculture William M. Jardine, and Secretary of Commerce Herbert C. Hoover. All three gave staunch support to cooperatives, in part at least because they were seen as a viable alternative to the direct intervention by Government in the economic affairs of farmers proposed in the McNary-Haugen bills. At the same time, many cooperative leaders supported the McNary-Haugen legislation. Farm organizations, particularly the American Farm Bureau Federation, supported both cooperatives and the McNary-Haugen idea.

Coolidge Agricultural Conference. President Coolidge called an Agricultural Conference to meet in November 1924 and in January 1925 to hold hearings on cooperative marketing and possible assistance to agriculture. The members of the conference were chosen, at least in part, because of their opposition to the McNary-Haugen bills. The Conference endorsed the protective tariff and recommended rather complex legislation in support of cooperatives. The proposal included the voluntary registration of cooperatives with the Federal Government, Federal char- tering of cooperative exchanges at terminal markets, and the establishment of a Federal cooperative marketing board to act as a coordinating and advisory agency. Cooperatives received the report with little enthu-

83 siasm, seeing it as an attempt to bureaucratize the cooperative movement (Knapp, 1973, pp. 99-105). Some farm journals opposed strong Government intervention with respect to cooperatives, while supporting the McNary-Haugen bills. For example, Wallaces' Farmer, a leading Midwestern journal, stated in its November 21, 1924, issue that it was a "debatable point as to whether it is for the best interests of cooperative marketing to permit Government control and supervision, however slight, beyond the point at which Government regulation of other industries ceases. It may be best for cooperation to move more slowly, and for our marketing associations to federate under their own power and not thru federal aid." The journal concluded that the McNary-Haugen bill would prevent the exportable surplus from wrecking the home market, while cooperatives were solving the problem of providing for orderly marketing and adequate storage in supplying products to the market. The McNary-Haugen legislation and cooperatives, but not Government regulation of cooperatives, were needed in the opinion of Wallaces' Farmer, At the conclusion of the Agricultural Conference, bills were introduced to establish a Federal cooperative marketing board to register cooperatives and to oversee their operations. Some versions of the legislation also proposed to move work with cooperatives from the Department of Agriculture to the Department of Commerce. Several cooperative leaders, including Aaron Sapiro, testified in opposition to such legislation. The National Board of Farm Organizations, represented by Charles W. Holman, opposed the legislation, but suggested that some Government assistance, without registration or regulation, would be welcome. The proposed legislation was not approved by Congress (Knapp, 1973, pp. 103-107).

84 COOPERATIVE MARKETING ACT OF 1926

Cooperative Marketing Act of 1926 Despite the defeat of the proposed legislation. Congress and the Administration felt something should be done for cooperatives. Secretary of Agriculture William M. Jardine stated in his annual report for 1925 that: "The most distinct and significant movement in American agriculture in this decade is the almost universal trend toward cooperation in the marketing and distribution of farm products....A movement of this mag- nitude, with its tremendous economic and social significance, must be analyzed and guided so that its highest possibilities may be realized." The Secretary and other administration officials were willing to support less restrictive legislation than that proposed in 1925, while congressional leaders were willing to consider legislation endorsed by cooperative leaders. When it became evident that those leaders would support a bill extending the services offered by the Department, such a William M. Jardine, Secretary of Agriculture bill was drafted by Secretary Jardine's staff. After 33 leaders of cooperative associations endorsed the bill, it was introduced into Congress. When the bill was introduced, its purpose as stated was "to create a division of cooperative marketing in the Department of Agriculture; to provide for the acquisition and dissemination of information pertaining to cooperation; to promote the knowledge of cooperative principles and practices; to provide for calling advisers to counsel with the Secretary of Agriculture on cooperative activities; to authorize cooperative associations to acquire, interpret, and disseminate crop and market information, and for other purposes."

House of Representatives Action. The bill was sent to the Committee on Agriculture of the House of Representatives and was reported back to the House by Chairman Haugen on January 18, 1926, with the recommen- dation that it be passed. Secretary Jardine had appeared before the committee in support of the measure, where he stated that the bill was not

85 an emergency measure but provided for a long-term program. Representatives of the American Cranberry Growers Exchange, the National Grange, the National Council of Farmers' Cooperative Marketing Associations, Aaron Sapiro, and Charles W. Holman of the National Milk Producers Federation had also testified in support of the bill. No witnesses appeared in opposition to the bill nor were any statements opposing it filed with the committee. The bill was debated in the House on January 25-26, 1926. Although no strong opposition to it was expressed, several questions were raised. One Congressman suggested that there was no need for such legislation, and its purpose was to raise the pay of a number of Department employees, while another asked if it gave "Secretary of Agriculture carte blanche authority to employ just as many swivel-chair employees as he wants, without any limitation whatever/' Proponents replied that the bill did not provide for increases in salary, that the new people employed under the act would be hired and paid in accordance with Civil Service regulations, and that the number of employees was limited by the amount of money Congress appropriated for salaries. A number of points in explanation of the bill were made by Representatives Hangen, Jones, and Fort. The bill was not a farm relief measure but was a long-term program to aid cooperatives. It enabled the Department to act as a clearing house for the different cooperative organizations. At the time the railroads, banks, labor unions, and industrial corporations were organized, there were no restrictions on their activities, and "today the unorganized farmer is entitled to be put in the same economic status that the other forms of industry enjoyed at the time of their formation into organized effort." The bill would authorize the Secretary of Agriculture to conduct research and give assistance to marketing cooperatives in the same manner it had conducted research and given assistance to agricultural producers.

86 When the bill was brought to a vote, 361 Congressmen voted in favor, 3 voted against, 1 voted ''present/' and 65 did not vote. The bill was passed on January 26, 1926.

Senate Action. The bill was sent to the Senate, where it was referred to the Committee on Agriculture and Forestry. A similar bill was introduced by Senator McNary and was also referred to the committee. The two bills differed in that naval stores, tree products such as turpentine and pitch used in paint and caulking, were included in the list of agricultural products in the bill passed by the House but were omitted from the one introduced by Senator McNary. Those opposing the inclusion of naval stores made the point that they were produced by corporations and that the new law was not to be a collusive device for corporate firms. The committee held hearings on the bills on March 5, 6, 8, 13, 17, 19, and 23, 1926. Secretary of Agriculture Jardine endorsed Senator McNary's version of the bill. There was considerable discussion of the naval stores matter and, in the end, it was omitted from the law. Proposals were made to attach farm relief measures, such as the export corporation bill, to the cooperative bill. Executive Secretary Harrison F. Jones of the National Poultry, Butter and Egg Association proposed that the bill be expanded to a general marketing bill, with the benefits of research and the collection of data available to all business organizations. The point that the bill was needed to assure continuity of work with cooperatives was made by Charles W. Holman, secretary of the National Board of Farm Organizations. The work had had its ups and downs in the Department, depending upon how a particular Secretary of Agriculture viewed it. A permanent policy was needed to ensure that work could go on for the benefit of that part of the agricultural public who wished to market their products in a cooperative way. Cooperatives

87 did not want Government licensing, but they did want technical assistance for improving their economic efficiency. Similarly, the Government should not organize cooperatives, but Government information should be available to groups interested in organizing cooperatives. The most important provision of the law, according to Holman, was the section authorizing cooperatives to exchange crop and market information. Lloyd S. Tenny, assistant chief of the Bureau of Agricultural Economics, who had been active in the Department's work with cooperatives, emphasized that the bill was a cooperative marketing bill. The Department did not want anything in the bill ''except work that per- tains very directly and specifically to cooperative marketing work." General marketing research was already authorized in the appropriation act establishing the Bureau of Agricultural Economics. All of the actions authorized under the present bill were for the purpose of rendering service to cooperative associations of producers. The American Farm Bureau, represented by Chester H. Gray, supported the proposed law. The Farm Bureau, however, after a series of internal battles, had come out strongly for the McNary-Haugen bill. Some of its leaders saw the cooperative marketing bill, not taken up in the full Senate until after the defeat of the McNary-Haugen bill, as a gesture to appease the farm forces (Kile, pp. 140-142). However, at its annual meeting in December 1925, the Farm Bureau had adopted a resolution supporting the cooperative marketing of farm products and had petitioned the Department of Agriculture to instruct employees to teach the principles of cooperative marketing and to assist cooperatives in their operating policies and membership relations. On February 11,1926, the board of directors had voted to support the cooperative marketing bill that had been introduced by Representative Haugen. Gray testified that the Farm Bureau regarded the bill not as emergency farm relief but as a long-term operation. Over a period of years. the division could standardize cooperative marketing to make it permanent and successful without making the cooperatives of the same uniform type. Gray opposed adding naval stores to the original bilL The committee reported a "Cooperative Marketing Act" to the Senate on April 19,1926. However, on April 2, the committee had added an amendment aimed at the problem of agricultural surpluses similar in intent to the McNary-Haugen bills. The amendment had been proposed to the committee by the American Cotton Growers' Exchange, with the support of the American Farm Bureau Federation, the Farmers' Union, the American Council of Agriculture, the Equity Cooperative Exchange, and a number of other farmers' organizations. The amendment proposed to establish a farm board that would be financed in the beginning by an appropriation of $250 million and would collect "equaliza- tion" fees on major commodities to be used for segregating and disposing of agricultural surpluses. The bill was debated in the Senate at various times from April 29 to June 30. There was little discussion of the bill that had passed the House except as to whether naval stores should be included. However, there was a great deal of discussion about the proposed farm board. The idea was defeated, but another amendment was offered to establish a farmers' marketing commission. This commission would have authority, in general, to work with cooperatives in disposing of agricultural surpluses primarily by making loans to cooperatives to hold excess commodities off the market until prices rose and the surpluses were absorbed. An appropriation of $100 million would be authorized for making such loans. This amendment was also defeated. The basic bill as passed by the House was passed by the Senate on June 29, 1926, with two amendments. One amendment deleted naval stores from the list of agricultural products, and the second added "and others" as eligible to receive information developed for cooperatives. The bill was then returned to the House. On June 30, the House concurred in the Senate amendments. The bill was presented to President Calvin Coolidge who signed it into law on July 2, 1926 (Legislative History, Cooperative Marketing Act of 1926 - Public Law No. 450, 69th Congress. In files. Agricultural Cooperative Service). The lack of major controversy over the bill is shown by the fact that the purpose as stated when it became law was exactly the same as when the bill was first introduced. At the same time, though, many people in Congress and the Administration saw the bill as an action to help farmers help themselves financially, either as a part of or as an alternative to other proposals for economic relief for farmers. Assistance to cooperatives became a part of Federal farm policy.

Purpose and Provisions. The statement of purpose at the beginning of the law (see appendix), quoted earlier, gave a clear statement as to what the provisions aimed to accomplish. The bill, rather short as such matters go, began with defining ''agricultural products," omitting naval stores, but otherwise quite comprehensive. The second section directed the Secretary of Agriculture to establish a division of cooperative marketing in the Bureau of Agricultural Economics or in the bureau of the Department concerned with the marketing and distribution of farm products. Section 3 of the law spelled out functions the division was authorized to perform. It was to ''render service" to cooperatives engaged in "the cooperative marketing of agricultural products, including processing, warehousing, manufacturing, storage, the cooperative purchasing of farm supplies, credit, financing, insurance, and other cooperative activities." It was to acquire and disseminate information regarding cooperative associations in the United States and foreign coun-

90 tries. The division was authorized to conduct studies of the economic, legal, financial, social, and other phases of cooperation, including analyses of problems of cooperative associations. When requested by a cooperative, the division could make surveys and analyses of the cooperative's business practices and report the results back to the cooperative. Section 3 also directed the division to confer and advise with groups of producers interested in forming cooperatives. The division was to acquire production and marketing data regarding agricultural commodities and make the data available to ''cooperative associations and others/' Finally, the section directed the division to promote the knowledge of cooperative principles and practices. Section 4 stated that the Secretary of Agriculture could call advisers to meet with him and his representatives relative to specific problems of cooperative marketing or any other cooperative activity. Producers of agricultural products could, according to Section 5, acting together or through a common agent, exchange and interpret crop, market, statistical, economic, and other information. Section 6 authorized the Secretary to make such rules and regulations as were necessary to carry out the act. It also authorized the appropriation of $225,000 for expenditure during fiscal years 1926 and 1927 and the appropriation of funds needed for carrying out the act in subsequent years (44 U. S. Statutes at Large 802). Essentially, the legislation directed the Secretary of Agriculture to establish a Division of Cooperative Marketing that would carry on a comprehensive program of service, research, and education for agricultural cooperatives. In addition, agricultural producers, working through cooperatives or other agencies, were permitted to exchange crop and market information. The law contained little that was new. Rather, it directed that work with cooperatives, much of which was already being done, should be continued on a permanent basis, not sub-

91 Chapter 5

Members of the Division of ject to year-by-year decisions of the Secretary of Agriculture or of Cooperative Marketing staff in Congress. Congress could, of course, influence the work from year to 1926 were: Front row, from the left, R. H. Elsworth, Jack year by the amount of money it appropriated for it. Booth, Kelsey B. Gardner, B.B. Derrick, Chris Christensen Division of Cooperative Marketing Organizes (division chief), Andrew W. McKay, H. M. Bain, Hutzel As the Division of Agricultural Cooperation was replaced by the Division Metzger, and Leon Morales. of Cooperative Marketing, some cooperative leaders were concerned Back row, a staff messenger, ]ohn Lister, John Scanlon, because cooperative marketing was emphasized to the exclusion of coop- George Gatlin, C. G. Randell, erative purchasing. Others pointed out that antagonism of the compet- L. S. Hulbert, J. W. Jones, H. F. itive trade to farmer marketing cooperatives was declining but that Buchanan, and A. V. Swarthout... strong prejudice still existed against the more recently developed pur-

92 COOPERATIVE MARKETING ACT OF 1926

chasing associations. It seemed impossible to keep the old name in view of the wording of the law. The problem was not as serious as it might have been. Earlier, a compromise had been made while the law was being drafted to define marketing as including "processing, warehousing, manufacturing, storage, the cooperative purchasing of farm supplies, credit, financing, insurance, and other cooperative activities." Thus, almost any aspect of agricultural cooperation was eligible for ... and with the secretarial sup- research, education, and assistance with organizational and manage- port staff added, although not identified. ment problems.

93 As the Secretary of Agriculture put it in his annual report for 1926, the new law was ''designed to enable the Department to conduct research studies and furnish service which will aid in the development of the cooperative movement. Research designed to test existing business and marketing methods, education in the principles and practices of cooperation, and such service to the cooperatives as can be rendered by a fact-finding agency are the objectives of the new division." With the increase in staff and legislative authorization for the work, the Division was able to divide its activities into distinct units. The Division continued to be headed by Chris L. Christensen. The assignment of specialists as follows to particular units of work indicates the emphasis being given to specific lines: Hutzel Metzger, dairy products; C. G. Randell, livestock and wool; J. R Booth and W. J. Kuhrt, grain; George O. Gatlin, cotton and tobacco; A, W. McKay, fruits and vegetables; J. F. Walker, wool and foreign studies; A. V, Swarthout, Kelsey B. Gardner, and John J. Scanlon, business methods; L. S. Hulbert and H. M. Bain, legal phases; J. W. Jones, membership relations; B. B. Derrick, education; and R. H. Elsworth, statistics and history (McKay and Abrahamsen, pp, 25-26).

Programs of Service, Advice, and Research. In his report for 1927, the first full year of operation under the new law, Christensen emphasized service and advisory activities and research studies. The emphasis on service and advisory work was possible because of its authorization by the 1926 act. The division was constantly furnishing information and advice with respect to the organization, management, and operation of cooperative associations. Detailed critical studies and analyses of individual cooperative associations were yielding encouraging results and were of great interest to cooperative officials and directors. One such study

94 was of the arrangement whereby the deciduous fruit of the California Fruit Exchange was sold through the sales organization of the California Fruit Growers Exchange. It was concluded that the arrangement was beneficial to the members of both organizations. An analytical study was also undertaken of the Producers' Livestock Commission Association of the East St. Louis stockyards. Cooperative marketing associations had a serious problem in holding adequate membership and securing the loyalty and intelligent support of their members. The division undertook a study in cooperation with the Agricultural Experiment Station of the University of Kentucky of the membership relations of cooperative associations marketing cotton and tobacco. This resulted in a bulletin. Membership Relations of Cooperative Associations (Cotton and Tobacco), by J. W. Jones and O. B. Jesness, Similar research work on cooperative associations handling fluid milk in four major areas of the Nation was undertaken with the cooperation of the agricultural colleges in the areas studied. A study of 41 cooperative petroleum associations resulted in another publication. Organization and Management Problems of Cooperative Oil Associations in Minnesota., by R. K. Froker and H. Bruce Price. Other research projects included work on the prune industry in Oregon and Washington, cooperative grain marketing in Canada, farmers' elevators in Montana and North Dakota, dairy products in New England, hog marketing in Iowa, and cotton-gin operations in Texas and North Carolina. The Division's first project on the cooperative marketing of wool got underway with sending a wool specialist to Australia and New Zealand, The Cooperative Marketing Act charged the Division with extending the principles and practices of cooperation among farmers. The Division worked with agricultural colleges. Extension services, and cooperative associations in promoting and carrying out short-term

95 schools in which these principles and practices were presented. Two new films, Cooperative Marketing — Pacific Coast Eggs and Cooperative Marketing in the United States, were released. The Division also made arrangements to assign one of its cooperative marketing specialists to work with the Extension Service. Christensen, in an address before the Institute of Politics on August 15,1928, discussed the importance of the Cooperative Marketing Act of 1926. The act made it clear that the Government's relation to agricultural cooperatives should consist of encouragement and assistance along the lines of research, education, and service and that the Federal Government should not impose or exercise any supervisory or regulatory powers over farmers' associations. Cooperatives were businesses and should be given the same freedom granted to other business enterprises, but they needed assistance in working out technical and economic problems. Congress, according to Christensen, had officially recognized the importance of the farm cooperative movement by establishing a cooperative branch within the Department of Agriculture and charging it with specific responsibilities for research and service work. The Department would now be able to plan a definite long-term program of research to be carried out by a trained staff of specialists. The research, service, and educational work of the division was to be based upon the needs of the cooperative movement and was to have practical applications. By 1928, Christensen felt able to say in his annual report that greater progress in cooperative organization among farmers had been made during the past 10 years than during any other period in American agriculture. The growth could be explained only by concluding that cooperation was rendering a distinct service to farmers of the Nation. Although he did not say so, it is also possible that farmers saw cooperatives as a help in getting out of the continuing agricultural depression.

96 Research during the year had been along four major lines: the dGvelopn\ent of cooperatives within each major commodity group; business studies of individual cooperative associations; legal phases of cooperatives; and cooperative purchasing of farm supplies. The study of farmers' grain elevators, in cooperation with the agricultural colleges of Minnesota, North Dakota, South Dakota, and Montana, was continued. A study of cooperative grain marketing in Canada suggested that the achievements of the cooperative elevator companies and of the wheat pools were due to the fact that they had been organized in such a way as to coordinate the operation of country and terminal elevators with central selling agencies, a key element in recommendations made by Aaron Sapiro. A study of wool marketing in New Zealand and Australia was completed. The researcher concluded that the uniform success in these countries in the production and marketing of high-quality wool was due to the development of breed types to meet local conditions, prepa- ration of the wool for market in a manner to attract buyers, improved methods of disposal of the wool, development of cooperative marketing of the wool, and government support of the wool industry An analysis to determine possible outlets for honey, made in cooperation with the New York State College of Agriculture, identified important factors in its marketing. Honey was regarded as a luxury product that must be standardized and advertised before a popular demand would develop. Consumers had little knowledge of honey, and many styles and sizes of containers added to the cost to the consumer. Possible solutions to the problem included education of the public relative to the healthfulness and food value of honey and the further development of cooperative marketing among beekeepers to carry out standardization and advertising. Research to determine the cause of the failure of the Tri-State Tobacco Growers' Cooperative was undertaken at the request of grow-

97 ers, with a view of developing facts that would help other cooperatives in avoiding similar misfortunes. It was determined that certain factors within the association, particularly poor management, brought about the failure rather than real obstacles to the development of cooperative marketing of tobacco. A number of studies of other commodities and of individual associations were made during the year. The staff was called upon to assist existing cooperative associations with their legal, financing, and merchandising problems, and accounting and pooling practices, as well as to assist farmers who were contemplating organizing cooperatives. This work had become established on a firm basis with the passage of the Cooperative Marketing Act of 1926. The same was true of the Division's educational activities. It cooperated with Extension services and State agricultural colleges in holding short-term schools of cooperative marketing in Connecticut, Colorado, Arkansas, Tennessee, Kansas, Missouri, Texas, and Massachusetts. The Division's service activities included such projects as advising on the reorganization of the American Rice Growers' Association and preparing a standard set of bylaws for farmers' elevators at the request of farmers' elevators in the spring wheat area. Christensen began his 1929 report by saying "The Division of Cooperative Marketing was transferred to the Federal Farm Board by Executive Order on October 1, 1929." His report covered the activities carried on under the Bureau of Agricultural Economics to the date of transfer. In the 3 years after passage of the Cooperative Marketing Act, the principal change in the scope of work had been caused by increasing demand for assistance of a service nature. There was an almost constant series of requests for assistance in formulating financing, operating, and merchandising policies. At the same time, research was essential for providing services. Some 60 percent of the work carried on by the

98 Division in 1929 was research, a percentage that Christensen believed should be maintained. Research studies continued along the same general lines as in previous years. The study of farmer-owned grain marketing associations continued. A study of the organization and methods of representative fluid-milk marketing associations and economic analyses of the factors affecting the organizations was completed. As part of this study, particular attention was given to 200 cheese factories in Wisconsin to determine their methods of operation and their costs. Research on the cooperative marketing of honey, begun in 1927, was completed, as were a number of research projects on other commodities. Research also continued on agricultural purchasing cooperatives, including the widespread petroleum cooperatives. Several analyses of specific associations were made at the request of the associations. These included the Rice Growers Association of California, the Hastings Potato Growers Association of Hastings, FL, the Washington Shipping Association of Washington, IN, the Utah Poultry Producers Cooperative Association, the Poultry Producers of Central California, and the Producers Live Stock Commission Association of Chicago. In general, recommendations made to the associations were put into practice. While legal research had been carried on for some years, it became more important after the passage of the 1926 act. In addition to general analyses of legislation and court decisions and a revision of the bulletin Legal Phases of Cooperative Associations, the Division gave specific advice and assistance to groups interested in forming cooperatives and to existing cooperatives. Particular help was given in 1929 to individual cotton and tobacco cooperatives. The short-term cooperative marketing schools mentioned earlier continued, being held in eight States in 1929. They were held in coop-

99 eration with the State Extension services, agricultural colleges, and cooperative associations. The Division continued to collect and publish statistical data. Some 8,000 of the 11,400 active cooperatives that the Division had on record furnished data.

Support Base Is Laid. Particular attention has been given to the work of the Division of Cooperative Marketing during its first years under the Cooperative Marketing Act of 1926. During these years, precedents were set as to how the functions assigned by Congress would be carried out. The Capper-Volstead Act of 1922 has been called the Magna Carta of cooperatives. Certainly without such legislation, cooperatives v\^ould not have gained their present important position in the agricultural economy. The Cooperative Marketing Act of 1926 might be called the Constitution of Agricultural Cooperative Service. It outlines the duties of the Service, but most important, it provides for continuity, just as our Federal Constitution provides for continuity in our National Government. For more than six decades, the Service, whatever may have been its title or its place in a particular organization, has, under the law, carried out a program of service, research, and education for agricultural cooperatives.

100 Federal Farm Board and Farm Credit Administration, 1929-1953

The Division of Cooperative Marketing was transferred to the Federal Farm Board on October 1, 1929. It remained with the Board until the Board was consolidated into the new Farm Credit Administration on May 27, 1933. The Farm Credit Administration was an independent agency until July 1, 1939, when it became part of the Department of Agriculture. The Farm Credit Administration again became independent on December 4, 1953, but the Farm Credit Act of 1953 provided that the work carried out under the Cooperative Marketing Act of 1926 by the Cooperative Research and Service Division would remain in the Department of Agriculture. The Division was then reconstituted as Farmer Cooperative Service in the Department.

Federal Farm Board The Cooperative Marketing Act of 1926 did not bring the continuing agricultural depression to an end, nor was it expected to. In an attempt to secure farm relief through legislation. Congress passed versions of the McNary-Haugen bills in 1927 and 1928. President Coolidge vetoed both versions. Thus, farm relief became an issue in the Presidential campaign of 1928. The Republican candidate, Herbert Hoover, called for a farm board, similar to that proposed earlier by Secretary of Agriculture Jardine, to promote the effective merchandising of farm products, while the Democratic candidate, Alfred E. Smith, endorsed the McNary-Haugen plan. With the election of Herbert Hoover, the McNary-Haugen proposals were dead, and a farm board of one kind or another was assured.

101 Agricultural Marketing Act of 1929. President Hoover called a special session of Congress in the spring of 1929 to consider farm relief and changes in the tariff. The President was looking to cooperatives as a basis for his farm program when in his message to Congress he said: "The most progressive movement in all agriculture has been the upbuilding of the farmer's own marketing organizations....These organizations have acquired experience in virtually every branch of their industry and furnish a substantial basis upon which to build further organization." A House committee bill embodying the Jardine plan for a farm board was introduced on April 17. A similar bill, but including the export debenture plan sponsored by the National Grange, was introduced in the Senate on April 23. The export debenture plan proposed that exporters be given Government debentures having face values equal to all or part of the difference between the value of the commodity in the world market and a domestic value based on the world market price plus the tariff. The debentures would be used in payment of tariffs. The exporter would pay the farmer the world price plus the value of the debentures received (Benedict, p. 239). Virtually all of the statements made in the House and Senate supported strengthening cooperative marketing. One of the few statements in opposition was made by Representative McFadden of Pennsylvania who stated that the farmer needed efficient marketing of his products without it making any difference who ran the system, particularly since in his view the vast majority of farmers would always remain unorganized and outside the cooperative system. The House and Senate each passed versions of the bill. President Hoover then condemned the export debenture section of the Senate bill. After considerable discussion, the Senate agreed to the House bill, and it was approved by the President on June 15, 1929 (Digest of material

102 relating to the Agricultural Marketing Act of 1929, files. Agricultural Cooperative Service). The Agricultural Marketing Act of 1929, as the new law was known, was received with less than enthusiasm by farm groups, but since nothing else was possible, they resolved to make the best use they could of its provisions. Section 1 of the act declared it to be the policy of Congress to promote the effective merchandising of agricultural commodities so agriculture would be placed on a basis of economic equality with other industries. This goal would be achieved by: (1) minimizing speculation; (2) preventing ineffectual and wasteful methods of distribution; (3) encouraging organization of producer-owned and producer-controlled cooperative associations and other agencies; and (4) aiding in preventing and controlling surpluses in any agricultural commodity through orderly production and distribution. The act created a Federal Farm Board of eight members to be appointed by the President and provided for setting up Advisory Commodity Committees from cooperative associations representative of designated commodities. The Board was directed to promote education in the cooperative marketing of agricultural commodities and food products and to encourage effective cooperative associations. In addition, it was to keep track of crop prices and markets, to advise on the pre- vention of overproduction of agricultural commodities, and to investi- gate various aspects of the marketing process. Congress provided a revolving fund of $500 million to be admin- istered by the Board. The Board could make loans to cooperative associations for: (1) effective merchandising of agricultural products; (2) construction or acquisition of physical marketing facilities; (3) formation of clearing house associations; (4) extending membership of cooperative associations; and (5) making higher advances to growers than

103 could be provided through other credit agencies. The Board was also authorized, working through commodity cooperatives, to establish stabilization corporations for the purpose of controlling any surpluses that might arise. The President was authorized to transfer any agency engaged in scientific or extension work or in furnishing services with respect to the marketing of agricultural commodities to the Farm Board (46 U. S. Statutes at Large 11). This was the authority used to transfer the Cooperative Marketing Division to the Board. The President appointed Alexander Legge, president of International Harvester Company, as chairman of the Board. Soon after his appointment, in an address before the American Institute of Cooperation, Legge made it clear that he intended to work with and through agricultural cooperatives. He hoped to encourage and assist the development of large-scale, central cooperative organizations, and he considered this a long-term constructive program rather than one dealing with emergencies. The Board would not be concerned with arbitrary raising of prices, but, as Legge concluded, 'Tt expects by aiding in the development of cooperative associations to make possible economies in marketing and stabilized marketing conditions, and to assist farmers to obtain their just share of the national income" (Legge, pp. 3,11, 13). Although the Agricultural Marketing Act was supported by President Hoover and Secretary Jardine as a substitute for the McNary- Haugen bills, many agricultural businessmen and bankers, led by the United States Chamber of Commerce, soon opposed the Board. Some called it "socialistic or anarchistic," and said its goal was to control production as well as marketing. However, these attacks had the effect of solidifying farm organization and cooperative support for the Board (Knapp, 1973, pp. 126-128).

104 Division Organization Within Farm Board. The Board held its first meeting on July 15, 1929, and appointed Chris L. Christensen, then chief of the Division of Cooperative Marketing, as Secretary. On October 1, 1929, by Executive Order 5200, President Hoover transferred the Division to the Board. A. W. McKay was named chief of the Division and Hutzel Metzger assistant chief. The transfer gave the Board a group of experienced, highly qualified employees who had worked with cooperative organizations throughout the Nation and who personally knew most of the cooperative leaders. Since the Division had been set up along commodity lines, its commodity specialists had much to contribute to the Board members charged with responsibility for particular commodities.

Division Programs Under Farm Board. During the 4 years of the Farm Board's existence, the Division of Cooperative Marketing was working for the most part in providing services to cooperatives, chiefly to those that received loans from the Board. It was responsible, according to the 1932 report of the Board, ''...for giving advice and assistance to producers in the formation and operation of cooperatives; for the acquisition, analysis and dissemination of information regarding the progress, organization and business methods of cooperative organization; for research in the economic, legal, financial, social, and other phases of cooperation; for promotion of knowledge of cooperative principles and practices; for cooperation in promoting such knowledge with State educational and marketing agencies, cooperative associations, and others.'' The Division was organized into commodity sections parallel- ing the work assignments of the Board members. These were: cotton, dairy products, fruits and vegetables, grain, livestock and wool, poultry products, and special crops. The sections were first assigned responsibility for investigating and making reports on loan requests and the loan status of associations. They were then directed to make and pre-

105 sent loan recommendations directly to the Board, a new type of responsibility. No provision was made for work with either farm supply or service cooperatives (McKay and Abrahamsen, pp. 32-33). The Board placed great reliance upon better organized and more orderly marketing to be brought about through organization of larger and stronger cooperative marketing associations. This had been the goal of the American Farm Bureau Federation in 1921 and of the movement led by Aaron Sapiro in the mid-1920's. Both efforts, while useful, had been largely unsuccessful. Most of the successful large cooperatives had been organized from the bottom up rather than from the top down (Benedict, pp. 256-258). Nevertheless, the Division was charged with helping organize large cooperatives. The Division was also under pressure to move quickly because of the increasing seriousness of the farm depression. Wheat was regarded as a key commodity by the Board. The Board undertook the federation of existing regional grain cooperatives into one national agency, the Farmers National Grain Corporation. The Division developed the organization plans for the Corporation and for some of its member cooperatives. The price of wheat continued to fall, and the Board made loans directly to the regional cooperatives and, after it was organized, to the corporation in an endeavor to maintain prices. However, prices still continued to fall. In February 1930, the Board authorized the establishment of the Grain Stabilization Corporation to buy wheat and hold it off the market until prices stabilized. However, the deepening national and world depression doomed this effort. The corporation suspended operations in 1931. Cotton, like wheat, was of major importance to the farm economy. Division specialists assisted in developing and organizing the American Cotton Cooperative Association. The Association was to coordinate sales of the State cotton marketing cooperatives. In addition, it

106 handled directly some 3 million bales of the 1930 crop. The Division also helped organize the Mid-South Cotton Growers Association, the Texas Cotton Cooperative Association, and the South Carolina Cotton Growers Association. Work was also carried out with cooperative cotton gins. A Division traffic specialist worked with the associations on storage-in-transit and other traffic problems. Loans to the American Cotton Cooperative Association helped maintain prices for a year, but on June 5, 1930, a Cotton Stabilization Corporation was established. It purchased the unsold stocks of the member cooperatives, which then made further purchases. However, like the grain corporation, it could not hold back the continuing worldwide declines in prices, and it, also, was forced to suspend operations in 1931. The Livestock and Wool Section of the Division was called upon to develop plans for organizing and operating the National Livestock Marketing Association, the name of which was later changed to the National Live Stock Producers Association. This federation of regional livestock marketing associations and terminal commission associations, unlike the grain and cotton associations, never engaged directly in marketing but performed other services for its members. Such services included analyzing numbers, prices, and price trends of livestock. The Section also helped organize four production credit corporations for livestock producers and feeders and rehabilitated two others organized earlier. It also helped organize a number of State livestock marketing associations and cooperative terminal sales agencies in a number of markets. The Livestock and Wool Section gave extensive assistance in organizing the National Wool Marketing Corporation, which handled one- third of the 1930 clip. It also helped organize regional wool marketing associations, which became members of the National Corporation. While National brought some stability to the market, it was not able to halt the downward trend in prices.

107 The section working with poultry products made a study that led to the organization of the Northwestern Turkey Growers Association. This association proved to be of considerable help to turkey producers. The section also made studies in a number of States and helped organize a number of State poultry marketing associations. The Dairy Section conducted several major projects. These included studies of cooperative creameries and of milk marketing associations. However, since a number of strong cooperative dairy associations were in operation, the section was not called upon to organize large-scale national cooperatives. The Fruit and Vegetable Section helped with the organization of a number of national, regional, and local cooperatives, most of which received loans from the Federal Farm Board. In 1931, a Division project led to the organization of the National Fruit and Vegetable Exchange. The Division also assisted associations marketing tobacco, rice, sugar- cane, sugar beets, honey, and maple syrup. The Division carried on a number of educational projects during the Farm Board years. These included preparing lesson outlines and reference material for the study of the cooperative marketing of various products. The outlines and other materials were prepared for use by teachers of vocational agriculture, both in their regular classrooms and in night classes for adult farmers. The Division also took the lead in regular radio talks on cooperatives for the widely known ''Farm and Home Hour" of the National Broadcasting Company. The Division also issued a number of guides for organizing associations for marketing agricultural products (McKay and Abrahamsen, pp. 32-36).

Assessing Farm Board Years. The Great Depression of 1929 and subsequent years doomed to failure the Farm Board's efforts to stabilize prices. It had neither the authority nor the funds to deal with the catastrophe. The

108 Board stated the problem in its last annual report: 'The experience of the past year has emphasized the need for more complete organization of farmers in cooperative marketing associations, and for more effective development of those organizations as efficient producer-owned and producer-controlled marketing agencies....No system of organization, however, would have been sufficient to offset the drastic decline in demand for farm products which characterized the year, and which largely overshadowed the benefits of cooperative efforts....Experience with stabilization thus demonstrates that no measure for improving the price of farm products other than increasing the demand of consumers can be effective over a period of years unless it provides a more definite control of production than has been achieved so far.'' The Division of Cooperative Marketing, working under the pres- sures of the Great Depression, became much more of an action agency from 1929 to 1932 than it had been in previous years. Its staff was devoted to encouraging and assisting in the organization of marketing cooperatives, with emphasis on large-scale associations. Many of these cooperatives were organized from the top down. Some survived the Great Depression, but most did not. However, in many cases, the experiences gained by members of the cooperatives during this time led to the organization of effective successors. With the emphasis upon action programs, the Division was unable to undertake comprehensive research projects during the Farm Board years. The lack of research made the carrying out of programs of organization and of recommendations for financial assistance assigned to the Division more difficult to accomplish and probably less effective. Throughout its history, the Farm Board was criticized by commercial interests opposed to cooperative competition. Trading interests charged the Board was socialistic and unfair to private business. Other criticisms came from within the cooperative movement, mainly that the

109 Board was building from the top down and was applying heavy pres- sures to cooperatives to combine into large national associations. Also, nothing was being done with or for purchasing or service cooperatives. Most of the criticisms were not aimed at the Division. However, in 1931, the Oregon Cooperative Council, after noting that the Division had previously rendered unbiased and understanding service, recommended that the Division be transferred from the Board ''unless the Farm Board can render the kinds and types of service previously rendered by the Division of Cooperative Marketing" (Knapp, 1973, pp. 135-141). The Division itself was affected by the problems of the Board. When its 1932 report was issued, the Division had 81 employees, 45 of them with professional status. However, Congress cut the appropriation for the Board by 40 percent for 1933. The Division took its share of the reduction. A number of the staff were furloughed. Most of these staff members, as well as others, sought and found other positions. The Division was reorganized and combined with the Economic Division of the Farm Board. The combined division was headed by F. B. Bomberger. In summary, during its years with the Farm Board, the Division was instrumental in the establishment of a number of large regional and national marketing cooperatives. While some had failed, others had survived, and the final costs of the cooperative loan program had been modest. However, due to the overwhelming nature of the Great Depression, the Division of Cooperative Marketing had lost a substantial part of its staff and funding and had lost its separate identity by the time the Farm Board experiment ended. Farm Credit Administration The Farm Credit Administration was established as an independent agency on May 27, 1933, by an Executive Order issued by President Franklin D. Roosevelt. The order transferred the Federal Farm Board's

110 legislative authorization for loans and its remaining assets, as well as what remained of the Division of Cooperative Marketing, to the new agency. The President wrote, after listing the immediate objectives of the Farm Credit Administration, ''of greater and controlling importance is the maintenance of the long-standing policy of the Federal Government to maintain and strengthen a sound and permanent system of cooperative agricultural credit.,/' However, the more immediate objectives were to provide Federal financing to enable the Land Banks, virtually without funds to lend, to undertake an emergency farm refinancing program and, over the longer run, to create a well-rounded, complete cooperative credit system for agriculture by adding to the Federal Land Banks and Federal Intermediate Credit Banks new organizations to channel intermediate credit bank funds to farmers and to provide a decentralized method of financing farmer cooperatives (Hoag, p. 232-234). After the President had announced the establishment of the Farm Credit Administration, but before the executive order became effective. Congress passed the Emergency Farm Mortgage Act of May 12, 1933. It was concerned primarily with refinancing farm mortgages. It was followed by the Farm Credit Act of June 16,1933, which, among numerous other provisions for a cooperative banking system, made available what was left of the Federal Farm Board's revolving loan fund to capitalize a central bank and 12 district banks for cooperatives. Thus, a commitment was made for an agricultural credit system that was cooperative in nature and for the encouragement of agricultural cooperatives through a banking system devoted to their interests.

Cooperative Marketing Division Reorganizes. The Cooperative Marketing Division had lost some of its original purpose and identity while it was part of the Federal Farm Board as its staff became directly involved with lending and the cooperative promotion programs of the

111 Board. As noted earlier, it had also lost a substantial portion of its staff and its identity as a separate unit during the last year or two of the Board's operation. Nevertheless, in the staff that remained, the Farm Credit Administration was fortunate to have a number of experienced cooperative specialists. They were acquainted with farmer cooperatives and their problems, including their financial conditions, as well as with their leaders. Some of these staff members helped organize the district Banks for Cooperatives, while others helped analyze the many loan applications being received by the new agency (Hoag, pp. 240-241). For example, at a meeting of the Board of Directors of the Central Bank for Cooperatives in January 1936, nine of the Farm Credit Administration participants were people who had worked for the Cooperative Marketing Division. Six of the nine were responsible for the Bank's loans to cotton, livestock and wool, fruits and vegetables, dairy and poultry, grain, and purchasing cooperatives. Overall, the group provided a fertile pool of knowledge of the economics of farmer cooperatives and was active in studies and field analyses of cooperative ventures, cooperative promotion, credit decisions, and loan servicing (Smith, 1976, pp. 12-14). When the Farm Credit Administration was organized, the staff of what had been the Division of Cooperative Marketing was attached to the newly organized Cooperative Bank Division. For a time, it appeared that people from the old Division would simply be assigned to appropriate jobs anywhere in the Cooperative Bank Division. Consideration was given to decentralizing the research staff and assigning at least one staff member to each of the district banks. However, this was not done. It is possible that someone remembered that the Cooperative Marketing Act of 1926 was still in effect and that certain service and educational functions relating to cooperatives must still be carried out. After a year of uncertainty. Cooperative Bank Commissioner F. W. Peck announced that two sections had been set up in the Cooperative

112 Bank Division, one for studying the problems of cooperative marketing and purchasing and one to make these findings directly available to farmers' cooperatives. The Research Section was headed by Ward W. Fetrow, an economist who had headed the cotton section in Division when it was in the Farm Board. The Service and Education Section was headed by Henry M. Bain, who had joined the Cooperative Marketing Division in 1926, where he handled legal and organizational questions regarding cooperatives (NFC, April, June 1934). Just how effective this reorganization was and if, indeed, it ever became fully operational, is difficult to determine. Peck returned to Minnesota late in 1935 and was succeeded on January 1, 1936, by S. D. Sanders, president of the Washington (State) Cooperative Egg and Poultry Association (NFC, January 1936, pp. 1-2). In 1937, under Sanders' direction, the Research Section and the Service and Education Section were brought together as the Cooperative Research, Service, and Education subdivision (sometimes called Section) of the Cooperative Bank Division. Henry M. Bain was placed in charge, with W. W. Fetrow as chief research economist. Fetrow later became associate chief. In 1938, E. A. Stokdyk, on leave for a year from his position as president of the Berkeley Bank for Cooperatives, became deputy governor for research of the Farm Credit Administration. He was a key figure in overseeing the separation of the research and service work from the Cooperative Bank Division. While the unit had been part of the Cooperative Bank Division, its services had been concentrated on cooperatives borrowing from the Farm Credit Administration. Yet, other cooperatives were interested in obtaining assistance in such matters as organization and education. Such at least was the view of the National Cooperative Council, which reminded the Governor of the Farm Credit Administration of his responsibilities for the Cooperative Marketing

113 Act of 1926 and asked him to appoint a Deputy Governor "whose sole responsibility shall be the conducting of an aggressive, comprehensive program of research and extension for the benefit of the cooperative movement in agriculture." The Governor agreed and asked Stokdyk to accept the assignment. On October 1,1938, Governor R F. Hill issued a Farm Credit Administration Order that created a Division of Research under Stokdyk's direction. The order set up two sub-divisions in the Division of Research, the Economic and Credit Research Subdivision and the Cooperative Research and Service Subdivision. On October 31, 1938, Stokdyk named T. G. Stitts to head the Research and Service Subdivision. Stokdyk also made it clear that his division did not want to enter the field of extension but wanted to work in cooperation with the Extension Service. Stokdyk's primary concern was to improve the quality of research, not only in his own division but throughout the Farm Credit Administration. He created a Project Committee under his leadership to screen research proposals, improve methodology, and coordinate all Farm Credit Administration research efforts. This was appreciated by the research staff and had a good effect on both the design and quality of the research projects. In January 1939, a final needed step was taken when the research and service work for farmer cooperatives was established as the Cooperative Research and Service Division, the name by which it was known for the next 15 years. The new Division was headed by Thomas G. Stitts, with Ward W. Fetrow as associate chief. When Stokdyk returned to Berkeley in August of 1939, he felt he had completed the major part of his assignment and that he left the research work in good hands (Knapp, 1953, pp. 85-96). Early in 1939, the Division established a Business Administration Section with Kelsey B. Gardner in charge. About the same time, a Special Crops Section was set up with Henry M. Bain in charge (McKay and Abrahamsen, pp. 39, 46).

114 FEDERAL FARM BOARD AND FARM CREDIT ADMINIS TRATION, 1929-1953

Cooperative Bank Division. The Farm Credit Administration began issu- ing a monthly magazine. News for Farmer Cooperatives, in April 1934 In the first issue, R W. Peck, Cooperative Bank Commissioner, announced that more attention would be given to research and service work in aid of cooperatives. Peck, who had been director of Extension at the University of Minnesota, took an active part in the research and service work for cooperatives until he returned to Minnesota at the end of 1935. Peck wrote a series of articles for the News in which he urged cooperatives to correct some of the problems that were causing lack of

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..A In «i^' . fit tï-el- ^'^ '""'"îr,« •>" '" ^^^^. progress and failure, while at the same time he stressed the importance of cooperatives to agriculture and the American people. In September 1934, for example, he wrote: ''Operating cooperatives can fail very eas- ily through lack of harmony on the part of members of their board of directors, through poor management and mismanagement, through inadequate financing, and through poor merchandising policies." He warned that officers and directors could become too politically mind- ed and job conscious. On the other hand, he wrote in December 1934 that cooperation has "fundamental, advantageous effects upon rural progress and rural life." People must not forget the social values that lead to a satisfying rural life, and cooperation helps achieve these values. While the staff emphasized economic and credit research aimed at aiding the credit units and other offices of the Farm Credit Administration, it followed Peck's suggestions insofar as possible and turned once again to research and service aimed at helping cooperatives. This more comprehensive and balanced program included work with purchasing and service cooperatives. Purchasing cooperatives had grown in number from 111 in 1913 to more than 1,600 in 1934. The increase came about, at least in part, because purchasing cooperatives often got both better prices and better quality of farm supplies than farmers acting alone could get (NFC, April 1934). Joseph G. Knapp was recruited from North Carolina State College in 1934 to head the work with purchasing cooperatives. The Farm Supplies Unit, as Knapp's group was then called, began at once to make an analysis of a fuel cooperative in Texas and to develop guidelines for farmers interested in organizing purchasing cooperatives. The results were published in 1934 as FCA Miscellaneous Report No. 1, Survey of Problems to be Considered by South Plains Cooperative Fuel Association by John H. Lister and as FCA Bulletin No. 1, Cooperative Purchasing of Farm Supplies by Joseph G. Knapp and John H. Lister (McKay and

116 Abrahamsen, pp. 40-41). The bulletin by Knapp and Lister was widely used and was helpful to many groups of farmers in organizing farm supply cooperatives. These first two studies marked the beginning of productive work in an area of cooperation that had been neglected, even though it was estimated at the end of 1935 that one-eighth of all farm supplies were purchased cooperatively (NFC, December 1935, p. 9). Congress authorized loabas to business services cooperatives in 1935 by amendments to the Agricultural Marketing Act of 1929, and the agency responded by expanding its research, educational, and service work to such associations. An Insurance Unit was established in 1935 to carry out this assignment. One of its early projects was a study of the organization, financial structure, and operations of mutual irrigation companies in California and Utah. The findings were published as FCA Bulletin 8, Mutual Irrigation Companies in California and Utah, by Wells A. Hutchins. In the years from 1933 to 1939, the Cotton unit opened new lines of research and service work with the relatively recent development of cooperative cotton gins and cottonseed oil mills. The unit assisted in organizing the Plains Cooperative Oil Mill in Lubbock, Texas. Specialists also worked with groups in organizing cooperative cotton gins. These grew in number from about 170 in 1933 to nearly 500 in 1938. Other commodity units, including dairy, fruits and vegetables, grain, livestock and wool, and poultry and eggs, carried out research and service projects. These resulted in a number of useful reports and in helpful changes for a number of cooperatives. The Transportation Unit was active, working to help cooperatives reduce transportation costs. It undertook several studies of possible plant locations to assist cooperatives in determining sites with favorable freight rates. The Statistics Unit conducted a nationwide survey of farmer cooperatives in 1937 in cooperation with the district banks for coopera-

117 tives and 33 agricultural colleges. The survey resulted in FCA Bulletin 26, A Statistical Handbook of Farmers' Cooperatives, It reported that 15,573 farmer-owned and farmer-controlled cooperative associations and mutual companies were then operating in the United States, as compared with 5,424 in 1917. Of those reported, 10,752 were engaged in marketing farm products, purchasing farm supplies, or performing related services. About 1,900 were mutual fire insurance companies and 2,500 mutual irrigation companies. More than 3 million persons, almost one- half of all farmers, held memberships in farmer cooperatives and at least half a million more patronized them without becoming members (NFC, September 1938, pp. 3-6). The office continued to meet broader needs for information and assistance. For example, FCA Bulletin 3, Cooperative Market of Agricultural Products by Ward W. Fetrow and FCA Bulletin 4, Cooperation in Agriculture by Chastina Gardner were published in 1936. The monthly News for Farmer Cooperatives carried many articles by members of the staff. Farm Credit Administration officials, and cooperative leaders providing information of value to cooperatives and their farmer members (McKay and Abrahamsen, pp. 39-45).

Cooperative Research and Service Division« During 1939, as noted earlier, the Farm Credit Administration gave the research and service work for farmer cooperatives fuller recognition by reorganizing it as the Cooperative Research and Service Division. The same year, the Farm Credit Administration became part of the Department of Agriculture, and World War II began in Europe. During the early part of 1939, a number of major studies were issued in areas that had recently become prominent in the cooperative movement. For example, Joseph G. Knapp published an article outlining a dozen problems of purchasing cooperatives. These were: business

118 administration; improving the cooperative's financial condition; selecting a line of supplies; quality of goods; inventory control; record keeping; credit problems; improving service; competent personnel; coordination; volume of business; and membership building (NFC, May 1939, pp. 14-17). Most of these, except for a few specific items, were problems faced by most cooperatives. An article by Mrs. William H. Yungclas stressed the importance of women taking part in the cooperative movement. Cooperatives are a democratic type of organization and unify social groups on a basis of their common interests. Women's attendance at meetings was showing a big increase and was bringing strength to the movement (NFC, July 1939, pp. 5-6, 16). This article foreshadowed a concern that was to become much more prominent after World War II. When war began in Europe on September 1, 1939, some agricultural interests anticipated a quick rise in the prices of farm products, but the Department of Agriculture warned that this was unlikely. The United States had in storage enough wheat and cotton to supply all its recognized needs for 2 years and enough corn for one. When the European war cut off exports, large surpluses of other crops began accumulating. The effective marketing of apples, citrus fruit, prunes, raisins, and nuts became difficult. All of these, except possibly corn, were commodities for which cooperative marketing was important. Even as late as the end of 1940 and into 1941, Department leaders were saying the United States should learn to live at home and produce for the domestic market. This meant more meat, dairy and poultry products, and fruits and vegetables and less wheat, cotton, and tobacco (Baker, et al., pp. 274-277). The Governor of the Farm Credit Administration reported in 1940 that the work of the Cooperative Research and Service Division was keyed to assisting cooperatives deal with the war situation. Among the problems facing the cooperatives were restrictions on agricultural exports, increases in the surpluses of some commodities, the damage being done

119 to farmers by the changing relations between farm prices and prices of nonagricultural commodities, and new trends in domestic demand for and utilization of particular farm products (FCA, 1940, pp. 128-129). Although the staff of the Division did its best to advise cooperatives on how to deal with some of the problems resulting from the war, the activities of the Division during 1939 and 1940 to a large extent reflected the research and service work that had been initiated previously. Early in 1940, the Division was made up of 13 sections. These, with the person in charge, were: Business Administration, Kelsey B. Gardner; Cotton, Omer W. Herrman; Dairy, Thomas G. Stitts; Fruits and Vegetables, A. W. McKay; Grain, Harold Hedges; History and Statistics, R. H. Elsworth; Insurance, V. N. Valgren; Livestock and Wool, C. G. Randell; Poultry and Eggs, John J. Scanlan; Purchasing, Joseph G. Knapp; Special Crops, H. M. Bain; Traffic, L. N. Conyers; and Frozen Food Lockers, S. T. Warrington (NFC, July 1940, p. 7). In a very real sense, the organization had come back to the one established by Congress in the Cooperative Marketing Act of 1926. During 1940, staff members made more than 1,500 visits to more than 1,500 cooperative associations and held conferences with more than 7,000 cooperative officials. In addition, staff members discussed problems confronting particular cooperatives at about 600 meetings attended by some 50,000 officials and members of cooperatives and representatives of educational institutions and other interested agencies. Frozen food lockers were fast becoming an important part of rural food processing and preservation. Some 85 percent of the 2,500 plants operating in 1940 had been established since 1935. About 350 of the total number were owned and operated by cooperatives, and 75 percent of the estimated half-million lockers in the plants reporting were rented by farmers. The demand for research and service in this area was increasing so rapidly that a Frozen Food Locker Section was established

120 in the Division in 1940 under the direction of S. T. Warrington (FCA, 1940, pp. 135-136). Frozen food lockers were seen as an effective raeans of preserving food without taking substantial amounts of material needed first for defense and then for the war effort. During the war, the Division was assigned the responsibility of handling priority applications for materials required for frozen-food locker plants. There were 7,000 plants in operation at the beginning of 1946, of which more than 10 percent were cooperatively owned and operated. About three-fourths of the 2-1/2 million families being served were farm families (FCA, 1945-46, pp. 42-43). A major shift in the work of the Division took place in 1941 as the United States moved closer to involvement in the war. The Lend- Lease Act signed on March 11, 1941, assured Great Britain and other allies that the United States would provide the materials needed to carry on the war against Germany. This included food and other agricultural products as well as munitions. An all-out effort to expand needed agricultural production got underway. This effort became even more intense after December 7, 1941, when the United States entered the wan The Division and its staff not only took on new duties but found it necessary to modify previous practices. For example, a special study was initiated in 1941 on the application of Federal income taxes to farmer cooperatives. It resulted in publication in 1942 of FCA Bulletin 53, Application of the Federal Income Tax Statutes to Farmer Cooperatives, by George J. Wass and Daniel G. White. This was the last bulletin to be published by the Division for 5 years — the war effort stopped such publications, and the Division had to find other ways to reach cooperatives (McKay and Abrahamsen, p. 48). The war, of course, brought substantial changes in the organization and operations of the Division. Early in 1942, a Division planning committee was set up. Members of the committee were Joseph G. Knapp,

121 chairman; Kelsey B. Gardner; Paul E. Quintus; C. G. Randell; and A. W. McKay. The committee served primarily as an effective coordinating device during the war years. The Farm Credit Administration was moved to Kansas City in 1942, but, because cooperative organizations took a strong stand on the matter, the Cooperative Research and Service Division remained in Washington. In May 1942, its chief, T. G. Stitts, took charge of the Dairy and Poultry Branch of the War Food Administration. O. W. Herrmann served as acting chief until he entered the Army in November 1942. Harold Hedges was then appointed acting chief and later chief of the Division. Hedges served in this capacity until his death in 1953 (McKay and Abrahamsen, pp. 46-51). Many other staff members moved to war agencies during this time, and many joined the armed forces. It was difficult to recruit qualified people, which meant that those remaining were hard pressed to keep up with the most essential work. The most essential work was that directly related to the war effort. Many cooperatives found the war meant complete reorganization of their operations and frequently of their equipment and facilities. They called upon staff members of the Division for explanations of orders and restrictions imposed by war agencies and for assistance in obtaining needed supplies and equipment. The war agencies in turn called upon Division staff to obtain cooperation and assistance from the cooperatives. This interaction was another reason the Division was kept in Washington when the Farm Credit Administration was moved to Kansas City. The shortage of burlap is one example of changes in operations by some cooperatives brought about by the war. With encouragement from the Division specialists, a number of grain cooperatives on the Pacific Coast switched their operations from sacked grain to bulk grain, involving a new type of storage for that area. Similarly, some of the eastern fertilizer cooperatives were shipping their product in bulk rather than in

122 sacks. The Division was also active in encouraging and assisting cooperatives to conserve transportation resources, machinery, and manpower. The Division, for example, assisted in the organization of transportation associations and made surveys of truck transportation of some products, resulting in substantial reductions in mileage (McKay and Abrahamsen, pp. 50-51). Emergency programs largely outside previous experiences took several forms. For example, large quantities of shearling pelts — the hides of closely shorn sheep and lambs — were needed to make warm suits for high-altitude flying by the Army Air Corps. The Division worked through cooperatives to educate farmers on when to shear their animals and send them to market to produce suitable pelts. Farmers, in turn, benefited because their total returns were greater than they otherwise would have been. Dehydration of foods was a new fast-growing industry because lightweight foods helped in meeting the transportation needs for shipping great quantities of food overseas and in meeting the needs of military forces in the field. Dry skim milk was in particular demand. Production increased rapidly, with about 50 percent of the total produced in 1942 being dried in cooperative plants. Powdered egg production by cooperatives also increased sharply. Ten cooperative plants were approved for participation in 1942 in a fruit and vegetable dehydration program. The Division gave these plants assistance in obtaining priorities for machinery and equipment, selecting dehydrator designs, training operators, and getting plants into production (FCA, 1942, pp. 39-41). The Division prepared a two-reel motion picture on dehydration, and the War Department purchased and used 167 prints of it. The demands for special studies and action programs directly related to the war effort seemed almost unlimited. For example, staff members were closely involved in the essential wartime expansion in

123 the number of cooperative soybean processing mills. By the end of 1945, 21 such mills were in operation. However, the shortage of building materials and other factors made these new mills of a size that probably would not survive in the postwar period. Thus the Division encouraged the cooperatives to liquidate their indebtedness and build up reserves to enable them to set up solvent mills at the end of the war. Grain cooperatives, while declining slightly in number, made substantial gains in both membership and business volume. The Division assisted some of these cooperatives in planning for future expansion (FCA, 1944-45, p. 43, 46). The importance of adequate supplies of mixed feeds to meet wartime production goals led to a study in 1942 of feed cooperatives and their adjustments to war conditions. The supply of farm machinery was also of vital importance. Research projects in this area included studies of the distribution of farm machinery and equipment by farmers' cooperative purchasing associations and of methods used by cooperative purchasing associations to help farmers conserve farm machinery and equipment in the war emergency (''Purchasing Section Research Reports, 1934-1948," in office files, ACS). Cooperative dairy associations were concerned about the postwar marketing of the large volume of milk produced as a result of war stimulus. The staff helped the cooperatives plan larger and more efficient plants, but this situation was to be a problem for dairymen and their cooperatives for a number of years. The war stimulated the development of artificial breeding associations in the dairy field. Staff members worked with associations already in existence and those being developed in making their organization and operations effective (FCA, 1944- 45, pp. 43-44). The demand for livestock and wartime pricing policies led to farmers' selling directly to packing plants and not operating through their cooperatives. The Division studied the possibility of cooperatives' extending their operations beyond the terminal markets, but

124 the success of such activity was in doubt. The demand for wool was so great that the Commodity Credit Corporation became the sole purchas- er, working with agents it appointed. The result was that some cooperatives no longer had any reason to exist (FCA, 1944-45, pp. 43-44, 47-48). The war had led, as mentioned earlier, to a great increase in the number of cooperative plants dehydrating fruits and vegetables. By 1945, the possible decline in the postwar demand for dehydrated commodities was a matter of concern to cooperatives. The staff made a number of studies of the problem, including a general study of the possibilities for cooperatives in the quick-freezing of fruits and vegetables. This emphasis was correct. After the war, the demand for dehydrated foods fell sharply while the demand for quick-frozen food increased even more sharply. Poultry producers faced problems with wartime ceiling prices and margins that led their cooperatives to give greater attention to processing operations. Division staff gave particular emphasis to assisting in setting up new associations to process and market poultry and to establishing poultry processing departments in existing cooperatives. Cooperatives marketing rice and honey had substantial gains in membership and in quantities of commodities handled during the war years. Shifts in demand for certain types of tobacco led to organizational and operating problems for some tobacco cooperatives. Division specialists encouraged some cooperatives to study crop diversification by its members as a possible solution (FCA, 1944-45, pp. 49-52). While wartime marketing problems demanded a great deal of attention, the staff was also working on other troublesome matters. The Business Administration Section prepared studies on the tax status of cooperatives for the associations and, at the same time, prepared a study on different types of farmers' cooperative associations for the Division of Tax Research of the Treasury Department. The Division continued to compile statistics on the growth and development of agricultural coop-

125 eration in the United States, information that was essential to determine wartime policies respecting cooperatives. Since farmers' mutual insurance companies provided more than half the insurance carried by American farmers against loss from fire, lightning, and windstorm, the Division continued to assist in the development of such cooperatives. It also made a study of the development and effectiveness of cooperative hospitals in rural areas. Wartime shortages of materials and labor led to an increase in the numbers and membership of purchasing cooperatives and of demands on the Division for assistance in obtaining scarce production materials. The staff encouraged cooperatives to undertake feed manufacturing, fertilizer manufacturing, and fuel distribution. The staff encouraged the conservation and repair of existing machines and equipment and made information available on holding schools for training cooperative employees to service equipment (FCA, 1944-45, pp. 46-51). The Division worked closely with the major national cooperative associations, nearly all of which gained strength and influence during the war. The National Council of Farmer Cooperatives was particularly effective. In 1940, its membership was made up of 54 large marketing and purchasing cooperatives serving 4,000 local associations with 1.95 million members. By 1945, it had 105 member organizations that served 4,800 local cooperatives with a combined membership of 2.4 million farmer patrons. Other important organizations active during the war included the National Cooperative Milk Producers' Federation, the National Federation of Grain Cooperatives, the National Livestock Marketing Association, the National Wool Marketing Corporation and the American National Cooperative Exchange. The American Institute of Cooperation, primarily an educational organization, became dormant during the war but under the leadership of Raymond W. Miller was revitalized as the war was ending (Knapp, 1973, pp. 494-496, 525-526).

126 Postwar Planning. Even as the Division was working with wartime problems facing cooperatives, it was giving attention to the postwar world and the future of cooperatives with the coming of peace. In 1944, the Department of Agriculture set up an inter-bureau postwar planning committee on agricultural cooperation under the chairmanship of Harold Hedges. In its report, issued in July 1945, the committee recommended that a postwar program for cooperatives should increase the operating efficiency of existing associations, broaden the services of existing associations so they might better serve needs of rural people, and extend cooperation into agricultural areas not being reached by existing associations. A number of cooperatives also set up postwar planning committees. Their primary concern was converting from wartime to peace- time operations. Another matter, however, became of vital concern to the entire cooperative community. As noted earlier, many business groups had opposed cooperatives almost from their beginnings. During the 1930's, farmers' purchasing organizations had been bitterly opposed by trade organizations representing dealers in petroleum, hardware, machinery, feed, and other farm supplies. This opposition became even stronger during the war, extending to all farmer cooperatives, with particular emphasis upon the income tax status given farmer cooperatives. The National Tax Equality Association (NTEA) was established in 1943 with the objective of ''protecting independent American enterprise." The new association, well financed, undertook a propaganda campaign aimed at depicting cooperatives as unpatriotic "tax dodgers," an effective even though false charge in a time of rapidly increasing income taxes. A number of cooperative leaders organized the National Association of Cooperatives in 1944 as a special-purpose organization to offset the anti-cooperative program of NTEA. State organizations were set up as well. The National Council of Farmer Cooperatives undertook

127 a program to correctly inform the American public as to the vital place of farmer cooperatives in the American system of private enterprise. The Council requested the Cooperative Research and Service Division to provide a statement on the requirements that farmer cooperatives had to meet to qualify for certain tax exemptions. This statement, concurred in by the Bureau of Internal Revenue, was issued in October 1944 under the title ''Farmers' Cooperatives and the Federal Income Tax Statutes/' However, in part because of pressure by NTEA, Congress, in the Revenue Act of 1943, required exempt agricultural cooperatives to file annual information returns. This, of course, did not satisfy NTEA. For the next few years, the Division was publishing the results of research on cooperative taxation, while cooperatives were conducting educational programs to inform the public of their nature and services and countering NTEA allegations (Knapp, 1973, pp. 522-526, 536-537). Indeed, this has continued to the present, with the force of the attacks varying as economic conditions change. Statistical data collected and research conducted by the Division or, in more recent years. Agricultural Cooperative Service, have provided basic information needed to help the American people decide the value of cooperatives to the Nation's economy.

Research and Service, 1946-1953. At the end of World War II, the Division sought to be of maximum assistance to farmers and their cooperatives that were undertaking new ventures and to those with problems arising from postwar adjustments. In 1946, the Division established a Membership Relations Section, headed by A. W. McKay. It carried out research on such problems as membership participation in the activities of large associations and factors influencing farmers' support of their cooperatives. In carrying out its programs, the Division worked closely with the State agricultural colleges, experiment stations, and Extension services.

129 In 1946, it jointly sponsored some 75 cooperative clinics with district Banks for Cooperatives, the American Institute of Cooperation, and the American Institute of Accountants. After the war, some commodities began to fall in price, even though many were supported at rather high levels compared with pre- war price supports. The Division encouraged cooperatives to examine their practices and costs and to consolidate and coordinate their marketing activities in an endeavor to offset declines in farm prices. The demand for some products began to fall off. Cooperatives were encouraged to expand their merchandising activities and, if it seemed reasonable, to expand their activities in the processing of farm products. During 1947, some 2,200 dairy associations, 175 fruit and vegetable cooperatives, 850 cooperative frozen food locker plants, and a substantial number of cooperatives handling poultry, livestock, sugar, rice, oilseeds, and farm supplies were operating in the processing or manufacturing field. In merchandising, world trade offered promise. A number of cooperatives began opening up new markets in various parts of the world. The Division was able to undertake additional research studies in marketing and utilization with the passage of the Research and Marketing Act of 1946. The administrator of the act agreed that because of the Division's long experience in marketing research and the close contacts it had with cooperatives, it, with other agencies, would conduct marketing and utilization research, with the understanding that the research should result in findings useful to both cooperatives and other types of business. In 1948, the Division had about 50 research projects underway, of which 20 were financed by Research and Marketing Act funds. On the whole, research under the 1946 act did not achieve all that its sponsors had believed possible. There was competition among agencies for funds and the use of some funds for rather routine research projects. Nevertheless, a number of creditable advances were made in many

130 FEDERAL FARM BOARD AND FARM CREDIT ADMINISTRATION, 1929-1953

aspects of marketing, including studies in marketing, processing, and shipping carried out by the Division (Baker et al., pp. 340-341, 348-349). Cooperative purchasing of farm supplies increased during the war, both in dollar volume and in physical quantities handled. With the war's end, there was a marked trend toward more manufacturing by regional and State wholesale purchasing associations. The Division made a number of studies of costs in cooperative feed mills and other manufacturing activities with the goal of helping keep costs under control (FCA, 1946-47, pp. 55-59). The Division also studied regional cooperatives producing, refining, and distributing petroleum and appraised their major operating problems. Petroleum was becoming more important each year in farm operations, and problems regarding its handling by cooperatives have continued to the present. As a part of the Farm Credit Administration, the Farm Services Section, at the request of some of the Farm Credit districts, studied the effects of coordinating particular loans. The staff also helped cooperatives The 1946 staff of the Cooperative Research and establish mutual fire insurance programs and cooperative health plans. Service Division, Farm Credit Administration

131 The Business Administration Section emphasized cooperative financing, accounting, credit control, and costs. The Transportation Section continued to make studies to determine the most advantageous locations for new plants and warehouses. It advised cooperatives on economies they could make in transporting products to market and distributing farm supplies and suggested the coordination of transportation facilities and services among cooperatives. Throughout the period, the History and Statistics Section prepared annual surveys of cooperatives, maintained files on active cooperatives, and kept records of the number of discontinuances (McKay and Abrahamsen, pp. 56-67). The commodity sections conducted research on a wide variety of problems concerning various cooperatives. If there was one overrid- ing problem affecting most commodity cooperatives, it was controlling costs. Several sections made studies looking toward more efficient operations and reducing costs. Surpluses of many farm products, a decline in prices received by farmers, and rigid costs for production supplies added to the complex problems of cooperatives, both for short-run operations and long-range planning. Cooperatives had made tremendous progress from 1945 to 1953 and had become accepted generally as an effective method of marketing farm products, purchasing production supplies, and performing other farm business services. They had made progress in management efficiency, member understanding, and acceptance by many competing trade groups, although some business organizations were still antago- nistic to them. While they were still on the whole a small part of America's total business activities, they were of major importance to the Nation's farmers and of real, though largely unrecognized, importance to consumers (FCA, 1952-53, pp. 48-50).

132 USDA and Farmer Cooperatives, 1939-1953

In the years from 1939 to 1953 when the Farm Credit Administration was part of the Department of Agriculture, the Department consistently supported agricultural cooperatives and the work of the agency. It reaffirmed from time to time its long-time program of encouraging farmers to build, develop, and use sound farmer cooperatives. Toward the end of this period, in 1952, Secretary of Agriculture Charles F. Brannan appointed a committee of representatives of the leading cooperative organizations to advise him on achieving these goals. He also appointed a USDA committee of heads of major agencies in the Department, with Assistant Secretary Knox T. Hutchinson as chairman, to work with the committee of representatives of the cooperative organizations. The Secretary took another major step on March 24, 1952, when he issued a statement of the Department's policy toward farmer cooperatives. This program was part of the Department's responsibility for promoting both the general welfare and the welfare of the Nation's rural population. The statement contained six specific commitments to cooperatives. The Department would: (1) Encourage the sound development and effective utilization of cooperatives by farm people; (2) provide research, educational and advisory services to rural people regarding the possibilities and limitations of cooperative enterprise, and in so doing work with State and local agencies and groups concerned with the development of cooperatives; (3) give due consideration to cooperatives in the performance of the Department's functions; (4) give full support to cooperatives through each agency of the Department; (5) coordinate the activities of USDA agencies concerned with cooperatives; and (6) direct the Department's efforts toward strengthening cooperatives as self-help organizations, member-owned and controlled, whose effec-

133 tive functioning is in the public interest (NFC, June 1952, pp. 4-5). The second of these objectives described the work being carried out by the Cooperative Research and Service Division, work that would soon be carried out by the Division organized as an independent agency.

134 Independence, Change, and Challenge — 1953-1969

Agriculture's Changing Face The 1950's and 1960's brought unprecedented changes in American farming, the structure of agriculture, and agribusiness. Production and productivity increased at rates never before seen. At the same time, the farm population declined from 23 million people in 1950 to 10 million in 1969. The number of farms decreased from 5.4 million in 1950 to 2.6 million in 1969, but the average size of farms increased from 215 acres to 369 acres. There was little change in the total amount of land in farms, although the acreage under irrigation increased. Fewer farms supplied a larger part of total production. Marketing and farm supply businesses decreased in number but increased in size. Cooperative Research and Service Division (CRSD) recognized soon after the end of World War II that farmer cooperatives would have to grow if they were to remain competitive or were to be able to deal effectively with the large marketing and supply companies that were beginning to dominate agriculture. With advice from CRSD, many cooperatives enlarged their fields of activity. Others merged or consolidated some of their activities, such as marketing. As a result, at the end of the period, there were 7,790 farmer cooperatives compared with 10,064 in 1950, but total gross business had increased from $10.5 million in 1950 to $24.8 in 1969. The cooperative movement, with advice and assistance from CRSD, had helped many farmers survive and adjust to two decades of major changes in farming and farm structure.

135 Independence for FCA and FCS

Farmer Cooperative Service (FCS), now Agricultural Cooperative Service (ACS), was established as an independent agency in the Department of Agriculture on December 4, 1953, by Secretary Ezra Taft Benson. Achievement of this long-time goal of many cooperative leaders became possible when the Farm Credit Administration achieved its long-time goal of once again becoming independent of the Department of Agriculture (67 Stat. 390). The law making the Farm Credit Administration independent provided that the Cooperative Research and Service Division was to remain in the Department. In the nearly four decades that ACS has been an independent agency, it has been consolidated into another agency, regained its independence, been renamed, and had five administrators. Throughout periods of change, it has continued to serve cooperatives, particularly in helping them adjust to major changes taking place in American agriculture during those decades. ACS has worked closely with other agencies of the Department, with cooperatives and cooperative organizations, with industry, and with universities. Changes in organization were brought about in part by changes in the administrations of the Federal Government, changes in duties, and changes in working relationships within the Department, with the cooperative community, and with industry.

Background of Conflict. From the moment the Farm Credit Administration (FCA) became an agency of the Department of Agriculture on July 1, 1939, it and most supporters sought to make it once again independent. To leaders of the Farm Credit Administration, loss of independent status seemed a threat to the cooperative nature of the farm credit system. Their worst fears seemed about to be realized

136 when Secretary of Agriculture Henry A. Wallace decided that FCA as a part of the Department of Agriculture should have its functions coordinated with the other activities of the Department. Early in January 1940, FCA Governor Forrest R Hill, as a result of disagreement with Wallace over such basic policies, resigned effective March 26, 1940 (Baker, et. al., pp. 217-218). Hill's resignation was soon followed by that of Land Bank Commissioner Albert S. Goss. Goss had not been consulted before legislation known as the Wheeler-Jones bill had been introduced into Congress at the request of Secretary Wallace. Essentially, this bill, if it had become law, would have changed the cooperative nature of the Federal Land Banks. All of the farmer-owned stock in the Land Bank associations would have been retired at par and the Land Banks would have become Federally financed. The farmer borrowers would still have been ''members" of the associations but without any share in the ownership. When the new Governor, Albert G. Black, a long-time Department official, sent a letter to member-borrowers of the association vaguely sug- gesting they support the proposal, he found farmers had little interest in it, but some Congressmen were angry at the attempt of a Federal agency to lobby for a bill being considered by Congress. The bill did not pass, and efforts to coordinate FCA activities with other Department of Agriculture programs virtually ended, as did the attempt to end the cooperative nature of the farm credit system (Hoag, pp. 249-252). Nevertheless, the effort to restore the independence of the system continued. This was strengthened by efforts of farmers, encouraged by the Land Banks, to pay off all Government-owned capital and thus avoid any possible new threat of the system becoming Government-owned rather than farmer-owned. In 1940, a bill to restore independence was introduced in the Senate but was not passed. In 1943, the American Farm Bureau Federation, the National Grange, and the National Council of

137 Farmer Cooperatives set up a national committee to study the farm credit system and make recommendations. Their recommendations were the basis for a bill introduced into the House of Representatives in 1945. The bill provided for the independence of the Farm Credit Administration. No mention was made in the bill of the functions carried out under authority of the Cooperative Marketing Act of 1926. Perhaps those duties were presumed to be covered by a ''division to carry out the functions of appraisal and examination and other service functions/' The three organizations making up the national committee testified in support of the bill as did regional FCA directors and representatives of the American Bankers Association. Secretary of Agriculture Clinton P. Anderson and the National Farmers Union testified in opposition. (Congress, House of Representatives, Committee on Agriculture, 1945). The bill did not become law. However, in 1952, with the election of Republican President Dwight D. Eisenhower, the political climate became more favorable for FCA to obtain its objective. At its annual meeting in December 1952, American Farm Bureau Federation stated it had always supported a cooperative farm credit system and had urged that steps be taken whereby such a system might eventually become completely farmer-owned and farmer-controlled. It also stated that the agency should be independent, ''with authority to report directly to Congress.'' No mention was made of the Cooperative Research and Service Division or of its functions (AFBF, Dec. 22, 1952, p. 6).

Farm Credit Act of 1953. On March 30, 1953, Senator George D. Aiken of Vermont and Senator Allen }. Eilender of Louisiana introduced a bill that would leave FCA in the Department but make it subject to a new Federal Farm Credit Board rather than to the Secretary of Agriculture. A similar bill was introduced into the House of Representatives by Clifford R. Hope of Kansas. The same groups that had supported the earlier bills

138 supported the new ones, while Secretary of AgricuUure Ezra Taft Benson offered no opposition. The bills provided that the ''Division of Cooperative Marketing (by whatever name now called)" be transferred to the Secretary of Agriculture, unlike some earlier bills that had provided for transferring the Division to Agricultural Research Service or had omitted mention of it. The major reason given for the transfer of the Division to the Department was that it was a research and service agency and thus had no real place in a credit agency. The House bill was passed on July 16, 1953, and the Senate version on July 21. The two bodies met in conference and were advised by the Department of Justice that the bills as they stood might be questioned on constitutional grounds. As a result, the conference reported that they had agreed to change the law to read: ''The Farm Credit Administration shall be an independent agency in the executive branch of the Government. It shall be housed in the Department of Agriculture in the District of Columbia...." Both the House and the Senate agreed to the conference report and the bill became law on August 6, 1953 (67 Stat. 390; USDA, Law Library, Legislative History, Farm Credit Act of 1953). The law was subsequently modified to permit the Farm Credit Administration to move into separate quarters. One of the strong supporters of independence, the American Farm Bureau Federation, stated in its 1954 policy resolutions: "The Farm Credit Act of 1953 is a long step toward a fully farmer owned and controlled Farm Credit System" (AFBF, Dec. 21,1953, p. 8). It also meant independence for Farmer Cooperative Service.

Secretary Benson and Cooperatives. Ezra Taft Benson, named Secretary of Agriculture by President Dwight D. Eisenhower in 1953, had been active in cooperative organizations, serving as executive director of the National Council of Farmer Cooperatives. He supported the idea of keeping the cooperative work in the Department as a separate agency

139 Chapter 7

Ezra Taft Benson, former exec- President Dwight D. utive director of the National Eisenhower signs the Farm Council of Farmer Credit Act of 1953, the legisla- Cooperatives, was Secretary of tion that created the Farm Agriculture. Credit Administration as an independent agency and Farmer Cooperative Service as an agency within USDA.

140 rather than have it continue as part of a newly independent Farm Credit Administration. Benson's first major speech on agricultural policy after becoming a member of the cabinet was before a livestock cooperative. Subsequently, after Farmer Cooperative Service (FCS) was established, he reviewed the early work with cooperatives in the Department and described the importance of the agency's role: 'Tew Americans today deny the right of farmers to organize for the purpose of marketing their products, purchasing farm supplies or obtaining for themselves essential business services. Equally few, I believe, would dispute the obligation of the Department to give the same quality of research and service assistance to farmers' organizations as it does to farmers' production practices....The climate in which farmer cooperatives now operate is very different from what it was 75 or even 25 years ago. The problems are more extensive and complex. The services farmers need are more numerous....The Department has responded to these needs by establishing a new agency. Farmer Cooperative Service. As one who has been long associated with farmer cooperatives, I am particularly happy to see this recognition given to the contribution farmer cooperatives have made and can continue to make in the future to our agriculture" (NFC, Jan. 1954). Generally, the National Council of Farmer Cooperatives supported Benson's policies, including that of making FCS an agency independent of the Farm Credit Administration and keeping it in the Department (Peterson, pp. 14-15). Other cooperative organizations also supported the idea of a separate agency to work with cooperatives. Benson also had the support of the American Farm Bureau Federation. The year after the new agency was established, the Federation adopted as part of its annual resolutions a statement in support of cooperatives: "Farmer-owned, farmer-controlled agricultural cooperatives are

141 an integral part of farming and a vital part of our competitive free enterprise system. Cooperatives frequently provide a yardstick in marketing efficiency, reduce the cost of farm supplies, and bring needed and improved services to rural people. We believe that farmers have the right to enter into business on a cooperative basis whenever and wher- ever in their judgment it is wise to do so'' (AFBF^ Dec. 20, 1954). Although the new agency was not specifically mentioned, the Federation gave it support. Similarly, the National Grange and the National Farmers Union supported cooperatives and FCS. Farmer Cooperative Service Organizes Congress authorized establishment of Farmer Cooperative Service (FCS) in the Farm Credit Act of August 6, 1953, but the agency was not formally organized until December 4, 1953, when the Farm Credit Act became effective. It was continued from August until December as the Cooperative Research and Service Division in the newly established Federal-States Relations Group of the Department of Agriculture, with the understanding that it would become an agency rather than a division. In fact, in the interim period it was often referred to as Farmer Cooperative Service.

Administrator Knapp. From August until December, Joseph G. Knapp was acting chief of the Division and then became acting FCS administrator. Secretary Benson announced Knapp's appointment as administrator on April 13, 1954. Knapp was a native of Colorado and as a boy worked on farms and ranches. He earned B.S. and M.A. degrees from the University of Nebraska and a Ph.D. degree from Stanford University. Before coming to the cooperative work of the Department, Knapp had taught and conducted research at North Carolina State University, the Brookings Institution, the University of Chicago, and the Food Research

142 INDEPENDENCE. CHANGE, AND CHALLENGE — 1953-1969

Institute at Stanford University. From 1934 to 1948, he was in charge of the farm supplies purchasing section of the Division. From 1948 until 1953, he served as associate and later as acting chief of the Division. Knapp served as a capable administiator of FCS until his retirement in 1966 (USDA Press Release 989-54, Apr. 13, 1954). But even as he was serving as administrator, he devoted time to research and writing on the history of agricultural cooperatives in the United States and the contributions of leaders in the cooperative movement. Knapp was a key figure in defining the mission and scope of today's agricultural cooperatives.

Agency Mission. The mission of FCS needed little formal redefinition since it was continuing the functions set out by the act of July 2, 1926. In the first presentation by the new agency before Congress, its purpose was stated as: "The Service does research in connection with and renders Joseph G. Knapp technical assistance to associations of producers of agricultural products and federations and subsidiaries thereof, engaged in the cooperative marketing of agricultural products, including processing, warehousing, manufacturing, storage, and the cooperative purchasing of farm supplies, credit, financing, insurance, and other cooperative activities" (House Approp., 1955, 2:699). The problem was not in definition but in carrying out these responsibilities in the light of the major changes taking place in the structure of American agriculture.

Organizational Structure. FCS, under a plan approved by the Secretary of Agriculture, was organized with three program and two administrative divisions (Memorandum, T. Roy Reid to Joseph G. Knapp. Dec. 10, 1953, in Files, Agricultural and Rural History Section, ERS). At the time it was organized, FCS had 77 full-time employees. It was serving 3 million farmers who were members of 15,000 cooperatives (including Farm Credit System and insurance cooperatives).

143 The two administrative divisions, the Information Division and the Administrative Management Division, were needed to carry out functions previously performed by the Farm Credit Administration. The Marketing Division, under the direction of J. K. Samuels, grouped all branches that worked directly with cooperative marketing activities of farmers. Branches were set up to work with specialized problems of particular commodities since that was the way marketing cooperatives were organized. There were seven commodity branches: Dairy, Grain, Poultry, Cotton and Oilseed, Livestock and Wool, Fruit and Vegetable, and Special Crops. The Special Crops Branch worked with tobacco, sugar, rice, dry bean, honey, and other cooperatives. The Purchasing Division, headed by M. A. Abrahamsen, was responsible for work relating to cooperative purchasing activities of farmers. The Farm Supplies Branch worked with farmers on problems of cooperatively purchasing feed, seed, fertilizer, petroleum, and other farm supplies. The Farm Services Branch was concerned with the cooperative purchases of insurance, irrigation, and other services. The Frozen Food Locker Branch dealt with cooperative management of frozen food lockers and similar facilities. The Management Services Division, with K. B. Gardner as director, carried on work of general interest to all marketing and purchasing associations. It worked across commodity lines and served the staffs of the other two divisions in a technical consultant capacity. The Business Administration Branch, the Membership Relations Branch, and the Transportation Branch dealt with a broad range of problems concerning most farmer cooperatives. The History and Statistics Branch developed national statistics on farmers' marketing and purchasing activity (NFC, May 1954).

144 USDA Location. Within the Department, FCS, when it was organized, reported to the Assistant Secretary responsible for the Federal-States Relations group. The assistant secretaryships shifted rather rapidly over the years, and the agencies assigned to a particular secretaryship also shifted. In 1990, Agricultural Cooperative Service was reporting to the Assistant Secretary for Marketing and Inspection Services. These changes will be noted in the next two chapters.

Clientele Relationships, From its beginning, FCS has maintained close working relationships with the major farmer cooperative organizations, particularly the American Institute of Cooperation, the National Council of Farmer Cooperatives, and the National Cooperative Business Association (formerly the Cooperative League of the USA), as well as with national commodity groups such as the National Milk Producers Federation and the National Federation of Grain Cooperatives and organizations such as the National Rural Electric Cooperative Association.

Challenge of the 1950's — Productivity Revolution By the time FCS was established, American agriculture was undergoing major changes. The widespread adoption of the ''package of practices" concept, essentially the application of systems analysis to farming, brought shifts still being felt. The basic idea, developed by Department of Agriculture and North Carolina State University research workers, was that improving every aspect of farm production resulted in an increase in farm productivity far exceeding that expected from adding up the gains from each improved practice. As carried out in North Carolina in the production of corn, combining the application of the most productive levels of nitrogen fertilizer, the use of hybrid seed, adherence to suitable conservation practices, use of appropriate mechanical power.

145 and the effective control of pests and diseases^ resulted in yields of more than 80 bushels per acre compared with usual yields of 15 to 20 bushels. Within 10 years, the adoption of the new technology, combined with improved management skills, had resulted in a revolution in American agriculture and in agricultural productivity. For example, in 1950 wheat averaged 16.5 bushels an acre, in 1960, 26.1. Corn yielded 37.6 bushels per acre in 1950, 53.5 in 1960. In 1950, the average dairy cow produced 5,314 pounds of milk, in 1960, 7,029, These increases in productivity continued at about the same rate through the 1960's and then continued through to the present at a somewhat lower rate. The total production of farm products soared, yet the amount of land in farms remained rather constant, and the hours devoted to farming declined sharply. One result of the revolution in production was that farmers were tied more closely to costs and returns. Farmers purchased such means of production as machinery, fuels, chemicals, and improved seed and livestock. The day had passed when the farmer raised horses as his source of power, fed them with farm-produced hay and grain, fertilized his fields with manure, and saved seed and breeding stock he had produced on the farm. This greater dependence on purchased means of production gave purchasing cooperatives an opportunity to advise farmers on practices that would be both economical and productive. For example, the cooperative could advise dairy farmers on how to achieve the most profitable production in relation to the costs of feed — a matter for careful calculation after a dairy farmer quit growing most of his feed. Similarly, the cooperative could advise a farmer on what would probably be the most productive corn or alfalfa seed, given a particular situation (NFC, Dec. 1954, p. 3, 14). Concern over costs and returns was one factor encouraging more

146 farmers than ever before to join cooperatives. In 1950, 6,519 marketing cooperatives, 3,283 farm supply cooperatives, and 262 service cooperatives had a little more than 7 million members. In 1960, 5,727 marketing cooperatives, 3,222 farm supply cooperatives, and 214 service cooperatives had 7.2 million members.

FCS — Its First Year. Secretary Benson, in his annual report for 1954, stated FCS had placed particular emphasis on how cooperatives could help farmers make adjustments to changing economic conditions, increase the efficiency of their marketing and purchasing associations, and improve the quality of their products, supplies, and services — a statement that could have been made with respect to almost any year since 1926. The Committee on Appropriations of the House of Representatives, although generally favorable to FCS, raised some questions during hearings on proposed appropriations for the coming year. The first, which had been raised before and would be raised again, was why the work could not be financed through reimbursement from the cooperatives receiving the benefits. The basic answer offered by Administrator Knapp was that, even though the work was organized by projects, the results were available to all organizations, general businesses as well as cooperatives. The results of work on a particular project were often general enough in nature that many organizations could benefit from them. Furthermore, many of the projects were carried out in cooperation with State colleges and universities and with cooperatives and cooperative associations, all contributing to the cost of the work. Thus, from the viewpoint of cost accounting, it would be almost impossible to correctly assess a cost to a particular cooperative. Knapp repeated essentially the same answer when the question was raised again the next year by the House Committee (House Approp., 1956, 2: 968-970).

147 Farmer Cooperative Service United States Department of Agriculture, December 1953 I

UNITED SHIES DEPDRTMEtll Of «CmCUlTülE

}. Kenneth Samuels Director, Marketing Division

Stanlei/ F. Krause Chief, Dairy Branch

Daniel H. McVey Chief, Grain Branch

John J. Scanlan Chief, Poultry Branch

Otis T. Weaver Chief, Cotton and Oilseed Branch

Cortes G. Randell Chief, Livestock and Wool UB UB Branch

Homer J. Preston Chief, Fruit and Vegetable Branch

Job K. Savage Chief, Special Crops Branch

148 Joseph G. Knapp Administrator

Beryle E. Stanton Director, Information Division

Harald D. Walker Director, Administrative Management Division

Martin A. Abrahamsen Director, Purchasing Division

]. Warren Mather Chief, Farm Supplies Branch

French M. Hyre Chief, Farm Services Branch

L. B. Mann Chief, Frozen Food Locker Branch

Kelsey B. Gardner Director, Management Services Division

Helim H. Hulbert Chief, Business Administration Branch

Irwin W. Rust Chief, Membership Relations Branch

Leonard N. Conyers Chief, Transportation Branch

Anne L. Gessner Chief, History and Statistics Branch

149 Knapp cited a project on methods of handling compensation for petroleum deliverymen employed by cooperatives as an example of a project needed by many associations. It was undertaken at the request of a number of cooperatives affiliated with the National Council of Farmer Cooperatives. Some 22 regional cooperatives worked with more than 1,000 local cooperatives to determine the advantages and disadvantages of different methods of compensation, including straight salary, commission, or number of deliveries. FCS analyzed the data that had been collected by the Council and the cooperatives and prepared a report that was used by many cooperatives and other businesses. The Committee on Appropriations pointed out that in addition to its regular appropriation, FCS received substantial transfers from other agencies of the Department, particularly from Agricultural Marketing Service. Knapp explained that some of the research needed, particularly in the marketing of citrus fruit, could best be done with farmer cooperatives and that FCS was in the best position to carry out such work. The administrator of Agricultural Marketing Service, O. V. Wells, agreed with this philosophy and financed a number of research projects carried out by FCS. An example was an analysis of costs of packing and processing citrus fruit in Florida and Texas, conducted with Agricultural Marketing Service funds in cooperation with the State experiment stations. The report, like many others, was useful both to cooperatives and other businesses. A Congressman wished to be assured that FCS was assisting cooperatives in ways that had been spelled out in law and was not aiding them in any way to avoid taxes. Administrator Knapp replied that changes in the tax laws had clarified matters that had been in dispute and that the law applied equally to cooperatives and to any business that wished to distribute its earnings to its patrons in accordance with previous agreements. FCS worked with both the Internal Revenue Service and coopera-

150 tives to provide information that would enable the cooperatives to avoid taking improper actions (House Approp., 1955, 2: 704-710). Such problems and many others were studied at workshops attended by representatives of the land-grant colleges, the Department of Agriculture, and cooperatives. Two such workshops were sponsored by the American Institute of Cooperation and FCS in 1955. One was held in Washington, DC, and the other at Washington State University. Both workshops evaluated research being conducted by the colleges and the Department of Agriculture and outlined research needed (USDA, Report of the Secretary, 1955, p. 15).

Research on Integration. FCS was conducting research and advising cooperatives on agricultural integration throughout the 1950's, a particularly relevant subject considering the changes taking place in farming practices, the structure of agriculture, and the decline in numbers of cooperatives. Integration, as defined by Joseph G. Knapp, was of two types: horizontal and vertical. Horizontal integration was the combining of organizational units to perform essentially the same types of jobs. Vertical integration covered the taking of one or more products through more than one functional stage in marketing or buying. A number of grain cooperatives organizing a bargaining association in an attempt to get sufficient product volume to improve their bargaining position was an example of horizontal integration. A poultry cooperative that sup- pHed poults, chicks, feed, and credit, as well as processing and marketing services, was an example of vertical integration. Horizontal integration was taking place in many dairy cooperatives through consolidations and mergers. However, in some instances this was a pre- lude to vertical integration. Vertical integration was taking place in many farm supply cooperatives where they were moving from retailing back through wholesaling and manufacturing. Petroleum coopera-

151 tives were an example of this trend, where retailing and wholesaling cooperatives owned refineries, crude oil wells, and transportation equipment to move the crude and refined products. FCS carried on two types of integration research during the 1950's. One was studying the nature and extent of integration already taking place in all types of marketing and purchasing cooperatives, with attention being given first to farmers' dairy and petroleum associations. A second type of research sought to determine ways cooperatives could furnish farm management guides for members under changing farm operating conditions; provide skilled services in marketing farm products, buying production supplies, and obtaining farm services; determine methods of securing larger capital requirements; and study possible ways that cooperatives could help farmers reduce marketing and buying risks through integration (NFC, Feb. 1958, pp. 4-5,13-14). It was necessary to determine what was happening and then find ways cooperatives could improve their operations. FCS cited the Eugene (Oregon) Fruit Growers Association as an example of 50 years of successful vertical integration. When the fruit and vegetable cooperative was established in 1908, its sales for its first year were $15,000, compared with $10 million 50 years later. The cooperative began by selling as much as possible of its members produce on the fresh market. It then took over an idle cannery, which it later purchased, and began canning vegetables. It continued to integrate its operations on both the production and marketing sides. It carried out research on seed strains and worked with growers to ensure the production of high-quality products. It checked its products for quality at every stage of processing. As freezing technology developed, the cooperative began freezing cherries, strawberries, and rhubarb. It had its own warehousing facilities and maintained control of the product until it was loaded for delivery to the market (NFC, Oct. 1958, pp. 12-13).

152 Development of the Eugene Fruit Growers Association is an early example of vertical integration taking place to meet specific needs of its members. As economist Sherwood O. Berg pointed out in 1959, cooperatives had to be flexible. In adjusting to the changing market conditions that confronted them, some cooperatives would have to rely on consolidation, others on merger, and still others on further acquisition of facilities. Integration itself was flexible and was not irreversible once it had developed (NFC, Sept, 1959, p. 8). As it continued its research into the vertical integration of cooperatives, FCS held a series of seminars and published results of its research. For example, in 1959, Martin A. Abrahamsen pointed out basic considerations relating to the process of integration. It was generally agreed that either vertical or horizontal integration contributed to increased efficiency. However, this had definite limitations, with inef- ficiencies possibly creeping into the integration process. Research and technology, rather than available capital and reduction of risks, were likely to be the key considerations in further integration. If plans for integration were based upon well-researched operating plans, then securing needed capital would be easier. Integration was an important vehicle for achieving increased bargaining power, simply because control of a larger volume of products of a given grade and available at a specified time gave the cooperative more influence in the market place. Individual farmers could most benefit from the efficiencies of vertical integration by making better use of their cooperative (NFC, July 1958, pp. 6, 7, 17). Administrator Knapp addressed the question of integration in a statement to the Appropriations Committee of the House of Representatives on March 3, 1959. He said farmer cooperatives would need to further integrate, coordinate, and generally strengthen their organizations to meet the challenges of vertical integration by com-

153 mercial organizations. Many farmers realized this was necessary if they were to retain control of their farming enterprises and improve their income. Knapp said cooperative efficiency could be greatly increased if two or more smaller organizations joined to get the volume advantages of lower costs and better management. FCS had been working on this problem of integration with a number of cooperatives, including several small dairy cooperatives in Vermont and New York, poultry and egg marketing cooperatives in several States, and livestock marketing cooperatives in Illinois. However, as cooperatives became larger and more integrated, questions were raised regarding the competitive status of cooperatives, their tax situation, and other matters. There also seemed to be some concern that cooperatives might seek to move into new areas where other businesses were already well established. Knapp was asked, for example, if FCS assisted individuals in setting up cooperative farming operations. He replied that the agency did not encourage or assist in the organization of such operations. Assistant Secretary of Agriculture Ervin L. Peterson summarized the questions, at least from his viewpoint, in testimony before the House Appropriations Committee on March 3, 1959, He said: ''It seems to me one of your problems, and I admit that it is a problem, is the question of public policy as to whether or not a cooperative-type of private competitive enterprise should be differently treated than other types of private competitive enterprise, and this is one, of course, that is beyond our competence to decide from where we sit; but we recognize it is a problem. We recognize as has been discussed here earlier today that certain types of so-called cooperative business are somewhat a far cry from the original intent of the Congress as evidence by legislation affecting cooperatives and of the legislation under which farmer cooperatives are organized" (House Approp., 1960, 2: 1035-1038).

154 As it happened, some individuals at this time were offering to organize so-called farmer cooperatives that were little more than money- making schemes for the individuals concerned and met virtually none of the accepted criteria for agricultural cooperatives. At the same time, Peterson failed to point out to the Congressmen in his ''summary" that Congress had answered the question of different treatment much earlier by passing the Capper-Volstead and the Cooperative Marketing Acts.

Cooperatives and Management Improvement Capable management was essential for cooperatives to succeed as consolidation and integration took place. Weakness in management had been the cause of many farmer cooperative failures. PCS had stressed this problem for several years, but the situation became more acute during the 1950's because of integration and the increase in the amount of business done by most cooperatives. The agency responded with research, training programs, and other actions to strengthen leadership within the cooperatives. Staff members participated in a number of workshops, management schools, and clinics to aid managerial employees and directors of cooperatives in improving the performance of their many and varied duties. These were sponsored by State cooperative councils, the American Institute of Cooperation, land-grant colleges, and similar agencies. The staff also prepared bulletins, films, and other training and educational materials to be used by groups or individuals to improve management practices. A question raised repeatedly as the 1950's were coming to an end was "Who is going to control farming?'^ Integration was a key to controlling farming, and integration was coming from outside farming, or it was growing upward from the farm itself through cooperatives and bargaining associations. As Knapp put it: 'The Big Decision is now being made on who will control farming. How and when it is made will

155 depend upon the ability of farmers to demonstrate that they can build and operate cooperatives that can serve their needs better than any other form of business enterprise can serve them'' (NFC, January 1959, p. 3).

Cooperative Use Grows. Membership in cooperatives grew in the decade of the 1950's even though a sharp decrease occurred in the number of farms, from 5.4 million in 1950 to 3.7 million in 1959, and a decrease in the number of cooperatives from 10,064 to 9,163. However, just as farms were increasing their production as their numbers decreased, the total net business of cooperatives was increasing from more than $8 billion in 1950 to $12.4 billion in 1960. Like farms, cooperatives were increasing in size. A survey conducted by FCS found that 43 percent of the cooperatives discontinuing operations from 1957 through 1959 did so because they consolidated or merged with or had their facilities and membership acquired by another cooperative. Another 18 percent continued in business, but not as cooperatives (NFC, Jan. 1960, p. 26). Longrun goals for farmer cooperatives were articulated in 1957 by William N. Stokes, Jr., president of the Federal Intermediate Credit Bank of Houston. Even as cooperatives were becoming larger, it was becoming almost essential for mid-size and small farmers to belong to one or more cooperatives. Mere size, according to Stokes, should not be a major goal for cooperatives during the 1950's. Instead, emphasis should be on cash savings to members, on the quality of services to members, and on efficiency in handling business. Cooperatives no longer had a desire to obtain a monopoly in any business in which they were engaged. Rather, cooperatives were the last bulwark of American farm people against monopoly (NFC, July 1957, pp. 7, 12-14).

156 Decade of the 1960's — USDA Support Peaks

As the new decade got underway. Knapp stated that the agency was giving special attention to cooperative problems in the following areas: Coordination among cooperatives; operating efficiency; processing; membership communications; rural development; and methods of economic integration. While none of these areas was entirely new, rapid changes taking place in farming and in the structure of agriculture were making them more important than they had been in the past. For example, developing coordinated operations among individual cooperatives helped them achieve adequate volume and diversification, as well as gave them greater bargaining power and reduced costs of operations. This was necessary if cooperatives were to survive in a world of fewer and larger agribusinesses (House Approp., 1963, 2: 806-808, 813). Coordinated operations could take the form of mergers, consolidation, and federated sales and buying programs. For example, FCS, in cooperation with Purdue University and the University of Kentucky, helped bring about a merger of four individual dairy cooperatives in Kentucky and Indiana with a combined membership of 3,000 farmers. The agency also undertook a study of the operations of a number of wool cooperatives with the goal of learning how they could increase volume, lower handling costs, improve packaging methods, and stream- line accounting practices. A number of articles advising cooperatives on how to handle particular problems relating to mergers, many based upon continuing research, appeared in News for Farmer Cooperatives during the 1960's. Helping build stronger cooperatives through mergers and consolidations had to be done carefully to avoid encouraging the establishment of monopolies or of giving the appearance of encouraging monopolistic practices. Questions involved in recommendations for con-

157 solidations and mergers were referred to the proper attorneys in the Department of Agriculture or to officials in the Federal Trade Commission and the Department of Justice (House Approp., 1963, 2: 823). This question had been raised before and was to be raised again. Another continuing question was that of the tax status of cooperatives. Knapp stated in 1962 that tax laws relating to cooperatives were not entirely clear but that cooperatives were required to pay taxes on undistributed surpluses and that members were generally required to pay taxes on any cash distributions they received. However, Knapp pointed out that any advantage available to cooperatives was also available to individuals or businesses wishing to accept the restrictions that go with cooperative ownership and operation. At the same time. Knapp pointed out that farmer cooperatives were self-help organizations, designed to operate at cost for those who own them and use their services. This sets them apart from other types of businesses (House Approp., 1963, 2: 830-831). The question of taxation, however, kept recurring. In 1968, David Angevine, speaking as FCS administrator, said: "Farmer cooperatives pay all of the State and local taxes that are levied on them and on their property...In 1962 and in 1966, the Internal Revenue Act was amended to cover specifically the way in which patrons of farmer cooperatives are taxed. The net effect of these laws is that net savings from operations which are allocated to members under a binding pre-existing obligation belong to the members and are taxable to the members. Net savings not so allocated belong to the cooperative and represent income to it — not to the members — and are taxed to the cooperative at corporate rates." (House Approp., 1969, 3: 455-456). It became obvious in the 1960's that farmers, by controlling their products further along the marketing channel, could get better prices for their products. This had been proven in dairying and was becom-

158 ing evident with respect to other commodities. FCS conducted both general and specific research on how best this could be done and advised cooperatives in particular situations. Early in the decade, it helped a southern cooperative establish a feed manufacturing plant, while later it helped a cooperative operating in south Georgia and north Florida develop a soybean processing and grain storage facility in Valdosta, GA (House Approp., 1969, 2: 445). Rural development provided the most distinctive and newest area of work for FCS in the 1960's. The program got underway as a pilot project in the Department in the 1950's and was substantially enlarged in the 1960's, even though it never attained the goals set for it by the Department or Congress. Nevertheless, virtually every agency in the Department was involved to some extent. Farmers Home Administration was active, but Extension Service, particularly some of the State Extension Services, took the lead. However, under a directive from Assistant Secretary John A. Baker, FCS was the agency to which the Department looked for leadership, research, technical information and assistance, and imaginative and innovative approaches to new problems as they arose in connection with cooperatives and rural development. FCS provided information on how farmers and local communities could effectively use cooperatives and gave technical advice and assistance with regard to specific cooperative proposals being implemented under the rural areas development program. In many ways, this related to FCS programs advising farmers on controlling the processing and marketing of their products through cooperatives. Early in the decade, the agency provided technical and economic information on the establishment of a cooperative vegetable cannery in Kentucky, a cooperative soybean processing plant on the Eastern Shore of Maryland and Virginia, and a cooperative cattle hide tanning plant in Texas (House Approp., 1963, 2: 816). A grasslands clearing cooperative for low-income fami-

159 Chapter 7

lies in eastern Ohio was established in cooperation with Farmers Home Administration. The cooperative renovated hundreds of acres for grass and woodland production, increasing the value of such lands from $10 an acre to $60 or more (NFC, July 1967, pp. 3, 13). FCS assisted in the planning and organization of a number of cooperative recreation associations in rural areas. Associations provided facilities for such activities as swimming, boating, fishing, hunting, riding, and skiing. The recreational facilities developed were available both to rural and urban residents. They provided jobs for farmers and other rural residents, diverted land to profitable uses, and brought income from farm land and ponds (NFC, August 1963, pp. 10-11, 20). The urban press attacked some of the recreational facility programs of rural cooperatives, but over the years many of these facilities have proven

Orville L. Freeman their worth to both rural and urban residents. Secretary of Agriculture Secretary Freeman and Cooperatives. Orville L. Freeman, who took the oath of office as Secretary of Agriculture on January 21, 1961, was a lawyer who had served three terms as governor of Minnesota, a State then ranking first in the number of cooperatives and in the number of members of cooperatives. Even though he had had little direct experience with the cooperative movement, he was a strong supporter of cooperatives and FCS throughout his administration. Freeman said in his first statement to cooperatives that he was determined to help create equality of economic opportunity for the American farmer, help ensure enough food and fiber for all Americans, and use American agricultural abundance as an instrument for freedom in a hungry world. Cooperative organizations could be in the forefront in helping achieve these objectives (NFC, March 1961, p. 2). On August 21,1961, in an address before the National Institute on Cooperative Education sponsored by the American Institute of

160 INDEPENDENCE, CHANGE, AND CHALLENGE — 1953-1969

Secretary Freeman reconstitut- Secretary Freeman; }.K. Stern, ed the Cooperative Advisory president, American Institute Committee on Oct. 4,1961. of Cooperation; Kenneth Attending the first meeting Naden, secretary. National were, from the left, Patrick Council of Farmer Healy, assistant secretary, Cooperatives; and Clyde Ellis, National Milk Producers general manager. National Federation; Roy T. Rural Electric Cooperative Hendrickson, executive secre- Association. tary. National Federation of Grain Cooperatives; Jerry Voorhis, executive secretary. Cooperative League of the USA;

161 Cooperation, the Secretary said the Department would seek to strengthen the sound growth of farmer cooperatives, not only in the interest of the cooperatives themselves and their members, but also for the significant and essential role they could play in the development of a national farm program. He reaffirmed the Department's statement of policy issued March 24, 1952, regarding the importance of cooperatives, and stated that the Department would work to help cooperatives meet the challenge of expanding horizons. He also announced that he was recon- stituting the Department's Cooperative Advisory Committee, consist- ing of representatives of the American Institute of Cooperation, the Cooperative League of the USA, National Council of Farmer Cooperatives, National Federation of Grain Cooperatives, National Milk Producers Federation, and National Rural Electric Cooperative Association (USDA Press Release 2655-61, Aug. 21, 1961). In his statement. Freeman made a number of specific recommendations regarding cooperatives and the actions that the Department could take to strengthen them. He recommended that cooperatives take an active part in the formulation of agricultural policy, bring about a greater public understanding of the contributions and needs of American farmers, strengthen the bargaining power of farmers, expand and integrate, concern themselves with the charges of monopoly both as acting as a brake on monopoly and not seeking monopoly, and develop closer relationships with consumers. He also suggested cooperatives should reach out to the world. President John F. Kennedy sent a message to the same conference endorsing cooperatives and saying: ''It is the policy of this Administration to encourage the sound and responsible development of cooperatives in the national interest and as part of our free enterprise system/' The Cooperative Advisory Committee Secretary Freeman had

162 reconstituted advised him with respect to Department policy toward cooperatives. Even more important, it served as an effective two-way communications vehicle between cooperatives and the Department.

Cooperative Month. In 1964, Secretary Freeman, in response to a proposal by FCS, and with a proclamation by President Kennedy, designated October as ''Cooperative Month." The effort was more than just a paper declaration. Each agency of the Department of Agriculture reported on what it could do for cooperatives. The material was brought together by PCS and made widely available. Emphasis was given to results of a conference of 300 representatives of cooperatives held in Washington in 1963 on "Cooperatives and the Future," as well as to the USDA policy statement on cooperatives issued in 1963. The response to Cooperative Month was so positive that PCS, with Information Director Beryle Stanton taking the lead, worked with the Department and cooperative organizations in the yearly designation of October as Cooperative Month. In 1970, leadership was turned over to national cooperative organizations, but PCS and its successor. Agricultural Cooperative Service, continued taking an active part in the program.

Administrative Changes. On November 30, 1961, PCS had 109 employees, all stationed in Washington, DC. Eight years later, the Service had 100 employees and had established its first field office. Redirections of programs occurred from time to time during the 1960's. For example, early in 1966 Administrator Knapp announced that the agency was revising and redirecting its program in accordance with the President's budget directive, recommendations of the National Advisory Council on Cooperatives, and suggestions from the Secretary. To the extent feasible, advisory service work was being shifted to the Federal and State extension services and land-grant universities. Funds

163 The Johnson administration took the lead in establishing a national "October is Cooperative Month" in 1964. The 3-week event included exhibits in the USDA patio by most agencies and Secretary Freeman keynoting a special program in the Department auditorium. USDA continued to take the lead in sponsoring Co-op Month until 1970. INDEPENDENCE, CHANGE, AND CHALLENGE — 1953-19B9

made available from this move were used to carry on high-priority research programs (House Approp., 1967, 2: 533). The most important administrative change for FCS during the 1960's was the retirement of Joseph G. Knapp as administrator on July 2, 1966. Assistant Secretary of Agriculture John A. Baker, speaking at cer- emonies marking Knapp's retirement, said that in large part because of Knapp FCS was known for its integrity and its professionalism and for acrroBER is its people, who had a great belief in what they were doing but had the COOPERATIVE MONTH scientific detachment needed to successfully carry out their work (NFC, September 1966, pp. 5, 22-23). ^OgPEf^^T.J^S Administrator Angevine. Knapp was succeeded as administrator on September 1, 1966, by David W. Angevine. After graduating from the University of Kansas, Angevine worked with the Kansas Association of Municipal Utilities and the Department of Labor. He then worked for Consumers Cooperative Association, Kansas City, MO, which later President Lyndon B . Johnson became Farmland Industries, as editor of The Cooperative Consumer spoke at the 1967 observance. from 1942 until 1953. In 1953, he joined the Cooperative League of the USA, resigning in 1966 to become FCS administrator. In his first testimony before Congress on May 1, 1967, Angevine said the agency's overall objective was to help farmers make the most effective use of cooperatives. Its goals were to help farmers get a better price for their products, to help farmers reduce their operating expenses, to help farmers use their cooperatives to gain for themselves the economic advantages of integration, to increase the services available to cooperative members, and to improve the operating efficiency of cooperatives. Increased research was needed in three areas: farmer's bargaining power, expanding cooperative service for rural residents, and developing rural resources. Cooperatives could make a substantial contribution to rural residents through rural development (House Approp., 1968, 3: 236, 240-242).

165 Chapter 7

The 1966 Co-op Month exhibit in the USDA patio marked the 40th anniversary of the Cooperative Marketing Act.

Among visitors was L. S. Hulbert (above) who drafted the act and had been a long-time FCS employee.

Right, FCS Administrator David Angevine visits with A. E. Beall (left), assistant general manager, Mississippi Federated Cooperative, Jackson, MS, and D. W. Brooks, general manager. Cotton Producers Association (now Gold Kist), Atlanta, GA.

166 INDEPENDENCE, CHANGE, AND CHALLENGE — 1953-1969

On August 1, 1967, the new administrator reorganized FCS into three basic programs: Specialized Cooperative Research, Cooperative Marketing and Farm Supplies, and Cooperative Development. These programs, each headed by an assistant administrator, replaced the three operating divisions when FCS was established in 1953. The SpeciaUzed Cooperative Research program, headed by Homer J. Preston, was made up of three divisions: Business Organization, Cooperative Appraisal, and New Services. The program was charged with continuing basic, specialized research, regardless of day-to-day operating demands. The Cooperative Marketing and Farm Supplies program was headed by J. Kenneth Samuels, and included the Animal and Animal Products, Crops, and Farm Supplies divisions. The program represented a merger of services for cooperative marketing and farm supplies. This reflected a trend in successful cooperatives, which increasingly had sought to serve their members' total needs as producers, whether this David W. Angevine involved them in marketing farm products or in providing farm supplies and an increasing array of related services. The Cooperative Development program, directed by Job K. Savage, comprised the International, Rural Services, and Training divisions. This program was not simply to respond to the needs of established cooperatives. Rather, where studies showed that cooperative marketing of farm products, cooperative distribution of farm supplies, or cooperative services could make a substantial contribution to farmers' incomes and to rural development, then this program, in cooperation with the Extension Service and other Department agencies, would take some initiative in encouraging the organization of cooperatives. It would provide training and other aids to cooperative leaders both from the United States and from other nations (House Approp., 1968, 2: 448). The emphasis in the agency on rural and cooperative development alienat-

167 ed many leaders of established cooperatives even though it helped many poorer farmers and rural communities. The first FCS field office was established in 1969 by the Rural Services Division of the Cooperative Development program. The Department's emphasis on rural development and working with the Office of Equal Opportunity in the organization and development of new cooperatives had led to heavy workloads in a number of areas, including eastern North Carolina. The North Carolina Fund for Rural Development asked FCS to assign a staff member to work in a 30-county area, organizing and developing cooperatives. The agency agreed, and the Fund provided for the salary and expenses of such a person. Several viable cooperatives with an average membership of 250 resulted from the project, demonstrating that on-site technical assistance could accelerate development. However, it was 8 years before another field office was established (Memorandum, Raymond Williams to Kenneth R. Farrell, Mar. 29, 1979, in Files, Agricultural Cooperative Service; Interview with Philip F Brown, April 16, 1990).

Agricultural Fair Practices Act. On April 16, 1968, the President approved the Agricultural Fair Practices Act. This act authorized the Department of Agriculture to enforce standards of fair practices for handlers and processors who deal with farmers. It was particularly aimed at preventing handlers and processors of agricultural products from dis- criminating against members of cooperatives or from attempting to keep farmers from joining cooperatives (82 Stat. 93). The need for such legislation arose from two fundamental changes in farm markets. First, the conventional open assembly markets had been displaced by direct marketing, formula pricing, contract production on specification, and vertical integration. Second had been the shift of market power to fewer and larger marketing firms. Food chains

168 and large food processors had replaced the once-prevalent small market outlets for farm products. At the same time, processors were questioning farmers' rights to organize for bargaining purposes. Legislation introduced in 1964 was modified many times over the next 4 years. Some of the major farm organizations vacillated in their support, while the National Canners Association and other processors kept up strong opposition. Many cooperatives, as well as the major farm organizations, were uncertain as to what their positions would be as farm bargaining groups. The report of a National Commission on Food Marketing, support from the Department of Agriculture, the determination of farm commodity groups, the American Farm Bureau Federation, the National Grange, and other farm organizations, and even endorsement by some consumer groups, finally led to passage of a law. Though the law fell short of its original objectives, it secured reaffirmation by Congress of producers' rights to organize for collective action and represented the first step in establishing farm bargaining legislation. This was the first reaffirmation by Congress of the importance of group action to farmers since the Capper-Volstead Act (Torgerson, 1970, pp. 1-2, 204, 210, 230). Secretary's Memorandum 1639 assigned the responsibilities for this act to FCS on August 27, 1968. This was an entirely new type of responsibility and one that demanded careful planning and additional funding and staff. The agency established a separate line of responsibility by assigning Robert D. Harris, executive assistant to the administrator, to handle claims of violations of the act. He was given assistance from the Office of the Inspector General in investigating complaints and the cooperation of other agencies of the Department. During the first year of the new responsibility, action was limited to receiving and studying complaints. By the time additional funding and staff could be requested, a new Secretary was in office.

169 Good Times for Farming: The 1970's

The 1970's have sometimes been called ''the second golden age of American agriculture/' comparable in many ways to the period from about 1905 to 1915, "the first golden age of American agriculture/' The median income for farm families rose from $6,773 in 1970 to $16,357 in 1979. Total net farm income rose from $14.4 billion in 1970 to $31.7 billion in 1979. The value of farm land per acre rose from an average of about $200 to nearly $800. It seemed like the good times would last forever. The surplus commodities that had burdened the market since the 1950's had virtually disappeared. Farmers were producing for what appeared to be a constantly increasing world market. It seemed to many that mankind finally could bring world hunger to an end. At the same time, increased production was necessary to feed the steadily growing world population. Secretary of Agriculture Earl Butz, bankers. Farm Credit Administration representatives, many agricultural economists, and others urged farmers to expand their operations so the United States would be able to meet the demands for its farm products. Yet many of the trends in farming that had become apparent after World War II continued. Farm population declined from 9.7 million or 4.8 percent of the total population in 1970 to 7.6 million or 3.4 percent in 1979. The number of farms declined from 3.0 million to 2.4 million and average acres per farm increased from 373 to 428 in the same period. Farmer cooperatives continued to decline in number while the amount of business transacted continued to increase. In 1970, farmer marketing, farm supply, and related service cooperatives numbered

170 7,995, with 6.1 million members. Cooperatives' combined net business volume was $20.5 billion. In 1976, seven farmer cooperatives were listed by Fortune magazine as among the Nation's 500 industrial corporations with the largest sales volumes. By 1979, there were 6,445 cooperatives with 5.6 million members, transacting business of $56.2 billion.

Changing Administrations and Organizations As farmers prospered during the 1970's and cooperatives nearly tripled their volume of business, USDA and the agency working with cooperatives were undergoing far-reaching changes. When the decade opened, Clifford M. Hardin was Secretary of Agriculture. Before the decade was over, he had been followed by three others — Earl L. Butz (1971-76), John A. Knebel (1976-77), and Bob Bergland (1977-81). Similarly, four people had headed the organizational unit responsible for cooperative assistance — David W. Angevine (1966-1970), Eric Thor (1970-73), Ronald D. Knutson (1973-75), and Randall E. Torgerson (1975-present). Farmer Cooperative Service became part of Economics, Statistics, and Cooperatives Service (ESCS) in 1977, with Kenneth R. Farrell as administrator and Torgerson as deputy administrator for cooperatives. In 1980, the cooperative work again became independent as Agricultural Cooperative Service (ACS), with Torgerson as administrator. The Secretaries all expressed general support for cooperatives and for the work being carried out by ECS, ESCS, and ACS. However, the continuing changes in Departmental policies and organization and the frequent shifts in leadership of the cooperative program had a deleteri- ous effect upon USDA's relationships with cooperatives and upon the effectiveness of the agency's work. Each new Secretary and each new agency head had to broaden his knowledge of cooperatives and had to develop working relationships with cooperative leaders to understand needs and develop effective programs. Within the agency itself, repeat-

171 ed reorganizations led to uncertainties and lack of continuity in some progranis, just as changes in the Secretaries led to uncertainties on the part of agency administrators as to the support they could expect from the top. Perhaps a saving grace in this situation was expressed by a staff member who said: ''I don't pay any attention to reorganizations. I know what my job is and I do it." Secretary Hardin authorized PCS to ask for 14 new positions and an increase of $281,000 in funds for fiscal year 1970. The increased funding included $200,000 for expanded technical assistance to cooperatives serving farmers and rural residents; $21,000 to administer the Agricultural Pair Practices Act of 1967; and $60,000 for community improvement research. In discussing the need for increased technical assistance to farmer cooperatives. Administrator Angevine pointed out that farmers' marketing had increased from $9.5 million to $18 billion in 15 years, while the staff had increased by only 8 percent. This made it impossible to serve the total needs of cooperatives as well as the agency did 15 years earlier. Angevine also pointed out that the $21,000 requested for enforcing the Agricultural Pair Practices Act would be the total funding devoted to that work and would be adequate to take care oí the requests that were coming in. He stated that the $60,000 for increased community improvement research would be used to help rural communities develop improved marketing, farm supply, and production services (House Approp., 1970, 3: 419-420, 423, 431). However, Congress cut the proposed increases to $86,000 to expand technical assistance to farmer cooperatives and to administer the Agricultural Pair Practices Act oí 1967 (83 Stat. 248). This was the last appropriation to the agency for administering the Agricultural Pair Practices Act since that responsibility was transferred to the Agricultural Marketing Service effective December 23,1970 (U. S. Department of Agricuhure, Secretary's Memorandum 1714, Dec. 23,1970).

172 Secretary Hardin and Cooperatives. Clifford M. Hardin of Nebraska became Secretary of Agriculture on January 21, 1969. An agricultural economist, his career had been in university teaching and educational administration. In a 1969 statement for Cooperative Month, Hardin endorsed cooperatives, saying in part: 'The cooperative concept — the idea of progress through people working together — has long been a vital force in the free enterprise system, especially in agriculture." However, he did not suggest any action that the Department or the Nation could take to support cooperatives. At the same time, President Richard Nixon said: "Because I have seen the progress people have made by acting together, I have pledged assistance to cooperative programs for farm and rural people (NFC, October 1969, p. 2). Hardin resigned as Secretary effective November 17, 1971.

Secretary Butz and Cooperatives. Earl L. Butz of Indiana became Secretary of Agriculture on December 2,1971. An agricultural economist, he had left his position as dean of agriculture at Purdue University to become Assistant Secretary of Agriculture in 1954 and served until 1957. He returned to Purdue and was dean of continuing education when he was named Secretary. While Butz was identified with agribusiness, he was also a strong spokesman for farmers and praised cooperatives. Early in his administration, speaking to the Noble County (Indiana) Cooperative Association, he reminded members that his father had been manager of that cooperative. It had succeeded for two reasons: "First, the people who owned and directed and managed it were the same people who needed it in the first place, who used it, and benefited from it; and, second, the farmers who were its backbone believed that the best way to solve a problem is to roll up your sleeves, and do the job yourself." Butz continued: "Our farm cooperatives — better than any other institutions in our life

173 — exemplify the principles of democracy in practical application'' (USDA press release 1373-72, Apr. 21, 1972). Nearly 2 years later, speaking before a large cooperative, Butz said: ''Marketing cooperatives have done an outstanding, enviable job of helping farmers increase their income through improved and coordinated handling, transporting, and marketing of grain and oilseeds" (USDA press release 327-74, Feb. 5, 1974). Butz resigned on October 4, 1976. He was succeeded by John A. Knebel, who served as Secretary from November 4, 1976, to January 20, 1977. Knebel, a lawyer, did not take any particular action relating to cooperatives in the short period he served as Secretary.

Secretary Bergland and Cooperatives. Bob Bergland, a Congressman from Minnesota, became Secretary of Agriculture on January 23, 1977. A native of Minnesota, he had worked for USDA's Agricultural Stabilization and Conservation Service from 1961 to 1968. Soon after taking office, Bergland said: ''As a farmer who uses cooperatives, I know their value as a business extension of the farm operation. The cooperative is absolutely necessary for family farmers to compete with other sectors of our highly organized business economy." He then said: "The Department's policy is to offer maximum encouragement and support to family farmers and their cooperatives." Two points of his policy statement were of particular relevance to Farmer Cooperative Service (FCS). One was to strengthen research and technical assistance aimed at making farmers' marketing, purchasing, and service cooperatives more effective, and the other was to promote the knowledge of cooperative principles and practices among farmers and the general public to create better understanding of cooperative purposes and benefits (FC, May 1977, p. 2). Later, speaking at a National Cooperative Month meeting, Bergland said: "I have a firm belief that cooperatives will not only keep

174 GOOD TIMES FOR FARMING: THE 1970'S

free enterprise free and enterprising, by providing legitimate competition, but they serve certain social and political functions as well....Just as co-ops have been a part of my life, they're going to be a part of my administration of the Department of Agriculture" (USDA, press release 2811-77, Sept. 30,1977). He made similar statements throughout his term as Secretary, which ended on January 20, 1981.

Administrator Thor. On February 2, 1970, Eric Thor became administrator of Farmer Cooperative Service. He succeeded David W. Angevine, administrator since September 1, 1966, and who had resigned on January 20, 1970. Thor, a native of Nebraska, was trained as an agricultural economist at the universities of Nebraska, Florida, and California. He served on the faculties of the U. S. Military Academy and the University of Florida and as an economist for the Corning Glass Company before Eric Thor joining the Agricultural Extension staff of the University of California in 1959, where he was serving when appointed administrator. Shortly after becoming administrator, Thor began planning a substantial reorganization of FCS. The reorganization became effective on November 4, 1970. Under its terms, the Office of the Administrator was responsible for policy and program formulation, directing the administration of agency programs, directing agencywide project control and statistical programs, and conducting the administrative management of the agency. Two deputy administrators were named to assist Thor in the overall administration of the agency. Martin A. Abrahamsen continued as deputy administrator with major responsibilities for policy and program development. Homer J. Preston was named deputy administrator for program management. The work of the Service was divided between two assistant administrators, one for research and advisory services and one for tech-

175 nical assistance and cooperative development. The first assistant administrator, J. K. Samuels, was "responsible for a program of research, advisory service, and related activities to improve organization and performance of cooperatives providing marketing services and production supplies and services to farmers." The second assistant administrator. Job K. Savage, among other duties, was responsible for national, regional, and local programs to: help established cooperatives improve and add to their services; assist rural residents in developing new cooperatives; provide advisory services to developing cooperatives in foreign countries; and participate in rural development policies and programs relating to cooperatives. However, Thor gave much less emphasis to rural development than did Angevine. In announcing the reorganization, Thor said that FCS must be in a position to respond to the complex interrelated and even worldwide problems farmers and their cooperatives faced. As he explained, "We are, therefore, moving to a mission-oriented structure, toward a team approach. Team leaders drawn from experienced FCS staff members will provide leadership in a given problem area, while the chief in a commodity or function area will provide leadership in his specialty" (Farmer Cooperative Service, press release, Nov. 23, 1970). The reorganization was announced at a time when the "team" concept, with leadership changing as work on new problems was undertaken, was being adopted by a number of agencies in the Department of Agriculture. The concept seldom produced the results hoped for by the administrators who adopted it. It was confusing and ineffective in FCS. Thor saw production agriculture becoming increasingly indus- trialized and efficient. Yet for the family farm system to survive, he said it had to "solve the problem of how to coordinate the production on the farm to meet the requirements of the processing and marketing sector" (Speech to rice and grain growers, 1972, ACS historical files).

176 GOOD TIMES FOR FARMING: THE 1970S

Essentially, he saw three approaches: (1) expanded use of bargaining associations; (2) development of multi-product, fully integrated cooperatives; and (3) joint-ventures between farmer-owned cooperatives and investor-oriented marketing corporations. He clearly favored joint ventures as the quickest way to establish the linkage. He saw mutual benefits. Producers and their cooperatives gained marketing expertise and value-added margins; marketing corporations gained an assured supply of raw agricultural products; and they split the profits. As an example, he cited the joint venture between Allied Grape Growers and the United Vintners subsidiary of Heublin, Inc. (a dismal failure and which ended with costly litigation). As a result of his interest, a research project was undertaken by Fred Hülse and Michael J. Phillips to look at the extent, characteristics, advantages, and disadvantages of joint ventures among cooperatives. However, Thor resigned as administrator effective September 26, 1973, some 18 Ronald D. Knutson months before the research was published in May of 1975.

Administrator Knutson. Secretary Butz appointed Ronald D. Knutson as administrator effective September 27, 1973. Knutson was a native of Minnesota. He earned a B.S. degree in agricultural economics from the University of Minnesota, an M.S. from Pennsylvania State University, and a Ph.D. from the University of Minnesota. He became a professor of marketing at Purdue University and then served as staff economist for Agricultural Marketing Service before becoming administrator of FCS. Knutson's major goals during the 2 years he served as administrator were to maintain PCS as a viable agency, and to develop a strategy for cooperatives to become involved in the agricultural export trade. To achieve the first goal, he felt the administrator needed to keep the agency useful to cooperatives and to the public. He also needed to use whatever political influence he might have. This was possible because at

177 Chapter 8

that time the position was a Schedule C, or political, appointment. The second goal of moving cooperatives into the export trade could be achieved only by persuading the leaders to become involved (Discussion with Ronald D. Knutson, Oct. 24, 1990). When Knutson became administrator, FCS had 85 permanent full-time employees. Knutson proposed that the number be increased to 88, although the only increase in appropriation the Department permitted him to ask of Congress was to cover such items as increases in office rentals and mandated pay increases (House Approp., 1975, 3: 83- 84). He stated that he expected the agency to give special attention to problems faced by cooperatives with respect to a market-oriented agriculture, exports, maintaining family farm agriculture, shortages of farm supplies, and rural development. Knutson received the appropriation requested, but the number of permanent full-time employees declined to Randall E. Torgerson 80 in 1974. Once again Knutson proposed that the Service have 88 full- time employees, but his request for increased appropriations was limited to amounts needed to cover the same mandatory costs as in the previous year (House Approp., 1976, 2: 40-41). Again, Congress appropriated the amount requested. By the end of 1975, the permanent full-time staff had increased to 87 (House Approp., 1977, 2: 341-342). However, by that time Knutson was no longer administrator. He had resigned effective August 31, 1975.

Administrator Torgerson. On October 28, 1975, Randall E. Torgerson became administrator of FCS. Torgerson is a native of Wisconsin. He received a B. S. degree in agricultural economics from the University of Minnesota and M. S. and Ph.D. degrees from the University of Wisconsin. He also studied at the Royal Agricultural College, Uppsala, Sweden, and the Agricultural College of Norway. Torgerson was an associate professor at the University of Missouri from 1971 until 1974. While at

178 the university, he helped organize and served as executive secretary of the Missouri Institute of Cooperatives. He was also a founder of the Graduate Institute of Cooperative Leadership. In 1974, he became staff economist to the administrator of Agricultural Marketing Service. Torgerson came to ACS with the deepest roots in cooperative philosophy of any previous administrator. He was born and raised in "co-op country" — the upper Midwest where numbers of cooperatives are greatest. As he grew up and well into his professional career, he had first-hand access to the social, economic, and political aspects of cooperative organization and operations from a managerial perspective through his father. Truman Torgerson helped organize Lake to Lake Cooperative and served 35 years as its only manager. He retired in 1980 when the $130 million cooperative merged with Land O'Lakes, Inc., Minneapolis. Administrator Torgerson had taught courses on cooperatives and had written two books on group action in agriculture. In summary, he had an excellent background for leading the Department's cooperative program. In his first testimony before the Appropriations Committee of the House of Representatives on March 5, 1976, Torgerson stated two premises upon which much of the work of the agency was based — cooperatives were vital to the continuation of a dispersed family farm agriculture, and they were a distinctive form of business enterprise that enabled farmers to help themselves. He pointed out that FCS carried out active research and service projects serving family farmers and rural communities as they turned to cooperatives to better their economic situations. Since the agency could not address all problems facing cooperatives, it emphasized research that was highly practical in nature and gave assistance in starting new cooperative ventures in response to felt needs of farmers and rural residents. Insofar as possible, the agency

179 A 1976 observance in the USDA patio marked the 50th anniversary of the Cooperative Marketing Act.

Administrator Torgerson (left) IS shown with former administrators Knutson (center) and Knapp. Angevine also came to the event. GOOD TIMES FOR FARMING: THE 1970S

FCS employees look over a dis- play of food products carrying cooperative-owned brands.

Secretary of Agriculture Earl L. Butz (left) spoke to the group, obviously making a few humor- ous remarks to or about Administrator Torgerson. Chapter 8

This FCS staff picture was is Don Paarlberg, the taken as part of the 50th Department's director of eco- anniversary of the Cooperative nomics and master of ceremony Marketing Act. In front, with for the event. Administrator Torgerson (left)

182 sought to make its research and assistance programs broadly applicable to many farmers and their cooperatives. While the agency had requested an increase of $160,000 for program work, the request was not approved by the Department. Instead, as it had been since the early 1970's, the amount requested of Congress was "hold-the-line'' in nature (House Approp., 1977, 2: 349, 354). The end of 1976 saw the agency with a ceiling of 81 permanent full-time employees, a figure that was to continue for a considerable period of time. Torgerson had been planning a reorganization of FCS. He was then working with a deputy administrator and two assistant administrators. Functions of assistant administrators had been assigned in the reorganization of 1970. The arrangement, according to Torgerson, had not worked well. Each assistant administrator had too many employees reporting directly and neither had been able to limit work to the previous designations of assistant administrator for technical assistance and assistant administrator for research. Torgerson proposed the work be reorganized under two deputy administrators and three assistant administrators. One deputy administrator would be responsible for operations and the other for special projects. One assistant administrator would be responsible for organization and management, finance, farm supplies and service, policy, and education. A second would supervise work in dairy, fruits and vegetables, transportation, member relations, and cooperative development. The third would handle livestock and meats; grains, oilseeds, cotton and tobacco; poultry; history and statistics; and international affairs. In addition to providing more effective supervision of agency programs, the reorganization moved away from concentrating research in one division and technical assistance in another. Over the years, pro- fessionals had enjoyed working in the agency because they could work on both research and technical assistance. Working on technical assis-

183 tance as well as on research; they could test and mplement research recommendations. This mix of activities, Torgerson suggested, was one of the reasons why many professional workers stayed with the agency throughout most of their careers. The reorganization plan was approved by the Department (Memorandum, Jerome A. Miles, director of Office of Management and Finance, to Randall E. Torgerson, administrator. Farmer Cooperative Service, Mar. 24, 1976). The reorganized agency was headed by Torgerson as administrator and Jack H. Armstrong and Marshall R. Godwin as deputy administrators. Assistant administrators were James E. Haskell, J. Warren Mather, and Homer J. Preston. The top staff was rounded out with Delmas R. Thornsbury as executive assistant and Gene Ingalsbe as director of information (FC, May 1976, p. 23). All of these staff members had been in Farmer Cooperative Service before the reorganization, with Godwin, Preston, Thornsbury, and Ingalsbe continuing in positions they had held previously. In 1977, while justifying appropriations for 1978, Administrator Torgerson asked for an increase of $100,000 for work on public policies affecting agriculture. Information and data were needed on such sub- jects as cooperative size, organization, membership representation, and economic performance to meet increasing public concern about cooperatives and to achieve equitable treatment for them. Congress granted a substantial increase for agency programs, more than the agency had requested, the first such in a number of years.

From FCS to ESCS to ACS. During the 1970's, the Department, as noted previously, had four Secretaries and four administrators of its cooperative program. In less than 3 years of the decade, the program had three different names. In 1977, the name Farmer Cooperative Service, known throughout the cooperative world for nearly 25 years, disappeared. A

184 new consolidated agency. Economics, Statistics, and Cooperatives Service (ESCS), was responsible for the program until 1980, when it again became independent as Agricultural Cooperative Service (ACS). Abolition of PCS caused dismay in the cooperative community, confusion in Congress, and at least some disruption in the program. Much time and effort in the 1980's was devoted to restoring the program to its previous stature among cooperatives and in USDA.

Economics, Statistics, and Cooperatives Service. — Jimmy Carter of Georgia had been inaugurated President of the United States on January 20, 1977. His Secretary of Agriculture was Bob Bergland. Carter entered office with a pledge to reduce the number of Government agencies, a pledge that led to some ill-considered and virtually unworkable changes in organization within the Department of Agriculture. The one most affecting work with cooperatives came on December 23,1977, when Farmer Cooperative Service was combined with Economic Research Service and Statistical Reporting Service to form Economics, Statistics, and Cooperatives Service (ESCS). Farmer Cooperative Service was the smallest by far of the three agencies. ESCS was headed by Kenneth R. Farrell, an agricultural economist with strong interests in research and data collection and wide experience in program management. He named Randall E. Torgerson, FCS administrator, as deputy administrator for cooperatives. Jack H. Armstrong became assistant deputy administrator, James E. Haskell, director of the Cooperative Marketing and Purchasing Division; J. Warren Mather, director of the Cooperative Management Division; and Homer J. Preston, director of the Cooperative Development Division. The duties of the division directors were similar to duties they had had as assistant administrators. But information and management personnel of FCS were transferred to centraHzed services of the new agency, although for the most part there was little change in their duties.

185 The increased appropriation to FCS in fiscal year 1978 had led to an increase in its employnnent ceiling to 85 full-time permanent positions. As staff members were transferred to other units as a result of the reorganization, the number of positions assigned to the Cooperatives Unit of ESCS declined to a low of 72 in 1979. However, five ceilings were added in 1980 as a result of increased appropriations for the work of the Cooperative Development Division. A field office was established at Salinas, CA, in December 1977. It was established in part because Secretary Bergland became interested in a strawberry production cooperative in Salinas and had suggested that the agency do more to assist low-income farmers in production cooperatives, even though production cooperatives had had a poor record of success. If such a cooperative were to succeed, it needed more than long- distance advice from Washington; it needed advice and help that could best be provided by someone on the spot. The new office was financed by the California Employment Development Department for a time but then was covered by appropriations to the agency (Memorandum, Randall E. Torgerson to Howard Hjort, Aug. 29, 1979; Memorandum, Torgerson to Jose Rios, June 22, 1979, in office files. Agricultural Cooperative Service). Success of the new office and of the first one established in North Carolina led to interest in establishing others. At the end of 1979, Farrell, with the help of a committee chaired by Raymond Williams, director of the Cooperative Development Division, was considering where such offices should be established (Memorandum, Raymond Williams to Kenneth R. Farrell, Nov. 30, 1979, in office files. Agricultural Cooperative Service). During 1980, field offices were established in Kentucky, Arkansas, and Maine. The one in California continued for 3 more years. A major criterion for locating field offices was the existence of a developing cooperative or group of cooperatives that would benefit markedly from the establishment of such an office.

186 Despite Farrell's determination to make the new organization a success, cooperative leaders felt the system removed cooperative interests one more step away from the Secretary. While this was true, the fact that Bergland had been a Minnesota farmer interested in cooperatives, as well as a Congressman from the State with the largest number of cooperatives, gave cooperative leaders greater access to the Secretary than they otherwise might have had. Nevertheless, many of these leaders and members of cooperatives interpreted the reorganization as evidence that the Department of Agriculture was cutting its support for cooperatives. Before the reorganization became effective, some of the major cooperative organizations were urging that the independence of the cooperative agency be protected. As Stanley Dreyer, president of the Cooperative League of the USA, wrote in a letter of October 21, 1977: ''It is apparent that FCS is now one layer further down in the administrative order....At a time when the Secretary has made the strongest supporting statements and taken vigorous steps to strengthen cooperatives, and at a time when the Congress has appropriated record levels of financing the work of FCS, it does not seem appropriate to be downgrading this valuable service to cooperatives.'' A writer for a cooperative journal. Farmland News, put the matter in country terms when he wrote early in 1979 that the reorganization was "about as popular among co-op people as hoof-and-mouth disease is with livestock producers." Pressure for an independent cooperative agency continued to build in 1979 with resolutions introduced in both the Senate and the House of Representatives calling for a reaffirmation of support for cooperatives and for restoring an independent office for research and technical assistance for cooperatives. Both resolutions were co-sponsored by a number of Senators and Representatives. The National Council of Farmer Cooperatives supported the resolutions, as did many other cooperative groups and general farm organizations.

187 An 11-person committee was appointed in August 1979 by Kenneth R. Farrell, with the encouragement of Randall E, Torgerson, to review and evaluate the ESCS Cooperative Program. The chairman of the committee was Glenn Edick of Agway Inc. The committee issued its report on February 15; 1980. It suggested that highest priority be given to improving "the knowledge base about the cooperative form of business as it relates to agriculture and the food system." Special emphasis should be placed on (1) public policy, (2) capital formation, (3) member and public relations, and (4) director education. The committee report also raised the issue of having the Department reconsider the organizational status of the cooperative work. It would appear that partly in response to this report and partly in response to continued resolutions and correspondence from the cooperative community and Congress, Howard W. Hjort, director of Economics, Policy Analysis and Budget for the Department, wrote a letter on March 24,1980, to leaders of the cooperative community asking for their comments on a proposal for an Agricultural Cooperatives Service. The letter read in part: "Among the organizational options we are considering in this connection is that of establishing an Agricultural Cooperatives Service reporting to the Assistant Secretary for Marketing and Transportation Services. Under this option, research and policy analysis in support of the Department's responsibilities for cooperatives would remain in ESCS. Other functions now performed by the Cooperatives Unit of ESCS including cooperative development, education, information, history, statistics and technical assistance would become the responsibility of the new Service. With respect to undue price enhancement, ESCS would be responsible for research and analysis to provide an objective information base to underpin the Department's undue price enhancement activities. Authority for enforcement and legal aspects of undue price enhancement would be vested elsewhere in the Department."

188 GOOD TIMES FOR FARMING: THE 1970S

Hjort received replies from most of those to whom he sent the letter. Those replying were virtually unanimous in endorsing a separate Agricultural Cooperative Service reporting to the assistant secretary for Marketing and Transportation Services but were also nearly unanimous in disapproving the proposal to leave research and policy analysis in ESCS. Some respondents argued that this separation would violate the basic concept of the 1926 legislation formally establishing work with cooperatives. Most agreed that enforcement of Section 2 of the Capper-Volstead Act relating to undue price enhancement should be elsewhere than in the new Service, but that it was not necessary to set up a new office to carry out that function.

Agricultural Cooperative Service. — On September 17, 1980, Secretary's Memorandum No. 2025, signed by Secretary Bob Bergland, established Agricultural Cooperative Service (ACS) as an independent agency under Bob Bergland, the Assistant Secretary for Marketing and Transportation Services. The Secretary of Agriculture primary function of the new agency was to "implement and administer" the Department's cooperatives programs authorized by the Cooperative Marketing Act of 1926 and by the Agricultural Marketing Act of 1946. The following paragraph in the memorandum was somewhat ambivalent: "The development and pursuit of a program of economic research on matters of importance to cooperatives and the issuance of complaints under Section 2 of the Capper-Volstead Act (7 U.S.C. 292) will continue to be the responsibility of the Director of Economics, Policy Analysis, and Budget. The Agricultural Cooperative Service will have concurrent responsibility for economic research and analysis and the application of economic research findings to the problems of cooperative organizations." Nevertheless, the goal of the cooperative community, the restoration of an independent agency for cooperatives programs, had been achieved.

189 The new agency became formally operative on October 1, 1980. Essentially, the work formerly carried on by Farmer Cooperative Service would now be carried on by Agricultural Cooperative Service. However, as noted in the Secretary's Memorandum, the director of Economics, Policy Analysis, and Budget continued to be responsible for economic research on matters that related to the issuance of complaints under Section 2 of the Capper-Volstead Act. Strengthening Cooperatives in the 1970's Even though the decade of the 1970's was a period of prosperity for many farmers, their cooperatives faced both continuing and new problems.

Identifying Cooperatives' Problems. As the decade began, two experts discussed the problems cooperatives faced. Randall E. Torgerson, then on the faculty of the University of Missouri, stated that it was time for farmers and cooperatives to do some fresh thinking. The structure of agriculture was changing, and cooperatives offered one of the better opportunities for farm operators to maintain their stake in America's farming future. The bargaining process needed a new look as the open market continued to disappear. It was becoming necessary for cooperatives to work more closely with part-time farmers and for such farmers to become good cooperative members. This would strengthen farm influence with Congress, which had been deteriorating as farm numbers decreased. Farmers needed to work together and to work with other groups where a mutuality of interest existed. This was particularly important in that legislation related to cooperatives was somewhat dated. For example, the efforts of cooperatives to organize on a broader basis to deal with national and international conglomerates perhaps needed legitimization through new legislation. Another problem demanding study was finance and how the financial needs of cooperatives could be better served (NFC, January 1970, pp. 8, 20-21).

190 At about the same time, Martin A. Abrahamsen, deputy administrator of Farmer Cooperative Service, reviewed the basic changes in farm structure and the important developments in agricultural cooperatives taking place during the 1960's. He foresaw eight activities that likely would be of increased importance to cooperatives and with which FCS should be concerned. These were: (1) Greater emphasis on consolidation and merger; (2) more attention to the integration of operations; (3) continued adjustments in organization methods and operating practices; (4) greater recognition of responsibility to members; (5) more emphasis on improving management; (6) assumption of greater responsibility for informing the general public regarding the practices and goals of cooperatives; (7) greater emphasis on the role of cooperatives in agricultural policy; and (8) assumption of international obligations (NFC, March 1970, pp. 3-4, 16-18). In testifying before the Appropriations Committee of the House of Representatives in 1972, Administrator Thor emphasized that particular attention was being given to the following specific goals: (1) Furthering the economic integration of farmer cooperatives; (2) improving the financial structure of farmer cooperatives; (3) improving farmers' bargaining effectiveness; (4) developing more effective member relations programs; and (5) improving the quality of life for rural people (House Approp., 1973, 2:9). A few years later, Ronald D. Knutson, who had succeeded Thor as administrator, listed the following problems facing cooperatives with which the agency was particularly concerned: (1) Adjustment to changing conditions; (2) erosion of legislative support; (3) opportunities for new cooperatives; (4) helping the family farm survive (House Approp,, 1976,2:36-38). At the end of the decade, Randall E. Torgerson, who had been named deputy administrator for cooperatives when FCS was merged

191 into Economics, Statistics, and Cooperatives Service, briefly reviewed the ''turbulent seventies" and what had happened to cooperatives during that decade. Cooperatives, according to Torgerson, were ''discov- ered" by farmers, consumers, and regulatory agencies. This posed both problems and opportunities for cooperatives and with them opportunities and problems for the cooperative division of ESCS. Torgerson stated that the image of cooperatives reached a new low in the early 1970's when corporate political contributions were made by a few cooperatives, thus tarnishing their traditional image of nonpartisan political activity. Another problem arose with the marked increase of food prices in the mid-1970's, with some questioning by consumer groups of the responsibility of cooperatives for such increases. Federal regulatory agencies undertook more intensive scrutiny of cooperatives, particularly as cooperative activities related to monopoly and tax exemptions. On the other hand, farmers recognized the need to expand cooperative endeavors if they were to survive as independent operators. Existing organizations were consolidated. Cooperatives were organized in new areas, and others gave increased emphasis to exports. The National Consumer Cooperative Bank was established through Federal legislation, giving consumer cooperatives a source of credit patterned after the Farm Credit System (FC, December 1979, pp. 2-3). A review of major projects and publications of FCS and the Cooperatives Unit of ESCS in the 1970's reveals that many of the problems facing cooperatives in that decade were continuations of previous concerns. Other problems led to new emphasis on earlier fields of research and technical assistance, while still others opened up comparatively new questions so far as the agency was concerned. A closer review of the work of the agency is warranted in major areas of research and technical assistance.

192 Competition, Antitrust, and Taxation. Questions concerning the extent cooperatives were in competition with other rural businesses, the possibility of cooperatives establishing monopolies, and the extent that tax breaks gave cooperatives advantages, if any, over other businesses, continued to be raised in the 1970's, just as they had been in earlier years. The question of competition was brought up by two Congressmen in the appropriation hearings for 1973. In one case, the Congressman was concerned with cooperatives entering the consumer market, and in the other with cooperatives competing with other rural businesses. Administrator Thor answered in response to the first that farmers moving products into the consumer level created competition and were often welcomed by large businesses. In many cases, cooperatives and big business worked together to meet market needs. So far as the second point was concerned, Thor stated that FCS believed there was room in rural communities for both cooperatives and individually owned and operated businesses and that the competition provided by cooperatives helped build stronger rural communities (House Approp., 1973, 2: 19-21). In hearings on the 1975 appropriation bill. Congressman Jamie L. Whitten, chairman of the Subcommittee on Agriculture Appropriations, said an investigation by his committee had found that the only way the farmer could deal with big business or make it possible for small business to survive was through the cooperative movement. Whitten had also found that most of the taxes from which cooperatives were exempt were State taxes, not Federal. As long as cooperatives sold to or for members, excluding nonmembers, there was no unfair competition (House Approp., 1975, 3: 90-91). However, questions were still being raised about the intent of Congress when it passed the Capper-Volstead Act and what the act meant in the current economic environment. Some of these questions were discussed at a National Symposium on Cooperatives and the Law, held in

193 Madison, WI, in April 1974. The symposium encouraged continuing research by FCS, as had a decision by the Supreme Court in 1960 in the case of Maryland and Virginia Milk Producers Association v. United States (362 U.S. 458, 466-467). The Supreme Court, in this and some later decisions, said the Capper-Volstead Act did not provide for unlimited antitrust immunity. In 1976, the Supreme Court refused to review a private damage antitrust suit against Sunkist Growers, Inc., a citrus growers' cooperative, in which damages had been awarded. Sunkist had entered into an exclusive arrangement for the export of oranges from Arizona and California to Hong Kong. Sunkist's dominant distribution structure was protected by the Capper-Volstead Act, but extension of its domination in the supply market was not protected (FC, September 1976, pp. 22-23). This left a major question, as the agency pointed out, in that large-scale and closely coordinated cooperatives were necessary if farmers were to have parity of power in the marketplace. Yet both size and coordination could lead to questions of suppressing competition and unduly enhancing food prices (NFC, July 1974, pp. 4-8). Food prices in the mid-1970's were erratic but, on the whole, increasing rather sharply. Some groups were saying cooperatives were unduly enhancing the prices of farm products and thus of food. As a result. Secretary of Agriculture Earl L. Butz reestablished the Capper- Volstead Study Comn^ittee, replacing one established in 1959 and disbanded in 1972. The committee members were USDA's General Counsel as chairman, the Assistant Secretary for Marketing and Consumer Services, and the Director of Agricultural Economics. The committee was to consider whether cooperatives had unduly enhanced prices and was to report to the Secretary. The Secretary had the final authority to issue a "cease and desist'' order if he believed a cooperative had monopolized or restrained trade to the point of unduly enhancing the price of an agricultural product (Federal Register, February 7, 1975).

194 In 1978, Butz' successor, Bergland, took the position that cooperatives had provided greatly needed competition in the marketing of farm products and that they had provided farmers with essential farm supplies for producing food at prices people could afford (FC, December 1978, p. 3). At the same time, Bergland testified before the National Commission for the Review of Antitrust Laws and Procedures that he was prepared to vigorously enforce Section 2 of the Capper-Volstead Act requiring the Secretary to issue a complaint against any cooperative that monopolized or restrained trade to such an extent that the price of any agricultural product was unduly enhanced. The USDA committee appointed earlier recommended that the Secretary define and select markets to be monitored, monitor market prices in those markets for signs of possible undue price enhancement, obtain price information from cooperatives, decide whether evidence of possible undue price enhancement existed, and obtain information on possible monopolization or restraint of trade where evidence of possible undue price enhancement had been found (FC, September 1979, pp. 4-5). It was basically up to the cooperative staff of the Economics, Statistics, and Cooperatives Service to implement these recommendations and to advise cooperatives as to the requirements of the law. In any case, cooperatives needed to be alert to defend their legal foundations, to avoid violations as their operations became more complex, and even to consider strategies in case a portion of their legal framework was changed or eliminated. The Department of Justice released a report in January 1977 with respect to cooperatives and the milk marketing order program. The report concluded that market power, in the form of control of the allo- cation of supply to markets, had been achieved by cooperatives in the context of the order system. It then set this against a perfectly competitive theoretical market system and made recommendations to deregu- late milk marketing and to modify antitrust policy and enforcement as

195 it related to dairy cooperatives operating under the Capper-Volstead Act. Farmer Cooperative Service, in consultation with other agencies; prepared the Department's reply, pointing out that the American economy was one of imperfect competition and that individual farmers had no power in dealing with those who purchased their production. Among a number of serious misimpressions in the Justice report were that consumers pay unjustifiably high prices for milk and that cooperatives have excessive market power (FC, August 1977, pp. 18-20). In 1978, as noted earher. Secretary Bergland testified before the National Commission for the Review of Antitrust Laws and Procedures. In addition to stating what he was prepared to do to enforce the law, he made a strong defense of farmer cooperatives and the marketing order systems. He emphasized that ''the business of farming and the marketing and distribution of farm products are different from the production and distribution of anything else in our economy" (FC, September 1978, pp. 17-19). The Commission's report reflected its concern that cooperatives could grow to large size and have the potential to create a monopoly under the Capper-Volstead Act. While farmers should have the right to form cooperatives, the antitrust treatment of cooperatives once formed should be similar to that of other business corporations (FC, February 1979, pp. 4-6). As the decade ended, the Justice Department, in connection with a complaint issued by the Federal Trade Commission charging Sunkist Growers with monopolizing the citrus market, was spelling out what it regarded as limits on the rights of cooperatives (FC, December 1979, pp. 15).

Mergers, Consolidations, and Integration. During the 1960's, Farmer Cooperative Service had advised cooperatives in general that their bargaining power would be enhanced if they became larger through merging, consolidating, or integrating operations. There was, as discussed

196 in the preceding section and as FCS officials pointed out, a problem relating to the Capper-Volstead Act and the methods of growth cooperatives could adopt and still be within the law. The Service continued to conduct research and provide technical assistance to cooperatives on this difficult question. Not all mergers that occurred in the 1960's were successful. In 1969, James Haskell studied four local cooperative mergers of which one had been consistently successful, one consistently unsuccessful, and two marginal. He found that successful merging cooperatives had similar business activities. The research produced several other observa- tions. Mergers involving small-scale operations with no clear growth strategy offered limited opportunities for improvement except in services. Merging cooperatives often encountered difficulties in adjusting facilities to needs by failure to close dupHcate faciHties or by not closing them quickly enough, or by embarking upon too ambitious an expansion program. Some managers had limited capacity for operating a more diversified or substantially larger operation. Understanding and full support by members was essential. Increased operating efficiency, improved member interest, better use and development of personnel, improved service, and a centralized bookkeeping system were the most important needs for successful mergers (NFC, August 1969, pp. 10, 20- 21; September 1969, pp. 4-5, 18). PCS continued to encourage mergers and integration but pointed out some particular needs and problems. In 1975, Administrator Knutson urged cooperatives to examine the full-service concept. A full- service cooperative supplied all the input needs of producers, and it provided producers with a market for their product (NFC, August 1975, pp. 16-18). Growth, according to Charles A. Kraenzle, John C. Moore, Kenneth F. Harling, and Charles A. French, in a joint research report by FCS and

197 Purdue University, was important but was not an adequate strategy for the future. Farmers must select more explicit strategies for their cooperatives. These included: (1) pursuing integration and coordination; (2) bargaining collectively, and (3) maintaining and improving the open market (FC, December 1977, pp. 4-6). At the same time, according to Randall Torgerson, cooperative fragmentation in the Northeast was hurt- ing farmers, particularly dairy farmers. He was encouraging a cooperative systems approach to group action (FC, June 1978, p. 2). Even though FCS was encouraging farmers to organize cooperatives and to bring about growth by mergers and integration, it was still necessary from time to time to study proposals for new organizations and to advise farmers of possible frauds. In the mid-1970's, a new kind of farmer-owned business organization, sometimes called a promoter- cooperative, led to intensive studies. Such organizations were identified in at least 10 States. In general, these ''cooperatives'' involved integrated marketing and supply operations, hard-sell techniques by promoters, high commissions collected by the organizers, and outside or nonfarm managers or board members. Legal action was taken in a number of States against some of these so-called cooperatives (FC, November 1976, pp. 4-7).

Renewed Bargaining Emphasis. Growth, however achieved, was urged as the most direct method of increasing bargaining power. Larger cooperatives could bargain directly, while others could join in farm bargaining associations. This became more important from year to year as the number of processing plants and buyers was rapidly declining, with each plant and buyer remaining handling a larger volume of commodities. At the same time, consumer agencies recognized the need of an adequate income for farmers as well as stable prices for consumers. Farm bargaining, in the public mind, was an acceptable way for farmers

198 GOOD TIMLS KOR FARMING: THE l')70'S

Assistance to bargaining cooperatives has included cospon- soring a national conference for the past 35 years. This one in 1975 drew a record crowd of 300 leaders.

Ralph Bunje, who had been president since its organization 19 years earlier, retired. He later wrote a book on bargaining for the Department's Cooperative Information Report series.

199 to work for fair prices as long as bargaining groups did not dominate the market or obtain what appeared to be unreasonably high prices (NFC, July 1974, pp. 20-22). Rights of cooperatives through bargaining were rather unclear. The hopes that had been aroused by passage of the Agricultural Fair Practices Act of 1968 had not been realized. Torgerson had said in 1970 that while the act was a tribute to the power of the processor lobby, it could point the way to a more effective bargaining act (Torgerson, 1970, pp. 211, 221-232). This had not happened, even though a few States had effective laws. The main problems with the 1968 act were: (1) to establish a violation, the aggrieved producers must prove actions of a buyer or processor were directly connected to the producer's choice to be a member of a cooperative; and (2) the act did not require a buyer to deal at all with a bargaining association. These problems led the National Committee of Cooperative Agriculture Bargaining and Marketing Associations to decide that some action should be taken. The Committee had been established in the early 1950's by a number of cooperative leaders, including Ralph Bunje, Cameron Girton, and Gerald Marcus, with help from Claude Gifford of the Farm Journal, to encourage more attention to bargaining. Beginning in 1957, it had held yearly conferences, co-sponsored by Agricultural Cooperative Service and its predecessors, usually with agency representatives assisting in arranging the program. In the mid-1970's, a subcommittee of the National Committee was charged with drafting new legislation that would protect the bargaining rights of farmer cooperatives. The resulting National Agricultural Bargaining Act (H.R. 3535) was introduced into Congress in 1979 by Representative Leon Panetta of California and 38 other Representatives. Similar legislation had been introduced in both the House of Representatives and the Senate in 1978, but no action had been taken.

200 Hearings were held on the 1979 version, with most of the major farm organizations and representatives of the leading fruit and vegetable bargaining associations testifying for it. Representatives of food processors, commodity handling groups, and the U. S. Chamber of Commerce testified against it. The bill remained in committee (NFC, October 1979, pp. 15-16). As the decade ended, cooperative bargaining rights still had not been clarified.

Encouragement for Exports. The export of agricultural products has been of importance to America since colonial days. Cooperatives have shared in that market for many years, but, in general, they have not achieved the level and kind of organization necessary to address foreign markets with maximum effectiveness. For example, 1972-73 was a strong year for foreign grain sales, but direct cooperative exports amount- ed to only 5.5 percent of the total (NFC, June 1974, p. 2). By the mid-1970's, Farmer Cooperative Service was giving emphasis to research on foreign marketing and was encouraging cooperatives to move into exporting, particularly of grain. In 1976, it published Improving the Export Capability of Grain Cooperatives, with specific suggestions as to how cooperatives could increase grain exports. This was followed in 1977 by Export Marketing Guide for Cooperatives by Donald E. Hirsch, which dealt even more directly with how cooperatives could enter the export market. This report became the accepted guide for cooperatives considering moving into foreign markets. FCS pointed out that risks were involved and that in earlier times grain exports had been unprofitable for cooperatives. Nevertheless, if cooperatives could overcome fragmentation and lack of coordination, perhaps by establishing a single export organization for all cooperative grain exports, they could then benefit from a greater share of the market (NFC, August 1975, pp. 4-8). One point made by Administrator Torgerson

201 was that more orderly marketing in the international arena would help farmers adjust to widely fluctuating domestic markets (NFC, February 1976, pp. 3-5). Seventy-three cooperatives directly exported agricultural commodities valued at more than $2 billion in 1976, according to a survey published by the Cooperatives Unit of ESCS. That amount represented 9.2 percent of total U.S. agricultural exports. The top four commodities exported, in terms of value at U. S. loading ports, were the same for cooperatives as for all U. S. agricultural exports. They were feed grains, wheat, soybeans, and cotton. The four accounted for 65 percent of total U.S. exports and 68 percent of cooperative exports. The cooperative share of total exports was 8.2 percent for feed grains, 9.0 percent for soybeans, 9.2 percent for wheat, and 22.1 percent for cotton. However, for some commodities, cooperatives' share of total exports was much higher. It was 69.9 percent for fresh citrus, 40.1 percent for nuts and nut products, and 28.4 percent for processed fruit. Overall, the report suggested that cooperatives had the potential for a greater export role in the future (FC, May 1978, pp. 8-9; Hirsch, 1979). Another study by the ESCS Cooperatives Unit revealed that more than 80 foreign countries received agricultural commodities from 73 U. S. farmer cooperatives that directly exported in 1976. Some 90 percent of the total shipments were about equally divided between Europe and Asia, with Western Europe and Southeast and East Asia being the primary destinations (NFC, June 1978, p. 12-14). There ivere, however, problems and dangers for cooperatives in direct exports. Smaller cooperatives, for example, might attempt to enter the market without proper consideration given to assembly, transportation to port, ship loading, shipping, monetary exchange, and other questions. Still another problem was the rise of fly-by-night exporting ''cooperatives" trying to cash in on the desire of some buyers to pur-

202 chase directly from cooperatives. Questionable activities by these get- rich-quick operators were harming true cooperatives interested in building a durable export system (FC, June 1979, p. 2). As the decade ended, the Cooperatives Unit was working with cooperatives to increase their direct exports. Its advice had helped cooperatives increase exports, and there seemed to be a promising future for further increases. Toward a New Decade Throughout its history of work with cooperatives, the Department of Agriculture had assumed correctly that family farmers made up most of cooperatives' membership. During the latter part of the 1970's, a new concern was being voiced about the future of family farms, including what cooperatives could and should do to protect them. The point was made by Farmer Cooperative Service that a favorable climate for cooperatives offered family farmers their best opportunity to survive. The time had gone by when independent family farmers could prosper while supplying a free and open market because a free and open farm market had not been available for many years. In 1976, speaking to a group of young farmers, Ronald D. Knutson, former administrator of FCS, said: "If your generation fails to support cooperatives, the family farm system will be finished before the year 2000." Independent farmers were facing changes in farming, prices, exports, markets, and farm policy that made it necessary for them to look beyond their own operations for assistance in decision-making and survival. Cooperatives could make the individual farmer's operations competitive, but only if farmers committed themselves to their cooperatives (FC, October 1976, pp. 11-13). Two years later, agricultural economists from the University of Missouri and North Carolina A & T University, in a study financed in

203 part by the Cooperatives Unit of ESCS, asked the question: ''Can a cooperative succeed serving small, family farms?'' The answer v^as that cooperatives catering primarily to small farmers might be marginal in terms of feasibility. Challenges included sufficient capital, efficient management, and maintaining enough business to be viable. Public policy might have to include special types of provisions to meet the needs of such cooperatives (FC, September 1978, pp. 4-5). Late in the decade, Don Paarlberg, one of the Nation's highly regarded agricultural economists, told the National Institute on Cooperative Education that the family farm, that is, a farm on which the majority of the labor was provided by the farmer and his or her family, was alive and well. However, among family farms the small farm was in difficulties. Technology, growing capital requirements to start a farm, and Government price support poUcies all contributed to the unfa- vorable situation of the small farm. On the other hand, family farms of reasonable size were tough competitors and would probably survive (EC, November 1979, pp. 14-15). As the decade ended, farmers were still in a reasonably good economic situation. The problems lying ahead for cooperatives and thus for the cooperative work of the Department of AgricuUure were those that had dominated the 1970's, except that farming was about to move from a decade of comparative prosperity to one of economic distress. Farmers' economic problems would overshadow every aspect of work in the Department of Agriculture.

204 Farm Depression and Recovery; The 1980^s

Agricultural Cooperative Service (ACS) faced a major challenge in the 1980's, as farming moved from prosperity to deep depression. Many farmers quit farming and many cooperatives failed. The agency worked closely with cooperatives to help them stay in business and at the same time help farmer members survive the agricultural depression. By the end of the decade, farming and cooperatives had made a substantial recovery, but there were fewer farmers and fewer cooperatives. As the decade opened, 6 million people were living on 2.4 million farms averaging 426 acres each. Average per acre value of land and buildings was $737. The Nation's farmers had a total net farm income of $16.1 billion. In 1980, 6,293 cooperatives with 5.4 million members did $66 billion in business. By 1989, 4.9 million people were on 2.1 million farms averaging 461 acres each. The average per acre value of land and buildings was $547. Total net farm income was $42.7 billion. The number of farmer cooperatives had declined to 4,799, with 4.1 million memberships. They did $71.1 billion in business, compared with $66.4 billion in 1988. Administration: Cooperative Support Cools Fight for ACS Funding. Despite the farm depression and in contrast to other research units in the Department of Agriculture, ACS suffered a steady erosion in funds and people throughout the 1980's. Even when appropriations were not cut for a particular year, they often did not keep up with inflation and mandatory increases in wages. In addition, the Reagan administration set personnel ceilings for the departments

205 and agencies. Thus, when additional funds might be made available by Congress, such money had to be spent through contracting for work or hiring temporary employees. During the comparatively short time that ACS was part of Economics, Statistics, and Cooperatives Service, there was some disagreement as to exactly how much funding and how many people were assigned to cooperative work. This was, in part, because with centralized information, personnel, budget and accounting, and other administrative services, it appeared the Cooperatives Unit had lost a number of people and been denied a substantial amount of funds. The cooperative community used this argument with Congress and the Secretary in an effort to get independence restored. However, leaders of the consolidated agency argued that the cooperative work had more funding and a larger staff than when it was independent (Historical Files, Agricultural History Section, Economic Research Service, 1979-1981). When ACS became independent, a personnel ceiling of 93 and related funds were transferred to it. Not all of the positions were filled, and some, with funds, were transferred to other agencies to carry on administrative and related functions for the agency. Congress appropriated $4.5 million to ACS for 1981, the first year an appropriation was made for the new agency. As of October 1, 1980, the agency had a ceiling of 92 full-time, permanent positions, a figure that was not particularly realistic, but reflected some of the problems in setting up the new agency and getting its administrative work in place. The Office of Management and Budget requested $4,220,000 for 1982. Congress appropriated $4,629,000. Both the House and Senate appropriation committees recommended establishing a field office in Hawaii but set aside no particular funds for the purpose. By October 1, 1981, the agency's employment ceiling had been reduced to 80. The Administration recommended that funding for the agency

206 be cut to $3,683,000 for 1983. Both the House and Senate recommended substantial increases above that amount. The Senate committee, in its report to the Senate, stated that agricultural cooperatives offered one of the better opportunities for improving the economic status of farmers and that ACS could be of major help to cooperatives in international marketing. Congress appropriated $4,639,000, of which $139,000 was earmarked for an office in Hawaii. The ceiling on positions was cut to 70. The Administration continued attempts to cut funding, recommending $3,677,000 for 1984. Congress appropriated $4,639,000, the same amount as the preceding year, with $139,000 again set aside for an Hawaiian office. The Administration kept the personnel ceiling at 70 positions. However, the ceiling was cut back to 65 positions as of October 1, 1984, and $3,565,000 was recommended as the appropriation for 1985. Congress appropriated $4,675,000, with $139,000 for Hawaii. Congress also emphasized giving more effort to international trade. Appropriations for 1986 through 1990 varied only a little from the 1985 figure, and the staff remained about the same. The Administration recommended that the agency depend upon user fees for a substantial part of its support. However, no firm plan was presented to Congress, perhaps because at least some of the members of the appropriations committee questioned the wisdom of a policy that would make it difficult for cooperatives struggling in the agricultural depression to get the help they needed. The low point in funding recommendations by the Administration came when only $2,303,000 was proposed for 1989. The cooperative community came to the support of the agency and Congress responded, appropriating $4,655,000. In its report on the appropriations bill, the Senate Committee on Appropriations directed that ACS be fully staffed and rejected proposed cuts in research and technical assistance. As the decade ended, Congress appropriated $4,714,000 for 1990. (This section is based upon the appro-

207 Chapter 9

Secretary of Agriculture John Block issued a strong Department policy in support of cooperatives in 1981, and Vice President George Bush added Reagan administration support for the cooperative system in a 1982 speech at the annual meeting of the National Council of Farmer Cooperatives in Washington, DC. priation acts and the reports on these acts by the House and Senate appropriations committees.)

Secretary Block and Cooperatives. John R. Block, an Illinois hog and corn producer, became Secretary of Agriculture on January 23,1981. He had been director of the Illinois Department of Agriculture and had been active in developing export markets for farm products. However, he had had no Washington experience, a handicap that took him some months to overcome. As Secretary, he sought to strengthen the position

208 of America's full-time commercial family farmers (Interview with Secretary Block, January 27,1986). Secretary Block came into office with practical experience in cooperatives. He had served for 9 years as a director of a farm supply and grain marketing cooperative in northwestern Illinois, first known as Knox County Oil Company and later part of Growmark, Inc. He was a charter member of the Illinois Corn Growers Association (FC, March 18, 1981, pp. 8-9). On August 26, 1981, Block issued a USDA policy statement on cooperatives. He stated in part: "Cooperatives are a sound approach toward improving farmers' self-sufficiency, decreasing their rehance on Government, and helping to increase and strengthen the competitive private enterprise system. I intend to cast the Department in a strong policymaking role concerning any governmental legislation or regulation affecting agricultural cooperatives.'' Block stated that the Department would meet fully the spirit and intent of laws and policy directives of Congress relating to cooperatives, including conducting a program of research and technical assistance, helping improve management practices in cooperatives, supporting rural electric and telephone cooperatives, providing field assistance to farmers in initiating self-help programs, and carrying out an informational and educational program for farmers and the public (U. S. Department of Agriculture, Secretary's Memorandum 1020-1, Aug. 26, 1981). Later that same year, at the annual meeting of the Cooperative League of the USA, Block again stated his support for cooperatives. He said ACS would continue to help establish and develop cooperatives through technical assistance, development assistance, research for use by policymakers, statistics, and education (FC, Dec. 1981, p. 4). The Administration, like many earlier, emphasized its support for cooperatives when Vice President George Bush said in January 1982

209 at the annual meeting of the National Council of Farmer Cooperatives: ''We're not going to permit the cooperative effort to be weakened, either deliberately or by accident. The cooperative system is vital to this Nation's prosperity. They're independent, but cannot stand alone. And they won't be made to. We're going to see to that — and indeed we've already taken steps in that direction." The Vice President also emphasized that ACS was the Administration's focal point for providing cooperatives with technical assistance, cooperative development, research, the collection of statistics, and cooperative education (FC, March 1982, p. 4). Block invited cooperative leaders to meet with him on his Illinois farm in June 1982 to discuss farm problems. Issues discussed included farm credit, exports, the image of agriculture among consumers, marketing orders, and the dairy industry (FC, Aug. 1982, p. 4). Block reaffirmed his support for agricultural cooperatives at the annual meeting of the National Council of Farmer Cooperatives in January 1983. 'T know from my own personal experience," he said, that "cooperatives represent one of the more important self-help vehicles for improving our farm economy" (FC, March 1983, pp. 14-15). Block expressed support for cooperatives and for ACS throughout his tenure. However, the Administration as a whole seemingly knew or cared little about agricultural cooperatives, while some of the leading members of Block's staff were indifferent to or even opposed them. Block was under constant pressure to reduce staff and expenditures in the Department, including those for ACS. Appropriations and the number of positions for the agency were cut most years during the decade and would have been cut even more had it not been for Congress acting to increase appropriations over those recommended by the Administration. The most extreme proposal, made by the Office of Management and Budget, was that the agency be eliminated. Block, with the backing of

210 national cooperative organizations and of a number of Representatives and Senators, successfully fought off the proposal.

Secretary Lyng and Cooperatives. Secretary Block resigned as Secretary effective February 14, 1986. He was succeeded on March 7, 1986, by Richard E. Lyng, a native of California. Lyng had been active in a family seed and bean production and processing firm. He had been active also in farm organizations. He served as director of agriculture in his home State from 1967 to 1969, under the governorship of Ronald Reagan, and was in USDA in Washington as Assistant Secretary of Agriculture for Marketing and Consumer Services from 1969 to 1973. He served as president of the American Meat Institute from 1973 to 1979. He returned to the Department in 1981 as Deputy Secretary. In 1985, Lyng resigned to head a consulting firm and from there returned to the Department as Secretary. Lyng was familiar with agricultural cooperatives since California was one of the leading States in cooperative business volume. He had also served as a member of the board of Tri Valley Growers, a canning cooperative. Lyng had been able to work with competitive cooperatives when he was in the seed and bean business and felt that the competition was good both for his business and for cooperatives. He believed both cooperatives and profit-oriented businesses were needed and for that reason supported cooperatives while he was Secretary. As Lyng saw it, cooperatives needed good management to succeed, but managers were burdened with problems of member relations and with the fact that cooperative managers were not rewarded in the same way as the managers of other firms. Cooperatives cannot be successful merely by increasing profits. They are most effective when they reduce costs and provide services for their members. Lyng's emphasis as Secretary was to assist farmers out of the deep agricultural depression,

211 and he saw cooperatives as one means to this end (Discussion with Richard E. Lyng, Nov. 13, 1990). His service as Secretary ended on January 20, 1989.

Secretary Yeutter and Cooperatives, Clayton Yeutter became Secretary of Agriculture on February 16,1989. A native of Nebraska, he operated a 2,500-acre ranch in central Nebraska from 1957 to 1975. He was Administrator of USDA's Consumer and Marketing Service, 1970-71; Assistant Secretary for Consumer and Marketing Services, 1973-74; and Assistant Secretary for International Affairs and Commodity Programs, 1974-75. He was president of the Chicago Mercantile Exchange, 1978- 85, and served as United States Trade Representative, 1985-89. Early in 1990, speaking at the annual meeting of the National Council of Farmer Cooperatives, Yeutter said the ''co-op movement has made a major impact on agriculture for many years. I wish we could somehow impose it on Eastern Europe'' (EC, March 1990, p. 4). Since then. Eastern Europe has become open to Western ideas and ACS has been advising people in that part of the world on establishing cooperatives.

Agricultural Cooperative Service Organizes On September 17, 1980, Secretary Bob Bergland established Agricultural Cooperative Service, dedicated to the support of agricultural cooperatives. To perform its functions, 93 positions, most of which were filled, were transferred from Economics, Statistics, and Cooperatives Service to the new agency. Of these positions, four were assigned to Agricultural Marketing Service to provide management support for ACS. Eunds to support the 93 positions were also transferred. Economics, Statistics, and Cooperatives Service was renamed Economics and Statistics Service (Memorandum, Kenneth R. Farrell to All Employees, Economics and Statistics Service, Oct. 1, 1980).

212 Location in the Department. The new agency was to report to the Assistant Secretary for Marketing and Transportation Services. This title was later changed to Assistant Secretary for Marketing and Inspection Services to reflect some changes in responsibilities. The matter of placement of ACS was discussed at top levels in the Department. The agency, though small, carried out work that could fall within the responsibilities of several assistant secretaries. It performed applied economic and scientific research, worked in rural development, carried out an educational program, and had direct responsibilities for helping cooperatives with the marketing of farm products. The decision was made to place the agency in the marketing area, in part because that was where much of its work was being done and in part because the Cooperative Marketing Act of 1926 had emphasized marketing as the major responsibility of the agency working with cooperatives. Secretary Bergland named Randall E. Torgerson as the administrator of the new agency. Torgerson continued in the position under Bergland's successor, John R. Block. Torgerson had been administrator of Farmer Cooperative Service when it was absorbed into Economics, Statistics, and Cooperatives Service and had been responsible for the cooperative work in that agency. Before the consolidation, Torgerson, like his predecessors heading the agency, except for Joseph G. Knapp, held a Schedule C, that is, a political appointment. However, the heads of the other agencies consolidated into ESCS held civil service appoint- ments, so Torgerson was converted to civil service and in 1980 to the Senior Executive Service. Torgerson appointed Jack H. Armstrong as deputy administrator of the new agency. Three divisions already existed. The Cooperative Marketing and Purchasing Division continued under James E. Haskell, and it included Crops; Livestock, Meat and Poultry; Dairy; Fruits and Vegetables; Farm Supplies and Services; and Foreign Trade sections.

213 New directors were appointed to the agency's other two divisions. The Cooperative Management Division, headed by Charles A. Kraenzle, included Operations and Management, Finance, History and Statistics, Policy, Logistics, and Member Relations sections. The Cooperative Development Division, headed by John T. Haas, included new cooperative assistance to developing agricultural cooperatives and others such as crafts, fishermen, and forest owners, as well as International Training. Gene Ingalsbe returned as Director of Information. Nancy Barnes joined the staff as Administrative Officer. The agency continued with field offices in Arkansas, California, Kentucky, Maine, and North Carolina, as discussed in the preceding chapter. Organization was essentially the same as it was before the agency regained its independence, with only fine-tuning of the reorganization that had taken place in 1976. The Cooperative Development Division was realigned with greater emphasis on the development work to permit it to adapt to what seemed to be frequent changes in Administration attention to rural development. This has proven to be useful (Interview with Randall E. Torgerson, Sept. 11, 1990), ACS opened a national cooperative development training center in Athens, GA, in cooperation with the University of Georgia in the fall of 1980. The center was designed to train directors and managers of newly organized cooperatives in the basics of cooperative management. Training covered such areas as board-manager relations, unique problems of cooperative finance, and other aspects of management. Even though the total number of cooperatives was declining, some of the decline was by consolidation, resulting in new management problems with which a training program could help. In many areas of the country, also, new cooperatives were developing, often because shifts in production were taking place (House, Approp. Hearings, 1982, pp. 519- 522). However, as the agricultural depression of the 1980's settled in,

214 the center attracted fewer and fewer people. It was discontinued on March 31, 1983 (Discussion with PhiUip Brown, May 16,1990).

Cooperative Program Review. In early 1984, a cooperative leaders group proposed that a study of ACS be conducted, both to review the work of the agency and to make recommendations for its future. Subsequently, the National Council of Farmer Cooperatives and the National Milk Producers Federation jointly invited a group of leaders representing a cross-section of the cooperative community to review the agency and its programs. The review was to assist ACS in identifying needs and priorities, was to make the cooperative community more familiar with the agency's work, and was to secure more vigorous support for the agency within the Department and before Congress and the Administration (FC, June 1985, p. 10). The committee was headed by Joe Coffey of Southern States Cooperative and included members from Gold Kist, Kansas Cooperative Council, Land O'Lakes, Central Bank for Cooperatives, and Swiss Valley Farms. The committee held a series of meetings, resulting in a report with seven major recommendations: 1. ACS should be maintained as a separate agency within USDA. 2. The agency's mission should be to improve the economic and social well-being of farmers and ranchers by assisting them in the development of effective agricultural cooperatives. 3. Basic areas of activity should be (1) research, analysis, and statistical information, (2) cooperative education, information, and history, and (3) technical assistance. 4. Resources should be organized and employed to allow the greatest outreach and leveraging of available resources. 5. A representative group of agricultural cooperative leaders should meet regularly to review the programs and needs of ACS.

215 6. ACS should be organized with three operating divisions: (1) research, analysis, and statistical information; (2) cooperative education and history; and (3) technical assistance. 7. If a user-fee plan were implemented, it should be constructed so those with ability to pay for technical assistance, specific and limited in application, would bear the cost of the service (House, Committee on Approp., 1987, pt. 2, pp. 390-411). Recommendations of the review committee basically strengthened the agency in carrying out its programs, while reaffirming the goals first set out in the Cooperative Marketing Act of 1926. The cooperative community supported ACS before Congress, seemingly with some effect. However, it had less effect on the Administration, which continued to call for cuts in appropriations and staff for ACS. The Committee and Administrator Torgerson were in general agreement regarding the organization of ACS, although the specific organization of divisions recommended by the committee was not carried out.

Organizational Changes. Generally declining appropriations, lower personnel ceilings, changes in farming, and shifts in emphasis on rural development were key factors leading to organizational changes in Agricultural Cooperative Service during the 1980's. The change from the traditional sections as a unit of organization to the less formal program areas was made to give the administrator greater flexibility to shift personnel and unit designations to meet new and unexpected needs for new programis or to strengthen particular programs. By 1985, agency organization was set, refined slightly from what it had been when it was reestablished in 1980. The Cooperative Marketing and Purchasing Division, headed by James Haskell, had four program areas. The Crops program was headed by Martin Blum; Dairy, Livestock, and Poultry by James Roof; International Trade by Arvin Bunker; and Farm Supplies

216 by John Dunn. The Cooperative Management Division, headed by Charles Kraenzle, also had four program areas. The Finance program was headed by Jeffrey Royer, Policy by James R. Baarda, Management and Operations by Bruce Swanson, and Statistics and ADP by Ralph Richardson. The Cooperative Development Division, headed by John Haas, had two program areas. The Feasibility and Development program was headed by William Seymour and Field Operations and Training by Phillip Brown. The Information and Education Staff, which had been established in 1983, was headed by Gene Ingalsbe. ACS was maintaining three field offices instead of five, each with one full-time professional. The office at London, KY, was staffed by Patrick Boles; Greenville, NC, by Gerald Ely; and Hilo, HI, by William Garland. The field office in Hawaii had been estabUshed in 1983 in large measure because of the continued interest of Congressman Daniel K. Akaka and the fact that the appropriation acts of 1982 and 1983 directed the establishment of such an office and set aside funding for it (House Approp. Committee, Hearings, 1984, pt. 6, pp. 487-489). Field offices in Maine, California, and Arkansas were closed in 1983 (Quarterly Report, John T. Haas to Randall E. Torgerson, Sept. 30, 1983, in office files, ACS). Some of the changes that took place were the results of retire- ments or other shifts in personnel. John T. Haas, for example, retired as director of the Cooperative Development Division in January 1988 and was succeeded by Thomas Stafford. Administrator Torgerson restructured ACS in 1988. Adjustments were made, Torgerson said, to facilitate better agency response to clientele needs. Restructuring provided new directions in some areas, while broadening the scope of others. The agency continued with a deputy administrator, administrative officer, and an assistant to the administrator, a 2- to 3-year training position. A Statistical and Technical Services Staff, added to the Office of the Administrator and headed by Charles A.

217 Kraenzle, was responsible for data management, information resources management planning, and technical support services. An Information Services Staff, headed by Gene Ingalsbe, was responsible for communi- cating all agency activities to the cooperative community. The agency continued with three divisions, each of which was divided along commodity or functional lines into program areas. Little change was made in the Cooperative Development Division. The Cooperative Services Division, with John R. Dunn as director, had five program areas. Finance was headed by Jeffrey S. Royer; Legal, Policy, and Taxation by James R. Baarda; Education and Member Relations by Galen W. Rapp; Farm Supplies and Services by E. Eldon EversuU; and Strategic Management and Planning by James B. Roof. The Cooperative Marketing Division, with James E. Haskell as director, was made up of four program areas. Fruits, Vegetables, and Specialty Crops was headed by Tracey L. Kennedy; Dairy, Livestock, and Poultry by K. Charles Ling; and International Trade by Bruce Reynolds. The position of leader of the Grains and Oilseeds program area was vacant but was later filled by Marc Warman. ACS still had three field offices, each staffed by one professional worker. Patrick Boles was in charge of the office in London, KY; Gerald Ely in Greenville, NC; and Jan E. Halkett in Hilo, HI. Patrick Boles died in 1989, and the Kentucky office was closed for lack of new project work. A new office was set up in Columbus, OH, in 1990, partly because of the interest of Congressman Chalmers Wylie, who had been an early co-sponsor of the National Consumers Cooperative Bank. Jan E. Halkett was placed in charge of the Ohio office and her position in Hawaii was filled by Timothy O'Connell. The decade continued to be one in which many longtime members of the staff retired. Jack H. Armstrong retired as deputy administrator on May 5, 1989, and was succeeded by James E. Haskell. About a

218 year later, James R. Baarda was appointed director of the Cooperative Marketing Division. The agency, like most agencies of the Department of Agriculture, had an 1890 Coordinator, appointed in 1983, and had a field office at the University of Arkansas at Pine Bluff during the first few years of the decade. The field office was headed by Edgar L. Lewis. When it was closed, Lewis returned to the Washington, DC, headquarters and was named 1890 Coordinator. In 1989, he was succeeded by Andrew A. Jermolowicz. The 1890 Coordinator is responsible for developing and maintaining contacts with the 1890 colleges and universities, which are land-grant colleges first established to meet the needs of black farmers, for facilitating information exchange, for improving the delivery of ACS services to black farmers, and for developing closer working relationships with the black agricultural community (ACS, Program Accomplishments...1989, p. 24). The 1890 Coordinator normally participates in professional agricultural meetings sponsored by the 1890 institutions. In addition, the 1890 institutions participate in cooperative research agreements. For example, in 1988, North Carolina A & T State University completed a study, Key Factors Contributing to Success and Failure of Cooperatives Serving Limited Resource Farmers.

Helping Cooperatives Survive a Depression Decade Although the 1980's may be characterized as a decade of farm depression, it was not a period of unrelieved gloom. Some farmers — a minority, to be sure — prospered. Some farmer cooperatives — again, a minority — prospered. By the end of the decade, most of the farmers and most of the cooperatives still in business were out of the ravages of the depression. Many of the problems ACS was called upon to deal with resulted

219 from the depression, but many others were problems faced by cooperatives in bad times and good.

Identifying Problems and Programs. As the decade progressed and both financial (with no inflation cost adjustments) and personnel resources available to the Agency declined, it was essential to identify problems where ACS could be the most helpful. In a study published in 1984, Torgerson and Ingalsbe wrote ''farmers' modest use and continued lack of understanding of cooperatives is the greatest factor hin- dering cooperative growth/' They identified the following major problems: Lack of cooperative education; the difficulties in capital formation; differing views among cooperative leaders and others as to what the cooperative concept of business should be; the most effective structure for cooperatives; operational aberrations among cooperatives; and the fragmentation of farmers' political influence. In addition to these major problems, the relations of cooperatives to the domestic food system, farm programs, and international trade were of importance.

Educational Emphasis. Cooperative leaders had stressed the need for education from the beginnings of the cooperative movement and the Cooperative Marketing Act had charged the cooperative agency it established with carrying out an educational program. However, educational programs are often among early cost-cutting actions in a period of economic difficulty. As noted earlier, ACS had established a national cooperative training center in 1980 jointly with the University of Georgia. With hard times*, many cooperatives could not afford to send their managers and other staff for training, and the center closed in 1983. The American Institute of Cooperation (AIC) had conducted a yearly institute on cooperative education in which ACS and its predecessors had taken part since 1925 and continued to do so during the

220 1980's. At the 1989 institute, Russell L. Hanlin, president of Sunkist Growers, stressed that education was the key to developing an understanding of cooperative business concepts and practices. The cooperative system realized both economies of scale and strength in the marketplace, but cooperatives had to adjust to change; thus, the need for education. The need became even more acute in the 1990's with the closing of AIC in 1990 after 65 years of activity as a university without campus and the transfer of parts of its educational program to the National Council of Farmer Cooperatives. At the same institute at which Hanlin made his presentation, Randall E. Torgerson said cooperative education and research languished in the deepest depression in memory. Many local and regional cooperatives had dropped or cut back on their educational programs, while the university programs were de-emphasizing the economics of cooperation and cooperative business philosophy. Torgerson said the biggest threat to cooperatives was that employees and members did not understand them, which was an educational problem. AIC President David Thomas spoke of the critical need for education and the necessity for investing in human resources. He said, "Cooperative education is critical throughout the world, not only in the agricultural sector, but also in the broader arena" (FC, Sept. 1989, pp. 4-10). Throughout the decade, ACS devoted a substantial part of its dwindling resources to education. For example, after the training center at the University of Georgia was closed in 1983, ACS continued to hold training sessions on a regional basis at locations having a high concentration of developing cooperatives. Each year, the agency published a number of bulletins, most either reporting the results of research for use by cooperatives and by farmers considering the organization of cooperatives or emphasizing the importance and place of cooperatives in the American economy. The

221 agency distributed more than 110,000 copies of publications in 1987 (FC, Jan. 1988, pp, 4, 8), typical for a year. In addition, a number of technical reports concerned with particular cooperatives were not made public because of the confidential business data they contained. The agency's catalog of available publications consistently listed more than 100 titles. Large numbers of people were and are reached through the ACS monthly publication. Farmer Cooperatives. The first issue appeared in April 1934 with six pages mimeographed on both sides. It was started by the Farm Credit Administration with the name News for Farmer Cooperatives. Its name was shortened to Farmer Cooperatives in 1976. It was published on a regular basis throughout the several organizational shifts in the organizational entity responsible for carrying out the mandates of the Cooperative Marketing Act of 1926 (FC, April 1983, p. 18). The publication is recognized as an important educational force in the cooperative community. An official of a large cooperative wrote: ''we...certainly appreciate Farmer Cooperatives magazine, and the fine job you do in producing it. It's one of the best journals we've found to help us keep abreast of all that's happening in the national cooperative scene...y ou and the ACS staff are providing a valuable service...." (Letter, Doug Graham to Patrick Duffey, May 18, 1989, in office files, ACS). The agency also worked for several years on training programs for the developing nations. These have taken two forms. For a number of years, the agency would recruit people from its own staff and detail them for varying periods to the Agency for International Development. These persons would then spend time, up to 3 years, in one of the developing nations, helping farmers in that nation develop cooperatives. At the end of the tour of duty, they had the right to return to the agency but sometimes re-entry was difficult. The person returning might have been promoted to a level higher than positions available in the agency and the total number of positions in ACS was declining. The number

222 of such programs declined over the years, becoming even less important in the 1980's as funding by the Agency for International Development dried up. However, a second program, training visitors from abroad on aspects of agricultural cooperation, continued. Visitors were briefed on Department and ACS programs and were given guidance, through the Office of International Cooperation and Development, as to universities offering courses in cooperation. In addition, cooperatives were contacted that were willing to work with foreign visitors in teaching them, through first-hand observation, the essentials of cooperative organization. The agency hosted 119 visitors from 25 countries in 1988 and 163 from 18 countries in 1989.

Capital Formation and Finance. The Edick committee report of February 15, 1980, discussed in the previous chapter, stated that during the 1980's the Cooperatives Unit should pay particular attention to finance. Specifically, it should: (1) Analyze the economic consequences of mandatory equity redemption on various types of cooperatives; (2) analyze the impact, particularly on members, of various sources and combinations of debt and equity capital on the cost of capital in cooperatives; (3) identify attitudes of farmers on the need for cooperatives to generate savings, equity capital formation, and the concept of limited return on equity; (4) assess the impact of inflation on cooperatives' capital needs; and (5) issue within 12 months after the end of the calendar year a publication summarizing a financial profile of the largest farmer cooperatives (FC, May 1980, p. 17). At about the same time, Randall E. Torgerson identified capital formation as cooperatives' biggest challenge in the 1980's because regional cooperatives, among others, were entering the decade with heavily leaveraged balance sheets (FC, Nov. 1980, p. 2). In 1979, the General Accounting Office had criticized cooperatives' equity redemption performance and recommended that the

223 Secretary of Agriculture conduct a national campaign to motivate cooperatives to adopt voluntary equity redemption programs. If cooperatives did not, according to GAO, Congress should consider making redemption mandatory The next year, John A. Harling, president, Omaha Bank for Cooperatives, in a talk presented to the National Institute on Cooperative Education, urged the cooperative community to educate lawmakers and others about the need for capital, the nature of the business, the need for cooperatives to maintain a strong financial future, and the actions cooperatives were taking to respond to farmer needs. It was also essential to make thelssue understandable to members. If the problem was not solved by cooperatives, it would be solved by legislation. Iowa, for example, enacted a law setting basic equity retirement priorities (FC, Nov. 1980, pp. 8-9). Mainly as a result of the GAO report, ACS undertook a major research study and published a report in 1982 detailing the problem and possible solutions. The primary issue was who should provide the basic investor risk capital for cooperatives. The answer was that current users were responsible for the basic equity capital investment in their cooperative. This did not solve the problem of capital repayment for the retired farmer who no longer used the cooperative. However, by the time the report appeared, the problem had been compounded by the recession and the general operating climate faced by cooperatives. Over the next few years, ACS continued to do research on ways of improving cooperative equity formation and of developing satisfactory equity retirement programs (FC, Dec. 1987, pp. 4-6). Cooperatives had relied since 1933 on the 12 District Banks for Cooperatives and the Central Bank for Cooperatives for financing. Although these banks had been authorized by the Farm Credit Act of 1933 and had been federally financed in the beginning, the Farm Credit Act of 1955 had permitted the District Banks to become farmer-owned.

224 The District Banks had then become owners of the Central Bank, remaining within the Farm Credit System (Smith, 1976, pp. 1-50). During the farm depression years of the 1980's, the Banks for Cooperatives were under great pressure, like other parts of the Farm Credit System, both to make loans and to defer repayments on outstanding loans. The banks, unlike some other parts of the System, were able to meet these needs (Sunbury, pp. 145-166). However, when Congress undertook to reorga- nize parts of the Farm Credit System that were in trouble, it also proposed changes in the Banks for Cooperatives. The Agricultural Credit Act of 1987 stipulated that the cooperative banks vote on a voluntary merger into a National Bank for Cooperatives (FC, May 1988, pp. 4-5). One reason for the merger was that the boundaries of many regional cooperatives overlapped the district bank lines, leaving some banks with only limited opportunities to serve the cooperative community Ten of the 12 District Banks and the Central Bank voted to merge; and on January 1, 1989, the new National Bank for Cooperatives (CoBank) began operations (FC, May 1989, pp. 4-7). The first year of operations was successful. Total assets and total loan volume for the system were both up from 1988 (FC, May 1990, p. 22).

Mergers and Consolidations. With new financing difficult, a number of cooperatives cut back or downsized their business activity to fit the carrying capacity of their net worth. Others combined operations through joint cooperative ventures or mergers. In the process, redundant assets were reduced, efficiency was improved, and more effective delivery of member services was often provided (FC, Oct. 1987, p. 2). However, the merger of weak cooperatives did not solve financial problems or improve programs. At best, it enabled a cooperative to survive to serve its community (FC, June 1988, p. 9). An ACS study by Bruce Swanson, made in 1986, pointed out that

225 mergers involved planning, negotiating, and implementing. Swanson then traced some of the considerations that should go into each of the three steps, emphasizing that everyone concerned should be involved in the process (FC, Feb. 1986, pp. 14-17). A number of other research projects in the decade related to particular aspects of mergers and consolidations. In addition to research, the agency was asked to provide substantial technical assistance each year to cooperatives considering mergers and consolidations. A 1988 article in the Progressive Farmer underscored the need for such research and technical assistance. The author wrote: "Downsizing, divestments, employee layoffs, mergers, joint ventures with investor-owned competitors, and public sales of stock in subsidiary businesses are all part of a revolution taking place in farm cooperatives....But even these desperate actions may not save all the co-ops. By the end of the century, only a handful of regional supply and marketing co-ops may still be in business." Mergers, according to a statement by University of Missouri economist Brice Ratchford, produced no harmful effects. It was more harmful when cooperatives competed against one another while profit-oriented companies were in competition with cooperatives. However, more major changes must take place (Leidner).

Continuing Attacks on Capper-Volstead and Cooperatives. During the 1970's, cooperative mergers and consolidations were often attacked as monopolistic. At the same time, cooperatives were also attacked as tax evaders. Critics asserted that the Capper-Volstead Act was no longer needed. In the early 1980's, court interpretations of the Capper-Volstead Act of 1922 made it clear that farmers could market jointly as if they were one. In a decision in a Georgia case, the judge stated that ''Capper- Volstead gives farmers the right to combine into cooperative monopolies.

226 The Act places no limits on combinations; it does not forbid farmers from combining after their cooperative reaches a certain size" (U.S. District Court in Georgia, Kinnet Dairies, Inc. v. Dairymen, Inc., Mar. 10, 1981, as quoted in FC, May 1981, p. 2). The Capper-Volstead Act, in Section 2, provided that any cooperative that monopolized or restrained trade to the extent that it unduly enhanced prices of agricultural products would be subject to legal actions by the Secretary of Agriculture to cause it to ''cease and desist from monopolization or restraint of trade." No Secretary of Agriculture has ever taken such action against a cooperative. A major problem has been in defining "unduly enhanced prices." Although the term has been applied only to cooperatives and to them only because they are permitted to develop monopolies, some business leaders are reluctant to see the term defined with a possible penalty imposed because such a concept might then be applied to other businesses. Responsibility for advising the Secretary with respect to Section 2 was with a committee in the Office of the Secretary, but the staff of ACS, as the Department's experts on cooperatives, was called upon by the committee for data and research. Dairy cooperatives came under continuing attacks because of the cooperatives' size and control of a substantial part of the market, especially for fluid milk. Nearly 90 percent of all dairy farmers had some affiliation, either by membership or nonmember patronage, with agricultural cooperatives in 1986 (Gray, et al., p. 2). Congress recognized these attacks in the Food Security Act of 1985 by directing that a study of dairy policies be made. The resulting National Commission on Dairy Policy was made up of 18 dairy farmers, most of whom were also directors of dairy cooperatives. They were appointed by Secretary of Agriculture Richard Lyng. The Commission held hearings, giving particular attention to technology, the milk marketing order program, and

227 size of dairy farms. It concluded that pending technology would bring major changes in the dairy industry and decided that size of operations should not be a criterion for price support policy The Commission found the Federal milk marketing order program to be a valuable tool used in conjunction with the price support program (FC, Feb. 1988, pp. 10-11). While ACS was not directly involved with the Commission, the Commission drew upon research and other reports prepared by ACS in reaching its conclusions. The General Accounting Office (GAO), at the request of the United States Senate, made a study of dairy cooperatives and the effects of the Capper-Volstead antitrust exemption, drawing upon ACS and other agencies for information. GAO, in its 1990 report, recommended that the Secretary of Agriculture take actions to actively monitor dairy cooperative pricing policies. If the Secretary did not, then Congress should consider assigning regulatory responsibility for cooperative pricing activities to the Federal Trade Commission. The Department dis- agreed with GAO's conclusion regarding the need for active oversight of agricultural cooperative pricing activities. USDA officials stated that the most efficient oversight method is to respond to complaints received. They also noted that in the Department's opinion, there are adequate provisions in the form of antitrust law enforcement by the Department of Justice and lawsuits initiated by private individuals to ensure against impermissible activities by cooperatives. At the same time, GAO concluded that dairy farms, in general, remained relatively small compared to processing and distribution firms, that, in the absence of cooperatives, would purchase milk directly from dairy farms. These firms had become more concentrated, with the potential for increased market strength. Without cooperatives, many dairy farmers, because of the size of their operations, would continue to be in a relatively weak bargaining position.

228 ACS continued to work with cooperatives to help them understand and operate in accordance with laws governing cooperatives. This was particularly true with respect to tax laws. Tax status of cooperatives, as ACS continued to point out, was set by Federal and State tax laws and had no direct relationship to the Capper-Volstead Act. In any case, cooperatives were not automatically exempt from taxes. In 1980, for example, the effective Federal tax rate for the 22 largest cooperatives was 14.7 percent, compared with 0.9 percent for the 20 largest banks, 10.8 percent for the 10 largest utilities, 11.2 percent for the 19 largest chemical corporations, and 14.5 percent for the 8 largest steel companies (FC, June 1982, p. 20).

Marketing: The Export Opportunity. Early in the decade, ACS was called upon for research regarding proposed bargaining legislation that would establish rules and procedures governing the relations between agricultural producers and purchasers or handlers of farm products. The agency did not and could not take a position for or against the proposed legislation (FC, Aug. 1980, pp. 14-18). Despite the fact that it enjoyed wide support from cooperatives, the proposal, as discussed in a preceding chapter, did not become law, although similar provisions were included in State laws. Marketing, however, continued to be a major problem during the 1980's as demand fell off and prices declined. The agency worked with cooperatives to determine how they could cut costs and thus be more efficient. ACS encouraged cooperatives to become innovative in the ways in which they presented their products to market. Cooperatives, for example, were the first U.S. processors of Ultra High Temperature treated milk and were industry leaders in developing product combinations and innovative packaging such as aseptic cartons and squeezable plas- tic containers for jams and jellies. New crops and new forms of old crops

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ACS staff in 1986 when it was housed in the 1879 Auditor's Building in the background.

230 also offered farmers opportunities. For example, a declining market for tobacco led a group of Kentucky growers to look for alternative crops. With advice from ACS, they decided to raise and market fresh vegetables through a cooperative organized in 1975 and owned by 300 growers. A group of peanut farmers organized a cooperative in 1985 to operate a shelling plant. The growers added to their income by marketing both shelled and inshell peanuts to domestic and export markets (Torgerson and Ingalsbe, 1988, pp. 208-209, 212). Export markets seemed to offer the best opportunity for cooperatives to maintain, if not increase, sales. ACS reported, however, that cooperatives' share of exports had declined to 7.8 percent of total U.S. agricultural exports in 1980, compared with 9.2 percent in 1976. Ninety percent of the total value of cooperatives' direct exports in 1980 was from grain, oilseeds and related products, cotton, and fruits and fruit preparations (FC, June 1982, p. 4). ACS conducted research and worked, with strong support from Congress, to increase exports by cooperatives. Whether it was a result of these efforts, the value of exports by cooperatives increased and their share of the market rose to 11.7 percent in 1985. The same commodities that dominated cooperatives' share of the export market in 1980 again accounted for most of the sales (FC, Feb. 1987, p. 4). Administrator Torgerson reported to the Appropriations Committee of the House of Representatives in 1987 that the principal methods by which the agency assisted cooperatives in exporting were research to identify potential export markets, technical assistance to requesting cooperatives on specific trade problems or issues, and through encouraging contacts by U. S. cooperatives with buyers from around the world. Research in the past few years had included market development studies for grains and oilseeds, nuts, processed fruits, and poultry; using export trading companies to enhance exports; studies of costs

231 of maintaining foreign offices; and analyzing data on exports by U. S. cooperatives by commodity and destination. Technical assistance studies had included assistance in developing export strategies, assisting cooperatives match export interests with other cooperatives, marketing juice products in Asia, and providing export market projections of fruits and vegetables. ACS sponsored and participated in numerous meetings and conferences to help cooperative leaders become better informed about the export market and to encourage developing personal relationships with foreign businesses. The agency published directories of cooperatives that exported farm commodities, supplementing some of the key studies published in the preceding decade (House, Approp. Hearings, 1988, pt. 6, p. 182). Efforts to increase exports by cooperatives continued through the remainder of the 1980's. Research and technical assistance and other activities aimed at this goal were adjusted to reflect continued structural changes in agriculture and among cooperatives. In 1987, for example, the agency produced a videotape, ''Cooperatives—Partners in Trade,'' for use in exhibits and for distribution to U. S. agricultural attaches and potential foreign buyers. At the same time, research studies such as one to assist cooperatives in identifying economies of size for port elevators to cut costs of grain exports and one describing export market development by agricultural commodity promotion programs were carried out (FC, Jan. 1988, pp. 4-5).

Helping Producers Organize Cooperatives. The Cooperative Marketing Act had directed the agency ''to confer and advise with committees or groups of producers...that may be desirous of forming a cooperative association," including making economic surveys of the facts relating to the commodities the proposed cooperative would handle. As noted

232 earlier, the number of cooperatives declined during the decade of the 1980's, but new cooperatives were organized because of shifts in commodity production, changes in farm structure, and the growth of the cooperative movement in particular parts of the Nation. Each year, ACS received numerous requests, usually about 30, for assistance by groups interested in organizing farmer buying and selling cooperatives. Each request required careful consideration by specialists. In some cases, ACS recommended against organizing a cooperative under circumstances existing at that time. In most years during the 1980's, 8 to 10 new cooperatives were organized. In some cases, such cooperatives had been in the planning and organizing stage for 2 or more years. The continuing demand for new cooperative assistance prompt- ed ACS, at the end of the decade, to develop a videotape on the process of organizing a cooperative. The videotape ''How To Start a Cooperative'' was released in January 1991. In most cases, ACS would survey the potential markets for a marketing cooperative or sources of supply for a purchasing cooperative, provide assistance in preparing articles of incorporation and bylaws, suggest possible financing, help plan accounting and record-keeping systems, provide training for the directors, and, in general, make sure that prospective members of the new cooperative knew what was necessary for success. To deal with all of these matters, ACS commodity specialists, business managers, lawyers, and other staff members with specialized knowledge might be called upon to help in the development of a particular cooperative. A sampling of the list of groups of growers assisted and of farmer cooperatives established during the 1980's with assistance from ACS shows a wide diversity in both purpose and location. These include peanut growers in Virginia, alfalfa producers in Tennessee and Montana, hog producers, orchid nurserymen, and fishermen in Hawaii, wine-

233 growers in Virginia and New Mexico, rug makers in New Mexico, dairy goat producers in Oregon, cucumber and green pepper growers in Kentucky, apple growers in North Carolina, wild rice producers in California, and handicraft people in Maine and West Virginia. Cooperatives organized to purchase materials needed for production were mostly concerned with petroleum and fertilizer. Some research and technical assistance projects of a general nature were drawn upon by some of the Nation's largest cooperatives. However, most of the effort in organizing new cooperatives went to groups made up of local small- and medium-sized farm operations. As agricultural economist Barry Flinchbaugh said in the midst of the farm depression, ''Cooperatives can provide the vehicle that brings family-based agriculture into the 21st century and provide the tools for its strength" (FC, Oct. 1985, p. 19). Field offices have been successful in working with small farms and with local, farm-based industries. The Maine and North Carolina field offices helped handicraft groups organize marketing cooperatives. The Arkansas field office was first aimed at ensuring that black farmers had access to cooperatives. However, there are fewer and fewer black farmers and they are not concentrated enough to form a large number of effective cooperatives, nor is ACS interested in forming segregated cooperatives. Thus, most of the cooperatives organized with assistance from the Arkansas office were integrated and all could have been (Discussion with Edgar T. Lewis, June 6, 1990). The Hawaiian field office was established at a time when the State's pineapple and sugar economy, dominated by large corporations, was declining. People who had worked on the now largely mechanized pineapple and sugar plantations were exploring such alternative crops as fruits and vegetables, flower and nursery products, coffee, and others. Fishing was also becoming more important. The crops were characterized

234 by more producers on smaller land tracts and specialized and intensive cultivation. This type of agriculture was ideal for the organization of cooperatives. By the end of the decade, ACS specialists working in the Hilo office had been involved in cooperative assistance work associated with fishing, milk marketing, livestock slaughter, ginger, orchids, macadamia nuts, coffee, hardwood, papayas, bananas, and foliage plants (Discussion with Jan Halkett, Feb. 21,1990; FC, June 1989, pp. 10-14). As the number of farms declined, small towns and rural communities found it difficult to survive. Many services that people had taken for granted disappeared. ACS pointed out that the cooperative concept could be a building block for undertaking rural development programs. Cooperatives represented a mechanism for aggregating capital, people, and business activity into large enough units to be eco- nomically competitive. Such potentials included credit unions, rural hospitals, schools, housing for the elderly, child-care, communications, transportation, and handicraft cooperatives that could prove to be cost effective ways to maintain vital infrastructure in rural areas (FC, Aug. 1988, p. 2).

Recovering from the Decade The 1980's ended with farmers and their cooperatives recovering from the depression. Throughout the decade, ACS, despite reduced funding resources and fewer personnel, had, through research, technical assistance, and education, helped many cooperatives survive. At the same time, cooperatives had been key factors in the survival of many farms.

235 Agricultural Cooperative Service

Administrator Randall E. Torgerson

Deputy Administrator James E. Haskell

Assistant to the Administrator Andrew Jermolowicz

Administrative Officer Nancy L. Shivers

Director, CMD James R. Baarda

Director, STSS Charles A. Kraenzle

Director, CDD Thomas H. Stafford

Director, ISS Gene Ingalsbe

Director, CSD John R. Dunn

STSS = Statistics & Technical Services Staff ISS = Information Services Staff CMD = Cooperative Marketing Division CDD = Cooperative Development Division CSD = Cooperative Services Division

236 Program Leaders for CMD:

Fruits, Vegetables & Specialty Crops Tracey L. Kennedy

Dairy, Livestock & Poultry K. Charles Ling

Grains & Oilseeds Marc W. Warman

International Trade Bruce Reynolds

Program Leaders for CDD:

Feasibility & Development Gerald E. Ely

Field Operations Phillip F. Brown

Program Leaders for CSD:

Finance Robert C. Rathbone

Legal, Policy & Taxation Donald A. Frederick

Education & Member Relations Galen W. Rapp

Farm Supplies & Services E. Eldon EversuU

Strategic Management & Planning Vacant

237 Agricultural Cooperative Service: Today and Tomorrow

As the final decade of the century began. Agricultural Cooperative Service (ACS) was helping cooperatives recover from the farm depression of the 1980's and plan for the future. The agency itself had seen hard times but was looking ahead to a broader mission in rural areas, as well as continuing to carry out the duties assigned by the Cooperative Marketing Act of 1926 and the Agricultural Marketing Act of 1946, Using outside program reviews and close and frequent contact with the cooperative leaders, Torgerson had focused agency work closer to the needs of farmers and their cooperatives. And rather than tar- geting a particular area, he demonstrated an interest in improving performance in all areas of the agency's work. He had developed a close liaison with cooperative leaders in other countries to ''keep a finger on the pulse'' of cooperative development around the world. Participation in several international cooperative executive conferences and other trips abroad to speak resulted in frequent visits to ACS of overseas cooperative officials and students. In the United States, through frequent speaking, consulting, and editorials in Farmer Cooperatives, Torgerson had become both the "cheerleader" and the "conscience" for the cooperative concept. He presented a spirited advocacy of cooperatives as a self-help instrument that a dispersed owner-operator agriculture must have to survive in the marketplace. And he was quick to challenge perceived deviations from traditional cooperative operating principles, raising questions in terms of farmer benefit and public policy impact.

238 A Future for Cooperatives

''Cooperatives remain the single most effective way farmers can improve their economic circumstances and will continue to play a significant role in the U.S. food and fiber sector." Such was the conclusion of a special study conducted by ACS at the request of the Senate Agricultural Appropriations Subcommittee. It was delivered to Congress on October 1,1987. The agency had been directed to ''conduct a study on what cooperatives need to do to remain viable businesses and increase returns to producer members. Emphasis should be on principles, practices, philosophy, and systems that strategically position cooperatives as effective instruments for their members." The study involved the combined efforts of the ACS staff. Alternative practices, cooperative philosophy and principles, farmer needs, characteristics of the competitive environment, and legal or regulatory questions were identified by ACS staff members. These were then evaluated by seven panels made up of leaders of the cooperative community, representatives of farm and trade organizations, and university people. Material developed by the panels and research by ACS staff were brought together in a study entitled "Positioning Cooperatives for the Future." It covered all aspects of agricultural cooperatives, including organization, membership control, financing, and performance. The study defined a cooperative as a userowned and controlled business from which benefits are derived and distributed equitably on the basis of use. Three cooperative principles were presented: (1) The people who own and finance the cooperative are those who use it; (2) the people who control the cooperative are those who use the cooperative; and (3) the cooperative's sole purpose is to provide and distribute benefits to its users on the basis of their use.

239 Chapter 10

The U.S. Senate directed ACS Four broad issues, according to the study, had implications for the to assess the status of coopera- future of cooperative business. These were: (1) The status of cooperative tives after the difficult decade of the 1980's. Agency staff and entitlement to unique tax and legal treatment when they take structural leadership across the country and financial steps to emulate investor-oriented firms; (2) the increasingly provided information. Among hundreds offering their views complex problem of legally defining a producer; (3) coverage under were, from the left, Gene James, existing cooperative laws of structures outside of core businesses, such president. Southern States as joint ventures, subsidiaries, or linkages with investor-oriented firms; Cooperative, Richmond, VA; Robert Thompson, dean of agri- and (4) proper valuation of cooperative assets as related to mergers or culture, Purdue University, buyout proposals. West Lafayette, IN; Roger Baccigaluppi, president. Blue Specific policy concerns of cooperatives included good faith bar- Diamond Growers, Sacramento, gaining and improved mechanisms for resolving bargaining disputes, CA; Glenn Webb, president, cooperative education and technical services, the farm credit delivery Growmark, Inc., Bloomington, IL; Bob Bergland, president of system, commodity advertising and promotion, and agricultural trade. National Rural Electric Cooperative Association and former Secretary of Agriculture; and Gene Swackhammer, president, Baltimore Farm Credit Banks. AGRICULTURAL COOPERATIVE SERVICE: TODAY AND TOMORROW

Cooperatives should take part in stimulating and encouraging programs for the redevelopment of rural America. If cooperatives were to continue to be a vital part of American agriculture, there had to be a greater emphasis on cooperative teaching, research, and leadership development, particularly in the land- grant universities and in such Government agencies as Agricultural Cooperative Service. In other words, increased support of programs to serve the needs of cooperatives was imperative. Specifically, research was needed on the place of cooperatives in markets, cooperatives' ability to serve large farmers, improving the effectiveness of boards of directors and managers, and structural and operational alternatives available to cooperatives. Technical assistance in organizing and maintaining cooperatives and training in leadership development were also essential

241 Chapter 10

(Agricultural Cooperative Service, Positioning Cooperatives for the Future; FC, January 1988, pp. 2, 10-14).

ACS and the Cooperative Community Agricultural Cooperative Service is the one agency in the Federal Government dedicated to strengthening farmers' cooperatives. Its program of education, applied research, and technical assistance in the service of cooperatives is unique. This program has been in place since Cooperatives own more than 1,000 brands of consumer 1926, when Congress affirmed the importance of agricultural coopera- products. tives to the American people by enacting the Cooperative Marketing AGRICULTURAL COOPERATIVE SERVICE: TODAY AND TOMORROW

Act. For 65 years, ACS and its predecessor agencies have represented this interest. In carrying out its responsibihties, the agency works with cooperative associations and individual cooperatives, other Federal agencies. State universities and experiment stations, industry, and representatives of other nations. ACS is, in effect, a coordinating agency important to the future well-being of farmer cooperatives, which are, in turn, important to the future well-being of the American people. CF Industries dragline scoops for phosphate rock in Florida.

243 Chapter 10

National and State Cooperative Associations. ACS and cooperative associations are mutually supportive. Cooperative associations, particularly the National Council of Farmer Cooperatives and the National Milk Producers Federation as well as many other groups, such as State cooperative councils, rely upon ACS for the applied research and data needed to be effective in the policy arena. The associations, as noted earlier, were active in bringing about the restoration of ACS as an independent agency. They passed resolutions It's still Sunkist in any language. making their views known to Congress and the Department, they testi-

244 AGRICULTURAL COOPERATIVE SERVICE: TODAY AND TOMORROW

fied before Congressional committees, and they encouraged individual cooperatives to get in touch with their legislators. The general farm organizations, particularly the National Grange, the National Farmers Union, and the American Farm Bureau Federation, joined in the effort. Together, they were a key factor in the restoration of independence to the agency. After agency status was restored, the Office of Management and Budget, year after year, proposed cuts in appropriations and personnel for ACS until 1990 when a level budget was recommended. Nearly every year, representatives of the National Milk Producers Federation urged Congress to provide adequate funding for the agency. The Milk Producers were often joined by the National Council of Farmer Cooperatives (House, Committee on Approp., 1983, pp. 200-207; 1990, pp. 388-394). Others urged Representatives and Senators from their States to give equitable treatment to the agency. Without such activity, ACS would have received even less than it did in appropriations over the years.

Countrymark's South Charleston plant conditions corn, soybean, and wheat seed.

245 Chapter 10

As the associations and ACS enter a new decade with the agricultural depression of the 1980's behind them, it is still essential that mutually supportive activities continue. Otherwise, the farmer cooperative movement is in danger.

Individual Cooperatives. Applied research and technical assistance programs of ACS often have broad applications and are picked up and disseminated by cooperatives. A program is often undertaken at the request of a particular cooperative. ACS, from its establishment, was directed by law to work with individual cooperatives and groups of farmers. This will undoubtedly continue. Over the years, ACS emphasized work with small cooperatives. Of the 6,211 farmer cooperatives in business in 1981, 90.5 percent had sales of less than $15 million and most had sales of much less. About 60 percent of the agency budget went to assisting these small- to medi-

Cooperatives, such as Blue Diamond Growers, have built cogeneratioti plants for energy efficiency.

246 AGRICULTURAL COOPERATIVE SERVICE: TODAY AND TOMORROW

um-sized cooperatives and helping groups evaluate new cooperatives. Most of the remaining 40 percent went to research, education, and statistics not size related (House, Approp. Hearings, 1984, p. 492). During the 1980's, the agency encouraged mergers and expansion when such seemed advantageous and will continue to do so in the 1990's. A small cooperative is usually at a disadvantage when it is competing with large multinational corporations. During the 1990's, ACS will work with both small and large cooperatives to help them stay competitive with the business giants. Bigness, however, is not a guarantee of success for either cooperatives or other businesses. As ACS has pointed out, management must be capable of handling the increased responsibilities brought about by mergers or expansions. At the same time, research is needed to determine if the proposed merger or expansion is compatible with ongoing projects and needs or would simply be a drain on resources. The agency has an

Agrichemical service to farmers, like that provided hy Cenex, is getting more scientific and computerized.

247 Around-the-clock fuel service is reaching rural areas through cooperatives.

Land O'Lakes headquarters in Minneapolis, MN.

248 AGRICULTURAL COOPERATIVE SERVICE: TODAY AND TOMORROW

New headquarters of Ocean Spray Cranberries, Inc., Lakeville-Middleboro, MA.

Cotton turns to denim in ACG Denim textile mill, wholly owned subsidiary of Plains Cotton Cooperative, Lubbock, TX.

249 Chapter 10

Sugarbeets head for processing at Minn-Dak Fanners Cooperative, Wahpeton, blD.

250 opportunity to make major contributions to the success of mergers and expansions by emphasizing and upgrading its program for training cooperative managers and by determining through careful research the problems in the way of success (Discussion, Bernard R Stanton, June 14,1990). ACS, in representing the cooperative interests of the Federal Government, has an influence on cooperatives and cooperative associations. At the same time, cooperatives and cooperative associations influence program development in ACS through membership on advisory committees and through taking part in program reviews. In addition, the agency has proven to be responsive to requests from the cooperative community to undertake particular projects or give consideration to new lines of work. Such interaction has been one of the strengths of the agency. ACS has taken an active part in getting industry and cooperatives together in export trade programs. For example, industry and cooperatives have worked together in supplying large quantities of commodities to meet the terms of a particular export contract. The agency has also helped open new opportunities for trade by sponsoring a conference on cooperative-to-cooperative trade with European nations and has assisted particular cooperatives with such programs. ACS has also taken an active role in advising cooperatives that certain export payments are available to cooperatives as well as to the traditional export firms. As noted in previous chapters, ACS has detailed some of its staff to help farmers in developing nations organize cooperatives. This program has ended, but there is a possibility in the future to institute a new program of technical assistance and training for the Third World nations and for the nations of Eastern Europe. Meanwhile, ACS will continue to provide training programs for persons from abroad on the concepts and practices of cooperation.

251 Working with Federal Agencies

When cooperative work under the Cooperative Marketing Act began in 1926, the Cooperative Extension Service, established on a nationwide basis in 1914, was already working with farmer cooperatives. Extension was responsible for working directly with farmers and was essentially the educational arm of the Department. County agents took part in the organization and promotion of many successful cooperative marketing associations. In 1923, county agents worked with 926,000 farm families and 6,000 cooperative associations on marketing problems (Rasmussen, 1989, pp. 31, 81-82). Thus, it is understandable that some Extension agents and State leaders felt that the new agency, charged with education so far as cooperatives were concerned and with working directly with farmers to establish cooperatives, was unnecessary. Some of this feeling has continued to the present even though there are proportionately fewer Extension workers specializing in work with cooperatives. In general, the agencies agree that ACS will conduct research and develop technical assistance programs. This material will be made available to Extension, which will have the primary responsibility for working directly with farmers. However, when farmers or groups interested in organizing cooperatives request help from ACS or are referred to ACS by Extension, the agency will work directly with such groups, assuming staff is available to do so. ACS, responsible for statistical and related information on agricultural cooperatives, will continue to work with the National Agricultural Statistics Service and the Economic Research Service to make this data as complete and useful as possible. ACS will continue to be responsible for applied economic research relating to cooperatives, but will continue to work with the Economic Research Service on projects of mutual interest.

252 USDA Partners. ACS speaks for cooperatives with such USDA agencies as Agricuhural Marketing Service (AMS), Agricultural Stabilization and Conservation Service (ASCS), and Foreign Agricultural Service (FAS). AMS has a market facilities branch that provides technical and engi- neering assistance to marketing firms on particular problems. When these problems relate to cooperatives, ACS is called upon for advice. ASCS works with cooperatives on commodity loan programs in those cases where cooperatives represent their farmer members. ACS advises the cooperative unit in ASCS regarding the status of particular cooperatives. ACS works with a number of the Soil Conservation Service's (SCS) districts that have organized Resource Conservation and Development Councils. The councils are encouraging expanded use of natural resources to make wood products, grow shiitake mushrooms, or produce other items. Marketing such products is often a problem that can sometimes be solved by organizing a cooperative. ACS has helped organize a number of such cooperatives. Rural Electrification Administration (REA) works with local electrification and telephone cooperatives to bring electricity and telephone service to rural areas. Its programs have been successful and highly popular. While there is no direct continuing relationship between ACS and REA, ACS sometimes assists groups planning cooperatives to work with the local electric cooperative to determine whether electricity is the most desirable power source for that particular cooperative. Since electric cooperatives have a major interest in rural development, ACS works jointly with them in stimulating cooperative approaches to solving development problems.

Farm Credit System. ACS has always maintained a close working relationship with the Farm Credit System. The agency's predecessor was part of the Farm Credit Administration from 1933 to 1953. When the

253 Farm Credit Act of 1933 was passed, it provided for 12 District Banks for Cooperatives and a Central Bank for Cooperatives as part of the Farm Credit System. As discussed in the preceding chapter, 10 of the District Banks and the Central Bank were consolidated in 1989. ACS has encouraged cooperatives to turn to the Banks for Cooperatives for financing and has helped the banks evaluate loan applications. There is every reason to believe that this close working relationship will continue.

Rural Development Opportunities Some of the natural resource and other projects that might be considered to be rural development have looked to Economic Development Councils sponsored by the Office of Economic Opportunity, to the Economic Development Administration in the Department of Commerce, and to USDA's Farmers Home Administration for loans to get cooperatives started. ACS is often requested to evaluate such projects and has been able to assist cooperatives in getting access to these sources of financing. Farmers Home Administration, Extension Service, and other agencies concerned with rural development also call upon ACS to determine whether organizing a cooperative would be advantageous to a proposed development project. In 1989, an ACS task force was asked to respond to a Senate request that the agency ''undertake a study of the potential of cooperatives to expand their role in rural development through the provision of services, financing, and economic development to improve the quality of life in rural America.'' The task force, headed by Thomas H. Stafford, held four roundtable discussions in Washington, DC, with 40 representatives of cooperatives, land-grant universities, trade groups, and Government leaders (FC, May 1989, pp. 12-13). The report, ''Cooperatives and Rural Development," suggested that cooperatives are a natural vehicle for meeting the needs of rural America. Being

254 owned and controlled by their users, cooperatives can organize local people into stable organizations to solve local problems. However, cooperatives are not the solution to every rural development problem, and some situations are better served by for-profit firms, nonprofit institutions, or the public sector. And, as experience over the past decade had shown, not all cooperative ventures succeed. The report suggested four strategies for cooperatives to follow in rural development: (1) Locate processing or value-added plants in rural areas to retain more of the final product value; (2) give rural businesses preference in buying supplies, help them produce it themselves, or help new rural firms set up to supply the materials; (3) diversify into related but nontraditional activities to provide a missing local service or product; and (4) help members identify and provide a market for alternative agricultural commodities. If cooperatives join with other groups to promote rural development in some of the ways suggested, ACS would be called upon to substantially increase its activities in this field (FC, March 1990, pp. 14-18).

State Universities and Experiment Stations ACS has maintained a close working relationship with the land-grant universities and agricultural experiment stations, including the 1890 institutions, from the agency's earliest days. Universities look to ACS for statistical data and results of applied research. They also ask ACS for cooperation in providing technical assistance to particular farm groups interested in establishing associations (Discussion with John Woeste, June 28, 1990). ACS has depended upon scholars in these institutions to do long- term basic research, which provides a background for applied research carried out by the agency. For example, in 1989 a total of 93 research projects were active and 30 were completed. Forty-five of these projects

255 were conducted in ACS and 48 were conducted in 33 land-grant universities through cooperative research agreen\ents (ACS, Program Accomplishments...1989, p. 3), In recent years, about 75 percent of research related to cooperatives carried out in the universities and experiment stations has been financed by ACS. However, during most of the 1980's, threats of cuts in appropriations made the long-term continuation of the cooperative agreement approach questionable. Yet, according to such authorities as Ronald D. Knutson, this relationship is vital to the future of cooperatives. Regional research projects are one effective way to conduct needed research and that might well receive emphasis in the future. Such projects contributed to understanding of the place of cooperatives in the Nation's food production and distribution systems during the 1970's and 1980's. The projects, organized under the Department's Cooperative State Research Service, brought research specialists from several universities, ACS, and Economic Research Service together to study important problems. North Central Project 117, "Organization and Control of U.S. Food Production and Distribution Systems," begun in 1973, was instrumental on two occasions in securing from the census of food manufacturers tabulations of cooperative food manufacturing. Research based on this data resulted in an important bulletin on the food manufacturing activities of large agricultural marketing cooperatives and a book on the food manufacturing industries (Combs and Marion; Connor, et al.). These and other studies provided meaningful insight on the structure of the food industry and confirmed what many people suspected. In words from one of the studies: "...cooperatives are still small fry in the world of food manufacturing. In 1977, the largest 100 marketing cooperatives accounted for only 6 percent of the total value of shipments and 3.4 percent of the value added in food manufacturing" (Connor, et al., p. 239). Recognition of the importance of the project came on July 29, 1980, when

256 the American Agricultural Economics Association presented the Executive Committee of NC 117, which included Randall E. Torgerson, with its award for ''Distinguished Policy Contribution." When NC 117 was terminated on September 30,1986, Torgerson and others organized NCR 140, ''Research on Cooperatives." The members meet once or twice a year. The project serves as a forum on research issues about cooperatives, including research sponsored under ACS cooperative research agreements, rather than as an active research group. Both planning and active research projects are needed. Other regional research committee projects active in the 1980's included the Northeast Regional Dairy Marketing Committee (NE-153) and the Southern Dairy Research Committee (S-160). Cooperation with universities also continued on specific projects. For example, the agency worked with C. H. McGowan of Florida A & M University in planning a goat meat cooperative. Surveys found a promising market in the ethnic populations of south Florida, while some small farmers in north Florida had had experience in raising goats. A number of problems, such as arranging for slaughtering facilities, were largely overcome by working together. Two cooperatives were formed, the North Florida Goat Meat Association and the Gadsden County Meat Goat Association. Establishment of the associations gave many farmers, most of them part-time, the option of raising meat goats for market (Discussion with C. H, McGowan, June 28, 1990). During the 1980's, universities were cutting back in their work on cooperatives. In 1982, only 48 percent of the land-grant universities offered a course on cooperatives, and only 44 percent had ongoing research projects on cooperative issues. Unfortunately, particularly in recent years, it appears that as experts in cooperation and cooperatives have retired from university positions, they have not been replaced (House, Approp. Hearings, 1985, p. 268).

257 Educating Industry and the Public

One of the more important tasks ACS and its predecessor agencies has performed over the years has been to make information regarding cooperation and cooperatives available to the public, including commercial groups. ACS makes the results of its research, its statistics and historical data, and its educational material available to anyone requesting it, always, of course, protecting the confidentiality of individual cooperatives and firms. Results of many of its research projects have been adopted by investor-oriented firms. ACS acts as a transfer agent so far as marketing practices and techniques are concerned, with information flowing both ways between industry and cooperatives. The agency uses many educational devices and methods and works closely with cooperative organizations to inform the American people about cooperatives. One of the more difficult tasks is to correct misapprehensions regarding the taxation of cooperatives, their size and influence, and their goals. Unfortunately, many of these misapprehensions are deeply rooted in the mythology of industry. Developing more adequate means of correcting them could be one of the agency's more important tasks for the future. Tomorrow's Problems Relationships of Agricultural Cooperative Service with institutions, and to a lesser extent with individuals, have been discussed in the preceding section. Strong institutional relationships are necessary for a strong agency. ACS is reaching directly only a small number of the institutions that could benefit from its programs, but its limited staff and level of support make it difficult to expand its outreach. Nevertheless, expanded outreach seems essential.

258 ACS's major strength is in problem-solving. In many cases, though, the types of problems the agency is asked to solve recur, in part because farm structure, technology, and markets are constantly changing. ACS finds it necessary to grapple with similar difficult situations year after year. For example, problems relating to mergers, consolidations, and integration will be as pressing in the next decade as they have been in the past one. Similarly, some groups in the business world are going to attack the basic foundations of cooperation on a continuing basis. Continuation of educational and research programs of ACS, with backing of the cooperative community, are essential in withstanding these attacks and ensuring that the American people understand the benefits they receive from a strong, viable cooperative presence.

Structuring for Change. Research, technical assistance, and educational programs of ACS will be called upon during the next decade to deal with questions of structure^ both within cooperatives and in farming. Some of the changes taking place have been discussed in previous chapters, but they may become even more important in the coming years. None is more important for the future of American farming and agricultural cooperatives than the continuing decrease in the number of farms, accompanied by an increase in size. At the same time, the number of part-time and small farms is increasing. Cooperatives, traditionally, have been dedicated to serving the owner-operator family farm. The question being raised is whether cooperatives can meet the needs of both large commercial farms and small or part-time farms. The middle- sized family farm may no longer be the pattern in the structure of agriculture, although this is still not settled. The matter is complicated even more by continuing technological changes, such as the impact of biotechnology on farm structure, production, and marketing.

259 Responses to changes taking place and that will likely continue to take place in the structure of cooperatives seem to be of two types. One is to meet the changes taking place in farming. The other is to meet the changes taking place in business organization and in the marketplace. It is being argued as the 1990's begin that the cooperative tradition of ''one-farm, one-vote" does not make sense if one farm is very large and has substantial capital in the cooperative while another is very small and has a minimum amount of capital in the cooperative. More research is needed to determine possible answers to such questions. Restructuring in the cooperative sector is essential. Regional cooperatives undertook a number of mergers and consolidations in the late 1980'S/ and others are in prospect for the 1990's. Even where mergers do not take place, coordination may be necessary if cooperatives are to maintain power in the marketplace. The threat is coming from corporate forces in agriculture that seek to displace conventional growers and their cooperatively owned businesses (Torgerson, 1990). Cooperatives are finding bargaining more and more important as there are fewer and fewer trading firms, food processors, and food marketing organizations with which to deal. In fact, in some regions and for some commodities, cooperatives have problems in finding more than one possible buyer for what they have to sell or more than one or two producers of what they need to buy. Some cooperative leaders have proposed that cooperatives go further into final product processing of the commodities they have to sell and go into the manufacturing or processing of the commodities they need for production. ACS continues to warn that such actions, helpful as they may be, can also be costly. They should be undertaken only after careful research and only with the full support of the members of the cooperative. A strong ACS is needed by the cooperative community to carry out such research.

260 Making the World Connection. Considerable attention has been given to exports in preceding chapters. This is an area in which Congress, through legislation, and ACS, through research and technical assistance, are encouraging cooperatives to beconne active. However, since exporting is a comparatively new undertaking for most cooperatives, they need the type of research and technical assistance that ACS can provide. Looking to the Future Over the past few years, a number of committees and task forces, both in and outside Agricultural Cooperative Service, as well as research leaders in the land-grant universities, have reviewed the accomplishments of the agency and have made suggestions for the future. Most of these have been discussed in Farmer Cooperatives and in special reports. This section is based upon those reports and on interviews with members of the cooperative community. ACS must look ahead to what is happening in the cooperative and commercial business world and be prepared to change its program emphasis if it is to meet the needs of tomorrow's cooperatives. Some possible areas have been listed by Wayne Boutwell, president of the National Council of Farmer Cooperatives. One of these is continuing to help cooperatives enter the global market. Another coming to the front is cooperatives working more closely than ever before with investor- oriented firms, particularly in the world market. Still another is conducting research on the 'Value-added'' concept. Some of the Nation's more successful cooperatives have gained by processing their basic products for the consumer market. Finally, ACS can conduct research to determine if a cooperative is the right model to meet a particular need in a particular area in the face of changing business conditions (Discussion, Wayne Boutwell, Nov. 17, 1990).

261 Broadening the Mission. America's rural areas are changing as the structure of farming is changing in ways not foreseen by either economists or politicians. Some small towns are disappearing as the institutions basic to their survival find it impossible to stay in business. ACS could make a major contribution to the well-being of rural America by serving as a force for building institutions. It has the knowledge and the ability to carry out this task, as it has proven in the past. Its past efforts, however, have been limited because its mission in this type of activity has not been clarified and because it has not received the funding to maintain a staff to carry out a broader mission. The value of electric, telephone, and credit as well as agricultural marketing and purchasing cooperatives to rural communities has been proven. Electric, telephone, and credit cooperatives will continue to be sponsored by specialized agencies, but ACS could carry out the research and provide the technical assistance necessary to build other types of rural cooperative institutions. Such institutions could include health care, educational, recreational, transportation, and other facilities. Cooperative plants for processing agricultural commodities, manufacturing products from local resources, refining oil, and carrying out other operations to meet local needs and to supply particular markets have proven themselves — but not on a large enough scale to be widely adopted. Successful cooperatives, backed by careful research and knowl- edgeable technical assistance, can help revitalize rural America. Cooperatives encourage self-reliance and efficiency and give members increased self-esteem, which in turn strengthens the local community. A broader mission for ACS, making it responsible for working with rural rather than with just farmer cooperatives, backed by the resources needed to carry it out, would mean a stronger rural America and, indeed, a stronger Nation.

262 Farmer-Driven Farm Policy. Every 4 years or so, the Nation, through Congress and the Administration, adopts new or modifies old agricultural policies. While the general farm organizations take a part in drafting this legislation, cooperatives, for the most part, are not deeply involved. Some exceptions take place when their particular interests, usually relating to a particular commodity, are at stake. Trade interests are typically more involved than are cooperatives. If farm policy were to be farmer-written and farmer-driven instead of being written and driven by the trade, cooperatives, working with the general farm organizations, could become a vital force in its development. ACS could provide the research and the factual material to enable cooperatives to undertake and carry out such responsibilities.

Greater Research Emphasis. A broader mission and participation in policymaking would require greater emphasis upon research than is possible with the resources available at the beginning of the new decade. Such research should be of two types — that applicable to the solution of present practical problems and that providing a philosophical base for extending the mission of the agency, participating in policy development, and educating the American people on the what and why of cooperatives. The agency, according to one authority, has been moving in the right direction in sponsoring broadly based research in cooperation with land-grant universities, particularly in light of restrictions on the number of personnel the agency may employ. Yet this cooperation has been limited by the erosion of funds available to the agency. The well- being of the American farmers, farmer cooperatives, and the consuming public demands more support for research.

Education on Cooperatives. ACS is one of two agencies in the United States Department of Agriculture charged with providing education to

263 the American people and the only one with specific responsibilities for cooperatives. The agency has the background knowledge and ability to carry out a wide-reaching educational program. This will be essential if the mission of the agency is broadened and may be necessary in any case to enable American farmers to continue to organize and operate cooperatives in the face of opposition by huge multinational corporations and other business interests. And a Few Final Thoughts ACS is the one Government agency charged with overall assistance to the cooperative movement. It can strengthen the institutional arrangements for cooperatives and can track their changing legal basis (Discussion, John T. Woeste, June 28, 1990). Such educational and support programs will succeed if they have full support at the highest levels in the Department and are backed by Congress. ACS's program is an ideal approach for USDA to support an owner-operator production agriculture. It is a cost-effective assistance mechanism that encourages self-help and self-management of one of the Nation's vital industries. Help is focused on strengthening farmers' ability through cooperative action to compete in an increasingly global business environment. ACS provides cooperatives — and Government policymakers — a continuing stream of information and analytical expertise aimed at improving cooperative performance. ACS has been successful in reaching the cooperative community and farm groups interested in forming cooperatives. It has worked closely with cooperative organizations and universities on educational pro- gramS/ as well as with the Federal and State Extension Services, and will continue to work with the National Council of Farmer Cooperatives as it assumes the educational programs formerly carried out by the

264 American Institute of Cooperation. Yet it has not had the resources, nor has the cooperative community as a whole, to educate the American people as to the nature and value of farmer cooperatives. An investment of such resources would open the way to long-term improvements in the economic situations of both farmers and consumers. Summarized, Agricultural Cooperative Service is a valuable resource of institutional learning and assistance to farmers and other rural residents who can benefit from cooperative action. The agency has carried out its responsibilities through depression and prosperity, war and peace, and change and resistance to change for 65 years. As one authority has said, ACS is the one institution we have that can show the American people that while cooperation is not the only way of life in the United States, it makes a better life for all of us.

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276 Appendix A Agricultural Cooperative Service: A Chronology

1867 National Grange, first general farmers' organization to sponsor cooperatives, organized by U. S. Department of Agriculture employee.

1901 George K. Holmes, Bureau of Statistics, USD A, assembled basic information on types of cooperatives in unpublished manuscript.

1908 Country Life Commission recommended cooperatives to farmers.

1910 First USDA report discussing cooperatives appeared in Yearbook.

1912 The first specific project in USDA relating to cooperatives was undertaken in the Bureau of Plant Industry as the ''Farmers Cooperative Cotton Handling and Marketing Project/' under the direction of Charles J. Brand.

1913 May 1. T. N. Carver was appointed as collaborator to organize the Rural Organization Service, which was in the USDA but was financed by the private General Education Board.

1913 May 16. Office of Markets, which included studies of cooperative marketing and distribution, established within the Rural Organization Service, with Charles J. Brand as chief.

1913 T. N. Carver, in article in USDA Yearbook, urged cooperation among farmers and in rural communities.

1914 May 8. Smith-Lever Act establishing the Cooperative Extension Service approved (38 Stat. 372).

1914 October 15. Clayton Antitrust Act appfoved.

1915 July 1. Office of Markets merged with Rural Organization Service as the Office of Markets and Rural Organization (38 Stat. 1087).

1916 July 17. Federal land banks established by Federal Farm Loan Act (39 Stat. 360).

1917 July 1. Office of Markets and Rural Organization redesignated the Bureau of Markets (39 Stat. 1162).

277 1921 July L Bureau of Markets and Bureau of Crop Estimates combined as Bureau of Markets and Crop Estimates, with a Division of Cooperative Relations (41 Stat. 1341).

1921 L. S. Tenny, assistant chief. Bureau of Markets and Crop Estimates, responsible for work of Division of Cooperative Relations.

1922 February 18. Capper-Volstead Act, giving cooperatives certain exemptions from antitrust laws, approved (42 Stat. 388).

1922 July 1, Bureau of Markets and Crop Estimates was combined with the Office of Farm Management and Farm Economics to form the Bureau of Agricultural Economics, with a Division of Agricultural Cooperation (42 Stat. 531).

1924 Chris L, Christensen became head of Division of Agricultural Cooperation.

1925 January. American Institute of Cooperation organized.

1926 July 2. Cooperative Marketing Act approved. It established the Division of Cooperative Marketing in the Bureau of Agricultural Economics, which transferred functions of the Division of Agricultural Cooperation to it (44 Stat. 802).

1926 Chris L. Christensen, who had headed the Division of Agricultural Cooperation, continued as head of the Division of Cooperative Marketing.

1929 National Council of Farmer Cooperatives, first called the National Cooperative Council, organized.

1929 June 15. Federal Farm Board established (46 Stat. 11).

1929 October 1. The Division of Cooperative Marketing was transferred from the Bureau of Agricultural Economics of the Department of Agriculture to the Federal Farm Board, with A. W. McKay as chief.

1933 May 27. Farm Credit Administration was created and was assigned some functions of the Federal Farm Board, including those relating to cooperative marketing (Executive Order 6084, Mar, 27,1933). The staff of the Division of Cooperative Marketing was assigned to a new Cooperative Bank Division.

278 1933 Cooperative marketing work was headed by F. B. Bomberger.

1934 Henry M. Bain assigned responsibility for cooperative marketing work.

1934 April. Publication of News for Farmer Cooperatives, later called Farmer Cooperatives, began.

1935 May 11. Rural Electrification Administration established.

1939 January. Cooperative work in Farm Credit Administration reinstated as a separate division, the Cooperative Research and Service Division, headed by Thomas G. Stitts.

1939 July 1. Farm Credit Administration became part of the Department of Agriculture (President's Reorganization Plan No. 1, April 25, 1939).

1942 Harold Hedges appointed chief. Cooperative Research and Service Division, Farm Credit Administration.

1944 February 25. Revenue Act of 1943 required exempt agricultural marketing and purchasing associations to file annual information returns.

1946 August 14. Agricultural Marketing Act approved (60 Stat. 1082).

1952 March 24. Secretary of Agriculture Charles F. Brannan issued a statement of the Department's policy toward farmer cooperatives.

1953 December 4. The Cooperative Research and Service Division, formerly a part of the Farm Credit Administration, became Farmer Cooperative Service, reporting to the Assistant Secretary of Agriculture for Federal-States Relations. Under provisions of the Farm Credit Act of 1953, the Division remained in the Department of Agriculture when the Farm Credit Administration became an independent agency (67 Stat. 390).

1954 April 13. Joseph G. Knapp, who had been acting administrator of Farmer Cooperative Service since its establishment, was named administrator (USDA, press release 989-54, Apr. 13,1954).

279 1961 August 21,1961. Reconstitution of the USDA's Cooperative Advisory Committee was announced by Secretary of Agriculture Orville L. Freeman.

1962 Farmer Cooperative Service reported to the Assistant Secretary for Rural Development.

1964 October designated as ''Cooperative Month" by President John F, Kennedy.

1966 July 2. Joseph G. Knapp retired as administrator of Farmer Cooperative Service.

1966 September 1. David W. Angevine became administrator of Farmer Cooperative Service.

1967 August 1. Farmer Cooperative Service reorganized by Administrator Angevine.

1968 April 16. Agricultural Fair Practices Act approved (82 Stat. 93).

1969 First field office estabhshed by Farmer Cooperative Service in North Carolina.

1970 Farmer Cooperative Service reported to the Director of Agricultural Economics (later redesignated the Assistant Secretary for Economics).

1970 January 30. David W. Angevine retired as administrator of Farmer Cooperative Service.

1970 February 2. Eric Thor became administrator of Farmer Cooperative Service.

1970 November 4. Farmer Cooperative Service reorganized.

1973 September 26. Eric Thor resigned as administrator of Farmer Cooperative Service.

1973 September 27. Ronald D. Knutson became administrator of Farmer Cooperative Service.

1975 August 31,1975. The resignation of Ronald D. Knutson as administrator of Farmer Cooperative Service became effective.

280 1975 October 28. Randall E. Torgerson became administrator of Farmer Cooperative Service.

1976 March 24. A reorganization of Farmer Cooperative Service as proposed by Administrator Torgerson was approved by the Department of Agriculture,

1977 December 23. Farmer Cooperative Service combined with Economic Research Service and Statistical Reporting Service to form Economics, Statistics, and Cooperative Service (ESCS). The new agency reported to the Assistant Secretary for Economics and Policy Analysis.

1980 September 17. Secretary of Agriculture Bob Bergland established Agricultural Cooperative Service as an independent agency under the Assistant Secretary for Marketing and Transportation Services (U, S. Department of Agriculture, Secretary's Memorandum 2025, Sept. 17,1980).

1980 October 1. ACS formally began operations with Randall E. Torgerson as administrator.

1980 Fall. National cooperative development training center opened in Atlanta, G A, Discontinued on March 31, 1983.

1981 January. Agricultural Cooperative Service reported to the Assistant Secretary for Marketing and Inspection Services.

1981 August 26. Secretary of Agriculture John R. Block, in a Secretary's Memorandum, stated the Department's broad commitment to assist agricultural cooperatives (U. S. Department of Agriculture, Secretary's Memorandum 1020-1, Aug. 26,1981).

1983 An 1890 College Coordinator was appointed in Agricultural Cooperative Service.

1988 Agricultural Cooperative Service's organization underwent minor restructuring.

1989 January 1. CoBank (National Bank for Cooperatives) began operations.

1990 American Institute of Cooperation ended, with parts of its educational program transferred to the National Council of Farmer Cooperatives.

281 Appendix B Capper-Volstead Act of 1922

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That persons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers may act together in associations, corporate or otherwise, with or without capital stock, in collectively processing, preparing for market, handling, and marketing in interstate and foreign commerce, such products of persons so engaged. Such associations may have marketing agencies in common; and such associations and their members may make the necessary contracts and agreements to effect such purposes: Provided, however. That such associations are operated for the mutual benefit of the members thereof, as such producers, and conform to one or both of the following requirements:

First. That no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein, or.

Second. That the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum,

And in any case to the following:

Third. That the association shall not deal in the products of nonmembers to an amount greater in value than such as are handled by it for members.

Sec. 2. That if the Secretary of Agriculture shall have reason to believe that any such association monopolizes or restrains trade in interstate or foreign commerce to such an extent that the price of any agricultural product is unduly enhanced by reason thereof, he shall serve upon such association a complaint stating his charge in that respect, to which complaint shall be attached, or contained therein, a notice of hearing, specifying a day and place not less than thirty days after the service thereof, requiring the association to show cause why an order should not be made directing it to cease and desist from monopolization or restraint of trade. An association so complained of may at the time and place so fixed show cause why such order should not be entered. The evidence given on such a hearing shall be taken under such rules and regulations

282 as the Secretary of Agriculture may prescribe, reduced to writing, and made a part of the record therein. If upon such hearing the Secretary of Agriculture shall be of the opinion that such association monopolizes or restrains trade in interstate or foreign commerce to such an extent that the price of any agricultural product is unduly enhanced thereby, he shall issue and cause to be served upon the association an order reciting the facts found by him, directing such association to cease and desist from monopolization or restraint of trade. On the request of such association or if such association fails or neglects for thirty days to obey such order, the Secretary of Agriculture shall file in the district court in the judicial district in which such association has its principal place of business a certified copy of the order and of all the records in the proceeding, together with a petition asking that the order be enforced, and shall give notice to the Attorney General and to said association of such filing. Such district court shall thereupon have jurisdiction to enter a decree affirming, modifying, or setting aside said order, or enter such other decree as the court may deem equitable, and may make rules as to pleadings and proceedings to be had in considering such order. The place of trial may, for cause or by consent of parties, be changed as in other causes.

The facts found by the Secretary of Agriculture and recited or set forth in said order shall be prima facie evidence of such facts, but either party may adduce additional evidence. The Department of Justice shall have charge of the enforcement of such order. After the order is so filed in such district court and while pending for review therein the court may issue a temporary writ of injunction forbidding such association from violating such order or any part thereof. The court may, upon conclusion of its hearing; enforce its decree by a permanent injunction or other appropriate remedy. Service of such complaint and of all notices may be made upon such association by service upon any officer or agent thereof engaged in carrying on its business, or on any attorney authorized to appear in such proceeding for such association, and such service shall be binding upon such association, the officers, and members thereof.

Approved, February 18,1922.

283 Appendix C Cooperative Marketing Act of 1926

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. That when used in this Act the term ''agricultural products" means agricultural, horticultural, viticultural, and dairy products, livestock and the products thereof, the products of poultry and bee raising, the edible products of forestry, and any and all products raised or produced on farms and processed or manufactured products thereof, transported or intended to be transported in interstate and/or foreign commerce.

Sec. 2. The Secretary of Agriculture is hereby authorized and directed to establish a division of cooperative marketing with suitable personnel in the Bureau of Agricultural Economics of the Department of Agriculture or in such bureau in the Department of Agriculture as may hereafter be concerned with the marketing and distribution of farm products. Such division shall be under the direction and supervision of the Secretary of Agriculture.

Sec. 3. (a) The division shall render service to associations of producers of agricultural products, and federations and subsidiaries thereof, engaged in the cooperative marketing of agricultural products, including processing, warehousing, manufacturing, storage, the cooperative purchasing of farm supplies, credit, financing, insurance, and other cooperative activities.

(b) The division is authorized —

- (1) To acquire, analyze, and disseminate economic, statistical, and historical information regarding the progress, organization, and business methods of cooperative associations in the United States and foreign countries.

(2) To conduct studies of the economic, legal, financial, social, and other phases of cooperation, and publish the results thereof. Such studies shall include the analyses of the organization, operation, financial, and merchandising problems of cooperative associations.

(3) To make surveys and analyses if deemed advisable of the accounts and business practices of representative cooperative associations upon their request; to report to the association so surveyed the results thereof; and with the

284 consent of the association so surveyed to publish summaries of the results of such surveys, together with similar facts, for the guidance of cooperative associations and for the purpose of assisting cooperative associations in developing methods of business and market analysis.

(4) To confer and advise with committees or groups of producers, if deemed advisable, that may be desirous of forming a cooperative association and to make an economic survey and analysis of the facts surrounding the production and marketing of the agricultural product or products which the association, if formed, would handle or market.

(5) To acquire from all available sources information concerning crop prospects, supply, demand, current receipts, exports, imports, and prices of the agricultural products handled or marketed by cooperative associations, and to employ qualified commodity marketing specialists to summarize and analyze this information and disseminate the same among cooperative associations and others.

(6) To promote the knowledge of cooperative principles and practices and to cooperate, in promoting such knowledge, with educational and marketing agencies, cooperative associations, and others.

(7) To make such special studies, in the United States and foreign countries, and to acquire and disseminate such information and findings as may be useful in the development and practice of cooperation.

Sec. 4. The Secretary of Agriculture is authorized, in his discretion, to call advisers to counsel with him and/or his representatives relative to specific problems of cooperative marketing of farm products or any other cooperative activity Any person, other than an officer, agent, or employee of the United States, called into conference, as provided for in this section, may be paid actual transportation expenses and not to exceed $10 per diem to cover subsistence and other expenses while in conference and en route from and to his home.

Sec. 5. Persons engaged, as original producers of agricultural products, such as farmers, planters, ranchmen, dairymen, nut or fruit growers, acting together in

285 associations, corporate or otherwise, in collectively processing, preparing for market, handling, and marketing in interstate and/or foreign commerce such products of persons so engaged, may acquire, exchange, interpret, and disseminate past, present, and prospective crop, market, statistical, economic, and other similar information by direct exchange between such persons, and/or such associations or federations thereof, and/or by and through a common agent created or selected by them.

Sec. 6. The Secretary of Agriculture may make such rules and regulations as may be deemed advisable to carry out the provisions of this Act and may cooperate with any department or agency of the Government, any State, Territory, District, or possession, or department, agency, or political subdivision thereof, or any person; and may call upon any other Federal department, board, or commission for assistance in carrying out the purposes of this Act; and shall have the power to appoint, remove, and fix the compensation of such officers and employees not in conflict with existing law and make such expenditure for rent, outside the District of Columbia, printing, telegrams, telephones, books of reference, books of law, periodicals, newspapers, furniture, stationery, office equipment, travel, and other supplies and expenses as shall be necessary to the administration of this Act in the District of Columbia and elsewhere, and there is hereby authorized to be appropriated, out of any moneys in the Treasury not otherwise appropriated, the sum of $225,000 to be available for expenditure during the fiscal years 1926 and 1927, and the appropriation of such additional sums as may be necessary thereafter for carrying out the purposes of this Act is hereby authorized.

Sec. 7. That if any provision of this Act is declared unconstitutional or the applicability thereof to any person or circumstance is held invalid, the validity of the remainder of the Act and the applicability of such provision to other persons and circumstances shall not be affected thereby, and nothing contained in this Act is intended, nor shall be construed, to modify or repeal any of the provisions of the Act of February 18,1922 (chapter 37, Forty-second Statutes at Large, page 388).

Approved, July 2, 1926.

286 Appendix D Agricultural Fair Practices Act of 1967

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. That this Act shall be known as the Agricultural Fair Practices Act of 1967.

Legislative Findings and Declaration of Policy

Sec. 2. Agricultural products are produced in the United States by many individual farmers and ranchers scattered throughout the various States of the Nation. Such products in fresh or processed form move in large part in the channels of interstate and foreign commerce, and such products which do not move in these channels directly burden or affect interstate commerce. The efficient production and marketing of agricultural products by farmers and ranchers is of vital concern to their welfare and to the general economy of the Nation. Because agricultural products are produced by numerous individual farmers, the marketing and bargaining position of individual farmers will be adversely affected unless they are free to join together voluntarily in cooperative organization as authorized by law. Interference with this right is contrary to the public interest and adversely affects the free and orderly flow of goods in interstate and foreign commerce.

It is, therefore, declared to be the policy of Congress and purpose of this chapter to establish standards of fair practices required of handlers in their dealings in agricultural products.

Definitions

Sec. 3. When used in this chapter —

(a) The term ''handler" means any person engaged in the business or practice of (1) acquiring agricultural products form producers or associations of producers for processing or sale; or (2) grading, packaging, handling, storing, or processing agricultural products received from producers or associations of producers; or (3) contracting or negotiating contracts or other arrangements, written or oral, with or on behalf of producers or associations of producers with respect to the production or marketing of any agricultural product; or (4) acting

287 as an agent or broker for a handler in the performance of any function or act specified in clause (1), (2), or (3) of this paragraph.

(b) The term ''producer'' means a person engaged in the production of agricultural products as a farmer, planter, rancher, dairyman, fruit, vegetable, or nut grower.

(c) The term "association of producers" means any association of producers of agricultural products engaged in marketing, bargaining, shipping, or processing as defined in section 1141j(a) of Title 12, or in section 291 of this title.

(d) The term "person" includes individuals, partnerships, corporations, and associations.

(e) The term "agricultural products" shall not include cotton or tobacco or their products.

Prohibited Practices

Sec. 4. It shall be unlawful for any handler knowingly to engage or permit any employee or agent to engage in the following practices:

(a) To coerce any producer in the exercise of his right to join and belong to or to refrain from joining or belonging to an association of producers, or to refuse to deal with any producer because of the exercise of his right to join and belong to such an association; or

(b) To discriminate against any producer with respect to price, quantity, quality, or other terms of purchase, acquisition, or other handling of agricultural products because of his membership in or contract with an association of producers; or

(c) To coerce or intimidate any producer to enter into, maintain, breach, cancel, or terminate a membership agreement or marketing contract with an association of producers or a contract with a handler; or

288 (d) To pay or loan money, give any thing of value, or offer any other inducement or reward to a producer for refusing to or ceasing to belong to an association of producers; or

(e) To make false reports about the finances, management, or activities of associations of producers or handlers; or

(f) To conspire, combine, agree, or arrange with any other person to do, or aid or abet the doing of, any act made unlawful by this chapter.

Disclaimer of Intention to Prohibit Normal Dealing

Sec. 5. Nothing in this chapter shall prevent handlers and producers from selecting their customers and suppliers for any reason other than a producer's membership in or contract with an association of producers, nor require a handler to deal with an association of producers.

Enforcement Provisions

Sec. 6. (a) Whenever any handler has engaged or there are reasonable grounds to believe that any handler is about to engage in any act or practice prohibited by section 2303 of this title, a civil action for preventive relief, including an application for a permanent or temporary injunction, restraining order, or other order, may be instituted by the person aggrieved. In any action commenced pursuant here- to, the court, in its discretion, may allow the prevailing party a reasonable attorney's fee as part of the costs. The court may provide that no restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained.

(b) Whenever the Secretary of Agriculture has reasonable cause to believe that any handler, or group of handlers, has engaged in any act or practice prohibited by section 2303 of this title, he may request the Attorney General to bring civil action in his behalf in the appropriate district court of the United States by

289 filing with it a complaint (1) setting forth facts pertaining to such act or practice, and (2) requesting such preventive relief, including an application for a permanent or temporary injunction, restraining order, or other order against the handler, or handlers, responsible for such acts or practices. Upon receipt of such request, the Attorney General is authorized to file such complaint.

(c) Any person injured in his business or property by reason of any violation of, or combination or conspiracy to violate, any provision of section 2303 of this title may sue therefor in the appropriate district court of the United States without respect to the amount in controversy, and shall recover damages sus- tained. In any action commenced pursuant to this subsection, the court may allow the prevailing party a reasonable attorney's fee as a part of the costs. Any action to enforce any cause of action under this subsection shall be forever barred unless commenced within 2 years after the cause of action accrued.

(d) The district courts of the United States shall have jurisdiction of proceedings instituted pursuant to this section and shall exercise the same without regard to whether the aggrieved party shall have exhausted any administrative or other remedies that may be provided by law.

The provisions of this chapter shall not be construed to change or modify existing State law nor to deprive the proper State courts of jurisdiction.

Separability

Sec. 7, If any provision of this Act or the application thereof to any person or circumstances is held invalid, the validity of the remainder of the Act and of the application of such provision to other persons and circumstances shall not be affected thereby.

Approved April 16,1968

290 Appendix E Number of Farmer Cooperatives, Memberships, and Farms

Number Total Number Number Total Number Year of co-ops memberships of farms Year of co-ops memberships of farms 1913 3,099 — 6,437,200 1952 10,179 7,363,705 5,197,500 1914 — — 6,446,800 1953 10,128 7,475,085 4,983,600 1915 5,424 651,186 6,457,700 1954 10,072 7,608,240 4,798,200 1916 — — 6,463,300 1955 9,903 7,603,855 4,653,800 1917 — — 6,477,600 1956 9,894 7,731,735 4,514,100 1918 — — 6,487,500 1957 9,891 7,673,045 4,371,700 1919 — — 6,506,000 1958 9,735 7,486,455 4,232,900 1920 — — 6,517,500 1959 9,658 7,558,550 4,104,520

1921 7,374 — 6,510,700 1960 9,345 7,273,455 3,962,520 1922 — — 6,499,600 1961 9,163 7,202,895 3,825,410 1923 — — 6,491,800 1962 9,039 7,110,240 3,692,410 1924 — — 6,480,100 1963 8,907 7,218,750 3,572,200 1925 — — 6,470,600 1964 8,847 7,079,500 3,456,690 1926 10,803 2,700,000 6,461,600 1965 8,583 7,082,010 3,356,170 1927 — — 6,458,100 1966 8,329 6,826,275 3,257,040 1928 11,400 3,000,000 6,469,700 1967 8,125 6,501,700 3,161,730 1929 — — 6,511,600 1968 7,940 6,445,410 3,070,860 1930 12,000 3,100,000 6,545,600 1969 7,747 6,363,555 3,000,180

1931 11,950 3,000,000 6,608,500 1970 7,790 6,334,980 2,949,140 1932 11,900 3,200,000 6,686,750 1971 7,995 6,157,740 2,902,310 1933 11,000 3,000,000 6,740,750 1972 7,797 6,146,550 2,859,880 1934 10,900 3,156,000 6,775,900 1973 7,854 6,127,935 2,823,260 1935 10,700 3,280,000 6,813,700 1974 7;7bb 6,105,530 2,795,460 1936 10,500 3,660,000 6,739,150 1975 7,645 6,122,500 2,521,420 1937 10,752 3,270,000 6,635,850 1976 7,535 5,906,379 2,497,270 1938 10,900 3,400,000 6,526,700 1977 6,736 5,757,728 2,455,830 1939 10,700 3,300,000 6,440,900 1978 6,600 5,694,500 2,436,250 1940 10,700 3,200,000 6,349,800 1979 6,445 5,627,196 2,437,300

1941 10,600 3,400,000 6,293,250 1980 6,293 5,378,888 2,439,510 1942 10,550 3,600,000 6,201,800 1981 6,211 5,335,418 2,439,920 1943 10,450 3,850,000 6,089,000 1982 6,125 5,135,774 2,406,550 1944 10,300 4,250,000 6,003,400 1983 5,989 4,954,758 2,378,620 1945 10,150 4,505,000 5,966,750 1984 5,782 4,841,749 2,333,810 1946 10,150 5,010,000 5,925,650 1985 5,625 4,783,319 2,292,530 1947 10,125 5,436,000 5,870,950 1986 5,369 4,600,000 2,249,820 1948 10,135 5,890,000 5,803,000 1987 5,109 4,439,999 2,212,960 1949 10,075 6,384,000 5,722,250 1988 4,937 4,195,511 2,197,140 1950 10,035 6,584,000 5,647,800 1989 4,799 4,136,200 2,172,920 1951 10,064 7,091,120 5,427,600

291 Appendix F Farmer Cooperatives Business Volume

Year Gross Year Gross Net IfiOO dollars 1,000 dollars

1951 ' W,522,256 8,147,137 1952 12,137,272 9,409,887 1913 310,313 1953 12,303,603 9,521,313 1914 — 1954 12,198,256 9,474,640 1915 635,839 1955 12,465,294 9,641,882 1916 — 1956 12,701,963 9,756,125 1917 — 1957 13,497,729 10,379,455 1918 — 1958 14,055,106 10,752,902 1919 — 1959 15,235,271 11,747,016 1920 — 1960 15,646,555 12,036,248 1921 1,256,214 1961 16,194,033 12,409,133 1922 — 1962 17,209,607 13,023,804 1923 — 1963 18,342,007 13,841,846 1924 — 1964 19,239,520 14,353,758 1925 — 1965 19,626,961 14,741,932 1926 2,400,000 1966 20,618,960 15,608,197 1927 — 1967 21,897,373 16,556,539 1928 2,300,000 1968 22,437,679 17,050,005 1929 — 1969 22,835,153 17,386,797 1930 2,500,000 1970 24,765,955 19,080,387 1931 2,400,000 1971 27,281,303 20,555,700 1932 1,925,000 1972 28,652,545 21,664,908 1933 1,340,000 1973 34,454,467 25,990,778 1934 1,365,000 1974 47,685,319 35,365,549 1935 1,530,000 1975 50,839,212 37,340,305 1936 1,840,000 1976 55,811,075 40,050,077 1937 2,196,000 1977 59,489,602 43,584,153 1938 2,400,000 1978 64,624,703 47,305,120 1939 2,100,000 1979 77,392,187 56,268,397 1940 2,087,000 1980 92,519,535 66,254,354 1941 2,280,000 1981 101,479,261 71,533,967 1942 2,840,000 1982 95,098,614 69,150,336 1943 3,780,000 1983 88,730,510 66,754,824 1944 5,160,000 1984 96,870,929 73,046,540 1945 5,645,000 1985 85,096,541 65,601,440 1946 6,070,000 1986 72,978,232 58,395,471 — = Not available 1947 7,116,000 1987 74,741,954 60,317,720 1948 8,635,000 1988 82,136,916 66,430,445 ^ First year intercooperative 1949 9,320,000 1989 87,501,848 71,109,535 business was determined. 1950 8,726,000

292