Rural COOPERA COOPERA USDA /RuralDevelopment SA/RrlDvlpet January/February2004 USDA /RuralDevelopment at co-opproduce at co-opproduce Fresh approach Fresh approach TIVES TIVES auction auction January/February 2004 COMMENTARY

International co-op development promotes trade, democracy

Cooperatives yield enormous bene- might be adopted for use in their Chinese. The U.S. style of cooperative fits not only to their member-owners in native lands. structure, where farmers are the own- the United States, but also around the Of course, USDA cooperative pub- ers and beneficiaries of a business, has world. USDA has long been active in lications are in high demand by these obvious global appeal. helping to spread the use of the coop- groups and by others around the Most direct international technical erative business structure international- world. Many of our basic cooperative assistance provided by RBS ly, a charge contained in the Cooperative Services is closely linked Cooperative Marketing Act and other to assistance efforts by other USDA legislation. This work may be accom- agencies. For example, the Nigerian plished through the exchange of educa- By helping assistance effort (reported on page 12 tional and research materials, engaging of this issue of Rural Cooperatives) is in joint activities, providing direct tech- developing nations part of an overall USDA initiative to nical assistance to agricultural produc- help the Nigerian Ministry of ers and even by stationing representa- adopt Western- Agriculture achieve broad-based rural tives at institutions or with farm orga- development objectives in agriculture. nizations in foreign countries. Technical expertise in Nigeria is also Since Congress has not specifically style cooperative being supplied by USDA’s Cooperative provided a budget for international co- State Research, Education & Extension op development work carried out by business structures Service, Foreign Agricultural Service, the Cooperative Services program of Agricultural Research Service, Food the Rural Business-Cooperative that raise farm Safety and Inspection Service, Natural Service (part of USDA Rural Resources Conservation Service, Animal Development), most of our assistance and Plant Health Inspection Service and over the years has either been through incomes, we will Agricultural Marketing Service. information exchanges and meetings or In a neighboring West African through in-country technical assistance build stronger country, cooperative development and (usually funded by international donor education work is at the centerpiece of groups). Countries receiving this assis- trading partners a partnership between USDA and tance tend to follow the thrust of U.S. Ghana’s Ministry of Food and foreign policy direction at a given time and related Agriculture. Several of the other (hence, Central and South America in USDA agencies named above are also the 1960s and 1970s, the Pacific Rim involved in a wide range of joint pro- in the 1980s and Africa in the 1990s economic jects to strengthen Ghana’s agricultural and at present). Significant historical sector. Projects are underway to events have also played a part in relationships. strengthen the farmer cooperative sys- directing these efforts, such as the fall tem in Ghana by adapting contempo- of the Iron Curtain and a resulting rary cooperative principles and busi- emphasis on developing co-ops in ness practices to that nation’s needs. In Eastern Europe. publications have been reprinted in so doing, cooperatives should become RBS Cooperative Services also hosts foreign languages and are widely dis- more effective competitors in the mar- hundreds of foreign visitors annually tributed around the globe, both in ketplace and generate more income for (usually farm organization representa- hard copies and through the Internet. their farmer members. tives and government officials) who are For example, one of our basic co-op RBS Cooperative Services-directed interested in U.S. cooperatives and primers, “Co-ops 101” by Donald projects in Ghana, done in partnership how their practices and operations Frederick, was recently translated into continued on page 35

2 January/February 2004 / Rural Cooperatives Rural January/FebruaryCOOPERA.COOPERA 2004 TIVESTIVESVolume 71 Number 1

Rural COOPERATIVES (1088-8845) is published bimonthly by Rural Business–Cooperative Service, U.S. Department of Agriculture, 1400 Independence FEATURES Ave. SW, Stop 0705, Washington, DC. 20250-0705. The Secretary of Agriculture has determined that publication of this periodical is necessary in the 4 On the front line transaction of public business required by law of Field representatives are the eyes and ears of a co-op the Department. Periodicals postage paid at By Catherine Merlo Washington, DC. and additional mailing offices. Copies may be obtained from the Superintendent of Documents, Government Printing Office, Washington, 8Wisconsin co-op offers fresh approach DC, 20402, at $21 per year. Postmaster: send address change to: Rural Cooperatives, USDA/RBS, Stop to produce auctions 3255, Wash., DC 20250-3255. By Pamela J. Karg

Mention in Rural COOPERATIVES of company and brand names does not signify endorsement over 11 Agribusiness, co-ops awarded $28 million other companies’ products and services. in USDA grants Unless otherwise stated, contents of this publication are not copyrighted and may be reprinted freely. For 12 Boosting the giant noncopyrighted articles, mention of source will be USDA assistance effort helping Nigerian producers appreciated but is not required. By J. Haskell, G. Ely & J. Jobe The United States Department of Agriculture (USDA) prohibits discrimination in all its programs and 15 African ag co-ops leading fight activities on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual against HIV/ AIDS orientation, and marital or family status. (Not all prohibited bases apply to all programs). Persons By Susan G. Schram with disabilities who require alternative means for communication of program information (braille, large 16 Meeting the test print, audiotape, etc.) should contact USDA’s TARGET 8,200 service calls in 24 hours tests mettle of Center at (202) 720-2600 (voice and TDD). Adams Electric Co-op To file a complaint of discrimination, write USDA, By Steve Thompson Director, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, D.C. 20250-9410, or call (202) 720-5964 21 Co-op leaders focus on strategies for success (voice or TDD). USDA is an equal opportunity provider and employer. By Kimberly Zeuli

Ann Veneman, Secretary of Agriculture 23 How business culture drives

Gilbert Gonzalez, Acting Under Secretary, economic behavior in co-ops USDA Rural Development By Julie A. Hogeland

John Rosso, Administrator, Rural Business- Cooperative Service 28 Farmer co-op sales, income fall in 2002 By Eldon Eversull James Haskell, Acting Deputy Administrator, USDA Rural Business-Cooperative Service

Dan Campbell, Editor DEPARTMENTS 2 COMMENTARY Vision Integrated Marketing/KOTA, Design 10 VALUE-ADDED CORNER Have a cooperative-related question? 20 FOCUS ON… Call (202) 720-6483, or Fax (202) 720-4641, Information Director, 30 MANAGEMENT TIP 32 NEWSLINE This publication was printed with vegetable oil-based ink.

On the Cover: The goal of the Badgerland Produce Co-op Auction in Montello, Wis., is to United States Department of Agriculture sell produce at a fair price – for both farmers and buyers. Article on page 8. Photos by Pamela J. Karg

Rural Cooperatives / January/February 2004 3 On the front line Field representatives are the eyes and ears of a co-op

By Catherine Merlo hood of his silver Dodge Durango, Minnesota dairy producer. miles from the headquarters of Each of these men is a field repre- Editor’s note: Merlo is a Bakersfield, California Planting Cotton Seed sentative for an agricultural coopera- Calif., based freelance writer and editor Distributors (CPCSD), his employer. tive, a role that’s vital as “the liaison who is a frequent contributor to this and Larry Seamans regularly reports to between management and member,” other co-op publications. work for Maryland and Virginia Milk according to Dave Baker, director of Producers at a dairy barn or milk member relations for Blue Diamond n any given day, Bill Van hauler’s station. Growers, the almond co-op based in Skike’s office might be a It’s not unusual for Land O’Lakes’ Sacramento, Calif. California cotton field, a Ray Cherry and one of his field staff to Although their specific responsibili- O coffee shop or even the meet at the kitchen table of a ties vary from co-op to co-op, field

Tom Burlando, field representative for Diamond of California, guides a camera crew through a California walnut orchard during filming for a cable TV food show. Photo courtesy Diamond of California

4 January/February 2004 / Rural Cooperatives about the co-op,” says Richard “There’s a lot of flexibility and free- Stadden, a cotton grower from Tulare, dom in the job,” says Jeff Bitter, vice Calif., who belongs to two co-ops and president with Allied Grape Growers, serves on the board of one. “A member a 500-member co-op based in Fresno, has to have confidence in the field rep, Calif. Bitter oversees the co-op’s four- who not only needs to know the nuts member field staff. “A field representa- and bolts of the co-op but have real tive needs to be active in the grower enthusiasm for it.” community, to regularly provide new A background in agriculture, biolo- information and insight, to take the gy — even finance — helps co-op field initiative to gather information from representatives provide expert service buyers.” to members. But personality may count most of all. Necessary knowledge “I can teach a person what he or she Soliciting new memberships, keep- needs to know about the co-op and the ing farmer-members informed on state “I can teach a person what he or she needs and federal regulations and reporting to know about the co-op and the industry. industry,” says Van Skike, who is also But I can’t give them the personality that president of the 1,600-member on marketing conditions are part of farmers relate to,” says Bill Van Skike, here CPCSD. “But I can’t give them the the field representative’s responsibili- meeting with CPCSD member John personality that farmers will relate to.” ties. Knowledge of farming and cultur- Hernstedt during a lunch stop at a café “Personality is extremely impor- al practices is important, too. Many near Shafter, Calif. Photo by Catherine Merlo tant,” says Cherry, director of Land field representatives are actively O’Lakes’ Midwest Milk Supply involved in helping improve their representatives share common respon- Division. Cherry supervises 17 field members’ quality and yield, lower their sibilities. They answer members’ ques- representatives and four procurement production costs and share best-man- tions, provide information and nurture managers for 2,000 Land O’Lakes’ agement practices. relationships for the organization and dairy members in the Midwest. For example, dairy producers can owners they serve. They are the eyes “You have to be able to express earn a quality premium for meeting and ears of a cooperative, a primary empathy,” Cherry says. “You’ve got to strict milk standards. In some cases, communications link and the “go-to” be able to deliver a strong, succinct the premium can bring a producer an source for members. They deliver message to people you truly like to extra $4,000 each month. For both good news and bad, take the heat dur- work with, especially when it’s bad Seamans and Cherry it’s part of the job ing tough times, and frequently form news.” to monitor members’ milk quality and genuine friendships with co-op mem- Seamans, Maryland and Virginia to help them achieve the premium. bers. They work on salary without Milk Producers field rep, agrees. “My job involves helping our pro- commission and often are part-time or “You’ve got to be able to handle any ducers find their weak points and former farmers themselves. situation without taking things person- improve their practices to help them “We take the business of the co-op ally,” he says. be successful,” says Seamans, who was to the growers, and the business of the Personality includes not only discre- a Virginia dairy producer for 17 years growers to the co-op,” says Tom tion and diplomacy but self-motivation before he was hired by Maryland and Burlando, a field representative for as well. Virginia Milk Producers. Diamond of California, the Stockton- based walnut co-op. Sun-Maid’s Mark Connecting with grower-members Sorensen (left) Everyone interviewed for this article and member Bir agreed that successful field representa- Dillon examine just- harvested raisins tives for a farmer-owned organization near Delano, Calif. must have, and show, enthusiasm for “We interact with the co-op and agriculture in general. our members on the Personal integrity is also paramount. quality of the raisin Straight shooters make the most suc- crop, the market, cessful field reps. sales, prices and “I find more and more that if I don’t delivery,” Sorensen have a good feeling about the field rep- says. resentative, I don’t have a good feeling

Rural Cooperatives / January/February 2004 5 The five field representatives who out at 5 p.m.,” Van Skike says. manager for Diamond’s walnut serve the 2,000 members of Diamond “There’s no off-time for them, and receiving and processing plant in of California must “know everything that means there’s no off-time for us. Linden. about walnuts,” Burlando says. My cell phone is the first thing I turn Sun-Maid has 1,200 members and “It used to be that growers farmed on each morning and the last thing I five field representatives. “Our goal is from the boots up,” says Burlando, turn off at night. to visit every grower at least once a who holds a master’s degree in plant “The No. 1 issue is communica- year,” Sorensen says. pathology. “Now, in addition to know- tions,” he adds. “Nothing is more Most also use co-op meetings and ing about varieties, pests, disease and important. If a grower has a question industry functions as opportunities to weather, it’s become more and more or problem, we get back to them right visit with their members. important to know about soil health away. And if we don’t know the answer, and maintenance, as well as cover we don’t beat around the bush. We let The downside crops.” them know we’ll get back to them with Like any occupation, a co-op field “You have to understand the grow- an answer as soon as we know it.” representative’s job has its downside. er’s perspective,” says Mark Sorensen, Says Seamans, “Every one of our Member problems with crop or milk part of the grower relations depart- members knows he can call me at 1 quality, payments or shipments can ment for Sun-Maid Growers of a.m., if necessary. We’re on call 24 cause difficulties for field representa- California, a raisin co-op. “That’s easy hours a day, seven days a week.” tives. Agriculture’s economic troubles, for me to do.” Still, the latest in high-tech tools competitor-driven rumors and the A fourth-generation Fresno-area can’t replace face-to-face contact with tragedies of life can also weigh heavily farmer and Sun-Maid member, members. on the relationship-based job. Sorensen was recruited to become a “We try to spend time in our mem- “It’s been very hard watching the field representative for the co-op two bers’ world,” says Sun-Maid’s anguish and hardships that have been years ago. Sorensen. “Meeting in vineyards or occurring over the past 20 months,” says “If you know what you’re talking coffee shops is part of that world.” Cherry. “The worst part has been about as far as growing practices, “Coffee shops are a valid meeting watching farmers losing their farms, and growers will trust you,” Sorensen says. place because they’re informal,” agrees that’s been occurring on a daily basis.” “When I talk to growers about prun- Van Skike. “Growers are open to talk “The hardest part is getting tangled ing or harvesting, I tell them how I’m about what’s really on their minds. in their lives,” Burlando says. “There doing it on my farm. It relieves them Sometimes, coffee shops offer better might be a death in the family, a bad that I know how to do it.” quality time than at meetings, which business decision or an economic chal- are more structured.” lenge. You work through their grief Tools of the trade How often field representatives with them.” Because the job’s flexible nature meet with their members varies. Co-op field representatives some- often takes a field representative far “Some members need more con- times find themselves walking a fine from the cooperative’s offices, his or tact than others, while others are line in serving members. her most valuable tools may be a cellu- comfortable with an annual visit,” “Occasionally, a member will want lar phone or laptop computer. says Burlando, who has 550 grower special treatment,” Van Skike says. “If “Farmers don’t clock in at 8 a.m. or accounts while also serving as a plant it’s a small request, you try to accom-

Successful practices of cooperative field representatives • Be truthful. “Integrity rates extremely high with producers,” says Land O’Lakes’ Ray Cherry. Don’t sidestep bad news. Don’t feel you have to have an answer for everything. But if you don’t know, make sure you let the member know you’ll work to get him or her the answer. • Respond to members’ questions or needs as quickly as possible. Be accessible. • Reach out to members. Don’t wait to be called. “Growers appreciate a spontaneous call or visit,” says CPCSD’s Bill Van Skike. When you do pay a visit, bring news or the latest information on the market or crop production. • Be consistent. Treat each member as you want to be treated. Don’t cut special deals or give special treatment. • Do your homework. Know what’s going on in the co-op, industry, field and market. • Have the right attitude. Believe in your co-op and project a positive image. ■

6 January/February 2004 / Rural Cooperatives “The dairy producer was about 60 years old and he told me he had never made a quality premium before,” says Seamans. “We found his weak points and fixed them. He’s now made the quality premium for 12 months straight. That’s rewarding to me.” Blue Diamond’s Baker says he is rewarded when “a grower gets out of the co-op, several years pass, and then he comes back to the co-op.” In the end, field representatives agree that theirs is a job of building relationships, and that takes time. “It’s not the first or the third or the 10th visit that builds the relationship but all the visits,” says Burlando. “All relationships, whether they’re personal or professional, are built that way. You have to find out how to satisfy a per- son’s needs and how to tailor each rela- tionship.” CPCSD’s Van Skike agrees. “The “A field representative is the front line, the first contact, and sometimes the first impression more and the longer you’re out there, a producer receives of the co-op,” says Larry Seamans of Maryland and Virginia Milk the better your relationship,” he says. Producers, here in the milk house of member Kevin Phillips of Waynesboro, Va. “If you can earn your members’ Photo courtesy Maryland and Virginia Milk Producers trust,” says Sun-Maid’s Sorensen, “most of the battle is done. The bot- modate that. But sometimes, those Rewards tom line is that if we don’t have happy requests are not in the best interest of But there are rewards that come growers, we lose them. They’re the the membership or of fairness. You with the job. Not long after a neigh- basic unit of the co-op, and without have to handle that as politely as possi- boring dairy cooperative merged with the crop they supply, nobody has a ble. You’ve got to learn to say ‘no.’ Maryland and Virginia Milk Producers, job. That’s why field representatives I’ve found it’s best to handle it right Seamans called for the first time on one are extremely important to the co-op then and there.” of the newly merged members. they serve.” ■

Measuring job performance How does a co-op measure the success of its field staff? Comments and phone calls to management from members, directors and industry participants are taken seriously in help- ing a co-op gauge its representatives’ performance. Feedback from the field staff itself also is valuable. “Do we hear about issues in their infancy or after they’ve blown up?” says Bill Van Skike, field representative and presi- dent of California Planting Cotton Seed Distributors. “Good field reps are in touch with members and they report regularly to management, so there are no surprises.” Management also may look at the number of new memberships a field representative brings into the co-op. Likewise, the field staff’s performance may be judged by the number of members who withdraw during the co-op’s sign-out period. Field managers and representatives for Land O’Lakes must meet performance objectives, such as securing specific vol- umes and quality of milk from producers. “These help measure our performance,” Cherry says. Land O’Lakes also has a number of feedback tools in place to gauge how its field staff is functioning. This includes mem- ber surveys, exit interviews with producers who are withdrawing from the co-op and a computerized tracking system of compliments and complaints. ■

Rural Cooperatives / January/February 2004 7 Wisconsin co-op offers fresh approach to produce auctions

By Pamela J. Karg Farmer-driven co-op Badgerland received an $18,000 “It’s been the same evolution you’d Agricultural Development and Editor’s note: Karg is a freelance writer see with any new business,” Paine says. Diversification grant from the based in Baraboo, Wis., with extensive “The strength of the organization is Wisconsin Department of Agriculture, experience working with cooperatives. that it’s farmer driven and directed. Tr ade and Consumer Protection, and That’s the weakness, too, because these another small grant from the UW- rowers are hauling pro- members are also trying to run their Extension Central District. In addition fessionally boxed fruits, farms. It’s hard to juggle both.” to UW-Extension assistance, growers vegetables and flowers The auction is the third of its kind in spent hours with UW Center for G into a large metal auc- Wisconsin and the first with open co- Cooperatives staff. tion building, where they op enrollment. Its organizers learned “I was very impressed by the speed line up their goods on neat rows of about produce auctions, structure with which the farmers acted this pallets. Keeping a watchful eye on the spring to set up the auction,” says the action is Juanita McDowell, manager UW Center’s Greg Lawless. He of Badgerland Produce Co-op Auction advised growers on the fundamentals of near Montello, Wis. creating a cooperative. Center staff “We really stress that the auction be provided initial legal assistance for the fair for both the sellers and the buy- co-op. ers,” McDowell says of the newly “Despite the reluctance of some of formed sales outlet. At precisely 10 the more conservative but supportive a.m., she welcomes the growers and producers, who wanted to wait a year the auctioneer goes to work, selling and get more ducks in line, a core everything from raspberries and sweet group said ‘it’s now or never,’ and they corn to gladiolas and mums. just plowed forward,” Lawless says. “We’ve had a lot of growing pains,” Starting in mid-June, auctions were McDowell says. “But we really keep held two to three times per week. In encouraging each other because we October, auctions were held only on know it’s going to take time.” Badgerland Produce Co-op is “an excellent Fridays. Lawless attended auctions sev- The project began when a grower example of different cultures and groups eral times this past year. having a common interest and working shared an article on an Ohio produce “While supply and demand still together to make something happen,” auction with Laura Paine, an agricul- aren’t where they need to be, it’s very says Kathleen Haas of UW Extension. tural agent for the University of impressive what they’ve accomplished Photos by Pamela J. Karg Wisconsin (UW)-Extension in so far,” he says. “While a common Columbia County. “I thought it was opinion of co-ops is that they are too an interesting idea,” says Paine, “but it options, capital requirements and other slow and clunky due to their democrat- was the grower’s persistence that made start-up issues from similar operations ic nature, this group was definitely an it a reality. He wanted to see this hap- at Withee, Wis., which organized as a exception.” pen for Columbia County growers.” limited liability corporation, and at After several grower meetings, a Cashton, Wis. The latter is a coopera- More buyers needed core group emerged and decided to tive of Badgerland Amish growers who “Just the fact that the auction exists form a cooperative. Completing its obtained information from Amish is an incredible success, but they do first year, the co-op continues making friends and relatives involved in pro- need to seek out more buyers,” says small steps toward success. duce auctions in Indiana. Kathleen Haas, county UW-Extension

8 January/February 2004 / Rural Cooperatives community development agent. She Striving for fair prices to them for years.” She said the auc- and ag agent Paine are local resource While several Badgerland members tion brings together farmers seeking people to the co-op. “The first year had wholesale experience and knew a viable new market outlet and buyers has been rough, but it’s given the co- these expectations, a series of grower who want to emphasize local farm op time to figure out roles for people meetings helped ensure all producers produce. like Juanita, as the manager, and the brought quality wares to market. Through another small grant, expectations members have for the Certified organic produce requires that county agent Paine wrote and auction.” documentation be presented before received from the UW-Extension On the buyer side, produce stand each auction. Emerging Agricultural Markets Team, operators, supermarket owners and Some days, the price of restaurateurs participate. On any day, sweet corn is low. Other however, it’s guesswork who will show days, colorful pepper prices up. Everyone agrees more buyers are soar. needed to strengthen this weakness. “We’re really striving for To that end, McDowell makes fair prices for every farmer buyer reps available if buyers are too and every buyer. It’s that busy to attend. These substitute buy- simple,” McDowell says, ers have sold to wholesale warehouses adding that their own first and know top-quality produce. The experiences at an auction buyer rep gets the limit an absentee were “interesting.” buyer is willing to go and then bids “Even though we still go accordingly. to the Dane County Although membership in the coop- Farmers Market (on erative is not required to sell there, it Saturdays in Madison, is encouraged through reduced com- Wis.), we wanted to know mission rates. Badgerland membership how an auction worked, just spans the gamut of the local communi- to get more familiar with it. ty. Amish and Mennonite farmers par- So we drove to Withee,” she ticipate as both buyers and growers. says. “Coming home, I real- Other members include Hmong and ized that I only got $2.50 Hispanic people. for 20 pounds of tomatoes. I Growers come from down the road wasn’t going back. But it or across several counties to participate. was a good thing it was such Each grower comes as an equal partner, a long ride home.” willing to support and encourage the During that ride, she other as they sort out this new business. realized that other produce “We really have a nucleus of sup- brought average-to-good port and almost a family feel,” prices. Moreover, there were Recognizing the diversity of its membership, the co-op’s McDowell says. many tomatoes for sale the producer user fees are set on a sliding scale. “It’s an excellent example of differ- day she marketed hers. The ent cultures and groups having a com- McDowells went back a few more Badgerland organizers plan to “fel- mon interest and working together to times. Sometimes, prices were good. lowship” this winter with Cashton and make something happen,” Haas says. Other times, they were OK. Overall, Withee members. Paine says the Recognizing that diversity, producer though, the experience was good and meetings will focus on education as user fees are set on a sliding scale. convinced the McDowells and others well as explore ways in which the Non-Amish growers decide at what that an auction could work in central three auctions might cooperate fur- level they want to buy in. A parallel fee Wisconsin. ther, such as bulk-buying packaging structure respects the Amish growers’ “Many of our growers had whole- materials. reluctance to join formally organized sale experience, but that market is For more information about the groups, yet it provides them with simi- changing,” McDowell explains. auction, contact McDowell at lar co-op benefits. “Through a lot of mergers, buyers 608-297-8989 or e-mail her at jmcdwll Clean produce, boxed or packaged are getting bigger and changing how @maqs.net or http://www.ccedc.com/ag/ professionally and picked fresh within they do business. They don’t mean badgerland.asp or Laura Paine at the previous 18 hours, are marks of to, but some are squeezing out the 608-742-9682 or e-mail her at quality. smaller farmers who have been selling [email protected]. ■

Rural Cooperatives / January/February 2004 9 V ALUE-ADDED CORNER USDA helps Michigan sugarbeet growers purchase processing plant

By Richard E. Leach, Director of accounting to its home office in Sugar Community and Government Land, Texas. Relations, Michigan Sugar Company Imperial became more difficult to work with. The president and CEO of e had just finished Imperial was telling the growers that supper at Imperial’s the buyout was never going to work hunting lodge, about because they couldn’t raise the money. W 10 miles outside the Money to fund the project became a small southwest Texas real problem. Because one of Michigan town of Hebbronville. Imperial Sugar The Michigan Sugar Beet Growers cooper- Sugar’s factories is located in Michigan’s Co. had invited the executive board of ative used financing from USDA Rural Huron County, the Huron County the Great Lakes Sugar Beet Growers Development, including a $210,000 Rural Economic Development Corporation on a quail hunting trip in January Business Enterprise Grant, to purchase this provided a $50,000 matching-fund 2000. Imperial, owner of Michigan processing plant from Michigan Sugar Co. grant to help with attorney expenses. In Sugar Co., had a reason for the hunt- Below, Pioneer Sugar is the co-op’s brand- early 2001, the growers received a ing trip: to ask if the growers would ed product. Photos courtesy Michigan $210,000 Rural Business Enterprise consider forming a cooperative to Sugar Beet Growers Grant (RBEG) from USDA Rural explore the feasibility of purchasing Development. This matching-funds Michigan Sugar Co. From that week- financial information to evaluate the grant was for the feasibility study. end forward, the Great Lakes Sugar value of Michigan Sugar. Financial In the fall of 2000, Michigan Sugar Beet Growers Association would never information was difficult to obtain and Beet Growers Inc. was formed as a be the same. even more difficult to understand. Part cooperative. Shortly afterwards, a draft The first step in the exploration of the problem was that in 1984, offer (in the form of a letter of intent) process was to find the best attorney Michigan Sugar had been sold by the was sent to Imperial. We received no with experience in creating sugar coop- Flegenheimer family to Savannah meaningful response and, in mid- eratives. Attorney Randon Wilson, Salt Foods & Industries. Imperial pur- January of 2001, Imperial and their Lake City, Utah, was hired to organize chased Savannah Foods in 1997, subsidiaries, including Michigan Sugar, the feasibility of a purchase and move including Michigan Sugar. After the filed for protection under Chapter 11 the project forward. purchase, Imperial moved all the bankruptcy. The growers appointed a steering The growers (under contract) had committee. Attorney Wilson went to delivered the 2000 sugarbeet crop and work almost immediately with a trip to received approximately 70 percent of Imperial’s home office in Sugar Land, the estimated value of that crop. Texas, to establish himself as the buy- Growers were considered “critical ven- out attorney for the growers and to dors” under the bankruptcy and could gather information. Imperial told him be paid at Imperial’s discretion. At this that they would not set a price on time, a bankruptcy attorney was hired Michigan Sugar — the growers would to represent the growers. need to make an offer. The growers were reluctant to sign A financial modeler was hired who, a 2001 contract to grow sugarbeets for along with Wilson, began collecting continued on page 36

10 January/February 2004 / Rural Cooperatives Agribusiness, co-ops awarded $28 million in USDA grants

SDA Rural Development quality of life for their communities.” In support of President Bush’s in December awarded Authorized as part of the 2002 Farm 2001 energy plan, 29 applications $28.7 million to promote Bill, the Value-Added Producer Grants focusing on bio-mass and renewable U development of value- provide an opportunity to refine agri- energy were selected to receive $4.3 added products made cultural commodities and products to million in grant funds. For example, from U.S. agricultural commodities, increase their value in the marketplace. the Central Illinois Energy which USDA hopes will spur econom- Applications selected for funding Cooperative will use $250,000 as ic growth in 40 states. Cooperatives range from Planters Cotton Oil Mill working capital to operate its 30-mil- received 79 of the 184 grants. Inc. in Arkansas, which will receive lion gallon per year ethanol process- “These grants will foster the devel- $497,000 to develop a feasibility analy- ing and cogeneration facility. opment of value-added projects to help sis and business plan for marketing and Funding of selected applicants will create the opportunity for economic manufacturing oilseed products (neu- be contingent upon meeting the condi- development and job creation in rural tralized dried soap stock), to tions of the grant agreement. areas,” Agriculture Secretary Ann Massachusetts Woodlands Cooperative Following is a list only of cooperatives Veneman said. “The Bush LLC, which will receive $499,253 to that received grants. A complete list of Administration is committed to pro- expand markets that focus on forest the grant recipients can be found at viding the necessary tools to help rural stewardship, green certified materials the USDA Rural Development Web businesses create jobs and improve the and other value-added forest products. site at: http://www.rurdev.usda.gov. ■ Co-op recipients of USDA Value-Added Producer Grants Recipient Grant Amount Recipient Grant Amount Ag Processing, Inc., MN $ 198,500 East Central Ag Products, Inc., MO $ 500,000 Ag Ventures Alliance, IA $ 12,500 Farmer Direct Foods, Inc., KS $ 349,033 AgraMarke Quality Grains, Inc., MO $ 235,950 Farmers Co-op Oil Company , NE $ 120,000 Agriculture Marketing Institute, Inc., KY $ 79,900 Farmers Union Marketing & Agri-Mark, Inc., VT $ 175,000 Processing Assoc., MN $ 500,000 Amalgamated Sugar Company, ID $ 91,200 Garden State Ethanol, Inc., NJ $ 75,000 Aurora Cooperative, NE $ 309,600 Great Lakes Pork Cooperative, IN $ 280,000 Beef Marketing Group Cooperative, Inc., KS $ 37,500 Hallock Cooperative Elevator Company, MN $ 50,000 Blue Diamond Growers, CA $ 329,938 Hawaii Cattle Producers Cooperative Blue Sun Producers, Inc., CO $ 450,000 Association, HI $ 319,960 Cal/West Seeds, CA $ 100,030 Home Grown Wisconsin Cooperative, WI $ 20,000 Calcot, Ltd., CA $ 337,400 Hopkinsville Elevator Co., Inc., KY $ 87,500 California Canning Peach Association, CA $ 39,962 Kearney Area Ag Producers Alliance, NE $ 162,000 California Olive Growers, CA $ 500,000 Kentucky Produce and Aquaculture CEA Farm Cooperative Steering Committee, TX $ 40,000 Alliance, Inc., KY $ 35,000 Central IL Energy Cooperative, IL $ 250,000 Living Forest Cooperative, WI $ 39,500 Citrus World Inc., FL $ 293,000 Michigan Edible Bean Cooperative, MI $ 247,175 Columbia County Farm Bureau, Inc., WA $ 50,000 Michigan Sugar Company, MI $ 74,120 Dairy Farmers of America, CA $ 150,000 Michigan Turkey Producers Cooperative, MI $ 55,574 Diamond Walnut Growers, CA $ 500,000 Mid-Iowa Cooperative, IA $ 450,000 table continued on page 36

Rural Cooperatives / January/February 2004 11 Boosting the giant USDA assistance effort helping Nigerian producers to help themselves with user-owned cooperatives

By James Haskell, Gerald Ely sack of peanuts (called groundnuts) to opportunities for agricultural producers and Jeff Jobe snack on. The prices received by these in Nigeria. producers are often limited by their While associations of farmers, fre- Editor’s note: Haskell is acting deputy access to market information, their quently called cooperatives, exist in administrator of the Rural Business- inability to transport products to a bet- Nigeria, they do not have a history as Cooperative Service of USDA Rural ter market or to process their crops into viable business entities. Rather, they Development; Ely is the USDA Rural value-added food products. have served as vehicles for distribution Development co-op development specialist In an effort to improve the lives of of governmental programs. for Pennsylvania, while Jobe holds the rural residents, the U.S. Department Membership in the associations has same post in Iowa. They recently spent of Agriculture has teamed with been the means by which farmers two weeks in Nigeria training key cooper- USAID’s Opportunities Industrialization might receive seeds, fertilizer, credit, ative technical assistance providers in three Centers International program to con- technical services or other assistance targeted agricultural states. duct several efforts to strengthen in agricultural production. Farmers Nigeria’s agriculture processing and have rarely made use of cooperatives igeria is the giant of marketing. One program, the Nigeria for marketing purposes. western Africa, with a Agricultural Cooperative Marketing land area about twice the Project, focuses on cooperative orga- Making strides N size of California and a nizations that serve agricultural pro- Nigeria is making strides toward population of 123.3 mil- ducers. business development, placing lion – more than the entire U.S. popu- Cooperatives have long served U.S. increased emphasis on the develop- lation west of the Mississippi River. farmers in their efforts to improve ment of successful cooperative busi- Only 10 percent of the labor force in income for their products, to secure nesses. The development of sustainable Nigeria works in industry, and 20 per- quality farm production supplies at rea- cooperative businesses requires sound cent in service trades. The other 70 sonable costs and for credit and utility feasibility analysis and business plan- percent has ties to agriculture, yet services. Cooperatives offer similar ning. In fact, the new cooperative agriculture accounts for only 39 per- cent of the gross domestic product; crude oil exports account for most of the remainder. Agriculture in Nigeria primarily consists of producers tilling and har- vesting small land holdings, producing food for their family and as a source of income. Their products may be sold to others in their community or to buyers who go from village to village buying fruit, vegetables and animal products for resale in more distant markets. When traveling across the country, producers set up colorful roadside mar- kets to sell their produce. Driving A typical rural home in northern Nigeria. Chameleons (top of page) are an ever-present through the countryside, you can stop part of the landscape in Nigeria, often seen on building walls, basking in the sun. to purchase a bundle of bananas or a USDA Photos by Ely Gerald

12 January/February 2004 / Rural Cooperatives development policy currently being a real or hypothetical cooperative mar- assumptions, careful analysis and well- implemented in Nigeria requires each keting effort. All of these marketing developed business plans. cooperative to pass an “economic feasi- endeavors were relevant to their indi- “It was exciting to see some of the bility” test before it can even be regis- vidual communities. projects the groups came up with, and tered as a cooperative. It’s essential The final step was to learn how to — as they developed the project — to that assistance providers have the evaluate business feasibility and the see how the assumptions they made in capacity to carry out this new mandate. results of financial projections to reach each phase of the feasibility study The initiative to developing stronger a decision as to whether a proposed process affected the outcome and finan- business cooperatives is focused on business activity could be successful. cial results of the proposed business,” training cooperative leaders and a cadre Participants learned to recognize the Jobe says. “We stressed to the partici- of extension specialists and other tech- importance of using realistic business pants that if the results of the analysis nical assistance providers. These individuals, in turn, will train others in the field about cooper- ative principles and operations. They also work directly with cooperative leadership to form new cooperatives or improve the business operations of existing organizations. Training conducted by USDA began with basic cooper- ative governance, principles, practices and operating proce- dures. A second team, including the authors of this article, focused on feasibility analysis and business planning. Seminar participants learned about the components of a feasibility analysis; then they split into small groups and worked through analytical exercises for A Nigerian boy takes a break from his schoolwork to help cultivate his teacher’s cornfield.

indicated that the project wasn’t feasi- ble, they were doing their job in pre- venting a producer group from invest- ing in a project that was not feasible.”

Wide application possible Training was provided to a dozen handpicked technical assistance providers in each of three agricultural states: Abia, Nasarrawa and Kano. Each session lasted three days. Workshop materials developed by USDA were contained in a notebook that included discussion information, work exercise aids and slides that could be reproduced as teaching aids. In addition, project leaders were provided Jeff Jobe, co-op development specialist for USDA Rural Development in Iowa, takes a turn a CD that included all workshop mate- laying the foundation for the new Abia State Agricultural Business Development and rials that can be reproduced for addi- Planning Center in Umhahia, Nigeria. USDA is supporting the center. tional training programs.

Rural Cooperatives / January/February 2004 13 Each training recipient was asked (he or she knew this in advance) to use their newly gained knowledge by: (1) training an additional 10 technical assistance providers in their state, and (2) presenting a feasibility analysis and a business plan for a designated agri- cultural marketing cooperative in their community. Follow-up proce- dures are in place to access the results of their work. Future training is being planned to continue the development of successful cooperatives. Sessions on market analysis, financial management and cooperative marketing techniques are planned for next year. Classes on the responsibilities of directors and coop- erative bookkeeping will follow. As in other parts of the world, James Haskell of USDA Rural Development is presented with a blanket by the director of Nigerian cooperatives will only be suc- the of ag development programs for the Nigerian state of Kano. Below, roadside markets cessful with informed and responsible where farmers sell their produce are a common sight throughout Nigeria. leadership. “International co-op development is always a very interesting learning expe- feasibility analysis. Following a short feet, Jerry promptly found a substitute rience,” Haskell says. “Terminology period of confusion, the group finally phrase for patronage refunds.” typically used in the United States explained to us that in Nigeria, patron- Nigeria has vast potential to improve often carries different meanings in age covered such things as a “direct its food production and distribution sys- other cultures. For example, on this cash payment” in order to get one’s tems, and the cooperative form of busi- trip, Jerry (Ely) was explaining how and truck to the front of the line. They ness provides a strong self-help vehicle where to account for patronage refunds thought this should be counted as an to enable producers there to continue to on the various forms included in the operating expense. Always quick on his strive toward a better future. ■

14 January/February 2004 / Rural Cooperatives African ag co-ops leading fight against HIV/AIDS

By Susan G. Schram, gram has undertaken a three-year radio and through the church, they had Vice President awareness and prevention initiative to never received any direct training. Ag & Co-op Programs, ACDI/VOCA address the severe human resource and Although they knew condoms could capital impact of HIV/AIDS on cooper- prevent HIV, they said, they had never Editor’s note: See ACDI/VOCA’s atives. In Ethiopia, current infection seen one. 2003 “World Report” for more on this and The number of infected family related international aid efforts at members returning home for care www.acdivoca.org. and support is increasing, but poor rural families typically lack the assets CDI/VOCA is helping and the ability to look after the ill. agricultural cooperatives ACDI/VOCA’s ACE program will play a critical role in the help cooperatives create, implement A fight against HIV/AIDS and monitor sustainable HIV/AIDS around the world, partic- mitigation activities prioritized by ularly in Ethiopia and Malawi. their members. Cooperatives are well suited to serving To carry out this program, as conduits for delivering information, ACDI/VOCA-Ethiopia has teamed training and technical assistance to with DKT, a social marketing orga- farmers and their families. Co-op mem- nization with expertise in bers represent a significant proportion HIV/AIDS. The program will use a of the agricultural labor force in rural “train the trainer” approach, using communities. As democratically gov- cooperative bureau promoters and erned, member-based institutions, co- key cooperative union staff. Twenty- ops help determine their own solutions five cooperative unions will receive to problems, use their own resources training. and can work in partnership with com- The unions will then implement munity-based health organizations to a comprehensive HIV/AIDS aware- bring education and change to hard-to- ness and prevention program in reach areas. their respective 399 primary co-ops, The productivity of the agricultural reaching a total family member pop- labor force is the lifeblood of developing ulation of 2.5 million. In addition to countries, particularly in Africa. Broad- At meetings such as this, co-op members in development of training materials, based food security and prospects for Malawi and Ethiopia learn about the health condoms will be made available for economic growth depend largely on the risks of HIV/AIDS and how to fight its spread. sale in cooperative shops, and health of the agriculture sector. But in Photo courtesy ACDI/ VOCA mobile resource centers will host many developing countries, the frank discussions with question-and- HIV/AIDS pandemic is devastating answer sessions. Music and drama smallholder farms, diverting assets from rates are estimated at 7 percent of the will be used to convey health messages food production and changing condi- population, but in high-risk groups rates and literature will be made available. tions from surplus to subsistence, or are as high as 50 percent. ACDI/VOCA helped establish the even shortage. Ethiopian farmers interviewed prior National Smallholder Farmers’ ACDI/VOCA’s Agricultural to the program reported that, although Association of Malawi (NASFAM), Cooperatives in Ethiopia (ACE) pro- they had heard of HIV/AIDS on the continued on page 31

Rural Cooperatives / January/February 2004 15 Meeting the test 8,200 service calls in 24 hours tests mettle of Adams Electric Co-op

By Steve Thompson, writer-editor USDA Rural Development

Editor’s note: This article concludes a three-part series focusing on rural electric co-ops that deliver exceptional service and which have expanded their traditional duties to better serve their communities.

ith its well-groomed farms and verdant W countryside, the area of southern Pennsylvania served by Adams Electric Cooperative looks as if it could have been painted by Norman Rockwell. But the scene was anything but idyllic late last summer when Hurricane Isabel came calling. Adams Electric, like other power of their lines run through heavily Co-op employees who thought they distribution cooperatives, sees itself as forested, mountainous areas in which had seen Mother Nature dish out her more than a utility. It is an active partic- the trees are dozens of feet taller than worst say it inflicted more damage ipant in the communities it serves, and the power poles. Lines were often than any other storm in three decades. has earned a reputation for service and downed in hard-to-reach places, mak- But the co-op came through with fly- efficiency across its service area and ing merely finding the breaks difficult, ing colors for its 28,000 consumer- beyond. That reputation is based on especially in the rain, wind and dark. members, restoring all power within hard work, community involvement, a “Hurricane Agnes was bad,” says 72 hours when many other areas hit by commitment to its members’ interests Ron Plank, the co-op’s manager of the storm took weeks to get everyone and a friendly, “can-do” attitude. operations, referring to the 1972 storm back on line. that caused 48 deaths and more than Hurricane puts co-op to the test $2 billion worth of damage in Changing service area Hurricane Isabel put those qualities Pennsylvania. “But this was the worst Although still an agricultural area, to the test. By the time the storm storm I’ve seen in 30 years.” the four counties around Gettysburg ripped through southern Pennsylvania, Power utilities had their work cut served by Adams Electric Cooperative it had been downgraded to a “tropical out for them, rerouting power lines are among the fastest growing parts of storm.” But Isabel still packed a wal- and replacing downed lines. Some Pennsylvania, home to a growing lop, with 40- to 60-mile-per-hour nearby investor-owned utility compa- number of new bedroom communi- winds that brought down trees and nies still had customers without elec- ties. It is also a haven for retirees. power lines all over the region. The tricity as much as a week after the Despite these changes, the area storm hit the night of Thursday, storm. Even though Adams Electric retains a sense of community and September 18, uprooting trees and Cooperative’s lines suffered the full neighborliness, a characteristic mir- snapping off others like matchsticks. brunt of the storm, every one of its rored by the co-op that provides it Rural power providers such as members was back on line by Sunday with electrical power. Adams were especially hard hit. Many evening.

16 January/February 2004 / Rural Cooperatives On the day of the storm, linemen Trees topple like dominoes “Sometimes the trees would fall like and other employees put in a regular During the night of the storm, the dominoes,” Orchowski recalls. “One eight-hour workday, then prepared to wind often blew so hard that workers would fall over, push another one over, do battle. Once the storm hit, it didn’t had trouble keeping their feet under and so on.” take long. By 7:30 p.m. power outage them. Falling trees and branches were a Plank says that the quick restoration reports started to trickle in. Soon calls constant hazard, both during the storm of service resulted from the dedication were flooding in – 8,200 in the first and afterwards. But lineman Mitch of Adams employees and the workers 24 hours. Orchowski says that the hardest part of detailed to Adams by four other elec- “They were coming in as fast as we the job was getting ready to move on tric co-ops. could answer them,” says Wanda after restoring a break, only to see “The journeyman linemen and the Spahr, the member/office services another tree topple and take the same phone workers have the two toughest supervisor for the Gettysburg District lines out again. jobs in the co-op,” he says. “Without office. The cooperative encourages everyone who has a power outage to call in. “That’s the only way we can be sure we’ve restored power to every- one,” she points out. “If you assume that because your neighbor called in, you’re covered, your power may not be restored because you’re on a different circuit, or because there’s a fault on the line to your house.” Account representatives staffed the phones 24 hours a day in eight-hour shifts. But for the linemen, there were no shifts at all. They worked for 24 hours straight before taking four or five hours off to grab some sleep – some- times they had to sleep in their trucks. That Saturday morning they were out Adams Electric works closely with volunteer fire departments in the communities it serves, at first light, working until 10 p.m. especially when responding to lightning strikes, fires and vehicular accidents. Here, Arendtsville Fire Co. Chief Chris Herman, left, and Fire Captain Jack White, second from right, thank Jim Cole and Jim Krut of Adams Electric for the co-op’s help in purchasing this tower truck. USDA Photo by Steve Thompson

their commitment to the co-op way of doing things, we would have had five to six days of power outages instead of only three days.” The night of the storm, Plank learned from an area investor-owned utility that it wasn’t planning to send out its crews until the next morning.

Close relationship with firefighters Adams’ close ties to the local com- munities it serves is exemplified by the ways its crews cooperate with volun- teer fire departments. Co-op line crews and fire companies often work closely during outages caused by lightning Trees toppled like matchsticks when Hurricane Isabel hit. Here Adams’ CEO/General Manager strikes, vehicle crashes and fires. Dan Murray, left, surveys damage near Rinley, in York County. Photo courtesy Adams Electric Co-op Jim Krut, the co-op’s manager of Facing page: The front page of the York Daily Record from last September captures the terrible damage inflicted in southern Pennsylvania by Hurricane Isabel. Reprinted courtesy communications and community ser- York Daily Record vices, says that firefighters have told

Rural Cooperatives / January/February 2004 17 him they’re glad when the affected from the buckets, or from the ground. Dry hydrant program lines belong to Adams, because of the Firefighters say they feel much makes rural areas safer co-op’s fast response. The co-op also safer using the tower than a traditional Less visible, but also important, is a supports fire companies by hosting ladder. “Having this truck helps out program started in 1995 to make it informational dinner meetings at their the whole county,” says Arendtsville easier for firefighters to draft water fire halls. A fire company ambulance Fire Co. Captain Jack White. “No from ponds and streams in rural areas provides emergency services at the co- local fire department can have every- where there are no pressurized op’s picnic-style annual meeting. thing they need, so we all cooperate. hydrants. Adams Electric’s dry hydrant When a huge ice storm felled trees Some departments have rescue trucks, program enlists the labor of local fire and power lines in the Buchanan while others have tankers or ‘brush’ companies and the excavation equip- Valley in March 1996, Adams and the trucks that can go off-road. They go ment of local municipalities to con- local fire company worked as a team. where they’re needed.” struct the dry hydrants. Sections of 6- The firefighters cleared fallen trees to open roads while co-op linemen repaired the downed lines. Adams pro- vided two-way radios to the fire com- panies to help speed the work. The emergency brought out the best in the rural community, says Duane Kanagy, Adams Electric’s com- munications coordinator. “Everybody pulled together,” he says. “People brought in chainsaws to help clear downed trees. And the fire department fed everybody.”

USDA, co-op help purchase fire truck When the village of Arendtsville needed a new fire truck for its all-vol- unteer company, it was only natural that they looked to Adams for help Marvin Snyder (left), shipping line superintendent for Adams Electric, discusses ways the co- with the financing. op can help the Beistle Co. reduce its energy costs with Ken Strayer and Ron Parr of Beistle. A year before, the co-op had assist- USDA Photo by Steve Thompson ed with the purchase of a new, auto- mated external defibrillator (AED). The Arendtsville firefighters were inch PVC pipe are buried under- Using a $400,000 Rural Economic so grateful for the co-op’s Community ground between a water source and the Development Grant (REDLG) from Development Fund that they put a road. A strainer at the water source fil- USDA Rural Development, the co-op sign on the truck: “Financed in part by ters out debris, and a hydrant-head at established a Community Adams Electric Cooperative.” The the road enables firefighters to make a Development Fund. The fund was truck got a fresh paint job and was dis- quick connection to their pumper used to offer the Arendtsville Fire played at the co-op’s annual meeting truck and begin to draft water. This Company a $100,000, low-interest last June. Hilda Legg, administrator avoids chopping through the ice in loan to be used toward the $165,000 for the Rural Utilities Service of winter or getting fire equipment purchase price of a used tower truck. USDA Rural Development, was guest bogged down in a muddy field in the Finance manager Joe Cole and Jim speaker at the meeting. spring, and speeds the delivery of Krut processed the loan and presented Other fire companies have also bene- water to the fire. it to the cooperative’s board of direc- fited from the cooperative’s Community The installations, for which the co- tors for approval. Development Fund. Four loans have op provides the hardware at no charge In addition to carrying a number of been made, including one for $125,000 to fire companies or at cost to business- portable ladders, the tower truck uses a for the construction of the Bendersville es or homeowners, are called “dry telescoping arm equipped with a high- fire hall and community center. Another hydrants” because they are unpressur- pressure pipe and nozzle with two was to Buchanan Valley Fire Company, ized, relying on suction from the buckets on either side to carry fire- which assisted the cooperative during pumper to draft the water. Since the fighters. The nozzle can be directed the 1996 ice storm. program began, 125 dry hydrant kits

18 January/February 2004 / Rural Cooperatives have been donated, providing quick, on storm-related repairs – was the ambulance arrived with his family.” potentially life-saving sources of water. destroyed by fire. Members of his fam- Adams is involved in a number of Adams has even created a manual for ily were injured in the blaze, which was other community-service efforts, the installation and care of the hydrants. not caused by the storm. including electrical safety demonstra- The close relationship between Firefighters responded by starting a tions and electricity lesson plans for Adams and local fire companies was collection, to which many Adams local schools, a program that installs highlighted when Hurricane Isabel employees and members contributed. free street lights in small communities came to town. The house of Adams “The whole community pulled together and various individual projects, includ- lineman Guy Gorman – who was to help them,” says Plank. “And we were ing raising the funds, designing and working with a line crew at the time able to get Guy to the hospital before continued on page 37

Co-op strives to help members reduce power use, lower bills

Helping members reduce their power use is the key to Some customers also have air conditioning and heating keeping a lid on their electric bills. Adams Electric CEO units that can be remotely controlled to reduce power use and General Manager Dan Murray points out that, unlike at peak times. investor-owned utilities, the co-op has no incentive to sell members more power. Co-op’s technology helps poultry farm “Our goal is to provide excellent service at the best Remote control also contributes to the bottom line for a prices possible, not to increase our sales,” Murray says. large chicken farm. With a million birds in seven large “When members reduce energy use, it makes their elec- chicken houses — each of which draws a peak load of up tric bills more affordable. If conservation measures mean to 150 kilowatts — farmer Jim Bailey has a strong incen- we can defer some capital expenditures, it means we can tive to control his power consumption. save money for members. Keeping down power use also Power failures also pose a major threat to his flocks, so reduces the need to purchase supplemental power, which the farm maintains its own emergency generators – a sig- is usually coal-fired and can be costly.” nificant capital investment. Bailey and Adams Electric Scott Wehler, the co-op’s engineering manager, says have an arrangement under which the utility can remotely that load management is the key. “Traditionally, utilities start the generators at times of peak demand. In return, have concentrated on their large customers when it Bailey gets a $9-per-kilowatt-hour rate break. comes to controlling power use,” he says. “But we sell 85 Several golf courses in the service area also have percent of our power to residences, so we had to find remote controls on their irrigation pumps, while others ways to save power in the home.” have timers restricting their use to non-peak hours. All of Electric water heaters of customers can be controlled these power-saving programs are completely voluntary. remotely from a computer in the Adams Electric dispatch Using the load-management tools at its disposal, center at co-op headquarters outside Gettysburg. Eighty Adams can control 10 percent of power use without incon- percent of co-op members have electric water heaters, so veniencing any members. Load-management programs they represent a sizeable proportion of the base load. have won environmental stewardship awards for the co- The co-op sells the $350, 80-gallon units for only $80 to op, including one each from the Commonwealth of Penn- members, who also get a break on their electric rates. sylvania and the local Chamber of Commerce. About 10,000 of the co-op’s 28,000 members currently have These power-management efforts extend to the co-op’s load control switches on their water heaters. “Half the own headquarters. Its air conditioning system uses three benefit goes to the customer, half to the co-op,” Wehler 1,600-gallon tanks containing an anti-freeze and water says. “They get an inexpensive water heater and a lower mixture that turns to icy slush when cooled by a large rate.” Resulting reductions in peak-demand costs mean compressor during off-peak periods. that the water heaters pay for themselves within three When air conditioning is needed, the compressor is years. turned off and small, circulating pumps — which use When loads get too high, some or all of the heaters can much less electricity than the compressor during demand be turned off. “They can be off for as long as four hours; peaks — help to cool the building. most people never even notice,” Wehler says. – By Steve Thompson

Rural Cooperatives / January/February 2004 19 FOCUS ON... Southern Marketing Agency Inc.

hat is the Cooperative Inc.; Jim Baird from Lone Southern Star Milk Producers Inc.; Jay Bryant W Marketing Agency from Maryland & Virginia Milk Producers. Other members of senior (SMA)? together to reach the goals.” SMA is a marketing-agency-in com- management of each cooperative may, • Supplemental milk purchase costs and regularly do, participate. mon, the primary purpose of which is have declined, and supplemental to seek efficiencies in supplying the milk agreements have been fluid milk needs of the southeastern restructured, Simms notes. The How is SMA governed? United States. SMA began operations new supplemental milk agreements The Operations Committee reports on April 1, 2002, as a Kentucky agri- have allowed Class I utilization directly to the SMA board of directors, cultural cooperative organized under percentages in the Appalachian and made up of 10 dairy farmers, all of provisions of the Capper Volstead Act. Southeast Federal Milk Marketing whom are producer-members of the Current members are: Arkansas Dairy Orders to increase over compara- five member cooperatives. Board seats Cooperative Association (Damascus, ble months last year. are apportioned by member patronage, Ark.); Dairy Farmers of America Inc. • Prices over federal-order mini- with each member entitled to at least (Kansas City, Mo.); Dairymen’s mums in the Southeast were not one board seat, without regard to any Marketing Cooperative Inc. (Mountain only preserved, but they increased minimum patronage level. Grove, Mo.); Lone Star Milk in 2003, Simms reports. Producers Inc. (Windthorst, Texas); • Agency members have saved more Biggest obstacle overcome and Maryland & Virginia Milk than $10.6 million in hauling costs “The change in mindset of coopera- Producers Cooperative Association Inc. since April 2002, adding more than tion vs. competition is not always an (Reston, Va.). 12 cents per hundredweight to the easy transition to make. The group SMA-weighted average pool value. has now fully completed that transfor- Initial goals: Savings are also increasing month- mation and cooperation is at an 1. Promote member cooperation to-month. extremely high level,” Simms says. and communication; • A study of current and future needs 2. Seek cost savings in the purchase for seasonal milk surplus balancing Future plans? of supplemental milk; capacity is underway to help deter- The agency continues to seek effi- 3. Preserve over-order prices in the mine short- and long-term needs ciencies in milk hauling, which is a Southeast; for balancing capacity and opti- major cost in serving a milk-deficit 4. Seek cost savings in farm-to-mar- mum plant locations. market. “Agency members feel the ket hauling; cost- savings achieved thus far in milk 5. Seek cost savings in seasonal sur- hauling may have only scratched the plus balancing. Key management members: surface. The recommendations from Day-to-day operations of the the study of balancing plant needs will Results to date agency are handled through the offer opportunities for savings there • “Member cooperation and commu- Operations Committee, made up of too,” Simms says. “As production con- nication simply could not be bet- senior management members of the tinues to decline in the Southeast and ter,” says Jeff Sims, as administrator member cooperatives. Committee fluid milk sales continue to grow, and assistant secretary of the members are: Floyd Wiedower, from focusing on the efficient and cost agency. “The goals of the agency Arkansas Dairy Cooperative effective procurement of supplemental are clearly defined and all the Association; John Collins from DFA; milk to fill the growing deficit will be members are dedicated to working Don Allen from Dairymen’s Marketing an ongoing process.” ■

20 January/February 2004 / Rural Cooperatives Co-op leaders focus on strategies for success

By Kimberly Zeuli, sionals and cooperative scholars have ever-shorter product and operational Assistant Professor, met at this conference to think broadly cycles. Agribusinesses are being forced University of Wisconsin—Madison and critically about the future of agri- to respond faster and faster to cus- cultural cooperatives. tomers and changes in the market- eading major newspapers The University of Wisconsin place. “The key to success in the new lately, one might get the Center for Cooperatives (UWCC) agribusiness world is to either be big erroneous impression established this conference series in or be fast, but never get caught in the R 1998, with financial support from middle,” Peterson said. that all agricultural coop- eratives are in trouble. A Farm Foundation, to provide a forum Steve Montgomery, executive vice recent New York Times article stated: for the exchange of ideas on a timely president at CoBank, and Jack Gherty, “The collapse of Farmland has some set of issues affecting the agricultural president and CEO of Land O’Lakes, farm groups worried that co-ops are cooperative sector. agreed that co-ops are competing in a losing their ability to compete with big fast-paced, tough marketplace. food companies” (Sept. 16, 2003). The Montogomery said the recent bank- demise of Farmland and Agway has ruptcies of Farmland, Agway and been the subject of many similar arti- TriValley have led many to wonder if cles. Still others have focused on finan- the cooperative model is broken. But, cial issues at Land O’Lakes, gover- he noted, the failures of Enron, MCI nance problems at Ocean Spray and Worldcom and other investor-owned the conversion of such notable co-ops companies have not caused similar as Dakota Growers and Birds Eye to questions about the future viability of investor-owned firms. the corporate model. Is the agricultural cooperative sector All agribusinesses face a “new reality” close to collapse? Are successful coop- — an economy that has evolved from Don Gales, president of ADM-Collingwood eratives fleeing a sinking ship? being industrial-based to one that is Grain, addresses the Farmer Cooperatives Whatever happened to the optimism knowledge-based, driven by manage- Conference in Kansas City. Photo courtesy ment, technology and customer and missionary-like zeal that surround- University of Wisconsin ed the wave of new generation cooper- demands. Success requires navigating atives created during the 1990s? this new reality with a strong board of This challenging, changing business Implementing these strategies — to directors and management team execut- environment requires innovative think- make the vision a reality — can be more ing a strategic business plan with mea- ing and tough decisions. Cooperative difficult and time consuming than surable objectives. executives and board members are cooperative leaders and members antici- Montgomery warned co-ops: “… being called upon to redefine their pate. By addressing the constructive and if you are not adding value for your cooperative’s vision and to create new, successful action some co-ops have members, then why should you remain competitive strategies. To help them in taken, the conference offered a counter- in business?” Gherty added: this process, the sixth annual Farmer perspective to the press reports. “Change…You don’t have to do it. Cooperatives Conference, Executing Survival is not mandatory.” Vision and Strategy with Success, was Speed of execution held in Kansas City, Mo., Oct. 30-31. According to Chris Peterson, ag Non-traditional equity arrangements Each year for the past six years, co-op economics professor at Michigan State Many cooperatives are looking into directors and CEOs, government rep- University, cooperatives need to pay alternative equity strategies. Mark resentatives, financial and legal profes- particular attention to a new trend: Semmens, managing director of invest-

Rural Cooperatives / January/February 2004 21 ment banking at D.A. Davidson, com- of presentations by discussing the diffi- innovative strategies for achieving pared alternative capital structures that culties involved with closing local strong brand names. allowed co-ops to compete with other plants and branches. Smaller margins, business types in capital markets. Using he said, are forcing co-ops to investi- Keys to success CHS Inc. as a case study, Semmens gate unprofitable sources in the busi- Mark Hanson, attorney at the explained how co-ops can successfully ness. All local plants and branches Lindquist and Vennum law firm, said use perpetual preferred stock to achieve need to be assessed in terms of their there are four keys to successful coop- their capital objectives. ability to create value; they should not eratives: leadership, a solid and focused David Swanson, of the Dorsey and remain open simply because they are a business plan, an efficient capital struc- Whitney law firm, said changes in the “legacy location.” ture and member liquidity. Hanson co-op model in some states were dri- David Fuhrmann, president of said that cooperatives need to distin- ven by a desire for greater flexibility in Foremost Farms in Baraboo, Wis., guish between an income business raising capital, tax treatment and mem- discussed the tough decisions facing model, in which earnings are distrib- ber-equity liquidity. Without greater the dairy co-op. Confronted with uted, and a business growth model, in flexibility, more cooperatives may con- declining regional milk production, which earnings are reinvested. Co-ops vert business structures, he said. excess manufacturing capacity and also need to understand where their Steve Wright, CEO and general “devastating” milk prices following the capital is coming from — not through manager of Pro-Fac, a Rochester, 9-11 terrorist attacks, Foremost pur- assumption, but by close observation. N.Y.- based fruit and vegetable grow- sued a “plant-rationalization” strategy. Mike Maranell, senior vice presi- ers’ cooperative, provided an overview Fuhrmann explained that these actions dent at Ag Processing Inc. (AGP), an of recent changes at the co-op. In require cooperatives to “plan, plan, Omaha, Neb.-based soybean-process- August 2002, the Pro-Fac board of plan, and communicate, communicate, ing co-op, provided these “take-home directors accepted a private infusion of communicate.” concepts” in his conference wrap-up: equity from Vestar Capital Holdings, 1. It is important to understand the which invested roughly $175 million in Building brands “purpose” of a business, particu- AgriLink Foods. AgriLink had been a Don Schriver, executive vice presi- larly your business. wholly owned subsidiary of the co-op, dent of Dairy Farmers of America 2. The success of execution depends but Pro-Fac had to seek outside capital (DFA), said “a cooperative’s brand is on the following key ingredients: due to the heavy debt load it accumu- the face it presents to the world.” • a clear vision of what you want lated when purchasing AgriLink and According to Shermain Hardesty, the business to look like in the Dean Foods’ vegetable operations Director of the Center for future; (Birdseye Foods). The co-op is now a Cooperatives at the University of • a formalized, strategic plan that minority (40 percent) owner in the California, only a limited number of involves multiple stakeholders; food company, which has been rechris- cooperatives have nationally prominent • alignment of the board of tened Birdseye Foods. brands. Some structural characteristics directors and management; of cooperatives seem to impede brand • finding the right people for co- Closing local plants and branches building, she noted. Several presenta- op leadership positions. Jeff Stroburg, CEO of West Central tions discussed the importance of 3. The cooperative system has, Cooperative in Iowa, kicked off a trio brands to cooperative growth and and will continue, to evolve. ■

Previous Farmer Cooperatives Conferences have addressed the following issues: • The impact of global and industrial trends in agriculture on cooperatives (1998). • Achieving excellence in cooperative governance (1999). • Building cooperatives’ economic strength with new ideas regarding capitalization and equity redemption programs (2000). • Measuring a cooperative’s value and choosing competitive business strategies (2001). • How cooperatives have adapted their structures to succeed in a challenging business environment (2002). Post-conference summaries, programs, and some presentations can be found on the UWCC Web site (http://www.wisc.edu/uwcc/farmercoops03/index.html). ■

22 January/February 2004 / Rural Cooperatives How business culture drives economic behavior in co-ops

By Julie A. Hogeland, Typically, economists have not paid understandings of what cooperatives Agricultural Economist much attention to culture. They tend should be and the values and duties USDA Rural Development to treat most decisions as a matter of they should encompass. These typical- [email protected] price and quantities, or as financial ly include: considerations, such as interest rates. 1. Emphasizing service over making Editor’s note: The following article is Cooperative management, members money; based on the author’s presentation at the and directors also have not explicitly 2. Being altruistic — not exploiting “Mapping Cooperative Studies in the New considered culture. When decisions the business for a profit; Millennium” conference, held at the diverge from economic considerations, 3. Attaining self-sufficiency to mini- University of Victoria, Victoria, British the cooperative community typically mize farmer dependency on those Columbia, May 29, 2003. regards the decision-making process as perceived as outsiders; Conference papers may be found at: “political.” This does not mean a 4. Emphasizing a hierarchical style http://web.uvic.ca/bcics/map_conf_papers political party, but refers to the variety of leadership and dependence; .html

he premise of this article is that culture affects economic behavior. The T focus is on how the con- cept of service, as offered by regional and local farm supply and grain cooperatives, has evolved during the past 20 years. Service started out as a producer-dri- ven concept, associated with cultural expectations of entitlement. The insti- tutional framework for realizing these expectations was created by multi-com- Ag Processing Inc. (AGP) staff led buyers from some of the nation’s largest food manufacturers modity cooperatives, such as Farmland, on a field-to-factory tour to show them how soybeans are raised and processed. AGP focuses Countrymark and Agway. The produc- all of its attention on what it does best: process and market soybean products. er’s needs were foremost in this setting. Photo by Jim Rodenburg, courtesy AGP Service ended up becoming defined as a market-driven concept, where the needs of the customer become paramount. of commodity interests, geographic 5. Often displaying an unwillingness The institutional framework has interests or farm organization affilia- to let go of relationships, things evolved into an industrialized system of tions that can subtly influence cooper- or places; agriculture, in which producers have ative agendas on a day-to-day basis. 6. Valuing the “small and personal” faded more into the background as over the “large and impersonal”; cooperative identity has coalesced Characteristics of 7. Preferring to subordinate individ- around participation in value-added cooperative culture ual goals to the good of the food chains. In this context, being a There is an underlying, more fun- whole; and low-cost supplier or getting a high price damental and unified aspect of cooper- 8. Valuing equality (treating every- becomes the key definition of service. ative culture that reflects common one equally).

Rural Cooperatives / January/February 2004 23 Collectively, these are the social tives only when needed to offset Today, the concerns of farmers and mores of a group that is more like a monopoly power, or to compensate for their cooperatives are much different. family than a business. Together, they inadequate services. These concerns include: getting access form a framework for understanding After cooperatives had disciplined to information, finding a place within a multiple dimensions of cooperative potential monopolists through the value-added system, negotiating an behavior. yardstick of competitive efficiency, equitable ownership role within that These themes were drawn from Nourse believed they should simply system and addressing food safety and some 30 interviews conducted with maintain watchdog status over an other product specification issues regional and local cooperative manage- industry, not try to dominate it them- which are integral to the success of ment during the past two years. selves. He even suggested cooperatives those systems. During the interviews, managers might consider abandoning industries Recent severe financial pressures, were asked to provide examples of where they had been particularly suc- including the bankruptcies of the expressions or language that represent- cessful in establishing competition. Farmland Industries, Agway and ed traditional ways of talking about Leave it to others to compete and let TriValley cooperatives, suggest that the cooperatives. Managers were also farmers go back to their traditional culture may be pointing cooperatives asked how they would respond to such activity of farming, he advised. This in the wrong economic direction, at traditional thinking. This give-and- was a very passive vision of cooperation least in some respects. take provides a useful compendium of that left unanswered many of the ques- how local cooperative managers — tions that concern cooperatives today. The primacy of service The primary cultural value that dri- ves economic behavior in cooperatives is service. The way service dictates choices within cooperatives is demonstrated when managers or directors say, “We take care of our members.” Or, if man- agers want to cut costs, and so cut back on services, they may say: “I can’t do it because my members won’t let me.” As part of this service culture, there is a broad definition of member needs because farmers are continually asked what they want their cooperative to do. This leads to an “add-on” mentality, in which the mindset is: “let’s add on this and add on that.” This attitude is rein- forced by certain expectations, which AGP headquarters in Omaha, Neb. This regional soybean co-op has a straightforward local cooperative managers describe as: mission: get member co-ops a better price for their soybeans. Photo courtesy AGP “Farmers like to go into every location and get everything they want.” Or, “Farmers like to see their equity who are on the front lines of coopera- For example, it is not clear how big investment spent at their own location, tive activity, because they interact cooperatives should get, how long they where they can see it.” directly with farmers — are gradually should stay in a particular industry and The service culture gives primacy to reshaping cooperative culture. whether their relationship to other member needs above all other factors. industry participants should be one of The fact that members want something Cultural road map competitor or partner. The main pre- and the cooperative exists to serve their The primary cultural road map fol- scription of Nourse’s competitive-yard- needs makes other factors secondary, lowed by most co-ops (other than bar- stick model was that cooperatives including what the service costs, how it gaining cooperatives) is the competi- should provide “an extra bid” or “extra fits in with the other services offered by tive yardstick model of Edwin Nourse competition” to “keep everyone hon- the cooperative, whether the service is (Nourse 1992). But in some important est.” But this cultural model was already offered by competitors and so ways, this is probably an outdated formed in response to concerns about on. The economic consequence is that script. Nourse established the “com- market concentration and farmer the cooperative can become a multi- petitive yardstick” in the 1940s. He exploitation during the first part of the purpose business that lacks a clear cus- believed farmers should form coopera- 20th century. tomer definition.

24 January/February 2004 / Rural Cooperatives The expression, “Cooperatives are shedding its non-core businesses, Gold members in a variety of ways are slow- all things to all people,” reveals the Kist Inc. is fast becoming a lean, mean ly and painfully sold off, one by one. fundamental loss of purpose created by poultry machine,” according to the To maintain cash flow, Agway shed the add-on mentality, which other May 2002 issue (page 16) of two profitable businesses, Telmark cooperatives (discussed later) are “Refrigerated & Frozen Foods.” leasing and its North Dakota sun- attempting to recover. With the “add- flower business. But this did not save it on” mentality, the cooperative defines Farmer attrition limits from bankruptcy. itself as it goes along, by accumulating diversification strategy Some service cooperatives have a wide number of product lines, which If there are a large number of farm- turned to “bundling” — grouping a are often not clearly related. ers to be served by the cooperative, the particular service within a group of Ultimately, it becomes very difficult cooperative may be able to make a related products or services and pric- for such cooperatives to achieve the diversified service strategy work. ing them as a unit. As economic pres- critical mass and scale economics that However, there are particular econom- sures force many producers out of would enable them to compete with ic stressors that make it particularly farming, those that remain are forced more efficient and focused suppliers. hazardous for cooperatives to follow to examine costs more closely. this strategy. Cooperatives that have bundled items “Add-on” mentality Chief among these factors is farmer together may be forced to decouple leads some to ruin attrition. As the number of farmers them so that producers can compare The “add-on” mentality brought declines, fewer will want any particular prices individually. Agway, the largest cooperative in the Cooperatives that have built an United States in the 1980s, to bank- administrative or overhead system ruptcy in 2002. Despite a strict policy around providing service packages or that it would not get involved in dairy “Agway had no production systems may find that pro- processing, the New York-based supply ducers prefer to assemble their own cooperative in 1980 purchased H.P. systems, piecemeal, from different ven- Hood, a fluid dairy company, in order prior experience dors because it is cheaper. Appealing to to help members of Northeast dairy customers through a broad product cooperatives stabilize milk markets running a fluid array may make a cooperative vulnera- (Anderson & Henehan 2002:3). ble to transient consumer loyalties. “Agway had no prior experience milk business,” Farmers may pick and choose, but running a fluid milk business,” which the cooperative is stuck with the over- is “very competitive, and operates which is “very head. Cooperatives may have invested much differently than an agricultural in costly assets, such as feed mills, and supply company,” according to assumed that farmer desire was equiva- Anderson & Henehan. In the follow- competitive, and lent to farmer use. Managers refer to ing decade, Agway was able to pay a this cultural concept as: “We will build patronage refund only twice. operates much it, and they will come.” Intense member support for a par- ticular service, sometimes just the differently than Large producers demand bargains highly vocal support of a few members, Consolidation among suppliers and can be sufficient to dilute or override an agricultural farmer-customers has resulted in large the importance of economic factors. producers driving hard bargains, and “Members, at times, asked Agway to agribusiness conglomerates are often do too much on their behalf without supply company.” willing to do what is necessary to cap- thoroughly understanding the costs ture the business of these customers. involved” (Anderson & Henehan In this context, the service strategy 2002:11). service. When agriculture began leav- puts cooperatives in a particularly vul- The management of the coopera- ing the Southeast, Gold Kist’s diversity nerable position. More and more farm- tive, particularly a regional coopera- became a weakness. Farmers also have ers may be seeking the one-time-only tive, then has the responsibility to become increasingly specialized, so “best deal.” build an organization around member their demands have become more one- So, local cooperative managers are choices. Gold Kist used the slogan of-a-kind. Consequently, the service beginning to revise the way they “Diversification is Our Strength” to culture can set the cooperative up for approach the concept of service. Some reflect its interests in poultry, agrono- dying a slow economic death, insofar are asking: “Who do we serve? Who is my, cotton, poultry and peanuts. “By as the assets accumulated to serve our customer? Will they still be there

Rural Cooperatives / January/February 2004 25 in the future? Is that the business we never charged me before. You want my agronomy, pecans, catfish, farm sup- want?” There’s good business and bad business? You better do it [for free].” plies and peanuts. Similarly, Land business. Yet managers cannot attract the skill O’Lakes recently announced a phased These managers are starting to look level of technical help farmers need reduction of its involvement in the at how much it will cost to serve a without paying a particular salary level. pork industry, due to the displacement group of farmers. Some are saying: So, they have to become, in their of family farmers by integrators and “Hey, we can’t do that. Let’s walk words: “more of a business than a increased market volatility. away. Let someone else serve them.” cooperative.” This linguistic distinc- By streamlining and narrowing their This is the sort of approach a cor- tion shows the extent to which cooper- commodity focus, these cooperatives poration operating for profit would atives have been put in a class apart are approaching the question of service take. Instead of serving all customers from other businesses and held to dif- from the standpoint of: “Who do we — being all things to all people — the ferent rules and expectations. serve?” and “What are we good at?” cooperative “cherry-picks” by pursuing As managers try to revise these They are using a dual focus that the most attractive customers. expectations, they anticipate their allows them to take more than just cooperatives will become less personal producer interests into account. Agway Co-ops: a family business? than what their father’s co-op was, essentially looked at the question of Looking at their farmer-patrons in more of a business (“arm’s length”) service from the standpoint of, “Who terms of their potential profit to the than family relationship. Long-term do we serve?” That is, of producer cooperative introduces a form of “dis- margins will be in technical support interests. “What are we good at?” is a tancing” into what may have been a services, not in the bulk commodity question that addresses the economic personal or social relationship. In some products that have been the traditional efficiencies of the cooperative. rural communities, the relationship source of income for local cooperatives. The multi-commodity cooperative between management, directors and has to balance different producer inter- cooperative members has been so per- ests, which can be a difficult task. sonal and closely linked that the coop- Farmland and Countrymark were two erative is more like a family, in some “Who do we such cooperatives. These cooperatives ways, than a business. had portfolios that, between them, This is shown in the way managers serve? Who is included grain, pork, turkeys, fertilizer, of small-town, locally owned grain ele- beef, agronomy and petroleum. The vators and farm supply stores go out of our customer? portfolios were built from the stand- their way for their farmer-members. point of anticipating that a good year When a farmer pulls up at the co-op Will they still be in one commodity would offset a bad elevator at closing time with a truck- year in another. load of grain, the manager will stay So, an expectation of loss was built late, even though elevators operated by there in the future? into the cooperative’s culture. At some multinational corporations have proba- point, a commodity cycle was going to bly closed. Similarly, the co-op will Is that the business hit the cooperative hard. And, in fact, spray the farmer’s fields at night when particularly severe losses because that is when the winds have we want?” There’s occurred for one commodity, as in the died down. case of Farmland and fertilizer, it hit Why do managers do this? “Because good business and sufficiently hard to push the entire our kids go to school with their kids,” cooperative into bankruptcy. they say. The case of Farmland is particularly In such communities, there is an bad business. interesting because it represents a mix intertwining of economic, social, of cooperative values of self-sufficiency neighborhood, kinship and political and service. Self-reliance may be a dimensions within the cooperative Regionals must also adjust value that can be traced to pioneer val- bonds. While this has given coopera- Regional cooperatives have a similar ues and distrust of outsiders. It also has tives their cohesiveness and unity, it adjustment to make. Their task as figured prominently in farmers’ desire has also established certain expecta- manufacturers is to answer the ques- for a source of domestic fertilizer sup- tions among farmers that may be resis- tion: “What are we good at?” plies so they can undertake spring tant to change. For Gold Kist, the answer was poul- planting on schedule. If managers charge for advisory ser- try, which co-op leaders defined as the During the 1970s energy crisis, vices previously provided as a free ser- co-op’s core business. This decision farmers were able to accomplish this vice, farmers have objected, saying: “You led them to divest their operations in critical task because cooperative

26 January/February 2004 / Rural Cooperatives resourcefulness maintained sufficient a regional cooperative, service is one, skewed toward countering natural gas reserves, a seedstock for fer- defined as getting a better price for monopolistic exploitation and power, tilizer. This accomplishment became an their soybeans. AGP, as a regional not the pursuit of opportunities for established cultural model for a later cooperative, is focused only on soybean cooperative growth and influence. period of high natural gas prices. processing. That dedication allows Nourse wanted to see that farmers During 2001-2002, a period of par- AGP to be a low-cost supplier to were served well. His cultural legacy ticularly high natural gas prices, industry users of soybean oil and meal. may have been a sense of “farmer Farmland Industries tried to assure If there is a lack of demand for soy- entitlement” that has overburdened farmers of self-sufficiency for fertilizer bean oil or some other setback in the the economic capacities of coopera- supplies, following the example set by soy-processing industry, the local tives. cooperatives 30 years earlier. At the cooperatives that own AGP accept this With the industrialization of agri- recommendation of members, as a consequence of their ownership. culture, the pendulum is swinging back Farmland went into considerable debt The lines of accountability are clear. the other way. Farmers are often now to buy domestic manufacturing plants. This clear demarcation of boundaries regarded in a more detached way as Imported fertilizer would have seems to be one of the evolving char- “the most efficient managers of land” been much cheaper, possibly less acteristics of cooperation. within an industrial management sys- available and sometimes it even The intensive specialization fol- tem (Urban 1996:70). Attention has looked odd, because it was colored lowed by Gold Kist and AGP was trig- shifted from farmers per se, to the dri- black instead of white. Farmland was gered by recognition that consolida- vers of the value-added systems found the largest U.S. farmer cooperative, tion has happened within interdepen- in agriculture today, including cooper- but the fertilizer debt helped pitch it dent parts of the food chain. atives. These systems could offer an into bankruptcy. Cooperatives that lack the critical economically healthier cultural envi- What was different between the mass, focus and capitalization will be ronment for cooperatives to flourish in energy crisis of the 1970s and 2002 locked out of desirable value-added than the Nourse-influenced setting of was that new suppliers, such as Russia, opportunities, such as instant meals. a previous era. ■ had come on stream. The need for To qualify as players in this high- cooperatives to respond to the man- stakes game, cooperatives often need References: date “We take care of our members” to be low-cost producers, which Anderson, Bruce L. and Brian M. was suddenly an anachronism in the requires high product volumes and Henehan. “What Went Wrong at Agway” context of the wider availability of sup- dedicated, efficient handling. Occasional Paper, Cornell Cooperative ply on the world fertilizer market. Cooperatives such as Farmland Enterprise Program, Dept. of Applied Economics and Management, College of Ag. and Countrymark that pursued a and Life Sciences, Cornell University, Ithaca, New service model needed? counter-cyclical, diversified portfolio NY. October, 2002. Rethinking conventional notions of had to spend considerable attention Refrigerated & Frozen Foods, May 2002 service means that some demands managing the divergent commodity Vol. 13 (5), 16. ISSN: 1061-6152. made by farmers have to matter less cycles and any resulting complica- Fulton, Murray, “Traditional versus New than others. Some demands have to go tions in member relations. Their def- Generation Cooperatives,” in Merrett, by the wayside. The rules of the game inition of service was necessarily pro- Christopher D. and Norman Walzer, eds., have changed. ducer-driven. A Cooperative Approach to Local Economic The expectation that farmers will With specialized cooperatives, Development, Westport: Conn.: Quorum automatically be loyal to their coop- such as Gold Kist or AGP, the rela- Books: 2001. Hogeland, Julie A., “The Culture of eratives is no longer true. Someone tionship with the investment partner Cooperation,” Presentation to the Annual becomes paramount, whether the else may be cheaper. Someone else Meeting of the American Anthropological may have a better product. The cul- partner is another cooperative or a Association, November 24, 2002, New tural obligation — that cooperatives corporation, as they jointly develop Orleans, Louisiana. should go out of their way to provide their respective contribution to a Nourse, Edwin G, “The Place of the service to their farmer-members — value-added system. What becomes Cooperative in Our National Economy,” may no longer be valid. important in defining service is not Reprint from American Cooperation 1942 Farmland and Agway experienced what Farmer Joe wants, but what the to 1945. Journal of Agricultural Cooperation problems in part because their defini- customer wants. The definition of ser- 1992 Vol (7) 7:105-111. tion of service was so producer driven vice is market driven. Urban, Thomas. ”Agricultural Industrialization: It’s Inevitable.” The Best of that the overall health of the cooper- Choices— 1986-1996. (Reprinted from ative became secondary. Re-evaluating Nourse Fourth Qtr. 1991, pp. 70-72). Ames, Iowa: For the local cooperatives that are The cultural model of Nourse’s American Agricultural Economics Assn., members of Ag Processing Inc. (AGP), competitive yardstick was a negative 1996.

Rural Cooperatives / January/February 2004 27 Farmer cooperative sales, income fall in 2002

By Eldon Eversull, Ag Economist tinued to be a major employer in rural meaning that most of their sales are USDA Rural Development/RBS areas, with 166,000 full-time workers from the prior year while farm produc- and 54,000 part-time and seasonal tion trends are based on calendar espite sales gains in the workers. years. Further, many cooperatives sell livestock and cotton sec- U.S. farmers overall had increased value-added products that do not nec- tors, final sales data for sales of products that they produced in essarily reflect raw commodity prices. D 2002 shows that net 2002, but many farmer-owned cooper- Cooperative marketings declined in business volume for the atives experienced lower sales and all sectors in 2002, except for livestock nation’s 3,140 farmer-owned coopera- incomes. There are a number of rea- and poultry, which increased $600 mil- tives fell to $96.8 billion, with a net sons why cooperative sales and income lion (4.5 percent), and cotton, which income of $1.21 billion. With assets do not strictly follow national farm climbed $100 million (2.5 percent). totaling $47 billion and almost $20 bil- trends. The fiscal year for about half of Low milk prices caused dairy co-op lion in equity, farmer cooperatives con- cooperatives ends in June or earlier, sales to drop while several larger fruit

Table 1–Farmer cooperatives’ net business volume1, 2002 and 20012

Commodity or function 2002 2001 Commodity or function 2002 2001 Million dollars Million dollars Products marketed Supplies sold Cotton 2,461 2,400 Crop protectants 2,713 2,957 Dairy 23,038 26,187 Feed 5,373 3,998 Fruits and vegetables 7,338 8,822 Fertilizer 4,315 4,966 Grains and oilseeds3 17,474 18,055 Petroleum 7,157 8,446 Livestock and poultry 12,304 11,776 Seed 1,086 1,051 Rice 748 756 Other supplies5 3,035 3,338 Sugar 2,440 2,648 Other products4 3,852 4,398 Total supplies sold 23,679 24,756

Total products marketed 69,656 75,042 Related-services and other income6 3,416 3,471

Total 96,750 103,269

1 Excludes inter-cooperative business. Volume includes value of products associated with cooperatives that operate on a commission basis or bargain for members’ products. 2 Preliminary. Totals may not add due to rounding. 3 Excludes cottonseed. 4 Includes dry edible beans and peas, fish, nuts, tobacco, wool, and other miscellaneous products. 5 Includes building materials, containers, hardware, tires-batteries-auto accessories (TBA), farm machinery and equipment, food, and other supplies. 6 Includes receipts from trucking, ginning, storage, artificial insemination, rice drying, and other activities as well as other income.

28 January/February 2004 / Rural Cooperatives and vegetable co-ops had much lower stock marketing (including value-added 3,229 in 2001 and 3,346 in 2000. The sales. Overall, almost all of the decline goods), farm supplies and farm services. main causes were mergers, consolida- in sales occurred on the marketing side, Several types of marketing coopera- tions, acquisitions and dissolutions. falling about 7.2 percent from 2001. tives bucked the downward trend, Memberships in farmer coopera- Net business volume includes reporting higher net income in 2002. tives totaled 2.8 million in 2002, down receipts from the sale of crops, live- After posting almost no income in from 3 million in 2001. The number stock and value-added products mar- 2001, rice cooperatives were back to keted by cooperatives, as well as farm historically high levels, with net income production supplies sold and services of $6.6 million. Cotton cooperatives’ Several types of co-ops provided by cooperatives. It does not net income almost tripled from 2001, to include sales between cooperatives. $89.6 million, while grain and oilseed bucked the downward Farm production supply sales fell cooperatives had a 4-percent increase. trend… 4.4 percent due to large decreases in Farmer-owned cooperatives had petroleum and fertilizer sales. On the combined assets of $47.5 billion in plus side, livestock feed and seed sales 2002, and net worth of $19.6 billion. of memberships is larger than the both increased, with feed sales growing Cooperatives financed about the same number of farmers in the United by $1.4 billion. percentage of assets with debt capital States because many farmers belong to Net income for cooperatives fell (58.7 percent in 2002 vs. 58.4 in 2001) more than one cooperative. from $1.4 billion to $1.2 billion. Sales rather than equity. Co-op data is generated by USDA were lower in each of the three primary The number of cooperatives Rural Development’s annual survey of sectors USDA tracks: crop and live- declined to 3,140 in 2002, down from cooperatives. ■

Table 2–Farmer cooperatives’ Table 3–Farmer cooperative net income1, 2002 and 20012 numbers and memberships, 20021 Cooperative type 2002 2001 Cooperative type Cooperatives2 Memberships Million dollars Number Thousand Marketing Marketing Cotton 89.6 33.4 Cotton3 14 43 Dairy 283.6 364.2 Dairy 198 82 Fruits and vegetables -147.8 76.6 Fruits and vegetables 212 33 Grains and oilseeds 258.7 248.8 Grains and oilseeds 768 542 Livestock and poultry 69.1 -67.3 Livestock and poultry 85 120 Rice 6.6 0.1 Rice 15 12 Sugar 71.2 -23.2 Sugar 48 14 Other products3 131.8 176.8 Other products4 219 203

Total marketing 762.7 809.5 Total marketing 1,559 1,049

Total farm supply 337.8 429.0 Total farm supply 1,201 1,637

Total related-service4 109.1 118.4 Total related-service5 380 107

Total 1,209.6 1,356.9 Total 3,140 2,794

1 Preliminary. Totals may not add due to rounding. 2 1 Preliminary. Totals may not add due to rounding. Operations of many cooperatives are multi-product and multi-function- al. They are classified in most cases according to predominant com- 2 Net income less losses and before income taxes. modity or function as indicated by business volume. 3 Includes dry edible bean and pea, nut, tobacco, wool, fish, 3 Cooperative cotton gins are included with related-service coopera- and other product marketing cooperatives. tives. 4 Includes dry edible bean and pea, nut, tobacco, wool, fish, and other 4 Includes trucking, ginning, storage, artificial insemination, product marketing cooperatives. and other. 5 Includes cooperatives that primarily provide trucking, ginning, storage, artificial insemination and other.

Rural Cooperatives / January/February 2004 29 MANAGEMENT TIP How is your co-op doing? Tables give local co-ops a chance to compare their performance to national averages

Beverly L. Rotan, Economist cooperatives with similar functions? Comparisons with other USDA Rural Development/RBS cooperatives may help to determine whether your cooperative e-mail: [email protected] is doing well or poorly. These include trend and industry norm comparisons. he past year saw cooperatives struggle with eco- The two tables on these pages contain average financial nomic downturns for many commodities and data compiled from a survey of 263 cooperatives for 2001 bad weather in some regions, among other chal- and 2002. Fill in the blanks and compare these benchmarks T with your cooperative’s financial data. How’s your coopera- lenges. Financially, has your cooperative fared ■ better, about the same or worse compared to tive doing?

Compare your farm supply cooperative1 with averages for cooperatives with similar functions. Size (2001) 2, 3 Size (2002) 2, 3 Your Measure/Item Unit Small Med. Large Super Small Medi. Large Super coop

Sell farm supplies only Number 72 31 24 10 72 31 24 10 ______Total assets Mil. dol. 1.6 4.0 7.6 14.2 1.9 4.1 8.0 15.4 ______Long-term debt Thou. dol. 77.6 272.6 627.9 2,150.3 95.2 366.4 687.4 2,711.6 ______Total liabilities Thou. dol. 450.0 1,458.0 2,852.0 6,001.0 544.0 1,453.7 3,180.1 7,183.5 ______Total sales Mil. dol. 2.6 6.7 13.7 28.0 2.9 6.8 13.2 26.5 ______Total service revenue Thou. dol. 80.4 214.5 224.6 631.7 84.8 240.6 191.8 632.1 ______Total revenue Mil. dol. 2.7 7.0 14.2 29.3 2.9 7.3 13.7 27.6 ______Net income (losses) Thou. dol. 40.4 169.6 373.9 607.1 40.1 199.4 380.0 155.4 ______Labor of total expenses Percent 54 52 55 51 55 52 55 52 ______Patronage refunds received Thou. dol. 26.1 65.3 107.8 272.5 43.2 104.4 245.9 474.5 ______Liquidity ratios Current Ratio 2.24 1.60 1.42 1.30 1.95 1.67 1.38 1.40 ______Quick Ratio 1.14 0.93 0.79 0.65 0.97 0.92 0.78 0.78 ______Leverage ratios Debt Ratio 0.26 0.35 0.38 0.46 0.29 0.35 0.40 0.47 ______Debt-to-equity Ratio 0.34 0.54 0.62 0.85 0.41 0.55 0.66 0.87 ______Times interest earned Ratio 4.68 4.17 3.79 2.10 3.21 5.96 6.99 1.59 ______Activity ratios Fixed asset turnover Ratio 8.15 5.97 5.94 5.91 7.42 5.85 5.83 5.60 ______Total asset turnover Ratio 1.57 1.54 1.75 1.88 1.47 1.66 1.65 1.72 ______Profitability ratio Gross profit margins Percent 16.57 16.78 18.47 15.75 17.52 16.63 20.29 17.97 ______Return on total assets before interest and taxes Percent 4.19 5.51 5.73 4.90 3.32 6.25 6.25 2.93 ______Return on total equity Percent 5.43 8.04 8.39 5.70 3.94 10.32 10.58 2.35 ______

1100 percent of sales were generated from farm supply sales. 2 Small = Sales are $5 million or less; medium = over $5 million to $10 million; large = over $10 mil- lion to $20 million; and super = over $20 million. 3 There were 294 cooperatives surveyed in both years.

30 January/February 2004 / Rural Cooperatives Compare your mixed farm supply cooperative1 with averages for cooperatives with similar functions. Size (2001) 2, 3 Size (2002) 2, 3 Your Measure/Item Unit Small Med. Large Super Small Medi. Large Super coop

Market farm products and sell farm supplies Number 11 8 20 18 11 8 20 18 ______Total assets Mil. dol. 1.4 4.2 7.9 20.0 1.6 4.2 8.4 23.4 ______Long-term debt Thou. dol. 70.6 455.2 934.3 2,856.7 30.6 405.3 902.7 3,909.0 ______Total liabilities Thou. dol. 465.7 1,661.9 3,254.8 9,776.0 410.7 1,443.2 3,444.1 12,342.3 ______Total sales Mil. dol. 2.8 7.1 13.5 38.0 3.3 7.1 13.1 38.9 ______Total service revenue Thou. dol. 123.0 298.9 555.6 1,455.1 125.3 350.7 634.6 1,788.7 ______Total revenue Mil. dol. 3.0 7.7 14.2 40.2 3.5 7.7 14.0 41.5 ______Net income (losses) Thou. dol. 26.8 141.8 293.4 628.6 9.2 -9.7 311.8 473.5 ______Labor of total expenses Percent 51 52 51 50 53 47 51 51 ______Patronage refunds received Thou. dol. 25.7 54.2 161.3 309.7 27.3 94.8 192.4 474.5 ______Liquidity ratios Current Ratio 1.94 1.35 1.34 1.33 2.68 1.77 1.39 1.33 ______Quick Ratio 1.02 0.64 0.74 0.66 1.72 0.86 0.74 0.67 ______Leverage ratios Debt Ratio 0.33 0.40 0.41 0.49 0.25 0.34 0.41 0.53 ______Debt to equity Ratio 0.50 0.66 0.71 0.96 0.33 0.52 0.69 1.12 ______Times interest earned Ratio 3.15 3.07 2.99 2.47 2.16 2.13 4.47 2.36 ______Activity ratios Fixed asset turnover Ratio 10.68 5.77 5.77 6.51 9.17 5.76 5.72 5.83 ______Total asset turnover Ratio 2.02 1.71 1.71 1.90 2.00 1.69 1.55 1.66 ______Profitability ratio Gross profit margins Percent 13.14 14.15 15.76 15.50 14.18 14.04 15.60 14.72 ______Return on total assets before interest and taxes Percent 3.49 5.46 6.04 6.02 1.30 2.29 4.96 4.06 ______Return on total equity Percent 3.92 7.82 8.65 8.56 1.05 -0.43 8.45 6.08 ______

150 to 99 percent of sales were generated from farm supply sales. 2Small = Sales are $5 million or less; medium = over $5 million to $10 million; large = over $10 million to $20 million; and super = over $20 million. 3There were 294 cooperatives surveyed in both years.

African ag co-ops leading fight against HIV/AIDS continued from page 15 which today has 100,000 members. women are joining NASFAM and they opment organizations. The rural popu- NASFAM is using its well-honed out- will be able to benefit from this life-sav- lations of nations hard-hit by reach capacity to spread information ing information. HIV/AIDS are critical to this effort, regarding HIV/AIDS. Issues related to It has been said that the best existing both because they constitute a vital food the disease are discussed at general vaccine for HIV/AIDS may be empow- production resource and because — if meetings, and labor-saving farming ering women. UNAIDS estimates that their means of livelihood is undermined techniques are promoted to counteract infection rates among young women in — migration to already overstressed family labor losses. Africa are three to five times higher than cities may result. Each issue of NASFAM’s monthly among men in the same age group. Cooperatives represent a ready- newsletter, “Titukulane,” devotes a page Mounting HIV/AIDS programs that made, proven conduit to hard-to- to HIV/AIDS, arming local groups with effectively reach rural people will reach rural people as well as a means accurate information and encouraging require long-term, results-based cooper- to communicate their needs back to them to abstain from risky sexual behav- ation between the health and agriculture government, civil service agencies, ior and to help infected group members sectors in developing countries, and community organizations and others with their farming enterprises. More within and among international devel- that serve them. ■

Rural Cooperatives / January/February 2004 31 NEWSLINE Compiled by Patrick Duffey

Trio being inducted into Cooperative Hall of Fame

A trio of outstanding cooperative leaders will be fund-raiser and teacher. Under his leadership, the federa- inducted into the Cooperative Hall of Fame this spring. tion has been the primary organization representing black Honorees are Henry Schriver, Ohio farmer and coopera- farmers and fighting their precipitous decline in farm tive educator, who has motivated thousands of young ownership and independence. farmers in speeches and workshops to become active in Among the federation’s accomplishments under his cooperatives; Ralph Paige, executive director, Federation leadership: more than 200 units of low-income housing of Southern Cooperatives/Land Assistance Fund, and developed; 18 community credit unions formed; 75 coop- Allen Thurgood, founder and CEO of 1st Rochdale eratives started; and the federation’s rural training center Cooperative. at Epes, Ala., was opened. He has put the federation at the The award, the most prestigious in the cooperative center of national advocacy and legislative battles for pub- community, is a tribute to the inductees’ outstanding lic policy affecting farmers. He made the federation’s efforts on behalf of cooperatives. The presentations will model and cooperative development expertise available to be made April 28 at the National Press Club in international audiences. Washington, D.C. Thurgood has a well-earned reputation at the state and Schriver is a true believer of the cooperative model national level as an effective consumer advocate, commu- whose career as an active volunteer in local farm credit, nity activist and government advisor. His clear, pragmatic farm supply and dairy cooperatives spans 61 years. understanding of the cooperative model helped him bring Schriver left his mark as an exceptional volunteer, educa- cooperative solutions to areas such as housing, health care, tor and advocate. Not only has he been a teacher of coop- banking, issues of aging and energy. He led the metropoli- erative principles, but he also has been a motivator who tan New York cooperative housing community as execu- has brought many people into cooperative organizations. tive director of Cooperative Housing Services and as His success in teaching the basic principles of coopera- coordinator of the Coordinating Council of Greater New tives, which spans more than 40 years, can be measured York. He formed a powerful coalition of diverse commu- by the number of young farmers he has motivated to get nity housing cooperatives that have effectively worked involved in cooperatives in more than 3,000 speeches and together to address the common concerns of more than participation in numerous workshops sponsored by 500,000 New York families. farmer cooperatives, youth organizations and other farm He helped secure passage of federal legislation to clari- groups. His cooperative legacy includes raising a family fy IRS code exemptions for housing cooperatives and he of true co-op believers. Six of his sons are currently farm- played an important role in securing the funding for ing and serving as members of a variety of cooperative Naturally Occurring Retirement Communities that allow organizations. seniors to age in place. He led the New York community Paige has dedicated his life’s work to proving that coop- in its advocacy on behalf of credit unions as they compet- eratives can be used to enhance incomes and improve ed with the commercial banking industry. And as New quality of life for black family farmers and rural, low- York restructured its electric utility industry in the 1990s, income families. Never deterred by scarcity of resources Thurgood developed 1st Rochdale as the nation’s first or organized resistance, he has been a tireless advocate, metropolitan electric utility cooperative.

32 January/February 2004 / Rural Cooperatives Record growth for bers with a full range of animal health business, initiation of federally man- Organic Valley issues and provide special guidance to dated upgrades to reduce sulfur con- Producing organic new organic farmers who are just tent in fuels and emissions produced at farm products and learning new herd health strate- its refinery at Laurel, Mont., and marketing them gies. Detloff is a leading author- opening grain shuttle facilities at through a coopera- ity on botanical, homeopathic Friona, Texas, and Collins, Miss., to tive can help farmers and alternative animal treatment reach livestock and poultry producers. earn 60 percent more methods and the author of four Other highlights included completion and buck the trend that is driving 330 books, including his newest, “Alternative of a soybean processing plant at farmers out of business every week, Treatments for the Ruminants.” Fairmont, Minn., and repositioning according to the George Siemon of Organic Valley Family of Farms, at La Farge, Wis. The co-op had record sales of $156 million in 2003, a 25-per- cent increase from 2002. It projects that 2004 sales will rise to $189 mil- lion. It paid its 633 members an aver- age $20.17 per hundredweight of milk in 2003, which far outpaced the national average price of $12.07 per hundredweight, Siemon noted. “Organic Valley’s goal is to plow our profits back into the earth and our rural communities,” Siemon says, adding that the co-op has been 100 percent farmer owned since its found- ing in 1988 and now produces 130 products labeled under USDA’s new organic standards. “Organic Valley never measures Sculptor Tom Paul Fitzgerald puts the finishing touches on a 330-pound butter cow, exhibited at the Michigan State Fair. The unsalted butter was churned at the Constantine plant of success in dollars alone,” says Pam Michigan Milk Producers Association. Fitzgerald, a contemporary art sculpture professor at Riesgraf, a co-op board member who Wayne State University, has sculpted 40 cows. Photo courtesy MMPA milks 60 cows and farms 250 acres with her husband, Jeff, near Jordan, Minn. “What counts for us is the number of CHS’ Mexican food business to gain farmers we’re able to keep on the land. CHS income down greater efficiencies and improved eco- This year’s total of 633 (members) is despite sales climb nomics while enhancing service to living proof that the Organic Valley “What we do reaches far beyond food service and other customers. model can be a lifeline.” the farmgate, grain elevator, refinery Organic Valley, which built a $4 and food production plant,” CHS Western Sugar plans million, 45,000-square-foot barn- President and CEO John Johnson told new $3.5 million diffuser shaped headquarters in 2003, says shareholders attending the St. Paul Western Sugar Cooperative has major product accomplishments this cooperative’s annual meeting in announced plans to install a $3.5 mil- year include: the introduction of its December. While CHS net income of lion diffuser at its processing plant in Omega 3 organic eggs, winning the $123.8 million was down from $126.1 Billings, Mont. The new tower is prize for best salted butter at the million in 2002, sales were up signifi- expected to save the cooperative on World Dairy Expo, the introduction cantly from $7.2 billion to $9.3 billion energy costs by more efficiently of 11-ounce plain or chocolate single- in fiscal 203. During fiscal 2004, CHS extracting sugar from beets. The new serve reduced-fat milk in Holstein-pat- will return $56.2 million of its fiscal unit will replace the existing diffuser, terned packages and launching an edu- 2003 earnings to its members and installed in 1955. The improvement is cational organic foods Website, other investors in the form of cash scheduled for February, after the sugar www.moomom.com, among others. patronage, equity redemptions and beet harvest. The co-op also has added a veterinar- preferred stock dividends. Meanwhile, grower payments total- ian to its services staff. Paul Detloff, Highlights for the year showed ing $21.5 million for the 2002 crop and DVM, will assist the cooperative’s mem- growth in the CENEX brand energy averaging nearly $40 a ton were mailed

Rural Cooperatives / January/February 2004 33 in December to the cooperative’s 1,300 percent interest from its partners in challenges facing the dairy federation: members in four western states. It was Sinton Dairy, Colorado Springs, Colo., how to use dairy ingredients for the the highest gross payment made to and subsequently sold its entire inter- benefit of farmers and how to serve farmers in the past five years. est to National Dairy Holdings producers of every farm size. (NDH) LP of Dallas, in which DFA Swiss Valley picks pair has an ownership interest and supply Riceland buys ADM to replace CEO Quast contract. An $8 million expansion was share of grain venture The board of Swiss Valley Farms at completed last spring at Sinton. The Riceland Foods of Stuttgart, Ark., has Davenport, Iowa, has tapped a pair 232-employee workforce may be gained full control of a grain milling and from its management team to lead the expanded if NDH decides to shift pro- storage partnership with Archer Daniels cooperative during the interim until a duction to the plant. NDH now oper- Midland (ADM). The ADM-Riceland replacement is found for CEO Gene ates 32 plants in 15 states. Partnership, a nine-year-old venture, Quast, who resigned in late October to In another move, DFA is partnering processes rice and rice products. pursue other interests. In his place, the with Glanbia PLC of Ireland and its Riceland President Richard Bell said the board has chosen J. Gordon Toyne, cooperative partners in the Greater firms had “different missions and inter- vice president of membership and pro- Southwest Agency in a $170 million ests and concluded the assets in the curement, and Donald Boelens, chief cheese processing plant in Clovis, N.M. partnership more nearly fit the continu- financial officer, to jointly act as the The plant will employ about 200 peo- ing interests of Riceland.” He said the office of interim chief executive officer. ple. Operations should begin in the sec- purchase will be financed from working Gerald Bratland, board president, ond half of 2005. The plant will benefit capital, with no material impact on the said the pair had the board’s “full confi- from low milk transportation costs, cooperative’s balance sheet. Since its dence and support to move the compa- since many of the producers operate in inception, the partnership has operated ny forward. Jobs are secure and the co- a 50- to-60-mile radius of the future rice milling and grain storage facilities at op’s leadership is strong and experienced plant. Other cooperatives in the Stuttgart and Jonesboro, Ark., and and positioned for new opportunities.” Greater Southwest Agency are Select Crowley, La. Riceland intends to con- The cooperative serves 1,400 dairy-pro- Milk Producers Inc., Lone Star Milk tinue those operations. ducer members operating in five Producers Inc. and Zia Milk Producers Midwest states. It has 700 employees Inc. Select Milk was formed in 1994 by Premium Pork plans and annual sales of about $550 million. a group of dairies in New Mexico and plant in Missouri Meanwhile, dairy industry condi- has since added others in west Texas. Pork producers of the Premium tions have forced the cooperative to Pork cooperative plan to build a $130 extend revolving members’ equity from Tom Camerlo million processing plant at St. Joseph, a seven-year to a 10-year schedule. Dairyman of Year; Mo. The plant would be built in the The change is for allocated earnings Beckendorf to lead city’s stockyards area and eventually only, not the Swiss Valley Farms NMPF employ about 1,000 people. Chief revolving fund paid in December. Co- Dairy Farmers of Executive Officer Rich Hoffman antic- op leaders note that Swiss Valley still America (DFA) ipates that construction would begin has one of the fastest member equity Chairman Tom this spring. Members of the coopera- revolvements in the dairy industry and Tom Camerlo Camerlo Jr., a dairy tive claim to own 5 percent of the one of the strongest marketing arms in farmer from nation’s pork supply. While members the upper Midwest. Florence, Colo., was named 2003 will continue to own their individual dairyman of the year at the World farms, genetics and nutrition will be DFA allocates $28 million; Dairy Expo at Madison, Wis. “Those coordinated by the cooperative to pro- plans N.M. cheese plant who initiate change and lead us in duce a uniform pork product. For the fifth consecutive year, mem- uncertain times inspire us and guaran- One of the members is Allied bers of Dairy Farmers of America tee a bright future in the dairy indus- Producers Cooperative, which repre- (DFA), Kansas City, Mo., are sharing try,” Expo Manager Tom McKittrick sents small- and medium- sized farms patronage allocations totaling $28 mil- said of Camerlo. Camerlo recently in Nebraska, Kansas and Missouri. lion, including $7 million in cash. The stepped down as president of the The cooperative had been looking to payout represents 8 cents per hundred- National Milk Producers Federation in invest in a processing center for the weight of milk on 35 billion pounds Washington, D.C., to concentrate his past few years. Allied Producers will marketed in 2002. DFA annually mar- attention on DFA. Charles Beckendorf be represented on the new board by kets and processes milk for more than of Tomball, Texas, also of DFA, was Gerald Schmidt of Jansen, Neb. 24,000 dairy farm families in 48 states. elected by NMPF delegates to succeed Members have committed 435,000 Meanwhile, DFA has purchased 50 Camerlo. Beckendorf cited two major hogs to the venture.

34 January/February 2004 / Rural Cooperatives Sun-Maid buys raisin revert back to the parent companies. fresh produce market as the Syracuse facility in Selma No decision has been made on jointly cooperative spins off segments of its The city manager of Selma, Calif., owned facilities at Joy and Pekin, Ill. operation to satisfy creditors lined up has welcomed Sun-Maid Growers back AGRI’s share of the profits have since it sought Chapter 11 bankrupt- to the community after it purchased accounted for 50 to 75 percent of the cy court protection last year to cover the former International Raisins prop- cooperative’s total annual net income. $1.5 billion in liabilities.. The bank- erty. Sun Maid owned the facility near- Chief Executive Officer Jerry Van ruptcy court at Utica, N.Y., had ly 60 years ago. It will be used to Der Kamp says the decision was granted the cooperative until Jan. 25 receive, store and inspect the coopera- prompted by the changing nature of to have its reorganization plan tive’s raisins harvested this season. the grain trade. Farmers are now sell- approved. The facility has the capacity to store ing grain and soybean directly to feed Agway signed a deal to sell its 10,000 tons of raisins. It will employ mills and ethanol plants, bypassing Agway Energy Products LLC assets about 20 seasonal workers. Sun Maid grain elevators that had been their to Suburban Propane Partners for President Barry Kriebel said the coop- traditional market. $206 million from which Agway will erative considered building a new facil- net about $175 million. The energy ity but found purchasing the Selma Chippewa Valley’s Lee heads subsidiary served 500,000 customers, property for nearly $1 million more Renewable Fuels Association employed about 1,800 people, and cost effective. The raisin cooperative Bill Lee, general manager of the produced annual sales of $500 mil- now owns three plants, including its Chippewa Valley Ethanol Co., a lion. The cooperative is selling its 130-acre processing plant at Kingsford, farmer-owned ethanol cooperative Country Best Produce and Country its headquarters. organized in 1993 at Benson, Minn., Best Adams Divisions to AMPCO was elected chairman of the 30-mem- Distribution Services LLC for $8.3 AGRI Industries to end ber board of Renewable Fuels million. The business had 223 grain pact with Cargill Association (RFA) at its recent annual employees and its sale should net AGRI Grain Marketing, a joint meeting in Washington, D.C. RFA Agway $7.6 million. Meanwhile, the venture of 17 years standing between President Bob Dinneen said Lee’s elec- Syracuse cooperative received a bid AGRI Industries of West Des Moines, tion “is a reflection of the evolution of of about $6.7 million from NSM Iowa, and Cargill Inc., is being termi- the ethanol industry. It has added 20 Feed of East Middlebury, Vt., for nated as of March 1, 2004. The ven- plants and more than a billion gallons its Feed Commodities International ture has 30 employees who handle of production in just the past three division. grain trading, accounting and logistics years. Most of that growth has been in and another 80 working at 11 grain farmer-owned ethanol plants, bringing LOL member promotes handling facilities in Iowa, Illinois and jobs and economic development to farmer-to-farmer aid Wisconsin. AGRI Industries also rural America.” “Global leaders may sit around tables serves producers in Minnesota and and discuss peace, but farmers helping Nebraska. The three terminals origi- Agway seeks court OK farmers will build peace, because farm- nally owned by AGRI Industries – in to sell produce business ers know that peace doesn’t have a Burlington, McGregor and Fulton, Ill. The Agway name continues to fade chance where people are hungry.” That — and Cargill’s seven terminals will from the Northeast farm supply and was Pete Kappelman’s message at a

Commentary continued from page 2 with Opportunities Industrialization taught about cooperative organization nations adopt Western-style coopera- Centers International, include: techni- and methods. These efforts and simi- tive business structures that raise cal assistance and education work with lar work done recently in Senegal farm incomes, we will build stronger rice, fruit and vegetable cooperatives; have involved a wide range of public- trading partners and related econom- organizing new cassava cooperatives; and private-sector partners, many of ic relationships. Cooperatives also and curriculum development and which have been named above, plus help export that most fundamental of design and information technology- the U.S. Peace Corps, the Federation all American values: democracy in capacity building with the Cooperative of Southern Cooperatives, CLUSA action. College in Kumasi, the sole institution and USAID. of higher learning in Ghana dedicated What are the benefits emanating By James Haskell, to cooperative education. Ghana’s from such international work with Acting Deputy Administrator extension personnel are also being cooperatives? By helping developing Rural Business-Cooperative Service

Rural Cooperatives / January/February 2004 35 recent press conference in Washington, Established in May by President D.C., held to showcase the efforts of George W. Bush, Volunteers for the Volunteers for Peace program of Prosperity is a new volunteer-based the U.S. Agency for International initiative designed to support major Development (USAID). U.S. development initiatives overseas, Kappelman, a dairy producer from using the talents of highly skilled Two Rivers, Wis., and vice chair of the Americans who work with U.S. orga- board of directors of Minnesota-based nizations in helping to promote health Land O’Lakes, discussed his trip to and generate prosperity in countries Malawi in sub-Saharan Africa. He around the world. worked there on a USAID-funded project designed to foster individual NCRA invests $340 million family dairy production and coopera- to settle clean air suit tive marketing of their milk to provide National Cooperative Refinery better nutrition for families and to Association (NCRA) will invest $340 stimulate economic development for million to install pollution-control LOL Dairyman Pete Kappelman, left, and their communities. equipment at its refinery at “The Volunteers for Prosperity ini- Ernest Bethe, LOL ABCI, right, are joined by Malawi associates including the man- McPherson, Kan. The environmental tiative will allow Americans to play an ager (yellow headband), chairman of the enhancements will be completed with- expanded role in assisting people in board (top right), and Austin Ngwira, LOL in two years. The cooperative opted developing countries, and give Land Malawi country coordinator (top left) at for the pollution controls to settle law- O’Lakes the opportunity to send more the milk bulk cooperative. (LOL Photo) suits with the Environmental of its farmers and employees on volun- Protection Agency (EPA) and the teer assignments that build the food- opportunity for concerned and dedi- Kansas Department of Health and producing capacities of those nations,” cated American professionals to help Environment. The settlement included Kappelman said. meet people’s basic needs and lay the a $350,000 fine. The investments were “Volunteers for Prosperity is a vehi- foundation required for peace to exist,” part of the cooperative’s clean fuels cle for practical action. It facilitates the he said. modernization project aimed at meet-

USDA helps Michigan sugarbeet growers purchase processing plant continued from page 10

Imperial, because of the bankruptcy but $2.44 per ton (approximately 7 CEO offered to lower the purchase and the uncertainty of receiving the percent of the total value) owed them price by $20 million (making the new balance of payment for the 2000 crop. for the 2000 crop. price $63.5 million) and to finance A sugar company without sugarbeets In June of 2001, a co-op stock offer the transaction. This was exactly loses value fast. With the real possibili- was made to area growers for $200 per what the cooperative needed and the ty of not having beets to process, the share. Each share required, and share offering became over sub- new cooperative was able to negotiate allowed, one acre of sugarbeets to be scribed. The purchase was completed the letter of intent with four separate delivered to the cooperative. on Feb. 12, 2002. agreements and a lease agreement in That same month, the cooperative The first year under cooperative the event the purchase could not be received approval of a $5 million loan ownership, Michigan Sugar Co. pro- completed by harvest time. The nego- from the state of Michigan, at no duced a record amount of sugar — tiated purchase price was $83.5 million interest, for five years, to be used for over 630 million pounds. The 2003 and the agreements were approved by the purchase of the company. In crop that has just been harvested is the bankruptcy court. August, a $500,000 matching funds also an excellent crop. The cooperative successfully con- grant was approved by USDA Rural Michigan Sugar Company pro- tracted growers to produce the 2001 Development for use of startup oper- vides over 350 full-time jobs and crop. After the contracting was com- ating expenses. 1,000 seasonal jobs. The company pleted (114,000 acres), Imperial The sale of shares was progressing adds $180 million to the Michigan informed the cooperative that it could slowly and the cooperative was hav- economy. not continue to run Michigan Sugar, ing trouble raising capital for the The grower-owners and employees rebuild the factories and pay the grow- purchase. Imperial Sugar changed of Michigan Sugar Co. are proud to ers the remaining balance owed them chief executive officers and the new produce pure and natural Pioneer® for the 2000 crop. Agreements were CEO wanted to sell Michigan Sugar. Sugar with only 15 calories per tea- finalized and the growers were paid all In a meeting in October, the new spoon. ■

36 January/February 2004 / Rural Cooperatives ing EPA standards for low-sulfur fuels. USDA, NRECA seek to standards development and education Harmful air emissions will be reduced boost renewable energy use in communities served by rural coop- by more than 3,000 tons a year. Agriculture Secretary Ann Veneman eratives. The goal is to increase the use Another $1.5 million will be spent has singed a memorandum of under- of renewable resources to generate to clean up an underground water standing between USDA and the electricity. contamination zone south and east of National Rural Electric Cooperative NRECA will help co-ops to increase McPherson. NCRA officials spotted Association (NRECA) to identify and the use of renewable energy, including trouble after an audit in 2000 and dis- advance voluntary opportunities for biomass gasification power plants, closed its findings to the environmen- rural electric cooperatives to partner waste-to-energy systems and wind and tal agencies. The inter-regional coop- with farmers and ranchers to reduce solar power. It will continue research erative is owned by, and provides greenhouse gas emissions. The agree- and development of new technologies petroleum supplies to, CHS Inc., ment emphasizes the potential for pub- and will explore ways to integrate GROWMARK Inc. and MFA Oil Inc. lic-private cooperation in research, renewable electricity into the grid.

Meeting the test continued from page 19 installing a lighting system for a local potential problems. When Adams Even minor items, such as exit high school’s soccer field. crews are doing scans in the area, they signs, have come under scrutiny. The The co-op hasn’t limited its efforts stop by Beistle to check the plant’s company used to spend four hours a to its service area. It has a sister co-op, electrical junction boxes. week checking each one and replacing Coopelesca, in Costa Rica, to which it The biggest benefit Beistle enjoys burned-out light bulbs. At the sugges- donates engineering assistance and from being an Adams member, accord- tion of Adams staff, the signs were training. Adams also recently donated ing to Parr, is the help it receives in replaced with units that use light-emit- surplus maintenance vehicles to the keeping costs down. “They analyzed ting diodes (LEDs). These not only Costa Rican cooperative, as well as the our heating and air-conditioning needs last far longer, but also save the com- national electric company in and suggested a new work schedule to pany $1,000 worth of energy per year, Guatemala. minimize power usage at peak times. in addition to labor savings. At the time, we had a four-day, 10- “Most vendors encourage you to Promoting business, creating jobs hour work schedule. We tried their buy more from them,” says Beistle Despite growth in the Adams ser- suggestion, an eight-hour day ending president Tricia Lacy. “Adams encour- vice area, it is not heavily industrial- at 2:30 p.m.” ages us to save more money. They ized. However, outside the town of Management originally presented work with us to make us stronger. It’s Shippensburg stands a huge, 650,000- the new schedule to the employees as very much a partnership.” square-foot factory and warehouse an experiment. “They agreed to go that is home to the Beistle Company along with it because we’re a profit- Co-op members reap – the oldest and largest manufacturer sharing firm, and they benefit from $11 million patronage of paper party goods in the world. any money we can save,” says Parr. In part due to its load-management With a payroll of over 450 people, the After trying it for a while, the workers efforts, not only has the cooperative company is vital to the local economy. actually preferred the new hours. “A managed to keep power prices down, Ken Strayer, plant facilities superin- lot of our people are mothers with it has also returned more than $11 mil- tendent, and Ron Parr, assistant super- school-age children. Now they can be lion in patronage refunds to its 33,000 visor of the maintenance department, home with their kids after school. And members since 1991, including a record say the co-op goes beyond supplying we’re saving about $12,000 a year by $1.29 million in December 2002. power by providing energy efficiency avoiding peak power-demand periods.” Adams’s efforts to go the extra mile and safety advice. “I could not imagine The co-op also studied the plant’s for its members are repaid by loyalty a better relationship,” says Parr. “If we lighting requirements using a software and friendship. have a problem, they’re right here or program called Lighting Technology “People often go out of their way to on their way.” Screening Matrix (LTSM). The soft- stop by and chat, instead of dealing Strayer and Parr say a good exam- ware looks at each lighting fixture in a with us by mail or telephone,” says ple of how the co-op goes beyond sup- facility and suggests more economical Spahr. “And during the storm almost plying power is its energy-efficiency alternatives. As a result, plant manage- everybody was polite and considerate advice and safety services. Power utili- ment spent $140,000 to switch to more when they had to call in.” ties use infrared detectors to scan efficient lighting systems. The changes The co-op and its members have switches, lines, and other equipment paid for themselves in only two years, the kind of relationship most urban for hot spots, indicating faults or Strayer says. utilities can only dream about. ■

Rural Cooperatives / January/February 2004 37 PCCA net margins double USDA to provide $1 million in grants available to qualified public bodies or as co-op marks 50th year for rural home health care co-ops nonprofit-based community develop- It was a fitting USDA is providing $1 million in ment organizations. financial and market- grants to promote the establishment of Grants to assist in the funding and ing performance that rural home health care cooperatives. administering of a revolving loan pro- marked the 50th Deadline for applying for the grants, gram to provide start-up and operating anniversary of Plains provided under the Rural Community funds to newly created home-based Cotton Cooperative Development Initiative (RCDI), is health care cooperatives are available Association (PCCA) Feb. 13, 2004. The grants are to be to qualified public or nonprofit inter- at Lubbock, Texas. used for pre-development work or mediary organizations (including tribal Total net margins of $7.6 million for revolving loans. organizations). fiscal 2003 (ending June 30) more than “Creating a strong network of rural For revolving loan fund grants, doubled the 2002 performance. PCCA health care services is critical to recipients are required to obtain also distributed $15.2 million in cash improving the quality of life of families matching funds equal to the amount of patronage to its members. living in rural areas,” says Agriculture the USDA grant. Eligible applicants The increase stemmed from an Secretary Ann M. Veneman. “These must be located in rural areas with improved denim market for the co-op’s grants will support community-based populations of 50,000 or less. Funding textile division, record setting ware- efforts to establish home-based health of selected applicants will be contin- house division performances and good care cooperatives that will help meet gent upon meeting the conditions of overall marketing volume. PCCA local health care needs.” the grant agreement. President and CEO Van May said Pre-development grants to assist Detailed information about grant working capital increased, as did cooperatives with providing outreach requirements and information on how patron equities. “We had a tremendous to home-based health care providers, to apply is available in the Federal turnaround year in our textile division assessing local-level human service Register or by visiting USDA Rural and posted an overall net margin of provider needs and assisting with the Development’s Website at: more than $4 million while most of the organizing and implementation of a http://www.rurdev.usda.gov/rhs/redi/ industry struggled.” successful cooperative structure are ■

Agribusiness, co-ops awarded $28 million in USDA grants continued from page 11

Recipient Grant Amount Recipient Grant Amount Midwest Grain Processors, IA $ 150,000 Sequim Growers Cooperative, WA $ 85,084 Mountain States Lamb Cooperative, WY $ 200,000 Siskiyou Sustainable Cooperative, OR $ 18,875 National Trail Biodiesel Coop., IL $ 33,000 Southeast Nebraska Alternative Crops Association, NC Farm Bureau Foundation for Agriculture Nonstock Cooperative, Inc., NE $ 96,355 in the Classroom, NC $ 53,700 Soyex Cooperative, IA $ 149,000 Nebraska Turkey Growers Cooperative, NE $ 120,000 Stateline Bean Producers Cooperative, NE $ 500,000 Norpac Foods, Inc., OR $ 55,676 Sunrise County Wild Blueberry Ohio Premium Pine Cooperative, OH $ 78,950 Association, Inc., ME $ 5,000 Olive Growers Council, CA $ 148,250 Sunsweet Growers, CA $ 500,000 Organic Essentials, Inc., TX $ 450,000 Texas Aquaculture Cooperative, TX $ 245,000 Ozark Mountain Pork Cooperative, MO $ 420,000 Texas Hair Sheep Producers Coalition, TX $ 145,194 Palouse Grain Growers, Inc., WA $ 24,955 TOPC Texas, LLC, TX $ 249,500 Planters Cotton Oil Mill, Inc., AR $ 497,000 TransCon Ag, Inc., MO $ 332,119 Planter’s Grain Cooperative, TX $ 349,240 Two Rivers Grape and Wine Cooperative, IA $ 150,000 Premium Ag Products, LLC, MO $ 349,990 United Cooperative Farmers, Inc., MA $ 248,250 ProFac, NY $ 180,000 United Farmers Cooperative, NE $ 367,500 Progressive Producers Nonstock Upstate Farms, NY $ 20,000 Cooperative, NE $ 450,000 Ursa Farmers Co-op, IL $ 30,000 Purchase Area Aquaculture Cooperative, Inc., KY $ 139,700 Valley Fig Growers, CA $ 34,409 Santa Fe Family Farmers Cooperative, NM $ 51,510 West Bend Elevator, IA $ 30,500 Schoharie Co. Coop. Dairies, Inc., NY $ 15,000 West Central Cooperative, IA $ 140,000 Seafood Producers Cooperative, WA $ 48,000 Western United Dairymen, CA $ 299,871

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