to Ocean F Co-ops: Northwest page 24 to Ocean F Co-ops: Northwest rom Forest rom Forest Rural COOPERA COOPERA SA/RrlDvlpet May/June2007 USDA /RuralDevelopment TIVES TIVES COMMENTARY

Heed the Call

In an average year, 1,200 tornadoes supporters of the program will rip through America. These storms and often make their often develop and move at astonishing telecommunications towers USDA photo by Tim Rogers speed, sometimes allowing those in the available for antenna and path only a few minutes of warning to transmitter placement. For find shelter. This renders conventional more details on the program, warning systems — such as television and radio — inadequate, visit: www.usda.gov/rus/telecom/weather/weatherradio.htm, since if you’re not listening or watching, you won’t get the or call Craig R. Wulf, (202) 720-8427; or e-mail craig.wulf warning in time. @wdc.usda.gov. One answer to this problem is a self-activating radio receiver that emits a loud alarm when a storm warning is Tragedy hits home issued. The National Oceanic and Atmospheric Among the buildings pulverized in Greensburg was the Administration’s (NOAA) Weather Radio All Hazzards USDA Service Center office, which included USDA Rural System uses special transmitters that broadcast on assigned Development offices. A day or two after the storm, an e-mail I frequencies and can be picked up by special receivers. The received related the story of one staff member and her receivers are left in a quiet “standby” mode until a storm husband who lived about a mile south of Greensburg. “Their signal is issued, which activates the receiver and emits a loud two-story home collapsed on them and they were trapped warning signal to everyone in earshot. until neighbors could get them out,” it said. It then relates The awesome, terrible power of tornadoes — and the how another USDA staffer helped pull “several people out of importance of early warnings — was once again driven home homes” before returning to find his own home demolished. May 5, when the town of Greensburg, Kan., was virtually Another “storm dispatch” that landed in my e-mail a day wiped off the map by an F-5 tornado, with winds in excess of after the tornado came from the Kansas Cooperative Council 200 miles per hour and a funnel that was more than a mile (KCC), which did a quick survey of the tornado’s impact on wide. Seeing the photos on the front pages of the morning its member co-ops and has been doing an outstanding job newspapers the past few days, one can only wonder how most marshalling efforts of the co-op community to help the of the 1,400 residents survived (there were about 10 victims. It says: “Southern Plains Co-op, Lewis/Greensburg – confirmed deaths as of this writing). The only recognizable Four employees lost homes, along with most of the other structure left standing was a grain elevator. The town was residents of the town. The co-op facilities in Greensburg otherwise utterly devastated, looking like the target of a were, for all essential purposes, lost. Co-ops from the wartime saturation bombing. surrounding areas are lending personnel and equipment to aid News accounts indicate that residents received a warning in the relief effort.” about 20 minutes before the tornado struck, which doubtless The KCC report goes onto list the storm’s impact on a was the reason the number of fatalities was not far higher. number of other area co-ops, adding that, “Our hearts go out This underscores the importance of a Newsline item on page to those families who lost loved ones. We encourage co-op 39 of this issue, concerning an announcement Agriculture members to take the opportunity to act on one of our core Secretary Mike Johanns made in March about USDA Rural cooperative values, commitment to the community, by doing Development awarding $415,000 to extend coverage of the what you can to help at the appropriate time.” NOAA Weather Radio All Hazzards System. KCC has set up a disaster relief fund. For more As of March, the Rural Utilities Program of USDA Rural information contact: Kansas Cooperative Council, PO Box Development has awarded 92 grants under its Weather Radio 1747, Hutchinson, Kansas 67504, or [email protected]. Transmitter Grant Program to extend the coverage of the system. These grants cover 100 sites in 26 states and Puerto — Dan Campbell, Editor ■ Rico. Of the grants, 21 have been awarded to electric and telecommunications cooperatives. Co-ops have been major

2 May/June 2007 / Rural Cooperatives Rural May/JuneCOOPERACOOPERA 2007 TIVESTIVESVolume 74 Number 3

FEATURES

4 When a Co-op Dies Long-time gin closes doors, one more casualty of California’s shrinking cotton industry By Catherine Merlo Rural COOPERATIVES (1088-8845) is published bimonthly by Rural Business–Cooperative Service, U.S. Department of Agriculture, 1400 Independence 14 Shouldering the risk Ave. SW, Stop 0705, Washington, DC. 20250-0705. p. 4 Strategy for risk management essential to moving cellulosic technology forward The Secretary of Agriculture has determined that publication of this periodical is necessary in the By Anthony Crooks transaction of public business required by law of the Department. Periodicals postage paid at 19 Producer ownership of ethanol a major Washington, DC. and additional mailing offices. Copies may be obtained from the Superintendent of plus for rural America Documents, Government Printing Office, Washington, DC, 20402, at $23 per year. Postmaster: send address By Dan Campbell change to: Rural Cooperatives, USDA/RBS, Stop p. 14 3255, Wash., DC 20250-3255. 24 From Forest to Ocean Mention in Rural COOPERATIVES of company and brand names does not signify endorsement over Diverse Washington co-ops show business model flexibility other companies’ products and services. By Dan Schofer

Unless otherwise stated, contents of this publication are not copyrighted and may be reprinted freely. For noncopyrighted articles, mention of source will be 28 Wisconsin farmers, small businesses appreciated but is not required. p. 24 benefiting from new health-care co-ops

The U.S. Department of Agriculture (USDA) prohibits By Anne Todd discrimination in all its programs and activities on the basis of race, color, national origin, age, disabili- 30 Where Credit Is Due ty, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, Russian farm credit officials study American finance model genetic information, political beliefs, reprisal, or By Perry Letson because all or part of an individual’s income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons p. 33 33 Co-ops Focus Collective Action with disabilities who require alternative means for Business structure still helping producers address power disparity in the marketplace communication of program information (Braille, large print, audiotape, etc.) should contact USDA’s By Thomas W. Gray TARGET Center at (202) 720-2600 (voice and TDD). To file a complaint of discrimination, write to USDA, Director, Office of Civil Rights, 1400 Independence DEPARTMENTS Avenue, S.W., Washington, D.C. 20250-9410, or call (800) 795-3272 (voice), or (202) 720-6382 (TDD). USDA 2 COMMENTARY is an equal opportunity provider and employer. 8 CO-OP DEVELOPMENT ACTION Mike Johanns, Secretary of Agriculture 12 LEGAL CORNER Thomas C. Dorr, Under Secretary, 23 MANAGEMENT TIP USDA Rural Development 36 NEWSLINE Jack Gleason, Administrator, 42 PAGE FROM THE PAST Rural Business-Cooperative Programs

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design On the Cover: Have a cooperative-related question? Call (202) 720-6483, or Co-ops in Washington state are meeting a wide variety of needs, Fax (202) 720-4641 from the state’s mountain forests to its coastal fisheries. Forest This publication was printed with vegetable oil-based ink. landowners in the Okanogan County area have formed a co-op to help improve forest health. Seen here is Patterson Lake. Photo by Don Portman, courtesy Okanogan County Tourism Council

Rural Cooperatives / May/June 2007 3 When a Co-op Dies

Long-time gin closes doors, one more casualty of California’s shrinking cotton industry

By Catherine Merlo produced 30,000 bales of cotton and returned about $1 million to members Editor’s note: Merlo is a Bakersfield, after ginning costs. Every July, up to Calif.-based writer/editor with extensive 1,500 people from the surrounding experience writing about cooperatives and community flocked to the gin for the the issues that impact them. “Tennessee Bologna Feed” put on by Gallian’s father. arry Gallian grew up The younger Gallian continued the with Visalia gin’s prominence after he took over as Cooperative Cotton Visalia Co-op’s manager in 1964. He L Gin in his blood. would go on to serve as president of Gallian’s father served each of the state’s two ginners’ as gin superintendent of the California organizations and was named ginner of operation from 1951 until 1982, the year by the California Cotton helping build it into one of the best- Ginners Association in 1991. known cotton businesses in the San But today, Visalia Co-op is a thing of Joaquin Valley. the past, its membership disbanded, its At its peak, the gin annually doors closed, its ginning equipment

4 May/June 2007 / Rural Cooperatives shuttered and silent. The sandy parking storms before. In the 1970s, Visalia Co- supply businesses to its operations. But lot, once filled with the pickup trucks of op had successfully fought verticilium by 2000, the odds for survival were farmers who stopped by early each wilt, a disease that threatened cotton dimming. morning for coffee and news, is empty. fields. In the 1980s, the co-op had Across the San Joaquin Valley, home The very bones of the business – the withstood high interest rates and to the bulk of California’s cotton gin stands, the bale presses, the seed competition for acreage from new citrus production, growers were exiting the storage site – have been sold. Only plantings. An influx of dairies arrived in high-cost cotton business, shifting to Gallian, 63, stops by now, unable to the 1990s, tempting local cotton more profitable crops like almonds, resist looking at the place where he growers to switch to producing more pistachios, alfalfa, fresh-market spent most of his life, a site many profitable dairy cattle feed. tomatoes and carrots. Others had begun consider a north Visalia landmark. Visalia Co-op had endured those diversifying into businesses like dairies Fifty-six years after it began, Visalia threats, even adding fertilizer and farm and real estate. Still others were finding Co-op formally ceased operations on Dec. 31, 2006, victim not to bankruptcy or merger but to the same forces that have overtaken California’s once- thriving cotton industry. High costs, urban sprawl and a shift to more profitable permanent crops are dethroning King Cotton in the Golden State. California’s cotton production has been declining for 25 years, and today is only about a third of what it was in its benchmark 1981 season. That year, the state turned out 3.53 million bales, a far cry from the 1.28 million bales California will likely produce in 2007. Estimates put the state’s 2007 cotton acreage at about 460,000, down from 560,000 last year and a dramatic drop from the 1 million acres planted in the early 1990s. As cotton acreage has waned, so too has California’s cotton ginning industry. Once dotted with 299 cotton gins, California is now home to only 61 surviving gins, according to the California Cotton Growers and Ginners Associations (CCGGA). Of the remaining gins, 19 are co-ops.

Fighting to survive For a while, Gallian thought he could keep Visalia Co-op from suffering the fate of other gin casualties. “We fought it for years,” he says. After all, the gin sat in the heart of Tulare County, one of the top three agricultural counties in the nation. “We rationalized that we would lose too much of the growers’ equity if we continued,” Visalia, located about 45 miles south of says former manager Larry Gallian, outside the now-closed cotton gin. Opposite page: Fresno, had always depended on San Joaquin Valley cotton fields ready for harvest. Photos by Catherine Merlo farming. And the co-op had weathered

Rural Cooperatives / May/June 2007 5 more profit in selling land for time, compared to 11 employees a fibered cotton such as Pima. development to accommodate the decade before. The gin’s returns to Traditionally, most California gins have valley’s booming population growth. members had eroded as well, dropping used saw gins to process shorter-fibered Visalia alone saw its population jump by to $15-$20 per bale from $45 in better upland or Acala cottons. almost 18,000 people in just five years, days. Moreover, Visalia Co-op’s returns But roller gins have increased in climbing to 110,000 by 2005. lagged behind the $30-$40 per bale that popularity as California cotton growers Equally daunting, perhaps, were larger co-op gins were paying. have turned to Pima production. The

The cotton gin co-op’s membership had dwindled to nine by the time it closed, down from 166 when it formed in 1950.

increasing air-quality regulations Gallian and the gin’s board of long-staple cotton is enjoying huge required by the San Joaquin Valley air directors realized the co-op had reached demand and good prices. At the same pollution control district. In 2002, its end. “We rationalized we would lose time, some growers have found a Visalia Co-op spent $350,000 for air too much of the growers’ equity if we profitable niche by roller-ginning, emissions mitigation equipment, “just continued,” Gallian says. “You didn’t rather than saw-ginning, upland cotton. to stay in business,” Gallian says. have to be a brain scientist to see where The production costs are higher, but it By 2005, Visalia Co-op’s membership cotton was going.” has proven worthwhile for some had dwindled to 15, down from a high To operate for the 2006 season, the growers. of 166 when the gin formed in 1950. In gin would have had to borrow Yet, without the necessary cotton 2006, the co-op counted just nine $700,000. As one possible survival volume in the Visalia area to bring in members. Only Gallian and the plant strategy, the co-op considered installing adequate revenue, the gin could hardly superintendent were employed full- a roller gin, used to process long- afford a $3 million roller gin. A few

6 May/June 2007 / Rural Cooperatives attempts at merging with other co-ops op’s start isn’t feasible, Gallian says, since Changing landscape went nowhere. There was little point in 75 percent of the membership from Despite the industry contraction, few trying to continue. those days is deceased. A 6- to 10-year are writing off cotton just yet. The period may be more realistic, but bright spot is Pima cotton. “We can’t Closure ‘very emotional’ discussions are still underway with the grow enough Pima to meet worldwide All the same, the discussions to close gin’s attorney and auditors. demand,” Williams says. Visalia Co-op were “very, very “Distribution of excess money is key The state now produces 90 percent emotional,” says Gallian. “For a while, to closing a co-op, but there’s nothing of the nation’s Pima crop. The long- no one wanted to bring up the word, out there to show us how to do it,” fibered variety has surpassed upland ‘closure.’ And there was the matter of Gallian says. “Most co-ops close broke. cottons in planted acreage, a complete pride. No one wanted to be the board We still have money.” about-face from past years. or manager who had closed the gin.” The board will have to decide by Further, thanks to a long, dry But, on Sept. 11, 2006, the five- June 30 this year when the co-op once growing season and variety member board voted unanimously to and for all closes out its books. improvements, California cotton end the business. Among those voting growers continue to produce high- that day was Gerald Steiner, 85, who More closures ahead yielding, high-quality cottons that are had helped put up the money to start More San Joaquin Valley cotton gins among the world’s best. Nearly 100 the co-op gin in 1950. “We invited him will close in the coming year, leaving percent of the state’s cotton is exported, to the meeting and gave him an only a handful of large cooperative gins heading to China, Korea, Thailand, honorary vote,” Gallian remembers. to handle the bale-making and cotton Japan, India and Pakistan. “He had tears in his eyes and his hand seed business. Recent higher prices for Even so, the state’s once-familiar was shaking as he voted for the cotton seed will allow a few gins to cotton landscape has a different feel. In closure.” hang on a bit longer. But the clock is December 2006, one long-time cotton Over the next few months, the gin ticking for many. cooperative, California Planting Cotton liquidated its assets, selling vehicles, “It’s a heck of a transition period,” Seed Distributors, was acquired by module trucks and other rolling says Earl Williams, president and CEO Bayer CropScience. At least three more equipment. The co-op sold 15 acres of of CCGGA, two linked trade cooperative gins and perhaps as many nearby property for $225,000. The 30- organizations that represent cotton independents will close soon, Williams acre gin site, where the office and gin growers and ginners in legal, legislative predicts. Some gins that are holding on buildings sit, sold for $1.15 million this and regulatory affairs. “It’s survival of are not re-hiring managers when the spring. the fittest now.” former ones retire or leave. Instead, Like Gallian, Williams grew up in they’re counting on office managers to Final distribution dilemma the cotton ginning business. But while do the job. Gallian and the board are deter- Gallian came from the cooperative side, Gallian has found work as an ag mined that every grower will “get back Williams emerged from independent chemical salesman. “I was offered four every dime he invested in the co-op,” gins. or five jobs, but I chose the one that he says. That includes 37 growers who “Growing up, the co-op gins were gave me close contact with growers,” he still have revolving funds due them. the enemy,” Williams remembers. “But says. By late April of this year, the co-op one thing I was always envious of was Although Visalia Co-op is history had $380,000 in revolving funds to how well the co-op gins were now, it’s still near and dear to Gallian. distribute. Beyond that, the gin also was organized.” Having come through the gin’s painful awaiting $225,000 from the sale of air As California’s cotton ginning demise, he offers clear-cut advice for pollution credits. Combined with the industry has dwindled, however, co-ops that may be contemplating proceeds from selling its property and Williams has seen increasing dissension whether it’s time to close their doors. existing money in its bank account, and disagreements. He’s seen it, for “Don’t keep going out of pride,” says Visalia Co-op has $1 million to return example, among co-op gins that have Gallian. “We could have kept going. to former members after its last met to discuss merging as a way to We would have made money for our revolving fund payout. survive. members, but not as much as they could The final distribution of the co-op’s “Then the arguments would start,” have received ginning somewhere else. assets has been a bit of a sticking point. Williams says. “‘Which gin do we keep, That’s not fair to farmers. A co-op is “How far back do you go to determine which do we close down? Which supposed to be there for the farmer,” he who is paid?” Gallian asks. “As far as manager, which board members do we adds. “When the co-op can’t do the practical,” the bylaws of Visalia Cotton keep?’ It went downhill from there.” farmer justice, it’s time to go.” ■ Co-op stipulate. Going back to the co-

Rural Cooperatives / May/June 2007 7 CO-OP DEVELOPMENT ACTION

Forging family-to-family food chains

ooperative Development the project for the next two years. op that makes cheese and butter from Services (CDS) is one of Recently, CDS reaffirmed its long- cows that graze on carefully managed the nation's best known standing commitment to producer co- grasslands in southeastern Minnesota. C sources of expertise and ops, as well as consumer co-ops, with a In 2006, the co-op's butter won its information for existing new initiative. "We will work with third consecutive award at the American food co-ops. It was a natural step for producers of natural and organic Cheese Society Competition and CDS to become a partner in the products for a sustainable world," said Judging. FoodCoop500 initiative, which seeks to CDS Director Kevin Edberg. "As with PastureLand General Manager Jean raise the number of food co-ops in the our renewable energy work [profiled in Andreasen worked at Mississippi United States from 300 to 500 by 2015 the July-Aug. 2006 issue of Rural Market food co-op in St. Paul, Minn., (visit: www.foodcoop500.coop). The Cooperatives] we will leverage our for more than a decade, providing her a other partners are NCB (formerly contacts to help producers find good look at the work CDS does with National Cooperative Bank)/NCB relationships with food retailers that consumer-owned retail stores. "They Capital Impact and the National support their entry to the market." helped Mississippi Market with our Cooperative Grocers Association, which One example of this work is with expansion project, staff trainings and recently pledged $200,000 to support PastureLand, a small organic dairy co- surveys. They were always there when

8 May/June 2007 / Rural Cooperatives Minnesota’s PastureLand Co-op families (opposite page) are benefiting from a new business plan. This page (clockwise from upper left): La Montanita Food Co-op in Albuquerque, N.M.; Los Poblanos co-op member harvests lavender for La Montanita; growers now visit La Montanita by choice, rather than necessity; the Wedge Co-op in Minneapolis, Minn., is another food co-op that supports local farmers, including PastureLand. Photos courtesy featured co-ops

we needed something. So when I came Stewardship Project and CDS. International Co-op Principles: to PastureLand and wanted some PastureLand was the only Food commitment to education and professional co-op business develop- Alliance-certified dairy cooperative in cooperation among co-ops. And that’s ment services, I knew where to go." the region, and she worked with the good for co-op business. CDS helped PastureLand write a members to "market their co-op business plan and raise funds for difference" by placing articles about the MOON lights up Ohio operations. "I'm really happy with the co-op’s products, practices and The mission of the Miami Oxford relationship we've been able to producers in the newsletters of all the Organic Network Co-operative Services cultivate," Andreasen adds. food co-op stores in the area. Inc. (or MOON Co-op) is to help grow Prior to coming to PastureLand, These stores have long-standing a sustainable food system in southern Andreasen was marketing coordinator commitments to local producers and Ohio and Indiana. Its nearly 250 for the Midwest region of Food already carried PastureLand’s butter members – local producers as well as Alliance, a national certification and cheese, but this was an additional urban and rural consumers – plan to organization for environmentally link, from one cooperative to another. open a natural foods store that friendly and socially responsible Andreasen points out that this is a way specializes in local and regional farm agriculture practices, funded by Land of implementing both the fifth and sixth products.

Rural Cooperatives / May/June 2007 9 Earlier this year, the group was visited by Stuart Reid, who has been hired to work fulltime with grant recipients of the FoodCoop500 program. He was "very impressed with the groundwork" the co-op had done, saying "their hard work bodes well for a vibrant and successful store." This year MOON received a $25,000 Sprout Fund loan from FoodCoop500 following a $10,000 FC- 500 Seed Fund grant it won last year. In addition to financial assistance, co-op members take part in regular conference calls with consultants and people from successful co-ops, and the board submits regular reports on its progress to Reid. From the very beginning, co-op organizers sought help from their local specialists at the Ohio Cooperative Development Center (OCDC). Tr easurer Debra Peter recalls, "In our initial organizing stages, OCDC helped us determine the structure and function of our organization and provided us with contacts and resources to get incorporated. We also received two $5,000 start- up grants from OCDC that were used for professional fees and supplies. We have a solid legal and financial foundation for our cooperative because of the assistance provided by developed by the Iowa Alliance for OCDC." Cooperative Business Development as part of a Rural Cooperative Midwest farmers sharing resources To help producers better evaluate Development Grant from USDA Rural Farmers throughout the Midwest are proposed sharing arrangements, Iowa Development (more at: being challenged by rising costs of State University Extension and www.machinerysharing.info). Program machinery and shortages of skilled University of Missouri Extension sponsors were North Central Risk labor. Some farmers are sharing these economists developed a "Machinery and Management Education Center, resources to reduce costs and improve Labor Sharing Arrangements" Leopold Center for Sustainable efficiency. But there are a number of workshop, held in three locations last Agriculture, Iowa State University factors to consider before making such winter. More than 80 people attended, Extension and University of Missouri a move. These include tax, liability and many looking for options to help them Extension. The Iowa Farm Bureau farm payment eligibility issues efficiently transfer assets to the next Federation and Grundy National Bank associated with sharing equipment and generation of farmers, or to a young also collaborated. labor, as well as identifying available producer working to get established. resources to help producers plan and The case study research that served Cooperating in the Southwest implement that sharing. as a framework for the workshop was The Beneficial Farm and Ranch

10 May/June 2007 / Rural Cooperatives Hobbs. "This has reduced duplication in the delivery process and saved producers valuable time as well as CooperationWorks! goes co-op money. And it has spread the risk more evenly between the producers and the consumers." The national network of cooperative development centers has reorganized itself as a member-owned service cooperative. This will enable individuals and other organizations engaged in the development of new co-op enterprises to join. Members may select from a menu of services delivered at cost. In addition to continuing as a professional peer network for practitioners engaged in the development of new cooperative businesses, CooperationWorks! program priorities for 2007 include the popular professional development training 'The Art & Science of Developing a Cooperative Business' (two intensive five- day sessions in Madison, Wis.); three face-to-face membership meetings; more of CW's well-attended conference calls on relevant issues for the development of new cooperative enterprises; and maintaining a listserve that will help mem- bers seek and share information more readily. The new co-op also plans to continue its public education and advocacy for the development of new cooperative enterprises as an effective economic Food co-op members supported a development strategy, which includes the publication of its newsletter Net- plan to lease a refrigerated truck and Works. For more information contact: Audrey Malan at 307-655-9162, or pay drivers to pick up the food at the [email protected]. ■ farms and bring it to the stores. More suppliers were recruited. Other retail partners — including natural food Buying food locally as well as from small co-ops in developing nations (top) is often chain Whole Foods — were invited to called “fair trade at home,” and is practiced by many food co-ops, such as the Wedge. join the "regional food shed" project. A Beneficial's award-winning eggs (lower left) are featured at La Montanita Co-op. full-time manager (one of the original Members of Moon Co-op in Ohio move ahead with plans for a store featuring local food. Beneficial Co-op member farmers) and Photos courtesy featured co-ops an assistant manager were hired to run the distribution operation. Last January, La Montanita opened a 10,000 square foot distribution center Collaborative originated with a group "From the outset there was discussion that includes 3,000 square feet of of farm families in southern Colorado about how the members were going to refrigerated storage and 1,000 square and northern New Mexico who sought sustain themselves as a service feet of frozen storage. A second truck to meet the rising demand for a stable cooperative when most of the other will be leased soon. supply of fresh foods in one of the 'buy local' labeling programs are not In 2006, 20 percent of La nation's most challenging growing economically viable." Montanita's sales were from 400 regions. They developed a labeling The answer came in the form of products grown or raised locally and/or initiative to reward organic farmers and consumer-owned La Montanita Food with substantive value added within the ranchers and to provide incentives for Cooperative. Begun in 1976 by 300 region. "This is a long-term project conventional producers who would families in Albuquerque, today the co- that must include as many producers, agree to make the transition toward op has 13,000 consumer-members, retailers and consumers as possible to organic. annual sales of more than $20 million, move the needle on local production The staff of Rocky Mountain and four stores located in Albuquerque, here in New Mexico," says La Farmers Union Cooperative Santa Fe and Gallup, N.M. In recent Montanita General Manager C.E. Development Center helped the years, annual member surveys indicated Pugh. "We don’t know how much is producers with strategic business that the desire for local products was possible. We do believe that we must planning as well as outreach and surpassing the desire for organics. So actively work within our community to recruitment. The producers were the retailer stepped in to help the increase the market and value of these seeking to increase their product base producers. goods or the decline in regionally without the demand for spending more "What the farmers could not do produced food for local markets will time off the farm. alone, the consumers had the continue." ■ The Center's Dan Hobbs notes, wherewithal to help them achieve," says

Rural Cooperatives / May/June 2007 11 LEGAL CORNER Antitrust report a wake-up call for co-ops to defend marketing rights

By Donald Frederick marketing many types of products across the United States Program Leader for Law, Policy & Governance and internationally, including: dairy products, fruits, vegeta- USDA Rural Development bles, nuts, wheat, feed grains, rice, oilseeds, cotton and livestock. [email protected] Without this protection, producers would be at a severe disadvantage when trying to individually negotiate sales of n 2002, Congress created the Antitrust their products to the large national and international Modernization Commission (AMC) to processing and distribution firms in the food industry. I examine whether the antitrust laws should be Capper-Volstead levels the playing field by allowing farmers "modernized" and to submit its findings to to combine their economic strength to balance that of the Congress and the President. The AMC was firms that purchase their products. a 12-member, bipartisan commission consisting primarily of Consumers are protected from being charged antitrust lawyers with large metropolitan law firms, several unreasonable food prices. Section 2 of Capper-Volstead with prior experience at the Antitrust Division, U.S. provides that if the price of any agricultural product is Department of Justice. "unduly enhanced" by a cooperative, the Secretary of During its deliberations, the AMC developed and studied Agriculture shall issue an order directing the producers to a list of all antitrust immunities and exemptions, including cease such conduct. The U.S. Department of Justice has those of greatest importance to agricultural producers: authority to enforce the order if the cooperative doesn't stop • Section 6 of the Clayton Act (authorizes the formation of its unreasonable activity. non-stock agricultural co-ops), • The Capper-Volstead Act (permits agricultural producers AMC deliberations to market their production on a cooperative basis), The overall AMC activity covered a wide spectrum of • Fishermen's Collective Marketing Act (similar to Capper- antitrust law. Ten study groups were formed. The one that Volstead, protects associations of aquacultural producers), and examined producer association issues was called "Immunities • Agricultural Marketing Agreement Act (authorizes and Exemptions." So while the findings in this area are agricultural marketing orders and agreements). significant to farmers and ranchers, the AMC did not only The Commission submitted its report on April 3, 2007. look at these exemptions. They were a small part of a much The report does not call for repeal of the Capper-Volstead broader review. Act or other laws important to rural cooperatives. It does, During its process, the AMC asked for public comments however, include recommendations which, if enacted, would on all of the issues it was studying. Several organizations filed create serious challenges for agricultural producers who comments in strong support of Capper-Volstead, including: market their production on a cooperative basis. the U.S. Department of Agriculture, the Congressional Farmer Cooperative Caucus, the National Council of Farmer Producers need antitrust protection Cooperatives, the National Farmers Union and the National Since enactment of the Sherman Act in 1890, it has been a Milk Producers Federation. criminal felony for competing businesses to agree on prices While a limited number of persons were allowed to make and terms of sale. Each farmer or rancher is a "competitor" presentations in person to the Commission, most were under antitrust law. Without protection, any time their antitrust enforcement officials, academicians and attorneys in cooperative establishes the price or other terms of trade for private practice whose backgrounds were similar to those of selling the food and fiber they produce, they would be the Commissioners. No one was allowed to appear as a committing a criminal act. representative of any industry with antitrust protection. Capper-Volstead and the other laws listed above shield farmers and ranchers from antitrust liability to market their Report recommendations production on a cooperative basis. Cooperatives are used to The Commission concluded that U.S. antitrust law and

12 May/June 2007 / Rural Cooperatives enforcement are fundamentally sound and sufficiently flexible Many co-op leaders feel that adoption of these for the changing global economy and the evolving recommendations by Congress, particularly the sunset policy, understanding of how markets operate. Nonetheless, the 540- would weaken cooperative marketing as a producer tool. page report offers 80 often multi-faceted recommendations Uncertainty over whether Capper-Volstead and other to the President and Congress. The more far-reaching protections would be available in the future could make it recommendations include: more difficult for cooperatives to arrange affordable long- • Repealing the Robinson-Patman Act; term financing, establish good business relations with • Overruling Supreme Court decisions to allow indirect and suppliers and customers, and maintain a committed cadre of direct purchasers of price-fixed goods to sue in federal producer-members. court; It is important to remember that the AMC can only issue • Streamlining the clearance process for mergers between recommendations; only Congress can make changes in large firms; antitrust law. On May 8, the Antitrust Task Force of the • Urging the United States to enter into agreements with House Committee on the Judiciary held the first Congres- other countries to spur international uniformity in antitrust sional hearing to receive and review the report. The only law and enforcement. witnesses were the Commission’s chair and vice chair. While In the area of immunities and exemptions, the their emphasis was on the more general recommendations of Commission recommended: the Commission, they expressed skepticism about the value of • Congress should draft, and the courts should construe, antitrust immunities and again suggested enactment of a antitrust immunities and exemptions narrowly and against sunsetting provision in all statutory immunities. the beneficiaries; Congress will likely hold additional hearings on the report • All immunities and exemptions should be subject to sunset and one or more bills will likely be introduced to implement provisions, forcing supporters to get them reenacted every some of the recommendations. Producer-members and few years or they become null and void; leaders of cooperatives — particularly agricultural marketing • The Federal Trade Commission should be authorized to associations — will want to keep abreast of legislative study the competitive effects of and justifications for developments in this area or risk losing the right to market immunities and exemptions. their production on a cooperative basis. ■ NCFC: Commission recommendation would destroy farmers’ ability to compete Recommendations made by the Antitrust Modernization including the Agricultural Marketing Agreement Act, the Commission (AMC) in its final report would destroy the ability Webb-Pomerene Act, the Export Trading Company Act and others. of farmers to form cooperatively-owned businesses, leaving “Today, the Capper-Volstead Act is more important than America’s agricultural producers in a severely weakened ever as agricultural producers compete in an economy domi- position in the marketplace, according to the National Council nated by relatively few, large buyers,” Peltier said. She also of Farmer Cooperatives(NCFC). objected to the Commission’s refusal to let affected industries “Farmer cooperatives offer the best opportunity for Ameri- testify at its hearings, choosing instead to hear only from aca- ca to realize the farmer-focused ideal of an enduring, compet- demics specializing in antitrust and government witnesses. itive agricultural industry,” NCFC President Jean-Mari Peltier “Apparently, the Commission didn’t want to hear from a dairy- said in a statement issued in April following release of the man from Wisconsin or a peach grower in California, both of Commission’s report. “Instead of recognizing the positive whom see the direct benefit of their cooperatives not only to impact that cooperatives have had on rural America, the Com- producers, but to consumers as well,” she said. mission recommends gutting the ability of farmers and ranch- Effective limits to Capper-Volstead’s antitrust immunity ers to form effective co-ops and instead leave them at the already exists in the Act itself, she said, noting that the secre- mercy of giant multinational corporations. If enacted, it would tary of agriculture has authority to prevent cooperatives from represent a step backwards for American agriculture. using their market power to unduly enhance the price of the Farmer-owned cooperatives enjoy limited antitrust immuni- products they market. The framework and operation of the ty for marketing agricultural products under their founding Act places limits on cooperatives’ growth, and cooperatives Capper-Volstead Act, often termed the “Magna Carta of are also subject to inherent practical limitations relating to farmer cooperatives.” This limited immunity is necessary to obtaining capital. allow two or more farmers to simply talk about price or terms “The Commission’s recommendations would destroy 85 of sale. The AMC recommended to Congress that it sunset all years worth of hard work by America’s farmers and ranchers immunities and exemptions, including Capper-Volstead. to ensure a better life for their children and grandchildren,” The Commission's recommendations would apply to other Peltier said. ■ statutory antitrust immunities utilized by farmer cooperatives,

Rural Cooperatives / May/June 2007 13 Shouldering the risk Strategy for risk management essential to moving cellulosic technology forward

By Anthony Crooks, Agricultural Economist ethanol facilities in operation. The risks and uncertainties of USDA Rural Development these still unproven technologies are significant. Breakthroughs in new technologies continue to develop n his 2007 State of the Union Address, along multiple fronts to reach commercialization. A President George W. Bush emphasized the partnership of technical expertise and the financial need to increase alternative fuel production wherewithal from both private and public sectors is required I to 35 billion gallons by 2017, or nearly five to bridge the developmental gaps and to distribute the times the original target of 7.5 billion gallons startup risks. (see sidebar). To meet this goal, the commercial-scale Financing represents the greatest hurdle for an unproven conversion of biomass feedstocks into ethanol, and primarily technology. This article describes the difficulties involved cellulose to ethanol, will play a prominent role. This effort with the financing of unproven technologies and describes will create more opportunities for producer-owned co-ops the significant partnerships now arising to direct the and LLCs to become biofuel producers. evolution of the cellulose-to-ethanol industry. To date, there are still no commercial-scale cellulose-to-

14 May/June 2007 / Rural Cooperatives edge technologies operate at state-of-the-art efficiency, and particularly so if their exposure is substantially greater than it would be with a proven technology. But, if it can be independently certified that the plant can operate at a level sufficient to repay the debt plus some risk margin, lenders may be persuaded to assume a portion of the conversion risk. Biofuels lenders who understand the history of the industry may have fewer concerns about conversion risk. Typically, once an ethanol project operates successfully for a couple of years, it’s very likely that it will continue to do so. Consequently, lenders now tend to focus more on the technology risks involved with construction and startup phases of a project, and less so on operations. Because cellulosic ethanol has no commercial operating history, there is an element of technology risk that cannot be assessed. Further, in the absence of a track record, lenders will want to see if the project has demonstrated success on a smaller scale. In other words: How successful is the pilot plant or the demonstration plant? Unlike a pilot plant, a demonstration plant uses a continuous process on an industrial scale. A demonstration plant is usually a necessary stepping stone from a pilot plant to a commercial-scale facility. It’s very difficult to leapfrog from a 500-gallon tank to building a 20- or 50-million-gallon biorefinery. Moving from a successful demonstration plant to the next level involves finding a construction contractor willing to assume the risk that the demonstration plant can be replicated on a commercial scale. A related challenge confronting cellulosic ethanol is the Plant geneticist Michael Casler (opposite page) harvests switchgrass absence of a traditional engineering, procurement and seed as part of a breeding program to develop cultivars that will yield construction (EPC) contractor. The EPC is a contractual more bioenergy. USDA/ARS photo. Inside Iogen’s cellulosic ethanol arrangement signed by the builder and technology provider demonstration plant in Ottawa, Canada (above). Photo courtesy Iogen to guarantee the plant’s timely delivery and performance to specifications. The contract is necessary to plant developers as they attempt to obtain financing. Financing unproven technologies Twenty-five years of industry experience has helped The “full wrap” ethanol industry lenders and financial backers to become well Building a traditional ethanol plant involves working with acquainted with the risks associated with ethanol projects. one of the small handful of process providers that offer turn- The risks of these projects typically involve a traditional key design and construction services under a design-build power plant, burning either natural gas or coal, and a well- contract. The contract covers the process provider's core proven process technology. However, cellulosic ethanol technology and the "balance of plant," which often includes plants that will soon compete for financing will use every plant system, from grain receiving to fuel storage and equipment and/or process technologies that have little or no all points in between. The process provider is then commercial operating history. responsible for ensuring that the fully integrated plant is Unproven technology risks embrace all phases of a new constructed on time to contract specifications and is fully project: construction and startup as well as operations. Of operational at the specified (nameplate) production capacity. particular concern after a plant begins to operate at capacity This engineering, procurement and contracting agreement is is ‘conversion risk,’ the relative efficiency at which the plant known commonly as a "full wrap." is operating. Lenders are rightfully concerned that cutting- But as industry expansion strains the ability of most

Rural Cooperatives / May/June 2007 15 process providers to supply investment. There is another full-wrap services, many rub for cellulosic ethanol. technology firms are For even a relatively modest, shifting away from active commercial-scale cellulosic involvement in design and ethanol biorefinery of 25 to construction. Firms now 40 million gallons per year, focus instead on licensing capacity is expected to cost their core technologies and upwards of $300 million. leave the design and construction of the facility Expecting quick returns to third-party engineers and However, perhaps an even contractors. The greater problem with responsibility and risk of venture capital financing of a ensuring that all of the cellulosic project is the disparate systems, buildings expectation of a quicker and equipment fit together return. A venture capitalist into an integrated operating expects a technology facility now lie with the investment to be a means to owner. build a company and gain An EPC for a cellulosic significant value from the plant must embrace relatively quick selling of elements of conversion risk either many units of the that protect against business, or the entire inadequate throughput business itself. This efficiency. Also, liquidated expectation lies in sharp damages (see below) will contrast with a private need to be assessed to repay equity investor in energy or the debt should the project infrastructure who looks for fail to operate as a return from business contractually specified. operations over an extended Lenders and private period of time. equity funds prefer to back So, unless a cellulosic plant an “early development” is financed entirely from project — a single unproven equity, at levels far exceeding technology or process that is those that traditional venture part of a system of proven capital sources will support, technologies — rather than an equity investor will expect a “revolutionary” system. a lender to finance However, with the construction. Otherwise, it appropriate guarantees (and will be difficult to persuade sufficient reserves), the the equity fund to provide uncertain elements of the Engineers Neil Goldberg (left) and Akwasi Boateng operate a developmental capital. thermo-chemical reactor they designed and built for converting unproven technology can be A financing impasse can crop residues into renewable bio-oils and fuels. Top: Elite “wrapped” in with the final result. Lenders refuse to bioenergy switchgrass in eastern Nebraska. USDA/ARS photos performance of the project assume risk on unproven and proven technologies. technologies and equity Revolutionary systems are ideally small-scale venture funds won’t provide funding unless a lender will finance capital investments that range from $5 million to $7 million, construction. rather than large project transactions that involve a 20-year An alternative approach might be to separate the unproven payout. Generally, the limit for venture capital is about $50 elements from the rest of the project. The proven portion of million and requires a 25- to 30-percent return on the project might then be financed using traditional sources

16 May/June 2007 / Rural Cooperatives Biorefinery projects plant would use 700 tons per day of sorted green waste awarded $385 million and wood waste from landfills. Investors/participants include: Waste Management Inc.; JGC Corporation; The U.S. Department of Energy recently awarded $385 MECS Inc.; NAES; and PetroDiamond. million in funds for six biorefineries developing technology ■ Broin Companies of Sioux Falls, S. D., up to $80 million. for creation of cellulosic ethanol. Combined with the industry The plant is in Emmetsburg (Palo Alto County), Iowa, cost share, more than $1.2 billion is expected to be invested and after expansion, it will produce 125 million gallons in these six biorefineries. of ethanol per year, of which roughly 25 percent will be ■ Abengoa Bioenergy Biomass of Kansas LLC, Chester- cellulosic ethanol. For feedstock in the production of field, Mo., will receive up to $76 million. The proposed cellulosic ethanol, the plant expects to use 842 tons per plant will be located in Kansas and produce 11.4 million day of corn fiber, cobs and stalks. Participants include: gallons of ethanol annually and enough energy to power E. I. du Pont de Nemours and Company; Novozymes the facility. Any excess energy will be used to power the North America Inc.; and DOE National Renewable Ener- adjacent corn dry grind mill. The plant will use 700 tons gy Laboratory. per day of corn stover, wheat straw, milo stubble, ■ Iogen Biorefinery Partners LLC, of Arlington, Va., will switchgrass and other feedstocks. Investors/partici- receive up to $80 million. The proposed plant will be pants include: Abengoa Bioenergy R&D Inc.; Abengoa built in Shelley, Idaho, near Idaho Falls, and will produce Engineering and Construction LLC; Antares Corp.; and 18 million gallons of ethanol annually. The plant will use Taylor Engineering. 700 tons per day of agricultural residues, including ■ ALICO Inc., La Belle, Fla., will receive up to $33 million. wheat straw, barley straw, corn stover, switchgrass, The proposed plant will be in LaBelle (Hendry County), and rice straw as feedstocks. Investors/partners Fla., and will produce 13.9 million gallons of ethanol a include: Iogen Energy Corp.; Iogen Corp.; Goldman year and 6,255 kilowatts of electric power, as well as 8.8 Sachs; and The Royal Dutch/Shell Group. tons of hydrogen and 50 tons of ammonia per day. For ■ Range Fuels (formerly Kergy Inc.) of Broomfield, Colo., feedstock, the plant will use 770 tons per day of yard, will receive up to $76 million. The proposed plant will be wood and vegetative wastes and, eventually, energy constructed in Soperton (Treutlen County), Ga., and will cane (sugar). Investors and participants include: Bio- produce about 40 million gallons of ethanol and 9 million engineering Resources Inc. of Fayetteville, Ark.; Wash- gallons of methanol annually. As feedstock, the plant will ington Group International of Boise, Idaho; GeoSyntec use 1,200 tons per day of wood residues and wood Consultants of Boca Raton, Fla.; BG Katz Companies/ based energy crops. Investors/participants include: JAKS LLC of Parkland, Fla.; and Emmaus Foundation Inc. Merrick and Co.; PRAJ Industries Ltd.; Western ■ BlueFire Ethanol Inc., Irvine, Calif., will receive up to $40 Research Institute; Georgia Forestry Commission; Yeo- million. The proposed plant will be in Southern Califor- mans Wood and Timber; Treutlen County Development nia, sited on an existing landfill and will produce about Authority; BioConversion Technology; Khosla Ventures; 19 million gallons of ethanol annually. For feedstock, the CH2MHill; Gillis Ag and Timber. ■

and the unproven portion using equity. Overall, the project is negotiate with the contractor or the equipment vendor to a blend of equity and traditional project financing. assume the risk and pay the risk bearer in the form of A problem with this approach, however, is that equity liquidated damages. Damages are said to be liquidated when stands in line behind any debt should the project fail and go the amount of damages recoverable in the event of a specified to foreclosure or liquidation. The challenge with this contract breach (for example, late performance at structure is to provide a return with a reasonable risk construction, or inefficient performance at conversion) is premium, given the enormous scale of the project. Apart agreed at a specified date. from the federal government or a deeply-pocketed Two conditions must be met to uphold liquidated construction contractor to guarantee performance, such a damages. First, the amount of the damages identified must project is very unlikely to secure private equity funding. roughly approximate the damages likely to be incurred by the party seeking relief in the event of failure. Second, damages Liquidated damages, related issues must be sufficiently uncertain at the time the contract is One way to get past the technology risk issue might be to made that both parties recognize the significant benefit of

Rural Cooperatives / May/June 2007 17 being spared any future difficulty of estimating those when the plant is fully ready to start operations, should be no damages. less than the complete cost of construction. Otherwise, the Liquidated damages for construction risk are generally exposure to investors is too great. written to account sufficiently for each phase of construction Liquidated damages for substantial completion, where the risk: mechanical completion, substantial completion and final plant is demonstrated to fully work at a specified target completion. Liquidated damages for mechanical completion, capacity — 50 percent, for example — ranges from 10 to 20 percent of construction costs. Final completion involves the plant fully operating at the nameplate capacity specified in the contract, and generally requires liquidated damages of Farm Bill supports cellulosic not less than 10 percent. ethanol development Other ways to allocate risk Suppose, however, that a project is sufficiently interesting for a venture capitalist and a lender to consider financing, but Agriculture Secretary Mike Johanns says the Adminis- the lender is unwilling to assume the technology risk. A tration's new Farm Bill proposal would dramatically expand project finance expert can parcel out, or deconstruct, and the federal commitment to renewable fuels. He notes that a distribute the risks of a project among many takers: insurance series of Farm Bill forums showed “real excitement about providers, ethanol or specialty product marketers, sponsors, renewable energy” and the new funding it provides for construction contractors and technology licensors. renewable energy research, development and production Generally, however, it’s the construction contractor, equity — much of it targeted to cellulosic ethanol. provider and — on rare occasions — the technology The Farm Bill would establish a program to invest $25 providers that are the principle risk takers in a project. While million a year for four years for incentives to encourage the insurance providers have also attempted to wrap the risk of development and expansion of cellulosic ethanol produc- new technologies into projects, insurance is generally tion. In addition, the BioPreferred Program would be reau- considered ineffective protection because of the gaps in thorized and would provide $18 million over 10 years to coverage. Moreover, a performance bond on a construction expand the use of biobased products by the federal gov- contract is significantly easier to collect than an insurance ernment and to speed the development and adoption of contract which may have many outs. these products in the private sector. Among other energy provisions of the Farm Bill are Federal government role measures to: Many are looking to the federal government to assume a • Include a biomass reserve within the Conservation significant part of the risk in developing renewable energy Reserve Program (CRP), under the proposed Conserva- technology. This expectation is being fulfilled in the tion legislation. proposed Farm Bill, which includes billions of dollars for • Reauthorize the Renewable Energy Systems and Energy renewable energy (see sidebar), and by a $2.1 billion Efficiency Improvements grants, loan and loan guarantee guaranteed loan program under the U.S. Department of programs to provide an estimated $2.17 billion of cellu- Energy. To qualify for loan guarantees under this program, a losic ethanol loan guarantees and $500 million for grants, project must meet two basic requirements: under the proposed Rural Development legislation. • It must avoid, reduce or sequester pollutants and • Revise the Biomass Research and Development Act of gases, and 2000, providing $150 million for grants focusing on cellu- • It must use new, or significantly improved, losic ethanol production, under the proposed Rural technologies when compared to those in general use Development legislation. in the marketplace. • Include a Bioproducts Research Initiative, providing $500 However, lenders have been loath to participate in the million in grants to increase the cost-effectiveness of program because the guarantees are structured to put the bioenergy, in the proposed Research legislation. lender in the “first-loss” position in the event of foreclosure. • Provide $150 million for Forest Service research into bet- The government guarantee is for up to 80 percent. ter ways to use woody biomass for the production of Because the U.S. government takes the first lien on the bioenergy, in the proposed Forestry legislation. ■ project, a lender would be left with a second lien for the non- guaranteed 20 percent of the loan value. For a $400 million continued on page 40

18 May/June 2007 / Rural Cooperatives Producer ownership of ethanol a major plus for rural America

By Dan Campbell, Editor How important are these biofuels jobs in rural areas? ural America reaps Consider this: for the 40 jobs substantially more created at the Missouri ethanol R benefits from the plant, Utlaut said the co-op biofuels revolution received 450 applications. when ownership is held on Main Street rather than Study sees major gains Wall Street, according to John M. from local ownership Urbanchuk, director at consulting Urbanchuk was hired about firm LECG LLC, who called a year ago by the National Corn ethanol “an engine for the Growers Assoc. to study the economic revival of rural impact of absentee vs. local America.” Speaking in March on a ownership of ethanol plants. biofuels panel during the 2007 While rural America benefits from USDA Ag Outlook Forum in both types of ownership, Arlington, Va., Urbanchuk said Urbanchuk said that more value- biofuel production is bringing new added dollars clearly stay at home vitality to rural towns, and even when the ownership is held by a helping to attract young people producer-owned co-op or LLC back home who had moved away than if owned by outside investors. to find jobs. Today, nearly half of While the long-term outlook ethanol plants and 38 percent of The Mid-Missouri Energy ethanol plant is considering for ethanol production looks total ethanol production are doubling its annual production capacity to 100 million promising, the next two years farmer-owned, he noted. But that gallons. USDA photo by Dan Campbell could be a little bumpy, added is up sharply from just five years Tom Houser, a biofuels lending ago, when producers owned about specialist with CoBank in Omaha, 20 percent of ethanol production. However, total ownership Neb. in farmer hands, as a percent of production, is likely to drop Another panelist, Ryland Utlaut, president of Mid- in the future as plants get larger and more expensive to build, Missouri Energy (MME) in Malta Bend, Mo., provided a “although I hope I am wrong about that,” he said. step-by-step overview of how producers organized and The rapid increase in plant building costs — the average is financed their plant. He also discussed how the co-op’s now $2 per gallon of plant capacity vs. $1.35 just a few years sudden success has attracted buy-out offers from outside ago — added to the fact that the average size of a plant has (non-producer) investors. increased from 50 million gallons to more than 100 million Panel moderator Jack Gleason, USDA Rural gallons — is making it hard for farmers to compete with Development’s administrator for Business and Cooperative outside investors. Programs, noted that there is a direct link to increased Investment firms have ready cash at hand and often have numbers of rural jobs created when ethanol plants are under unlimited borrowing capacity, whereas farmers usually must local ownership, and stressed that USDA is promoting local undertake lengthy equity drives to raise money to build a ownership through its programs, an example being the plant. financial help it provided to Mid-Missouri Energy. Despite the expanding size of new plants, Urbanchuk

Rural Cooperatives / May/June 2007 19 stressed that a well-managed, 50-million-gallon plant is still turn over many times in a local community or region. With highly viable. absentee ownership, most dividends instead flow back to the “In many respects, the economic impact of a farmer- corporate headquarters. owned and absentee-owned ethanol plant on the local community is similar,” Urbanchuk said. “There are, however, Crunching the numbers two significant differences that increase the impact of a Urbanchuk’s analysis was based on a plant producing 50 farmer-owned plant: larger local expenditures and dividend million gallons per year in a facility that cost $2 per gallon of payments. Since a farmer-owned cooperative ethanol plant is capacity to build, with depreciation over 15 years. He figured literally a member of the community, the full contribution to 60 percent debt financing over 10 years at 8.5 percent the local economy is likely to be as much as 40 percent larger interest, with borrowing done locally for the co-op, or than the impact of an absentee-owned corporate plant.” outside the area by the absentee-owned plant. He calculated Not only are more jobs associated with a locally owned that the farmer-owed plant would set aside 20 percent of the plant, many of those are the higher paying jobs. Accounting, net margins as retained earnings, with the remainder paid as administrative and marketing functions are much more likely dividends to the farmer-owners. Total operating expenditures to be filled locally if farmers own the plant, he said. were estimated at $78.2 million for the absentee-owned plant Financing of a farmer-owned plant is also more likely to be vs. $84 million for the farmer-owned plant. provided by local lenders. Based on this model, Urbanchuk calculated that the plant Farmer-owners of a cooperative participate in the profits would have revenue of $120.7 million if the fuel sold for $2 of the ethanol plant through dividends. The distribution of per gallon and earned an additional 35 cents per gallon from dividend payments represents additional income to the dried distiller grains (DDG). Net margins would have been individual farmer-owners and their families, and these dollars $28.11 million in 2006, or 55 cents per gallon. Retained CHS: Make ethanol-blended fuel mandatory

The best way to support continued development of the ethanol industry is to require that all gasoline sold nation- wide contain a set amount of ethanol, probably 10 percent, with 85- and 20-percent ethanol blends also available in states that want to go further, according to CHS Inc. Presi- dent and CEO John Johnson. Speaking at USDA’s annual Ag Outlook Forum in March, Johnson said a nationwide man- date of 10 percent ethanol would require 14 to 15 billion gal- lons of ethanol production annually. Current annual produc- tion is about 5 billion gallons, but rising steadily. “We believe this kind of across-the-board national standard is the best way to get every driver in our nation to embrace renewable fuels,” said Johnson, who leads the CHS President and CEO John Johnson, speaking at the USDA nation’s largest federated farmer co-op, representing Ag Outlook Forum, called for an ethanol blend of at least 10 350,000 farmers and ranchers. percent in all gasoline. USDA photo by Ken Hammond “We’re also seeking continued tax assistance for ethanol and biodiesel production and blending, as well as economic incentives when companies substitute an alter- these complex businesses, from the farm field to the gas native energy source for petroleum or natural gas-based tank,” Johnson said. production,” he said. CHS is advocating accelerated invest- The CHS system has been the leading marketer of ment in cellulose-based ethanol research and develop- ethanol-blended fuels for 30 years, he noted. Despite the ment. vast potential of renewable fuels, many challenges must be CHS owns 22 percent of U.S. BioEnergy, the second met, he noted, to build an industry that is resilient enough to largest ethanol producer in the United States, with 650 mil- withstand the wild swings of the fuel market. lion gallons of production either on-line or in process. But, “During just the past six months, we’ve seen wild eco- unlike most others in the renewable fuels industry, CHS also nomic swings that can impact this business,” Johnson said. has a major stake in fossil fuel refineries and distribution. “When corn prices were $2 in mid 2006 and crude oil “So, CHS is deeply involved in literally every aspect of reached $70 a barrel, the economics were extremely

20 May/June 2007 / Rural Cooperatives earnings would be $5.6 million, with an available dividend of borrow the other $36 million. The minimum investment was just under $22.5 million. two shares at $10,000 each. Members also had to make a The economic impact of co-op dividend payments would commitment to deliver corn to the plant, and are paid 80 generate $171.2 million in GDP for the co-op vs. $123.2 percent on delivery. million for the absentee-owned plant. There would also be an The co-op got bankers and ag lenders involved at the get- additional 648 jobs in all sectors of the entire local economy, go, inviting them to the pre-kickoff meetings for the equity Urbanchuk said. drive, where the business plan was shared with them. One of the first hurdles was to secure funds to conduct an Tapping rural equity equity drive of more than 100 producer meetings. Area banks Ryland Utlaut said the energy picture was vastly different provided the co-op with a line of credit of up to $500,000. just four or five years ago, when producers in Missouri The co-op’s 15 board members guaranteed $150,000 of that started pursuing the construction of a new ethanol plant total. The co-op also received a $189,000 grant from the (only the third one in the state). At that time, crude oil prices Missouri Small Business Development Authority. were hovering around $40 a barrel, a bushel of corn averaged The co-op collected $30,000 in donations from $1.80 and ethanol was selling for $1.25 a gallon. At those community organizations that wanted to support the project, prices, Wall Street investors were still very much on the including $25,000 from Catholic Charities (which has since sidelines and farmers were on the playing field. been repaid $50,0000 by the co-op). Members also paid a “Our challenge in building Mid-Missouri Energy (see also $500 membership fee to join the co-op. Sept./Oct. 2006 Rural Cooperatives) was to find enough Grain merchandisers were among those the co-op forged investors to build a $60 million, Fagen-ICM designed plant,” early strategic alliances with. “MME buys grain only from he said. The plan was to raise $24 million in equity and shareholders and grain merchants,” Utlaut stressed. “We did

attractive. Investors of all types raced to grab their share; along with concerns about water use in areas with limited plans for new and expanded ethanol production were water supplies. announced almost daily.” Between 2004 and 2007, non-tra- “I am convinced that research now underway will deliv- ditional investors pumped $1.9 billion into the industry, er increases in corn yields and expand the production Johnson noted. geographies,” Johnson said. “When they are given the But when corn hit $4 a bushel and crude oil prices fell seed genetics with which to do the job, I have every confi- into the low $50s in 2007, the economic equation changed dence in the ability of the American farmer to produce quickly, he said. [As of this writing in late April, oil prices bountiful crops that can both feed and fuel the world.” were soaring again.] “The picture was suddenly far less Johnson said he could not predict a time frame, but that attractive to those seeking quick returns and who were “Clearly, energy research will lead us to other renewable unprepared or unwilling to be part of what essentially is a fuel feedstocks, including cellulose, switchgrass or even commodity business subject to market-driven highs and animal waste.” He also sees great potential for wind pow- lows.” er, conversion of coal to gas and other technologies. Johnson said CHS sees the nation’s energy future “not On the conservation front, agriculture is helping to lead as a single pathway, but as a four-lane superhighway, with the way in reducing fuel consumption, Johnson said. each lane representing one component of the energy solu- “More seed genetics, more efficient equipment and fuel- tion, but all headed in the same direction.” Those four lanes conserving farming practices have cut overall farm diesel are: fossil fuels, renewable fuels, emerging energy tech- consumption in the past two decades.” He cited research nologies and conservation. showing that in 2004 alone, no-till farming practices gained With 20 percent (and expected to go much higher in through weed-resistant crops reduced greenhouse gas coming years) of the nation’s corn already being diverted emissions by 10 million metric tons. “That’s the equivalent from traditional channels to ethanol, concerns are rising of taking 20 percent of our nation’s cars off the road for a about the availability of adequate grain supplies for other year.” customers, including domestic livestock producers and Ethanol and biodiesel are here to stay, Johnson export markets. stressed. “In the end, I believe as industries and as a Johnson said other complex issues also must be nation, we have the commitment and ingenuity to tackle all addressed, including transportation logistics for both of these issues, but there are no simple solutions.” renewable fuels production and dried distillers grains, —By Dan Campbell ■

Rural Cooperatives / May/June 2007 21 not want to knock any grain merchants out of business, as has perfect storm,” in terms of production supply/demand and occurred elsewhere when large amounts of grain have been industry economics? diverted to ethanol plants.” The nation’s 113 ethanol plants are currently producing Utlaut said the project was pursued much like “an old- more than 5 billion gallons of ethanol annually, but with fashioned barn raising.” The community responded with another 78 to 84 plants under construction (and others ongoing, supportive coverage in local newspapers and radio expanding), Houser said production will increase to 11 stations. Co-op members were featured on radio call-in billion gallons is just two or three years. shows. Service clubs and farm equipment dealers threw their The primary risk plant owners face, he said, is the support behind the co-op. volatility of oil prices and the related impact on ethanol USDA Rural Development provided a big boost — market values. Houser said the increase in oil prices from $40 psychological as well as financial, according to Utlaut — to $60 a barrel completely changed the dynamics of the when it provided the co-op with a $500,000 Value-Added ethanol industry by attracting more outside investors. Producer Grant in June 2004. Corn prices are, of course, the other big factor impacting The first round of equity-drive meetings raised $16 ethanol profitability. Ultimately, higher corn prices could million. There was a 60-day extension, during which another slow the expansion of the industry, Houser said. $20 million was raised. It was followed by yet another 60-day The DDG market also has risks. The market has extension, during which another $24 million was raised. Ag Star, a Minnesota-based cooperative bank, committed to lend the co-op the other $36 million. The plant’s ethanol is also marketed through a cooperative: the Renewable Products Marketing Group. The plant went into operation just in time to reap the rewards of a major run-up in ethanol prices, and members were delighted with a 31 percent dividend in the first year of operation. MME is considering doubling its 50-million- gallon production capacity, financing the new construction by using retained earnings and new borrowing. The other alternative is to use the dividends to pay off its loan from AgStar ahead of schedule. “It’s a tough decision,” Utlaut said. Such tremendous success soon attracted buyout offers The Mid-Missouri Energy plant was pursued “much like an old- from outside investors — at least one offer being for 10 fashioned barn raising,” Ryland Utlaut, the co-op’s president, said times the investment cost. “There were plenty of people at the USDA Ag Outlook Forum. USDA photo by Ken Hammond saying we would be fools to not take such a price,” Utlaut recalled. Others felt it was in the best long-term interested of the producers and the local economy to maintain producer improved greatly in recent years with more livestock feeders ownership. However, most of the offers began dissipating buying DDG. But with so many new plants being built, the when ethanol prices began to drop and amid ongoing press DDG market could become saturated. reports about the industry being overbuilt. Transportation logistics are also challenging the industry Buyout offers are especially tempting to those producers to come up with better ways of getting ethanol from plant to who borrowed most of their investment money – and some refinery. Rail shipments of ethanol have tripled since 2001. borrowed all of it, Utlaut said. On average, co-op members In 2010, the current 54-cent-a-gallon ethanol subsidy invested $33,000. “The co-op’s policy is to return as much as could end, although Houser said he expects it to be extended. it can as dividends, since many need that money to service Ethanol processing technology is constantly being improved the debt.” to require less energy, he added, which bodes well for the future of the industry. Perfect weather, or storm brewing? As for the long-term future of the ethanol, it may well be CoBanks’s Tom Houser provided the perspective of the in cellulosic production — fuel made from grasses, corn nation’s largest ethanol financer, with involvement in nearly stover and wood wastes. It’s not so much a question of “if” 50 plants and well more than $1 billion in debt funding so but “when” cellulosic ethanol becomes part of the industry, far. “Biofuels are here to stay, and the industry will continue Houser predicted. However, he also emphasized that to grow,” Houser predicted, noting that “well-located, well- significant technological progress must be made for capitalized, low-cost producers” will do well. production to be economical compared to corn. In addition, “My concern is not for the long term, but for the next two infrastructure/ logistical issues associated with gathering and years,” Houser said, adding “the industry scares me for the transporting feedstock will also require substantial investment next couple of years. Are we faced with perfect weather, or a and time to evolve (see related article, page 14) . ■

22 May/June 2007 / Rural Cooperatives MANAGEMENT TIP Four high-priority responsibilities for effective co-op management

By Jim Wadsworth, Agricultural Economist Responsibility to members USDA Rural Development Cooperative managers must be tuned-in to their members through effective member relations and communications ooperative management has many programs. Open communication channels with the board of responsibilities to fulfill to keep the business directors, members, employees and the community are running smoothly. These responsibilities absolutely essential for cooperatives. C hinge on overseeing day-to-day operations, Members must be made to feel like an intricate and vital sound financial management and making the part of the cooperative. Management must let members know right administrative decisions. Management’s ability to meet they are the co-op owners and its most valued asset, ensure the following high-priority responsibilities that employees treat members with is also critical to a co-op’s success or respect, and constantly gauge whether the failure: Managers must co-op is meeting member needs. This • Responsibility to the board of directors; entails ensuring that employees fully • Responsibility to members; understand how their company differs • Responsibility to employees and be tuned-in to from others, and what is expected of them. • Responsibility to the community. Co-op employees need to go the extra If these responsibilities are all met, their members mile to deliver good customer service, management will create an effective because members aren’t just customers, cooperative business environment that will through effective they are the owners. greatly increase the probability for success. Communication with members is an member ongoing process throughout the year — it Responsibility to board does not begin and end with the manager’s Cooperative management’s overall report at the annual meeting. Most co-ops responsibility is to the board of directors. relations and use a member newsletter or magazine, e- The board hires and evaluates mail and (increasingly) a Web site to keep management and institutes the policies for communications members up-to-date on the functioning of governing the cooperative. The general their co-op. manager or CEO must adhere to these programs. Providing a reliable method for policies while overseeing and managing members to communicate back to the cooperative’s operations. The manager management is just as important. Two-way should be transparent in relaying information to the board in communications is probably more vital to a co-op than to a timely fashion. This allows the board to make decisions or other types of business. Member committee meetings are determine policies, if necessary, for the manager to follow. often a vital way for management to get regular, detailed The manager also has a responsibility to the board to hire feedback from the field. Board meetings, of course, can fill a employees qualified to carry out co-op operations and to similar role, but committees can focus on specific subject properly train and manage them. areas and provide feedback on them, allowing more time at Providing the board with annual budgets and operational board meetings for conducting other business. plans is another basic responsibility of management. Management should ask for feedback from the board and Responsibility to employees work with the directors on developing a strategic plan, which Management also has responsibility to employees – the management must implement. continued on page 41

Rural Cooperatives / May/June 2007 23 Forest land in Washington provides year-round recreation opportunities. Photo courtesy Okanogan County Tourism Council.

Diverse Washington co-ops show business model flexibility FFromrom FForestorest

By Dan Schofer Jon DeVaney, USDA Rural Development state director for Co-op Development Specialist Washington, says, "USDA Rural Development is bringing a USDA Rural Development variety of tools to the task of supporting agricultural and e-mail: [email protected] rural cooperatives in Washington. By combining direct technical assistance from Rural Development staff, ongoing number of innovative cooperatives have been support for the NWCDC and project-specific financial formed or expanded in Washington state in assistance through our Business and Cooperative Programs, recent years to meet widely divergent needs, we have been able to leverage these resources to the benefit A ranging from those of forest landowners to of rural Washington residents." the fishing industry. Working with these co- Following are some examples of co-ops NWCDC and ops and producer-owned businesses is USDA Rural USDA have helped. Development and its frequent partner, the Northwest Center for Cooperative Development (NWCDC). Methow Forest Owners Cooperative “In the Northwest, we have a very large and growing This is a co-op of small-scale forest landowners in rural interest in co-ops,” explains Diane Gasaway, executive north-central Washington, near the communities of director of the Center. “Our goal in recent years has been to Winthrop and Twisp. The co-op was created to provide a build up our abilities and capacity to deliver quality assistance coordinated effort to help small-scale forest owners promote in areas such as feasibility studies and board training.” forest health while managing risk of impact from wildfires. NWCDC has been helping people in Washington and the The co-op, which started with eight members but now Pacific Northwest since 1979. The staff provides a wide counts 60, provides services such as thinning crews, preferred variety of in-house experience and expertise, including logging contractors and consultations with a contract financial, organizational, co-op development, business, forester, all at discounted prices. Becoming a member entitles educational and project management, or a combination of the the landowner to a free initial two-hour consultation with a above. forester.

24 May/June 2007 / Rural Cooperatives ToTo OceanOcean

Salmon harvested by a co-op on the Makah Indian Reservation are ready for processing. Photo courtesy Cape Flattery Fishermen’s Co-op

Creating a market for small-diameter timber is a major security, and community development,” says Lorah Waters, challenge in rural Northwest communities. The co-op is general manager of the co-op. assisting its members with market access to wood flooring manufacturers for small-diameter Douglas fir. Last Mile Electric Cooperative Many absentee landowners live along the coast and west NWCDC worked closely with the Last Mile Electric Co- of the Cascade Range. Most do not actively manage their op to organize stakeholders, develop a board and provide forest land, and even locating and contacting them can be a assistance for an initial manager and administration. challenge. To help, the co-op has developed a database of Members include utility companies, electric cooperatives, landowners in the region which it is using to educate nonprofit organizations and government agencies. The landowners about the importance of promoting forest health. mission of the co-op is to provide affordable, reliable, The forest co-op has partnered with local community and renewable, cost-based electricity to rural and urban economic development organizations, including the USDA customers. Forest Service, Washington State Department of Natural The co-op focuses on: (1) developing small farm and Resources, Methow Fire Planning Group, Sustainable community-sized wind projects; (2) assisting members in Northwest, Okanogan Conservation District and Okanogan researching possible renewable energy projects and (3) Communities Development Council. Local communities developing utility-scale electric projects by and for Last Mile benefit from the reduced fire hazard, improved forest health members. and forest restoration. Members of the co-op have formed White Creek LLC to NWCDC provided funding for the creation of the develop an initial 200 megawatt, utility-scale wind project in steering committee, completion of the feasibility study and Roosevelt, Wash., on the Columbia River. Currently under development of a business plan. It is presently supporting a construction, this project will be the largest publicly owned public outreach and education campaign. wind project in the country. The project currently anticipates “The cooperation of private landowners has been integral that 100-200 megawatts will be on-line in 2007. An to coordinate ecosystem restoration, fire safety, energy additional 100 megawatts have been sited and will be

Rural Cooperatives / May/June 2007 25 developed when commercially feasible. Dave Warren, the original Last Mile manager, explains, “There have been some bumps in the road, but Last Mile is a great model for large and small utilities to work together on renewable energy projects.”

Okanogan Producers Marketing Assoc. Located in north-central Washington, this cooperative includes six family-owned fruit and vegetable farms. The co-op enables these farmers to market their produce collectively to mid-sized grocery chains, CSA customers in Seattle and Selective thinning and other forest management practices espoused by the Methow Forest Spokane and a farmers’ market Owners Co-op (MFOC) are helping to improve forest vigor, as on this member’s land. in Des Moines, Wash. (between Photo courtesy MFOC Tacoma and Seattle). The farmers’ market was a demonstration project for Farming and the Environment, a Seattle based nonprofit organization. During the growing season, two members take the co-op’s produce to the farmers market every Saturday, USDA programs support allowing the other members to continue working their farms. “We are hoping to do more marketing at roadside stands co-op development, expansion for the local community and tourism,” says co-op member To m Cloud. “If we want food to be available locally, farmers Assistance rendered to the co-ops and producer-owned have to stay in business.” businesses profiled in this article have benefited from three NWCDC conducted a feasibility study and business plan programs administered, or supported, by USDA Rural Devel- with input and local research provided by the steering opment. committee and membership. The success of the co-op is credited with saving one family farm, and improving the ■ The Value-Added Producer Grant Program (VAPG), income of the other members. administered by USDA Rural Development, provides funds for business planning activities, including feasibility stud- Value-Added Projects ies and business plans as well as working capital for mar- USDA Rural Development’s Value-Added Producer Grant keting value-added, agricultural products and farm-based program has also played a vital role in promoting co-op and renewable energy. other producer-owned efforts to increase the value of Washington’s farm, forest and aquatic resources. Following ■ The Northwest Cooperative Development Center are some examples of how those funds are used. (NWCDC) is a nonprofit organization funded by the USDA’s Rural Cooperative Development Grant (RCDG) program to AMF Farms foster community economic development, primarily AMF Farms in Burlington, Wash., used a USDA Value- through cooperative development. Added Producer Grant in 2005 to conduct a feasibility study and business plan for branded produce. Co-founders Michele ■ USDA cooperative development specialists provide in- Youngquist and Liz Mitchell had previously developed their house expertise for grassroots technical assistance, as signature Pumpkin Patch Pals. They also created a “Fruit well as informed input and oversight into both the RCDG Deco” process, a proprietary process used to emboss a variety and VAPG programs. ■ of fruits and vegetables with various edible logos, slogans and other designs. The “pals” are a vibrant crew of individually hand-

26 May/June 2007 / Rural Cooperatives decorated, painted mini-pumpkins with happy character dressed, boxed, iced and sold to four or five regional faces. Over the years, the Pumpkin Patch Pals have been processors. successfully marketed throughout the United States, Canada Before the co-op existed, the processors did not have to and even several Pacific Rim countries. compete for the harvested fish. The fishermen were price USDA funding enabled AMF Farms to expand its takers and not price makers. The Cape Flattery co-op has promotion to apples, pears and other fruit. These produce given the fishermen more control over their catch and prices. items are marketed under the Farm Fresh Palz. A website and In 2005, fishery co-op sales hit $1 million. In 2006, sales promotional video were created to market fresh produce to soared to $2.5 million. children, parents, and teachers. A marketing relationship with The co-op also sells fillets to local restaurants, although Haggen Food and Pharmacy, a local grocery chain, resulted more for the benefit of the Makah Tribal community than in increased sales and revenue. An in-store consumer survey the bottom line of the co-op or the fishermen. “You can’t get fish any fresher, unless it is still swimming,” says Fred Cross, general manager, with a smile. These are just a few examples of co-ops and other producer-owned businesses helped by USDA Rural Development and the NWCDC. USDA/RD co-op development specialist John Brugger has played a major role in the growth of co-ops in Washington. In addition to some of the co-ops mentioned above, he has also worked with: the Sequim Lavender Growers Cooperative; Northwest Berry Cooperative; San Tribal membership is required to join the Cape Flattery Fishermen’s Co-op, which now has Juan Island Energy Cooperative; about 30 members. Photo courtesy Cape Flattery Fishermen’s Co-op North Country People’s Cooperative; Madison Market Food Cooperative; Mountain Community Cooperative; a showed positive reactions from parents of young children and community-based anaerobic digester and a community teachers. kitchen. He was also on the NWCDC advisory board. AMF Farms recently started a pilot project offering free Brugger recently moved on to become USDA/RD’s fruit and vegetable snacks to elementary school students in director for the Community and Facilities Program in Skagit County, Wash. Local businesses are sponsoring the Oregon, but the fruits of his work will continue to benefit the project, which will provide a snack once a week to around people of Washington for many years to come. 5,500 children. “Children are facing serious nutritional problems and being bombarded with influence from all Partners Contact Information: directions,” says Michele Youngquist. “Farm Fresh Palz will • USDA Rural Development: www.rurdev.usda.gov; provide children an alternative snack option, as well as create • Northwest Cooperative Development Center: nutrition awareness.” www.nwcdc.coop; • Last Mile Electric Cooperative: www.last-mile-electric- The Cape Flattery Fishermen’s Cooperative coop.org; This fishery co-op received a Value-Added Producer • Methow Forest Owners Cooperative: Grant in 2006 to expand operations and improve its www.okanogan1.com/forest/aboutus.html; efficiency. The co-op, located on the Makah Indian • AMF Farms: www.farmfreshpalz.com; and Reservation at the westernmost tip of the Olympic Peninsula, www.pumpkinpatchpals.com; started with seven members, but has since grown to about 30 • Cape Flattery Fishermen’s Cooperative: members. Tribal membership is required to join the co-op. [email protected]. The co-op also buys fish directly from about 30 non- ■ member fishermen, depending on availability of fish and market demand. Salmon, flounder, sole, halibut and cod are

Rural Cooperatives / May/June 2007 27 Wisconsin farmers, small businesses benefiting from new health-care co-ops

By Anne Todd, says attendance was well beyond expectations. In the Green USDA Rural Development Bay area alone, more than 600 producers attended meetings during a three-day period. isconsin is the first state to use the power of After only five weeks of marketing the co-op program, the cooperatives to bargain for adequate, cost- number of producers and agricultural businesses that had effective health insurance for agricultural already signed up and paid their first insurance premiums was W producers and small businesses. The concept rapidly nearing the number projected for the first year, of using group purchasing power to bargain Oemichen noted. for lower health insurance rates is not new. However, prior to The co-op’s marketing effort began Feb. 19 with a press the enactment of Wisconsin’s landmark Co-op Care conference at the Wisconsin state capitol led by U.S. Senator legislation, only large organizations had the ability to conduct Herb Kohl, Governor Jim Doyle and Oemichen. these negotiations. Co-op Care extends those market Aetna, one of the largest U.S. health care insurers, has concepts to help smaller scale businesses, including farmers been selected to provide the health insurance for the and the self-employed. cooperative. Agri-Services Agency of New York (ASA) has The Farmers’ Health Cooperative is Wisconsin’s first been selected as the plan administrator. ASA is a subsidiary of health purchasing co-op dedicated to farmers and agri- Dairylea Cooperative. Now that the plans are active, businesses. Its formation was made possible by the individual members can begin reaping the benefits of that Co-op Care law. Like other co-ops, the Farmers’ Health group purchasing power, backed by the expertise of a health- Cooperative will be owned and governed by its members, care industry leader as their provider. who will be directly involved in future financial and benefit- FHC offers members a choice from among six different package decisions. The initial cooperative board includes six enrollment plans, with deductibles ranging from $300 to producers and three staff members of the Wisconsin $5,000. Mnuk says these plans offer more comprehensive Federation of Cooperatives (WFC), the statewide advocacy benefits at lower prices than most could buy under an association for cooperative businesses. individual plan. FHC members may choose from traditionally structured, preferred provider organization plans, or take Health co-op strikes chord with producers advantage of the tax benefits available through coverage After three years of extensive development work by WFC under one of two high-deductible health savings account and a number of dairy, farm supply and farm credit co-ops, compatible plans. FHC health insurance plans became active on April 1. The various insurance products have been tailored to meet Within just two days, thousands of people had already the specific needs of the farming community, and include requested information about the program, says project coverage for injuries that occur on the farm. Also included is coordinator Katie Mnuk. “This shows a clear demand from coverage for $500 of preventive care per member per year, farmers and agri-businesses for affordable health insurance maternity care and prescription drug coverage. coverage,” says Mnuk. One of the co-op’s goals is to provide more predictable, The co-op’s mission is to provide Wisconsin’s 70,000 stable rates for its members. To be eligible to join the co-op, farmers — and the agri-businesses that directly serve them — applicants must be between the ages of 18 and 64, live or with access to affordable, comprehensive health insurance. work in Wisconsin, and derive at least 66 percent of their Farmers’ Health Cooperative is designed to use its power as a income from farming. cooperative entity to bargain for cost-effective coverage and An initial capitalization payment is required by state law, increase health care options for its members. and is returned after members have been enrolled for three About 35 town meetings were held across the state during years. Other than that, the co-op charges a modest, $2 the spring to discuss the plan with producers and rural small monthly membership fee that is collected as a portion of business owners. WFC President and CEO Bill Oemichen members’ health insurance premiums.

28 May/June 2007 / Rural Cooperatives Genesis of legislation development and formation of Wisconsin health care co-ops, During the past several years, limited access to health care and progress resumed with renewed vigor. and rising costs have become paramount concerns for rural The Co-op Care goals are: families. Often, producers’ only option has been to buy • To allow purchasing cooperative members to band individual health insurance plans that are significantly more together to purchase insurance of better value than one expensive than the group plans available to workers in other could purchase individually. professions. • To provide members with a comprehensive plan, Because farming can be dangerous (American farmers have including coverage for preventive care and prescription the third-highest rate for non-fatal injuries among all drugs. occupational groups) and many producers do not carry • To provide members with rate stabilization. workers’ compensation insurance, the insurance industry • To advance quality measurement and consumerism in considers farmers a high-risk group. Several studies show that health care purchasing decisions. Wisconsin farmers experience a high rate of work-related injuries, and that as many as 82 percent of them don’t have Under the Co-op Care law, the cooperative’s health access to 24-hour medical care because of restrictions in their insurers must provide insurance coverage for a minimum of policies. three years. This is a unique provision that was intended to WFC leaders felt that the situation was a crisis, and that a provide stability to the cooperative.

Initial interest in Wisconsin’s new Farmers Health Cooperative has far exceeded what was anticipated, says WFC President and CEO Bill Oemichen, flanked here by a number of state and national leaders while addressing a press conference held to launch the co-op. Photo courtesy Wisconsin Federation of Cooperatives solution was needed to sustain the state’s farm economy and Healthy Lifestyles Co-op seeks lower costs its agriculture-dependent rural communities. In 2003, WFC The mission of the Healthy Lifestyles Cooperative (HLC), began seeking legislation that would help producers and based in Green Bay, is to stabilize insurance rates through small business owners obtain coverage at a lower cost. WFC cooperative purchasing, while also emphasizing the need for worked closely on the Co-op Care legislation with state and members to take personal responsibility for their well-being federal officials, its member co-ops and other affiliated by maintaining a healthy lifestyle. The focus on wellness is groups. what makes HLC unique. The Co-op Care law was signed into law by Governor Insurance plans sponsored by HLC became active on Jan. Doyle in December 2003, but development efforts faltered 1, making it one of the earliest health care co-ops in the state. soon after when the Wisconsin Insurance Commissioner’s HLC serves a primarily urban area of northeast Office concluded that co-op members would still be Wisconsin. Like the Farmers’ Health Cooperative, HLC also considered individuals when purchasing coverage and would, uses the collective power of a group of employers, who pool therefore, be subject to individual rates and terms. The Co- their resources to purchase coverage as a group. Membership op Care legislation was unanimously amended by the is open to self-employed people, for-profit or nonprofit Wisconsin Legislature in 2005 and again in 2006 in an effort corporations, trade or labor organizations, municipalities or to resolve this concern. any partnership that does business in, or is principally located The 2006 legislation included more effective language in, Brown County. codifying that the cooperative entity is the purchaser, not the To be eligible, members must also belong to a local farm individual members. These revisions cleared the way for continued on page 41

Rural Cooperatives / May/June 2007 29 Where Credit Is Due Russian farm credit officials study American finance model

By Perry Letson, Vice President for Communications ACDI/VOCA

t seems like southern Illinois,” said “I ACDI/VOCA Vice President Fred Smith while surveying the rich black soil of Krasnodar, Russia, in 1994. But he was surprised to learn that local farmers only produced 50 bushels per hectare. Fertilizer, hybrid seed and the Russian farm and credit leaders attended briefings at the Capitol in Washington, D.C., as proper equipment for weed control part of their fact-finding tour to learn more about farm and rural credit in America. were available, and the local markets Photos courtesy ACDI/VOCA were short on grain supply. “There was just no working capital in the system — no way for farmers to finance Credit needed in rural Russia funds from USAID, first through the improvements,” Smith said. Only 5 percent of the market for Mobilizing Agricultural Credit project Smith developed a plan for rural credit in Russia is currently being and now the Cooperative Development improving the availability of rural credit served. The Russian Rural Credit Program. in Russia. It took a while to implement, Cooperation Development Foundation From a starting point of $6 million but more than a decade later, the (RCCDF), together with ACDI/VOCA, in USDA capitalization, the RAL Mobilizing Agricultural Credit managed the groundbreaking Russian- Program now has $10 million of equity program, led by ACDI/VOCA, has American Loan (RAL) Program that and has successfully loaned more than been called “one of the most successful has helped to bring rural credit to $38 million to rural credit cooperatives. programs in the mission’s portfolio,” by Russia. About 91,000 people belong to Russian Ray Lewman, deputy director of the The idea was hatched by Smith, a rural credit co-ops, which provide the Office of Economic Growth for North Carolinan, who was frustrated by best — and often the only — access to USAID/Moscow. The Russians’ the unfulfilled potential of rural Russia. financing. appetite for a reliable farm credit It was initially funded with loan capital “While credit cooperatives improve system has been whetted. from USDA and technical assistance access to credit for farmers and rural

30 May/June 2007 / Rural Cooperatives entrepreneurs and are thus an emigrated to the United States at age Small Plans,” much of which is important economic development tool, 16. C.T. Fredrickson, former bank applicable to Russia as it strives to they also facilitate grassroots president and former senior deputy build a stronger rural credit system. improvements to local civil society,” governor of the Farm Credit Egerstrom stressed that a co-op has says ACDI/VOCA’s country Administration, had a rapt audience two main objectives: to succeed as a representative, Michael Harvey. when he spoke about the dire U.S. farm business and to help its member- Credit cooperatives also have a credit crisis of the 1980s and the lessons owners succeed in their own national impact. Credit cooperative it provided. businesses. leaders have become political leaders in While the turmoil and dislocation Russia. At least one female credit co-op suffered by many farm families and • John Schmitz and Tom Larson, CFO leader has been elected to the State farm credit professionals could not be and executive vice president, Duma, Russia’s parliament. In addition, ignored, Fredrickson said a legislative respectively, of CHS, the largest U.S. staff of the RCCDF and Union of remedy proved highly successful — no farmer co-op, also addressed the Rural Credit Cooperatives have served doubt an interesting lesson for the group. Schmitz said that he saw great as expert advisers in both the Duma and the Federation Council.

Building a rural credit system Given this history, ACDI/VOCA was the natural choice to organize a recent U.S. fact-finding mission for some Russian farm and credit leaders. Nine Russians, among them three republic ministers of agriculture, looked intensively at the American model last November. ACDI/VOCA President Carl Leonard welcomed the group to the organization’s headquarters in Washington, D.C., and Smith spoke of the company’s seminal work in Russia. The Russians got an overview of the John O'Day, former vice president of AgriBank and now a consultant, explains the U.S. farm credit system from John workings of the U.S. farm credit system during a briefing at ACDI/VOCA headquarters in O’Day, former vice president of Washington, D.C. AgriBank, and a briefing on the federal government’s role in fostering cooperatives from USDA Rural Russians. He added, however, that there potential for Russian agriculture, but Development economist James Baarda. were dangers in the government playing that Soviet style co-ops, while able to The first day ended with a reception, too prominent a role in such situations. perform certain governmental at which Asif Chaudhry, deputy “Those engaged in businesses in which functions, are poorly structured to administrator of USDA’s Foreign government policy is a large factor in succeed as businesses in the global Agricultural Service, formally welcomed determining prices, profits and asset marketplace. the group on behalf of the government. values should always remember that the After dinner, participants took a market forces cannot be suppressed by • Bob Doane, a regional manager of nighttime tour of the Lincoln the government indefinitely,” CoBank, provided an overview of Memorial. Fredrickson said. CoBank operations, while a The next day the group was off to Other tour highlights included: representative of Farm Credit Leasing the heartland. O’Day had arranged Co. explained how it works with meetings at AgriBank in St. Paul, • Lee Egerstrom, business reporter for CoBank customers and others to Minn., the largest farm credit bank in the St. Paul Pioneer Press, presented determine if it is advantageous to the nation, with a loan portfolio of $40 the Russians with signed copies of lease or buy equipment. Export billion. The Russians were addressed (in two of his influential books on financing is an important part of Russian) by a bank employee who had cooperatives, including “Make No CoBank’s portfolio, and the bank has

Rural Cooperatives / May/June 2007 31 $2.3 billion in lines of credit, of the Farm Credit Bank of American Farm Bureau and staff of the including $158 million in Russia. Baltimore, sketched a history in which Senate Agriculture Committee who Members of the Russian delegation farm credit authority migrated from explained the mechanics of the Farm expressed interest in working with the U.S. Treasury Department to Bill. The Russians were interested to CoBank in importing new and used USDA, and then from the FCA to the hear that the House Agriculture farm equipment, fertilizer and Jersey banks themselves and, more recently, Committee alone employs 48 full-time cows. to associations. professional staff members. A tour of the Capitol was provided by Senator • Upon their return to the Washington • The Russians traveled to the Norm Coleman of Minnesota. area, the Russians visited the Maryland Eastern Shore to tour the During lunch at the Monocle headquarters of the Farm Credit 65-head St. Brigid’s Dairy Farm in Restaurant (considered a Hill Administration (FCA) in McLean, Kennedyville and some local grain institution) the group met with Senator Va., where they learned about its role and chicken farms. Richard Lugar of Indiana, who at the as an independent regulatory agency time chaired the Senate Committee on in governing the farm credit system, • A briefing was held at the Farm Foreign Relations and who formerly as well as the nuts and bolts of Credit Council, the U.S. farm credit chaired the Senate Agriculture rulemaking and the examination system’s advocate in Washington. Committee. Senator Lugar, who visits process. Several FCA officials have a Te rry Barr, economist for the Russia at least once a year, listened keen interest in global rural finance, National Council of Farmer intently as the visitors described including Roland Smith, secretary to Cooperatives, discussed the objectives of the mission and of the the FCA board, who has facilitated economics of world agricultural trade progress being made in Russian the short-term service of FCA staff as and the issues of the Doha round of agriculture. ACDI/VOCA volunteers. Smith trade talks. As a result of the tour, strong introduced one of them, Ron Boehr, relationships have been established with who has served on six assignments in Wind-up on Capitol Hill ministers from key areas of Russia’s Russia over 11 years. The last working day of the tour was North Caucasus region and they have spent on Capitol Hill, meeting with found new contacts within the • Gene Swackhamer, former president officials of the 5.7-million-member cooperative credit system. ■

Exporting the U.S. cooperative model

ACDI/VOCA was founded by U.S. cooperatives to bring the advantages of the co-op model overseas. True to its roots, the development organization invokes a great cooperative system that has served this coun- try’s farmers and business owners for decades and that now extends to the productive soil of Russia. Russian officials visit St. Brigid’s Dairy in Without the support and involvement of the U.S. Kennedyville, Md. farm credit and cooperative community, the current Russian system would not exist and the recent fact-finding tour could not have been made. Principles of cooperation soundly trump concerns about competition or lingering cold war issues. For 43 years and in 145 countries, ACDI/VOCA has empowered people in developing and transitional nations to succeed in the global economy. It delivers technical and management assistance in agribusi- ness systems, financial services, enterprise development and community development in order to pro- mote broad-based economic growth and vibrant civil society. ACDI/VOCA currently has approximately 90 projects in 40 countries and revenues of approximately $85 million. ■

32 May/June 2007 / Rural Cooperatives Co-ops Focus Collective Action

Business structure helps producers address power disparity in the marketplace

By Thomas W. Gray, Ph.D. have a long history of actions that have waxed and Rural Sociologist waned with the booms and busts of the farm economy, USDA Rural Development, Cooperative Programs and the cycling of government intervention and free- market policies. Editor’s note: The author welcomes feedback from readers on Farm history is, in fact, rich with movements that this article and more generally on farmers, collective actions, resulted in the creation of cooperatives. Examples and social movements at: [email protected]. include, among others, the Grange, the Northern and Southern Farmer Alliances, the Farmers Union, the hen cooperatives are in their early National Farmers Organization and the Federation of formative stages, they can often Southern Cooperatives (see, respectively, books by resemble social movements. Social Patrick Mooney, “Farmers and Farmer Movements”; W movements are a kind of group action, Jon Lauck, “American Agriculture and the Problem of composed of individuals with common Monopoly”; and Bruce Reynolds, “Black Farmers in interests, seeking to achieve some larger socio- America”). economic, political, and/or cultural change. Many of these movements have at their core farmers Social movements go through various stages, from who wish to continue to live and operate as farm pre- and early-mobilization, through organizational families, with values that embrace civil liberties, formation and sometimes closure. In the case of market property rights, civic participation and decentralized failures and economic grievances, businesses may form democracy. As Kendall Thu and E. Paul Durrenberger as cooperatives. This article focuses on the importance of the University of Iowa put it, they seek: the social of common belief systems, grievances and identities, and human character benefits of “learning honesty, participation and leadership during mobilization. hard work, ingenuity, flexibility and fairness as part of being reared in a farm environment.” Cooperatives Role of re-awakened belief systems themselves are embedded within a series of values that Berton Klandermans, (2001, “Why Movements include, among others: mutual self-help, equality, Come into Being and Why People Join Them”) says equity, democracy, voluntarism and service. social movements and collective actions seldom invent These embedded belief systems can link farmers to ideas they form around. Rather, they build upon a contemporaries who may be struggling in similar heritage of ideas, values and earlier actions in a group’s situations, as well as to mutual histories as surviving history. During the early stages of a collective action, farmers in particular regions, raising particular people’s historically held belief systems and cultural products. Klandermans suggests such belief systems — inheritances may sometimes be re-awakened. Farmers when re-awakened in collective actions — can help

Rural Cooperatives / May/June 2007 33 facilitate a greater sense of life-meaning among members, as monopsonies in the United States. Where they do exist, well as provide a grounding and vehicle for voicing feelings typically they are heavily regulated by government oversight. of injustice. Where such power disparities exist, small numbers of large firms, rather than a single firm, hold large proportions of Farmers and market grievances market share in particular product areas. Farmers have formed social movement groups, or focused When these firms are sellers, they are “oligopolies” (rather their collective action, for several reasons. Frequently than monopolies); if they are purchasers of products, they are (though not exclusively) an economic or market grievance is called “oligopsonies” (rather than monopsonies). While their involved. Potential members come to realize they have actions in the marketplace are complex, their power over certain unmet needs, and/or are positioned in certain large numbers of small firms parallels the monopoly and disadvantaged market relationships. monosopony situation. For example, farmers may find that input prices are too Researchers argue that U.S. farmers have had to deal with high, or prices for their product too low, leaving them to these various power disparities historically (see, for example, operate in only a minimally solvent (or less than solvent) analyses of Cargill, ADM, ConAgra and Dean Foods by manner. Or some needed service or product may be lacking, William Heffernan of the University of Missouri, and various and not easily obtainable. writings on market concentration by Ronald Cotterill, They might also discover in operating and engaging in University of Connecticut, Richard Sexton, University of their various farm transactions, that they are forced to deal California-Davis and Bruce Marion, University of with a single business or a very limited number of large Wisconsin-Madison.) John Craig of York University suggests businesses. They may have few, if any, alternatives beyond that when these situations have occurred, farmers have these firms. Historically, when these situations have occurred historically off-set (or countervailed) some of their respective it has not been unusual for power disparities to evolve power disadvantages by forming cooperatives. between the larger business and the much smaller farm Coming together as a group does not just happen operation. Various terms have been constructed to help spontaneously because a need exists however. Farmers are describe these different power relationships, including famous for being rugged individuals. Some kind of collective “monopoly.” identity has to develop, grievances have to be identified and Generally speaking, a monopoly exists when there is but leadership, loyalty and commitment have to evolve. one seller of a product or service in the market place, and many buyers. A monopolist may be in a position to Role of identity and participation potentially dictate prices for products and assume a “take it The grievance may often be associated with a person’s or leave it” market stance. Since there are no alternative farming, or social identity. Dairy farmers, or grain farmers, or businesses for buyers to go to, and there are many buyers, family farmers may find commodity prices too low, or supply individual purchasers have little power in the monopoly prices too high, for example, and in turn, may suffer solvency situation. The monopoly firm can dictate a given price, problems (the grievance). Typically, some precipitating event knowing full well buyers have no choice but to buy their has occurred, such as a series of farm foreclosures or a product or go without. business has closed that was providing needed services. What if several producers are trying to sell a product to a Buyers of farm production may have been arbitrary in their single purchaser? Similar to the single-seller situation, a pricing and/or in its product acceptance-policies; or sellers of single buyer may be able to make an offer to buy products at supplies may be gouging customers with exorbitantly high a certain price and rebuff potential sellers who argue the prices (respectively, the oligopsony and oligopoly problems). price is too low. The term used in this situation is Some rudimentary leadership must emerge to facilitate “monopsony.” early meetings among those feeling aggrieved. Common In a monopsony, sellers have no choice but to sell their identities among participants (e.g., livestock, vegetable, fruit, products to the single buyer. There are no alternatives. Since and grain farmers/ranchers) can ease discussion and facilitate there are many potential sellers, the monopsonist firm can discovery of other similarities, as well as differences. The dictate a price, knowing there are many sellers to buy from, sharing of current grievances will likely predominate. and no alternatives for sellers, regardless of the price set. As discussion occurs, members discover ways their Again, there is a “take it or leave it,” mentality and approach grievances overlap. Together, they gradually construct to the market. (sometimes through conflict and negotiation) joint meanings Of course, in either of these situations, monopoly or and explanations for their situation. Members begin to monopsony, the price cannot be either so high or so low that develop a sense of themselves as a collective group; a concept it drives all of the many sellers or buyers out of business. The of “we” evolves. Pre-existing, and re-awakened belief systems firm with predominant market-power must be careful not to can play a particularly important role at this point, helping destroy its own market. members solidify their common needs and history. There are very few actual unregulated large monopolies or Once a common collective identity begins to take shape

34 May/June 2007 / Rural Cooperatives The more members are involved, the more they build alliances, the more they are heard, the less their individual differences interfere and the more the group is empowered as a group.

A co-op poultry receiving station in North Carolina, circa 1944. USDA archive photo

and members more easily join in and participate, the more negotiation and re-articulation, members begin to internalize they participate. Participation engenders more participation. conceptions of a leader (or leaders) as someone who can The more members are involved, the more they build speak for them and who does so in a manner that does not alliances, the more they are heard, the less their individual create group schisms, splits or alliances via scapegoating. differences interfere and the more the group is empowered as Constructing whole-group solidarity is emphasized. a group. Leaders may also be attuned to calling up and reminding members of the sets of values and beliefs they all grew up Role of leadership with, and share with each other in the community, and During these early phases of development, a more historically. permanent leadership — beyond leadership for the initial facilitation of meetings — tends to take shape. Characteristics Summary of a successful leader are beyond the scope of this article. These several influences — existing belief systems, However, a few aspects will be mentioned (see James identities, grievances, participation, leadership — tend to act Wadsworth “Director Leadership,” “Rural Cooperatives” together to reinforce each other. Members with similar Nov./Dec. 2003, for a more detailed article on cooperative identities and common grievances may come together in a leadership). group such that discussion and planning for action are Successful leaders generally come from the communities facilitated. Collective identities tend to emerge from this they help mobilize. They must be able to read the group participation. environment for opportunities for grievance resolution, as In successful movements, leaders emerge who can bring well as constraints to resolution. Being able to assign causes greater clarity to grievances, assess opportunities and of the problem and assign blame to someone, something engender hopefulness about possible actions. Leaders may and/or some process is frequently key to bringing a focus to also be adept at calling up and articulating sets of belief the movement. Equally important, leaders must be able to systems that ground members to their histories and build communicate to the members that taking collective action as solidarity across members. As members participate with other a group can be fruitful. members, participation itself deepens collective identity and These determinations generally come about through builds greater commitment, increasing the likelihood that group discussion, as speakers gradually build credibility participation will continue. among the membership. In a process of articulation, ■

Rural Cooperatives / May/June 2007 35 NEWSLINE

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international customers increased to CoBank’s record earnings $33.1 billion, from $26.3 billion in support $193 million patronage 2005. This growth was primarily due to CoBank reported record 2006 year- increases in agribusiness loan volume, end earnings of $335 million, an lending to Farm Credit Associations increase of $37 million from 2005. As a and loans to rural energy customers. result, it is returning $193 million in With $10 billion in loans patronage to customer-owners. outstanding, the Agribusiness Banking CoBank’s 2006 earnings represent a Group comprised 31 percent of the 12- percent increase over 2005 and the bank’s portfolio, an increase of $6.9 United Potato Growers is pursuing a joint billion. The bank’s Strategic venture to dehydrate potatoes. Relationships Division, which includes Farm Credit Association customers, had $10 billion in loans outstanding, or 30 percent of the portfolio, an increase returns,” said Jerry Wright, United of 28 percent. Of this total, $8.3 billion president and CEO. “This new venture in loans were to CoBank’s five affiliated will not only lead to a more stable seventh consecutive year of earnings Farm Credit association customers, dehydrator industry, but also serve as an growth. The increase was largely due to which serve 28,000 customers in 13 important tool for growers to balance an increase in net interest income, states in the Northeast and Northwest. their fresh crop and fresh industry driven by higher loan volume across The Communications and Energy marketing pipelines, all with the most market segments and a reduction Banking Group had $7.7 billion in objective of improving grower returns. in the provision for credit losses, loans outstanding, an increase of $865 As a result, potato growers, our reflecting continued strong credit million. Energy and water sector loans communities and the entire industry quality for the year. totaled $5.3 billion, while communica- will benefit.” “CoBank was able to provide much- tions sector loans reached $2.4 billion. Under the terms of the agreement, needed capital to our agribusiness and United has formed United II, a new rural utility customers during a time of UPG forms joint venture to grower cooperative that will be involved market volatility,” says Robert B. Engel, operate potato dehydrator in the new company with Idahoan and CoBank president and CEO. Of the United Potato Growers of Idaho has Offutt. Idaho potato growers who are $193 million in patronage distributions formed a joint venture that will create members of United, or who join for 2006, $126 million will be paid in the nation’s second largest potato United, can opt to join United II. By cash and the remainder in CoBank dehydrator, subject to government investing in United II, UPG leaders say stock. approvals. United, a cooperative of potato growers will have ownership of Patronage distributions for 2006 potato growers based in Idaho Falls, the new company, will receive represent an 18.2 percent return on Idaho, joins with Idaho Fresh-Pak dividends, and have a guaranteed average invested capital for customer- Corporation (also known as Idahoan) market for their dehydrator-grade owners. For the past five years, CoBank and the R.D. Offutt Co., together potatoes. customer-owners received an average of creating a broad network of potato “This new venture is another in a $160 million per year in cash as a result processing plants with convenient series of strategic initiatives by United of their investment in the cooperative access to markets and customers. to improve potato grower returns,” says bank. “Since forming two-and-half-years Wright. “The fresh and dehydrator Assets increased to $41.4 billion ago, United has proven its ability to industries work hand-in-hand. By from $33.8 billion in 2005. Loans and manage fresh potato supplies, meet and maintaining a fair dehydrator price, leases outstanding to U.S. and match demand, and improve grower fresh grower returns also improve. This

36 May/June 2007 / Rural Cooperatives new dehydrator company also provides “Our milk marketing company is a arenas which can affect infrastructure United with an outlet for surplus consistent performer in a volatile and legislation to the benefit of not potatoes. Through United, growers marketplace,” said AMPI Board only organic producers, but our have access to market data and facts Chairman Paul Toft, a dairy producer agricultural community as a whole," that are crucial to their marketing. from Rice Lake, Wis. “We’re poised to says Clay McAlpine, MOPC Through United II, growers who invest grow in the Midwest — throughout chairperson. will have the opportunity to earn AMPI country.” MOPC was formed from the input dividends while having a reliable market of more than 70 organic producers who for their dehydrator-grade potatoes.” Montana ranchers form worked together to develop a unique Members of United II will be the Organic Producers Co-op co-op model. It orchestrates the sole potato suppliers for the new Twenty-five organic livestock growing, feeding and finishing of company. “Potato growers will now be producers have joined together to form animals produced by its members, integrated vertically into the overall the Montana Organic Producers Co-op allowing profits of cow-calf and feed industry system,” says Wright. (MOPC). Its mission is to help organic sales to remain within the group before “Through United II, we will create producers achieve fair, stable pricing for finished animals are sold to national and efficiencies from the development of their output, based on cost-of-produc- regional buyers. seed to production to marketing. We tion, plus a fair return. "Our pricing model has little to do anticipate greater long-term stability Co-op leaders say organic producers with conventionally produced meats and no more boom or bust cycles.” face a number of challenges in obtain- and commodity pricing because our ing a fair price, including: cheap off- animals are raised using a completely AMPI earnings bounce back shore organic meats being sold to different production management Increased revenue and sharp cuts in consumers without country-of-origin system," says McAlpine. "MOPC's expenses helped Associated Milk labeling; a lack of local certified organic certified organic growers adhere to Producers Inc. (AMPI) record a significant financial turnaround in 2006. AMPI reported $4.6 million in earnings on sales of $1.1 billion for 2006, AMPI President and CEO Mark Furth said during the dairy cooperative’s annual meeting in Bloomington, Minn. The co-op handled 5.1 billion pounds of milk from its 3,400 members and made $8.2 million in equity payments. The co-op rebounded from a disappointing 2005, when its butter manufacturing facility — a good source of profits — was being rebuilt following a fire in late 2004. A return to pre-fire production levels at the butter plant Terry Keel on his ranch outside Power, Mont., is raising organic beef as one of 25 figured significantly in the company members of the new Montana Organic Producers Co-op. Photo by www.KraigofCraig.com, exceeding budget expectations for courtesy MOPC 2006. Furth said the improved performance reflected the cooperative’s ability to increase energy surcharges processing facilities; limited transpor- current organic law, but they take their and premiums on AMPI dairy products tation to inter- and intra-state markets, commitment to sustainable farming and reduce energy costs associated with and a lack of information on cost-of- practices one step further. Our animals milk hauling and manufacturing. production and grading to help are pasture-raised and grass finished, “They probably haven’t heard of us producers continually improve their while commodity pricing levels are tied down on Wall Street, but if AMPI were herds and manage their pricing to corn prices and feedlot systems." a publicly traded company its stock proactively. MOPC began negotiating sales would be rising,” Furth told delegates. "MOPC's purpose is to help organic contracts for potential members in AMPI was able to return to profitability producers market their products at a 2005. Sales and shipments for 2006 for its dairy farmer-owners despite a fair price regardless of the hurdles jumped 338 percent and are anticipated milk market-downturn that particular to organic production. We to increase another 70 to 80 percent in characterized most of 2006. want to represent our members in those 2007. MOPC coordinates all animal

Rural Cooperatives / May/June 2007 37 shipments of participating producers so producers choosing to reduce the size Sunsweet also offers a line of nutritious that even the smallest producers may of their veal herd or deciding to stop juices, including PlumSmart, which benefit from farm-gate prices generally producing veal altogether. This has launched in 2006. reserved for volume contracts and full resulted in reduced demand in LFD’s potload shipments. products. DFA to idle Lovington, N.M., "While our aim is to promote cheese plant Montana certified organic products, we Dairy Farmers of America Inc. have attracted members from across (DFA) has announced that operations at Montana and several adjoining states,” its Lovington, N.M., cheese plant will says McAlpine. “Our current be idled, with its cheddar production membership is comprised of ranchers transferred to other DFA plants. The from Montana as well as South Dakota, plant has been jointly owned and Nebraska and Idaho. We do not operated by DFA and the Greater anticipate developing a MOPC brand, Southwest Agency. nor do we require that our members Sunsweet marks 90th Open since 1995, the Lovington sell all of their production through the anniversary plant produces 40 million pounds of 40- co-op. Of course, our hope is to do a The year was 1917 — the first year pound-block cheddar cheese annually. good enough job for our members that women were allowed to vote in New The announcement comes after years of they'll choose to sell most, if not all, of York state and the beginning of a dried repeated efforts to stimulate successful their production through MOPC." fruit company in California with operations, including periodic MOPC's current focus is on beef, products that would become famous adjustments to the production schedule but it will also be marketing lamb, throughout the world. Sunsweet and an expansion to help the facility goats, pork and possibly bison. Growers Inc., now the world's largest better accommodate increased volume. handler of dried tree fruits, is marking Despite these efforts, the plant has Alto Dairy to close its 90th anniversary. failed to become financially viable. liquid feed division The Sunsweet Growers cooperative DFA members will experience Atlo Dairy in Waupun, Wis., boasts a 320-member roster, focusing minimal impact from the plant closure, announced in April that operations of on farming, harvesting and manufac- he said. Milk formerly marketed to the its Liquid Feed Division (LFD) in Black turing practices that help ensure the Lovington plant will be absorbed at Creek, Wis., would cease on May 11, highest quality fruit and consistent DFA’s other facilities, and no change to 2007. LFD is a leading manufacturer of products are delivered to supermarket hauling rates for member dairy liquid veal milk replacers, which use shelves. The organization represents producers is planned. About 60 jobs will whey as one of the main ingredients. one-third of the world's prune supply be impacted. “Due to current market conditions, and continues to build on its foundation including the high market price for of quality, innovation and healthy Co-op master's degree whey, which is reflected in the price we products. application deadline pay for milk, we assessed our Headquartered in Yuba City, Calif., The Master of Management opportunities for pursuing higher- Sunsweet products include dried plums, Cooperatives and Credit Unions value-added uses for our whey stream. apricots, cranberries and raisins. A (MMCCU) program was recently As a result, we have chosen to close grower-owned marketing cooperative, awarded $75,000 to help launch a LFD and exit the veal-feed business,” Sunsweet product innovations go back Centre of Excellence in Accounting and said Rich Scheuerman, Alto Dairy’s decades, to the introduction of the first Reporting for Cooperatives by the president and CEO. “This decision pitted prunes and the popular fruit- Canadian Institute of Chartered impacts our employees and customers essence prunes. It is also pioneering Accountants. The MMCCU is the only and we are committed to treating new and exciting ideas with both degree of its kind in English awarded everyone fairly and working to help packaging and products, including new by an accredited institution (St. Mary's them during this change of strategy for Sunsweet Ones. These individually University in Nova Scotia, Canada). our cooperative.” wrapped prunes are meant for the “busy Drawing together an impressive The current market price for whey is consumer looking for a convenient, community of faculty and students from three times its 10-year average, and healthy food option.” around the world, each class meets once WPC prices are more than double their In addition, Sunsweet now offers a each August for an intense orientation 10-year average. These higher prices, wide range of products such as Jumbo week in Halifax, Nova Scotia. Degree which exist industry-wide, have Red raisins and a new line of premium candidates then return to their dramatically impacted the profitability dried fruit including blueberries, respective countries and sponsoring co- of raising veal calves, with many veal cherries, mangoes and berry blend. ops or cooperative organizations to

38 May/June 2007 / Rural Cooperatives pursue 12 courses of study that combine the first loss in its history. Co-op "make allowance" rule that had not independent and group work, assisted leaders say the loss was the result of been adjusted since 1999 did not take by telecommunications technology. federal milk marketing rules and into account the co-op's rising costs for Half-way through the program, the competition from California. Last year, energy, insurance and labor. The “make class meets for a 10-day study visit to a the co-op had earnings of $4.2 million, allowance” is deducted from the price a place where cooperatives dominate the and two years ago it had record co-op pays farmers for their milk. economy, such as Mondragon in the earnings. Press reports quoted a co-op Foremost has announced the closure Basque region of Spain, or the Emilia official as saying Foremost Farms is still of a fruit juice packaging plant it owns Romagna region of Italy. Non-students in a strong financial situation despite in Fitchburg, Wis., and a distribution may apply to join the Study Visit. the loss, noting that for every dollar in center it leases in Windsor, Wis. About Applications for the Fall 2007 class liabilities the co-op has $1.38 in cash 77 salaried and hourly employees will were due May 31, 2007, but later reserves. be impacted. The juice facility applications may be considered. Changes in marketing rules have represents less than 2 percent of the Contact Tom Webb at: already corrected some of the problem, cooperative’s annual sales. [email protected]. To learn more, read Foremost Chairman Ed Brooks told the In another action, Foremost named student profiles and the MMCCU Baraboo News Republic. He added that Michael Doyle as its new vice president newsletter at: www.smu.ca/mmccu. management is working to cut costs, for finance/chief operating officer. choose more profitable products and Doyle was most recently the chief Foremost has $12.5 million loss; bring the co-op back into the black. He financial officer of Creekstone Farms closes juice plant; hires COO said the co-op's cost for milk and other Premium Beef LLC. Before joining Foremost Farms USA, Baraboo, products it uses to make cheese have Creekstone, Doyle spent more than 11 Wis., had a $12.5 million loss for 2006, increased, and, until February, a federal years with Land O’Lakes, where he rose to the rank of vice president for finance and operations for the Ag and Feed Division.

USDA awards $415,000 CHS distributes record for early-warning broadcasts $258 million to members Agriculture Secretary Mike Johanns in March announced the award of CHS Inc. owners in 47 states are more than $415,000 in grants for weather radio transmitters to extend the sharing in a $258 million disbursement coverage of the National Oceanic and Atmospheric Administration Weather as a result of the energy and grain- Radio All Hazards (NWR) early warning system to seven more rural based foods cooperative’s record fiscal communities. "With the tragedy of tornadoes, we have heard national 2006 earnings. It marks the third broadcasters saying everyone should have a NOAA Weather radio," Johanns consecutive record return to owners by said. "These seven grants to rural communities who do not have coverage CHS and is the largest ever made by a from NOAA Weather Radio Transmitters will help save lives." U.S. cooperative. The NWR is a nationwide network of radio stations broadcasting 24 hours The distribution consists of cash a day from National Weather Service offices to alert people of approaching patronage, equity redemption and CHS dangerous weather and other emergencies, including natural, environmental preferred stock issued as equity and public safety alerts. Thousands of people die or lose property annually redemption. Patronage refunds also because they did not know soon enough about hazards, disasters or include a record 14.8 cents per gallon emergencies. paid to eligible customers who The NWR covers all major metropolitan areas and many smaller cities and purchased gasoline, diesel and other towns. The Weather Radio Transmitter grant program helps provide refined fuels from CHS during its fiscal coverage to those rural areas that do not have NWR coverage or are poorly 2006, a total of $99 million in cash on covered. The grants are funded using residual funds from grant projects that refined fuels purchases. CHS is the were completed under budget. Today's award brings to 91 the total number nation's largest member-owned energy of grants awarded to electric and telecommunications cooperatives, nonprofit company. groups and state and local governments covering 100 sites in 26 states and "This record return represents one Puerto Rico. of the most important ways we can Details of the grant recipients and projects and further information on deliver on our CHS mission of adding Rural Development programs are available at: http://www.rurdev.usda.gov or value for all of our stakeholders," said at local USDA Rural Development offices. Michael Toelle, CHS board chairman. CHS net income for its fiscal year ending Aug. 31, 2006, was $490.3

Rural Cooperatives / May/June 2007 39 million. During 2007, distributions are companies have entered into a separate Dairy Industry of Michigan board and being made to 1,325 member agreement with Clarkson Grain for the Michigan Dairy Market Committee. companies and more than 37,000 another LLC to manage truck-to-barge Bob Kran, of Freesoil, Mich., was individuals. access through two belts at the elected vice-president. To honor retired In other CHS news, the co-op has Beardstown, Ill., river terminal. President Elwood Kirkpatrick’s 26 years signed an agreement to buy Nor-Lakes of service to MMPA, the co-op board Service Midwest, Hugo, MMPA elects new has designated him as president Minn., and the Farm-Oyl president emeritus of MMPA. Co. of St. Paul, Minn. St. Johns, Mich., dairy MMPA is a member owned and Nor-Lakes is a lubricants farmer Ken Nobis has controlled milk-marketing cooperative manufacturer, founded in been elected president of serving about 2,400 dairy farmers in 1988 to produce private- Michigan Milk Producers Michigan, Wisconsin, Ohio and label lubricants and Association. Nobis was Indiana. greases, including the first elected to the MMPA Farm-Oyl brand. Farm- board of directors in 1992 NH to host conference Ken Nobis Oyl has been marketing and has served as vice- The New Hampshire Cooperative heavy-duty lubricants to president. He and his Enterprise Conference will be held June Upper Midwest customers brother, Larry, operate an 15, 2007, at Southern New Hampshire since 1929. 800-cow dairy and farm 3,000 acres University. Economic Development CHS has also announced it has near St. Johns. They were recognized as professionals and nationally respected formed a partnership with Sunrise Ag Michigan State University’s “Dairy co-op leaders will explore how Service Co. to enhance specialty and Farmers of the Year” in 2006. cooperatively structured businesses can bulk grain-handling access via the Nobis serves as treasurer of the advance economic and community Illinois River. The 50/50, limited National Milk Producers Federation development goals. For more liability partnership is to build and (NMPF) board of directors and is a information visit: www.cdi.coop, or e- operate a new river grain terminal at member of NMPF’s Environmental mail: [email protected]. Havana, Ill. At the same time, the two Committee. He serves on the United

Risk (DOE) recently announced that is produce ethanol. It may be possible, continued from page 18 investing up to $385 million for six therefore, for farmers to negotiate a biorefinery projects over the next four place in the ownership structure for loan, 20 percent is not an insignificant years (see sidebar, page 17). Each award themselves. Broin Companies’ system of sum. So a lender has a major exposure if is equivalent to a 20-percent equity partnering with farmers and rural there is a liquidation. stake. With these awards and the investors seems very adaptable to tie The guidelines also require that both pending guaranteed loans that follow, together capital, intellectual property guaranteed and non-guaranteed the federal government will not only and feedstock sourcing. portions of a loan be traded together in guarantee the loans on the projects, it The DOE solicitation, announced secondary markets. So where lenders will also assume the first loss in the about one year ago, was initially for often desire to sell the guaranteed event of foreclosure. $160 million for three biorefineries. portion of a note on a facility, selling Given the scale of investment and However, in an effort to expedite the just the guaranteed portion appears not the role of intellectual property in goals of President Bush’s “Advanced to be an option. While the guidelines cellulosic ethanol, the farmer-owned Energy Initiative” and “Twenty-in-Ten- left unexplained what would happen if business model may struggle to find its Initiative” (which aim to increase the this condition were breached, it could place in this emerging segment of the use of renewable and alternative fuels in lead to inability to enforce the loan industry. However, as cellulosic the transportation sector to the guarantee. Opportunities to restructure technologies become proven, producer- equivalent of 35 billion gallons of the risk into a package of wraps and/or owned businesses may to be launched ethanol a year by 2017) Energy strips thus appear unavailable. The — or existing ones expanded — to Secretary Bodman raised the funding intent of the program may have been to produce cellulosic ethanol under some ceiling. encourage lenders to finance projects forms of licensing arrangements. “We had a number of very good with unproven technologies, but its In four of these six plants, farmers proposals, but these six were considered impact had the opposite effect. will produce the main source of ‘meritorious’ by a review panel of The U.S. Department of Energy cellulosic feedstock necessary to bioenergy experts,” Bodman said. ■

40 May/June 2007 / Rural Cooperatives Management Tip Health-care Co-ops continued from page 23 continued from page 29 engine that drives the cooperative. It must provide cooperative, the Green Bay Area Chamber of Commerce or a the co-op staff with adequate direction and leadership nonprofit resource group. so that they can do their jobs properly. Employees HLC began negotiating with carriers last summer to determine must be treated fairly, and jobs must be properly which would provide the best overall program. Last September, the delegated. co-op chose Destiny Health. Destiny offers an array of health savings Management must educate employees in a manner account-type plans or health reimbursement arrangements for the that allows them to perform at their highest level. co-op employer/members. This is important both for sound cooperative Although not well known in the United States, Destiny has been operations and for employee self-improvement. successfully administering consumer-directed wellness programs Management needs to provide opportunities for since 1992, starting in South Africa. It entered the U.S. market in advancement and promotion for those employees 2000. Destiny’s innovative program motivates clients to participate who meet or exceed their expectations. actively in their health care, and rewards them for making healthy A fair system of employee evaluation is needed so choices. that workers know how they are doing and where Destiny’s incentives measure is called the Vitality program, and they need improvement. Bad or non-performing members earn “Vitality Bucks” which can be redeemed for rewards employees can be disruptive to the cooperative’s of their choice. Vitality Bucks can also boost the value of members’ operations and harm the morale of more productive health accounts with Destiny. employees. When necessary, it is management’s Clients are required to take an annual health-risk assessment test responsibility to remove such employees. Of course, to determine their general health and identify areas for to offer sustained employment, regular raises and improvement. Clients are provided with a personal health benefits, a cooperative needs to be profitable and nurse/coach at no extra cost, who helps them develop personal maintain a strong financial position. wellness plans that will reduce future health risks and health costs. A quality work environment is one that protects As of April, 135 employer/members were participating in the employee health and safety, and which is competitive program, and more than 1,800 employees have already taken their in its marketplace for wages, benefits and retirement initial health-risk assessments test, a 90-percent response rate. In late options. The co-op should provide equal opportunity April, HLC announced that it is seeking members for a second pool. to all and adhere to other relevant employment laws. Employees should be granted the opportunity to Effects of Co-op Care initiative invest for their future and/or retirement. Co-op Care backers say the law is having a spill-over effect, in which competing insurance providers have lowered premiums and Responsibility to community raised benefits for producers in response to the packages offered Cooperative management has responsibilities to through the FHC. They note that one (non-cooperative) carrier has the communities that the cooperative and its mem- begun advertising 24-hour coverage for farmers, similar to the co- bers reside in. This includes the community the op’s plan. headquarters is located in, as well as the communities Oemichen, who is also president and CEO of the Minnesota in which the cooperative has branches or other facil- Association of Cooperatives, notes that Minnesota is close to passing ities. As businesses owned by user-members, manage- similar health-purchasing cooperative legislation. ment must work to integrate the cooperative into the The Co-op Care legislation has fostered development of a number community. The co-op should get involved in of health purchasing co-ops in various stages of development around community events and gear operations to the greatest the state. Other projects (in addition to HLC) in the planning stages extent possible to help build a stronger community. include a cooperative for Wisconsin physicians, and cooperatives Management needs to take an active role in providing health insurance coverage for small businesses in several communicating with community leaders, local areas of the state. government and other businesses to see that the According to Oemichen, Wisconsin’s novel approach of using cooperative becomes an integral and healthy part of cooperatives to increase access to quality health care is attracting the community. The cooperative must work to serve significant interest from insurance companies, even some foreign the community. companies. WFC has received a number of inquiries from elected When management meets all four of these high- officials and interested parties in a number of other states. priority cooperative responsibilities, along with its To learn more about Co-op Care, visit the WFC Web site: other important business responsibilities, the likely www.wfcmac.coop. FHC’s website is: www.farmershealthcooperative result will be a healthy and profitable cooperative .com; HLC’s Web site is: www.healthylifestylescoop.org/. ■ business. ■

Rural Cooperatives / May/June 2007 41 PAGE FROM THE PAST

From the archives of Rural Cooperatives and its predecessor magazines

carried highlights of the meeting. In 1956, substantial growth was shown in membership, 50 Years Ago... volume of business and in net savings. More members used From the May & June 1957 issues of News for Farmer Cooperatives their meat plant to market their hogs and cattle than in any previous year. There was a 15 FS Springfield feed mill opens (cover article) percent increase in 1956 in the Illinois Farm Supply Co., headquartered in Chicago, took membership, now totaling 1,717 its place in the electronic age with the opening of its new members from 20 Virginia and modern feed mill at Springfield early this year. The mill four West Virginia counties. turned out its first bag of high-quality FS feed on Jan. 17 and With a record slaughter of the first truck rolled away from the loading dock the following hogs and cattle in 1956, the sales day. tonnage approached the 20- An electronic panel with rows of push buttons is the nerve million-pound mark, a 12 percent center of the plant. One man can control automatic weighing, increase over the preceding year. batch mixing and blending of each of the 83 kinds of FS Net sales were $5.8 million. For formula feeds. This automation the first time, the cooperative paid makes it possible to produce a ton a 6 percent dividend on all outstanding capital stock. of feed with less than one man- Keynote speaker Maury A. Hubbard, executive secretary of hour of labor — a considerable the Virginia Farm Bureau Federation, said, “You cannot change from the early days of feed measure the value of a cooperative by the patronage refund. mills. The best way to measure the value of a cooperative is to first Manufacturing capacity of the do without it.” Springfield mill is 30 tons of feed an hour in all forms —meal, pellets, or crumbles — either bagged or in bulk. Annual 30 Years Ago... production is projected in excess From the May & June 1977 issues of Farmer Cooperatives of 100,000 tons. The new plant is located on a 20-acre tract south of Cooperative Farm Credit Loans Total $36.7 Billion Springfield. Construction of the mill building required 4,200 The Farm Credit System’s loans outstanding on Dec. 31, yards of cement and 425 tons of steel. At its highest point the 1976, totaled $36.7 billion, a 15.7 percent increase from $31.7 building stands 147 feet above ground level. The basement billion a year earlier. Farmers and their cooperatives borrowed goes down 17 feet below ground. More than 20 miles of a total of $34.6 billion through the lending units of the Farm electric wiring were used in the various electric circuits plus Credit System during 1976, a 15-percent increase from the over a mile of low voltage wire in the blending panel. $30.1 billion borrowed in 1975, according to figures released Illinois farm supply records show that FS feed is now the by the Farm Credit Administration. largest single brand fed on Illinois farms and demand is Federal Land Banks had continuing to increase. In 1955, feeds accounted for nearly loans outstanding of $19.1 $13 million of the company’s business. billion, an increase of 15.1 percent, and made loans of Rockingham rings in seventh year $4.7 billion during the year, Shen-Valley Meat Packers Inc., Timberville, Va., home of a 6.6 increase. Production the “Rockingham” brand of beef and pork meat products, has Credit Associations made just celebrated its seventh birthday at an annual meeting, its loans of $18.5 billion during most successful year so far. A local television station also 1976, a 14.9 percent increase

42 May/June 2007 / Rural Cooperatives from 1975, while outstanding loans totaled $12.3 billion, up 13.9 percent. Banks for Cooperatives made loans of $10.5 10 Years Ago... billion, up 18 percent. From the May/June 1997 issue of Rural Cooperatives

Minnesota Cooperatives Buy Volstead House (cover West Virginia Quilters Stitch New Marketing Plan (cover article) article) A man reviled by his contemporaries will be assured a place She quietly wields needle and of honor in history after action taken to make his home a thread, stitching patches of cloth museum. Andrew J. Volstead, 1860-1947, served as a U.S. into a portion of the quilt representative from Minnesota’s 7th District from 1903 to collected in a square wood frame 1923. He was best known, and often hated, during his lifetime propped against her knees. The for authoring the Volstead Act, or rest of the quilt cascades across the 18th Amendment to the her lap and onto the floor. She is Constitution, which established the a member of the Cabin Creek prohibition of alcoholic beverages. Quilters Cooperative, following a In turning his home in Granite long-standing tradition handed Falls into a museum, citizens of the down through families and friends community and members of the living in the coal-laden hills and Minnesota Association of hollows of southern West Virginia. Cooperatives (MAC) seek to pay The extra earnings from her quilts have helped to keep her tribute to Volstead for an family and others like them alive in this community, both achievement that has far outlived during the heydays of the mines and later when the coal the memory of prohibition — his supply played out. When Cabin Creek formed in the early contribution to co-ops. As chairman of the House Judiciary 1970s, the state had 75,000 people working in the mines, but Committee, Volstead wrote what is now known as the today employment there has dwindled to 25,000. Capper-Volstead Act of 1922. It enables farmers to jointly Today, the co-op claims 300 members. However, only 40 to market their products without being prosecuted for antitrust 100 are active at any one time and receiving checks for their violations. work. “It’s often seasonal work for many, explains co-op Before the law was passed, Minnesota farmers were thrown representative Jamie Thiebeault. “Many work on quilts in the in jail for trying to bargain with buyers to achieve higher winter; some make only one or two a year, while others are prices. The act prohibits cooperatives from engaging in looking for $100 to $200 a month to supplement Social unlawful business activities, such as undue price enhancement, Security income.” predatory trade practices and collusion with outside parties. By the mid-1970s, the cooperative was thriving, helped Before passage of the act, marketing co-ops were small and considerably by national publicity garnered when Jackie struggling. Since enactment of what has been called the Kennedy purchased two quilts and later ordered more. The “Magna Carta of Cooperation,” farmers now market $33 co-op was propelled into the national market and yearly sales billion worth of agricultural goods annually through co-ops. climbed to $500,000. Prices for quilts soared to the $500 to They purchase another $9 billion worth of products and $800 range in the early 1980s. These higher returns to services. producers were more in line with the intense labor and In 1923, Volstead wrote: “The cooperative marketing law craftsmanship involved in producing the quilts. However, the will do more good than any other law that you can name, higher prices put the product beyond the affordability range because it will make it possible for farmers through farm for many people. Competitors found cheaper material and organizations to sell their products upon an equal footing with labor in overseas factories in Haiti, the Philippines and China. the businessmen.” As cheap imitations began to flood the market and Henry Harren, of the Minnesota Historical Society’s undercut domestic producer prices, the co-op was on the historic sites division, says if he had to select one Minnesotan verge of folding. But core members were determined to fight whose life has had the greatest impact upon all Americans, he back. They decided they needed a new headquarters store and would vote for Andrew Volstead. marketing plan to lower their products’ costs. The home was purchased from Mable Connor by MAC In 1991, the co-op moved to a historic house in Malden to with a $40,000 grant contributed by a number of Minnesota- draw more tourist business and in 1992, it developed the “all- based cooperatives. MAC has donated the home to the city of American” quilt as a joint venture with two other domestic Granite Falls. The U.S. Department of Interior’s National craft cooperatives. The co-op decided to market this symbolic Park Service has established a $15,000 grant for acquisitions product through Land’s End, the Wisconsin mail order in the project. clothing house. The arrangement continued until 1995. Another marketing strategy is to better tap into West Virginia’s growing tourism trade. ■

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