Rural
COOPERATIVESCOOPERATIVESUSDA / Rural Development January/February 2013
Rocky Ford Renaissance Page 10 Commentary
Raising the bar on safety
By William J. Nelson and DuPont, as described in the article, “Creating a safety Vice President, Corporate Citizenship and culture,” on page four of this issue. President, CHS Foundation North American agricultural co-ops and others in the farm Chair, ASHCA Board of Directors industry have a unique opportunity to step up to help ensure the safety of the agricultural workforce through public griculture, with its decentralized nature and communications, education and training. A diverse structure, lags other industries in We are particularly excited about the “2013 North reducing the toll on its workers. Its fatality American Agricultural Safety Summit” Sept. 25-27, 2013, at rate is eight times that of the all-industry the Marriott Minneapolis City Center Hotel. The Summit, average. In a typical year, about 500 workers hosted by ASHCA with support from CHS and others, has die while doing farm work in the the potential to galvanize the United States, and about 88,000 public and private sector in suffer lost-time injuries, forming a common vision on how according to the National to update national agricultural Institute for Occupational Safety safety and health priorities. and Health. The annual cost of Committed speakers include these injuries exceeds $4 billion. Carl Casale, president and CEO of If our agriculture industry is CHS, as well as John Howard, going to feed the world director of the National Institute population, which is estimated to for Occupational Safety and reach 9 billion by 2050, we must Health. Tom Vilsack, U.S. do it safely, humanely and Secretary of Agriculture, is sustainably. among invited speakers. At CHS Inc., we see safety as In a typical year, The primary audience will a vital issue. Not only is CHS include leaders and influencers of and each of its subsidiaries about 500 workers cooperatives and farm committed to providing a safe organizations, industry executives and healthy workplace, the CHS die while doing and their risk managers, Foundation provides grants to farm/ranch management advisors support education programs that and safety consultants, university help keep farm families, children farm work. faculty and researchers, and agribusiness professionals agricultural educators, safe. agricultural association leaders, One way in which CHS and many others. promotes a culture that makes personal health and The Summit event will include interactive sessions and occupational safety a priority is through its membership in innovative learning opportunities appealing to individuals and Agricultural Safety and Health Council of America (ASHCA, businesses involved in food production and worker safety. To http://www.ashca.com.) learn more, go to www.ashca.com. ASHCA, established in 2007 with support from the Farm For another look at how agriculture can become safer and Foundation, is a consortium of agricultural producers, farm remain sustainable, read the account of four ASHCA associations and agribusinesses that has planned and members in the Journal of Agromedicine. Visit: promoted strategies to make agriculture much safer and http://bit.ly/RHyCAF or http://www.tandfonline.com/ healthier in the United States. We see ASHCA’s focus as toc/wagr20/17/4. n complementary to the efforts of the University of Minnesota
2 January/February 2013 / Rural Cooperatives Features
Volume 80, Number 1 January/February 2013
Rural Cooperatives (1088-8845) is published bimonthly by USDA Rural Development, 1400 Independence Ave. SW, Stop 0705, Washington, DC. 20250- 0705.
The Secretary of Agriculture has determined that publication of this p. 10 p. 14 p. 28 periodical is necessary in the transaction of public business required by law of the Department. Periodicals postage paid at Washington, DC. and additional mailing 04 Creating a safety culture offices. Copies may be obtained from the Garden City Co-op tragedy underscores need for co-ops to make employee safety priority No. 1 Superintendent of Documents, Government Printing Office, Washington, DC, 20402, at $23 per year. Postmaster: 07 Here today, here tomorrow send address change to: Rural Cooperatives, USDA/RBS, Stop 3255, Alabama co-op helps limited-resource growers process and market produce Wash., DC 20250-3255. By Fay Garner Mention in Rural Cooperatives of company and brand names does not 10 Rocky Ford Renaissance signify endorsement over other companies’ products and services. Colorado cantaloupe growers rebound after crisis By Lee Recca Unless otherwise stated, articles in this publication are not copyrighted and may be reprinted freely. Any opinions express- 14 USDA-supported programs help Mali farmers adapt in hard times ed are those of the writers, and do not necessarily reflect those of USDA or its By David Taylor employees.
The U.S. Department of Agriculture 17 Bio-energy impact, base capital financing among (USDA) prohibits discrimination in all its topics at Farmer Co-op Conference programs and activities on the basis of race, color, national origin, age, disabili- By Bruce J. Reynolds ty, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic 22 Antitrust challenges facing farmers and their cooperatives information, political beliefs, reprisal, or By Marlis Carson and Donald Frederick because all or part of an individual’s income is derived from any public assistance program. (Not all prohibited 28 Co-op conversions help bring security to manufactured bases apply to all programs.) Persons housing owners with disabilities who require alternative means for communication of program By Steve Varnum information (Braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD). 32 The Co-op Nature of (the Affordable Care Act) CO-OPs To file a complaint of discrimination, write By Charles Ling to USDA, Director, Office of Civil Rights, 1400 Independence Avenue, S.W., Washington, D.C. 20250-9410, or call (800) 36 Most Co-op Network members say 2012 was 795-3272 (voice), or (202) 720-6382 (TDD). USDA is an equal opportunity provider a solid economic year and employer. By Mary Erickson Departments 02 COMMENTARY Tom Vilsack, Secretary of Agriculture 38 NEWSLINE Dallas Tonsager, Under Secretary, USDA Rural Development ON THE COVER: On the cover: Although their cantaloupes were not Dan Campbell, Editor the cause, a food poisoning outbreak in 2011 badly hurt producers in the Stephen Hall / KOTA, Design Rocky Ford area of southeastern Colorado, including the Hirakata family
Have a cooperative-related question? (pictured here). Under the umbrella of the Rocky Ford Growers Call (202) 720-6483, or email: Association (RFGA), growers bounced back in 2012 with a marketing [email protected] campaign that helped restore consumer faith in their product. Photo by This publication was printed with vegetable oil-based ink. Dave Klein, courtesy RFGA
Rural Cooperatives / January/February 2013 3 A deep reservoir of grain can act like quicksand, quickly pulling a person under and causing suffocation. Here, workers learn rescue techniques at a CHS Inc. river terminal near Kennewick, Wash. Photo by David Lundquist, courtesy CHS Inc.
Creating a safety culture
Garden City Co-op tragedy underscores need for ag co-ops to make employee safety priority No. 1
Editor’s note: This article was provided by the University of get a job done right because he was so totally committed to Minnesota, with additions by Rural Cooperatives staff. serving the farmer-members of Garden City Cooperative in southwest Kansas. Many of those members were also his wayne Seifried was the type of employee any lifelong friends who he knew counted on the co-op as a D co-op manager or director would love to critical part of their success. have on staff. Well known as a “go getter” When the co-op decided to form a safety committee, it and a “workaholic,” co-workers and members came as no surprise that Seifried, one of its longest-tenured say Seifried would always go the extra mile to employees, was named as its chairman. Agriculture is one of
4 January/February 2013 / Rural Cooperatives the world’s most dangerous professions, which also presents into new positions to supervise and emphasize safety. hazards for the men and women who provide goods and “The story we have of the tragedy here at Garden City services to farmers and ranchers. There are huge pressures to Co-op has to do with an incident that happened in a grain get work done as expeditiously as possible in agriculture. So elevator by an employee taking a short cut and getting into a when machines break down, grain bins bin that he should have never gotten clog or inclement weather is approaching, into,” John McClelland, general manager all too often safety corners are cut. of Garden City Cooperative, says in the Even a knowledgeable, veteran hand like video. “The message, though, is not 59-year-old Seifried — whose meticulous The annual cost about a grain elevator vs. anything else attention to detail and understanding of that we do. The message is that people safety procedures earned him the of farm work accidents make bad decisions in surroundings that leadership role on the co-op’s safety exceeds $4 billion. they feel comfortable in when they are committee — can sometimes drop his or under pressure. It’s kind of counter- her guard when the pressure is on. It only intuitive, but the better you train, the takes one such slip to end in tragedy. more comfortable your people feel, and That’s what happened in November the more likely it is for them to make a 2009 when Seifried entered a grain bin to bad decision. break up some clogged milo. Although he “So, along with the training and was wearing a safety harness, he did not procedures, you have to make sure there is “rope off” from above, which is vital to a culture and commitment behind the saving the life of a worker who gets pulled scenes,” McClelland continues. “That under in a grain silo or bin. This proved culture and commitment extends, beyond to be a fatal error. By the time the rescue what happened to us with a bin entry team pulled Seifried out, it was too late to fatality, to every part of our operation. So revive him. our story isn’t a grain elevator story or a Seifried’s death rocked the community Learning the ropes: a safety training bin entry story; it’s about one of the best and the entire co-op, where he knew and session at United Farmers Cooperative trained people we had on staff who got worked with virtually every employee. His (UFC) near York, Neb. Photo courtesy UFC lost in the moment and took some story is told in a 25-minute video, shortcuts that ultimately cost him his life. “Roberta’s Request,” which should be That can happen if you are working in a mandatory viewing for all co-op managers, employees and cotton gin in south Texas, or a potato farm in North directors, says Michael Boland, Koller professor and director Dakota.” at the University of Minnesota Food Industry Center. Boland is now leading an effort to get more co-ops to promote Goal: Outcomes-based culture employee safety. The video is posted on YouTube at: “Moving from a compliance culture to an outcomes-based http://www.youtube.com/watch?v= kRhk2lougPw. culture is where we want to be in our regulatory environment,” Boland stresses. “Building a safety culture is Ramping up safety programs an important link in an outcome-based culture.” Ironically, safety issues often intensify when employees Todd Ludwig, CEO of Watowan Farm Services (WFS) in become comfortable in their work environment and develop Truman, Minn., spoke at the 2012 Farmer Cooperatives a false sense of security, feeling that they know the threats conference in Minneapolis, Minn., in November about a and how to deal with them. Add to that the frequent pressure program his cooperative — and some other local co-ops — of needing to get work done as soon as possible, and you are participating in through the University of Minnesota. have an environment where safety corners sometimes get cut. “We decided that more education on employee safety had to Saving a few seconds by letting a safety step slide can cost an be pushed throughout the organization,” Ludwig said. employee an arm, a leg or even their life, the video stresses. “This partnership with the University of Minnesota and The antidote to such tendencies is for co-ops to build a DuPont made this attractive to us,” added Mike Trosen, culture of safety in which managers, supervisors, directors CEO of Country Pride Cooperative in Winner, S.D., who and all employees understand that safety is always the first was in the audience. “We had recently hired Tom Malek as priority — one that never takes a back seat to any “rush” safety director, and this was beneficial for him.” assignment. At Garden City Co-op, people were promoted “If someone had told me in February 2011 [prior to a
Rural Cooperatives / January/February 2013 5 work out a program with DuPont that would be accessible to local cooperatives and asked if I was interested. I said definitely yes.” David Edwards, safety director at Farmway Co-op in Beloit, Kan., adds, “My CEO was at that same workshop and came back saying, ‘We need to do this.’ It sounded like an excellent opportunity to me.” Ultimately, 11 cooperatives agreed to be assessed using DuPont’s program. The initial assessment used a 24-question survey designed to obtain feedback from employees about safety processes, structure and similar activities correlated with safety culture. More than 4,500 senior managers, line managers and employees from the 11 cooperatives participated in the survey in the summer and fall of 2011. “The results from the initial assessment revealed that there was a lot of room for improvement in building safety culture,” notes Boland. “We worked with DuPont to create an educational program for these cooperatives.” “I did not know anything about this program,” says Ryan Armbuster, safety director at Cooperative Elevator, Pigeon, Mich. “My CEO saw the initial assessment from DuPont, Stepping or falling into a loaded grain truck can also be deadly for and we knew we needed to do better.” employees, hence, this safety training exercise in Kennewick, Wash. “We had recently gone through a merger, and it was clear Photo by David Lundquist, courtesy CHS Inc. from the data that we had not yet merged our safety culture to have one Trupointe safety culture,” says Brian Manges, safety and risk coordinator at Trupointe Cooperative in Piqua, Ohio. Ryan Janssen, the safety director at Key CEO Roundtable in March of that year, see below] that I Cooperative in Roland, Iowa, adds, “We had also gone would be working with this group — and that one of my through a merger that essentially doubled us in size. We had doctoral students would be doing research on this topic, I to take our safety culture into account.” would have not believed it,” Boland says. “It was totally off my radar screen. What made this program special for me are Workshops hone the people and cooperatives in this safety education in on key topics program.” Over the next year, a series of workshops were held in Graduate student Corey Risch has worked on the project Omaha, Neb., Kansas City, Mo., and Fort Wayne, Ind., on as part of her dissertation. “CHS recently funded a graduate topics such as incident investigation, safety observations, student fellowship at several universities, including the safety committee structure, leadership and other topics University of Minnesota,” Boland continues. “We received related to safety. Participants included safety directors for matching funds for the fellowship, and the first student each cooperative and a senior line manager. funded happened to be Corey. She decided to take this Doran Burmood and Mark Hueftle, safety directors at CPI project on as part of her dissertation. It has been a good (Cooperative Producers Inc.) in Hastings, Neb., notes that program for the university, a good program for my their co-op operates 38 locations, including agronomy, department and graduate students — and a good program for energy, feed and grain facilities. “But we also own a pizza me, personally and professionally.” parlor, a tire store, a Midas dealership, and convenience stores,” says Burmood. “Our employees are all over the board CEO Roundtable sparks interest with regard to tenure and knowledge of safety as applied to The University of Minnesota safety program had its roots their own location. This is a challenge.” in a March 2011 CEO Roundtable, sponsored by CoBank “We had been doing incidence investigations and other and Kansas State University, with cooperation from the things,” says Joe Toporcer, safety director for Agland Co-op, University of Minnesota. Canfield, Ohio. “But we really had no protocols for safety “My CEO went to the conference and came back talking observations. The role playing we did at our workshops about a presentation by DuPont and Cargill on safety helped us a lot.” culture,” says Phil Pelc, safety and compliance director at Thatcher Block of Innovative Ag Services in Monticello, United Farmers Cooperative, in York, Neb. “He said Michael Iowa, says, “We have learned a lot. I was hired as safety and Boland from the University of Minnesota was going to try to continued on page 42
6 January/February 2013 / Rural Cooperatives Here today, here tomorrow
Alabama co-op helps limited-resource growers process and market produce
Al and Demetrius Hooks host field days to share success stories with others interested in expanding their small farming businesses. Photos by Fay Garner, Courtesy USDA Natural Resources Conservation Service
By Fay Garner, Public Affairs Specialist Today, Hooks and the other co-op that includes his son, Demetrius, Alabama State Office members of his small farmers co-op are and three other local growers. USDA Natural Resources Conservation participating in Alabama’s “Buy Fresh, In the summer of 2010, Al Hooks Service Buy Local” campaign and USDA’s Produce joined the Tuskegee University “Know Your Farmer, Know Your Food” Farmers’ Cooperative and is now n 2006, Al Hooks’ effort. They regularly supply fresh supplying fresh produce to Walmart, I “Pick Today, Use vegetables to restaurants, grocery stores the largest grocery retailer in the Today” philosophy of and farmer’s markets in and around United States, among other buyers. marketing more than Macon County and as far away as “When I started in the produce met his planting and Birmingham. business, I had a vision,” Hooks harvesting needs. Fast forward six years Hooks, who farms near Milstead, explains. “I did not want something that and you will see a completely different Ala., formed Al Hooks Produce in would be here today and gone operation. 2002, which today is a small marketing tomorrow.” His ownership of about 45
Rural Cooperatives / January/February 2013 7 Hooks warns that using plastic is very expensive and farmers need to be selective regarding which crops and land to use it for in order to ensure that there is a net gain going back into the operation. Al Hooks Produce has been supplying the Kellogg Center in Tuskegee with fresh produce for about four years and also delivers to the Whole Food Market in Birmingham. The members supply Jim ‘n Nick’s Bar- B-Q in Prattville with cut greens and plan to provide peas, okra and other vegetables in the summer. They also supply produce for special events. One of the newest contracts is with Embassy Suites in downtown Montgomery. Local farmers’ markets, including the Tuskegee Farmer’s Market and the Valleydale Farmer’s Market in Birmingham, are also a big part of the co-op’s marketing strategy. Hooks sometimes works with as many as nine farmers’ markets per week during the summer. Demetrius Hooks, left, works with his father, Al Hooks, to sell produce to larger markets, such as Walmart. Processing facility built The increase in demand allowed Hooks to build a produce processing acres of fertile land and his love for Hoop houses are easy and fairly facility. “I wanted to do something farming fueled his vision of expanding cheap to build, simply consisting of a beneficial for my family, as well as for the operation to grow more produce metal frame wrapped in plastic. Hoop the community and the people who and to have a place to conveniently houses extend the growing season into want to be a part of it,” Hooks says. “At process the crops for market. the cold months, helping to increase the same time, I wanted to do it in the The co-op pools produce — mostly productivity. They keep plants at a right way. My vision was to build an peas, cabbage and greens, including steady temperature and conserve water approved facility where we can process collards and turnip greens — from the and energy. Hooks has been so pleased the crops ourselves for a variety of four farms for distribution to with his hoop house that he plans to markets.” restaurants, grocery stores and nearby expand with two more. To aid in this part of his plan, Hooks farmer’s markets after it is washed and Hooks has also participated in a researched the type, size, regulations packaged in Hooks’ processing facility. demonstration project with the Mid- and available financing for such a South Resource Conservation and facility. After deciding on a design, he USDA provides key assistance Development Council using turned to USDA’s Farm Service Agency Use of modern farming technologies “plasticulture” — the practice of (FSA) for financing. (Editor’s note: is helping to greatly expand his covering crop rows with sheets of USDA Rural Development also has production. USDA’s Natural Resources plastic to help regulate soil programs, including the Value-Added Conservation Service (NRCS) helped temperature, slow loss of water from Producer Grant program, which can help Hooks install a micro-irrigation system evaporation and reduce soil erosion. build such facilities. For more information, that delivers water and nutrients in The system worked so well for him visit www.rurdev.gov). precise amounts directly to plant roots. that Hooks has expanded his acreage in “There was a real need for this type He also constructed a hoop house that the program. Both plastic and drip tape of facility,” FSA State Executive allows crops to be started earlier in the are installed at the same time using a Director Daniel Robinson said during a spring and harvested later. special implement pulled by a tractor. recent tour of the farm. “There is
8 January/February 2013 / Rural Cooperatives always a demand for fresh products, markets and earn more income for their father), Demetrius is instrumental in whether they are chopped greens or produce. In turn, Walmart benefits designing logos, labels and packaging some other vegetable. We envision that from having fresh, locally-grown for the business. He also works to this facility is going to increase his produce to stock the shelves of its secure new agreements to supply fresh acreage and allow more rural farmers to grocery stores. vegetables to area restaurants and other get involved.” The Alabama Small Farm Rural customers When the word spread about his Economic Development Center at “When we first started with processing facilities, Hooks realized Tuskegee University has contracted Walmart, it had never bought greens or there were other producers who did not with Walmart for local growers to shelled peas from small farmers in this have the funds to even rent a building, supply two Alabama distribution centers area,” Demetrius says, adding that the much less build one. He discussed the with seasonal produce. co-op’s products are entirely local. “We situation with the other co-op In July 2011, Al Hooks Produce even created the clam-shell plastic members, and they decided to allow started selling peas and greens to container that holds the peas.” others to use the building. Walmart through the center. The pick- NRCS State Conservationist Inside the processing facility, a cooler up and delivery process is convenient William Puckett sees great potential to holds the cut and packaged cabbage, for both parties. Walmart trucks pick up spread this business model. As he puts collards and other items for restaurants, the produce — as little as one pallet — it: “Al Hooks Produce is a prime which want different types of cuts, and transport it to their distribution example of how limited-resource ranging from strips to squares. “We do centers. farmers can help meet larger demands
The Hooks family uses plasticulture and micro-irrigation to improve productivity. The latter helps target nutrients and water directly to the roots of the plants. not machine cut our greens. I hand-cut Hooks’ son, Demetrius, a graduate for fresh produce.” every pound of greens shipped, of Auburn University in Montgomery, And in the true cooperative spirit of sometimes 300-400 pounds a week,” Ala., has been working full-time with co-ops helping other co-ops and their Hooks says. his dad for two years. Demetrius is in communities, Hooks and his son host charge of marketing and public field days on their farm to share their Supplying Walmart relations and helps with all other story with others interested in In October 2010, Walmart started aspects of the business. As a graphic expanding small farming businesses. n the Heritage Agriculture Project to help designer (a field he worked in for 12 limited-resource farmers expand years before going to work with his
Rural Cooperatives / January/February 2013 9 Rocky Ford Renaissance Colorado cantaloupe growers rebound after crisis
By Lee Recca here are no better But the 2011 season was a departure T cantaloupes than those from the 125-plus seasons during which Editor’s note: The author is a grown around Rocky this venerable brand has been communicator based in Denver, Ford, in southeastern marketed. Colo., who has worked for Sunkist Colorado, most A cantaloupe Listeria bacteria crisis Growers, CoBank and the Rocky consumers in Colorado and in 2011 was traced to a single grower in Mountain Farmers Union. surrounding states will tell you. They southeastern Colorado, 90 miles from say the melons are well worth waiting Rocky Ford, who allegedly transported for until they ripen, typically in August. melons in contaminated trucks without
10 January/February 2013 / Rural Cooperatives The Michael and Glenn Hirakata families are key players in the Rocky Ford Growers Association, which has helped area cantaloupe growers bounce back from a crisis in 2011, caused by a food poisoning outbreak more than 90 miles away from their farms. Photo by Dave Klein, courtesy RFGA
tell our side of the story — that growing Rocky Ford cantaloupe is not just a job, it’s our livelihood.” The growers had lots of help, including guidance from the Colorado Department of Agriculture and the Produce Marketing Association, Hirakata says.
Growers invest in new packing shed Even though the Rocky Ford cantaloupe has earned a reputation for safety and quality, the Rocky Ford Growers Association (RFGA), formed in November 2011, decided to invest $800,000 in a new packing shed with the latest equipment for washing, storing and packing. With help from Colorado State University, RFGA researched best practices in cantaloupe washing techniques. It developed safety protocols to upgrade all operations and hired a safety manager and a safety/quality tracking company. A request was made to USDA to perform announced and unannounced audits. Michael Bartolo, who heads the Rocky Ford Research station, provided expertise. To get the word out, the association chilling. But some news media and head of the Rocky Ford Growers hired a marketing and public relations inaccurately attributed the problem to Association, recounted the way the agency, BrandWerks+Mulligan, to the Rocky Ford growing region, which association was conceived. “The develop and carry out branding, devastated the Rocky Ford Cantaloupe growers came together to brainstorm advertising, media relations, events and brand that year. ideas to rebuild our name. We just social media campaigns, all under Consumer and retail confidence wanted to get the complete story out RFGA supervision. As the melons needed to be restored quickly as the about what we had done in the past and ripened in the field, the growers filmed 2012 season approached. the steps we were taking for the future, and appeared in commercials that Michael Hirakata, the lead packer without pointing fingers. We wanted to appeared just a week or so before the
Rural Cooperatives / January/February 2013 11 crops rolled into markets, building and judged by local media stars brought of Rocky Ford cantaloupe among excitement. even more attention to all the social consumers and the potential impact to The Rocky Ford Cantaloupe and networks and conventional media. other Colorado fruits and vegetables. Rocky Ford Growers Association names Appearances around the Rocky Ford “Rocky Ford cantaloupes, along with were trademarked, and the growing area by Colorado U.S. Senator Michael Olathe sweet corn and Palisade peaches, region was defined as Otero and Bennett, state Agriculture have been one of the products that have Crowley Counties, south of the Commissioner John Salazar and helped define the image of Colorado Colorado Canal. Governor John Hickenlooper added to produce for many Coloradoans — we couldn't just sit by and watch Colorado's cantaloupe industry disappear,” Lipsetzky continues. “We knew a broad communications effort to restore consumer confidence and promote Rocky Ford cantaloupe was going to be critical.” “We were really pleased with the way the growers came together to form an association and with all their efforts to implement measures aimed at increasing food safety,” Lipetzky says. “They Billboards and ads played a key part in the association’s marketing campaign. did an excellent job and demonstrated to consumers that they are committed to Bar code-branded stickers were the “pizazz.” The events culminated in producing a high-quality and safe developed for all cantaloupe produced national media coverage about the product.” by Hirakata Farms, giving the ability to rebound of Rocky Ford cantaloupe, trace a melon back to the field where it including an article in the San Francisco Enduring commitment was grown. All growers were required Chronicle. to growers’ brand to register with USDA’s Farm Service The public relations effort was Generations of growers since 1887 Agency (FSA) and obtain current GAP spearheaded by Diane Mulligan of have dedicated themselves to Rocky (Good Agricultural Practices) BrandWerks+Mulligan. The agency Ford and growing this special melon. certification or Global GAP training. monitored national news carefully Their enduring commitment, often in throughout the season, prepared for any the face of adversity, is the “face” Growers accompany quality problems that might crop up. behind the brand. melons to market RFGA was rewarded for its proactive Marketing materials, including Friday, July 13, was a lucky day for approach: when Listeria outbreaks television and radio commercials, RFGA, as the new crop rolled into occurred in other states, the media billboards, posters and advertising stores a couple of weeks early. Growers called RFGA for background brought it all home for consumers: the went with the melons, standing in the information, which was freely given, face of the growers, the heritage and produce department of a King Soopers along with a reminder of Rocky Ford’s the simple pleasure of biting into a (one of Colorado’s major supermarket reputation and recent upgrades. sweet juicy melon that brings a smile to chains) to field reporters’ questions. “This was really the first time that your face. Local news outlets in Colorado the Department became this involved to Stories about the comeback of the enthusiastically covered the story, which help support a specific segment of Rocky Ford brand appeared on was picked up by news outlets Colorado’s ag industry,” says Tom television, radio and in newspapers and throughout the United States. A week Lipetzky, Markets Division director for magazines throughout the state. later, a packing shed tour was equally the Colorado Department of Exceptional relationships with the well covered in the press. A cook-off Agriculture. “But we really felt it was media led to balanced reporting, even featuring four of Denver’s hottest chefs necessary because of the high visibility when Listeria concerns cropped up in
12 January/February 2013 / Rural Cooperatives TV news reporters interview cantaloupe growers in a Kings Soopers grocery store in Denver as part of a marketing campaign to spread the word about the wholesomeness of their fruit.
other states. Rocky Ford kept its What experience Colorado’s cantaloupe industry,” says unblemished reputation for safety taught them Lipetzky. “Support from the retailers throughout the 2012 season, selling out Hirakata’s advice to other was key to getting cantaloupe back in its crop early and earning a premium cooperatives and associations facing front of consumers in 2012, and their price for its growers. similar challenges is: “Don’t wait until continued support will be critical to What accounts for the amazing something happens. We were caught further expanding production and sales rebound of the 2012 season? completely off guard. Plan for the worst in 2013.” “Everything fell into place,” says and hope for the best.” Although the future depends, as Hirakata. “It took everybody pulling Added Lipetzky, “Be ever vigilant in always, on growing conditions, Hirakata together: the state of Colorado, ensuring food safety and proactive in vowed that RFGA would keep moving Colorado State University, the growers. telling your story to consumers and the forward, expanding the cantaloupe And we had outstanding support from public. By doing so, should an issue market while maintaining vigilance on retailers, the media and the consumers. ever arise, you will have already quality and safety. Plans are being made The media reporters were a great help. established appropriate channels for for other melons to join the famous They were there from Day One helping communications and are more likely to Rocky Ford cantaloupe and brand us tell our story.” There was also a be viewed as credible in how you are extensions are being conceived that will lively social media presence including dealing with the issue.” use the seconds (melons with surface sites on Pinterest, Facebook, Twitter, “The 2012 season, while quite imperfections) in processed products, YouTube, and a web site that is still successful by all measures, marked only giving growers and consumers more of going strong off-season. the early stages of a recovery for the sweet, juicy Rocky Ford goodness. n
Rural Cooperatives / January/February 2013 13 USDA-supported programs help Mali farmers adapt in hard times
By David Taylor Making a living by farming is never people fled northern Mali in the face of Communications Officer, easy, but if you want a real test, try it in ethnic and religious persecution and Aga Khan Foundation U.S.A. Mali. The landlocked country on the human rights violations. Many edge of the Sahara Desert ranks just 12 displaced people sought refuge in the Editor’s note: This article is provided rungs up from the bottom of 187 Mopti region, pushing that area’s fragile courtesy of the Aga Khan Foundation countries listed on the 2011 Human limits. U.S.A. It was written prior to the upsurge Development Index by the United Residents of the Mopti region face in fighting in mid-January. Nations Development Program. One an unpredictable climate, poor access to child in three here suffers from chronic markets and harsh seasons of food n the day before malnutrition. In the past year, a food insecurity. Nearly 79 percent of them O Thanksgiving, Mary security crisis, caused by erratic rainfall live in extreme poverty. So Ambassador Beth Leonard, the U.S. and spikes in food prices, has further Leonard was visiting families tested by a ambassador to Mali, hurt Mali’s farm families. double whammy of a food crisis and took a trip to see how Following a coup in March 2012, civil unrest. the farm families and grower conditions got worse. Rebel and She found glimmers of hope. In a cooperatives of Mopti, eight hours Islamist groups took control of situation that requires a multi-pronged northeast of Bamako, the capital, are northern Mali, claiming independence response involving health, education coping in the challenging conditions of for an area covering roughly two-thirds and livelihood training, USDA and its this west African nation. of Mali’s land area. More than 300,000 partners are giving Malians a chance
14 January/February 2013 / Rural Cooperatives Facing page: The marketplace in Djenné, in the Mopti Region of Mali, features many items from farmer cooperatives. Photo by Lucas Cuervo Moura, courtesy Aga Khan Foundation. Ambassador Mary Beth Leonard (below) greets participants in a farmer field school who are learning ways to improve their yields of rice, millet and sorghum. Photo by Duden Yegenoglu
through better skills and opportunities. by training community health workers. sorghum (and 4,000 cowpea producers) With the threat of political unrest and address shared problems and improve Season training food insecurity, new funding from food security during the “hungry On Nov. 21, Ambassador Leonard USDA and the U.S. Agency for season,” before harvest. During a got a close-up look at programs that International Development is helping morning meeting, they discussed how provide crucial help to farmer co-ops to respond to the area’s most urgent intercropping cowpeas with millet and and other groups, including several needs. sorghum improves soil fertility and managed by the Aga Khan Foundation The ambassador’s convoy visited the boosts yields for millet and sorghum. U.S.A. (AKF USA), which has long village of Soufouroulaye, where an Next stop: a livestock group in the supported farm training and livelihoods AKF-managed farmer field school same village where women who breed in Mopti. Its programs ensure that farm brings together women who grow livestock were gaining field-based families have the materials and skills for millet, sorghum and cowpeas. Farmer instruction on how to best fatten their off-season agriculture, while building field schools are essentially schools animals when feed is scarce. The area their resilience against future crises. without walls, where farmers learn from has 14 such women farmer groups. With funding from USDA, AKF has each other through hands-on “It really is wonderful to come on a also scaled up efforts to prevent and experience in their own fields and find trip like this and see what this means treat child malnutrition through answers to shared problems themselves. for people,” Ambassador Leonard said support of school-feeding programs, by The USDA grant helps nearly in an interview with Catholic Relief educating parents about nutrition and 24,000 farmers of rice, millet and Services.
Rural Cooperatives / January/February 2013 15 At the village of Sevare, she stopped “There’s a marked improvement in “In spite of the painful events, Aga to visit rice farmers who received my income. The increase let me buy Khan Foundation is one of the few market development training, funded two small goats this year and start other non-governmental structures that is by a USDA Food for Progress grant. ventures like trading in rice.” working with rural populations on the The training helps them diversify their The program also supports schooling ground,” Levy Dougnan, a reporter production and increase farm revenues. for children displaced by the unrest with Radio Jamana Djenne, wrote in an The training, organized by further north, providing school supplies article in Les Echos, a French-language ACDI/VOCA, improves the ability of for displaced children and their newspaper published in Bamako. farmer co-ops and groups to get a teachers. It also supplies health supplies higher value from their crops and for the students (such as mosquito nets New types of financing improve their processes for marketing. to protect against malaria) and their for farm groups classrooms (such as disinfectant). In her last visit of the day, the Making a business of farming “I think this is a positive story,” said ambassador stopped at the Sevare office As the ambassador looked on, Steve Mason, CEO for AKF Mali. of Premiere Agence de Microfinance farmers learned how to deal with “AKF is committed to improving (PAMF), an agency of the Aga Khan marketing obstacles and how people’s quality of life in Mopti Development Network. Through the cooperatives can pool their members’ Region.” USDA grant, PAMF improves access to production to grow economies of scale. Mason added that AKF’s approach to financial services that smallholder The USDA grant helps 20 reducing rural poverty, known as Multi- farmers would not otherwise get. PAMF cooperatives provide market guidance Input Area Development, weaves makes loans to farmers trained in the to their members. Through this, 5,000 together basic education with health AKF field workshops so that they can farmers around Mopti substantially and livelihood programs. The women’s obtain (for example) irrigation wells for boost their income from millet, farmer groups build fundamental vegetable growing, equipment and post- sorghum, rice and vegetables. literacy skills through more than two harvest financing. AKF instructors also teach another dozen mini-libraries and classes Three-quarters of the loans are popular course, Farming as a Business, associated with the groups. The mini- group loans for farming and livestock which features value-chain analysis, libraries get most use between July and enterprises, many of them run by business planning and how to establish October, before the rainy season, when women. PAMF has tested new types of economic interest groups. most people work the crops. loans with these groups, including “inventory credit group” loans. For Making for healthier kids these loans, cooperatives trained in Before leaving Soufouroulaye, post-harvest techniques can store Ambassador Leonard spoke with their harvest securely and each women growers who met to member receives credit according improve their vegetable production to his or her portion. This allows and marketing, which in turn helps farmers to save their harvest to sell their family’s nutrition and food later when they can get a higher security. Bintou Toulema, a 35- price. year-old local farmer with a son and Ambassador Leonard returned a half dozen other family members to the capital impressed. “The who depend on her, spoke a few assistance that the international months before about how the community gave did actually help training and support helped her these people to come through this family. period, and so now we can look “The training is a good thing,” forward hopefully to a brighter Toulema said, noting that the future,” she told CRS. Back in program also helped provide the Bamako, she looked forward “to group garden with a well and supporting the resilience, so that protective fences. But the main there’s better agricultural thing, she said, is that “we can build production and so they’re better on the training.” She now earns equipped to deal with such twice as much from the group’s Women vegetable growers in Mopti have received challenges in the future.” vegetable garden as she made training in better production techniques and market As the next day dawned, the during previous seasons from other information, with USDA support. Photo by Lucas Cuervo farmers of Mopti were back at work. Moura, courtesy Aga Khan Foundation work. n
16 January/February 2013 / Rural Cooperatives Bio-energy impact, base capital financing among topics at Farmer Co-op Conference
Several panelists shared the view that development of bio-energy (such as this ethanol plant) is reducing agriculture’s reliance on commodity support programs.
By Bruce J. Reynolds, Ag Economist Other conference highlights are described below. Cooperative Programs USDA Rural Development Bio-energy growth foreseen [email protected] Bio-energy has contributed to the income of U.S. grain farmers in recent years and is an important factor in the he annual Farmer Cooperative Conference, development of a new farm bill. Gary Haer, a vice president T organized by the University of Wisconsin with the Renewable Energy Group, predicted continued Center for Cooperatives (UWCC), provides growth in bio-energy. a forum for keeping up to date on major Glickman and other panelists shared the view that bio- economic and cooperative trends. The 15th energy is reducing agriculture’s reliance on USDA’s annual conference was held in Minneapolis Nov. 8-9. The commodity support programs. Yet, farm income from bio- longevity of the event indicates a continuing interest in energy also increases the need for risk management. farmer cooperative practices and developments. Specifically, the recent expansion in U.S. petroleum and Previous conferences focused on specific topics, such as natural gas was not generally predicted three or four years risk management, governance and finance. This year’s ago. conference, “Leading Change: Envisioning the Future,” took The shift of the United States from being a major on a range of critical topics, reflecting the complex importer of energy to a significant producer of energy will interactions of issues in today’s economy. As in previous involve adjustments in the marketing of bio-energy. years, UWCC has posted conference proceedings on its web Government policy was also discussed as it pertains to pages: www.uwcc.wisc.edu/outreach/FCC/Current/program.html. anti-trust and farmer cooperatives. Michael Lindsay, partner The conference, which opened two days after election-day, in Dorsey & Whitney in Minneapolis, gave an overview of featured appearances by two prominent national farm leaders: recent court decisions that pose a potential threat to Chuck Conner, president of the National Council of Farmer maintaining the limited exemptions from anti-trust, as Cooperatives and a former U.S. deputy secretary of legislated in the Capper-Volstead Act of 1922. agriculture, and Dan Glickman, former congressman and A series of recent challenges have centered on fine points U.S. secretary of agriculture. Both added insights on the of the law as applied in cases where a non-farmer-owned political landscape in the wake of the election and what it business participates in market supply with cooperatives might mean for farmers. (mushrooms), use of product certifications (eggs) and pre-
Rural Cooperatives / January/February 2013 17 production coordination (potatoes). Editor’s note: for more on governance, the Gay Lea Foods directors are closely involved this topic, see page 22. with an ongoing dialogue with management on strategic directions. Their process of both development and Transitioning to base capital plans engagement of the board is an excellent model for many Ways to improve cooperative operations is always a topic cooperatives to review. of great interest at such gatherings. Financial experts have for many years recommended cooperatives convert from International reach of co-ops discretionary equity redemption programs to base capital Many U.S. cooperatives are involved with both exporting plans, yet the majority of co-ops have not made the change. and with projects to improve agricultural productivity in Two managers discussed the transition of their developing countries. Brett Stuart of Global AgriTrends cooperatives to base capital plans. Foremost Farms USA has presented data indicating the severe pressure on the world’s recently had a surge in member turnover as older farmers poor from the impact of food price inflation, and substantial have retired. Michael Doyle, Foremost’s vice president for impacts in the demand for corn and other feeds from China’s finance, emphasized the importance of placing ownership and growing economy. Many U.S. farmers will benefit if increases financing into the hands of current members, in proportion in corn and pork exports occur as predicted. U.S. farmers are to their use. also benefiting from the involvement of their cooperatives in MGB Marketing is another cooperative that transitioned the service economy of assisting foreign producers to from a traditional equity revolving program to a base capital improve food quality and agricultural productivity. plan. As an international marketer for U.S. blueberry Two cooperatives made presentations about their growers, MGB has adopted aspects of new-generation international services and trade relations. Doug Wilson, cooperatives, such as member delivery rights, but it has kept CEO of Cooperatives Resources International (CRI), a dairy the traditional practice of one member, one vote. genetics, testing and livestock marketing cooperative, Lorrie Merker, director of grower and industry relations described its successful ventures with foreign partners, for MGB, pointed out the importance of member financing particularly cooperatives. Similar to MBG, CRI has partners for the co-op with its value-added marketing and frozen who are also competitors, but their involvement with blueberry operations. It participates in several joint ventures, international cooperative dairy services is expanding the including fresh blueberry global market for everyone’s benefit. marketing with Chilean Land O’Lakes has for many years growers. This affords mutual both exported products and inputs as gains from seasonality well as worked on dairy differences in the two improvement projects throughout hemispheres. As often happens, the world. Carol Kitchen, senior vice however, international partners president and general manager for can also become competitors, as the co-op’s Global Ingredients occurs with Chile when it division, gave a presentation entitled markets frozen blueberries. “Linking Commercial and A “best practice” that has not Development Opportunities in the often been discussed is the Global Marketplace.” building of a safety culture in After she described projects in cooperatives for the benefit of several continents of the world, she employees and members. The was asked how helping China’s dairy programs that several The Farmer Cooperative Conference helps keep co-op industry helps U.S. farmers. cooperatives are implementing leaders up to date on issues that are vital to producers Kitchen’s answer amplified the title and their co-ops. were described by Michael of her presentation. She noted that Boland of the University of someone else will step in to improve Minnesota and Todd Ludwig, President/CEO of WFS dairy production in China in any event. Those who will gain (Working for Farmers’ Success) Cooperative. The distinctive future trade and business opportunities will be the ones who idea is to make safety more than a set of procedures, but also were involved in building relationships there. a cultural change where employees and members are all involved in finding safer and better ways to operate a Cooperative valuation cooperative (see page 4 of this issue for more on this effort). Valuations of cooperatives are often complex when Ove Hansen and Quintin Fox of Gay Lea Foods gave a consideration is given to all the benefits they provide to presentation on developing member leadership. Their members. Ways to improve the accuracy of valuations in pre- cooperative has an extensive director and delegate education merger studies and acquisition planning was the topic of a program. In addition to pursuing best practices of panel discussion that included lawyers Mark Hanson of Stoel
18 January/February 2013 / Rural Cooperatives Rives and Michael Weaver of Lindquist & Vennum, and an cooperative re-organization which was based on a policy of accountant, Timothy Muehler of CliftonLarsonAllen LLP, all maximizing grain payments and reducing fees for members, based in Minneapolis. without distributing patronage dividends. CBH’s earnings are About 70-80 percent of mergers fail to equal the combined entirely reinvested in its grain handling infrastructure to keep performance of each cooperative when they were operating increasing efficiency. separately, it was noted. Excessive optimism in valuations As background to CBH’s “no patronage dividend” policy, reflects a common fallibility, as witnessed by boom-bust the Australian government had passed a tax exemption in cycles in the economy. 1972 for all earnings re- Pre-merger valuations of invested in grain a business often assume cooperatives. However, this that an increase in the size tax plan involved a fixed of a business will result in payment to growers, as better market access, as determined by the Wheat well as opportunities to Board, and prohibited reduce staff duplication. distribution of dividends to Such assumptions can too cooperative members. easily be made without After deregulation, tax thinking through the policies changed but CBH consequences of changing members chose to adhere the ways these separate to a “no patronage cooperative business dividend” policy, instead operations evolved to reinvesting all earnings in develop the distinctive the cooperative. This type efficiencies with the of policy raises enterprise resources they have. value and the incentive to It is unlikely anyone will sell the cooperative. ever develop a fool-proof However, in the event of a check-list to prevent sale or dissolution, excessive pre-merger or government taxation would CRI representatives visit a Russian dairy farm, which participates pre-acquisition valuations. in a dairy genetics joint venture with the U.S. co-op. be sufficiently large that But the panelists little cash value would recommended a strategic remain for its former approach of identifying members. specific strengths that a merger would capture and The value of cooperatives was a major topic of conferences weaknesses that would be ameliorated. Focusing on specific throughout the world in 2012 as part of the International sources of new value is a better guide than easy assumptions Year of Cooperatives. Michael Cook, a professor at the that bigger is better. University of Missouri, pointed out some of the differences Re-establishing a cooperative with a new value proposition in how U.S. and foreign co-ops create value for members. does not happen often, so it was especially interesting to Similar to CBH, many non-U.S. cooperatives do not learn about the renewal of CBH, an Australian wheat co-op, distribute patron dividends. Cook pointed out that many from Terry Cunningham, company secretarial services non-U.S. cooperative members believe that patron dividends manager. The gradual deregulation of its grain market over a would diminish the solidarity of their cooperatives. 30-year period, starting about 1980, forms the backdrop of its An objective of the International Year of Cooperatives was story. to increase public awareness of all types of cooperatives. Initially the cooperative operated as a grain handling Much of the lack of awareness about cooperatives can be business. Earnings were regulated by the Australian Wheat remedied with better collection of co-op data. Cook noted Board. As the market began to deregulate, the co-op looked the collection of U.S. cooperative data by the University of at various corporate forms and merger possibilities, but the Wisconsin Center for Cooperatives (UWCC), and its report membership was divided over the future direction of the — Research on the Economic Impact of Cooperatives business. (http://reic.uwcc.wisc.edu/default.htm) — is helping to CBH staff and directors held extensive meetings with address this need. The 2013 conference will again be held in members and traveled to Canada and the United States to Minneapolis, with the date still to be determined. For meet with other cooperatives, such as CHS Inc., and with updates, check the UWCC website for updates: university economists as they studied alternative http://www.uwcc.wisc.edu/. n organizational forms. By 2009, CBH completed its
Rural Cooperatives / January/February 2013 19 e our un y -op Co-ops 101 An Introduction to p o Cooperatives
Cooperative Information TReport 55 u C
United States Department of Agriculture
CI
Co-ops 101: An Introduction to Assessing Performance and Needs Understanding Cooperative Book- Cooperatives (CIR 55) of Cooperativce Boards of Directors keeping and Financial Statements Probably the most-read co-op primer (CIR 58) (CIR 57) in the nation, this report provides a This report helps directors assess All co-op board members should bird's-eye view of the cooperative a) their individual abilities and areas understand bookkeeping and be able way of organizing and operating a needing improvement; b) how well the business. Now in an exciting new board performs and how it can improve; provides the basics in bookkeeping full-color format. of board meetings.
Directory of Farmer Cooperatives Strategic Planning Handbook The Circle of Responsibilities for (SR-22) for Cooperatives (CIR-48) Co-op Board Members (CIR 61) Contains a listing, by State, of over Presents a method for facilitating All boards of directors are under 1,200 farmer-owned marketing, the strategic planning process. increasing pressure to perform well Facilities, personnel, and equip- and justify their decisions. bargaining cooperatives. Includes ment associated with the process Cooperative boards are no exception. each cooperative’s contact informa- This series of articles, originally tion, type of cooperative, and products strategic planning are described printed in USDA's Rural sold. This directory has been updated in detail–agreeing to plan, gather- Cooperatives magazine, lays out every four years but now will be updated ing facts, evaluating facts, fundamental guidelines for yearly and revised on our Web page cooperative directors to follow. (www.rurdev.usda.gov) whenever results. Hints for success are information in an individual listing provided throughout. changes. request copies of any of the publications on these pages. Or download them from the Web. Either way, there is no cost.
For hard copies (please indicate title, publication number and quantity needed), e-mail: [email protected], or call: (202) 720-7395. Or write: USDA Co-op Info., Stop 0705, 1400 Independence Ave., SW, Washington DC 20250. To download from the Web, visit: http://www.rurdev.usda.gov/RDPublications.html.
Cooperative Statistics 2011 Managing Your Cooperative’s (SR 72) Packages for Cooperatives (SR 36) Equity (CIR 56) Want to know how your co-op Attracting and keeping productive Do you manage your co-op’s equity, measures up? Need to know the employees is a major challenge for or does it manage the co-op? Here’s latest co-op production and co-ops. Here’s a guide to building compensation packages that help equity capital while adhering to do that while keeping the balance cooperative principles. sheet in the black.
Annual Audits – Board Base Capital Financing of Inventory Management Strategies Responsibilities (CIR-41) Cooperatives (CIR 51) for Local Supply Cooperatives Directors, managers, and advisers Successful management of equity (SR 41) of new and developing cooperatives requires a responsive and objective Presents vital strategies for farm need to be well informed about the capitalization program. A base supply cooperatives to use during importance of an annual audit. This capital plan is an ideal way to meet everyday management of inventory. publication summarizes information this requirement. This guide provides Can help co-op managers make concerning audits and reviews of better inventory management accounting systems in four areas: capital method of capitalization, and decisions by using those strategies (1) Reasons for an audit; (2) auditor guidelines for implementing and as part of an organized plan. selection; (3) audit procedures and operating such a plan. audit report; and, (4) other account- ing services. Antitrust challenges facing farmers and their cooperatives
By Marlis Carson and Donald Frederick these trusts, and it became known as the “antitrust movement.” Editor’s note: Carson is general counsel with the National Council Critics of trusts gained a valuable ally in Senator John of Farmer Cooperatives in Washington, D.C. Frederick is former Sherman, widely recognized as the ablest financial expert in program director, Law, Policy and Governance with Cooperative public service at the time. Legislation enacted in 1890 to Programs of USDA Rural Development (retired). limit the power of trusts is commonly known as the Sherman Act because it would not have passed without his support. his article reviews antitrust law as it impacts T agricultural producers who market their Section 1. The Sherman Act has only two brief provisions. products on a cooperative basis and brings Section 1 provides: readers up to date on related challenges to Every contract, combination (trust or otherwise), or cooperatives. The story begins with the conspiracy that restrains trade is illegal and enactment of our nation's basic antitrust law, the Sherman Every person who signs a contract or participates in a Act of 1890. combination or conspiracy that restrains trade in interstate or foreign commerce is guilty of a felony. The Sherman Act As written, Section 1 of the Sherman Act sets a very tight For the first three quarters of the 19th Century, most standard. It says every contract, combination, or conspiracy American businesses were small, organized as a sole that reduces competition is illegal and every person who proprietorship or a partnership of a few people, managed by participates in such conduct is guilty of a felony. their owners, required little capital, produced a single The word “person” is highlighted because in the eyes of product and served local markets. the law, every individual or entity is a “person.” A small By 1890, a new industrial structure was taking shape. A family dairy farmer is on the same footing as global relative handful of large corporations were gaining conglomerates. dominance in many key industries. In these organizations, So, if it is illegal under the Sherman Act for large management was separate from ownership, large amounts of companies to agree on the prices they will charge for their capital were used to acquire machinery and other fixed assets, products, it is also illegal for two family dairy farmers to and many products were produced and sold in a national or agree on the prices they will charge for their products. international market. Farmers and their cooperatives were caught up in this change and influenced by the public and Section 2. Section 2 provides that every person who government responses to it. monopolizes, or attempts to monopolize, or combines or Some of these large corporations were organized as conspires with any other person to monopolize any part of business trusts. Competing companies would place their interstate or foreign commerce is guilty of a felony. assets in a trust and the organization would be run by a board Section 2 also sets a tight standard. Not only is every of trustees. A backlash developed among smaller businesses person who monopolizes any part of commerce guilty of a that had difficulty competing with the trusts and customers of felony, but so is anyone who attempts to establish a
22 January/February 2013 / Rural Cooperatives President Herbert Hoover (seventh from left) meets with a contingent of Kansas farmers and Arthur Capper (next to Hoover, in dark coat) in December 1929. monopoly, even if that person isn’t successful. Tying arrangements (example: if you want to buy my butter, you also have to buy my ice cream). Rule of Reason. Early court decisions applied the Sherman At the top of the list of activities that the courts have held Act in a literal manner, holding even modest restraints of to be illegal “per se” is price fixing. And what do farmers do trade illegal. when they market their products on a cooperative basis? In 1911, the Supreme Court issued a landmark decision They agree on prices and other terms of trade, “per se” interpreting the Sherman Act. In deciding that Standard Oil violations of antitrust law. and American Tobacco were illegal conspiracies to restrain trade, the Supreme Court moved away from this literal Clayton Act, Section 6 reading of the Sherman Act and established the test that is In 1914, two additional laws to curb anti-competitive still the basic standard for applying the Sherman Act: the business conduct were enacted. Rule of Reason. The Federal Trade Commission Act created the Federal Under the Rule of Reason, only agreements that Trade Commission to investigate and order an end to “unfair unreasonably restrain trade are illegal. This is a very methods of competition.” subjective test that requires judges and juries to interpret The Clayton Act prohibits certain business practices when often complex facts in deciding whether certain conduct the effect may be to substantially lessen competition, violates the Act or not. including price discrimination among customers, tying The standard most often applied is conduct is generally agreements and mergers and acquisitions. found to be reasonable (and therefore legal) if the benefits to Section 6 of the Clayton Act was the first legislative society as a whole (including the firms involved) outweigh the recognition of the unique needs of farmers and their harm to competition. This is hardly a bright line test offering cooperatives. It states that the antitrust laws shall not forbid clear guidance to businesses and their leaders trying to plan the existence and operation of labor or agricultural organiza- future conduct. tions without capital stock and not conducted for profit. While Section 6 of the Clayton Act was a step in the right Rule of Per Se Illegality. The Court also adopted a direction for farmer marketing associations, it fell short of corollary rule to the Rule of Reason: the Rule of “Per Se” providing necessary protection for a couple of reasons: illegality. Under this standard, some conduct is so inherently While it says producers can form co-ops, it doesn't say unreasonable that it is illegal whenever undertaken, what collective conduct they can engage in; including: Section 6 only protects cooperatives without capital Price fixing; stock, and many marketing associations were organized Territorial allocations (as when one person, for example, as stock-issuing companies. agrees not to do business in Illinois if a competitor won’t Cooperatives and their supporters asserted that Section 6 do business in Indiana); of the Clayton Act might be adequate for labor unions, but it Group boycotts (no one will sell to Joe Smith until he was not enough protection for producer marketing agrees to pay our price); associations.
Rural Cooperatives / January/February 2013 23 Senator Arthur Capper Representative Andrew Volstead
Capper-Volstead Act for the institutional and private-label markets. All levels of In 1922, Congress responded to producer concerns by collaborative activity are protected. passing the Capper-Volstead Act. While it has a technical Section 1 also authorizes collaboration among name, like the Sherman Act it became known by the names cooperatives. Such associations may: of its primary supporters, Senator Arthur Capper and Have marketing agencies in common (federated co-ops, Representative Andrew Volstead. LLCs, partnerships, etc.); Capper-Volstead includes co-ops that issue capital stock Enter into contracts and agreements to coordinate their and goes beyond just saying qualified producer associations collective marketing activity. are exempt. It provides a positive statement that producers Several court decisions have indicated that producers may, can engage in several types of collective marketing activity. It through a single cooperative or in combination with other also contains safeguards to protect the public from abusive cooperatives, obtain monopoly power if it is achieved conduct by farmers. through natural growth, voluntary confederations and without resort to abusive practices. Thus, obtaining a large Section 1. Like the Sherman Act, Capper-Volstead contains market share does not, absent unprotected conduct, two relatively brief provisions. Section 1 describes the scope compromise Capper-Volstead’s antitrust shield. of the limited antitrust protection provided. Section 1 also provides the organizational and operational Under Section 1, persons engaged in the production of rules co-ops must follow to be eligible for its protection. agricultural products may: They must: Act together in associations, corporate or otherwise, with Limit membership to agricultural producers; or without capital stock; Operate for the mutual benefit of their members as Collectively process, prepare for market, handle, and producers (conduct not directly related to marketing market their farm products. agricultural products is not protected); Producers have a great deal of flexibility under Capper- Either use one-member, one-vote or limit dividends on Volstead in deciding how they will market their production. equity to 8 percent per year, and Some cooperatives, called bargaining associations, limit their Do a majority of their marketing for members, measured activity to negotiating prices and other terms of the contracts by value. that govern the sale of their members’ products directly to buyers. A couple of points to remember: Other cooperatives, such as Land O’Lakes and Ocean All voting members must be producers. Even one non- Spray, have integrated forward to the point that they put producer in the membership (especially if that non- processed versions of their members’ product right on the producer happens to be a buyer or competitor) may grocery store shelf. revoke the antitrust protection. There are numerous degrees of value-added activity that The amount of non-member business permitted is quite fall between these two extremes. These include selling raw liberal; almost 50 percent of the products handled may product on a collective basis and producing finished goods be from non-members. This allows co-ops to seize
24 January/February 2013 / Rural Cooperatives business opportunities requiring product beyond what Actions that are “predatory” in nature (anti-competitive the membership can produce. and without business justification or solely aimed at eliminating competition, such as blocking the door to a Section 2. Section 2 of Capper-Volstead provides another competitor’s warehouse); check on cooperatives. It authorizes the U.S. secretary of “Unduly” enhancing prices. (To date, no cooperative has agriculture to order an association that monopolizes or been found to have “unduly enhanced” prices.) restrains trade to cease any anti-competitive conduct that unduly enhances the price of an agricultural product. If a co- Fishermen's Collective Marketing Act op does not abide by any such order, the U.S. Department of In 1934, a law was enacted that provides essentially the Justice is empowered to enforce the order. same antitrust protections for fishermen and their cooperatives as Capper-Volstead does for agricultural Rationale for Capper-Volstead. From well before 1922 and producers. continuing into the foreseeable future, individual farmers are Section 1 authorizes fishermen to engage in collectively at a severe disadvantage in the marketplace when dealing catching, producing, preparing for market, processing, with typical entities buying their products. Co-ops level the handling and marketing aquatic products. It also playing field. contains the same organizational and operational rules as Some argue antitrust protection for agricultural producers section 1 of Capper-Volstead. is no longer justifiable. They point to some larger Section 2 contains similar enforcement provisions as commercial farmers and farmer cooperatives and say these Capper-Volstead, but authority is placed with the U.S. entities shouldn’t be allowed to agree on prices and other secretary of commerce. terms of trade. This law is obviously important to cooperatives that Given the increasingly concentrated and global economy, operate in the fishing industry. And since the laws are similar however, large buyers are — if anything — increasing their in many ways, legal interpretations of this law can be valuable market power. They can negotiate down prices paid to in assessing how the courts will judge certain types of farmers, even playing farmers in one country against those in conduct by agricultural cooperatives. other countries that produce the same products. Cooperative leaders thus view Capper-Volstead as being as vital to Current challenges producers today as it was at the time of enactment. The antitrust protection accorded farmers and their cooperatives by Capper-Volstead is seldom free from In summary. Under Capper-Volstead, producers may: investigation and challenge. Next we look at a recent Agree among themselves on the prices they will accept government study that included Capper-Volstead and four for their products and all reasonable terms of trade; ongoing civil suits that could impact the cooperative system. Limit their collective activity to establishing a floor price or integrate forward throughout the food marketing Antitrust Workshops. In 2010, the U.S. Department of chain; Justice, Antitrust Division, and the U.S. Department of Collectively market their products with producer- Agriculture held five workshops around the country to members of other co-ops by having the firms use a explore competition in agriculture. Arguments for and common marketing agency, form a federated against Capper-Volstead as currently written and interpreted cooperative, or simply work together to accomplish their were raised at several of these workshops. marketing objectives. In May 2012, the Department of Justice released a 24- page report summarizing the testimony but not Unprotected Conduct. Capper-Volstead is not applicable recommending any additional legislation or regulatory when producers engage in other collective activity. This oversight. However, Justice has made it clear that it will doesn’t mean such activity is illegal under the antitrust laws continue to challenge in court cooperative activity that it because it is not protected by the Act. If challenged in the believes to be outside the protection of Capper-Volstead. And courts, it will be judged under the same “rule of reason” and if the courts sanction cooperative conduct that it believes is “rule of per se illegality” standards applied to similar conduct harmful to competition, it will pursue legislative changes in between non-cooperative firms. the law. Conduct not protected by Capper-Volstead includes: Contracts and other agreements with persons who are Mushroom Case. We next focus on civil suits that challenge neither producers nor associations of producers; agricultural producer conduct as a violation of antitrust law. Mergers, acquisitions and other combinations with non- The first involves a mushroom producer cooperative. cooperative firms; Beginning in 2001, the Eastern Mushroom Marketing
Rural Cooperatives / January/February 2013 25 Cooperative (“EMMC”) purchased several properties that In December 2011, the trial court issued a non- had been mushroom farms. EMMC then resold the precedential memorandum opinion that Capper-Volstead properties after placing restrictions in the deeds which does not protect pre-production supply control activities such prohibited future use of the land to grow mushrooms. as acreage reductions and production restrictions. The judge The U.S. Department of Justice Antitrust Division also questioned whether vertically integrated members are notified the co-op that it believed the deed restrictions permitted under the Act. Additional motions to dismiss are violated antitrust law and were not protected by Capper- pending, and the Capper-Volstead issues have not been Volstead. In 2005, to avoid protracted litigation, EMMC resolved as yet. settled with Justice and removed the restrictions from the deeds. Dairy Case. Cooperatives Working Together (CWT) is a The producers hoped this would be the end of their voluntary, producer-funded program developed by the problems. However, in early 2006, several firms that National Milk Producers Federation (NMPF). One of purchased mushrooms filed lawsuits against EMMC, several CWT’s programs was designed to strengthen and stabilize members and several non-members in a Federal District milk prices by paying dairy farmers to reduce herd sizes. Court in Pennsylvania. Issues raised include: In 2011, animal rights groups sued the NMPF and several Was Capper-Volstead protection compromised by (1) the large dairy co-ops in a inadvertent sign-up of a non-grower entity as a member California Federal and (2) the membership of vertically integrated grower District Court entities? These cases raise issues alleging that the Was the co-op’s supply management program (deed that are important CWT program restrictions) conduct protected by Capper-Volstead? not only to the producers illegally increased In 2009, the trial court judge said that one non-producer and co-ops involved, but also milk prices to entity that became a voting member in the co-op through a to the ag industry consumers and that bookkeeping error voided the co-op’s Capper-Volstead the defendants aren’t protection. The U.S. 3rd Circuit Court of Appeals said it as a whole. protected by Capper- won’t review that ruling until the case is decided. Volstead. The case is still in pre-trial proceedings. The defendants filed motions to dismiss on several grounds, including Egg Case. In 2008, several purchasers filed lawsuits in the asserting that the court lacks subject matter jurisdiction same Pennsylvania court against numerous companies that because the Capper-Volstead Act vests the U.S. secretary of produce eggs and processed egg products, including one co- agriculture with exclusive jurisdiction over the issues in op, United Egg Producers. These suits allege defendants dispute. In October 2012, the court rejected the defendants’ engaged in illegal supply management by: argument and denied the motions to dismiss. The case is Increasing the size of chicken cages and thus reducing continuing with pre-trial proceedings. the number of egg-producing chickens; Exporting eggs at a loss to increase domestic egg prices. Issues under review The defendants have filed motions to dismiss the case on These cases raise three issues that are important not only several grounds. Discovery and other proceedings have been to the producers and co-ops involved but also to the stayed awaiting a ruling on various motions to dismiss. agricultural industry as a whole.
Potato Case. In 2005, several potato marketing associations 1. Are pre-production supply controls agreed to by co-op formed United Potato Growers of America (UPG) to manage members protected as “preparing for market” or the supply of potatoes reaching the market and thereby raise “marketing” farm products as those terms are used in prices above the cost of production. Members contributed Capper-Volstead? A strong case can be made that at the heart funds to UPG which used the money to pay growers not to of the marketing function of any company, including farmer raise potatoes. cooperatives, is the ability to estimate demand in the In 2010, several purchasers of potatoes sued UPG in an marketplace and set production capacity to provide adequate Idaho Federal District Court claiming the membership supply. For instance, a car company — based on consumer illegally: research, industry trends and other proprietary information Agreed to reduce the supply of potatoes to raise prices; — estimates the presumed yearly demand for a new model. If Included vertically integrated potato producers. the target is 100,000 cars, it is obvious the auto company can
26 January/February 2013 / Rural Cooperatives limit the supply produced to 100,000 cars. The judge said that whomever Capper-Volstead was designed Farmer cooperatives must be just as responsive to to protect, it didn't include ConAgra and Hormel. consumer demands. A cooperative marketing more of a The case went to trial and Hinote was acquitted of all product — whether a bulk commodity or a value-added charges by the jury. The case died and no appeals were taken product — than can be sold will quickly become on the issue of whether large firms with catfish production economically unsustainable. could be members of a Capper-Volstead protected Two existing decisions seem to support the cooperative cooperative. position. In Re Washington Crab — Federal Trade Commission 3. Is the concept “association of producers” flexible enough to Chair Paul Rand Dixon held fishermen can agree not to allow a co-op that inadvertently accepts a non-producer as a fish to limit supply and raise prices (1964). member to correct the error without having lost its antitrust Alexander v. NFO — The U.S. 8th Circuit Court of protection in the interim? Again we have conflicting Appeals said a two-week voluntary withholding action by guidelines in this area. milk producers is protected by Capper-Volstead (1982). National Broiler Marketing Association — The Supreme Court seems to take a hard line stance that one non- 2. Is the term “producer” broad enough to include entities producer voids protection (1978). that have integrated forward into food processing and Alexander v. NFO — In its subsequent opinion, the 8th marketing? In a U.S. Department of Justice case against Circuit Court of Appeals finds a few non-producers integrated broiler producers that reached the U.S. Supreme "sloppily" admitted as members do not void protection Court, both parties made this the central issue of their (1982). arguments. However, a majority of the Justices determined one or more members of the co-op, the National Broiler Possible outcomes Marketing Association, did not have any broiler production As mentioned earlier, antitrust litigation is complex, costly activity and decided the case against the co-op on the non- and time consuming. Results are difficult to project. Here producer member issue (1978). are three possible ways these cases could end and how each Justice Byron White wrote a dissenting opinion arguing might impact farmer cooperative marketing. that integrated firms with some production activity were 1. Some or all of these cases could be settled. Managing allowed in a Capper-Volstead protected cooperative. In these cases is a serious drain on the resources of all parties response to Justice White, Justice William Brennan, Jr. wrote and takes management time away from the issues of day-to- a concurring opinion stating integrated firms in the day operations. When the fight is between buyers and sellers membership voided Capper-Volstead. Thus the issue was far in the same industry, they can poison otherwise cordial and from resolved. vital business relationships. So it is quite possible some or all Two subsequent events failed to clarify the issue. of these cases will be settled before a definitive judicial Texas Produce Marketing Association — A Department of opinion is issued and no meaningful guidelines for future co- Justice Business Review Letter provided upon request to op conduct will be established. the Association concluded that firms that handle, pack 2. The co-ops may lose on some or all of these issues. This and store agricultural products for themselves and other may limit the protection provided producers by Capper- members are “producers” and eligible under Capper- Volstead. Volstead to be members (1988). 3. The co-ops may prevail on some or all of these issues. Hinote — In the early 1990s, the Department of Justice While this would sanction the co-op conduct under review, it brought criminal antitrust charges in a Federal District could lead to the proposal of amendments to Capper- Court in Mississippi against Samuel Hinote, the Volstead that could amend, or even override such decisions. president of Delta Pride Catfish Cooperative. Hinote As these cases are moving through the judicial process, was charged with conspiring with other catfish only time — perhaps a great deal of time — will reveal what, processors and marketers to fix the wholesale price of if any, impact they have on cooperative marketing by catfish. agricultural producers. It is important that all managers with While most of the other firms involved were, like Delta and advisors to agricultural marketing cooperatives keep Pride, owned entirely by catfish producers, two were informed about these and other challenges to Capper- subsidiaries of ConAgra and Hormel. The trial court judge Volstead. n rejected Hinote's motion to dismiss the charges on the grounds that his conduct was protected by Capper-Volstead.
Rural Cooperatives / January/February 2013 27 Co-op conversions help bring security to manufactured housing owners
Cooperative ownership of manufactured-home communities boosts the pride of residents — such as Sheila Dickerson of Soda Brook Cooperative in Northfield, N.H. — in their homes and neighborhoods. Geoff Forester Photography; all photos courtesy N.H. Community Loan Fund
By Steve Varnum By late 1983, he had lived for 10 years 13-home-park’s needs. Its gravel roads Director of Communication and Marketing with his wife and two sons in Meredith were rutted and potholed, the septic New Hampshire Community Loan Fund Trailer Park, in the Lakes Region of system leaked into a nearby brook and central New Hampshire. refuse littered some lawns. ike many powerful At the time, real estate sales in New In 1983, one of the owners was L social movements, New Hampshire were booming, especially admitted to a nursing home. His wife Hampshire’s first around nearby Lake Winnipesaukee, a needed to sell the park, but feared manufactured-home magnet for boaters and well-heeled having to leave her own home, which cooperative began at vacationers. The blue-collar residents of was located on the same plot. Land for the intersection of survival and justice. Meredith Trailer Park, however, condos and summer homes in the area Bob Sirles was a can-do, determined reflected little of the area’s prosperity. was selling quickly and fetching top kind of guy. A school groundskeeper, he Its owners, an elderly couple, were dollar. It wasn’t hard to predict what was used to hands-on problem solving. increasingly unable to keep up with the would happen if the park was sold.
28 January/February 2013 / Rural Cooperatives Greg MacIntosh tends his vegetables at Barrington Oaks Cooperative in Barrington, N.H. Cooperative ownership and management of manufactured-home parks encourages community projects. Jay Reiter photography
the park. But the Community Loan Fund’s founders had connected with the Sisters of Mercy, who wanted to invest some of their retirement savings where it would be used for public good. The sisters loaned the money to the Community Loan Fund, which in turn loaned it to the cooperative to buy the park on June 1, 1984. Meredith Center “Most of us just figured we’d be help themselves.” Cooperative became New Hampshire’s thrown out, so we were looking for Storey, Sirles and a few of his first resident-owned community. solutions — moving, buying something neighbors began meeting around his The new owners wasted little time else, renting somewhere, just hanging kitchen table. They developed a “what- showing how proud they were. They in and hoping for the best,” Sirles told a if” scenario, based on New Hampshire hauled away three truckloads of debris. newspaper reporter. having passed a law the previous year They installed a new water pump so “A couple of us tried to go to the that recognized consumer cooperatives. showers wouldn’t stall when a neighbor bank to buy it as individuals, but we What if, instead of trying to buy the flushed a toilet. Before long, they’d don’t have that kind of credit,” Sirles park as individuals, the Meredith begun replacing the septic system. said. Neither did any resident have the Center families bought it together? owners’ $42,000 asking price, or even a They formed Meredith Center A pause, then concept explodes significant down payment. Cooperative in January 1984, as Storey It would be 2½ years before the next In the meantime, a potential buyer pulled together financial plans and New Hampshire manufactured-home appeared who wanted to close the park, documents. park converted to cooperative send its residents packing and build Local banks weren’t persuaded that ownership, but then the concept apartments. the co-op was viable. At least one loan exploded. During the next 10 years, 35 officer didn’t know what a cooperative parks in the state converted to co-op Co-op seed planted was. ownership; 46 converted during the Enter Rebecca Storey, who was on Some said that even as a co-op, the following decade. the steering committee of a brand-new families didn’t have sufficient credit. As interest grew, the Community organization: the New Hampshire They still didn’t have a down payment. Loan Fund expanded and refined the Community Loan Fund. A graduate Every bank in the surrounding towns services it offered the co-ops to include student of community economic turned them down. community organizing, training for co- development, she also shared classes So, the co-op leaders turned to the op boards of directors and other with Sirles’s sister. New Hampshire Community Loan leaders, financing for purchase and Bob Sirles needed help saving his Fund, which had incorporated as one of improvements, and technical assistance home and those of his neighbors. the country’s first community for planning infrastructure projects. Storey needed a project to complete her development financial institutions New Hampshire’s 100th master’s degree. As a Native American, (CDFIs strengthen communities by manufactured-home co-op converted in she also felt a deep connection with the providing financial services to February 2012. There are now 103 such plight of the families in the park. populations and markets that otherwise resident-owned communities in the “I identify with people being pushed lack them) the previous September. state, containing about 5,700 homes. off their land. These people had been The Community Loan Fund About one in five manufactured-home there a long time,” she told a reporter. comprised one part-time person, one communities in N.H. is a cooperative; “I had a real strong feeling they desk and a bank account containing less nearly all are in rural areas. shouldn’t be pushed off, that they must money than the residents needed to buy The spread of these communities
Rural Cooperatives / January/February 2013 29 whether that money goes to upgrade the community or to profit. Likewise, they have little say in the creation or enforcement of rules. At any time the landlord may decide to close the park, evict the homeowners and develop the land. As noted earlier, park owners motivated by profit may ignore failing water, septic and electrical systems, then sell or abandon the property. Tenants in these parks are captive to any of all of these conditions and uncertainties. Those who object to rents or conditions can be evicted, and those facing park closure have no legal protection — they must move. In either case, they’re likely to lose their homes and all they’ve invested in them. Gone are the days of being able to hitch a mobile home to a pickup truck and wheel it away; today’s manufactured homes are factory-built to the U.S. Department of Housing and Urban Development’s national housing code and are anything but mobile. Moving a home — if it can be moved — costs several thousand dollars. Some Lawrence Shuman, president of Sandy Ridge Estates Cooperative, and other residents towns further limit mobility by purchased an Ossipee, N.H., manufactured-home community, saving the homes of 35 families. restricting the age of manufactured The previous owner had been ordered by the state to close the park and evict the families due to homes that can be moved in. substandard water and wastewater systems. Matthew Lommano Photography The experience of New Hampshire’s resident-owned communities is that cooperative ownership of the land was greatly supported by loans and communities containing 2,122 homes in removes most of those risks and grants from USDA Rural Development, 31 states. insecurities. The co-ops’ members because some park owners became democratically decide the bylaws they’ll willing to sell when faced with large Affordable and secure all live under, what to charge for lot infrastructure repairs. To date, USDA In New Hampshire, as in many rural rents, and how that money will be used. Rural Development has provided more areas across the United States, A co-op community cannot be sold than $9 million for critically needed manufactured homes are one of the without a vote of its residents, and the water and wastewater projects in 13 most affordable housing choices. In Community Loan Fund/ROC USA New Hampshire co-ops. small towns that lack multi-family model eliminates a profit motive. The Community Loan Fund and apartment buildings, they’re usually the Because the communities are three other national nonprofits — the only affordable option. incorporated as nonprofit consumer Corporation for Enterprise That choice becomes even more cooperatives, the assets from any sale of Development (CFED), NCB Capital affordable in manufactured-home the property— after the co-op’s bills are Impact program and NeighborWorks communities, because the need to buy paid and members are refunded their America, with significant investments land is eliminated. Instead, a shares (usually $500 to $1,000) — have from the Ford Foundation and the homeowner leases the small lot beneath to go to another co-op or charitable Fannie Mae Foundation — formed the house. organization. ROC USA LLC in May 2008 to make Still, homeownership in a traditional Other economic benefits of co-op resident ownership viable nationwide. investor-owned park is risky. ownership include access to grants and Through November 2012, ROC USA Homeowner-residents have no say in loans from USDA and other public had converted an additional 27 how much they pay for lot fees or agencies for needed infrastructure
30 January/February 2013 / Rural Cooperatives upgrades and access to fixed-rate home loans with relaxed credit terms and low down payments, offered in New Hampshire by the Community Loan Fund and two partner banks. Loan fund boosts ownership Last July, USDA Rural Develop- ment created a homeownership pilot through co-ops program making residents in a Belmont, N.H., co-op eligible for its From the start, the New Hampshire Community Loan Fund’s goals 502 Single-Family Housing loans. in encouraging cooperative ownership of manufactured-home Those loans offer 100-percent home communities were to create permanent and stable affordable financing at a 3.25 percent interest rate; housing, to maximize resident control of their communities and to four other USDA-approved co-ops in make co-op membership available regardless of income. New Hampshire are also eligible. In New Hampshire’s resident-owned communities and those using the ROC USA model in other states, status as nonprofit Social benefits consumer cooperatives makes it very unlikely that the land will be With the stroke of a pen, a sold out from under any of the manufactured homes. cooperative’s purchase of its community Secondly, says ROC USA’s Paul Bradley, “Resident control puts turns organizers into managers, tenants people most affected by the decisions in charge of making them. into co-owners and homeowners into In a cooperative park, each homeowner owns his or her home neighbors. and one share in the cooperative corporation that owns the land. While security is one of the greatest Most co-ops require that one must both own a home and reside in benefits residents enjoy, observers are that home in order to become a member.” often struck by the pride and sense of The third point, affordability of co-op membership, drove the personal investment they experience in Community Loan Fund’s choice of what type of cooperatives these the cooperatives. would be. ROC-NH and ROC USA communities are zero-equity George McCarthy, director of cooperatives with low membership share prices. If a resident Metropolitan Opportunity at the Ford can’t afford to buy a share when the co-op is established, he or Foundation, has listened to co-op she may make a very small down payment on that share, then residents in their kitchens and living make affordable monthly payments while enjoying all of the rights rooms. “The transformation of the and responsibilities of membership. people in those communities is People who buy a home (or move one into) in a cooperative profound,” he says. park pay their membership fee up front, often rolling it into their The physical transformation is easy house financing. n to see. Homeowners, confident that they won’t be displaced, plant gardens and flowerbeds, paint their homes and pave their driveways. Some even replace their old homes with newer models. The common goal of buying, owning and managing a community also creates a greater sense of community. Florence Quast was a key organizer of the Souhegan Valley Manufactured Housing Co-op in Milford, N.H., when it converted to resident ownership in 1985. Lois Parris, left, of Lakes Region MHP Cooperative in Belmont, N.H., and “My proudest accomplishment is Florence Quast of Souhegan Valley MH Cooperative in Milford, N.H., are helping us become a co-op and buying powerful advocates for the rights of manufactured-home owners. Geoff the park because it’s something people Forester Photography said we couldn’t do,” she says. After the purchase, the co-op made major continued on page 42
Rural Cooperatives / January/February 2013 31 The Co-op Nature of (the Affordable Care Act) CO-OPs
By Charles Ling, Ag Economist Cooperative Programs USDA Rural Development
he Affordable T Care Act (section 1322) created the Consumer Operated and Oriented Plan Program (CO-OP Program) to foster the creation of new, consumer-governed, private, nonprofit differences health insurance issuers (referred to as CO-OPs). These CO- from other types of OPs will promote integrated care and improve health plan cooperatives. The economic accountability. analysis is through the lens of Through the loans authorized by the Act, the goal of the industrial organization, taking the law Program is to create at least one new CO-OP in every state and regulations governing the Program as to enhance competition in the Affordable Insurance given. It is not intended to be an interpretation Exchanges (also established under the Act) and provide of the Program, which is under the purview of additional plan choices in the individual and small group HHS Centers for Medicare and Medicaid markets. The Program is administered by the U.S. Services (CMS). Department of Health and Human Services (HHS). The statute and the rules and regulations implementing the Economic structure Program can be found at http://www.healthcare. A CO-OP is an organization of health insurance gov/law/features/choices/co-op/. policy subscribers who are individuals or individuals with The Program-qualified CO-OPs are supposedly modeled dependants. All insurance-covered persons are counted on existing health insurance cooperatives and other business as members of the CO-OP. cooperatives. The acronym “CO-OP” (note: all letters The CO-OP makes decisions regarding how to capitalized) has the same spelling as “co-op,” the abbreviation maintain and improve the quality of health care delivered to of the term “cooperative” in common usage. members, while keeping insurance premiums affordable. There is strong interest in the co-op community (and Subscribers are free to choose whether to join a particular doubtless outside of it as well) to see where these new health CO-OP, or how — and how much — they may use the CO-OPs lay in the continuum of cooperative business model services provided by the CO-OP as members. variations (Ling). Based on the Program’s CO-OP standards Therefore, the CO-OP fits the economic definition that a and related requirements, this article looks into the structure, cooperative is an aggregate of economic units, which are organization, governance, equity financing, and operation of capable of independent economic functioning (Emelianoff). It the CO-OPs to shed some light on their similarities with and is also useful to note that a dictionary defines aggregate as:
32 January/February 2013 / Rural Cooperatives members is in place. The CO-OP Program has the goal of having at least one CO-OP in each state and gives priority to CO-OPs that offer qualified health plans on a state-wide basis. Therefore, CO- OPs are most likely local (in-state) organizations that do not cross state lines. When circumstances warrant it, a CO-OP may cover more than one state. States may have “Any more than one CO-OP if Program funds are available. total or CO-OPs are to remain nonprofit, consumer-operated and whole -oriented insurance issuers after they have received Program considered with loans and even after they have fully repaid their loans. They reference to its are not permitted to convert or sell to a for-profit or non- constituent parts; an consumer-operated entity at any time, undertake any assemblage or group of transaction that would result in the CO-OP implementing a distinct particulars massed governance structure that does not meet the stipulated CO- together.” OP standards, or do things to harm its consumer orientation. CO-OPs may join together to establish a private Organization purchasing council to enter into collective purchasing A CO-OP is a Program-qualified, nonprofit arrangements for items and services that increase health insurance issuer organized under state administrative and other cost efficiencies, including claims law as a private, nonprofit, member administration, administrative services, health information corporation. technology and actuarial services. But the private purchasing The creation of a CO-OP relies on the council is not allowed to set payment rates for health care effort of its sponsors. A sponsor may be an facilities or providers participating in health insurance organization or individual that is involved in coverage provided by the CO-OPs. Further, the antitrust the development, creation or organization of the laws continue to apply to any private purchasing council. CO-OP or provides 40 percent or more to the CO-OP’s total funding (excluding funds from Governance Program loans). However, no state or local A CO-OP is required to be governed by an operational government or political subdivision (or their board with all of its directors elected by a majority vote of a instrumentalities) can be a sponsor of the quorum of the CO-OP’s members who are age 18 or older. organization or contribute 40 percent or more Elections of the directors on the CO-OP’s operational board to its total funding. Furthermore, no are contested: the total number of candidates for vacant organization excluded by CMS can be a sponsor positions on the operational board exceeds the number of or contribute 25 percent or more to the CO- vacant positions. In the case of resignation, death, or OP’s total funding. removal, the CO-OP may fill vacant director positions for After the CO-OP is organized, it will sign the remainder of the relevant term without conducting a up health insurance subscribers and they and contested election. their covered dependents will be members of Positions on the board of directors may be designated for the CO-OP. The CO-OP will become a individuals with specialized expertise, experience or centralized member organization when its affiliation. But the designated directors cannot constitute a operational board of directors elected by majority of the operational board.
Rural Cooperatives / January/February 2013 33 No government (federal, state, local, political subdivision repay Program loans, and meet state solvency requirements. or instrumentality) representative or representative of an They may also be used to provide for enrollment growth, organization excluded by CMS can be a board member. financial stability and stable coverage for members. The majority of the voting directors on the operational CO-OPs are forbidden to ever convert or sell to for-profit board must be members of the CO-OP (not counting or non-consumer operated entities. designated directors who are also members). Each director has one vote unless he or she is a non-voting director. Operations However, in the initial stage of forming the CO-OP and CO-OPs develop healthcare provider networks to provide before it has begun services that meet members’ healthcare needs. They have to accepting enrollment compete for health insurance subscribers in the relevant of insurance markets. Therefore, their operations are the same as any CO-OPs are forbidden subscribers and has an other health insurance issuers in the relevant markets. election by the CO-OPs are required to meet certain standards and to ever convert or sell members of the requirements for the issuance of health insurance plans to to for-profit or organization to the achieve Program objectives. board of directors, a For example: non-consumer formation board is to • At least two-thirds of qualified health insurance policies or steer its development. contracts for health insurance coverage issued by a CO- operated entities. The first elected OP in each state in which it is licensed must be in the directors of the individual and small group markets. organization’s • In every market where the CO-OP operates, it must offer operational board must be elected no later than one year after a qualified health plan at the Silver Level (defined as the the effective date on which the organization provides level of coverage that is equivalent to 70 percent of the coverage to its first member; the entire operational board full actuarial value of benefits provided) and at the Gold must be elected no later than two years after the same date. Level (equivalent to 80 percent of full benefits). • Meet certification requirements in order to participate in Equity financing the Affordable Insurance Exchanges. The initial funding of a CO-OP is supplied by its sponsors The incentive (trade-off) for CO-OPs to meet these and and supporters. To help overcome the difficulty of obtaining other plan standards and requirements is the privilege to use adequate capitalization for start-up costs and state insurance start-up loans and solvency loans at below-market interest reserve requirements, CO-OPs may borrow two kinds of rates to achieve the goals of the organizations. low-interest loans offered by the CO-OP Program specifically for these critical activities: Conclusions • Start-up loan to provide assistance in meeting the costs of The impetus for creating CO-OPs is by Congressional establishing a CO-OP. The repayment period of the loan is mandate to address certain public policy healthcare issues. A five years following each drawdown of loan funds. major portion of initial funding of CO-OPs is low-interest • Solvency loan in meeting state insurer solvency and reserve government loans to help overcome the difficulty of requirements. The repayment period of the loan is 15 years obtaining adequate capitalization. Legislative mandates following each drawdown of loan funds. effected with government loans have precedents such as the A CO-OP may borrow joint start-up and solvency loans, initial organizations of rural electric cooperatives and the or only borrow a solvency loan. By receiving the loans, the Farm Credit System. As exemplified by these precedents, CO-OP must adhere to the standards and fulfill all CO-OPs must be self-sustainable in order to be economically requirements established by the CO-OP Program. It must viable over the long term. meet the required CO-OP standards no later than five years To ensure the CO-OPs created under the Program are following initial drawdown of the start-up loan or three years viable, sustainable and stable, and to make certain they can following the initial drawdown of the solvency loan. repay the loans and thereby protect federal investment in the Net savings or surplus funds (revenue in excess of expenses Program, they are required to meet CO-OP standards and or “profit”) of the CO-OP must be used to lower premiums, health plan standards and fulfill many other requirements. As to improve benefits or for other programs intended to a result, CO-OPs are somewhat unique in the spectrum of improve the quality of health care delivered to its members. cooperative business model variations as shown in table 1 In addition, net savings may be used to conduct marketing, (adopted and modified from Ling, table 2). n
34 January/February 2013 / Rural Cooperatives Table 1 Variations on the cooperative business model ― Type of cooperatives Structure Organization Governance Source of equity Operation
Dairy Aggregates of Centralized member Member-governed Members Members' exclusive cooperatives1 economic units organizations marketing agent―unique economics
Agricultural marketing Aggregates of Mostly centralized Member-governed Members Unique economics if cooperatives economic units member organizations; exclusive marketing some are federated agent; otherwise, like other firms
New-generation Aggregates of Centralized member Member-governed Members; tied to Business volume cooperatives economic units organizations delivery rights defined by delivery rights
Purchasing Aggregates of Local (retail) Member-governed Members Sourcing supplies or cooperatives2 economic units cooperatives are services for sale to centralized; many members and patrons federated with other locals; federated cooperatives may have direct members
Affordable Care Act Aggregates of Organized by sponsors; Initially formation Sponsors and Operations are the economic units then become local (in- board; then member- supporters; same as other CO-OPs3 (health insurance state) centralized governed accumulated surpluses insurance issuers in the subscribers) member organization relevant markets; must meet CO-OP Program standards and requirements
Aggregates of Centralized member Member-governed Members A framework for multi- Multi-stakeholder economic units organization party, multi-stage 4 cooperatives credible contracting among members
Farm production Aggregates of Centralized member Member-governed Members A vertical integration cooperatives economic units that are organization between members and not independent in the cooperative in production operation production
Cooperatives with non- Mixture of patron and Defined by state laws Defined by state laws Defined by state laws Defined by state laws; patronage members non-patron members most likely member- patrons’ business
1 Separately listed and used as the standard bearers of traditional cooperative business model. 2 Include farm supply cooperatives, utility cooperatives, service cooperatives, consumer cooperatives, credit unions, etc. 3 Qualified Nonprofit Health Insurance Issuers under the Consumer Operated and Oriented Plan (CO-OP) Program. 4 Defined as cooperatives having, for example, farmers, final customers and intermediaries in the supply chain as members.
References • Emelianoff, Ivan V. Economic Theory of Cooperation: Economic Structure of Cooperative Organizations, Washington, D.C. 1942 (litho-printed by Edwards Brothers., Inc., Ann Arbor, Michigan), 269 pages. (A reprint by the Center for Cooperatives, University of California, 1995, may be accessed at: http://cooperatives.ucdavis.edu/reports/index.htm.) • Ling, K. Charles. “The Many Faces of Cooperatives,” Rural Cooperatives, Volume 79, Number 6, November/ December 2012, pp.24-29. • American Heritage Dictionary of the English Language, New College Edition, Houghton Mifflin Company, Boston, 1976.
Rural Cooperatives / January/February 2013 35 Most Co-op Network members say 2012 was a solid economic year
“This is one of the most wonderful times for opportunity in my lifetime,” says demographer Tom Gillaspy.
By Mary Erickson, field editor “educating the public and promoting the cooperative business Wisconsin Energy Cooperative News, Cooperative Network model,” while 9 percent cited director and staff education, and 2 percent chose development of new cooperatives as the Editor’s note: This article is condensed and adapted from several most important functions. articles that appeared in a recent issue of 2012 Annual Meeting Asked, “What is the greatest threat to the success of your Recap, a Cooperative Network newsletter. cooperative?” 65 percent identified “government regulation and/or legislation.” Trailing far behind were “talent he year 2012 was a better than average year retention” (12 percent); “competition” (12 percent); “growth” T for a majority of cooperatives in Wisconsin (9 percent); “safety” (2 percent); and “litigation” (1 percent). and Minnesota, according to the results of a straw poll conducted during the annual Aging population poses major challenges meeting of Cooperative Network in La Two events occurred in January 2008 that are leading to a Crosse, Wis., Nov. 13. About 56 percent of the delegates said new set of challenges and opportunities for the nation, Tom the economic performance of their cooperative was better Gillaspy, of Gillaspy Demographics, told delegates. A former than average last year, while 27 percent rated the year as Minnesota state demographer, Gillaspy said the recession average. Only 16 percent said their co-op had a below that hit in January 2008 left the nation in an economic hole average year. that will take a long time to recover from. Jobs no longer One in four delegates said they expect to hire additional exist where they once did, Gillaspy explained, and many employees during the coming year, while 68 percent said they Americans have stopped searching for employment would maintain their existing workforce. Only 6 percent of opportunities. co-op representatives said they expected to reduce staff in Second, the first wave of the Baby Boom generation 2013. turned 62 in January 2008. With this massive Baby Boom Nearly 200 members participated in the instant-response generation entering retirement over the next two decades — survey, using transponders to answer 14 multiple-choice and a much smaller Generation X to replace it — Gillaspy questions projected on a screen. Cooperative Network said the nation is facing demographic trends that will have a represents a cross-section of cooperatives in Wisconsin and huge impact on the economy for many years. Minnesota. For the next 20 years, almost all growth in U.S. About 92 percent of delegates said they had contacted households will be in the “empty-nest” sector, and the labor their state legislator or member of Congress during the past force will be at record low levels by the end of this decade. five years, either on their own or in conjunction with This could make the challenges of paying for health care Cooperative Network. Another 60 percent said lobbying on today seem mild compared to the much bigger challenge in legislative or regulatory issues is the most important service 20 years, he said. An aging population is a global trend, Cooperative Network provides for its members. Gillaspy said. Other countries, such as Greece and Japan, also Other responses to the inquiry about the organization’s are struggling with the same issues. Even China, whose most important functions included 29 percent who identified continued on page 43
36 January/February 2013 / Rural Cooperatives Newsline Co-op developments, coast to coast
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Blue Diamond marks record, $1 billion sales year Blue Diamond Growers’ sales catapulted to a record $1 billion for fiscal 2011-12. The almond co-op’s two-year sales growth of $300 million has been driven by demand for value- added almond products, President and CEO Mark Jansen said in is his address to the cooperative’s grower-owners at their 102nd annual meeting in Modesto, Calif. “We are winning in the marketplace by executing our superior business model, enhancing margins and growing our value-added businesses,” Jansen said. “We added $13 million in savings to the $14 million we achieved last year, and we will continue to invest in new technologies that will lower costs and increase processing yields for higher levels of profitability year after year.” Board Chairman Clinton Shick told growers they received record payments of $670 million on the 2011 crop, for a return that was 18 cents per pound higher than on the 2010 crop. “Revenue per acre also exceeded the previous (2005) record by 19 percent,” Shick said. Blue Diamond CEO Mark Jansen, left, greets members during the co-op’s 102nd annual meeting, Blue Diamond will open phase one which marked the first time sales topped $1 billion. of its new, 88-acre almond processing plant in Turlock, Calif., in May 2013, where it will hire up to 100 employees. The co-op already operates the world’s and for many years to come,” said over the past two years and global largest almond processing facilities, in Jansen. consumer-branded businesses increased Sacramento and Salida, Calif. Adding processing capabilities to 45 percent. “Our balance sheet is investment Blue Diamond’s existing operations is A new North American advertising grade, which allowed us to finance our part of a plan to expand its brand campaign, designed to inspire a healthy new plant over the next 15 years at a globally, he added. This is a strategy lifestyle among consumers, was record-low rate that will earn growers that is already paying off, as the launched during the 2012 London who deliver to Blue Diamond several cooperative’s global value-added Olympic Game. Blue Diamond snack cents more on their 2013 annual returns ingredient business leaped 69 percent almond sales jumped 21 percent during
Rural Cooperatives / January/February 2013 37 the fiscal year ending Aug. 31, with sluggish economy and volatile strengths, while creating and capturing sales during the Olympic Games alone marketplace and continue a trend,” new opportunities, has resulted in a leaping 43 percent. Randy Papadellis, Ocean Spray’s great history of success,” says Spackler. president and CEO, says in the co-op’s Spackler is a native of Clinton, Mo., Cunningham succeeds Rice as annual report for 2012. “Over the past where he grew up on a dairy and row CEO of Farm Credit of Florida four years, Ocean Spray has delivered crop farm. He holds BS and MS Gregory Cunningham is the new record highs in sales and profits, as well degrees in agricultural economics from CEO of Farm Credit of Florida, a as in returns for our grower-owners.” the University of Missouri at Columbia, cooperative of 2,300 members and with Ocean Spray is owned by more than and an MBA from the University of a $925 million loan portfolio. He 700 cranberry growers and 35 Florida Nebraska at Omaha. succeeds Don Rice, who has retired grapefruit growers. It has become Prior to joining AGP, Spackler after a career spanning more than 30 North America’s leading producer of served as an economic analyst for Far- years with the Farm Credit System. bottled juices and juice drinks. Mar-Co (a subsidiary of Farmland “Greg comes to our association with The company attributed its success Industries) in Kansas City, Mo., and as a 26 years of financial experience and a to the strength of the Ocean Spray research analyst at Clayton Brokerage strong agricultural background,” says brand, continued product innovation, Co., St. Louis, Mo. He joined AGP in Woody Larson, the co-op’s board in-store marketing and promotions, 1985 as manager of business analysis. chairman. “We anticipate our members ongoing focus on operating efficiency During the past 27 years, he has held will benefit from his experience in the and risk management and the pursuit of various positions of leadership at the commercial banking industry, combined strategic business partnerships. cooperative. with his 22 years of Farm Credit service.” Spackler succeeds Cunningham was previously CEO of Reagan as AGP Inc. CEO Legacy Ag Credit. He started his career Keith Spackler is the new chief as a loan officer with the Federal Land executive officer and general manager Bank Association of Lake Providence, of Ag Processing Inc., in Omaha, Neb. Louisiana, then became branch He takes over manager/corporate loan manager for from retiring Carolina Farm Credit and worked for Marty Reagan. several other farm lenders. Spackler had Cunningham grew up in Louisiana on a been the cattle ranch and was an avid 4-H and cooperative’s FFA participant. He is an alumnus of chief financial Louisiana Tech University and served officer and group for 21 years in the Army National vice president. Guard in North Carolina and AGP, the Florida’s Natural Louisiana. largest farmer- celebrates best year As one of the largest agricultural Keith Spackler owned soybean The 2011-12 season was the greatest lenders in Florida, Farm Credit of processor in the year in the history of Florida’s Natural Florida’s portfolio includes many of world, is owned Growers cooperative, board Chairman Florida’s leading agribusinesses. by 180 local and regional cooperatives Dick Fort said at the co-op’s 79th Headquartered in West Palm Beach, representing more than 200,000 annual meeting, which coincided with the cooperative has 11 service centers farmers from 16 states. the 25th anniversary of the launch of throughout the state and has 140 “Keith Spackler is a seasoned the Florida’s Natural orange juice employees. professional in agribusiness,” says Board brand. Chairman Brad Davis. “His in-depth “By all measures, the cooperative has Ocean Spray sets sales record knowledge of AGP and its business experienced a record year in grower Ocean Spray had net sales of $1.66 operations will serve him well in his returns, sales, market share and billion for fiscal 2012, the highest net new role. We are confident that under customer loyalty,” Fort said. “The sales in the cooperative’s history. It was Keith’s leadership, AGP will continue success of our cooperative is a 3.2-percent increase from the to fulfill its commitment to serve our inextricably linked to the success and previous year. cooperative members and their growth of the Florida’s Natural brand.” “Our fiscal 2012 financial results producer-owners.” Gross sales for 2012 were a record reflect strong performance amid a “At AGP, building on the existing $624.8 million. New records were also
38 January/February 2013 / Rural Cooperatives Natural, its brands include Florida’s Natural Growers Pride, Donald Duck and Bluebird.
Hispanic, women farmers California Dairies acquires Security Milk Producers may seek compensation California Dairies Inc. (CDI), the largest dairy processing cooperative in Hispanic and women California, has acquired assets of farmers and ranchers who Security Milk Producers Association believe that the U. S. (SMPA), a California milk marketing Department of Agriculture cooperative, and added SMPA members (USDA) improperly denied to CDI’s membership, effective Jan. 1. them farm loan benefits The SMPA and CDI boards of between 1981and 2000 directors determined that the member- because they are owners of both cooperatives would be Hispanic or female, may better served by promoting efficiencies be eligible to apply for gained by combining their compensation if: memberships. SMPA members voted to 1) You sought a farm loan dissolve the current management or farm-loan servicing contract and to submit applications for during that period; membership in CDI, which is adding 33 2) The loan was denied, dairies owned by 25 SMPA members. provided late, approved “The addition of SMPA members to for a lesser amount the CDI membership fits well with than requested, approved with restrictive conditions or USDA CDI’s growth strategy,” says Andrei failed to provide appropriate loan service; and Mikhalevsky, CDI president and CEO. 3) You believe these actions were based on your being Hispanic or “Increasing milk supplies will female. strengthen CDI’s market position to the To receive a claims package, visit: www.farmerclaims.gov, or benefit of its member-owners, both old call 1-888-508-4429. and new, through a continued positive For further guidance, you may contact a lawyer or other legal return on investment.” services provider in your community. USDA cannot provide legal “For the last several years, the SMPA advice. board of directors had been looking to If you are currently represented by counsel regarding better balance its milk supply to its fluid allegations of discrimination or in a lawsuit claiming discrimination, sales with the goal of increased returns you should contact your counsel regarding this claims process. n to its member-owners,” said SMPA Chairman Ed Haringa. “As options were explored, it became clear that aligning SMPA’s successful fluid milk sales business with CDI’s extensive processing capacity provided an set with a return to growers of $1.90 consumer-brand marketer, said Walt opportunity for SMPA and CDI to per pound for oranges and $1.55 per Lincer, vice president of sales and better balance milk supplies in the pound for grapefruit, according to Chip marketing. state.” Hendry, the co-op’s chief financial The co-op is comprised of 14 grower officer organizations representing almost 1,000 CHS initiative to foster “The addition of our 14th member, individual growers who own about co-op university education Southern Gardens Grove Corporation, 60,000 acres of citrus in Florida. CHS Inc., one of the nation’s leading will help address our fruit needs for the Florida’s Natural Growers operates a farmer-owned cooperatives, has foreseeable future,” said CEO Steve processing plant in Lake Wales, which launched the CHS University Initiative Caruso. The launch of the Florida’s employs 670 people, and a juice- on Cooperative Education. This $2 Natural Brand changed the cooperative packaging plant in Umatilla, with 101 million program represents a major from a private-label packer to a more workers. In addition to Florida’s investment in building understanding of
Rural Cooperatives / January/February 2013 39 the cooperative business model through procurement and origination, is California dairy co-op leader education, development and practical managing the Auroraville location. Brian Pacheco honored by UC experience. Partner organizations that In other news, the United Brian Pacheco, board chairman of will help roll out this program include Cooperative’s Pulaski feed and grain California Dairies Inc. (CDI), the the Federation of Southern Cooperatives location has completed construction of nation’s second largest dairy co-op, was and 10 universities, including Cornell, a new receiving pit, a new receiving leg, honored in October with the Award of Kansas State and the University of a new dryer and additional storage Distinction from the College of Wisconsin. space. Agricultural and Environmental Designed to foster the integration of Sciences at the University of California cooperative education into agribusiness Jill Long Thompson to chair (UC), Davis. Pacheco is also a member curriculums, cooperative development Farm Credit Administration of the Nisei Farmers League, Sun-Maid and farm business studies across the President Obama has designated Jill Raisin Growers and Western United country, the CHS University Initiative Long Thompson as chair and CEO of Dairymen. on Cooperative Education will also the Farm Credit Administration (FCA). The award is presented annually to support graduate-level cooperative She succeeds Leland A. Strom, who had those whose contributions and education programs, soil, water and served as achievements enhance the college’s environmental studies and technology- chairman and ability to provide cutting-edge research, based learning programs. CEO since May top-notch education and innovative The program builds on more than 80 2008. Long outreach. Pacheco, a fourth-generation years of work with agricultural, Thompson has dairyman from Kerman, Calif., earned cooperative and education entities, says served as a his Bachelor’s degree from UC in 1991, William Nelson, president, CHS member of the with a major in agricultural and Foundation and vice president, CHS FCA board since managerial economics and a minor in Corporate Citizenship. her appointment rhetoric and “As a farmer-owned cooperative, by President communications. CHS is committed to investing in the Obama in March His Pacheco future of the cooperative system,” says Jill Long Thompson 2010. Dairy Inc., with Jerry Hasnedl, CHS board chairman As FCA chair, 1,300 Holstein and a farmer. “This exciting new Long Thompson cows and an elite initiative will enable the next generation will be responsible for policymaking, group of to achieve new levels of success as adopting regulations and overseeing the purebred Brown farmers and ranchers in the global examination and regulation of the Swiss cows, is a marketplace, as employees with institutions that comprise the Farm model of challenging careers in agriculture and as Credit System (System), including the environmental Brian Pacheco contributing citizens of rural Federal Agricultural Mortgage stewardship and communities.” Corporation (Farmer Mac). The System has been Some 350,000 farmers and ranchers has $239.7 billion in assets. As of recognized as a top-producing herd in own CHS either directly or indirectly September 2011, it held about 43 Fresno County every year since 1998. through more than 1,000 smaller co- percent of the nation’s farm business Pacheco is also president of the ops. debt. Fresno County Farm Bureau and serves Strom will remain a member of the on boards for the Community Regional United Cooperative purchases board, pending future action by the Medical Center and the Fresno Dairy Auroraville grain facilities President and the U.S. Senate. Kenneth Herd Improvement Association and is United Cooperative, Beaver Dam, A. Spearman, who was appointed to the board president of the Kerman Unified Wis., has purchased a new grain-storage board by President Obama in 2009, School District. facility in Auroraville, Wis., from serves as the third member. He also Willow Creek Grain LLC, Berlin, Wis. serves as chairman of the Farm Credit NCBA Veterans Initiative The Auroraville facility has 1.25 million System Insurance Corporation. offers job opportunities bushels of grain storage, 26,000 bushels Long Thompson represented The National Cooperative Business per hour of receiving capacity, 1,000- northeast Indiana in the U.S. House of Association has launched an initiative and 500-bushel unloading pits, and a Representatives from 1989 to 1995. She that will support transitioning disabled 4,000-bushel-per-hour grain dryer. was under secretary for USDA Rural veterans. According to the Small David Olsen, who has more than 40 Development during the Clinton Business Administration, veterans are at years of experience in grain administration. least 45 percent more likely to be self-
40 January/February 2013 / Rural Cooperatives employed than those with no active- duty military experience. NCBA’s Veterans Initiative will offer transitioning service members the opportunity to learn about the cooperative business model as they consider entrepreneurial civilian career opportunities. NCBA’s Veteran’s Initiative will initially focus on introducing veterans to two types of cooperatives: worker- owned and purchasing/shared services co-ops. Worker cooperatives create long-term, stable jobs and provide their mid-December vote by the members of who had been general manager of members with an ownership stake in a the co-ops. Manitowoc Milk Producers business enterprise without all the risk “Our members made history,” Cooperative. “The current, individual associated with going into business as a Dennis Donohue, general manager of financial status of all three cooperatives sole proprietor. Purchasing and shared- the new co-op, says in a statement on is outstanding. This allows the new services cooperatives enable those who the new co-op’s website. “This organization to start out on very strong choose to start a small business with the membership vote to merge the three footing, so that we can immediately price advantages of group buying cooperatives affirms our members’ goals focus on growing and improving power. for industry success through member benefits.” The November 2012 issue of collaboration. Collectively, the strength Under the new cooperative, the Entrepreneur magazine touts the of our three organizations becomes one combined member representation will benefits of purchasing cooperatives, unified and powerful voice.” be divided into nine districts. The noting that cooperatives such as Ace FarmFirst Dairy Cooperative will current 20 directors from each of the Hardware and CarpetOne offer serve around 5,100 producers in three cooperatives will transition into independent business owners the Wisconsin, Michigan, Illinois, Iowa, the new organization, helping ensure benefits of group buying and a brand Minnesota, and North and South consistency in leadership and identity without the rigidity of a Dakota. The co-op will become the membership voice. franchise. third-largest dairy co-op in the country, NCBA’s Veterans Initiative also will based on member milk volume. NMPF seats new celebrate what the cooperative The new co-op, which will have its board members community already is doing to hire headquarters in Madison, will include The National Milk Producers veterans and encourage cooperatives to the 2,300 members of Family Dairies Federation’s (NMPF) board of directors hire transitioning service members USA, the 2,650 member-producers of seated two new members at the whose skills are well suited to their Manitowoc Milk Producers organization’s 2012 annual meeting in businesses. Through the program, Cooperative and the 500 producers of Orlando, Fla. Donald De Jong from cooperative staff will have the Milwaukee Cooperative Milk Dalhart, Texas, was elected to represent opportunity to learn to mentor Producers. The three co-op boards had Select Milk Producers Inc., while Larry transitioning service members who previously given the merger unanimous Webster from Buffalo, N.Y., was elected choose to become member-owners of support. to represent Upstate Niagara cooperative enterprises. For more “The combined size and strength of Cooperative. information, visit: www.ncba.coop. the new cooperative will provide all of In other news, Jim Mulhern, a our members with a deeper and broader veteran public affairs professional with Wisconsin dairy voice in policymaking decisions, both three decades of government policy and co-ops merge locally and nationally,” says David communications experience in Family Dairies USA, Manitowoc Cooper, general manager for Family Washington, D.C., joined the NMPF Milk Producers Cooperative and Dairies USA. “And by combining the staff Jan. 1 as chief operating officer, a Milwaukee Cooperative Milk Producers resources of three independent new position for the association of dairy have voted to merge, establishing organizations, we will be able to co-ops. He will have direct oversight of FarmFirst Dairy Cooperative. The improve efficiencies and effectiveness.” the communications, government merger of the three Wisconsin dairy co- “The timing of coming together relations and membership functions of ops became effective Jan. 1, following a could not be better,” adds Donohue, the organization. n
Rural Cooperatives / January/February 2013 41 Creating a safety culture experiences and learn from each other.” 625-3013, or via e-mail at: continued from page 6 “We think of firms with a strong [email protected]. safety culture as being nuclear power Editor’s note: Cooperatives in Iowa plants, oil refineries, chemical plants working with the Ag Cooperative Safety compliance director after the first and similar industries,” notes Boland. Directors of Iowa (http://acsdia.org/) have assessment, so this was new to me. But “Farm supply and grain and oilseed formed a consortium of safety directors for we are looking forward to seeing if we marketing cooperatives are all different. cooperatives in their states and have started pushed the bar with the reassessment There are no cookie-cutter type offering an educational program. In coming in the summer of 2013.” operations. We have remote locations, addition, the Grain Elevator and “This has been a great program for seasonal employees and locations, and Processing Society, known as GEAPS me and WFS,” says DeAnn Miller, we have traditionally placed a high (www.geaps.com), offers safety topics at its environmental health and safety value on employees with a ‘get it done’ meetings. The Agricultural Safety and director at the co-op. “We have learned attitude. Getting it done safely is the Health Council of America (ASHCA) so much. And more importantly for me, critical part.” (www.ASHCA.com) will hold its 2013 I have met others like me who work in For more information about this Summit Sept. 25-27 in Minneapolis, safety in other cooperatives. We share program, please contact Boland at (612) Minn. n
Co-op conversions help bring Swift transition Nevertheless, not one New Hampshire security to manufactured None of the leaders of New co-op has failed since the Meredith housing owners Hampshire’s 103 manufactured-home conversion 29 years ago. That’s a continued from page 31 co-ops will say managing a community testament to the hard work and is easy. dedication of the volunteers in these co- “People and a system are needed to ops; to the training, support and improvements to the roads and water collect the rents and keep the books, technical assistance provided by ROC- lines. Other co-ops hold community approve new members, maintain the NH; and to the crucial support of cleanup or beautification days, or start infrastructure, enforce park rules, programs like USDA-RD. rewriting community rules. mediate disputes and endlessly Regardless of a co-op’s management Participation in the co-op not only communicate,” says ROC USA system, all residents — even those who reduces costs, it builds vibrant President Paul Bradley. “Effective choose not to become members of the neighborhoods. That participation can operations rely upon good information co-op (which usually means they pay a include everything from baking cookies and frequent communication — both higher lot rent and have no voting for a summer barbecue or helping plan challenges in volunteer organizations rights) — enjoy the benefits of a glow-stick sledding night to operating run by busy people.” ownership. Some economic benefits the well system or serving on the Although many smaller communities were documented in a 2006 study by volunteer board of directors. are run completely by their volunteer the Carsey Institute at the University of Residents also learn that they belong members, most use a portion of their New Hampshire. to a community much larger than their rental income to hire companies for The study found that the advantages neighborhood. They are connected to services that include rent collection and enjoyed by homeowners in co-ops over other resident-owned communities in financial management. One large co-op, those in investor-owned communities New Hampshire through the 192-unit Greenville Estates in included higher average home sales Community Loan Fund’s ROC-NH southwestern New Hampshire, has prices, faster home sales, access to program and across the country always relied upon paid staff — an fixed-rate home financing and, through ROC USA, both of which office manager, a bookkeeper and eventually, lower lot fees. create opportunities for education, maintenance workers. And through ROC USA, the ripples collaboration and networking. An additional challenge is that flow over the state border. The national Co-op members also have access to roughly 75 percent of New Hampshire’s nonprofit is providing connections with training and education sponsored by manufactured home co-op residents co-ops in other states through ROC-NH, and some have been qualify as low-income. While all bring aggregated opportunities such as appointed or elected to leadership valuable and varied life experience, few leadership conferences and online positions in their towns. Graduates of have previously had the opportunity to training, marketing and joint its community leadership training also serve on a nonprofit board of directors, purchasing. n earn college credit they can use toward much less run a multi-million-dollar a degree. corporation.
42 January/February 2013 / Rural Cooperatives Most Co-op Network This dilemma will have repercussions Gillaspy predicted these trends would members say 2012 was that Gillaspy said will result in a “new lead to a third industrial revolution a solid economic year normal,”characterized by slower characterized by advances in robotics, economic growth, rising interest rates, a materials and software. continued from page 36 shift in the home ownership/rental Cooperative Network is a leading gradient and talent becoming the most Wisconsin business association. It serves scarce resource. more than 600 member-cooperatives, owned economy is predicted by some long- However, Gillaspy said the new by more than 6.1 million Minnesota and range forecasters to surpass the United challenges also make for new Wisconsin residents, by providing States’ economy sometime between opportunities. government relations, education, 2016 and 2020, will be shifting to an “This is one of the most wonderful marketing, and technical services for a wide aging population in about 10 years. times for opportunity in my lifetime,” variety of cooperatives including farm However, Gillaspy said China is he said. supply, health, dairy marketing, consumer, pushing up worker productivity now, Innovation is a key to increasing financial, livestock marketing, before its population begins to age. productivity, he said, referring to telecommunications, electric, housing, “There are only two ways to grow an examples such as the development of insurance, worker-owned cooperatives, and economy,” he pointed out. “Increase the rust disease-resistant wheat to help more. For more information about workforce, or increase worker meet the growing world demand for Cooperative Network, visit productivity.” food, and new cures for diseases. www.cooperativenetwork.coop. n
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supportdocuments/ Chapter 6 Classifying Cooperatives cir55.pdf by Structure
39 Cooper atives ar e described by a number of clas- categorize them are based on the geographical Or get your free territor y served, functions they perfor the gover nance sy Geographic Territory Servedm. stem and the
hard copies by One f actor deter is the size of the areamining served. coope Cooperativesrative structure are loosely categorized as “local” or “regional.”
Local cooperatives typically operate within a e-mailing single S tat e, often within one or two counties. which to serve members.
Regional [email protected], cooperatives usually serve an entire State that are nationwide or cover major portions of the United States. Some regional cooperativ also have internatio members in mor nal operations with sales and calling (202) 720-8381, e than es Governance System one country.
Cooper membershipatives structure, can also be classified based on without regard to how much was earned on each transaction. or writing: ated” or “mixed.” as “centralized,” “feder- Centralized Limite d Return and business cooperatives entities (including have individuals partner- on Equity C Members form a cooperativeapital to get a ser- ships and family corporations) as mem- vice—source of supplies, market for products bers. Virtually all locals are centralized. or performance of specialized functions—not Regional cooperatives may also be central- a monetary return on capital investment. ized. A centralized cooperative has one cen- Many cooperatives don’ tral office, one board of directors elected by its on c apital. Others pay a modest return, in line members, and a manager (or chief executive of- with state and federal statutest p thatay any bar dividends sub- ficer) who supervises all operations. Business may stantial payments. USDA Co-op Info be conducted through numerous branch stores or Limiting returns on equity supports the offices staffed by employees responsible to the central principle of distr management team. to use. It also discouragesibuting benefits outsiders proportional from try- Federated ing to wrest control of a cooperative from its members and operate it as a profit-generating members. cooperativesEach member have of aother federated cooperatives is a separate as their coop- Stop 0705 concern for the benefit of stockholders. erative that owns a membership share entitling it to voting After the fiscal year is over, a cooperative computes its earnings rights in the affairs of the federated. Local cooperatives com- on business conducted on a cooperative basis. ose earnings are Coop monly form federated regional cooperatives to perform ac- returned to the patrons — as cash and/or equity allocations — on eration Among Coop tivities too complex and expensive for them to do individually, the basis of how much business each patron did with the coopera- Many cooperatives, especiallyeratives local associa- such as manufacturing production supplies, tapping major financial tive during the year. ese distributions are called patronage re- tions, are too small to gather the resources 1400 Independence Ave, SW markets and marketing on a national or international scale. needed to provide all the ser funds. Each local cooperative member of a federated cooperative typi- bers want. ventures, marketing agencies in common, and informal networks— cally has its own board of directors, manager, employees and facili- For example, if a cooperative has earnings from business con- tives—through By working federated with cooperatives, othervices coopera-their mem- ties to serve its members. e federated has its own hired manage- ducted on a cooperative basis of $20,000 for the year, and Ms. they pool personnel and other assets to pro ment and staff and a board of directors elected by and representing Jones does 2 percent of the business with the cooperative, she programs on a collaborative basis at lower cost. Washington, DC 20250 its member cooperatives. receives a patronage refund of $400 ($20,000 x .02). joint is allows the cooperative to return margins to members on an owning and managing vide such services and Mixed Many marketing cooperative brand names are familair annual basis, consistent with standard accounting conventions and cooperatives have both individuals and other cooperatives as sights on grocery market shelves ties, power plants, members. Individuals have voting rights and the cooperatives usu- and har fertilizer plants, food manufacturing facili- ally do also. dwa national financial institutions, wholesale grocer Marketing cooperatives 12 back throughre the distribution local cooperatives programs, to and the soindividual for members. Functions Performed the return they receive for crops and goods they pro- help members maximize through 150 years of continuous evolution in the business world. duce. Most cooperative marketing activity involves either agricul- th. Benefits flo y Cooperatives may perform one or more of three core functions: tural products or producers in related industries, such as forestry, w marketing products, purchasing supplies and providing services. aquaculture and horticulture. New marketing ventures are develop- tive method of doing business. ing in such diverse industries as handicrafts, professional services and information technology.
40 Some marketing cooperatives limit their activity to negotiating prices and terms of sale with buyers. Dairy farmers and producers of fruits, nuts and vegetables grown for processing are primary us- ers of these cooperatives, often called bargaining associations. Other marketing associations assemble member production 13
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44 January/February 2013 / Rural Cooperatives