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2 0 1 3 Commentary The Co-op Way

By Dallas Tonsager, Former Under Secretary Sometimes the enthusiasm that helps launch a co-op can USDA Rural Development dissipate over time as it passes from one generation to the next. While new co-ops can learn much from older, grew up in the “co-op culture” of rural established co-ops, the latter can also benefit from the sense I South Dakota, relying on co-ops for of excitement and “all for one” that we see among the new everything from farm supplies to electricity. crop of co-ops. So I’ve always had a healthy respect for how Co-ops have never been afraid of a challenge. Indeed, vital co-ops are to rural America. But the past many, if not most, of our successful co-ops were created in 4 ½ years serving as Under Secretary for USDA Rural challenging times. Thousands were formed in the 1930s- Development has given me an even greater appreciation of 1960s, fueled by an absolute need — such as the need for a how these user-owned, user-controlled businesses are helping source of quality farm supplies and electricity at affordable to build a stronger rural economy. prices, or the need to market and add value to crops in order I have had the good fortune to spend 17 of the past 20 to gain clout in the marketplace. years working in the federal government. As I leave this This still holds true today. It was absolute need that drove current assignment, I do so with the the formation of the new-generation knowledge that cooperatives are well co-ops and limited liability poised to continue to help drive corporations of the 1990s and early forward the nation’s rural economy, 2000s, which were key to developing just as they have been doing for more the nation’s biofuels industry. There than a century. was a critical need for those Our farmer cooperatives are a businesses because market prices for major reason that the nation’s corn had collapsed and a new source agricultural economy is thriving, of demand was needed. I believe setting new sales records and helping biofuels will continue to play a role in to export our farm products around our nation’s move toward greater the world (see page 20 for some energy independence and that examples of the latter). Likewise, producer-ownership of these facilities Dallas Tonsager, right, tours a truck and auto parts electric cooperatives not only keep benefits rural America. accessory manufacturing facility that benefited the lights on across much of the from USDA support. After the surge in new-generation nation, they are: helping to expand co-ops in the 1990s, interest in them rural broadband service; pursuing new flagged, which is unfortunate. I hope energy technologies, including wind and solar energy; and that more people will take a closer look at the new- deploying smart-grid technologies. generation business model, because it still holds great These are also exciting times for cooperatives because of a potential to raise capital and develop businesses that benefit new wave of co-op formations across the land. There’s a producers and their communities. genuine sense of enthusiasm about doing business “the co-op I’d also like to see more established farmer and utility co- way” as a new generation of co-ops forms to help meet the ops working closer with the nation’s network of cooperative burgeoning demand for more local foods, for developing development centers, which we help fund through the USDA renewable energy resources, for forging worker co-ops and Rural Cooperative Development Grant program. The filling many other needs. expertise of co-op leaders can play a big part in helping these The common denominator that underlies these new co- centers fulfill their mission to support co-op development. ops is the driving spirit to work collectively — arising from a Just being in a co-op, of course, does not mean that you sense of community and common cause — to achieve will be successful. Some co-ops fall victim to not recognizing something in the marketplace as a group that would be changing market circumstances. Co-op boards must hold difficult or impossible to achieve as individuals. continued on page 41

2 May/June 2013 / Rural Cooperatives Features

Volume 80, Number 3 May/June 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. 4 p. 16 p. 20 periodical is necessary in the transaction of public business required by law of the Department. Periodicals postage paid at Washington, DC. and additional mailing offices. Copies may be obtained from the 04 Start Me Up Superintendent of Documents, Study of 14 newly launched co-ops reveals valuable lessons Government Printing Office, Washington, DC, 20402, at $23 per year. Postmaster: By Courtney Berner send address change to: Rural Cooperatives, USDA/RBS, Stop 3255, Wash., DC 20250-3255. 08 Building Bridges ACDI/VOCA celebrates 50 years of expanding opportunities worldwide Mention in Rural Cooperatives of company and brand names does not By Anja Tranovich signify endorsement over other companies’ products and services. 12 Indivisible Reserves Unless otherwise stated, articles in this Some see unallocated equity as a way co-ops can help fortify their future publication are not copyrighted and may be reprinted freely. Any opinions express- By Bruce J. Reynolds ed are those of the writers, and do not necessarily reflect those of USDA or its employees. 16 Birds of a Feather Squab producers ‘flock together’ to process, market through co-op The U.S. Department of Agriculture (USDA) prohibits discrimination in all its By Stephen Thompson programs and activities on the basis of race, color, national origin, age, disabili- ty, and where applicable, sex, marital 18 Equity Elevator & Trading Co. joins century club status, familial status, parental status, By Carol Stender religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or part of an individual’s 20 The Lure of Distant Shores income is derived from any public assistance program. (Not all prohibited Co-ops share export strategies during USDA Outlook Forum bases apply to all programs.) Persons By Dan Campbell with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, 29 USDA funds help reopen town’s only grocery etc.) should contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD). By James Crandall, Elaine Cranford, Amanda Bergstrom To file a complaint of discrimination, write to USDA, Director, Office of Civil Rights, Co-op food market planned in South Carolina 1400 Independence Avenue, S.W., 33 Washington, D.C. 20250-9410, or call (800) By Mary Ann Cleland, Debbie Turbeville 795-3272 (voice), or (202) 720-6382 (TDD). USDA is an equal opportunity provider and employer. Departments 02 COMMENTARY 30 UTILITY CO-OP CONNECTION Tom Vilsack, Secretary of Agriculture 32 CO-OP DEVELOPMENT ACTION Doug O’Brien, Acting Under Secretary, USDA Rural Development 34 NEWSLINE

Dan Campbell, Editor

Stephen Hall / KOTA, Design ON THE COVER: U.S. agricultural exports set a new record in 2012, Have a cooperative-related question? Call (202) 720-6483, or email: at $143.5 billion. Ag co-ops are among the nation’s leading exporters, [email protected] including three co-ops that provide insight into their overseas This publication was printed with vegetable oil-based ink. marketing strategy, beginning on page 20.

Rural Cooperatives / May/June 2013 3 Start Me Up Study of 14 newly launched co-ops reveals valuable lessons

n so p m o h T n e h p te S y b s ic h p ra G

By Courtney Berner, Outreach Specialist goal was to develop a deeper University of Wisconsin Center for Cooperatives understanding of how to most effectively support emerging cooperative businesses. To o date, relatively little research has that aim, we explored the following broad T been published on best practices in questions: cooperative business development. • How are groups organizing new cooperatives? Many co-op development best • What resources are available to start-up co-ops? practices have emerged from Of these, which resources are start-ups using and anecdotes, case studies and personal experience. benefitting from? Where are there gaps? While these are important and relevant sources of • How are start-up cooperatives financed? information, a systematic exploration of the successes • What factors during start-up lead to successful and failures of cooperative development efforts is cooperative businesses? needed. To answer these questions, we interviewed Building on previous research on cooperative stakeholders from 14 Minnesota and Wisconsin governance and management structures, the cooperatives involved in the food or agriculture University of Wisconsin (UW) Center for sectors that incorporated 5 to 10 years ago. The Cooperatives conducted a preliminary study study sample represented a diverse array of examining cooperative start-up success factors. Our cooperative ownership types, sectors and sizes. The

4 May/June 2013 / Rural Cooperatives list includes consumer-owned co-ops, vision is not yet established and raising are positive and the group decides to worker-owned co-ops, producer-owned funds to pay for early organizing work move forward, the next step is co-ops, multi-stakeholder co-ops and often requires creativity and risk-taking completing a business plan. Of the 14 shared-services co-ops owned by other on the part of the core group. Three co-ops interviewed, 11 wrote business business entities. Of these, 11 are active, important components of the plans, which varied significantly in their while the remaining three have either organizing phase are: co-op champions, length and content. dissolved or no longer operate as co- steering committees and project Co-ops with established businesses as ops. Three of the co-ops in the sample management. their members were more likely to just converted from other business types Feasibility and business planning put together a set of financial within the past 5 to 10 years. — Once a steering/organizing projections rather than a full-blown Our survey included questions committee is in place and has the business plan. Of the three co-ops that related to key characteristics of appropriate level of internal readiness did not do plans, two were conversions cooperative development projects and or organizational capacity, it moves into that had written business plans at start- their primary stakeholders; governance the feasibility and business planning up and the third was essentially a and management structures; financing stage. The two core products of this “virtual organization with no assets.” models; and the impact of cooperative stage are a feasibility study and a development resources, such as business plan. The less tangible Capitalization technical assistance and financing. outcomes of this stage include a more All businesses need capital to launch This article provides a summary of unified and comprehensive and run their operations. Cooperatives our findings with an emphasis on understanding of the business concept are no different, but the arsenal of tools lessons learned and four general topic areas that span all stages of development: capitalization, management, governance and technical The ways to start a co-op are as diverse as the sector assistance. The full report, which includes more detailed sections on itself, so it is best to avoid the one-size-fits-all approach. organizing, feasibility analysis and business planning, can be downloaded at: http://www.uwcc.wisc.edu/pdf/Co- op_Business_ Development_in_ and enhanced commitment and capacity at their disposal differs slightly from Wisconsin_and_Minnesota_Final.pdf. of the organizers. that of traditional investor-owned firms. Half of the co-ops included in the Co-op financing tools include member Start-up process study performed some type of feasibility stock, preferred stock, member loans, Organizing — The organizing stage analysis. Of the seven groups that did grants and loans from banks or other is the first phase in the life of a co-op. It feasibility studies, four reported that the lenders. typically begins with one or more studies were useful, two found the The options available to each co-op people who recognize a common need studies somewhat helpful and one co-op are influenced by tax considerations and and have an idea for addressing it. This did not find the study helpful at all. by the state in which they incorporate. stage usually lasts 6 to 12 months or The main complaints regarding Co-ops meet their start-up capital longer and includes the following feasibility studies were that the studies needs using a variety of financing activities: convening a core organizing were too optimistic, the projections mechanisms, typically a combination of group and developing leadership within were wrong and outside consultants member equity and debt from lenders. that group; assessing common interests sometimes did not understand the Despite the variety of tools at their and needs; building a shared vision; community well enough. Co-ops started disposal, co-ops still face challenges possibly undertaking an informal, by people with extensive industry related to capitalization. Co-ops cited a preliminary feasibility assessment; experience were less likely to do a lack of sufficient member equity, creating a member financing structure; feasibility study. One group conducted community fundraising and not being incorporating as a legal entity; and its own feasibility study, while the other taken seriously by banks as some of recruiting members. six hired outside consultants to their key capitalization challenges. The organizing stage can be complete their studies. Under-capitalization and poor uniquely challenging in that a unified If the results of the feasibility study financial planning are the most

Rural Cooperatives / May/June 2013 5 commonly cited reasons that new During start-up, the board is often this way: “As a worker co-op organized cooperatives fail. Several pieces of directly involved in co-op operations. as a collective with really no job advice related to finances emerged from As the co-op begins to stabilize, the descriptions…there were no systems of our interviews: board transitions from a working board accountability, no idea of how tasks to a governing board. This transition should get done…There are collectives • Financial commitment from members can take time and education; it can also that are highly structured. We were not is critical. sometimes be painful, but the that…You have to have that solid • Never underestimate working capital emergence of a healthy relationship structure stuff in the beginning. You do needs. between the board and management is it in the beginning before things get • Think about the future impact of critical. wrapped up in the personalities, before debt. Don’t undercapitalize, but avoid people are used to lack of structure and overburdening the co-op with debt. (2) Hiring good management is all the dysfunctional behavior that • Do not let grants dictate the critical to success. Several co-ops comes with it.” development process. Many groups cited their first hire as either the key (5) Plan for ongoing good apply for grants during the organizing to their success or their biggest governance. The business plan should stage, which can slow a group down. regret, including this comment: include a thoughtful section on ongoing • Thoughtfully plan for growth. “We’ve had a manager since 2006 or management and governance. The size • Strong financial literacy of the board 2007 who has been absolutely terrific. and structure of the board are critical and management is key. Finding somebody who will do the components of establishing an efficient • Work with an accountant who work and get it done and not try to and effective board. The founders must understands co-ops and can set up a bring every issue to the board is consider the size of the future sound bookkeeping system. absolutely invaluable. That’s the cooperative, the geographic scope and number one success piece.” the key stakeholders. Small boards can Management and governance Another co-op had a less positive facilitate good discussion, but some The importance of good governance experience. Both interviewees from that cooperatives benefit from having more is felt from the earliest stage of co-op listed their first general manager members participate on the board. Four development through the entire life of as their major regret and admitted it of the cooperatives in the study elect the co-op. Establishing good nearly cost them the business. board members using a district or governance early is critical, as it shapes (3) Management needs clear delegate system, which encourages the cultural norms of the organization direction from the board, especially member input at a local level and and affects how the steering committee at start-up. While the steering ensures representation from diverse works as a team to develop a unified committee and board of directors regions. The largest board in the study vision; establish roles, responsibilities probably spent a great deal of time has 11 members and the smallest has and expectations; and to recruit other building and articulating their shared three. co-op members. vision for the co-op, it is unlikely that Since most boards experience Our research did not generate a management was part of those early turnover, directors must address the great deal of data on management and conversations. As a consequence, it is task of building sustainable board governance, but it did reveal that the critical that directors communicate leadership. New board members need line between the board and their vision to management and ensure to be nominated, mentored and management is often blurred during that there is alignment regarding how educated on how to represent members start-up. From the data we collected, to carry out that vision. and monitor the performance of the these four strong themes emerged: (4) Worker cooperatives cooperative. After start-up, continuing (1) A significant amount of experience distinct management education of new members is critical to volunteer labor is responsible for challenges. Worker cooperatives are maintaining members’ clear organizational and management often started with the goal of creating understanding of the co-op’s value tasks before the first employee is democratic workplaces. There may be proposition. hired. In nearly every co-op we strong resistance to hierarchy from the Another cooperative in our study interviewed, an all-volunteer steering founding members. The worker co-ops stays relevant to members by committee or interim board was driving in our study emphasized that lack of establishing member-led committees the planning process. Even in cases structure and policies at start-up caused and encouraging direct communication where a project coordinator was hired significant management problems later between members and the board chair. during the development process, on in the life of the business. Annual meetings are another way to get volunteers still contributed many hours. One co-op described its experience feedback from members. Of the nine

6 May/June 2013 / Rural Cooperatives Peer co-ops are an excellent source of assistance to start-ups because they understand the co-op business model and the specific industry.

co-ops that regularly have annual When asked what type of technical accountability, meetings and reported attendance rates, assistance they could use now, most co- formal written the average attendance rate was 44 ops either could not come up with an agreements and percent. Attendance tends to be quite answer or were already receiving the sound financial low at co-ops with consumer co-op assistance they needed from consultants management. One co-op in members (26 percent on average) and or industry associations. Those that did the study commented: “We did quite high at all others (88 percent). respond were most interested in getting everything using our politics and help with sales and marketing or using our hearts as a decision-maker Technical Assistance information specific to their sector. instead of looking at numbers. When New co-ops generally need two types we were really small it actually worked of assistance: general support in areas Lessons learned that way. But as we grew and the such as governance, structure, legal Despite the diversity of co-ops organization needed to become more documents, capitalization and for represented in the study, the following structured and sophisticated, it was industry-specific advice. While only 9 general lessons emerged about the really hard for us to make that shift.” of the 14 co-ops reported that they start-up process: Another co-op commented: “There worked with consultants during start- Lead with a strong value was too much trust involved and not up, almost every group identified at proposition. Whether it is a high- enough verbiage in the contract...We least one professional, such as an quality product or exemplary service, thought we were on the same page accountant or attorney, who assisted the co-op must offer its customers when, in reality, they [a major partner them. and/or members something special, of the new business] were the business Assistance providers ranged from beyond just being a cooperative. Several people and were looking out for their private consultants and nonprofits to co-ops cited the quality of their product own pockets; we were naïve.” extension agents and local economic and service as the key to their success. Invite the right people to the development agencies. Half of the co- One interviewee emphasized that in the table. A group should carefully ops in the study received assistance case of grocery co-ops: “Ultimately, consider the personalities and skill sets from other co-ops, and all said that the there has to be something beyond the it wants to have on the founding team. advice was useful. belief in co-ops that will sustain these One group made a decision early on: Assistance from peer co-ops was businesses…So that value proposition “The strategic decision was okay, so are especially prevalent in the well- ultimately has to be there on some you going to go with people who are developed and well-networked grocery level.” more mild-mannered and will easily be sector. One grocery co-op reported that Build alignment around a shared influenced and molded into what you its “most important partnerships were vision. In addition to defining the think they ought to do, or are you with CDS Consulting Group vision, it is also critical to clearly going to go with people who are and…through the other co-ops,” which articulate the vision to members and aggressive and are going to have their provided both financial and operational confirm that everyone has similar own ideas? We decided on that second support. Another co-op credited its expectations from the co-op and one category…And that has worked out existence to a peer grocery co-op, another. These expectations can be wonderfully.” saying: “We wouldn’t be here without written out in a formal member Another co-op credited its success to its support.” Peer co-ops are an agreement. a willingness to say that this co-op was excellent source of assistance and Treat the co-op like the business it not for everyone. “If all they were information to start-ups because they is. While co-ops are motivated by their looking for was the ability to increase understand the cooperative business members’ needs rather than pure profit, pricing position in the marketplace, model and the specific industry. they are still businesses that require continued on page 42

Rural Cooperatives / May/June 2013 7 ACDI/VOCA celebrates 50 years of expanding opportunities worldwide

By Anja Tranovich, Editor Spreading American ACDI/VOCA expertise worldwide Since its founding, ACDI/VOCA has ifty years ago, during an worked in 145 countries, spreading F unseasonably warm American expertise in agriculture, Chicago fall, a group of business, financial services and U.S. cooperative community development around the leaders met for a lofty globe. It has handled complex projects purpose. Spurred by the U.S. that address the most pressing and government’s call to encourage intractable development challenges, economic development abroad, these pioneering comprehensive approaches leaders wanted to infuse the nation’s to help strengthen entire value chains. nascent foreign assistance program with In 2003, USAID Administrator a co-op approach. Andrew Natsios called ACDI/VOCA At the gathering, Howard Cowden, a the “premier agricultural development founder of Farmland Industries, NGO [non-governmental organization] reflected on his recent visit to Latin in the world.” In 2012, the organization American cooperatives. “Their benefited more than 3 million people, development is about where we were creating almost 47,000 jobs and some 40 years ago,” he said. increasing incomes by tens of millions Cooperatives abroad faced a high of dollars. percentage of product spoilage, lack of BUILDING Yet, much remains unchanged since credit and access to inputs, and its founding. Local capacity building is improperly maintained records. the cornerstone of the organization’s To have a greater impact, Jerry BRIDGES work. ACDI/VOCA still supports Voorhis, president of the Cooperative producer groups that reflect the merits League of the U.S.A. (today part of the of joint ownership, democratic National Cooperative Business governance and economies of scale. Association) proposed forming an organization that would become a Lasting legacy strong force for economic development One of its early accomplishments overseas. “It needs to bring together was helping to found the Indian every single one of the organizations we Farmers Fertilizer Cooperative Ltd. can possibly bring together,” he said. (IFFCO). During the early 1960s, During the summer of 1963, these famine was predicted in India. New, co-op leaders launched what would high-yielding varieties of wheat and rice become ACDI/VOCA. It had 19 co-op were being introduced, but farmers members and $16,000 of pooled capital. needed chemical fertilizers to be more

In Iraq (above), ACDI/VOCA implemented USAID’s Community Action Program (CAP) from 2003 to 2012, promoting participatory economic development. Photos courtesy ACDI/VOCA.

8 May/June 2013 / Rural Cooperatives Training in South Sudan helps producers approach their ACDI/VOCA developed market linkage opportunities for 3,000 farming as a business. Here farmers use a makeshift abacus farmers in India using its value-chain approach and FreshConnect, to calculate income. a program that disseminates weather and price information.

productive. IFFCO was conceived to help Indian farmers an ACDI/VOCA member. meet their urgent need for crop inputs. Then-Vice President Hubert Humphrey commented: In a show of solidarity, U.S. farmer co-ops collected more “This is a unique and significant act of statesmanship on than $1 million to supplement U.S. and Indian government [U.S. cooperatives’] part. In this effort, farmers are investing funding. The $125 million fertilizer project was completed at in the development of future markets for their products and cost and on time. Prime Minister Indira Gandhi presided at a contributing to sound international cooperation.” ceremony at the start-up of one of the new IFFCO plants. Food shortages were averted, and IFFCO entered the annals Development works of agricultural development history as a triumph of the ACDI/VOCA today continues to help Indian farmers Green Revolution. Today, IFFCO continues its success and is innovate. Ongoing projects reduce poverty, increasing the

ACDI/VOCA has been called the world’s premier nonprofit ag development organization.

Rural Cooperatives / May/June 2013 9 Clockwise from top: Women farmers in India learn how to test soil. In permanent jobs. In South Sudan, ACDI/VOCA helped train government Ecuador, ACDI/VOCA has helped improve the lives of 22,000 families – Extension agents and farmers and distributed agriculture micro-grant including this cocoa farmer – and generated more than 18,000 kits to support training and boost production.

10 May/June 2013 / Rural Cooperatives “I might be going to the project to teach, but I’m really learning in the process as well.”

incomes of smallholder and marginal farmers by boosting University. She was the first family member to acquire higher production efficiencies. education. Another member renovated his crumbling house One recent effort used modern communications and bought two donkeys to establish a water-supply business. technology to deliver local, up-to-date cooperative extension and market information to rural farmers via text and voice A banking model in Central Asia mail. Another effort targeted aid for women farmers, who Agriculture is a vital sector of the economy in most saw their incomes increase by more than 30 percent. They developing countries, and a vast majority of the world’s poor also benefited from a 60-percent increase in access to credit. are small-scale farmers. To modernize, enlarge their ACDI/VOCA is currently involved in 75 such economic operations or make significant improvements in their development projects around the globe, helping to expand livelihoods, these farmers need access to capital. economic opportunities. This was especially true in Kyrgyzstan in the 1990s, after In the process of creating broad-based economic growth, Soviet farm supports disappeared and credit was largely ACDI/VOCA is also creating demand. This directly helps unavailable to farmers and entrepreneurs. In September U.S. agriculture, which is vitally dependent on overseas 2000, ACDI/VOCA led the push to establish the Bai- markets. When people in developing countries increase their Tushum Financial Foundation to facilitate access to credit in incomes, one of the first things they do is improve and rural areas in the Kyrgyz Republic and provide underserved diversify their diets, and U.S. producers benefit from a rising borrowers — especially small-scale farmers without other tide of consumption. resources — useful financial products and guidance. The project was launched with the support of USAID, USDA and People-to-people assistance CARITAS, a Swiss relief agency. U.S. expert volunteers who conduct hands-on training and Since then, Bai-Tushum has served thousands of consultation are one of the organization’s hallmarks. borrowers. The initial project officially ended in August ACDI/VOCA has sent over 11,000 volunteers, many from 2005, by which time Bai-Tushum was operationally and U.S. co-ops and Farm Credit banks, to 130 countries for financially sustainable. In 2012, it became the first short-term assignments in support of projects. Their microfinance institution in Central Asia to obtain a full expertise has ranged from co-op capacity building to strategic banking license from the National Bank of the Kyrgyz planning, from vegetable production to product packaging, Republic. Now it is the seventh largest bank in the Kyrgyz and from rural finance to animal breeding. Republic, with more than 30,000 clients and assets of $100 ACDI/VOCA is a lead implementer of the U.S. Agency million. Its many branch offices offer financial services from for International Development (USAID) Farmer-to-Farmer accredited, experienced bankers. program, which is funded under the Farm Bill. Farmer-to- Farmer volunteers have completed thousands of overseas 50 years of spreading co-op skills, values assignments, teaching their skills to farmers struggling to For 50 years, ACDI/VOCA’s vision has been a world in create a better life for their families and communities. The which people are empowered to succeed in the global Americans also bring back a poignant sense of life overseas economy. Its projects promote economic opportunities for that compels many of them to stay engaged. cooperatives, enterprises and communities through the Jerry Nolte, who has volunteered for a number of projects, innovative application of sound business practice. described what his assignments mean to him. “I might be “We know development works and that all benefit when going to the project to teach, but I’m really learning in the economic opportunities expand,” says Carl Leonard, process as well.” On one assignment, he helped a loose band ACDI/VOCA’s president and CEO. “We’re grateful for our of traditional farmers in Sudan coalesce as a cooperative. support from U.S. cooperatives and Farm Credit banks and “We spent time talking about the principles and practices proud that we’ve been able to carry the co-op banner of a cooperative, then we took it from concept to working up overseas.” a set of rules that they would follow,” Nolte said. After For more information about ACDI/VOCA, including undergoing training, more than half of the group doubled opportunities for volunteer overseas assistance assignments, their returns. visit: www.acdivoca.org. n One member of the co-op sent his sister to Juba

Rural Cooperatives / May/June 2013 11 Indivisible Reserves Some see unallocated equity as a way co-ops can help fortify their future

The Emilia-Romagna region of northern Italy is home to 15,000 cooperatives that account for about 45 percent of the region’s gross domestic product, including hundreds of farmer and worker co-ops. It is the birthplace of Parmesan cheese, production of which is seen here and on opposite page. Photos by Carlo Guttadauro, Courtesy Parmigiano-Reggiano Cheese Consortium

By Bruce J. Reynolds, Ag Economist world. One practice in particular cooperatives have used IR to sustain the USDA Rural Development deserves more attention in the United economic well-being of both present [email protected] States cooperative community: the use and future members. This type of of indivisible reserves (IR). unallocated equity is not available for ecent interest in food The International Co-operative distribution to members, even if a R cooperatives and Alliance (ICA) specifies IR as a cooperative were to be dissolved. Apart worker ownership of component of its 3rd cooperative from IR, European worker cooperatives businesses has principle: “member economic allocate some of their earnings to introduced organiza- participation.” This co-op principle member capital accounts to be tional ideas that have not been widely addresses several financial policies, distributed to members for their discussed in agricultural cooperative including allocation of surpluses or retirement. education forums and publications residual earnings. A few alternative uses Indivisible reserves are exempt from (Lund) (NCBA) (Cook). In addition, of surpluses are recommended, such as taxation at varying percents, depending the 2012 United Nations International distribution of member dividends and on the tax laws of different nations. Tax Year of Cooperatives generated “….setting up reserves, part of which, at exemption is justified because coopera- discussion of different financial least, would be indivisible” (ICA). tives contribute to stabilization of practices and principles throughout the Several western European personal incomes and employment.

12 May/June 2013 / Rural Cooperatives cooperatives into investor-owned businesses eliminates the unique benefits that cooperatives provide (Mooney). An IR makes a cooperative less attractive for conversion or sale. Unallocated equity can be distributed to members as ownership shares to be offered in the event a cooperative were to be demutualized. In contrast, an IR is unavailable as owner equity to sellers of a business or as a cash reserve to buyers. Limiting cooperatives as targets for acquisition helps sustain them for future generations. IR may also prevent current members from making short- term decisions to sell-out that they may later regret.

Contributing to cooperative development An IR from a dissolved or converted cooperative is a source of funds for new cooperative development in countries with laws mandating this procedure, including Spain, Italy and France (Corcoran). The availability of funds from dissolutions is obviously not a steady source of funding cooperative development. Cooperatives in bankruptcy are likely to have leveraged their IR in their efforts to stay solvent, and claims from lenders would likely diminish their assets. Demutualization usually involves cooperatives with high enterprise value Three main purposes for IR balanced by the benefits of purpose (3) so that IR would be available for future There are at least three purposes for in providing capital to build a cooperative development. Offsetting building IR accounts: (1) reduce cooperative’s solvency and stability, this potential transfer is the disincentive incentives for demutualization (or proponents of this practice say. for members to demutualize when they changing the business to a non- When purposes (1) and (3) are have no access or claim to IR. cooperative structure); (2) distribute accomplished a cooperative sustains Fortunately, funding for cooperative funds for cooperative development in itself, generating benefits for current development is met in several West the event that organizations and future members. Activation of European countries by other ongoing demutualize or close; (3) that provide purpose (2) may provide a source of programs. They mandate relatively cooperatives with permanent capital to funding for new cooperative enterprise. small percentages of annual earnings to strengthen their solvency and to be diverted to national funds or to stabilize income. Disincentives for federations for cooperative Purposes (1) and (2) benefit future demutualization development. (Giszpenc). members by helping to secure a Many cooperatives, especially in the agriculture and insurance sectors, have continuing presence of cooperatives. Income stabilization The constraint on current members of high market values and may become Purpose (3) of an IR is to provide not having access to IR funds is targets for acquisition. Converting some proportion of capital that belongs

Rural Cooperatives / May/June 2013 13 to cooperatives and not cooperative, usually as to members. While unallocated equity. It has cooperatives fulfill a become an important commitment to return form of capital, as profits to members, as is pointed out by Cook and usually accomplished Chaddad: “A continuing with patronage refunds, challenge for cooperative ongoing benefits are management is that of more secure when a replacing capital that is portion of earnings is revolved or redeemed to dedicated to a reserve members… This has led that provides some non- to a trend of increasing revolving capital on the the percentage of non- balance sheet. allocated equity… The Some European unallocated equity can be countries not only offer thought of as permanent worker cooperatives tax Running a forge press at Zappettificio Muzzi, a worker-owned agricultural risk capital.” Definitions exemptions for IR but implement manufacturing cooperative in Imola, Italy. Worker co-ops account for of “permanent capital” also mandate a certain 6 percent of jobs in Italy. Courtesy of the Ohio Employee Ownership Center vary, but the term is used percent from annual here to mean equity earnings to be credited to capital that is not these capital accounts. is negatively related with the average assigned for redemption Members have generally supported wage it pays and positively related with to members. allocation to IR in excess of the amount value added per worker. IR can thus be Permanent capital is also required. In France, a minimum of 15 interpreted as a common pool where accumulated in U.S. agricultural percent is required, yet co-ops there profits are cumulated in good times and cooperatives by means of direct allocate, on average, from 40 to 45 that allows to smooth wages over time.” investment by members in transferrable percent to IR (Corcoran). Since IR provides a basis for securing stock shares or in offerings of preferred During the period 1977-2002, the credit, these cooperatives are stock to members and to the public. As Italian government regarded all worker incentivized to maintain the value of in the United States, Western European cooperative allocations of net earnings such accounts. agricultural cooperatives distribute to IR to be tax free. After 2002, the tax Italy is currently in an economic earnings as allocated member equity but free portion of allocations to IR was recession, with much of its citizenry they have generally accumulated higher limited to 70 percent of annual profits opposed to austerity measures. percentages of unallocated, permanent by cooperatives with more than 50 Navarra’s research describes how capital than have their U.S. percent member business, with further members of worker cooperatives have counterparts. This has been due to limits for cooperatives doing less than used IR to self-manage austerity for differences in government agricultural 50 percent of their business with accomplishing more secure policies and more extensive use by members. Nevertheless, average employment. As workers retire with European agricultural cooperatives of allocations to IR have held at 80 their capital accounts, IR stays with the majority ownership in publically listed percent or higher (Navarra) (Giszpenc). cooperative to support solvency and companies (Cook). Worker cooperatives account for employment for new members. In regard to decisions about about 6 percent of Italy’s total distribution of earnings to either employment. A recent study showed Permanent capital member or to unallocated equity, the that cooperatives have had far less U.S. farmer cooperatives have share of the latter has increased for U.S. employee layoffs than other forms of traditionally distributed earnings with agricultural cooperatives. From 1954 to business. Their co-op system involves qualified patronage refunds, used in 1976, average unallocated reserves member commitment to accept slightly part as member equity investment. This increased from 12 to 15 percent of total lower wages in exchange for more source of equity has an expiration date equity (Griffin). secure employment. in the sense that it must eventually be The graph on page 15 of the The author of that study, Cecilia paid back to members, so that it is not unallocated share of equity for 2003 to Navarra, concludes: “Moreover, the regarded as permanent capital. 2011 for U.S. farmer co-ops shows an share of reserves a firm allocates to IR Permanent capital is owned by the increasing median percentage, rising

14 May/June 2013 / Rural Cooperatives from 30 percent to more than 40 Cooperative longevity cooperatives, while also making percent. The median, rather than the All businesses, whether a cooperative extensive use of non-member capital. average, measure is used because many or otherwise, are subject to adverse Nevertheless, establishing permanent cooperatives either allocate all earnings changes in the market or faulty capital has been important for both to cash dividends and to member equity decisions and planning that can lead to types of cooperatives. or have assigned operating losses to their closure. Some businesses have a Whether or not IR can offer unallocated equity. For example, 97 out life-cycle, such as small, family-owned advantages for agricultural cooperatives of 1,209 cooperatives that reported enterprises that are unattractive to a is worth consideration, and, at the very their equity holdings in 2011 had zero new generation of owners. In contrast, least, the purposes of this financial unallocated equity. cooperatives have a large base of owners principle can be appreciated. IR may not be an attractive type of in their members. When new members Given the unique role of unallocated equity for U.S. farmer replace those who retire, there are cooperatives in benefiting members — cooperatives unless it comes with tax usually sufficient incentives for a including greater assurance of market exemption status. U.S. cooperatives pay cooperative to stay in operation for the access or employment — IR can help taxes on unallocated retained savings. In future. provide perpetuity for these benefits. addition, if unallocated equity were to Some successful cooperatives become Indivisible reserves reflect a principle of be distributed to the membership, all targets for acquisitions. An agricultural extending the benefits of cooperatives such distributions would be taxable to cooperative may inadvertently increase to multiple generations of members. n the member. member incentives for an investor- Even with a tax exemption, IR might owned conversion by having built-up References • Cook, Michael L., and Fabio R. Chaddad reserves of permanent capital (2006) Capital Acquisition in North American and in the form of unallocated European Cooperatives . Filene Research Institute. equity. However, some • Corcoran, Hazel, and David Wilson (2010) The Unallocated share of total equity: Worker Co-operative Movements in Italy, financial experts point out Mondragon and France. Canadian Worker that members regard their U.S. farmer cooperatives Cooperative Federation. cooperatives as integral to • Dahlgren, Joel L. (2007) “A Question of Value the success of their farm Proposition and Capital Structure,” The 50% Cooperative Accountant. u businesses and would • Giszpenc, Noemi (2007) Italian Cooperative u 40% Finance: A deeper look for working today u u therefore not be motivated u u u (unpublished presentation). Ownership u u to sell out from having un- 30% Associates, Inc. allocated equity (Dahlgren). • Griffin, Nelda, Roger Wissman, William J. 20% Yet, IR would offer the Monroe, Francis P. Yager, and Elmer Purdue same strengthening of (1980) The Changing Financial Structure of Farmer Cooperatives. USDA/ESCS/ FCRR 17. 10% capital structure as provided • International Cooperative Alliance (1995) by unallocated equity but http://ica.coop/en/what-co-op/co-operative- 0% with lower taxes and an identity-values-principles 2003 2005 2007 2009 2011 • Lund, Margaret (2011) Solidarity as a Business explicit deterrent to Model: A Multi-Stakeholder Cooperatives Manual. u Median percent of unallocated to total equity demutualization. Some of Ohio Employee Ownership Center. Source: USDA/RD/Cooperative Programs, STSS annual the value of many • Mooney, Patrick and Thomas W. Gray (2002) surveys. Cooperative Conversion and Restructuring in cooperatives is often based Theory and Practice. USDA/RD/RBS, RR 185. on contributions from • Navarra, Cecilia (2009) Collective accumulation of previous generations of capital in Italian worker cooperatives: an empirical investigation on employment stability and income be deemed less attractive than members. Although a new generation of smoothing (Conference on Growth and unallocated equity, since the latter can farmers can start a new cooperative in Development Patterns: the Role of Institutions be distributed to members, usually in the wake of a demutualization, it may in a Comparative Perspective, Perugia, Italy)- http://www.academia.edu/777440/Collective_ac the event of either a dissolution or sale take decades to redevelop the same cumulation_of_capital_in_Italian_worker_coope of a cooperative. However, these two business and service capabilities. ratives_an_empirical_investigation_on_employ types of permanent risk capital are not ment_stability_and_income_smoothing • NCBA-National Cooperative Business mutually exclusive and could coexist on Intergenerational cooperation Association (2005) “Capital without a cooperative’s balance sheet. Revisions Agricultural cooperatives in the Compromise: Innovative Financing Strategies in states’ incorporation statutes for United States and Western Europe have for Cooperatives,” conference, Chicago, IL, September 14, 2005. cooperatives would be needed to adhered more closely to individual address these policy changes. ownership principles than have worker

Rural Cooperatives / May/June 2013 15 Birds of a Feather

Squab producers ‘flock together’ to process, market through co-op

By Stephen Thompson, Assistant Editor more supplemental [income]; most of orders as well,” Rasmussen says. them have other jobs.” ost Americans have One mated pair of birds can produce Co-op operates M never eaten pigeon, but an average of 15 to 17 squabs per year. processing plant one cooperative in The cooperative provides marketing The cooperative has its own Northern California and processing services to its members processing plant that also offers has found a profitable as well as technical support, a quality processing services to other poultry niche supplying squab — the meat of assurance program and purchasing of producers in the area. “Our niche is the young pigeons that have not yet flown some supplies. squabs,” says Rasmussen, “but because — to restaurants, ethnic markets and Squab has been considered a delicacy our processing plant is very up to date individuals. The biggest problem Squab for centuries — not only in Europe, but — and we have bills to pay for new Producers of California faces today is also in North Africa and China. Squab equipment — it just makes sense to do filling all its orders. meat is dark, tender and flavorful and is custom processing for other companies. Squab Producers, headquartered in served at many up-scale restaurants in We sell some Cornish game hens and Modesto, Calif., has about 70 members, the United States. Currently, the co-op also do a lot of custom processing for each with an average of 1,000 sells the birds for $3.90 per pound, 30 chickens and other species. So we’re producing pairs of birds. “For most of cents of which the co-op retains. able to capitalize on our investment at them, it’s not their primary income. But “We sell to markets in New York and the processing plant. It also helps out they like the farm lifestyle,” says Dalton San Francisco, as well as export to our employees. We can do our squab Rasmussen, the co-op’s president. “It’s Canada. We get quite a few Internet processing fairly quickly, so it helps to

16 May/June 2013 / Rural Cooperatives keep our employees occupied and keeps can join before they have birds — but money.” He estimates that a quarter to turnover down.” they have to have a plan in place and a third of his total farming revenue Raising pigeons requires different have to be approved by the board of comes from squabs. “They have a skills and infrastructure than other directors. If they have good contacts, if market for every bird I produce,” he types of poultry. Pigeons form couples they know members that they’re going says. that mate for life and cooperate in to buy their breeders from, and get Rasmussen and Beck agree on the raising the young, requiring pigeon advice, it’s not hard to get in.” need to expand production. “This is a houses with covered nests for each very strong market,” says Rasmussen. couple. Squab producers use pigeons Co-op seeks more production “Our biggest problem for the past few specially bred for meat production. As The co-op also helps members by years has been that we don’t have with other types of livestock, the quality purchasing certain bulk items, such as enough supply. My goal is to effectively of breeding stock is crucial to success, grit and sanitation supplies. Members market the birds and get better prices, so the cooperative requires that are asked not to sell breeding stock but it’s hard to market something when members use approved stock. outside the co-op without board you don’t have the supply. In the winter, “There’s a lot more to it than raising approval. when our production is down a bit, we a chicken or turkey,” says Tim Beck, a Growers are paid $3.60 per pound, have a lot of customers we have to limit co-op member with more than 3,600 with 30 cents retained for a revolving the orders on.” pairs. “You’re not just growing the capital fund. Beck says that the processing plant squab, you’re raising breeding stock. The co-op makes deliveries around can handle about four times as many You can’t just throw down a bunch of the San Francisco Bay Area three or birds as members can supply. Custom chicks on the ground.” four times each week. Rasmussen says processing for non-members helps take The cooperative provides technical the co-op’s biggest market is restaurants up the slack and keep the employees assistance, including a staff veterinarian. and meat markets in San Francisco’s working. Unfortunately, says Beck, It conducts a quality-assurance training Chinatown. competition from other poultry course that covers rodent control, “Some of our biggest sales are during processors has begun to make it difficult handling techniques, animal-welfare Chinese New Year,” he says. The to keep the plant running full-time. requirements and disease prevention cooperative has a marketing agreement “Two of our biggest customers that we and control. Attendance by producers is with a distributor that sells to New York processed chickens for have gone required at least every two years. and Hawaii, and it also sells some birds bankrupt and stuck us for big bills,” he Members are also required to through its Web page. In addition to says. Only some of the resulting debt conform to the co-op’s quality- squabs, the co-op fills out its line with has been recovered in the bankruptcy assurance program, says Rasmussen, to Cornish hens and poussin — a specialty liquidations. ensure that antibiotics are not being fed chicken that is sold when it is about a “I’m expanding [production] because to their flocks. “It’s more of a food week younger than Cornish hens. Both I’m good at it and I make money,” says safety and animal-welfare issue,” he are grown by some of its members. Beck. However, he cautions potential notes. They also must agree to a Tim Beck started raising squabs in squab growers: “Make sure you really produce-sale agreement specifying that high school. “My dad and uncle got me want to do it by contacting someone their birds will be sold through the co- started. They were raising pheasants who’s been doing it for a while. I’ve op. and game birds,” he says. The co-op seen a lot of guys who hear about it and “Most of them are really happy offered lower processing fees for they think ‘oh, that’s easy money.’ And about that,” says Rasmussen, “because members, “So my dad and uncle got my they jump right into it without any they don’t want to market the birds cousin and me started with the squabs. coaching. It’s a disaster, because they themselves, which would be very hard That got them into the co-op with their haven’t got the proper training. They for individual farmers. So this is a way it game birds. They bought the birds for find out it’s more work than they [farming] can fit into their lifestyles, us and it was like, ‘Here, learn some thought it was, and that there’s a lot especially if they have other jobs.” responsibility,’” he chuckles. That was more to it than raising a chicken or Membership costs $200, refundable in 1987. turkey.” upon leaving the co-op. “It’s mostly to Today, Beck is a full-time farmer, make sure they’re serious about growing walnuts and almonds as well as Keeping pace with regulations joining,” says Rasmussen. “The board raising squabs. “We’ve done pretty Keeping state and local regulators normally likes to have people who are good with squabs,” he says. “It’s not as happy is becoming more of challenge already producing, but we know that’s profitable as it used to be, with [high] for the co-op and its members. The co- hard for people starting out. So people feed prices now, but it’s still good continued on page 42

Rural Cooperatives / May/June 2013 17 Equity Elevator & Trading Co.

joins century club

T he Equity Elevator & Trading Co. in Woodlake, Minn., has reached a milestone, thanks to the support of its loyal members. The elevator, celebrating 100 years of business, was recently inducted into the Minnesota Grain and Feed Association’s Century Club. Reaching the anniversary says a lot about the cooperative’s members, says elevator general manager Rod Winter. “They have been very supportive of the business,” Winter says. “They are the key to the success of the elevator.” While some elevators have multiple locations, Equity has one location in Wood Lake. There have been other elevators in the southwest Minnesota community. As settlers homesteaded in Wood Lake Township, they plowed the prairie soil and planted small grains. When a new rail line was built from Hopkins to Watertown, S.D., a flurry of business started in the town — including the Pacific Elevator Company, which established a grain buying station. The first grain delivery arrived in 1884. Soon a second and third elevator were built to handle the grain.

By Carol Stender Editor’s note: This article is reprinted courtesy the Rochester (Minnesota) Post Bulletin.

18 May/June 2013 / Rural Cooperatives Opposite page: Marking their co-op’s centennial year, employees of Equity Elevator & Trading Co. form the number “100.” The co-op, which has 718 members, still operates a single facility (in Woodlake, Minn.) where it handles corn, soybeans and wheat. Photos courtesy Equity Elevator & Trading Co.

more grain storage, a shop and new office were completed.

More than a place to market grain As Melanie Gatchell gathered the elevator’s history, updated for the centennial by Anne Anderson, they noted that the elevator is more than a place where farmers buy and sell grain. Co-op part of “Elevator Row” receipts, both the Great Western and “It is a beacon that alerts others to the Equity Elevator & Trading Co. was Wood Lake elevators closed. Event- presence of a town from miles away,” formed on July 3, 1912, but didn’t ually, Equity Elevator & Trading Co. they wrote. “It dominates not only the receive its charter until Sept. 12. It stood alone. landscape of rural towns, but also the started operations in existing elevators In its first quarter century of social life of those who live and work with 64 charter members. business, the elevator paid dividends of there.” Wood Lake had five elevators by more than $300,000 to members. Even The elevator is a place to get the 1919 in what became known as in 1934, at the close of the business grain prices, find out the weather “elevators row.” There was the Allas year, the elevator showed dividends of forecast, buy some dog food, read the Elevator, The Great Western Grain Co. $5,955.22. Not bad, considering the auction bills, drink coffee, eat peanuts, Elevator, Pacific Elevator Co., and two poor corps and low grain prices. gossip and tell jokes. elevators operated for Equity. Business It thrived after going through the “Elevators are a part of life in rural was good and Equity added a feed mill Depression. By 1950, the elevator Minnesota," they continued. "The logo in 1925. constructed a 120,000- bushel-capacity for Equity Elevator is two hands The next decade wasn’t stellar. A lack concrete elevator that reached 138 feet shaking. Those hands don’t just of rainfall, the Great Depression and in height. At the time, it was the tallest represent deals being made, they bankruptcy were hard on the structure in Yellow Medicine County. represent the elevator and the enterprises. Equity Elevator voted in The elevator continued to build to community working together to 1932 to discontinue its dividends on meet patrons’ needs. In 1959, the strengthen the community from which flour, feed and coal and to sell on a elevator received approval to build six, they live and work — a pact, if you will, smaller margin of profit. Corncobs 15,000-bushel steel grain bins for more a promise for a better tomorrow.” were selling for almost as much as the storage. It purchased the land it was Today, Equity Elevator & Trading corn. The cobs garnered $3 per load. built on from the Chicago and North Co. has 718 shareholders and handles Farmers received 18 cents a bushel for Western Railroad. corn, beans and wheat; grain drying; corn and paid $10 per ton for soft coal. A grain dryer was constructed and a feed grinding and mixing; seed; fertil- Because of the decrease in grain fertilizer plant was built. Annexes for izer; ag chemicals and custom spraying. n

Rural Cooperatives / May/June 2013 19 The Lure of Distant Shores Co-ops share export strategies during USDA Outlook Forum

By Dan Campbell, Editor U.S. food companies. success overseas means for their [email protected] These demographic trends are hardly members at home. going unnoticed by U.S. agricultural Session moderator Doug O’Brien, then t’s not just the expected cooperatives. Many farmer-owned co-ops the deputy under secretary for USDA I growth in world are already among the export leaders for Rural Development (which includes population during the their industries and are now looking to Cooperative Programs), said the subject of next 20 years, it’s the hone their global marketing strategies to the co-op panel talk was fitting for a rising wave of middle capitalize further on opportunities in conference with “Managing Risk in the class consumers in many developing markets that once held little promise. 21st Century” as its theme. countries that has U.S. agricultural Three such cooperatives were in the “After all, two of the most successful exporters excited about the potential for spotlight at USDA’s annual Agricultural strategies farmers have used to manage substantial increases in overseas sales. Outlook Forum in Washington, D.C., in risk include, first of all, banding together China, in particular, has a rapidly February: CHS Inc., Blue Diamond in cooperatives to reach the scale and expanding middle class with disposable Growers and Accelerated Genetics. They sophistication to be able to compete in the income to spend on imported foods and is each provided an overview of their export domestic market and, more and more, to thus a major focal point for interest among marketing strategies and what their compete in export markets,” O’Brien said.

20 May/June 2013 / Rural Cooperatives Asia's demand for grain and other products continues to grow and U.S. cooperatives are answering the call. CHS Inc. — a partner in the TEMCO export terminal joint venture that includes this Tacoma, Wash., facility — meets that demand by moving its members' grain from the nation's heartland to Pacific Northwest ports and more than 65 countries worldwide. Photo courtesy CHS Inc.

“The second way is to manage risk by setting a sales record of $213 billion in producer-owned businesses, buyers know diversifying; exporting is a way of 2011 and bettering the previous mark, set they are dependable suppliers because diversifying your markets.” in 2008, by $10 billion. So there is a great they have an assured supply from their U.S. agricultural exports are a bright potential to grow co-op presence in members. Further, overseas customers sector of the nation’s economy, generating export markets. may be other co-ops, as in the case of an estimated record value of $143.5 billion “When producer-owned cooperatives Accelerated Genetics, which prefer doing in 2012, O’Brien said, noting that this thrive, it’s good news for rural America,” business with other farmer-owned surpassed the previous record of $137.4 O’Brien said, “and not just for the farmers businesses. billion, set in 2011. Further, more than 1 and ranchers who own the co-op.” Following are highlights from the million American jobs are reliant upon Because the profits of a co-op flow back presentations made by three farmer co- agricultural exports, including those in to farmers and ranchers, rather than to ops that have found success on distant food processing, packing and distant investors, they help boost the rural shores. transportation, as well as on-farm jobs economy, he observed. and related support industries. The co-op representatives said being a Farmer- and rancher-owned co-ops are cooperative holds some advantages in a major part of the U.S. farm economy, overseas markets. One reason is that, as

Rural Cooperatives / May/June 2013 21 Long-range work in China pays off for almond co-op

Construction work for a new subway system (rear) doesn’t stop the flow of shoppers in the central business district in Changsha, China. Asia has now nearly equaled Europe as the major export market for U.S. almonds (see chart, opposite page).

espite being the world’s would transform it into the world’s second California almonds, Morecraft said. In just D most populous nation, largest economy by 2010. While there was the past five years, China has gone from China was a rather lonely no way of knowing in 1975 just how much, buying 25 million pounds of almonds place in 1975 for an and how fast, the Chinese economy would annually to nearly 250 million pounds, worth almond sales rep. That’s grow, Blue Diamond nonetheless felt it was about $750 million. when Blue Diamond not a matter of “if,” but rather “when” China These consumption gains have been Growers’ made its initial, exploratory would become a major market. largely driven by the rapid growth of the marketing trips to China, which, at that time, middle class in China, which Morecraft said had almost no tradition of consuming Patience can be has increased from 120 million people in almonds. It also had a state-controlled a virtue for exporters 2006 to 239 million in 2011. economy that held tight reins on imports What followed those early sales trips to Japan and India are also strong markets allowed into the country. So it was not the China in the 1970s were “many years of leg in Asia for U.S. almonds. As was the case in most promising export market for the work and investment, without much to show China, almonds were a new food in Japan Sacramento, Calif.-based co-op, which has for it,” recalled Bill Morecraft, general when Blue Diamond first began marketing more than 3,000 members (more than half of manager of Blue Diamond’s Global there in the 1960s. A chocolate-covered all U.S. almond growers). Ingredients Division. “Ironically, the toehold almond introduced by a major Japanese In the 1970s, almond exports began to that got us established in China was gained confectionary company in 1970 proved to be exceed domestic sales, with Europe being through our Oregon Hazelnut Division.” a huge hit, and that in turn sparked interest by far the leading destination. But Blue Customers who had been purchasing in- in almonds. Diamond was also beginning to have shell hazelnuts from the co-op for many By contrast, India had been consuming success in Japan and India at that time. years eventually became its first major almonds for many centuries, where tradition China was obviously another huge potential customers for almonds. has it that almonds benefit mental capacity. Asian market that was then on the cusp of In the past dozen years, China has But India had a much smaller middle class an astounding industrial revolution which emerged as the No. 1 export nation for than Japan, so that market has grown more

22 May/June 2013 / Rural Cooperatives slowly, although it too is now expanding at a Chico in the north. Per-acre yields continue of buying your exports. The market in faster rate. to rise sharply as growers improve orchard Japan was developed 40 years earlier than The Middle East has been a long- management and planting strategies. in China, but both markets were built on standing almond export market (and is the Evidence of what this export success the same foundation: the development of a cradle of almond cultivation) that continues means back home can be seen outside purchasing class with disposable income. to show strong growth. Turkey, in particular, Turlock, Calif., where Blue Diamond this Japan’s middle class emerged much has a growing appetite for California spring will be opening its third processing earlier than China’s and was already well almonds, both for its own consumption and plant. Overall, the almond industry supports developed in the 1960s when marketing for re-export to other Middle Eastern and 50,000 jobs. Most of the dollars paid to efforts began there. North African nations, Morecraft said. growers flow back into their communities to • Know and use available resources. “USDA help support local economies. has been a fabulous resource; we make Rapid growth boosts use of USDA’s Foreign Agricultural Service economy, creates jobs Tips for exporters (FAS) when overseas,” Morecraft said. He The growth trend for almonds has been Morecraft stressed a number of factors cited USDA’s Market Access Program so steep in Asia that today it imports only for would-be exporters to consider, (www.fas.usda.gov/mos/programs/map.asp slightly less than Europe, which in 1990 including: ) for providing crucial help in developing imported three times more almonds than • Growing an export market requires a long- overseas markets. The California Almond Asia. In just the past five years, the overall term perspective and a reliable supply. The Marketing Order, under which growers export value of California almonds has risen “phenomenal production growth” in assess themselves about $60 million from $1.9 billion to an estimated $5 billion for California is ultimately what made the annually to promote their industry, has also the 2012 crop (which is still being marketed export gains possible. Morecraft praised provided key help. at this point). “That’s a growth rate of more the Almond Board of California for doing “a “If you are new to exporting, FAS is a than 100 percent,” Morecraft stressed. tremendous job of partnering with great resource to help in getting your feet Meeting this phenomenal growth in growers” and expanding domestic wet in a country,” he said. Visiting FAS global demand has, of course, required a advertising efforts to include international, offices can be helpful even just to establish corresponding growth in almond production. generic advertising. key contacts overseas should unexpected The U.S. almond industry (almost entirely • Long-term investment is needed. Morecraft issues arise. “The USTR (U.S. Trade based in California) was producing just 5 noted that in China, it took 30 years – from Representative) office can also be very million pounds per year in 1910, when 200 1975 until 2005 – to see meaningful results. helpful when more complicated issues arise, almond growers joined forces to form Blue • Understand and respect different cultures such as helping to remove the tariff and Diamond Growers (originally as the and know how various “food cultures” will non-tariff trade barriers that can pop up in California Almond Growers Exchange). It incorporate your product into their diets. every region of the world.” took another 70 years for production to • An ag exporter must “be in the market” • Last, but not least: have a great product. reach 400 million pounds, and then only with a physical presence and be on call 24 “We are fortunate to have a healthy, whole another 30 years for production to soar to hours a day. With modern communications food that people are becoming more aware 1.6 billion pounds. technologies, it may be tempting to feel of. Blue Diamond and the rest of the Today, the U.S. accounts for about 88 you can market overseas from your desk in California almond industry have been percent of the world’s almond supply. Spain the United States, “but the reality is that growing together for over 100 years. We and Australia rank second and third, there is no substitute for being in the have a fabulous export success story and respectively. The crop is now planted on market, face to face with customers,” we appreciate the support we get from 800,000 acres, primarily in Central California, Morecraft stressed. USDA.” n from around Bakersfield in the south to • The economy of a nation must be capable

California Almond Exports, 1980-2011

600,000

500,000

400,000 USA 300,000 Europe 200,000 Asia Middle East 100,000

1980 1990 2000 2005 2011 Korea is the destination for these Blue Diamond almonds.

Rural Cooperatives / May/June 2013 23 Global expansion reinforces CHS as a market leader

ust 10 years ago, CHS J Inc. was a U.S.-only based business. Then, in 2003, the nation’s largest cooperative opened its first foreign office, in Sao Paulo, Brazil, staffed by 15 employees. That was the start of something big. Today, this St. Paul, Minn.-based grain, foods and energy/supply co-op has offices in 24 nations staffed by about 1,000 employees and does business in 65 countries. It not only sells U.S. agricultural products around the globe, it also does foreign sourcing of both crops — to supplement the production of its own members — and farm inputs, primarily fertilizer. This is helping CHS reinforce its status as a reliable, year- round supplier to its customers, said Rick Dusek, CHS vice president, North America Grain. “The goal of our foreign operations is to add value to our producer-owned system here in the U.S.,” Dusek said. CHS is owned by local and regional farmer co-ops and also has direct farmer and rancher members. Its global expansion is far from complete. Today, CHS is investing in a new port facility in Brazil, is exploring potential infrastructure investments in key demand regions and it recently opened an office in Winnipeg, Canada, where the co-op is looking for new business opportunities in the wake of the Canadian Wheat Board losing its status as sole marketer of Canadian wheat. CHS is also expanding its export facilities in the United States, including its ports in the Pacific Northwest. As one of the nation’s five largest grain marketers, CHS handles about 2 billion CHS opened its first international office in Sao bushels of grains and oilseeds annually, Paulo, Brazil, in 2003. Today, the cooperative has a growing amount of which is destined operations in about two dozen countries, for export. including Vittoria, Brazil (seen here), and two others in South America from which it exports Breakup of Soviet Union: grain and imports fertilizer. Photo by David a game-changing event Lundquist, courtesy CHS Inc. While the pace of its global business has increased dramatically in the past

24 May/June 2013 / Rural Cooperatives decade, CHS and its predecessor co-ops middle classes will continue to demand factor driving consolidation in the grain (the largest of which were Cenex and “more meat and more protein,” which, in industry, with regional companies seen as Harvest States Cooperatives, which merged turn, will mean more feed grain going to prime takeover targets, Dusek noted. in 1998) have long been involved in livestock producers. exporting. In the Pacific Northwest, it began Projections show China’s middle class Benefits of a exporting grain to Asia in the 1930s. It built will likely grow to 700 million by 2020, or “bigger global footprint” its own export facility in Superior, Wis., in about double the size of the current U.S. Buying foreign grain and oilseeds to sell the 1940s and was a supplier for the U.S. population, he said, calling the growth rate to its customers might seem contradictory, “Mercy Wheat Program” that helped Europe “staggering.” “Someone is going to have to since these grains compete with the output recover after World War II. In the 1960s, it produce the protein to meet that soaring of CHS’ own members, Dusek said. “But to built an export terminal in Kalama, Wash., demand,” he said, noting that CHS plans to stay relevant for customers and be and in the 1970s was a major supplier to the play a major role. competitive in global markets — and to Soviet bloc nations. The trend “has huge ramifications for provide the most value to our producers — Dusek said a game-changing event for companies like ours,” Dusek said. “As a U.S. we feel this is absolutely necessary; our grain marketers was whole system is the replacement of behind it,” he said, government-based because it enables buying entities with their co-op to be a large, private buying player in world companies in the markets. former republics of “What does that the Soviet Union and bigger global some other nations. footprint bring us? While there have The biggest thing is been significant market knowledge improvements in and price grain transportation discovery,” Dusek and storage systems said. For example, around the world the soybean export since then, none of market today is these systems can dominated by three Photo by David Lundquist, courtesy CHS Inc. compare to that of suppliers: the the United States, Dusek said. “The U.S. farmer-owned company, what does it mean United States, Brazil and Argentina. system is phenomenal — it is still for export competition and our position in “If we are a U.S.-only company supplying unmatched in the world.” the global marketplace? How will we need China, we are only seeing about one-third of A key market driver in export markets is to grow to participate in this market?” These the picture. Customers over there demand a world population growth. “Even though the are the key questions the co-op is full scope of the market picture each and rate of growth is slowing, middle classes are considering as it develops future marketing every day.” They want to know global crop growing significantly in many markets,” strategy. prices, vessel freight rates and where there Dusek said, citing projections showing that Of course, international competitors are are quality concerns, he continued. “If we from 2012 to 2020 the number of people in also looking at these numbers and were a U.S.-only company, we would only the world classified as middle class will responding to them. “There is a tremendous see part of the picture, so having a global grow from 1.8 billion to 3 billion. By 2030, the amount of money being invested in footprint adds security for CHS customers.” number is expected to grow to 5 billion. infrastructure, not only in the U.S., but In Asia alone during the past decade, “Our core business will remain in the around the world,” Dusek said. CHS has opened marketing offices in Hong U.S., but our strategy is to enhance our grain Private equity is pouring into the grain Kong and Shanghai in China, as well as in export infrastructure,” Dusek said. The co- markets, he continued. “Just 10 or 15 years Seoul, South Korea. It has established an op divides its markets into four basic ago, it was almost unheard of to see private Asia-Pacific headquarters office in regions: North America (for origination and equity being invested in the ag sector. So Singapore and is exploring new storage and sales); South America (primarily for grain the competition has changed tremendously.” distribution opportunities throughout Asia. origination); the Black Sea/Middle The global commodity boom is increasing Outside investors are often attracted by East/North Africa (for origination and sales) supply-chain value, he said, which is “why short-term returns rather than the long-term and Asia/Pacific (sales). The co-op’s others are expanding, and why we are health of the industry, he noted. CHS’ risk- marketing strategy dictates “having boots expanding.” management philosophy is to help on the ground” in all of these regions. The amount of resources and working customers make informed decisions. These capital needed to compete in this market customers appreciate that CHS is “not in Grain exports to double by 2050 has increased sharply, he said. “It takes a this game for one or two trades; we are in it Growth in global population and income tremendous more amount of money to for the long term. We’ve been in it for 80- levels is expected to fuel a doubling of grain participate than it did even 5 or 10 years plus years and plan to be in it for 80-plus exports by 2050, Dusek said. The growing ago.” That demand for more capital is a big more years.” n

Rural Cooperatives / May/June 2013 25 World demand for U.S. cattle genetics fuels export growth

enetics is the G foundation for building a stronger dairy or beef herd, and many producers around the world are looking to the United States for breeding products and technology to improve their productivity. This has translated into growing global sales for companies such as Accelerated Genetics, a Baraboo, Wis.-based livestock breeding cooperative. The U.S. cattle genetics industry has seen its export sales grow five-fold in the past 30 years, topping $142 million in 2012. That’s up from just $20 million in 1984, said Joel Groskreutz, president and CEO of Accelerated Genetics. His cooperative has successfully cultivated foreign business for its products and services, which in 2012 accounted for 48 percent of its business, up from 39 percent in 2000. Much of its foreign sales are carried out through World Wide Sires Ltd., a joint venture it owns with another U.S. livestock breeding cooperative, Select Sires. Since these two producer-owned co-ops

Top — Co-op representatives meet Asian cattle producers during a recent tour of cattle operations in Asia. Photos courtesy Accelerated Genetics.

Lower — Man-O-Man 2-ETN, one the co-op’s top bulls, embodies the genetic traits desired by livestock breeders around the world. Photo by Cybil Fisher

26 May/June 2013 / Rural Cooperatives purchased Visalia, Calif.-based USDA program key instruction, conducted by top World Wide Sires in 2001, its to export strategy industry experts. sales have tripled, Groskreutz The Emerging Markets Because semen is classified said. “This is an example of how Program (EMP), administered by the same as a live animal when two co-ops, which are USDA’s Foreign Agricultural exported, it is subject to the competitors in the domestic Service, has been a key factor in same regulations as a live bull marketplace, can cooperate to the co-op’s development of or cow, even though many of the pursue international markets,” overseas sales, Groskreutz said. diseases being screened for are he said. “It’s been very The co-op uses the program to not a risk with frozen semen, profitable for both co-ops.” conduct market assessments, Groskreutz said. U.S. industry for technical assistance and to standards are regulated by the Created deal with trade barriers. Certified Semen Services (CSS) through mergers While most EMP awards go group, which oversees semen Accelerated Genetics’ roots to trade associations, private handling and processing, semen straw labeling and bull health and sanitation. CSS has had a memorandum of understanding with USDA that allows it to stand in place of them when inspecting bull studs for export. While many foreign nations accept CSS standards, many others have additional requirements. Recently, the memorandum of understanding has been “re-interpreted” in some markets, hindering sales while the industry strives to resolve the issues raised, Groskreutz said.

Future focus Top — Bull semen is stored in "straws" and frozen in tanks of liquid nitrogen. The co-op’s focus for the Bottom — Accelerated Genetics' breeding facility near Westby, Wis. future is to continue participating in the Emerging go back to 1941, when its Baraboo. In the United States, firms can also apply for them if Market Program and utilize the predecessor co-ops were Canada and Latin America, it their efforts appear likely to World Wide Sires’ Global founded. In 1947, the Vernon does business under the benefit the overall industry, Training Center as an avenue for County Breeders and Accelerated Genetics banner, Groskreutz said. Among the greater education of dairy Trempealeau County Breeders while sales in all other nations nations where the EMP has managers and A.I. technicians Cooperative merged to create are done through World Wide helped the co-op are Pakistan, around the globe. Tri-State Breeders Cooperative. Sires. India, China, Albania, Armenia It will also conduct market The name of the co-op was Genetic Visions Inc., a wholly and Bangladesh, he said. research to help determine what changed to Accelerated owned subsidiary of (Editor’s note: for more investments are necessary for Genetics in 1994 to “dispel the Accelerated Genetics, is information about USDA’s EMP enhanced product growth in key myth that we were a small, celebrating its 25th anniversary program, visit: markets. These investments may regional company,” Groskreutz with a sales increase of 40 http://www.fas.usda.gov/mos/em include additional personnel to said. percent, fueled by increasing -markets/em-markets.asp.) assist in sales and training, Today, the business remains foreign demand, Groskreutz In 2011, World Wide Sires increasing the number of a farmer owned and controlled said. It is one of only three and Accelerated Genetics distributors and/or dealers, and co-op that does business in all testing labs in the nation opened the Global Training investing in livestock facilities. 50 states and in 96 countries. It certified to perform genome Center in Prosser, Wash. This The co-op will also work with has 234 employees, 126 dealers typing on bull semen, he noted. center offers intensive the National Association of and 156 independent sales It also conducts many other management and reproductive Animal Breeders and the federal representatives. Accelerated types of genetic testing for training for dairy managers and government to attempt to Genetics’ production facility is customers. The co-op most artificial insemination (AI) minimize trade barriers and located near Westby, Wis., recently expanded with the technicians from around the limitations for exporting U.S. about 90 miles west of its purchase of Nebraska Bull globe. The curriculum includes genetics. n administration headquarters in Service in McCook, Neb. hands-on and classroom

Rural Cooperatives / May/June 2013 27 Photo courtesy CHS Inc. USDA programs help ag exporters

he Foreign Agricultural creation, expansion and maintenance of samples of their commodity or product T Service (FAS) is USDA’s long-term export markets for U.S. and then provide the importer the lead agency for agricultural products. Under the technical assistance necessary to use addressing the program, USDA partners with the sample properly. When a project is challenges and op- agricultural producers and processors, finished, USDA reimburses the portunities of the rapidly changing global who are represented by nonprofit participants for the costs of procuring marketplace. The agency works to open, commodity or trade associations to pool and transporting the samples. The expand and maintain access to foreign their technical and financial resources technical assistance component is a markets, where 95 percent of the world’s to conduct overseas market requirement of the QSP but is not consumers live. development activities. Promotional reimbursable. FAS offers several international activities focus on generic U.S. • The Technical Assistance for Specialty market development programs that have commodities, rather than brand-name Crops (TASC) Program provides funding helped co-ops, small businesses and products, and are targeted toward long- to U.S. organizations for projects that other agricultural stakeholders take term development. address sanitary, phytosanitary and advantage of market opportunities In 2010, an independent report technical barriers that prohibit or through the years. Knowing and using concluded that from 2002 to 2009, for threaten the export of U.S. specialty these available resources is essential for every additional $1 expended by crops. Using TASC, USDA has U.S. agricultural exporters to government and industry on MAP and successfully helped U.S. exporters successfully sell their products overseas. FMD activities, U.S. food and agricultural regain market access for millions of • The Market Access Program (MAP) is exports increased by $35. Additionally, dollars of products, from almonds to the agency’s largest market the report showed that in 2009, U.S. zucchini. Examples of project activities development program. Through MAP, agricultural exports were $6.1 billion include seminars and workshops, study USDA partners with U.S. producers, higher than they would have been tours, field surveys and pest and exporters, small businesses, state without the increased investment in disease research. regional trade groups and nonprofit market development. All FAS market development program trade organizations to finance overseas With the growing number of middle applications undergo a competitive marketing and promotional activities. class consumers in many developing review process. Applicants submit Participants have used the program to countries, U.S. agricultural exporters proposals to the agency through the help attend trade shows, fund market should also be aware of: Unified Export Strategy (UES) process, research and consumer promotions, • The Emerging Market Program (EMP) , which allows applicants to request and provide technical assistance and which is designed to improve market funding for several programs using a educational seminars. access and develop or promote U.S. single proposal. MAP is a cost-share program that agricultural products to low- and FAS market development programs uses funds from USDA’s Commodity middle-income emerging markets help stimulate interest and demand for Credit Corporation (CCC). The funds are through technical assistance activities. the U.S. brand of agriculture. Agricultural used for generic marketing and The program also covers activities that exports boost rural economies, support promotion activities and for promotion of help reduce potential trade barriers in about 1 million American jobs and play a branded products by small businesses emerging markets. Projects under EMP key role in helping achieve the and cooperatives. MAP funds are that endorse or promote branded President’s National Export Initiative goal awarded to applicants that demonstrate products are not eligible. of doubling all U.S. exports by 2015. effective performance based on a clear, • The Quality Samples Program For more information on USDA/FAS long-term strategic plan. (QSP) helps U.S. agricultural trade market development programs, visit: • The Foreign Market Development organizations provide small samples of www.fas.usda. gov. n (FMD) Program , also known as the their products to potential importers in Cooperator Program, aids in the emerging markets. Participants export

28 May/June 2013 / Rural Cooperatives Utility Co-op Connection Energy-efficiency programs yield dividends for co-ops and members

Co-op members enjoy energy-efficiency benefits through a home weatherization program carried out through Hoosier Energy and its member cooperatives.

By Anne Mayberry, offer our consumers tools to better change out their HVAC systems and Rural Utilities Service manage their electric bills in an era of move to more efficient models.” USDA Rural Development rising rates, and we work to help defer The program also includes efforts to the need for new capacity, which can be convince consumers to recycle old ike most rural electric costly.” Hoosier’s solution has been to appliances. “One-third of our L cooperative utilities develop and expand energy-efficiency consumers have two or more nationwide, Hoosier programs, including the distribution of refrigerators running in their homes, Energy Cooperative in more than 1,400 carbon fluorescent and 8 percent have four or more,” he Bloomington, Ind., is lighting fixtures to replace incandescent said. “So we have a bounty program for an expert at serving parts of the country bulbs. old equipment.” “where all the population is not.” That Hoosier Electric is also striving to NRECA’s Lowery noted that definition of “rural” comes courtesy of help co-op members increase the Hoosier’s efforts to boost energy- Tom Van Paris, vice president of efficiencies of their heating, ventilation efficiency could be a model program for member services and communications and air conditioning (HVAC) systems, co-ops nationwide, and he discussed the at Hoosier, while speaking on a panel using strategies to offset incremental possibilities of implementing similar talk, “Energizing Rural Economies,” cost differences. Last year, the programs across the entire rural electric held in February as part of USDA’s cooperative increased incentives for cooperative network. “One-half of the annual Agricultural Outlook Forum. commercial and industrial customers to total electric distribution lines (those Moderated by John Padalino, acting reduce demand during Hoosier’s peak- delivering power to consumers) administrator of USDA’s Rural Utilities load cycles. nationwide are co-op owned,” Lowery Service (RUS), the panel also included said. “Combined with renewed efforts Martin Lowery, executive vice Program gaining toward modernization, resiliency and president, external affairs, for the 800 homes annually cyber security, co-ops have special National Rural Electric Cooperative “On average, we’ve been expanding duties to develop programs to Association, and Nivin Elgohary, these services to cover about 800 homes modernize equipment and increase assistant administrator of RUS Electric per year,” Van Paris said. “To help with efficiencies.” Programs. loan control, we have about 13,000 end- Lowery noted that stronger rural The rural electric cooperative utility use devices under our control. Our economies build economies globally. serves two masters, Van Paris said. “We customers are receptive to incentives to “The co-op business model is the

Rural Cooperatives / May/June 2013 29 strongest worldwide for rural areas, and add to the economic model, leading efficiently control electricity use during especially those focused on to a better understanding of how peak-demand periods. development efforts.” Lowery said. energy-efficiency programs perform. In Hoosier’s case, each dollar “Understanding how energy-efficiency Studies have found that well-designed invested has shown a $3 return, Van programs can support the economy energy-efficiency programs have the Paris said, pointing to the value of long term is important.” potential to yield a tremendous amount audits and screening programs. Lowery explained that two key of energy savings while greatly Measurement and verification are factors — the role of electric utility diminishing greenhouse gases. crucial to the program’s success. In generators and the reduction in peak- The rule will help leverage and Indiana, blow-in insulation is one of the demand load — play key roles in energy expand energy-efficiency programs to energy-efficiency winners for rural conservation. Energy-efficiency include a re-lending program that will homes, he added. programs are a win-win both for co-ops enable rural utilities and cooperatives to Hoosier’s energy-efficiency program is part of a comprehensive portfolio of options to better manage power use. Called “demand-side management,” the effort is composed of energy- efficiency programs (such as weatherization), conversion to compact fluorescent lighting, HVAC upgrade incentives, load control and appliance recycling, as well as other home and commercial/industrial efficiency programs. The co-op’s cumulative energy savings have reached more than “The least expensive kilowatt is the one you don’t have to produce, especially during peak- 110,000 megawatt-hours and helped to demand periods,” John Padalino, administrator of USDA’s Rural Utilities Service, says during a increase satisfaction of its consumer- panel discussion held during USDA’s annual Ag Outlook Forum. Seated, from left, are: Martin members. Lowery, Tom Van Paris and Nivin Elgohary. Higher consumer satisfaction ratings may be the result of people in a rural and their consumer-owners. “Smart lend to businesses or homeowners. electric cooperative’s service territory energy” technologies and load control Eligible projects include consumer benefiting from energy-efficiency together can be used to reduce peak energy-efficiency efforts; modifications programs, noted RUS’ Padalino. “As demand. that reduce electricity consumption; anyone who runs an electric cooperative increased efficiency of electric will tell you, the least expensive kilowatt Boosting sales and services generation, transmission and distri- is the one you don’t have to produce, Energy-efficiency programs can also bution; and the use of renewable fuels. especially during peak periods, when increase sales and services, producing Utilities participating in the program extreme heat or cold put stress on the direct job benefits in rural communities. would submit an energy-efficiency work system. We are getting much better at Retrofits, including caulking and plan and seek reimbursement for costs. reducing consumption. insulation, and sales of state-of-the-art The proposed rule also establishes “Our 650 [utility co-op] borrowers heat pumps create work for local requirements to allow borrowers to re- are entering into contracts with contractors. Cooperatives work to lend funds for energy-efficiency efforts. customers, blowing insulation into provide training and certification older, drafty homes and helping programs so that rural residents are Funding for home energy audits customers and member-owners caulk, equipped to do the work to meet USDA could fund a variety of weather strip and replace older, program standards that measure and energy-efficiency improvements that inefficient appliances with new ones,” verify results. meet criteria established by the new Padalino added. USDA’s Rural Utilities Service rule. For example, projects to conduct Once the rule becomes final, it is expects to release a new rule this year home energy audits and finance expected to help make energy-efficiency that allows co-ops to make loans to improvements necessary to reduce programs more affordable through expand these energy-efficiency electricity use would be eligible for increased availability of financing and, programs. RUS’ Elgohary said that financing, as would demand-side in turn, may help boost rural such standards will help quantify gains management projects designed to more economies. n

30 May/June 2013 / Rural Cooperatives USDA funds help reopen town’s only grocery

By James Crandall, Elaine Cranford, following, the initial meeting, biweekly as a group, with Amanda Bergstrom community leaders developed and subcommittees meeting at additional distributed a survey to gauge interest in times to move the process forward Editor’s note: Crandall and Cranford opening a co-op grocery store. quickly. are co-op business development specialists with the Nebraska Cooperative Survey shows broad Membership drive launched Development Center (NCDC); Bergstrom support for co-op The cooperative was incorporated in is a graduate assistant at NCDC. The community response showed May 2012 as the Elwood Hometown widespread support for the concept of a Cooperative Market. The steering he loss of a grocery grocery co-op. A committed, hard- committee, now a board of directors, T store in a rural working steering committee was formed conducted a membership drive to community can be a to begin the process of studying the capitalize the new business allowing devastating blow, feasibility of a grocery store and the them to purchase and remodel the especially when it is the cooperative business model and creating former store, hire a manager and only, or at least major, source of local pro-forma financials. purchase the inventory. groceries. Not only do people then have The 10-member steering committee More than 140 people have bought to travel farther and expend more time formed subcommittees that focused on ownership shares in the cooperative, and money to get their groceries, but it facilities, business and finance issues and new members are still being added can also make it difficult on community and incorporation options, with NCDC to the ownership base. Co-op members, pride and make it harder to attract new providing guides and outlines for each board members and other volunteers residents and businesses. subgroup. Expert advice was sought were involved in the remodeling of the When the only grocery store in from a local attorney, insurance agents, store, installing coolers, freezers and Elwood, Neb., closed in January of former store owners, neighboring stores shelving. 2012, community leaders quickly and managers of grain co-ops in nearby Board members, co-op members and responded, organizing a community towns (one grain co-op also owned a volunteers scanned inventory and meeting to consider opening a grocery store). stocked all the shelves in preparation cooperatively owned grocery store. Jim Ideas were also sought from for opening. The market has been Crandall of the University of Nebraska- cooperative accountants, area economic advertising locally and through social Lincoln Cooperative Development developers and grocery suppliers. A media. Center (NCDC), which receives financial plan was developed for The Elwood Hometown funding under the Rural Cooperative remodeling the store, and progress and Cooperative Market celebrated its Development Grant program information was shared at two more official “soft” opening on Feb. 3, with a administered by USDA Rural community-wide meetings. All preview of the new store for co-op Development, was the primary speaker indications still showed continued members and donors. The store opened at this first meeting. He explained the support for opening the new grocery for business to the general public the concept of community ownership store. next day. The market was slated to hold through a cooperative. The steering committee received a a grand opening on May 25, including The meeting attracted more than small grant from the NCDC to help a ribbon cutting and additional 100 people, almost all of whom felt that with organizational costs, such as activities. n a grocery store was vital to the future of attorney fees, brochure printings and their community. Prior to, and mailings. The committee met weekly or

Rural Cooperatives / May/June 2013 31 Co-op Development Action Stronger Together: Cooperative Farms

Editor’s note: This article is include CoBank, Farm Credit, the provided courtesy the Cooperative Cooperative Fund of New Development Institute. England and the U.S. Department of Agriculture. These partnerships armers and ensure that potential cooperators F consumers are are fully supported. using worker, Lynda Brushett, CDI’s food consumer, shared- system specialist, notes that the services and initiative came about in response marketing cooperatives to turn to an upsurge in the number of farm-to-fork trends into requests for assistance in businesses based on local organizing cooperatively operated community connections. The five farms. “These folks want to farmers who own the Diggers change the region’s food system to Mirth Collective, a worker one rooted in values, built on cooperative, grow 50 different community involvement and kinds of herbs and vegetables for structured to last — and that local stores, restaurants and means cooperatives.” consumers in Burlington, Vt. Community supported agriculture (CSA) More than 70 new and established One of their neighbors, the Intervale members pick herbs at the Intervale farmers shared experiences and Community Farm Cooperative, is Community Farm in Burlington, Vt. Photo explored options for collaboration at organized as a consumer co-op that courtesy Intervale Community Farm the “Stronger Together: Cooperative hires farmers to grow produce for 500 Cooperative Farms” workshop in February 2013, at families in the Burlington area. Both Development Institute (CDI) is putting Harvest New England, an annual co-ops farm on leased land owned by together. The case studies, along with marketing conference and trade show the nonprofit Intervale Center. Both are workshops, will be used to launch a for farmers hosted by state departments members of an equipment and facilities local food systems initiative built on of agriculture in the region. sharing co-op that helps increase consumer, farmer, fishermen and multi- Cooperative Development Institute productivity while keeping capital costs stakeholder cooperatives. These co-ops is a member of CooperationWorks!, a in check. include shared land, facilities, national organization of cooperative In New Hampshire, eight equipment, labor and other resources, development centers and practitioners independent farms in as many towns while also adhering to co-op values and that span the breadth of the United coordinate production, cropping plans providing livable wages and affordable States. Using innovative strategies and and harvests into a multi-farm food. proven business practices, community supported agriculture co-op To support these efforts, CDI is CooperationWorks! centers provide which gives more than 300 consumers organizing technical assistance and expertise across all aspects of co-op in the Concord, N.H., area access to referral partnerships with farm enterprise development, including fresh produce through three seasons. preservation organizations, such as the feasibility analysis, business plan Fishermen and consumers along the Equity Trust in Massachusetts, Land for development, business launch and on- New Hampshire seacoast are adapting Good in New Hampshire, and the going training for operational success. the model to a multi-stakeholder Maine Farmland Trust, which are For more information, visit: community supported fisheries co-op. leading efforts to transform how www.cooperationworks.coop or e-mail: These co-ops are part of a series of farmland is transferred, owned and Sarah Pike at info@cooperationworks. case studies the Cooperative used. Financing partners for the effort coop. n

32 May/June 2013 / Rural Cooperatives Co-op food market planned in South Carolina

By Mary Ann Cleland and agricultural producers and help educate Via College of Osteopathic Medicine, Debbie Turbeville the community about the critical located in Spartanburg, announced a importance of building a local food $10,500 sponsorship that is providing Editor’s note: Cleland is marketing system and promote healthy diet and the funds to retain a nationally director for Hub City Cooperative; nutrition. recognized store planner to oversee the Turbeville is an agricultural marketing To house the new facility, the co-op’s design of the grocery store’s interior. specialist with USDA Rural Development start-up board has acquired a vacant Eubanks said he hopes the co-op will in South Carolina. building in Spartanburg, which was the serve as a model for others in the state. site of an open house last October. The co-op was first proposed in 2009 new community-owned During the open house, the co-op and has been raising money and A and community- announced the hiring of a local recruiting member-owners since 2010. governed food co-op is architectural firm to lead the Currently, more than 940 members of being planned in renovations, made possible by a $10,000 the small community have shown their Spartanburg, S.C., that matching grant from the Food Co-op support by purchasing ownerships. will promote local products by focusing Initiative (FCI). FCI is a nonprofit USDA Rural Development has offered on natural and regionally sourced foods cooperative development center that technical assistance during the co-op offered in a warm, friendly environ- provides training and resources to new development process. ment. Hub City Cooperative will be retail food co-ops across the United An all-volunteer team has done the one of the first retail-consumer food States. “heavy lifting” for development of the co-ops in the state. The Hub City With USDA support, FCI offers co-op, attending national cooperative grocery store, with 5,000 square feet of “seed grants” to rural communities to grocery conferences, visiting other food retail space, is projected to open in help kick-start their organizing efforts. co-ops, securing the store site and 2014. Co-op leaders say the store is Stuart Reid, FCI executive director, recruiting member-owners and expected to make about $2 million in attended the open house as part of sponsors. The cooperative is working to sales its first year. National Co-op Month celebrations. raise its membership to 2,000 local Hub City Cooperative will provide a Also attending was Jesse Risher, acting residents before the store opens. wide selection of fresh, healthy food assistant state director and Community Hub City Co-op plans to raise 66 products in an area currently designated Facilities Program director for USDA percent of the needed equity from as a “food desert.” Co-op leaders say Rural Development in South Carolina, member-owners, with the store the community-owned market will and Martin Eubanks, deputy director of expected to be profitable in its fifth year provide 30 permanent jobs and support the South Carolina Department of of operation. Further information is other local jobs through a “ripple Agriculture, among a number of other available at its web site: www.hubcity effect.” They say the co-op will provide officials. coop.org. n a sales outlet for local growers and During the open house, the Edward

Rural Cooperatives / May/June 2013 33 Newsline Co-op developments, coast to coast

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Traceability wins Top Innovator honor for PCCA division American Denimatrix, the textile and apparel division of Lubbock, Texas- based Plains Cotton Cooperative Association (PCCA), has been named a 2013 Top Innovator for its traceability program by Apparel Magazine in its May issue. American Denimatrix is among 40 top apparel companies recognized for “demonstrating exceptionality through an information technology- related implementation, product launch, or other outstanding business strategy.” The cooperative’s traceability program allows consumers to trace their denim jeans back to the farms that produced the cotton used to make the fabric. A hang-tag containing a quick response (QR) code on the jeans can be scanned with a smart phone, which With a smart phone, consumers can learn about the farms where the cotton was produced for takes the consumer to a website that their jeans. They just scan the quick response (QR) code on the back of the tag, which comes features profiles of some of the farms attached to denim apparel produced by American Denimatrix, a subsidiary of Plains Cotton and farm families. The profiles can Cooperative Association. contain general location, photographs, history, and environmental stewardship marketing earnings. supply and continuing growth of our information about the farming All members who marketed milk milk production is an attractive operations. A major retail chain in 2012 through MMPA in fiscal 2012 received combination that has helped strengthen used the traceability feature with one of a portion of the $1.8 million. Including our financial position.” its proprietary line of jeans other cash payments, members have MMPA is owned by about 2,000 manufactured by American Denimatrix. received more than $7.1 million in the dairy farmers in Michigan, Indiana, past 10 months. Ohio and Wisconsin. MMPA pays $1.8 million During 2012, MMPA members cash patronage earned $27.2 million in total premiums. Wickstrom to succeed Michigan Milk Producers These premiums are a combination of Roche at Minn-Dak Association, Novi, Mich., recently paid quality, volume, over-order premiums Kurt Wickstrom has been hired to $1.8 million in cash patronage refunds and a “13th” milk check and serve as a succeed Dave Roche as president and to its dairy farmer members. This cash reflection of MMPA’s financial strength. CEO of Minn-Dak Farmers allocation represents 25 percent of the “The return of cash patronage Cooperative, a sugarbeet growers’ co- $6.3 million net earnings generated by refunds, premiums and allocated op based in Wahpeton, N.D. In a the cooperative in fiscal year 2012. The equities continues to occur as a result of notice posted on Minn-Dak’s website in cash patronage returned includes 100 successful operating results of MMPA,” April, Board Chairman Brent Davidson percent of the co-op’s farm supply says Clay Galarneau, MMPA general says Wickstrom will join the co-op in earnings and 25 percent of milk manager. “The high quality of our milk July and assume CEO duties from

34 May/June 2013 / Rural Cooperatives Roche upon his retirement this Aug. 31. in the ‘other Washington,’” says Brian previously considered waste streams Wickstrom is currently president of Unmacht, REI’s Interim CEO. “Thanks from dairy production, processing and Betaseed Inc., a hybrid sugarbeet to her outstanding leadership, REI is in handling. breeding business in Shakopee, Minn. strong shape and well positioned for the USDA support for agricultural and Davidson recently became chairman future. As she did at REI, Sally Jewell waste-to-energy research has played a following the retirement from the will lead the Interior Department with key role in the agreement’s success to board of Doug Etten, of Foxhome, integrity, balance and wisdom.” date. Since signing the MOU, USDA Minn., who had served the maximum Founded in 1938 by a group of has made nearly 180 awards that helped 15 years on the board, including five Pacific Northwest mountaineers finance the development, construction, years as president. seeking quality equipment, REI is and biogas production of anaerobic committed to promoting environmental digester systems through Rural Consumer co-op leader Sally stewardship and increasing access to Development programs, such as the Jewell new Interior Secretary outdoor recreation through Rural Energy for America Program Sally Jewell has left her job as volunteerism, gear donations and (REAP), Bioenergy Program for president and CEO of the REI sporting financial contributions. Advanced Biofuels, Business and goods consumer cooperative to become Industry Guaranteed Loan Program, the 51st secretary of the U.S. USDA, dairy producers working and Value-Added Producer Grants, Department of the Interior. Jewell to reduce greenhouse gas among others. These systems capture guided REI for the past eight years as Agriculture Secretary Tom Vilsack in methane and produce renewable energy CEO and spent five years prior to that April renewed a historic agreement with for on-farm use and sale onto the as chief operating officer. U.S. dairy producers to accelerate the electric grid. During this period, USDA She began her service to the co-op as adoption of innovative waste-to-energy also awarded about 140 REAP loans a member of its board before moving projects and energy efficiency and grants to help dairy farmers into management. During her tenure as improvements on U.S. dairy farms, develop other types of renewable CEO, REI grew to nearly $2 billion in both of which help producers diversify energy and energy efficiency systems. annual sales. In addition to helping lead revenues and reduce utility expenses on its business success, Jewell also helped their operations. The pact extends a Wisconsin food hub REI heighten the company’s memorandum of understanding (MOU) co-op organizes commitment to environmental signed in Copenhagen, Denmark, in The Wisconsin Food Hub 2009. Cooperative has officially been “Through this organized, with members gathering in renewed commitment, Waunakee in April to elect officers, USDA and the meet new General Manager Lynn Innovation Center for Olson and kick off their programs, U.S. Dairy will continue according to the Wisconsin State Farmer . research that helps dairy The co-op is launching with 12 farmer- farmers improve the members but plans to expand to 15 to sustainability of their 20 farms by the end of this year. Its operations,” Vilsack leaders hope this co-op food hub said. “This vital research business model will expand to other also will support the parts of the state if it proves successful. dairy industry as it The goal is to provide small and works to reach its long- medium-sized producers access to term goal of reducing larger markets. greenhouse gas Several large food buyers were at the Co-op leader Sally Jewell is the new U.S. emissions by 25 percent by 2020.” organizational meeting, the Wisconsin Secretary of the Interior. Photo courtesy REI Vilsack signed the agreement at the State Farmer reported, demonstrating White House, where he was joined by their interest in buying local produce. stewardship, volunteerism and engaging representatives of the Innovation The co-op will limit up-front risks for more people, especially youth, in the Center for U.S. Dairy and Dairy its farmers by providing sales, outdoors. Management, including Thomas P. marketing and logistic services for “Speaking on behalf of REI’s board Gallagher, CEO of the center. One commodity-type produce — such as and staff, we thank Sally for her 17 objective of the MOU is to increase the potatoes and sweet corn — as well as years of service to the co-op and wish construction of anaerobic digesters and specialty produce, meats, cheese and her all the best with her new adventure explore innovative ways to use products value-added products, Olson said.

Rural Cooperatives / May/June 2013 35 Wisconsin Farmers Union (WFU) is sales have grown exponentially,” he perfection, but they do expect us to a key partner in the development of the added, indicating that orders from collectively demonstrate our industry’s Food Hub Cooperative. Tom Quinn, food-service customers fueled much of responsible practices and our executive director of WFU, said the the growth. commitment to quality animal care,” project really fits with several missions AMPI Board Chairman Steve says Jerry Kozak, president and CEO of of Farmers Union, including Schlangen discussed the cooperative’s NMPF. cooperative development and helping strategies for long-term performance. Even with the increased participation farmers market their products at a fair “As a dairy farmer-owned cooperative, in the FARM program, “We need more price. AMPI is uniquely positioned to market farms, more cooperatives and more our locally produced dairy products to companies to commit themselves to this AMPI reports food service, retail and food ingredient program,” Kozak says. “The $1.7 billion in sales customers across the nation,” Schlangen expectations are out there. The Associated Milk Producers Inc. said. questions are being asked. We have to (AMPI) had sales of $1.7 billion and Strengthening AMPI’s provide clear answers.” earnings of $9.3 million in 2012, it was manufacturing portfolio — with a The FARM program’s guidelines, announced during the co-op’s annual renewed focus on cheese, butter and contained in the National Dairy FARM meeting in Bloomington, Minn., in powdered dairy products — led to the Animal Care Manual, are in the final March. About 350 delegates and guests sale of two businesses in 2012. “Selling stages of an extensive review and attended the annual meeting of the co- the Cass-Clay plant and brand in Fargo, revision process. They will be revised op, which is owned by 2,900 Upper N.D., and our cheese sauce and slightly to reflect the latest knowledge Midwest dairy farmers. pudding business in Dawson, Minn., and best practices about proper dairy was a bold step,” Schlangen animal care. Revisions to the animal said. “However, these two observation component also relied on businesses accounted for analysis of over 360,000 animal only 5 percent of AMPI’s observations collected through on-farm total annual revenue.” evaluations for the FARM program over the last three years. FARM program If the NMPF board approves the participation at 70 revisions in June, the newly revised percent manual will be available on the FARM The dairy industry’s website: www.nationaldairyfarm.com. animal care program has achieved an important Ric Sundal named milestone, with 70 percent COO of Moark of the nation’s milk Moark LLC, the egg subsidiary of production now Land O’ Lakes, has named Ric Sundal participating in the as chief operating officer, succeeding Slicing cheese at an AMPI plant. program. With the recent addition of Craig Willardson, who retired April 1. several major cooperatives in the “Ric has a strong background for this National Dairy FARM Program role with more than 25 years of Cheese production, which represents (Farmers Assuring Responsible management experience across the food 57 percent of total sales, grew by more Management), more than two-thirds of and agriculture industry, including work than 11 million pounds compared to the nation’s cows will be covered by the in the egg business,” says Dan Knutson, 2011. Butter production continued to industry’s animal well-being effort, chairman of the Moark board of grow steadily, increasing by 5 million according to the National Milk managers. pounds. Consumer-packaged cheese Producers Federation (NMPF). Prior to his new role, Sundal was and butter represented nearly half of NMPF started senior director of Purina Animal the cooperative’s sales. the FARM program Nutrition’s specialty businesses and “Our cheese-packaging plant in three years ago to international. He was previously Portage, Wis., and the New Ulm, provide a consistent, director of Purina’s national accounts, Minn., butter plant were major national, verifiable and director of corporate internal audit, contributors to the cooperative’s bottom means of showing finance strategy and business line,” said AMPI President and CEO consumers and the food value chain development for Land O’Lakes Inc. Ed Welch. “In the last five years, our how dairy products are produced. Prior to joining Land O’Lakes, Sundal consumer-packaged cheese and butter “Consumers and customers don’t expect was COO of Ergotron and chief

36 May/June 2013 / Rural Cooperatives WAGES launches successful worker co-ops

Editor’s note: This article provided courtesy the Central America. More than 90 percent are mothers, National Cooperative Business Association. and many support family members outside their immediate household. Few have more than a high uring the past 14 years, WAGES school education, and almost all of these women speak D (Women’s Action to Gain Economic only Spanish. Security) has successfully incubated WAGES believes the cooperative business model five cooperative businesses that are has a very special contribution to make in serving the now fully self-sustaining. Each co-op needs and aspirations of women in this community. provides eco-friendly housecleaning services in the With carefully timed and orchestrated support from San Francisco Bay area. These worker-owned co-ops WAGES, Latinas who have dreamed of opening a now generate more than $3 million in sales and sustain business are empowered to become worker-owners of more than 100 jobs — 90 percent of which are held by a self-sustaining cooperative enterprise. co-op members. WAGES uses an incubation approach — providing Worker-owners in these co-ops receive benefits — heavy subsidies, training and technical assistance to including medical leave, time off and disability. Their cooperatives during their early, formative years. But individual incomes have grown by up to 158 percent, the goal from the outset is to help each new co-op and median household incomes have increased by 70 evolve to a point where it can operate as an to 86 percent. The average member tenure in a WAGES independent business and “fly the nest,” no longer co-op ranges from 4.2 to 6 years. relying on WAGES' financial or technical support. As a result of launching these five businesses, A cooperative graduates from incubation to maturity WAGES has gathered a series of best practices and under the WAGES model when: lessons learned in worker-owned cooperative development. For the past 10 years, WAGES has also • The co-op can cover all costs on its own without provided technical assistance to other co-op subsidies from WAGES; developers. • The co-op develops and maintains a reserve worth In a webinar hosted by the National Cooperative approximately three months of operating expenses; Business Association (NCBA) in January, titled “The • Members have developed skills to manage the Role of Nonprofits in Developing Worker business with only light managerial support from Cooperatives,” WAGES staff shared their story with WAGES staff. other nonprofits that are considering adding co-op development to their portfolio of services. WAGES provides proven programs in small business Alex Armenta (associate director), Fernando development that have been customized for co-ops as Bernasconi (co-op general manager and WAGES well as intensive, culturally appropriate training for business advisor) and Elena Fairley (communications each worker-owner. It also shares business services and development associate) spoke candidly about the and network support across all the co-ops that WAGES ups and downs of the WAGES journey. They described has created. how the organization progressed from a nonprofit WAGES staff added a cautionary note for other service provider deeply rooted in its community to a nonprofits considering a similar move into cooperative successful co-op developer with the necessary development: be sure you have clearly defined your business acumen to incubate and launch successful, resource and expertise requirements for each stage of self-sustaining cooperative enterprises. the cooperative development process, from incubation Throughout, WAGES has remained focused on to launch. Perhaps most importantly, make sure you serving one specific community: low-income Latinas in have a solid understanding of where the capital will the San Francisco Bay area. The vast majority of those come from to support each stage in the growth of the they serve are women immigrants from Mexico and cooperative business. n

Rural Cooperatives / May/June 2013 37 financial officer and managing partner “These investments have grown our of Best Brands. He has a Bachelor’s processing capacity here in Wisconsin degree in accounting and economics as our members’ milk volume has from the University of Minnesota. grown. “Last year our members marketed a Sunkist turns 120 with record 6 billion pounds of milk. Even strong fiscal showing though we are reducing our plant and Sunkist Growers, Sherman Oaks, employee numbers, we are not Calif., marked its 120th year with a downsizing the volume of cheese third consecutive year in which revenue produced by Foremost Farms or topped $1 billion while payments to reducing our ability to handle our members also made solid gains. At its members’ milk. Rather, we plan to annual meeting in February, Sunkist further expand Foremost Farms’ cheese President and CEO Russell Hanlin production from last year’s record of announced payments to members of 525 million pounds to an even greater $840 million, up from $803 million in level.” 2011. The Alma Center plant produces Among the highlights of 2012 were mozzarella cheese for food-service Sunkist’s formation of a joint venture to markets. The closing will result in the improve the co-op’s juice business. loss of 52 jobs. About 50 employees will “Developing the joint venture with be indefinitely laid off at the juice processor Ventura Coastal has Sunkist enjoyed its third consecutive year in Waumandee plant, which produces resulted in better pricing and created which sales topped $1 billion. American-style cheese (primarily efficiencies,” Hanlin said. cheddar). Another important stride forward for “Our employees are very dedicated Sunkist was the launch of an annual and experienced, and we are working to dividend program for its growers. president of sales and marketing. “Our ease the transition as much as possible “Positive results and cost reductions culture is one of family and by offering severance packages to the across the business have positioned collaboration with growers and most individuals who are permanently losing Sunkist to launch an annual dividend definitely customers to drive the desired their jobs,” said Fuhrmann. The program for growers,” Hanlin said. The results for all.” impacted employees can apply for first distribution was made to growers openings at other Foremost Farms in March. Foremost Farms consolidates facilities. Milk from Foremost Farms’ Looking forward, the company cheese operations member-farms will be directed to other remains focused on broadening the In a move to consolidate cheese dairy plants owned by the cooperative. Sunkist portfolio of consumer manufacturing capacity and capitalize There will be no changes in terms of products. “Sunkist’s customer-focused on recent investments in its processing milk pick-up, sampling, testing or field approach guides everything we do,” network, Foremost Farms USA has service. said Mark Gillette, re-elected chairman announced that it is moving cheese of Sunkist’s board and president of production from two plants located in Record year for Westby Sunkist-affiliated Gillette Citrus Inc. western Wisconsin to its plants in Cooperative Creamery “Our growers, including myself, are Appleton, Richland Center, Milan and Westby Cooperative Creamery, expanding production of newer varieties Marshfield, all in Wisconsin. Westby, Wis., reported more than $50 consumers favor because we know it The cooperative’s Alma Center, million in total revenue in 2012, a new will continue to improve our sales Wis., plant will close permanently on record. Addressing more than 100 success for years to come.” June 30, 2013; its Waumandee, Wis., member-owners, employees and guests Innovations in packaging and retail cheddar cheese plant will be idled at the co-op’s 109th annual meeting in display support have also been indefinitely. January, General Manager Pete customer-driven. Sunkist's full range of “In recent years, our members have Kondrup reported that the co-op had cartons, bags, display masters, bins and invested over $50 million in our plant $30 million in manufactured dairy food reusable plastic containers (RPCs) have system to increase cheese production sales and nearly $20 million in fluid been designed with customers’ needs in capacity, maximize throughput and milk sales. mind. enhance processing capabilities,” Dave A record of just under 25 million “Sunkist, at its core, is a cooperative Fuhrmann, president of Foremost pounds of dairy foods were of family farms,” said Kevin Fiori, vice Farms USA, said in a press release. manufactured, including cottage

38 May/June 2013 / Rural Cooperatives cheeses, sour creams, dairy dips, retail products, private-label Wisconsin Farmed brand. yogurts, butter, cheese curds, soft manufactured products and food service A number of Native American cheeses and hard cheeses. Member- and food ingredient products,” applicants will also receive support for owners supplied nearly 125 million Kondrup said. “This was an investment their projects. For example, the Ute pounds of conventional and certified- in the present and long-term growth of Mountain Ute Tribe Farm & Ranch organic fluid milk to their creamery, our business.” Enterprise of Colorado will receive also a record. more than $92,000 to bring a cornmeal All milk supplied by members is VAPG grants support local product to market. This grant will help growth-hormone-free and comes fresh producers, bio-based initiatives the tribe market and distribute the from local family dairy farms. Agriculture Secretary Tom Vilsack Indian cornmeal products and secure Membership numbers also hit a new has announced the selection of 110 customers. This year marks the first record of just over 160 local family Value-Added Producer Grants (VAPG) time that tribal entities have received dairy farms, up about 10 percent. to agricultural cooperatives, producers funding through the VAPG program. The co-op also increased its and rural businesses that will help Glenmary Gardens in Bristol, Va., workforce during fiscal 2012, in part create jobs and develop new products. will use a $213,000 grant to expand the due to the opening of a new The grants help agricultural producers processing and marketing of locally distribution center and general offices, increase their income by expanding grown fruits and vegetables into jellies, including 6,000 square feet of office marketing opportunities, creating new ice cream, and flavored syrups. products or developing Glenmary Gardens is a family-owned new uses for existing operation providing freshly grown products. berries, fruits and vegetables to the “This support will Virginia and Tennessee Tri-City area. benefit rural businesses Value-Added Producer Grants are an and the communities important element of USDA’s Know where the recipients are Your Farmer, Know Your Food located,” Vilsack said on initiative, which coordinates USDA’s May 1. “These awards work to support local and regional food also will advance USDA’s systems. Previous VAPG awards goals to develop a bio- supporting local and regional projects based economy and are mapped on the Know Your Farmer, support local and Know Your Food compass, http://www. regional food systems.” usda.gov/maps/maps/kyfcompassmap.ht The awards include 11 m. projects involving bio- Since the start of the Obama based products, some of administration, the VAPG program has which will convert corn helped more than 600 agricultural co- stover into anhydrous ops, producers and rural businesses. For ammonia. Others will more information about VAPG and convert miscanthus grass other USDA Rural Development fiber, wood and goat programs, visit: www.rurdev.usda.gov. manure into biochar and enhanced compost; still NCBA program to help other projects will credit unions protect members A record of just under 25 million pounds of convert sorghum into electricity and The National Cooperative Business dairy foods was manufactured last year by Westby Cooperative Creamery. fertilizer. Association (NCBA) has a community Wisconsin Food Hub Cooperative in development initiative that is launching Madison, Wis., (see related news item, with a program to certify credit union space and 10,000 square feet of page 35) will use a $150,000 working staff as financial counselors, ready to refrigerated warehouse space. The capital award to assist in the startup of a protect their most vulnerable members warehouse includes “five-high racking” regional fresh produce food hub and from predatory lenders. The for up to 1,000 pallets of manufactured packinghouse that was created to Community Development Certified dairy food products. enhance access to wholesale markets for Financial Counseling (CDCFC) “Our new distribution center is the local farm economy and create program trains credit union staff to providing the efficiencies in better private-sectors jobs. The food hub will identify financial distress and work serving our customers of Westby-brand aggregate local produce sold under the directly with members to prevent

Rural Cooperatives / May/June 2013 39 financial catastrophe. CU Strategic banking services and corporate “This program is a part of the Planning created the CDCFC training, communications functions. McBride has Obama Administration’s ongoing effort and NCBA is the certifying body for been with CoBank since 1993 and has to leverage private investments with the program. served in a variety of executive positions public funds to create jobs and expand “Working people have been having a during her 20-year tenure. economic opportunity for rural difficult time in this economy,” says Halverson comes to CoBank after entrepreneurs,” Vilsack said. NCBA President and CEO Mike Beall. more than 15 years at Goldman Sachs. “Intermediaries serve as a critical “All cooperatives — especially credit He will report to McBride and have component to boosting local unions — have a role to play in responsibility for the bank’s portfolio of economies.” improving the lives of their members. loans to customers in all 50 states, The Intermediary Relending Having a concern for the community is including corporate and regional Program is USDA Rural Development’s one of the core principles of agribusinesses, Farm Credit primary program for capitalizing cooperatives.” associations, rural electric cooperatives, revolving loan funds. USDA lends The community development rural water and wastewater companies, money to economic development initiative complements existing and rural communications service intermediaries (nonprofits and public programs by providing practical tools, providers. He will also oversee the bodies) which, in turn, re-lend the training and capacity building that aid bank’s agricultural export finance funds as commercial loans to rural cooperatives in becoming more capable division. businesses (ultimate recipients) that of participating and succeeding in might not otherwise be able to obtain community development work. Farmer Co-op such financing. The repayment of the Pelican State Credit Union, Baton Conference Nov. 7-8 ultimate recipients’ loans allows the Rouge, La., has recognized the value of Co-op leaders are urged to mark intermediary to continue to make more the CDCFC program as a way to assist their calendars now to attend the 16th loans to new recipients, supporting its 33,530 members. CEO Jeff Conrad annual Farmer Cooperative sustainable economic development. noticed that over the past five years, the Conference, Nov. 7-8 in Minneapolis. The program has created or saved an credit scores of Pelican’s members had Presented by the University of estimated 20,000 jobs since 2009. For dropped, sometimes leaving them Wisconsin Center for Cooperatives, the more information about the IRP, visit: ineligible for loans for which they conference is a unique opportunity to www.rurdev.usda.gov. formerly qualified. Conrad certified all explore current issues that will shape of his staff through the CDCFC the future for farmer-owned Land O’Lakes’ Krikiva retiring; program so that every staff member is cooperatives. Veazy, McBeth appointed empowered to help members build Early confirmed speakers include: Land O’Lakes Government wealth and improve their financial Liam Herlihy, board chair of Glanbia Relations Director Steve Kirkava is status. Co-operative Society, Ireland; Carl retiring after 36-years working in Casales, CEO of CHS Inc.; Jeff communications and government and CoBank appoints Stroburg, president and CEO of West member relations with the St. Paul, new executives Central; and Molly Jahn, professor of Minn.-based cooperative. Autumn CoBank CEO Bob Engel has horticulture, University of Wisconsin- Veazey has been named as the new announced the appointments of Mary Madison. director of government relations. McBride as bank president and Thomas For more information, contact: Anne Veazey had been counsel for U.S. Halverson as chief banking officer, Reynolds at: [email protected]. Senator Thad Cochran of Mississippi. effective July 1. She will be based in Washington, D.C., “Over the past few years, CoBank USDA program and will be responsible for leading the has become a larger and more complex promotes job creation companywide government relations business, particularly in the wake of our Agriculture Secretary Tom Vilsack strategy and identifying issues that recent merger with U.S. AgBank,” announced in April that applications are affect the cooperative’s members and its Engel said. “Given the increased being accepted from qualified, businesses. breadth and scope of our operations, I nonprofit and public organizations The co-op also announced that am delighted to be announcing these (intermediaries) to provide loans to Daryn McBeth has joined the co-op as new appointments, which will enhance support rural businesses and community director of state affairs and industry the overall capacity of our executive development groups. Funding, which is relations. McBeth had been president at team.” intended to spark business expansion the Minnesota Agri-Growth Council. McBride will report to Engel and and create jobs, will be made available Based in Minnesota, McBeth will be have responsibility for all of the bank’s through USDA’s Intermediary responsible for developing the Land lending units, as well as its credit, Relending Program (IRP). O’Lakes strategy for state-level

40 May/June 2013 / Rural Cooperatives government relations.

United Cooperatives sales hit $643 million United Cooperative, Beaver Dam, Wis., had 2012 sales of $643 million, up $119 million from 2011. The core cooperative business generated $25.8 million in profits, up $5.8 million from 2011, President and CEO David Cramer reported in April during the co-op’s annual meeting in Juneau, Wis. “Our investments in ethanol did not perform as well as 2011, but still contributed $1.8 million in profits to our net income,” Cramer said. “In addition, patronage from our regional cooperatives equaled almost $6 million. Cooperative Hall of Fame inductees for 2013 were feted during a banquet at the Adding everything, United Cooperative National Press Club in Washington, D.C., in May. Left to right are: Joy Cousminer, who had a total net income after taxes of helped fill a void for banking services in New York City’s South Bronx by founding almost $35 million.” That matches the Bethex Federal Credit Union, of which she is now CEO; Steven Dawson, a leader in co-op’s record year in 2011. the worker co-op movement who helped found ICA Group and Cooperative Home United Cooperative is returning Care Associates; Rebecca Dunn, a leader in co-op finance who oversaw a co-op almost $20 million in total patronage development fund in New England that has grown from $130,000 to $15 million; Leland Ruth, longtime leader of the Agricultural Council of California who helped found the to members, with $8 million being paid California Center for Cooperative Development and the California Association for in cash and the balance in equity Cooperatives. Photo courtesy Cooperative Development Fund credits. n

Commentary One of most important things we in recent years, but which continues to continued from page 2 the co-op community must do is to provide an amazing amount of services continue to “evolve” the co-op system and resources to rural people and by stressing the core foundation business. This includes the additional management accountable for results, principles adhered to by generations of $21 billion Rural Development made and not let sentiment interfere with co-ops. Many co-op associations teach available through the Recovery Act, business judgment. If the demographics co-op principles, but we need to grow which has benefited virtually every rural of a co-op’s territory are changing, yet that effort to ensure that all co-op American in some way. I am deeply it chooses to serve only its traditional officers and employees have a sound appreciative for the support I have clients, it runs the risk of failing. Co-op grasp of co-op fundamentals and what received both among our incredibly managers and directors need to be makes a co-op different from other committed staff and the clients we serve. constantly “looking around the corner” types of business. Finally, I salute all of you in the to develop new products and services. I believe the co-op business model cooperative sector who do so much to USDA’s Value-Added Producer can address practically any need. keep us fed, clothed and the power on, Grant (VAPG) program has benefited Success will ultimately depend on the and for caring not just about your many cooperatives, and many more soundness of the business plan and the members, but your communities. To all should be using it. By helping to fund level of dedication of the members. If the people who sit on co-op boards and feasibility studies and develop business people have a collective need for a committees, to all the employees who plans, it can help start new businesses service or product, they should consider keep the gears turning, and to all the or expand the product offerings of a co-op. members who support their co-ops — existing co-ops and other rural I would be remiss if I didn’t say thank you. You prove each and every businesses. (For information on all something about our USDA Rural day that the co-op way is the American USDA Rural Development programs, Development staff, which has been way. It has been my good fortune and visit: www.rurdev.usda.gov). reduced in size by about 18 percent in privilege to serve you. n

Rural Cooperatives / May/June 2013 41 Start me up people and personalities along the time and require a lot of effort. It is continued from page 7 development path. The personality important to build non-work activities and talents of visionaries often differ and relationship building into the from those of project planners and process. One grocery co-op’s steering then this probably wasn’t a good fit. It implementers. Successful start-ups committee turned its weekly meetings was about building the community that recognize these differences and utilize into potluck meals. These shared was working together for everyone’s different skill sets at the appropriate working meals strengthened their success.” stages. community and kept committee There is no such thing as too Tap into assistance. From private members engaged for the long haul. much education. When organizing a consultants and industry associations to Groups are sure to make mistakes along co-op, especially when members may public universities and peer co-ops, the way; the key is to learn from them, have little knowledge of co-ops or the there is an abundance of assistance move on and stay flexible. industry, organizers and prospective available to start-ups. Many of the co- members need as much education as ops in this study partially credited their Conclusions possible on how cooperatives are success to help from outside advisors This research was based on a small organized, financed and operated. This and other cooperatives. sample of food- and agriculture-related lesson extends beyond start-up. Board Every co-op is different. The co-ops in the Upper Midwest. There members should continue to develop recommended planning approach were several inherent challenges in their skills and expertise and members differs depending on the industry, conducting this study. need to be reminded of the value of timing and individuals involved. The The two main challenges were the their co-op. ways to start a co-op are as diverse as diversity of the co-ops included in the Don’t rush the process. Many the sector itself, so it is best to avoid the study and the lack of an existing set of groups feel pressured to open their co- one-size-fits-all approach. For example, quantitative data on cooperative start- op as quickly as possible. Some of these in co-op conversions, the planning ups. This made it difficult to pressures are internal, fear of burnout process tends to be an ongoing dialogue benchmark our sample or to draw any or loss of momentum. Others are focused on the cooperative structure major conclusions from the data. external, such as the start of the and conversion process, rather than While certain challenges are growing season or a rapidly making a business case for the concept. common to all co-ops, many of the approaching grant deadline. Groups But in the case of consumer-owned co- issues are specific to the sector, the should resist these pressures and make ops, the planning process includes a community or the size of the venture. sure that clear goals, agreements and strong grassroots organizing component We hope this initial study will start a expectations are in place before moving in order to attract and mobilize new broader conversation about cooperative forward. members. start-up success factors and best Allow different roles for different Have fun! Starting a co-op can take practices in cooperative development. n

Birds of a feather the past, putting up a pigeon coop, even Despite these higher costs for doing continued from page 17 for a large number of birds, wasn’t too business, Beck continues to be big of an undertaking. Basic wooden optimistic about the business and framework, roof and chicken-wire sides recommends it to people who are would do the trick in Central willing to do the work and learn the op was originally located in the Bay California’s warm, dry climate. But new ropes. “The market’s good,” he says. Area city of Hayward, but the high cost codes impose higher costs, Beck says. “We’ve been able to raise prices, but of doing business there caused it to pull “On the last structures I built, I had to not enough to keep up with expenses. It up stakes in the 1980s and relocate to meet the same codes as if I were used to be for every three bucks I spent, Modesto, about an hour’s drive to the building a house.” That meant hiring I’d clear $2. Now it’s $1. So our east. Today, new sewage requirements an engineer and producing blueprints. expenses have just about doubled.” But in Modesto are forcing the co-op to Building codes also required heavier he still thinks the profits are well worth purchase equipment for the processing roofs and stronger foundations. “The the effort. plant to ensure that its effluent has the cement requirements meant I had to “Mostly I enjoy it” he says. “I’ve proper pH level. meet [conditions for] 120-mph wind- been doing it a long time and I love it.” But it’s local building codes that are shear, even though we don’t have n causing the most problems for Beck. In hurricanes here.”

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