conditions changing market ways toadjust Co-ops finding new ways: New days, conditions changing market ways toadjust Co-ops finding new ways: New days, Rural COOPERA COOPERA SA/RrlDvlpet November/December2003 USDA /RuralDevelopment SA/RrlDvlpet November/December2003 USDA /RuralDevelopment TIVES TIVES COMMENTARY

Setting up the forms

Issues vital to the future of the could potentially lead to some loss of that successful ag marketing co-ops nation’s producer-owned cooperatives producer control to outside interests. in the future will increasingly be were closely examined during a hearing Similar differences of opinion exist involved in some stage of value-added conducted by the House Ag Commit- over whether the closely related issue processing of their members’ crops tee on Oct. 16 (see page 9). While no of CoBank’s charter should be expand- and livestock. But turning wheat into firm answers or course of action was ed so that it can finance a broader array pizza is a much more expensive decided upon, it was obvious that the of cooperatives, and even continue to undertaking than storing it and ship- state of the co-op sector is front and lend for a period of five years to some ping out of town in railcars, as Keith center on the agenda of the House Kisling, a wheat farmer from Ag Committee. As Rep. Charles Oklahoma, testified. How to help Stenholm said, this was not a day How to help producers get that needed capital for pouring concrete, but for set- while still keeping the operations ting up the forms. producers get needed under the control of farmers is the How those forms are filled dur- bottom line. ing coming months may well capital while still A number of questions were determine the future of the raised about whether existing finan- nation’s farmer cooperatives. All keeping the cial assistance programs at USDA those with a vested interest in could be better used by co-ops if cooperatives should monitor this operations under changes were made. Related sug- process and be prepared to provide gestion ranged from upping the their input. the control of farmers limits on USDA’s B&I loan guaran- Ultimately, the question appears tees to making changes that will to be not whether change is need- is the bottom line. increase use of our Co-op Stock ed, but how much change. Some Purchase Program. As Rural Devel- feel a minor tune-up will suffice, opment Under Secretary Thomas while others say an engine overhaul is non-cooperatives that convert to other Dorr pointed out, a major co-op pro- closer to the target. As you can read in business structures. gram review is being launched to eval- our coverage of the hearing, there is Clearly, Congress and the co-op uate these programs, which hopefully some strong feeling that the new state community have their work cut out for will lead to improvements. co-op laws in Minnesota and Wyoming them. The stakes are high: cooperatives Regardless of where you stand on go too far in broadening the co-op typically account for around $100 bil- this debate, we should all be encour- model, while others feel those are the lion in farm sales and they are often the aged to see the strong interest of type of changes needed to keep co-ops most important source of jobs and tax Congress in cooperatives and to alive and well in the 21st century. revenue in rural towns where every job know that Congressional leaders real- Much of the testimony related to and tax dollar is desperately needed. ize the crucial role co-ops play in the how a number of new generation coop- They provide quality, affordable sup- nation’s rural economy. One thing eratives—whose leaders are committed plies and services in rural areas where everyone seemed to agree on: if we to the concept of producer ownership they otherwise might not be available. take steps to strengthen producer- and control—have converted their Even those farmers who do not belong owned cooperatives, we also business structure to LLCs in order to to a cooperative benefit from their abil- strengthen the nation. secure tax benefits and outside equity ity to favorably impact prices and terms to invest in value-added efforts. Others of delivery and through their market James Haskell, warned that this outside equity comes expansion efforts. Acting Deputy Administrator with strings attached—strings that Most of the testimony underscored USDA Rural Business-Cooperative Service

2 November/December 2003 / Rural Cooperatives Rural November/DecemberCOOPERA.COOPERA 2003 TIVESTIVESVolume 70 Number 6

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 New days, new ways transaction of public business required by law of Co-ops, producers find many ways to prepare for the future the Department. Periodicals postage paid at By Robert Heuer Washington, DC. and additional mailing offices. Copies may be obtained from the Superintendent of Documents, Government Printing Office, Washington, 9 Congressional hearing focuses on possible need DC, 20402, at $21 per year. Postmaster: send address change to: Rural Cooperatives, USDA/RBS, Stop for more flexible co-op business model 3255, Wash., DC 20250-3255. By Dan Campbell

Mention in Rural COOPERATIVES of company and brand names does not signify endorsement over 14 Dismantling of Farmland continues; Smithfield other companies’ products and services. buying pork business Unless otherwise stated, contents of this publication By Patrick Duffey are not copyrighted and may be reprinted freely. For noncopyrighted articles, mention of source will be appreciated but is not required. 16 Survey results: public shows strong preference for doing business with cooperatives The United States Department of Agriculture (USDA) prohibits discrimination in all its programs and By Patrick Duffey activities on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual 17 Revenue, margins trend downward for nation’s orientation, and marital or family status. (Not all prohibited bases apply to all programs). Persons top 100 ag cooperatives with disabilities who require alternative means for By David Chesnick communication of program information (braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD). 21 Co-ops follow more than one path for

To file a complaint of discrimination, write USDA, nominating board candidates Director, Office of Civil Rights, Room 326-W, Whitten By Bruce J. Reynolds Building, 14th and Independence Avenue, SW, Washington, D.C. 20250-9410, or call (202) 720-5964 (voice or TDD). USDA is an equal opportunity 25 Seeking the best provider and employer. Director leadership: what does it take?

Ann Veneman, Secretary of Agriculture By Jim Wadsworth Thomas C. Dorr, Under Secretary, USDA Rural 26 Cooperative exports decline in 2001; bulk sales Development fall but continue to dominate sector John Rosso, Administrator, Rural Business- By Tracey L. Kennedy Cooperative Service

James Haskell, Acting Deputy Administrator, USDA Rural Business-Cooperative Service DEPARTMENTS Dan Campbell, Editor 2 COMMENTARY 20 VALUE-ADDED CORNER Vision Integrated Marketing/KOTA, Design 28 NEWSLINE Have a cooperative-related question? 34 2003 ARTICLE INDEX Call (202) 720-6483, or Fax (202) 720-4641, Information Director, On the Cover: This publication was printed with vegetable oil-based ink. Grain rolls in at Western Iowa Cooperative’s 600,000-bushel elevator, from where much of it will be shipped to California livestock operations. Learn more about how it and other cooperatives have restructured for success. United States Department of Agriculture Photo by Larry Laszlo

Rural Cooperatives / November/December 2003 3 New days, new ways Co-ops, producers find many ways to prepare for the future

A fast-changing competi- By Robert Heuer Many members were retired or near- tive landscape is forcing ing retirement and interested in see- tephen Longval knew his cooperatives large and ing the co-op’s assets sold so that they grandfather’s grain busi- could get their share of the proceeds. ness was struggling small to reinvent them- But Longval and others on the board S upstream in a changing selves. The farmer-owned felt that the majority wanted to keep farm economy, and he was the business going. determined to prevent it from dying. But business model, created 75 In 1995, Sloan saw an opportunity the Iowa farmer knew Sloan Coopera- years ago by the U.S. to market the co-op’s Iowa grain to tive couldn’t survive with a business plan California livestock operations. This devised in the 1930s. So Longval led the Congress, appears alive could be accomplished by tapping effort a few years ago to merge several and well, but may be in into the Union Pacific Railroad main local cooperatives, which then built a line that ran through town. But with railroad facility that allowed members to need of updating. Some only $15 million a year in annual sales, sell grain to distant markets. the co-op couldn’t afford the $6 mil- “Somebody has to do this business,” cooperative leaders say lion cost for a high-speed grain eleva- the 59-year-old Longval says. “Farm- policies regulating gover- tor and track linking the elevator to ers are best positioned to do it for the Union Pacific line. Nor could it themselves.” nance, capital formation hope to generate the grain volume to and structure need added justify such an investment. All of the Leading the way to change area’s local co-ops were facing similar A decade ago, Longval was elected flexibility to keep co-ops in limitations. Ultimately, they merged chairman of the 200-member Sloan step with a changing farm- to form Western Iowa Cooperative. Cooperative. For decades, the co-op CoBank, which finances coopera- operated an elevator that served a six- business environment. In tives nationwide, loaned Western Iowa square-mile area along Iowa’s western recent months, 60 federal $6 million—a sum representing 80 per- edge. Member-owners hauled shelled cent of the 1,200 members’ local equi- corn and soybeans to town where the legislators have joined the ty. The co-op built a $6 million agro- crops were sent to regional markets. Congressional Cooperative industrial complex that includes a In the 1970s, the membership voted 100-car rail-spur and a 600,000-bushel to replace the 40-year-old elevator with Caucus, which plans to elevator to load unit trains. a new one that they thought would explore legislative actions In 2002, the co-op generated $70 meet their needs for years to come. million in sales, providing members a However, as farms got bigger, individ- that can help farm co-ops 10- to15-cent per bushel premium for ual farmers invested in huge combines, shipping corn to the West Coast. With storage bins and semi-trailers. Eventu- evolve with the times. plans in the works to sell soybeans to ally, members were going to bypass the Mexico, Longval says, “We should sur- co-op, choosing instead to pocket the dleman. “We spent several years figuring vive for awhile.” nickel-per-bushel premium for hauling out what the cooperative could do for corn to an Omaha terminal and beans farmers that farmers can’t do for them- A state of flux to a Sioux City area processor. selves,” board chairman Longval recalls. Western Iowa Cooperative is far By the mid 1980s, the co-op was on Knowing their business was in jeop- from alone in having to deal with such the verge of becoming an unneeded mid- ardy, the board faced a tough decision. challenging issues. Cooperatives

4 November/December 2003 / Rural Cooperatives Jack Cronin (right), manager of Western Iowa Cooperative, and co-op member Stephen Longval check out the co-op’s new, $6 million agro-industrial complex, which includes a 100-car-rail spur. Longval led the effort to merge several local co-ops to make the new facility possible. Photo by Larry Laszlo. Inset: Stephen Longval’s grandfather, Ulric, and father, Harry, on the family’s Iowa farm, circa 1930s. All three generations of the family have been co-op members. Photo courtesy Longval family nationwide are looking for better ways Neighboring farmers formed small cooperative and bought the company. to serve their grower-owners. Mergers cooperatives. They, in turn, banded Designed to turn member-owners’ are on the rise. Successful businesses together to form regional cooperatives commodities into food products, the realize their “customers” include both that provided greater purchasing and American Crystal Sugar Cooperative farmers and consumers at faraway gro- marketing power. (ACSC) became what some say was the cery stores, as well as stakeholders Throughout the industrialization first “new generation co-op.” throughout the supply chain. To sur- era, most farmers and ranchers have Unlike a traditional co-op that vive, co-ops must find a niche in a specialized in producing high-volume, serves an unlimited number of mem- global agri-food sector that links pro- low-value commodities while other bers, ACSC is a closed co-op that sells ducers to suppliers, processors, distrib- businesses focused on processing and a limited number of shares. Each share utors and retailers. marketing. But increasing numbers of represents an obligation to deliver a Such realities were unimaginable in cooperatives are developing methods to unit of production to the co-op. By the 1920s and 1930s, when Congress capture a larger share of the consumer’s pooling resources to process and mar- enacted legislation to promote the food dollar. ket products, farmers turned a strug- formation of farmer-owned coopera- Co-op leaders say that collective gling beet factory into the United tives. The regulatory framework that action offers the means for farmers and States’ leading beet processor. governs the U.S. cooperative system ranchers to capitalize on the forces that “Farmers are still the guys at the today continues to cater to the small, are merging production, processing throttle,” Warner contends. “Slowly diversified farms that populated the and marketing functions. Questions are but surely, I think farmers are going to countryside 80 years ago. arising about how to provide coopera- gain further control over the process- Lawmakers exempted producer asso- tives with the latitude to stake their ing of food. Over time, the demand ciations from anti-trust regulations so claim in the new food delivery system. from end users for quality and value members could pool marketing activi- will drive food processing into the ties and, as a result, get better prices Producer control hands of raw commodity owners.” when buying and selling goods and ser- Several decades ago, North Dakotan Nowadays, Warner spends less time vices. To help ensure farmer control Mike Warner and fellow Red River raising crops and more time raising and equal influence for all members, Valley sugar beet growers were tired of awareness about the marketing clout of lawmakers required cooperatives to selling their commodities to a proces- closed co-ops. His 1996 speech made a generate the lion’s share of capital sor whose out-of-state owners refused keen impression on Kansas rancher internally (from their members). to upgrade the plant. So they formed a Steve Irsik.

Rural Cooperatives / November/December 2003 5 “I’m not a rah-rah co-op guy,” says goes against the one-member, one-vote Irsik, whose family-owned enterprise tenant at the heart of cooperative prin- includes wheat fields, a cattle-and-dairy ciples. But others, like Dodson, say herd and a cattle-feeding operation. such a change has to be made if the co- “Yet, for years I produced genetically op business system wants to keep large superior products and got paid com- producers on board in an era of consol- modity prices. So, I’m intrigued by the idating farm operations. cooperative concept of developing a delivery system that allows customers At a crossroad to know where the product is coming Nationwide, many co-op boards and from—whether it’s identity preserved, managers are grappling with such diffi- genetically engineered or organic.” cult ownership and structure questions. Irsik is a founding member of the Some are asking whether these enter- 21st Century Alliance, an umbrella prises must lose cooperative status to organization that has helped farmers remain competitive? Or, as an Illinois launch six value-added co-ops in the last Institute for Rural Affairs report asks, five years. As a production network, “Will agriculture be integrated by and such enterprises can control both a size- for the farmer, or for the benefit of the able amount of land and raw product. More than 1,200 members deliver their suppliers, processors and distributors at This gives end users something that a grain to Western Iowa Co-op. the expense of the farmer?” General Mills or ConAgra cannot: a Photo by Larry Laszlo These are two of the questions the verifiable connection to specific farmers. newly created Congressional Coopera- Alliance officials estimate that 300 member of the $111 billion Farm tive Caucus will consider under the to 500 producer networks are forming Credit System, a nationwide network leadership of Rep. Sam Graves of Mis- nationwide to pursue value-added of lending institutions owned by more souri, Rep. Earl Pomeroy of North opportunities. Nearly all are under- than a half million farmers, ranchers Dakota, Senator Larry Craig of Idaho capitalized and unlikely to acquire and their cooperatives. and Senator Blanche Lambert Lincoln necessary funding through traditional “Well-run cooperatives will contin- of Arkansas. This forum was created at cooperative financing mechanisms. ue to thrive,” Dodson says, referring to the behest of the National Council of Irsik figures most of these businesses co-ops that offer value to customers Farmer Cooperatives (NCFC) to mod- will be hybrids—in part, closed coop- through competitive pricing of prod- ernize laws governing cooperatives. eratives structured as LLCs and ucts and services. “Cooperatives need Te rry Barr, who was recently named pitched to prospective investors with to be sensitive to market forces as they interim CEO of NCFC, says farmer a plan to sell to private or publicly affect customers of all sizes. cooperatives are, in essence, partner- traded companies. “There’s no question that co-ops ships formed because producers think Irsik is one of 375 Kansas, Oklahoma should be structured a little differently,” they can either make a dollar or save a and Texas farmers who own the 21st Dodson says. “As farming operations dollar through the pooling of resources. Century Grain Processing Cooperative. become larger, co-ops need to be more “That need is as great today as ever, He sees capital access issues hindering flexible in their policies and governance possibly even more so now that the the growth of a business that supplies practices to provide competitive ser- food and agriculture industry consoli- tortilla and bread manufacturers in the vices for all sizes of operations. Large dation and globalization has fiercely southwestern United States. “Too many operations already qualify for discounts increased competition and the demand small investments by too many people and special services from manufacturers for capital,” Barr says. becomes cumbersome,” he says. “The and distributors, so co-ops must offer Doug Sims, vice chairman of NCFC greater the ownership stake, the greater these producers advantages like quanti- and in line to become chairman in Jan- the commitment to success.” ty discounts, bulk packaging and board uary, grew up on a western Illinois positions. Keeping large operators farm. He recalls that co-ops provided Restructuring needs under the co-op tent will enable smaller the best price for the seed, feed, petro- Te xas farmer Jimmy Dodson doesn’t producers to continue to benefit from leum and tractors that the family have much experience with value- their cooperatives’ economies of scale.” bought, as well as for the hogs and added businesses, but he’s got an opin- This is, of course, a hot topic with grain that they sold. The same is true a ion on the future of cooperatives. Dod- many cooperatives, especially in the half-century later now that his cousin son is a Gulf Coast cotton and milo area of governance. Some say provid- runs the farm and Sims is chief execu- grower, and a board member of Farm ing proportional voting based on the tive officer of CoBank. As the only Credit Bank of Texas. The bank is a business volume a member generates nationally chartered institution in the

6 November/December 2003 / Rural Cooperatives Farm Credit System, CoBank provides share of the food dollar is a difficult merged with eight local co-ops or pri- financing for 1,500 agricultural cooper- one. Government regulations should vate companies. Today, FC is modern- atives across the United States. not tie their hands to only one accept- izing a dozen grain elevators along “What the founders of co-ops were able business structure.” main rail lines. Representing a mem- looking for years ago is very different Many other cooperative leaders bership base of 1.2 million acres, FC from what members want and expect nationwide are reaching this same con- can deal directly with national suppliers today,” Sims observes. “ Today, capital clusion. Cooperative principles have and buyers. needs often exceed members’ ability to the best chance of enduring if the busi- Clearly, consolidation is shaking up pay. Yet, the co-op model remains a ness structures are able to adapt to new the traditional cooperative structure. dynamic economic tool for producers opportunities, Christianson says. “A decade ago, a big regional co-op who realize they can accomplish much would take a grain buyer’s plan under more as a group than they can alone. The power of numbers its arm and approach 10 locals,” Our customers want to remain cooper- “Co-ops provide a layer of strength Carstens says. “Today, we can do for atives, but they also need the freedom for producers through added buying ourselves what we needed the regionals to adapt to new circumstances.” and selling power and marketing strate- to do just a few years ago.” Some co-ops are finding that the pur- gy,” Wisconsin dairy farmer Scott Maier Ronnie Mohr serves on the board of suit of new opportunities could mean says. “If a lot of private companies had directors of Land O’Lakes. The Arden losing their cooperative status and their their way, they’d flush out the co-ops Hills, Minn.-based company provides borrowing relationship with CoBank. and dictate the price that we get for our 1,300 member cooperatives with feed, The Farm Credit System is seeking leg- product. The co-op gives you a little seed, plant food and crop protection islation to modify the Farm Credit Act, more control. If the co-op makes a prof- products. Mohr sees “merging local allowing CoBank to finance all farmer- it, you either get a dividend or manage- cooperatives taking on the role of owned cooperatives, including new gen- ment invests the money into eration co-ops. The bank wants to expansion with the goal of finance entities that have both a produc- providing additional benefits er and investor class of membership, to members in the future.” provided that the producer class holds at Maier, 38, and his wife, least 50 percent of the voting control Daun, are NCFC’s 2002- and operates on a cooperative basis. 2003 Young Ambassadors. South Dakota Soybean Processors The Maier family partnership (SDSP) is one such cooperative that belongs to seven cooperatives, both wants to tap new opportunities including dairy manufacturer and remain a CoBank customer. SDSP and marketing cooperative was formed in 1993 by farmers tired of Foremost Farms USA. Last exporting soybeans to a distant proces- winter, they expanded from sor and then paying freight on soybean 275 to 450 cows. “With cattle meal shipped back and fed to livestock. and milk prices down, we The processing co-op has begun sup- hope to catch the up-trend in plying a manufacturer that turns oil prices,” Scott explains. resins into industrial products. “Belonging to cooperatives With demand for products exceeding gives us a little more stability. “Cooperatives give our industry a much stronger voice members’ supply capability, SDSP will Cooperatives give our indus- to the people who make policy,” say Scott and Daun generate significant new sources of non- try a much stronger voice to Maier, Foremost Farms members. Photo by Laura Mihm, patronage income. To avoid double tax- the people who make policy. courtesy Foremost Farms ation—for the cooperative at the entity We’re not going to be left out level and members paying on their share in the cold.” regionals, and the regionals becoming of the proceeds—SDSP has converted And neither is Doug Carstens, who more national in scope.” to a limited liability corporation (LLC). chairs the board of Farmers Coopera- This 54-year-old Indiana hog and SDSP remains true to cooperative tive Company (FC). His co-op is help- grain farmer recalls, “When I was in principles, such as the one-member, ing to position central Iowa grain pro- high school, 28 families made a living one-vote policy, CEO Rodney Chris- ducers for the future. For decades, FC on the 3,600 acres of land that my tianson says. “Who we are is not neces- was a typical small-scale supply and brother and two sons now farm. sarily determined by the business struc- service cooperative catering to farmers Nobody’s more aggressive in mergers ture that we use for tax purposes. The near Farnhamville, Iowa. and acquisitions than American farm- farmers’ task of capturing a greater In the last decade, FC bought or ers, and technology has let us do it.

Rural Cooperatives / November/December 2003 7 Big, full-time farmers are increasing, now grow an average of 80 acres of Stepping outside the box mid-sized full-time farmers are plums. For many years, Sunsweet “Change itself is the biggest chal- decreasing and part-time farmers are treated small growers the same as big; lenge facing co-ops,” South Dakota increasing. To succeed, you have to be whether a member delivered product Wheat Growers Association (SDW- aligned with other people.” by the truckload or one box at a time GA) chairman Jake Boomsma says. Land O’Lakes operates plants from made no difference. In 1997, with the Helping SDWGA’s 3,300 farmer- California to Pennsylvania, supplying industry facing overproduction, the investors become more profitable, he dairy products to national grocery co-op imposed limitations on a long- says, will inevitably mean stepping out- chains such as Wal-Mart Stores Inc. standing practice of advancing pay- side “the cooperative box.” Through Agriliance—a partnership of ments to owners of unsold plum crops. In 2002, the 80-year-old SDWGA three regional farm supply marketing business hired its first CEO from out- cooperatives—two of its owners, Land side the cooperative system. The board O’Lakes and CHS Inc., continue to was open to expanding across state lines, negotiate savings for their members. doing business with private companies, For example, it recently bought 20 and offered equity stakes to outside percent of the Monsanto’s Roundup sources to finance expansion. In recent herbicide. With such market share, years, the SDWGA has used traditional Mohr says Agriliance can add value just funding mechanisms to invest over $40 as Wal-Mart does through purchasing. million in two ethanol plants, a feedmill and four train-loading elevator facilities. Creating new advantages SDWGA is now selling some eleva- Clearly, purchasing power, eco- tors to farmers who want to expand off- nomies of scale and owner equity give rail storage systems. “We get static from some co-ops a marketplace advantage. rural leaders because closing down an For others, their branded products set elevator takes business out of the com- them apart. That’s the story for Mark “All of our advertising focuses on farmer munity,” Boomsma says. “But for our ownership and the places where the prod- Duffy, who is among the 1,400 New business to survive, we need to make ucts come from,” says Agri-Mark dairyman England and New York dairy tough economic decisions that provide Mark Duffy. Photo courtesy Agri-Mark farmer/owners of Agri-Mark. Agri- the best returns to our members.” Mark sells a full line of Cabot-brand Conflicts of interest pose unique chal- foods that have been a century in the “The reality of the market was that lenges for co-ops because their members making. The Cabot name commands a small growers needed the cash flow, but are also part of the community. Indiana premium price for members of the co- we couldn’t borrow money against an grain and livestock farmer Myron Moyer op, which also sells fluid milk. inventory declining in value,” explains is also pushing for grower groups to gain “We can’t be the low-cost producer Kaplan, a Sunsweet board member. the opportunity to attract outside of milk in the Northeast,” Duffy says. “The viable farmer would be hurt investors so they can compete with cor- “As a co-op, we need to take advantage less short-term,” Kaplan continues. porate-owned businesses. of other opportunities. All of our “But a lot of growers weren’t viable “I hope the federal government will advertising focuses on farmer owner- over the long run. If we were purely a allow us to be able to partner with non- ship and the places where the products processing business, nobody would co-op businesses without losing coop- come from. We benefit from the fact have listened to the complaints. We’d erative status,” says Moyer, who is on that an enormous number of con- have sold product at the best price we the board of Harvest Land Coopera- sumers respect what we do.” could. In a co-op, we had to listen, but tive. “We are for anything that will Protecting a brand name at times we also had to make the conscious help producers compete.” ■ requires a co-op to make tough deci- decision to stop subsidizing small sions. Ken Kaplan, who grows 100 groves at the expense of efficiency.” Editor’s note: Heuer frequently writes acres of plums in California and mar- Meanwhile, Sunsweet has had to on agricultural policy and rural develop- kets them through Sunsweet Growers accommodate the demands of grocery ment issues for a number of publications, Inc., knows this firsthand. He’s seen chains seeking “category managers” including AgLender, AgriFinance, Farm Sunsweet, the world’s leading producer who supply all needs in a specific food Journal, American Bankers Association’s of prunes, shift from a production-dri- category. The prune co-op keeps its Journal of Agricultural Lending and ven to a market-driven business. position on the grocery shelf by Independent Banker. This article is Formed in 1917 when the average adding products such as apricots, printed courtesy of CoBank. It does not prune farm was 10 acres, the Yuba apples and juices bought from non- necessarily reflect the views or policy of City, Calif.-based co-op’s 650 members members. USDA or its employees.

8 November/December 2003 / Rural Cooperatives Congressional hearing focuses on possible need for more flexible co-op business model

By Dan Campbell, editor cooperative?” was asked several times. hearing today may just as well be how One committee member noted that we can assist the financing of U.S. agri- re structural changes under the new Minnesota law, 99 per- culture.” He said producers are needed in the coopera- cent of the equity and 85 percent of the increasingly looking “to attract outside, tive business model to profits of a co-op could be controlled passive investors who may have an A help co-ops remain a by non-producers. interest in the community where the vital cog in the engine of But others said that these new state operation is located, but who otherwise America’s rural economy? That was the laws are at least a step in the right are looking for a reasonable return on central question addressed during a direction, and that without changes that investment. That calls for new five-hour hearing held by the House such as they encourage, producers will business structures that may abandon Agriculture Committeeon Oct. 16 in be locked in a downward spiral. They the traditional cooperative model.” Washington, D.C. will continue to lose the control in ag Goodlatte noted that the House Ag A wide array of co-op leaders, gov- industries that they and their predeces- Committee last conducted a thorough ernment officials, lenders, academics sors fought so hard to establish during examination of the Farm Credit Act and others testified. A common theme the past century. They predicted that during the farm recession of the was that the fate of U.S. agriculture, increasing numbers of co-ops will 1980s—a crisis period for farmers and the nation’s farmer-owned coopera- reluctantly have to change their busi- ranchers. Changes enacted in the Farm tives, rural lenders and the rest of rural ness structure to Limited Liability Credit System at that time have proven America is inextricably linked, and that Corporations (LLC), or some type of successful, Goodlatte said, but the time for each of them to thrive, they must hybrid LLC-co-op. may be right for a more deliberative all be strong and prepared to work The announced purpose of the hear- review process “now that the system is together to adapt to change. ing was to focus the attention of Con- adequately capitalized and relatively But a wide diversity of opinion was gress and the nation on trends being seen prosperous.” expressed as to exactly what changes among new-generation cooperatives— should be made and how far to go in particularly regarding why some of them High stakes altering the co-op business model. are finding it more advantageous to “Today, we are laying the foundation change their business structure to LLCs. for the future of agriculture,” said Rep. New state co-op laws In reality, the focus of the hearing was Charles Stenholm of Texas, the ranking at center of debate broader than that, breaking down into minority member on the Ag Commit- Throughout the day, numerous ref- three primary areas: 1) Should coopera- tee. “We’re not pouring the concrete erences—pro and con—were made to tive law be modified to allow for greater yet—just putting up the forms; we’ll the new Minnesota and Wyoming flexibility in business and governance pour the concrete later.” cooperative incorporation laws. Some structure—particularly in ways that will He spoke of the importance of farmer said those laws go too far in expanding allow co-ops to raise more equity capital?; and utility cooperatives in the West the co-op model and that co-ops orga- 2) Should the charter of CoBank be Texas district he represents and to his nized under those statutes are vulnera- modified so that it can finance a broader own family. Stenholm noted that he and ble to takeovers by outside investors array of farmer-owned enterprises than is his son are members of the Plains Cot- who may have little real interest in the currently permitted?; and 3) What is the ton Cooperative Association (PCCA) in fate of producers or rural communities. status and future of USDA’s cooperative Lubbock, and that he once managed a Further, they said if the nation winds programs? rural utility cooperative in Texas. up with 50 different definitions of what In his opening remarks, Committee “PCCA is an excellent example of a cooperative is, it will lead to chaos. Chairman Bob Goodlatte of Virginia how things have changed, and also why “When is a cooperative no longer a noted that “The real subject of our there is a need to review and modern-

Rural Cooperatives / November/December 2003 9 ize federal cooperative law,” Stenholm said. To make his point, he noted that in the 1970s, PCCA built a $25-million plant that spins cotton into denim. “Since 1976, PCCA’s denim mill alone has provided its members with $300 million in added-value for their cotton. However, building that same mill today would cost between $100 million and $150 million.” With rural economies starved for capital and far fewer pro- ducers than 30 years ago, he said it is unlikely PCCA could construct the same denim mill. Stenholm said efforts such as USDA’s new Value-Added Producer Grant program and the new Agricul- tural Innovation Centers established in A panel, which includes Roger Ginder of Iowa State University (far left), testifies at the 10 states are steps in the right direc- House Ag Committee hearing on new generation cooperatives. USDA photos by Dan Campbell tion. But he said “there is much more work for this committee and USDA to world economy where other nations Tax issues key do to ensure that farmer and rancher have huge advantages in low-cost labor There are numerous examples of cooperatives have the means to com- and land. value-added cooperatives that have pete in an area of rapid consolidation “Farmers and ranchers still retain converted to LLCs or formed LLC and technological innovation.” a high level of confidence in coopera- joint ventures with other co-ops or Rep. Collin Peterson of Minnesota tives and this business model is still investor-owned corporations, said expressed concerns about the new co- one of the most trusted tools of busi- Doug Flory, chairman of the Farm op law in his state, and said it could ness development in rural America,” Credit System Insurance Corpora- allow non-farmer equity owners to Dorr said. “While many producers tion, who testified on behalf of Farm take over co-ops, which he said has have substantial assets that are mini- Credit Administration Chariman already occurred. Peterson said co-ops mally leveraged, their numbers are Michael Reyna. Flory said LLCs are getting into industries “controlled declining. The amount of funds offer advantages in their ability to by just 3-4 entities, and they can needed to finance a potentially lucra- attract outside investors by giving squash you like a bug in these com- tive agriculture-related business may them a say in management and a pro- modity areas. When they (large corpo- be more than potential member- portional return on their investment. rations) control so much, they can run patrons can, or should, prudently They also may do “a significant down prices and force you to sell out.” invest in. Steps should be taken to amount of business with farmers who Peterson said that perhaps co-ops make investing in a cooperative are not willing, or able, to acquire an would find more success pursuing attractive to local non-producers, ownership interest in the enterprise,” niche markets, and that care has to be and, when advantageous to the pro- Flory said. taken not to lure farmers into com- ducers and the community, non-pro- While some large, well-established modity areas where they have little real ducer outside investing interests.” co-ops have been successful in raising chance of making money. Dorr said that impediments to outside equity capital, most outside attracting non-producer equity to co- investors are not farmers and thus can- Changing rural landscape ops can be found in federal and state not be members nor vote in a co-op’s Thomas Dorr, under secretary for laws enacted several decades ago. “If elections or share in patronage pay- USDA Rural Development, which non-producer outsiders are to invest in ments, he said. The Wyoming and houses the Cooperative Services pro- a cooperative, they may well expect to Minnesota laws attempt to address this gram, painted a picture of a rapidly have a voice in its affairs and the situation by allowing the creation of a changing rural landscape in which opportunity to earn a return on their hybrid between a traditional coopera- farmers must find new ways to invest in investment commensurate with the tive and an LLC, with separate mem- modern, value-added processing facili- success of the cooperative,” Dorr said. bership classes for farmer-patrons and ties. Otherwise, they face the risk of “Good governance and increased trans- investors. becoming ever more marginalized as parency could also help improve the Flory said these state co-op laws each producers of basic commodities in a cooperative model.” require that farmers have at least 50 per-

10 November/December 2003 / Rural Cooperatives cent voting control, and that Minnesota gain added operational flexibility, Sims and investor class, provided that the requires that 60 percent of financial said. “These new structures will often producer class holds at least 50 percent returns go to farmers, unless they vote make the cooperative ineligible for of the voting control and that it oper- as a block to accept a lesser amount, but financing by CoBank,” which provides ates on a cooperative basis; never less than 15 percent. Both laws about 80 percent of all credit extended ■ Permit ag co-ops organized con- are too new to determine whether many to farmer cooperatives. sistent with state cooperative laws to be traditional co-ops will convert to the Sims cited the role of co-ops in the eligible for CoBank financing; new hybrid co-op businesses, Flory said, rapidly expanding ethanol industry as ■ Allow co-op customers adopting adding that other states are considering an example of this situation. CoBank new business structures to continue to similar legislation. has loaned $200 million to finance 20 be eligible for CoBank financing, as “The success of hybrid cooperatives farmer-owned ethanol plants in the long as the customer maintains at least will depend on whether farmers and Midwest and Great Plains states. To 50 percent farmer control or continues investors can work together. Potential- date, return on equity has been a highly to operate under co-op state law; ly the two groups have different objec- favorable 10 to 15 percent annually. ■ Provide that co-ops that are tives,” which, he stressed, “could be a But some of these co-ops are turning to CoBank customers but restructure as source of conflict.” Whether the outside investors to build plants. non-co-ops would remain eligible for hybrids are successful “ultimately Tall Corn Ethanol in Coon Rapids, CoBank financing for a five-year tran- depends on their ability to reconcile Iowa, recently altered its corporate sition period. potential conflict between farmers and structure to an LLC to attract more “Without this action, CoBank will investors.” equity from outside investors, Sims not be able to meet its mission of serv- said. Even though farmers still control ing farmer-owned cooperatives,” Sims CoBank seeks changes the business, it is no longer eligible for warned. He noted that the proposal has Doug Sims, CEO of CoBank, part of financing from CoBank. The same received the endorsement of the the cooperatively owned Farm Credit scenario holds true for South Dakota National Council of Farmer Coopera- Bank system, said provisions of the Soybean Processors, which had been a tives (NCFC), the American Farm Farm Credit Act make it “increasingly CoBank customer since its inception Bureau Federation, the Farm Credit difficult for a new generation of farmer- in 1996 but recently converted to an Council and dozens of other farm owned cooperatives...to obtain financ- LLC for tax and equity reasons. organizations. ing from CoBank.” Farmer coopera- “This current situation is putting tives are increasingly turning to the farmer-owners of cooperatives in a Community banking groups value-added activities to bolster their very difficult position—by choosing oppose CoBank proposal members’ farming operations, and the most advantageous corporate Weighing in against the CoBank many are turning to new business mod- structure, the cooperative may be proposal were two banking industry els to raise equity capital from non-pro- forced to forgo access to the lender trade groups, which testified that those ducers, to minimize tax liabilities and created specifically to meet the needs changes would violate the very reason of farmer-owned coopera- CoBank was formed while creating tives,” Sims testified. unfair competition for locally owned, CoBank is requesting legis- community banks. As a government lation that would change its sponsored entity, CoBank has access to charter to: lower cost funds than do most commu- ■ Allow it to continue nity banks. They also raised numerous lending to producer associa- questions about the Wyoming and tions with both a producer Minnesota state co-op laws, saying these statutes could have the opposite “Farmers and ranchers still retain effect they were intended for, and a high level of confidence in coop- could actually hasten the loss of pro- eratives, and this business model ducer control. is still one of the most trusted James Caspary, representing the tools of business development in Independent Community Bankers of rural America,” USDA Under America (ICBA), said those state laws Secretary for Rural Development would create a business model under Thomas Dorr testified. To his left is which “outside investors could form Doug Flory, who testified on behalf LLCs labeled ‘farmer-owned coopera- of the Farm Credit Administration. tives,’ even when farmers don’t have majority ownership or voting control,

Rural Cooperatives / November/December 2003 11 Equity, tax issues prompt beef co-op to ponder switch

U.S. Premium Beef (USPB) recently completed a buy- would provide relief for co-ops in such situations, including out of its former partner—Farmland Industries—in a one-time conversion tax exemption for cooperatives that National Beef, the nation’s fourth largest beef packer. But convert to an LLC but still maintain producer control. its co-op structure threw up barriers to raising the need- “Today, as we witness an acceleration of concentra- ed investment capital, co-op CEO Steve Hunt testified in tion among food industry participants, the need to October at the House Ag Committee hearing on new gen- achieve size, scale and market leverage is becoming eration co-ops. The co-op is now weighing whether to paramount to their success,” Hunt said. “These changes convert its business structure to an LLC or reincorporate require vast amounts of capital.” under the new Minnesota or Wyoming state co-op laws. “Under today’s rules,” he continued, “cooperatives have The main reasons would be to capture “the benefits of only to look to cash-strapped producers to secure equity. a pass-through tax structure,” he said, and because this The alternative is to leverage their business through debt, a change would allow “unlimited earnings diversification strategy that has resulted in numerous public failures.” and provide for recruitment of outside capital, while still Hunt said that when Farmland Industries filed for bank- maintaining control in the hands of the producer.” ruptcy last spring, USPB was able to buy its interest in But even if the co-op converts its business structure, National Beef. That kept the beef operation under producer it faces hurdles, he said. Co-op members could be control, unlike Farmland’s pork business, which was charged substantial taxes on the gain in their co-op stock snapped up by Smithfield. Hunt said USPB was forced to value, which has risen sharply. As a new generation co- form a venture outside of the cooperative and seek outside op, USPB members purchase stock in the co-op which investors as partners in order to buy out Farmland’s share creates a right and requirement to deliver cattle to the in the partnership. “Had USPB been able to attract alterna- co-op. Those shares can be sold to other producers. tive sources of capital within the co-op, we would have Leaving the ranks of co-ops would also mean losing owned a larger percentage of the beef business and its relationship with CoBank, Hunt testified. increased our odds of maintaining producer control into an He proposed a number of changes to the tax code which uncertain and very competitive future,” Hunt said. “Addi-

and be eligible for cooperative bene- sake of growth for some at the when...(they) are neither owned by a fits.” ICBA, 75 percent of whose mem- expense of survival for others,” Cas- majority of farmers or controlled by bers are community banks located in pary said. He presented the commit- farmers.” towns of 10,000 or less, “opposes any tee with a list of criticisms of the fundamental rewrite of CoBank’s lend- Wyoming state law, including a provi- Farmers Union urges careful study ing charter because it would allow it to sion under which “one or more out- Congress must take the lead in re- make loans to corporations that may side investors with two-thirds voting examining cooperative business struc- have no farmer involvement and that control can merge or consolidate the ture, “rather than allowing events or may be unrelated to agriculture,” Cas- entity into another entity, or liquidate other institutions to define a new pary testified. it without any support from the pro- cooperative model that may sacrifice “We do feel it is appropriate to ducer-patron members.” the characteristics of cooperatives that explore ways to enhance the accumu- Caspary said Congress has recently distinguish it from other business lation of equity capital within adopted or updated several programs structures,” Doug Peterson testified farmer-owned cooperatives and in which could aid farmers and coopera- on behalf of the 300,000-member rural America—but this should be tives pursuing new ventures. “Unfortu- National Farmers Union (NFU). done in a way that doesn’t potentially nately several of these USDA authori- Peterson, president of NFU’s Min- lead to the loss of legitimate farmer ties sit either idle today or have yet to nesota state chapter, said that despite control of their cooperatives or in be fully implemented.” problems confronting farmers and ways that drastically depart from the Roger Monson, representing the their cooperatives, “we believe that a bedrock principles of what makes a American Bankers Association, offered level of restraint must be exercised to cooperative a cooperative.” similar testimony. He said the provide the opportunity for a full dis- Policies should not be enacted that Wyoming and Minnesota co-op laws cussion of potential alternatives and would spur consolidation in agricul- “will allow businesses to continue to be outcomes before engaging in a signifi- ture and cooperatives “just for the defined as farmer-owned cooperatives cant modification of the cooperative

12 November/December 2003 / Rural Cooperatives tionally, in order to achieve a majority position, since equity As a result, the co-op “now sells pizza crust to the capital was limited, we were forced to rely more heavily on world instead of railroad cars of wheat. More jobs are riskier debt equity, thereby leveraging the company.” available for young people and more sales tax revenue is going into our community to provide basic infrastructure Wheat-to-pizza co-op recounts equity challenge and technology.” Keith Kisling, an Oklahoma wheat and cattle producer Kisling said more programs are needed to encourage and former director of the Burlington Cooperative Associa- and promote these types of farmer-owned value-added tion, recounted a similar challenge in raising equity capital in efforts. He urged that USDA’s Value-Added Producer 1996 for Value Added Products, a new-generation coopera- Grant program be funded at no less than $40 million, and tive in Alva, Okla. The 850-producer co-op processes 642,000 called for Congress to “expedite the implementation” of bushels of wheat annually into $20 million worth of pizza the Rural Business Investment Program (RBIP). He said crusts. After just four years in operation, it is the largest pre- RBIP was designed to encourage investments in rural proofed and frozen dough plant in the nation, Kisling said. enterprises through rural business investment companies “Our biggest challenge,” he testified before the Ag created to raise capital, provide operational assistance Committee, “was collecting up-front capital to convince to small businesses and participate in a government our lenders to buy into the deal.” Some 40 producer meet- guaranteed debenture program. ings were held with the goal of raising $10 million of the The RBIP, coupled with other co-op development pro- $18 million needed. The most useful financial incentive the grams, “offers an important opportunity for smaller rural co-op had in attracting producer-members, Kisling said, cooperatives to access the resources that are vital to their was Oklahoma’s 30-percent state credit, which can be success,” Kisling said. But Congress should review techni- used for seven years by new value-added ventures. “I was cal requirements of the enabling legislation to determine if asked consistently in those 40 meetings if there was a sim- they are too restrictive, he continued. He said the entire co- ilar federal tax credit, and my response had to be “no.” op development process also needs to be streamlined, The co-op raised the additional capital needed with including shifting some guaranteed loan programs for farm- the help of a Business and Industry Guaranteed Loan and ers to USDA’s Farm Service Agency, which he said is in a a Value-Added Producer Grant, both of which are pro- better position to encourage more farmer participation. ■ grams of USDA Rural Development. —By Dan Campbell

model.” New state co-op laws may tion, liquidation or other critical busi- tives. It also called for the elimination have worthy intentions, but “we are ness decisions.” of the so-called “triple tax” on farmer concerned about the longer term If Congress ultimately decides to cooperative dividends. effects of these proposals on basic allow more outside investors in co-ops, John Henry Smith, board chairman cooperative principles. “it should establish strict guidelines of Southern States Cooperative “In addition, schemes that blur the and limitations on the level of influ- (SSC), and CoBank CEO Douglas lines between cooperatives and other ence these investors may exert over any Sims both testified that their organi- organizational structures may put at cooperative business structure,” he zations “strongly support” NCFC’s risk existing preferential public policy said. “At minimum, these rules should position on strengthening USDA’s treatment for all cooperatives, includ- require diversification among investors, cooperative program. Smith said it ing, but not limited to, the issues of particularly those with interests in needs to have resources not only to partial anti-trust exemption and tax competing businesses.…” carry out existing programs, but new considerations.” In its testimony, the National ones as well. He also asked that the “The old adage, ‘he who pays the Council of Farmer Cooperatives loan guarantee limit on USDA’s Busi- piper calls the tune,’ could certainly (NCFC) urged that “the highest pri- ness and Industry Guaranteed Loan apply to outside investors, who may in ority be given to strengthening USDA program be boosted from $40 million fact be able to qualify as farmers under cooperative programs, including the to $100 million. the current definition,” Peterson re-establishment of a separate co-op Rep. Stenholm urged that rural warned. These investors could per- agency within USDA. NCFC also said banks find a way to work together with suade the co-op board to change tradi- the Federal Farm Credit Act should CoBank and the rest of the Farm Cred- tional allocations of earnings away be modernized to ensure farmers have it System, noting that “the rural Amer- from patronage to return on invest- access to a competitive source of cred- ica we know is dying...We must bring ment. “They might also exert substan- it capital for their cooperatives— in capital and jobs in non-traditional tial influence on merger, consolida- including new generation coopera- ways. That’s what this is all about.” ■

Rural Cooperatives / November/December 2003 13 Dismantling of Farmland continues; Smithfield buying pork business

By Patrick Duffey, writer-editor liquidation bankruptcy. ments would occur as the cooperative USDA Rural Development Observers note that Farmland’s sells more assets. demise resulted from borrowing too Bids have been offered in recent ike a cat unraveling a heavily to compete in too many capi- months for Farmland’s primary fertil- big ball of yarn inch by tal-intensive businesses, expanding izer, petroleum and meat-processing inch, once mighty too aggressively, building too many facilities. L Farmland Industries projects and depending too heavily on Inc., at Kansas City, the fertilizer business when the fertil- Cargill, Smithfield bid Mo., is being unraveled and disman- izer industry was depressed. Thou- for Farmland pork division tled. Its operations are being sold to sands of farmers are expected to lose Competition developed between satisfy an overwhelming debt load more than $700 million in equity or Cargill and Smithfield Foods for the that drove the agricultural supply and investments. pork division of Farmland Foods. Bid- meat-processing cooperative into Robert Terry, Farmland’s chief exec- ding peaked in October and went to a bankruptcy May 31, 2002. Although utive officer, said that if the coopera- bankruptcy court auction. Smithfield it filed for Chapter 11 bankruptcy, or tive’s reorganization plan is approved emerged as the winner. corporate reorganization, the case by U.S. Bankruptcy Court Judge Jerry Smithfield’s initial bid was $363.5 has been handled from the early Venters, Farmland could begin paying million, which triggered a hearing stages as a virtual Chapter 7, or asset claims by year’s end. Additional pay- before the Senate Judiciary Committee due to concerns about concentration in the meat-packing industry. But the deal eventually was approved by the antitrust division of the U.S. Justice Department. Cargill, which owns Excell Corpo- ration, a major pork processor in Illi- nois and Iowa, entered the bidding with a pre-auction cash offer of $385 million. Smithfield countered at the auction, increased its cash bid to $367.4 million for most of the assets, agreed to honor Farmland’s pork-pro- ducer contracts and assumed Farm- land’s $90-million pension plan oblig- ation, effectively boosting its offer to $457.4 million. Prior to the fall auction, Smithfield sold its Canadian pork business to Maple Leaf. It expected to net $200 million from the deal. Farmland Industries had hoped to restructure the cooperative around its successful beef With the Farmland purchase, and pork processing businesses, but virtually all of its assets have now been sold. Smithfield Smithfield could become a $10-bil- has purchased the pork operation, while the beef operation will remain under producer con- lion food company that processes trol. Photo courtesy Farmland Industries. nearly 30 percent of the nation’s pork

14 November/December 2003 / Rural Cooperatives U.S. Premium Beef seals purchase of Farmland National Beef

Farmland National Beef has been purchased by U.S. and marketing high-quality beef products worldwide.” Premium Beef (USPB), which had been Farmland The sale includes Farmland National Beef packing Industries’ partner in the operation and is a producer- plants in Liberal and Dodge City Kan., as well as further- owned cooperative of 1,850 cattle producers in 37 processing facilities in Hummels Wharf, Pa., Moultrie, states. The purchase, valued at $232 million, was Ga., and the Kansas City Steak Co., Kansas City, Kan. approved by the federal bankruptcy court in St. Louis National Beef also owns National Carriers, a 700-unit on July 15, and the sale was completed Aug. 6. refrigerated trucking operation. USPB is now majority “Having NBP’s manage- owner of Farmland Nation- ment group as minority al Beef, which will be owners solidifies their renamed National Beef commitment to making Packing Co. LLC (NBP). It is NBP the industry leader in the nation’s fourth largest terms of product quality as beef packer, with about 10 percent of the national beef well as plant operating efficiency,” Hunt said. “Likewise, market. It processes about 3.2 million head of cattle IBP, as the world’s leading manufacturer of boneless lean annually. beef, has a long history of dedication to quality, food safety Minority investors are an NBP management group and and operational efficiency.” NBP Co. Holdings LLC, a South Dakota company man- USPB member cattle are marketed under the U.S. Pre- aged by Beef Products Inc. (BPI). mium beef brand and numerous NBP product lines, “This is an excellent opportunity for additional growth including Farmland Black Angus Beef, Farmland Certified in the market for USPB stockholders and members,” says Premium Beef, Black Canyon Agnus Beef and Certified USPB Chief Executive Officer Steve Hunt. “Increasing the Angus Beef. Member cattle are also marketed direct to synergies that already exist between our companies will consumers through Kansas City Steak Co, NBP’s quality enable NBP to become even more efficient in processing steak mail-order business. ■

supply. Farmland Foods, which based joint venture of the two compa- would be contingent on about $134 ranked as the 6th largest pork proces- nies. Simplot will pay $64.5 million million being committed to bring the sor, has packaging and processing plus the value of Farmland’s share of plant into federal environmental plants in Iowa, Kansas, Nebraska, Illi- cash and working capital. The assets compliance. nois and Massachusetts. The coopera- include a fertilizer plant at Rock Even after it disposes of these tive processed more than 7 million Springs, Wyo., a phosphate mine at assets, Farmland still has other hold- hogs per year and accumulated sales Vernal, Utah, and a 96-mile pipeline ings, chief among them its grain joint of $1.8 billion last year. connecting the two. venture with Archer Daniels Midland. The sale could become effective in The deal is expected to close quickly In partnership with other coopera- early November. The combination of once it gets court approval, which was tives, it also has interest in a pair of Tyson, Smithfield, Cargill and Swift anticipated in early November. The joint ventures: Agrilliance LLC, an now dominate the meat processing assets were not included in Farmland’s agronomy marketing and sales affiliate business. Chapter 11 restructuring. owned with CHS Inc. and Land Farmland’s beef processing opera- Pegasus Partners II, a Greenwich, O’Lakes. The other venture is Land tion, Farmland National Beef, will Conn., investment firm, has offered O’Lakes/Farmland Feed. remain under producer control, as it to buy Farmland’s petroleum refinery In May, Farmland closed and sold has been purchased by its former part- and adjacent fertilizer plant at Cof- its catfish processing operation at ner in the operation, U.S. premium feyville, Kan. The deal would also Eudora, Ark., for $200,000 to a group Beef, a cooperative (see related story). cover an old oil terminal at Phillips- of 60 farmers associated with Seacat. burg, Kan., and a three-state crude No delivery rights were involved. Fertilizer assets sold oil gathering system and related Farmland acquired the operation in Meanwhile, J.R. Simplot of Boise, inventories required to operate the 1998 when it purchased SF Services, Idaho, has agreed to buy Farmland’s facilities. The deal was valued at $281 the Arkansas regional farm supply interest in SF Phosphates, a Utah- million. The Coffeyville refinery sale cooperative. ■

Rural Cooperatives / November/December 2003 15 Survey results: public shows strong preference for doing business with cooperatives

By Patrick Duffey, writer-editor wise, 67 percent said they would be compared with just 53 percent who rated USDA Rural Development more likely to buy their electricity or investor-owned firms as trustworthy. A telecommunications services from a majority also found that businesses—such eople prefer to do busi- locally owned utility cooperative. as cooperatives—that allow customers to ness with cooperatives and The results were presented by democratically elect the board of direc- rate them higher than NCBA President Paul Hazen at a press tors and are locally owned and controlled P investor-owned. They conference in Washington, D.C., Octo- are more trustworthy. These are com- also view the nation’s ber 1 to kick off the annual observance mon traits found in many U.S. coopera- more than 40,000 cooperatives as more of National Cooperative Month. Other tives, but particularly among those serv- democratic and trustworthy than survey participants included Coopera- ing agriculture. More than half of U.S. investor-owned businesses. Those were tive Union National Association adults say they are cooperative members. among the findings of a major survey (CUNA), National Association of Fed- A whopping 77 percent of those conducted by one of the nation’s major eral Credit Unions, National Coopera- surveyed said cooperatives have the polling organizations at the behest of the tive Bank, National Milk Producers best interests of customers in mind, National Cooperative Business Associa- Federation, National Rural Electric but less than half attributed that trait tion (NCBA), Consumer Federation Cooperative Association, National Rur- to investor-owned companies. Coop- of America and a coalition of national al Telecommunications Cooperative, eratives also rated higher than cooperative organizations. National Rural Utilities Finance Corp., investor-owned firms by wide margins Of particular interest to farmers is and National Telecommunications on questions of value, quality, price that 69 percent of survey respondents Cooperative Association. and commitment to their communi- said they would be more likely to buy The survey results support the find- ties. Agricultural cooperatives are food if they knew it had been produced ings of similar surveys undertaken dur- often major employers in rural com- by a farmer-owned cooperative. Like- ing the past decade. But the new survey munities in which they operate. found that that there is now Asked whether they would be more a much stronger climate of or less likely to buy products and ser- distrust of major corpora- vices from a business if they knew it tions due to the numerous was a cooperative: stock and bookkeeping ■ 73 percent were more likely to manipulation scandals that buy products from a food cooperative; have been in the news dur- ■ 71 percent were more likely to use ing the past two years. Fed- a credit union; eral regulators are scrutiniz- ■ 69 percent were more likely to ing corporate governance patronize independent local businesses and director election prac- that belonged to a buying cooperative; tices. Less than half of those ■ 55 percent said they would prefer Chris Galen of the National Milk Producers Association surveyed felt investor-owned securing health care services offered by answers a question during a press conference at the companies were ethically a consumer-owned provider, while 56 National Press Club in Washington, D.C., held to announce governed. percent said they would prefer to use the results of a consumer survey that gauged public opin- Hazen said more than 75 day care services provided by a parent- ions of cooperatives. He is flanked by Stephen Brobeck, percent of the 2,031 adults owned cooperative. executive director of the Consumer Federation of America, surveyed agreed that coopera- ■ More than 80 percent agreed that and Paul Hazen, president of the National Cooperative tives operate their businesses cooperatives strengthen rural commu- Business Association. USDA photo by Dan Campbell in a trustworthy manner, continued on page 29

16 November/December 2003 / Rural Cooperatives Revenue, margins trend downward for nation’s top 100 ag cooperatives

By David Chesnick, Ag Economist Table 1—Total operating revenue by commodity group, 2001-02, USDA Rural Development [email protected] top 100 cooperatives Total sales and operating revenue uch of the nation’s 2002 2001 Difference Change business sector strug- —–––––––———$1,000———————— —per- gled during 2002, and cent— M cooperatives were no All cooperatives 63,971,600 69,153,776 (5,182,176) -7.5 exception. Symbolic of Cotton 2,564,256 2,237,298 326,958 14.6 this economic downturn were Chapter Dairy 18,934,405 21,058,156 (2,123,751) -10.1 11 bankruptcy filings by many large Diversified 21,460,701 24,324,871 (2,864,170) -11.8 U.S. businesses, including several by Fruit & vegetable 5,151,426 5,269,664 (118,238) -2.2 major cooperatives. Preliminary Farm supply 5,280,025 5,892,671 (612,646) -10.4 reports—analyzed as part of USDA’s Grain 5,673,474 5,289,782 383,692 7.3 annual financial survey of the top 100 Poultry & livestock 2,402,144 2,469,662 (67,518) -2.7 farmer-owned cooperatives—show Rice 1,049,388 1,038,287 11,101 1.1 that more than half of the co-ops end- Sugar 1,455,781 1,573,385 (117,604) -7.5 ed 2002 with lower total revenue than in 2001. For the top 100 farm cooper- 8 percent in 2002, which prevented the highest level recorded in the past atives as a whole, revenue dipped 7.5 gross profit margins from falling more 10 years. percent from 2001. than they did. Cotton cooperatives needed higher Despite the deteriorating revenue Operating expenses of $4.8 billion gross margins to cover record-high picture and bankruptcy filings, the remained virtually unchanged from operating expenses. Operating expens- largest cooperatives showed surprising 2001. This resulted in net operating es jumped 84.3 percent, to $161 mil- resilience in the face of a difficult econ- margins of $796 million, another 10- lion (due mostly to the cost of process- omy in 2002. year low. Lower interest expense and ing a very large crop), leaving net Most of the $5.2-billion decline in non-operating revenue boosted net operating margins of $70 million in operating revenue can be attributed to margins from operations by 15.5 per- 2002. Due to lower interest rates as lower sales in the dairy and diversified cent, to $613 million (table 2). well as lower debt levels, interest co-op groups. These two sectors expense was down 41 percent, to $14 accounted for 80 percent of the rev- Cotton co-op margins soar million. The result was $62 million in enue decline. Strong showings by cot- Cotton prices edged higher in 2002, net margins from operations in 2002, a ton, grain and rice co-ops helped offset thanks in part to rising exports. Most tremendous improvement over a $4 the downtrend, as indicated in table 1 cotton cooperatives reported improved million loss in 2001. (which compares total revenue for all revenue, with a 14.6-percent gain for co-op commodity groups between the sector. Prices returned to members Dairy suffers low prices 2001 and 2002). in the form of cost of goods sold Lower milk prices coupled with Gross profit margins for the top 100 increased 8.8 percent, substantially less lower volume pushed revenue down co-ops also declined, falling 2.2 per- than the increase in revenue. The 10.1 percent for dairy cooperatives in cent, to $5.6 billion—the lowest result was higher gross margins, which 2002. After reaching record levels in amount in 10 years. Cost of goods sold reached $232 million in 2002, an 2001, dairy cooperatives ended the year mirrored the change in revenue, falling increase of just under 150 percent and with total revenue of $18.9 billion,

Rural Cooperatives / November/December 2003 17 the lowest amount since 1993. —Net margins from operation by commodity group, 2001-02, Operating expenses increased 2 per- Table 2 cent, to $664 million, for farm supply top 100 cooperatives co-ops. That’s the highest expense lev- Net Margins el in the past 10 years. Higher operat- 2002 2001 Difference Change ing expenses combined with lower —–––––––———$1,000———————— —percent— gross margins sliced deep into net All cooperatives 613,634 531,166 82,468 16 operating margins. Net operating Cotton 62,444 (4,175) 66,619 (1,596) margins were down 76.4 percent, to Dairy 203,098 245,046 (41,948) (17) $18 million. Fortunately, lower inter- Diversified (88,086) 97,222 (185,308) (191) est expense, along with higher non- Fruit & vegetable 95,163 49,353 45,810 93 operational revenue, prevented net Farm supply 13,858 17,298 (3,440) (20) margins from operations from becom- Grain 99,894 105,725 (5,831) (6) ing a net loss. Net margins from oper- Poultry & livestock 67,177 41,642 25,535 61 ations were $14 million, down 19.9 Rice 151,223 8,441 142,782 1,692 percent from 2001. Sugar 8,863 (29,386) 38,249 (130) Grain revenue climbs Grain prices and supplies held down $2.1 billion from 2001. Similar expense, diversified cooperatives ended steady from 2001 to 2002. Virtually to cotton cooperatives, dairy coopera- 2002 with a net loss from operations of all co-ops categorized as “grain co- tives lowered their cost of goods sold $88 million. ops” in USDA’s top-100 co-op survey by 10.5 percent, resulting in a 2-per- also provide farm supplies and ser- cent drop in gross margins, to $1 bil- Mixed results for vices to their members. However, lion, in 2002. fruit/vegetable co-ops those cooperatives that predominately Operating expenses for dairy co-ops As in 2001, the market was mixed market members’ grain generated were up 2 percent, to $933 million. for fruit/vegetables. Some produce higher revenue from their farm sup- Lower gross margins with higher crops had higher prices, while prices ply sales and service revenue. Feed operating expenses caused net operat- retreated for others. The net result was sales pushed up total farm supply sales ing margins to fall 19.4 percent, to that fruit/vegetable cooperatives saw by 37 percent, helping boost total $157 million, the lowest level in the their net revenue dip 2.2 percent, to revenue for grain cooperatives by 7.3 past 10 years. Lower working-capital $5.2 billion. Cost of goods sold was cut percent, to $5.7 billion. loans and lower interest rates cut 2.7 percent, resulting in a slight 0.3 Gross margins for grain co-ops interest expense by 25.2 percent, to percent decrease in gross margins, to climbed 2 percent, to $533 million. $48 million. Although down 17.1 per- $997 million. However, operating expenses jumped cent from 2001, net margins from Fruit/vegetable cooperatives contin- 12 percent, to $471 million, suppress- operations were still a healthy $203 ued to cut operating expenses. Operat- ing net operating margins 38.6 percent, million in 2002. ing expenses are down 30 percent since to $62 million. Similar to farm supply 1999, falling to $771 million in 2002. cooperatives, grain cooperatives had Cooperative failures Lower expense boosted net operating lower interest expense and higher non- hurt diversified sector margins 24 percent, to $226 million. operational income, which lifted net Diversified cooperatives took a hit Lower interest expense also helped the margins from operations to $100 mil- in 2002, with two cooperatives filing bottom line for these cooperatives. Net lion. However, this was down 6 percent for chapter 11 bankruptcy. The losses margins from operations were up 93 from 2001. generated from these cooperatives percent, to $95 million, in 2002. pushed total revenue for diversified Livestock margins surge upward cooperatives down 11.8 percent, to Petroleum sale decline Declining livestock sales pushed $21.5 billion. Gross margins were cuts farm supply revenue revenue down for poultry & livestock down 15 percent, to $1.2 billion, levels Farm supply cooperatives suffered a cooperatives in the top 100. This not seen since 1994. $612.6-million decline in revenue in commodity group had a decline in Lower gross margins and higher 2002. Lower petroleum sales accounted revenue of 3 percent, to $2.4 billion operating expenses left diversified for nearly half of the decrease in rev- in 2002. Gross margins of $174 mil- cooperatives with a net operating loss enues. Lower demand for fertilizer also lion were up 28 percent. Even in the of $13 million. Despite higher non- hurt farm supply sales. Gross margins best of times, margins are generally operational revenue and lower interest were down 6 percent, to $682 million, tight for poultry/livestock coopera-

18 November/December 2003 / Rural Cooperatives tives, so any increase helps. line. Net margins from operations sky- lower amounts of current assets. Higher gross margins and lower rocketed 1,691.5 percent, to $151 mil- Current assets fell $564 million to operating expenses provide lion, a record high. $12.3 billion. livestock/poultry cooperatives with a On the other hand, total liabilities 165.6 percent increase in their net Margins hold for sugar co-ops only declined 0.9 percent to $17.7 operating margins. Net operating mar- Revenue for sugar cooperatives fell billion. The largest cooperatives gins reached $65 million in 2002. Low- 8 percent, to $1.5 billion in 2002. appeared to be transferring more of er interest expense also helped increase However, lower cost of goods sold their liabilities from short-term to net margins from operations by 61.3 enabled gross margins to remain rela- long-term. While current liabilities percent, which ended the year at $67 tively unchanged from 2001 at $351 fell 4.7 percent, to $9.5 billion, million. million. Lower operating expenses non-current liabilities increased 3.9 increased net operating margins 67 percent, to $8.2 billion. Record net margins for rice percent, to $58 million. Member equity fell $327 million, Rice sales were up 1.1 percent, Higher net operating margins and to $8.7 billion, the lowest level since which halted the declining revenue lower interest expense allowed sugar 1995. trend of the past few years. Rice cooperatives to post net margins from Cotton cooperatives ended the year prices and production declined once operations of $9 million. Sugar cooper- with 31.7 percent less current assets again in 2002. A few rice cooperatives atives have been operating at a net loss than in 2001. Declining current assets opened some foreign markets for rice from operations since 1997. pushed down their total assets by 23.5 exports, which helped boost their percent, to $667 million. Their liabili- total sales. However, these sales came Assets of top 100 drop ties, both current and long-term, fell at a price, as their cost of goods sold Assets for the top 100 cooperatives 35.4 percent. Total liabilities for cotton jumped 5.6 percent and caused gross fell for the first time since 1998. Figure cooperatives were $387 million at the margins to fall 9.1 percent, to $292 1 shows the ownership of assets for the end of 2002. Some of the higher mar- million. past five years. Outside claims to coop- gins from operations were rolled over Operating expenses were slashed eratives’ assets are in the form of liabil- into their member equity, which 54.2 percent, to $140 million, which ities. Members’ claims on co-op assets increased 2.9 percent, ending 2002 at left rice cooperatives with the highest are reflected in member equity. $280 million. net operating margins in the past 10 Total assets for the top 100 fell 2.1 Dairy cooperatives also ended the years. Net operating margins were up percent, to $27.2 billion. Most of the year with lower value assets. Current 914.7 percent, to $152 million. commodity groups—with the excep- assets fell 11 percent, which caused Higher operating margins and lower tion of farm supply, grain and rice total dairy assets to fall 5.1 percent, to interest expense gave rice cooperatives cooperatives—saw their assets decline $4.8 billion. Total liabilities declined a tremendous boost to their bottom in 2002. Most of the drop was due to 8.7 percent, to $2.7 billion, due to a drop of 12.9 percent in current liabili- —Composition of total assets, Top 100, 1998-2002 ties to $41.9 billion. Figure 1 Long-term debt actually increased 3.4 percent, to $778 million. Minority 30 interest and member equity remained unchanged from 2001, at $378 million 25 and $1.8 billion, respectively. Despite the much-reported co-op 20 bankruptcies, total assets for diversified cooperatives remained unchanged at the end of 2002, standing at $10.7 bil- 15 lion. On the other hand, total liabilities $ billions jumped 3.8 percent, to $7.7 billion. 10 Leading this increase was long-term debt. Long-term debt was up 5.2 per- 5 cent, to $4.2 billion, while current lia- bilities were up 2.3 percent, to $3.5 bil- 0 lion. As would be expected with filings 1998 1999 2000 2001 2002 for bankruptcy, member equity fell Total liabilites Minority interest Total member equity 10.8 percent, to $2.7 billion. continued on page 30

Rural Cooperatives / November/December 2003 19 V ALUE-ADDED CORNER Sweet smell of success Oklahoma wheat producers use USDA financing to launch frozen-dough bakery

By Sally Vielma, opted to pursue production of frozen, USDA Rural Development, self-rising dough products plant. Oklahoma Co-op launched raveling in northwestern The group initially organized as a Oklahoma, it is evident Limited Liability Company (LLC) as it that the waves of wheat planned for the processing of area pro- T are a major contributor ducers’ hard-red winter wheat into val- to the economic base of ue-added food products. The organiza- the region. As the state song, “Okla- tion, called Value Added Partners LLC, homa,” says, when the wind comes sweeping down the Oklahoma wheat is being processed into plain, the waving wheat can frozen, self-rising pizza crusts at the new sure smell sweet. “Sweet” Value Added Partners plant in Alva, Okla. not only describes the smell Photo courtesy Value Added Partners at the Value Added Products Inc. cooperative’s frozen tic,” board members say. Project back- dough processing plant, but ers held 34 producer meetings across also the aroma of several Oklahoma, which resulted in more other aspects of the cooper- than 900 separate producer/investors ative’s bakery operations. joining. About $7.5 million in member equi- Adding value to hard-red wheat assessed the feasibility of a frozen-dough ty was raised in just three months. A A core group of wheat producers in processing plant. Several associations second equity drive in 2000 brought in the Woods County area of northwestern with international expertise in the field an additional $2 million in one month. Oklahoma held initial meetings to dis- of bakery facilities, equipment and sup- The great response to the second equity cuss value-added processing alternatives plies greatly assisted the producer group drive was accomplished by mailing a for their hard-red winter wheat. This as it examined value-added alternatives. single letter to producer/investors. The variety is the region’s major crop, pre- Value Added Partners evolved into a response was indicative of the strong ferred by producers as a consistent closed cooperative, and the name level of commitment and belief the pro- source of clean, high-quality wheat that changed to Value Added Partners Inc. ducers had in the VAP co-op. has above-average test weights and pro- (VAP) in 1999. The co-op, as originally VAP also used a 70-percent Business tein levels. Wheat producers, coopera- designed, was to provide wheat pro- and Industry Guaranteed Loan, for tive groups, economic development ducers the opportunity to expand their $7.5 million, from USDA Rural Devel- partners and agricultural business lead- customer base through vertically inte- opment for some of the capital expense ers all shared the vision and desire to grated processing. It also would allow for the project. add more value to the crop in the region producers to capture a larger share of where it is grown. the profit margins through the further Perfect site located After careful study of information processing of their wheat. With organization structure and and research from the Oklahoma The project “just felt right to all of us management services in place, VAP Department of Agriculture, Oklahoma from the beginning,” says Mike Dunker, selected a site it felt was perfect for the State University and a professional plant manager. Producer response to the dough processing facility: a 48,000- consulting firm, the value-added group initial equity drive in 1999 was “fantas- continued on page 32

20 November/December 2003 / Rural Cooperatives Co-ops follow more than one path for nominating board candidates

By Bruce J. Reynolds, nomination are two parts of the these alternatives and their potential Economist process of getting qualified candidates strengths and weaknesses may offer USDA/RBS Cooperative Services on an election ballot. Selection is a ideas to consider when reviewing your [email protected] process of deciding who should be co-op’s nomination practices. nominated, while nomination is the act Editor’s note: This article is the first in a of putting a candidate on the ballot. Nominating committee series (to be continued in future months) on Standard procedures for candidate The survey showed that a nominat- selecting and compensating directors. selection and nomination often have to ing committee is by far the most widely be adapted to local conditions. Bylaws used vehicle for selecting candidates. rocedures for selecting usually authorize more than one proce- This method was used by 374 coopera- candidates for boards of dure for nominating candidates, but tives, or 86 percent of the respondents, directors are seldom a they do not indicate which nomination but most also use other procedures. A P central topic of “best methods are used most frequently. nominating committee is responsible practices” seminars for A survey was recently distributed to for finding the best available candidates either cooperatives or investor-owned learn more about how cooperatives from a cooperative’s membership and is firms. But the recent wave of corporate select and nominate candidates for often involved in other preparations scandals has moved this topic to center their boards. It listed some of the com- for an election. For example, nominat- stage, at least when it comes to invest- mon procedures and provided blank ing committees must prepare the ing in corporations. Business journals space for “other” methods to be ballot, which includes their nomina- and other media are abuzz with recom- described. Several cooperatives tions and all others nominated by valid mendations for more democratic meth- described additional procedures or sent methods. ods of director selection. copies of policy statements related to The strength of a nominating Cooperatives are governed by these matters. Responses were received committee depends on the extent of democratic procedures, which from 433 cooperatives. A summary of deliberation and study that go into its strengthen trust and accountability. For cooperatives, it is important to identify candidates with solid business and planning skills and with good lead- ership traits. The current debate makes it an opportune time to review some of the alternative procedures agricultural cooperatives use for selecting directors.

No single selection procedure fits all There is no single “best practice” for finding excellent board candidates. Each cooperative must explore what works best for its members. Clearly, large membership cooperatives often Whether overseeing the business affairs of a local farm supply cooperative (above) or a need a different procedure for candi- multi-state regional, success means having a good board of directors. That requires a well- date selection than those with relatively planned nominating process. Photo by Sandi White, courtesy Tennessee Farmers Cooperative few members. Candidate selection and

Rural Cooperatives / November/December 2003 21 choices. Both directors and other mem- bers can share valuable insight about the membership when serving on a nomi- Methods for selecting and recruiting nating committee. Out of 376 coopera- tives reporting on nominating commit- candidates for directors tee composition, 163 (43 percent) use • Nominating committee only non-director members on the com- – Composed of different combinations of non-director members and mittee. Another 131 (35 percent) use a directors mix of directors and non-directors, while – Board appointments of non-director members of committee 82 (22 percent) have only directors on – At-large or district elections of non-director members of committee the nominating committee. • Nominations form the floor of annual or district meetings A director-only nominating com- • Recruitment by directors mittee can operate without conflicts of • Member caucus at annual or district meetings interest when there are board vacancies • Nominations by mail or when elections are staggered so that • Ballot write-ins there are always some directors who • Nomination by application are not running. However, a potential • Associate board weakness of the board’s involvement is that nominating committees may not be formed when elections involve ally screen out “devil’s advocate”-type dure for selecting candidates until the incumbent directors. directors—those who contribute by latter part of the 20th century. A simi- About two-thirds of the cooperatives questioning the status quo and who lar survey was last conducted by Coop- reported that they do not have a policy may offer valuable new ideas. Another erative Services in 1949.2 At that time, requiring that elections be contested, possible weakness of director control only 19 percent of 962 respondent thus often allowing incumbents to run over candidate selection might occur if cooperatives used nominating commit- unopposed. Although many coopera- members feel they have no real influ- tees, while nominations-from-the-floor tives reported difficulty finding mem- ence on the process of who can be during annual or district meetings were bers willing to challenge popular elected to the board. used by 64 percent of co-ops (which incumbents, nominating committees These kinds of weaknesses have has now fallen to 36 percent). perform better if they are actively inspired a manager of one rural electric The strength of floor nominations is searching and recruiting candidates for cooperative to recommend “good rid- in having increased member access to all elections. dance” to the nominating committee.1 the candidate selection process. Its Directors, as well as managers, have Yet, there are ways to capture potential impact is likely to be greatest in coop- experience in knowing what capabili- strengths and minimize perceived eratives that report having no nominat- ties are most needed on their board. weaknesses of nominating committees. ing committees, or which only occa- Managers often work in an advisory For example, to address concerns by sionally use them, as was the case for capacity with the nominating commit- members of too much director control 39 cooperatives. tees. Directors have an appreciation for over candidate selection, nominating Weaknesses of nominations-from- certain attributes candidates would committees can be elected rather than the-floor mirror the strengths of nomi- bring to the board. For those coopera- appointed. At least 20 cooperatives nating committees. There is potential tives which disallow directors on the reported holding elections during their for too much spontaneity or lack of nominating committee, information annual meeting to select the nominat- study and deliberation about potential sharing between board and committee ing committee. candidates. But in those cases where can contribute to better candidate Several cooperatives issue a formal members at annual or district meetings selections. request for volunteers for the commit- have substantial familiarity with one Determining who serves on the tee, and a couple reported using a another, nominations from the floor nominating committee is often another random selection procedure to solicit are unlikely to result in neglect of the way for directors to exercise influence. non-director volunteers to serve. The best candidates. Most non-directors are appointed to purpose of these efforts is to find ways The shift over time from nomina- the committee by directors. to get more members involved in the tions-from-the-floor to nominating Advantages of director influence on process of candidate selection. committees as the most commonly candidate selection may become a used procedure may reflect the increas- weakness if applied without checks and Nominations from the floor ing complexity of business faced by balances. Selecting for positive traits, Nominating committees didn’t cooperative boards. More cooperatives such as a team player, may unintention- become the most widely used proce- have responded to this complexity by

22 November/December 2003 / Rural Cooperatives reducing their use of spontaneous pro- mail are not only in having all mem- Nomination by application cedures for selecting candidates. bers involved, but also in the opportu- Cooperatives generally prefer an nity for individuals to make nomina- open process of candidate selection, in Recruitment by directors tions without the pressures for group the sense of not limiting any member Candidate recruitment by directors consensus that prevail in meetings. A from running for the board. Similar to is widely reported. Although 157 coop- potential weakness for this procedure is the procedures of nominations from eratives reported such recruitment, that it misses the benefits of group dis- the floor and ballot write-ins, a mem- some of it overlaps with the work of cussion about potential nominees. But ber can be nominated without having nominating committees that include familiarity with potential nominees major name-recognition among the directors. However, recruitment by that often exists in membership dis- membership, and may even get on the directors is a distinctive procedure for tricts enables a nomination-by-mail ballot primarily by self-selection. An candidate selection when nominating procedure to work well. Another applicant usually must submit pertinent committees are not used by a co-op, or potential weakness is plurality voting, information to the cooperative or when they are exclusively composed of where a candidate might lose when nominating committee several weeks non-directors. These conditions apply running against two or more con- before the election. to 45 cooperatives in the survey. tenders but would win in a one-on-one In some cases, a signed petition by a election against those same candidates. specific threshold number of members Member caucus is required. Its advantage over nomi- Member caucuses (usually held dur- Ballot write-ins nations-from-the-floor and ballot ing annual or district meetings) can Provision is often made for writing- write-ins is that cooperatives often dis- engage much broader participation in in candidates on ballots when members tribute a “bio” on each candidate so the nomination process than do nomi- are dissatisfied with the official list of that members can use this information nating committees. In contrast to to help them decide whom to vote nominations-from-the-floor, more for. Frequent use of nomination by time is allotted for group delibera- In short, a nominating application was reported by 26 tion. Although not listed as an cooperatives, while 105 reported option in the survey, three coop- committee can operate occasional use. eratives reported using caucuses. Usually, cooperatives do not as if it were an office Associate board have both member caucuses and An associate board is a practical nominating committees. While of human resources. method for developing quality can- most cooperatives use the latter didates for directors. These mem- procedure, it should be noted that bers are usually young farmers who caucuses are used by some relatively nominees. Ballot write-ins can be stand out as good prospects and are large membership cooperatives, so that regarded as more of a membership either appointed by directors or can a fairly substantial number of farmers right than a candidate selection proce- apply to be confirmed by membership participate in this method of candidate dure. It recognizes the right to vote for vote. Associate boards participate in selection. who you want to, rather than being selected meetings of the board and limited to the official nominees. It’s may have special committee assign- Nominations by mail applicable when using paper or other ments, with the primary objective A cooperative’s entire membership forms of a written ballot that are dis- being that they gain experience for can function as a virtual nominating tributed by mail or at annual meetings. becoming future directors. As a re- committee by soliciting nominations Ballot write-ins are often disallowed cruiting procedure, this has some sim- by mail, or via a newsletter. The when any number of nominations from ilarities with candidate recruitment by mechanics of this procedure vary, but, the floor are included in the vote. The directors, as well as being a member as an example, one cooperative mails a nominations-by-mail procedure does education program. response card to each member to not accept ballot write-ins because Although the survey did not specify make a nomination. All nominees list- members had their opportunity to associate boards as a candidate selec- ed on the returned response cards are nominate on the response card. Never- tion procedure, 17 cooperatives put on the ballot. Ballots are then theless, many cooperatives have bylaws reported having this type of program, mailed to members. In the event of a that authorize ballot write-ins. Out of which suggests that it is relatively tie, a run-off election is held. The the survey response by 433 coopera- popular. A possible limitation is in procedure is applied in each of the tives, 52 reported frequent use and 132 having to make choices in the present cooperative’s 22 districts. have occasional use of write-in candi- about directors for the future, in con- The strengths of nominations by dates on the ballot. trast to a search procedure just prior

Rural Cooperatives / November/December 2003 23 to an election. But it is an effective outside of nominating committee work skills for serving on the board. In way to develop a competent board and has also been driven by the need to find short, a nominating committee can to boost newly elected directors along “willing and able” candidates. In addi- operate as if it were an office of the learning curve faster than human resources. would normally occur. Candidate selection procedures in There has been a cooperatives will continue to be dri- Searching for candidates ven by demand for skilled leadership Procedures for selecting coop- gradual shift to in carrying out the increasingly erative director candidates are challenging tasks of fiduciary duties not often scrutinized and procedures with more and long-range planning. Further- changed. There has been a grad- more, difficult issues of business ual shift to procedures with more deliberation and study ethics accompany the growing deliberation and study of poten- financial complexity of today’s coop- tial candidates and slightly less of potential candidates. eratives. In the wake of recent cor- reliance on spontaneous methods porate financial scandals, business of selection. This change is indicated tion, associate boards address these ethics are receiving more emphasis by the rise of the nominating commit- problems more head-on than the more overall. In fact, investor-owned firms tee and the decreased use of nomina- spontaneous methods of candidate are being urged to apply democratic tions from the floor that occurred selection. principles to reform their director can- between 1949 and 2003. The weaknesses of nominating didate selection procedures. Good Increased use of nominating com- committees are less in their design advice that has long been followed by mittees reflects efforts to address some than in their execution, particularly cooperatives. ■ of the problems that many cooperatives when their search process is too nar- have encountered in finding members row. The committee should not limit 1 Avram Patt, “Here’s a Novel Con- who have an aptitude for serving and its considerations to a circle of friends cept: Get Rid of Your Nominating who are willing to serve. Many survey or be satisfied when it has found a Committee,” Cooperative Business participants reported the latter consid- “willing and able” candidate, but must Journal, NCBA, Aug/Sep 2002. eration as a major problem. When sub- build a database of capable candidates. 2 Nelda Griffen, H. N. Weigandt stantially large numbers of members This exercise ought to be carried out, and K. B. Gardner, Selecting and are reluctant to serve, there is need for not only for board vacancies, but also Electing Directors of Farmers’ Coop- more advanced planning to search for to find challengers to the incumbent eratives. USDA/Farmer Cooperative potential candidates and to hold discus- directors. Nominating committees Service, General Report #14, 1955. sions about the benefits of serving on could survey the membership for sug- (Note—the survey was taken in 1949, the board. gested candidates, as well as asking for but the report was not published Candidate recruitment by directors information about members’ relevant until 1955).

‘CHS Inc.’ now official name

In an effort to ease confusion and simplify its corporate name, Cenex Harvest States will henceforth be rec- ognized as CHS Inc. In a vote of the membership, 87 percent favored the legal name change, which only required a majority for passage. About half of the cooperative members and producers in 27 states cast ballots. Meanwhile, CHS is shifting its Tex-Mex food business in January to a new location in Fort Worth, Texas, which will be a more automated facility. The cooperative purchased Rodriguez Foods two years ago and will shift its tortilla and chip production to the new site. The company also makes tamales, burritos and enchal- adas and supplies Texas prisons, the U.S. military and restaurant chains. CHS plans to invest $15 million in the 100,000-square-foot facility at Fort Worth and move 15 million pounds of annual production there from Minnesota. ■

24 November/December 2003 / Rural Cooperatives Seeking the best Director leadership: what does it take?

By Jim Wadsworth, Program Leader, Education “Little positive can and Member Relations happen for cooperatives USDA Rural Development unless they have leader-

he Greek philosopher Diogenes is said to have ship able to meet the walked city streets, lantern in hand, looking for challenges of the 21st an honest man. While honesty is one quality century. Skills required T cooperatives should seek in their leaders, there to lead cooperatives are many others. must be identified and As the statement at right implies, cooperatives need strong leadership to meet present and future challenges. But serious developed in directors questions arise. What does leadership mean for a coopera- and managers.” tive? What makes an effective cooperative leader? Precisely what skills or traits are required? What type of people fulfill —Excerpted from “Agricultural this need? Cooperatives in the 21st Century” There are many definitions for cooperative leadership. (RBS Cooperative Information These may include: having the ability to lead the board of Report 60, pg. 17). directors toward sound decisions; being loyal to the coopera- tive and inspiring loyalty in others; being unselfish and trust- worthy; having courage to take on hard problems and the stances and issues? An effective leader confronts business and integrity to stand by decisions; understanding and upholding life with enthusiasm, isn’t a pessimist or a complainer. These cooperative principles and concepts. people are willing to take on tough issues with the same enthu- But do these definitions go far enough to enable members siasm that they display going about their everyday lives. and directors to successfully identify and choose future lead- Listening ability—A leader listens to people and hears ers? To a degree. But other leader characteristics should also what they have to say. The listening is sincere and patient be considered. and shows respect for different opinions. A good listener lis- Many would agree that effective leaders often have impor- tens to learn, rather than listens only to await a chance to tant personality traits that are intangible, or that lie below talk. This trait inspires trust and confidence. the surface. Indeed, there’s often something inexplicable that Think before speaking—Effective leaders are those makes some people leaders. The strength of their personali- who have the ability to think things through before con- ty—be it charm or stature (i.e., they connect to people and structing their words and phrases. Speaking very quickly or carry themselves well)—in itself makes them effective leaders. off the cuff works for some people, but others often find These people usually stand out from the crowd. They possess themselves saying things they didn’t actually mean or traits that are difficult to learn, since they often come natu- intend to say. Leaders need to have the ability to analyze rally to such people. There may be some who try to “act out” information, and then form logical conclusions before these traits, but they are usually seen as just that: as actors. articulating their thoughts. However, certain leadership traits, behaviors and methods Stubbornness vs. flexibility—Leaders often learn when can be learned or acquired through experience, education, to stick to their guns and when to be more flexible. This usu- training and self-study. The following are traits commonly ally takes experience, because every situation is different. found among effective leaders. Effective leaders are those who have learned when to stay the Enthusiasm—Does the person show consistent enthusiasm course in their opinions and decisions and when to be flexi- toward the cooperative, people and life in general? Is the per- ble. Leaders must be careful not to be indecisive, stubborn or son positive and upbeat when challenged with difficult circum- continued on page 33

Rural Cooperatives / November/December 2003 25 Cooperative exports decline in 2001; bulk sales fall but continue to dominate sector

By Tracey L. Kennedy, Agricultural Economist Figure 1—Agricultural exports by U.S. cooperatives 1997-2001 USDA Rural Development $9.0

Editor’s note: USDA’s Rural Business- $8.0 ◆ Cooperative Service began an annual $7.0 survey of cooperative involvement in ◆ international markets in 1997. Prior to $6.0 then, cooperative exports and imports were ◆ ◆ $5.0 ◆ measured at five-year intervals. An $4.0 overview of survey findings for 2001 is $ billions presented here. $3.0

gricultural exports by $2.0 U.S. cooperatives in $1.0 2001 dropped by more A than 13 percent, to $5.07 $0.0 1997 1998 1999 2000 2001 billion, from 2000, but still topped 1998 and 1999, when the global currency and financial crises still exports was $53.6 billion, an increase of remain concentrated in bulk products. Of plagued world markets. A 25-percent almost 5 percent from 2000. While the total for cooperatives in 2001, $2.96 decrease in sales of bulk commodities trends in U.S. trade continue to point to billion, or 58 percent, consisted of bulk in 2001 was wholly responsible for the the increased importance of consumer- commodities (mainly grains, oilseeds and overall decline. related products relative to bulk com- cotton). Bulk sales account for about 35 The total for all U.S. agricultural modities, exports by U.S. cooperatives percent of all U.S. agricultural exports. Consumer-oriented or high-value Figure 2—Cooperative exports by category 2001 products (meats, dairy products, tree nuts and fresh and processed fruits and vegetables) accounted for $1.81 billion, Intermediate or 36 percent, of total exports by coop- Bulk eratives, compared to 42 percent for all 6% U.S. exports. Intermediate products (ingredients 58% and partially processed products, such as flours, meals, oils, prepared feeds and animal byproducts) accounted for 36% $290 million, or 6 percent, of coopera- tive exports, compared to 23 percent Consumer for all U.S. ag exports (figure 2). Coop- eratives also reported $61 million of exports of non-agricultural products (farm production supplies and fisheries products) in 2001.

26 November/December 2003 / Rural Cooperatives Sales concentrated among few, large co-ops Figure 3—Cooperative exports by category 1997-2001 Among the 81 cooperatives reporting to USDA on their export sales in 2001, $6.0 ◆ exports continued to be concentrated among a few of the largest cooperatives. $5.0 Bulk Just six cooperatives—each having sales of greater than $100 million—were respon- $4.0 ◆ sible for 73.5 percent of all exports by ◆ cooperatives. Those six cooperatives rep- $3.0 ◆ resented a range of agricultural products $ billions ◆ and geographic areas. The magnitude of Consumer $2.0 ● ● exports among individual cooperatives ● ● continues to be diverse, ranging from less ● $1.0 than $10,000 to almost $2 billion. Intermediate ■ ■ ■ ■ ■ Co-op share of U.S. exports $0.0 1997 1998 1999 2000 2001 Cooperatives’ overall share of U.S. agricultural exports for 2001 was approx- imately 9.4 percent, down from 11.4 in 2001 after recent showings of both products and tree nuts drove coopera- percent in 2000. The co-op share for sharp decreases (54 percent in 1998) tives’ increase, while fruit and vegetable bulk commodities was 15.7 percent, and increases (47 percent in 2000). products fell off slightly. down from 21.5 percent the previous A sharp decline in cooperative sales Intermediate products, which had year, while exports of consumer-oriented of wheat in Asian markets was responsi- shown significant volatility in the late products accounted for 8 percent of U.S. ble for the drop in 2001, while other 1990s, recovered from a 50-percent consumer exports, up slightly from 7.5 bulk products, such as cotton and decline in 2000 with a 23-percent percent in 2000. Intermediate product coarse grains, showed significant gains. increase, to $290 million, in 2001. This exports from cooperatives had a 2.4-per- U.S. exports of bulk commodities was mainly on the strength of increases cent share, up slightly from 2.1 percent. showed much more modest change in prepared feeds and oilseed meals. over the same period. U.S. sales of the same commodities Broad recovery while Consumer-oriented products con- have shown modest increases in the market shifts continue tinued to gain ground, following on a past two years. Exports by cooperatives showed percent increase in 2000 with a gain of improvement across two of three major almost 12 percent, to $1.8 billion, in Asia, Latin America still top markets product categories in 2001 (figure 3). 2001. In contrast, U.S. sales of con- Asia continued as the most impor- Bulk commodity sales continue to be sumer-related exports rose just 3.6 per- tant regional destination for coopera- volatile, falling by more than 25 percent cent in 2001. Gains in meats, dairy tive exports in 2001, accounting for 37 percent, or $1.95 billion, of co-op Figure 4—Cooperative exports by destination, 2001 exports. But that was down from $2.46 billion, or 41.5 percent, of the total in 2000. Latin America’s emergence (pri- Latin America $1,363.6 million marily Mexico) as a primary market North America-$381.8 million continued in 2001, taking in $1.36 bil- Middle East-$133.1 million lion (26 percent) worth of cooperative Oceania-$34.3 million exports. That compares to $1.41 bil- lion, or 23.6 percent, the previous year. Unidentified $240.5 million European destinations recovered Europe-$628.6 million somewhat in 2001, accounting for $628 Africa $401.7 million million, 12 percent, of cooperative exports. That compares to $532.4 mil- Asia lion, 8.9 percent, in 2000. African mar- $1,944.5 mil kets lost some ground in 2001, with $401 million in export sales there com- pared to $600.7 million in 2000, a drop from 10.2 percent to 8 percent. ■

Rural Cooperatives / November/December 2003 27 NEWSLINE Compiled by Patrick Duffey

Barr interim NCFC president National Milk Producers Federation Gold Kist, Ag Processing Inc., South- Te rry Barr, vice president and chief at Arlington, Va., from 1969 to 1985, ern States Cooperative, West Farm economist for the National Council of died of cancer Sept. 12. He joined Foods, Staplcotn, GROWMARK Inc. Farmer Cooperatives in Washington, NMPF in 1954 after several years and Foremost Farms USA. D.C., is serving as interim president with USDA’s dairy division. During “When I look at the revenues with the departure of President David his NMPF tenure, he successfully lob- reflected in this year’s NCB Co-op 100 Graves on Oct. 31.The selection of bied for significant increases in dairy list for agriculture and other coopera- Barr, who has been with the council price support loans and also backed tive sectors, I’m extremely impressed,” for nearly 20 years, was announced by creation of the National Dairy Pro- Snyder said. “For more than 100 years, Board Chairman Jack Gherty. Mean- motion Act of 1983 (first national America’s cooperatives have not only while a search committee has been dairy commodity checkoff). survived, but flourished—prevailing formed to recruit and screen candi- through adversity and economic dates for the executive post, but no $119 billion in ‘02 sales downturns, bringing fiscal stability and timetable has been set for that deci- notched by top 100 co-ops prosperity to millions of people.” sion. Graves, who had served as The nation’s 100 largest coopera- Snyder said the role of co-ops NCFC president since 1997, departed tives—representing the agriculture, becomes more important as more to pursue other business interests. He finance, housing, energy and hardware traditional companies face loss of will continue to advise and counsel sectors—reported $119 billion in sales business revenue and corporate cut- during the transition period. in 2002, according to National backs. “Rather than being Cooperative Bank (NCB). owned by outside investors, Scholarships available for Agriculture co-ops cooperatives look inward CCA Institute at Louisville dominate the list, with 41 toward their members, The Cooperative Communicators farmer-owned co-ops those who use and benefit Association (CCA) is again offering an accounting for about half from the goods and ser- expense-paid trip for a pair of college of the revenue. vices provided. The focus students who are studying journalism The report is an important of cooperatives is to maxi- to attend CCA’s annual institute next indicator of the cooperative busi- mize economic returns for June in Louisville, Ky. Applications are ness activity across the country, says members, not top-ranking executives available from CCA’s website: Charles Snyder, president and chief or distant investors,” he said. www.communicators.coop. Deadline is executive officer of the Washington, “Cooperatives have never been Dec. 1. The two interns selected will D.C.-based bank. The 100 coopera- more pertinent. Americans are assist with CCA communication activi- tives showed earnings of $346 million, demanding consistent and secure ties, working from remote sites via the up $50 million from 2001. The entire businesses connected in a real way to Internet for five-month internships, report is available on the Web at: their communities—and cooperatives running from January through May. www.co-op100.coop, or by calling offer that dependability to thousands They may be eligible for college credit (202) 336-7665. across the nation each day.” from their participation.The intern- Topping the list was CHS Coopera- ships are funded by a grant from The tives, the St. Paul-based agricultural Alto turns dry milk Cooperative Foundation. and food cooperative. The next highest into cheese for hungry ranked ag co-ops on the list (in For the first time since the 1980s, the Former NMPF Exec. Pat Healy descending order) were: Farmland federal government is including cheese dies; backed Dairy Promo Act Industries, Dairy Farmers of America, in its emergency food assistance pro- Patrick B. Healy, president of the Land O’ Lakes, California Dairies Inc., gram and a Wisconsin dairy cooperative

28 November/December 2003 / Rural Cooperatives is involved in the pilot pro- dren who rely on us each son said the cooperative had a good gram. Alto Dairy at month.” year, but must continue to improve in Waupun recently received a The task force will dis- areas such as fertilizer management. truckload of nonfat dry milk tribute the pilot cheese to Davisson is also board chairman of CF (NFDM) from USDA’s 28 Milwaukee-area food Industries, an inter-regional fertilizer Food and Nutrition Service pantries that serve an manufacturing and distributing coop- and converted it into Moz- average of 20,000 people erative owned by GROWMARK and a zarella cheese for use in the each month. Alto CEO number of other regional cooperatives., Hunger Task Force food Rich Scheuerman said he Davisson said increasing prices of nat- program. This was the first Alto Dairy CEO Rich was pleased “to work with ural gas were driving up costs for mak- time government stocks Scheuerman and Sherrie the task force in this pilot ing nitrogen fertilizer applied as anhy- were used in such an Tussler complete a cere- program to help feed the drous ammonia. exchange. The 20,000 monial trade of milk powder hungry. I can’t think of a To reach future growth goals, he pounds of Mozzarella for cheese as part of Alto’s better way for Alto, its said, GROWMARK must increase vol- cheese, enough to top involvement in anti-hunger employees and farmer- ume and market share and continue 40,000 pizzas, were desig- efforts in Milwaukee. owners to help feed the offering new products and services. nated for use by emergency hungry in Wisconsin.” Part of the current gain stems from feeding organizations in Milwaukee. increased sales and broadening of its “It sounds simple, but this unprece- Agronomy, seed expansions seed lines to complement the FS dented exchange took years of commit- boost GROWMARK sales brands. Expanding into the Northeast, ment from our state and federal gov- Illinois-based GROWMARK via purchasing 40 agronomy outlets ernment officials at USDA and the expanded its operating territory and and seed assets from Agway, provided a Department of Health and Family Ser- posted improved sales and earnings for substantial boost in this area. vices, Alto Dairy and our team at fiscal 2003. Speaking at the regional co- Hunger Task Force,” said Sherrie Tus- op’s annual meeting in Chicago, Vice Southern States lowers debt, sler, executive director of the task President for Finance Jeff Goldberg weighs further asset sales force. “This partnership allows us to reported pre-tax earnings of $26 mil- Staggered by three years of losses, work with a Wisconsin cheese manu- lion from sales of $1.7 billion, both up due largely to a stagnant agricultural facturer to turn an unpopular dairy from 2002. Local member cooperatives market, poor growing seasons, product into fresh food for distribution will share in patronage of $18.3 million. increased imports and low farm prices, to thousands of men, women and chil- Chief Executive Officer Don Davis- Southern States Cooperative (SSC),

Survey continued from page 16 nities and help farmers succeed; When asked how familiar they were committed to, and involved in, their ■ 64 percent said that food products with the details of cooperative organi- communities produced by farmer-owned coopera- zation and philosophy, 47 percent said Cooperatives in the United States tives were of higher quality than those they were familiar with cooperatives, serve 120 million members and oper- produced by other types of companies. 30 percent were not very familiar and ate in nearly every industry. They “The survey demonstrates that con- 22 percent were not familiar at all. range in size from those listed among sumers know cooperatives by their rep- Familiarity was higher among men in the Fortune 500 companies to single, utations for quality service and prod- the 45 to 64 age range and among small local storefronts. About 30 per- ucts,” Hazen said. “And those who are adults in households earning more than cent of farm products in the U.S. are already members of cooperatives have $35,000 annually. marketed through 3,200 farmer-owned an even stronger loyalty to, and prefer- When asked to rate cooperatives for cooperatives. More than 30 coopera- ence for them. Regardless of how you 10 possible business attributes, cooper- tives have annual revenue of more than measure it,” Hazen said, “in terms of atives outscored investor-owned com- $1 billion,while the top 100 co-ops cost savings, value or satisfaction, con- panies on eight of ten attributes—and generate combined revenue of about sumers can get more for their money by wide margins in some cases. $120 billion. from cooperatives.” ■ 81 percent said cooperatives can Electricity is provided to 36 million The challenge, he said, “is in rais- be counted on to meet customer’s needs people by about 1,000 rural electric ing consumer awareness of, and ■ 79 percent said cooperatives were cooperatives which own and maintain access to, cooperatives and to make committed to providing the highest nearly half of the electrical distribution more information about cooperatives quality of service to their customers lines in the nation and cover 75 percent available to consumers.” ■ 78 percent said cooperatives are of the land mass. ■

Rural Cooperatives / November/December 2003 29 Richmond, Va., is regaining its finan- John Deere Credit’s Farm Plan. Cur- FDA clears lactoferin use cial footing by rapidly cutting its debts. rently, only three of SSC’s 140 stores for co-op’s beef products SSC has reduced its debtload by 62 are losing money vs. 70 two years ago. Months after a similar clearance by percent in 21 months and hopes to see the U.S. Department of Agriculture, a profit for fiscal 2004. Florida sugar co-op closes the Food and Drug Administration has SSC executives have denied the firm jointly owned refinery concurred with scientific data indicat- was headed for bankruptcy, although it A Brooklyn, N.Y., sugar refinery ing use of lactoferin, a milk derivative, has had unsolicited offers for parts of owned in part by a Florida sugar coop- is safe even for people allergic to milk. the cooperative’s assets. The co-op lost erative will be closed in January due to The spray is applied to beef products. $14.8 million in fiscal 2001 and $68.2 excessive capacity in the industry. The The USDA finding was sought by ALF million in 2002. The co-op expects a former Domino plant was one of three Ventures, a partnership between Farm- much smaller loss for 2003. purchased by Belle Glade-based Sugar land National Beef and its successor CEO Tom Scribner indicated sales Cane Growers and Florida Crystals owner, the U.S. Premium Beef cooper- of assets to further reduce debt would Corp. more than two years ago for ative, and Dutch-based DMV Interna- be made by the board later this year. $180 million. They formed an umbrel- tional. DMV, one of the largest pro- SSC has closed cotton gins in Georgia la organization, The American Sugar ducers of lactoferin worldwide, is part and South Carolina and shut 21 Refining Co. of Dutch-based Campina. The en- unprofitable stores across its 23-state Some products will still be packaged dorsement provides the product with trade territory. It has also signed a at Brooklyn, but with a sharply reduced “generally recognized as safe” status. long-term lease of its grain facilities to staff. The plant had been operating at Perdue Farms, closed its trucking busi- less than half of its refining capacity. A Court confirms tax ness in favor of a transportation deal cooperative spokesperson indicated this on co-op’s fertilizer with Overnite Transportation, sold its plant had been a drain on the system. It Fertilizer stored by Cooperative Wetsel seed and agronomy supply sub- is the 15th sugar refinery closed in the Agronomy Services (CAS) of Groton, sidiary and shifted its credit business to past 23 years. S.D., is subject to sales tax, the South

Top 100 Coops continued from page 19 Total assets for fruit/vegetable lion, while long-term liabilities grew at 1.9 percent lower. With higher mar- cooperatives dropped 8.2 percent, a 24.4 percent rate, ending 2002 at gins, poultry/livestock cooperatives with both current- and long-term $647 million. Equity fell 5.6 percent, to were able to add equity to their bal- assets falling. Current assets declined $1 billion. ance sheets. Member equity was up 5.4 percent, to $1.6 billion, while non- Grain cooperatives also ended 2002 2.3 percent, to $285 million. current assets were down 11.4 per- with a higher asset level. Both current Assets grew at a modest 1.4 percent cent, to $1.3 billion. Liabilities fell 6.5 and long-term assets grew, with net for rice cooperatives in 2002, to $478 percent, to $2.2 billion. assets growing 9.6 percent, to $2.6 bil- million. Growth in both current and Current liabilities fell 9.9 percent lion. Current assets increased 11.9 per- non-current assets fueled the increase. and long-tem liabilities fell 3.7 percent, cent while non-current assets grew 7.1 This expansion was solely due to to $935 million and $1.2 billion respec- percent, to $1.4 billion and $1.2 bil- member investment. Total liabilities tively. Equity for fruit/vegetable co-ops lion, respectively. shrank 4.1 percent, to $214 million, fell to its lowest level in the last 10 Grain cooperatives used both bor- with long-term debt being the main years, at $777 million, a 13-percent rowed funds and member equity to contributor to this reduction. Mem- decline. fund the asset expansion. Total liabili- ber equity grew at 6.3 percent, to ties grew 12.2 percent, to $1.5 billion, $264 million. Supply, grain co-ops while member equity grew 6.6 percent, Sugar cooperative assets fell by 1.5 expand asset base to $1 billion. percent, to $4.5 billion. Most of the Farm supply cooperatives were one Poultry/livestock cooperatives saw decline was in current assets, which of the few commodity groups showing assets drop by 11 percent, to $894 fell 4 percent, to $397 million. an expanded asset base. Total assets million. Current assets were 14.5 per- Although there was a slight increase grew 3.8 percent, to $2.6 billion. The cent lower and non-current assets of 0.8 percent in long-term debt, to growth was due to expanded current were 23.3 percent lower. Liabilities, $465 million, total liabilities fell 2.9 asset levels, which grew 13 percent, to both current and long-term, were percent, to $801 million. Member $1.4 billion. However, the growth was down 16.1 percent, to $606 million. equity grew 5 percent, reaching $459 due to higher debt levels. Current lia- Current liabilities were 28.9 percent million, the highest level of the past bilities grew 3.1 percent, to $959 mil- lower and long-term liabilities were 10 years. ■

30 November/December 2003 / Rural Cooperatives Dakota Supreme Court has ruled, sid- bers. The court said the storage was not bargaining associations. Ronald Schuler, ing with the South Dakota Revenue a tax-exempt agricultural service, noting retired manager of the California Can- Department. The cooperative is CAS was not involved in applying the ning Peach Association, has agreed to owned by and serves about a dozen fertilizer or in planting, cultivating and serve as interim chief operating officer local cooperatives in the Dakotas. protecting crops. The cooperative con- for California Tomato Growers Associa- The court contended the storage fees tended the storage and sale were a single tion (CTGA) until the board finds a were taxable because CAS was not an transaction and tax exempt. permanent successor to John Welty, auxiliary of the local cooperatives and who recently resigned. Schuler is a past the $6-per-ton storage fee was a separate Bargaining co-ops name new leaders chairman of the National Council of transaction from the eventual sale of fer- Leadership changes were recently Farmer Cooperatives and a director of tilizer by the locals to their farmer mem- made at the helm of three cooperative the California Agriculture Bargaining Tull’s Anderson says co-ops not just ‘living in the past’

Even after 35 years as leader of the British rock band says. “Throw in a bit of global warming on top of every- Jethro Tull, Ian Anderson is not too old to rock’n’roll, thing else, and boy, are we farmers—I say ‘we,’ but I and he’s definitely not too old to farm. When he’s not don’t depend on farming for a living—in a state of flux.” playing flute and singing with Tull or performing as a Farming in Britain is no longer the quaint world pic- solo artist, Anderson often occupies himself back home tured in James Herriott’s “All Creatures, Great and with his farming interests. Small” books. “There’s even some panic among For many years, Anderson’s salmon farm in farmers there. Suicide among farmers in my Scotland was Britain’s largest. That’s right, country is at one of the highest levels [for any Aqualung does aquaculture. Although he occupational group],” says Anderson. recently sold that operation, he and his wife “I guess that may apply in the U.S. for the continue to farm a variety of crops in England. same reasons—people who have grown up As a result, the Andersons have developed a with a multi-generational and cultural lifestyle strong appreciation for the role of coopera- that is threatened by forces that they don’t tives in helping farmers. always understand and which they have no “Co-ops have been a fact of life for us for possibility of input or control over. And that probably 20 years,” Anderson says. “They not really tears a man apart in a way that us folks only help in selling [our crops], but also in who play music for a living, or who work in a buying raw materials, animal feeds, diesel bank or in construction, don’t understand. That fuel or whatever. From an economic point of strange and passionate, vital sense of involve- view, co-ops are a necessity—they help us ment that some people have with the land of get the kind of buying and selling clout that comes from their birth, the land of their fathers and land of opportu- a combined level of production or purchase,” says nity, as it must have once been. Anderson, who has written songs such as “Farm on the “I can feel that when I drive through the heartland of Freeway” and “Heavy Horses” that focus on agriculture America, just as I do when driving through the English and changing rural life. countryside. There are people who are wringing their When touring America, as he is currently (a solo tour hands and saying, “I just don’t know how I am going to which extends through November), Anderson and his get through tomorrow.” wife usually drive themselves from city to city and enjoy When interviewed this summer, the Andersons were exploring our nation’s vast, diverse agricultural land- feeling a bit of that pain themselves. “We just had maybe scape along the way. five weeks of drought here in the UK, followed by a tor- “When we travel around America, we are always rential downpour in the last 24 hours. I haven’t been out looking out the window, saying ‘what the heck was that to look at our fields today, but I will lay my money that growing in that field over there?’ Or, ‘what was that 1,000 half of our winter corn is laying on its side right now. acres over there planted in?’ We’re always interested in These are things that happen to farming folks.” what is growing where and why, and what it’s worth and But you would have to be ‘thick as a brick’ not to real- to whom.” ize that co-ops can help farmers living through hard Agricultural issues are changing rapidly, “not just in times and good. ■ America or the UK, but throughout the planet,” Anderson — By Dan Campbell, Editor

Rural Cooperatives / November/December 2003 31 advisory committee. CTGA has been representing the interests of California The NASCAR racing cir- tomato growers for more than 50 years. cuit will be a little sweeter The cooperative has slated its annual this year, with racing star meeting for Jan. 21 in Modesto. Kyle Petty promoting Sue At Michigan Processing Apple Bee honey with Sue Bee Growers, Dawn Drake, with 12 years’ Honey logos on his racing experience in the association, succeeds Tom Butler, who has retired. Jack car and with personal Pressley, manager of the Malheur Pota- appearances at some mar- to Bargaining Association in Vale, Ore., keting events. The Iowa- died in September. His successor is yet based co-op also will be fea- to be named. turing Petty on in-store promotional posters and on New Calcot CEO seeks many of its product labels. ■ return of stability Calcot, Bakersfield, Calif., has turned to Robert Norris, 60, executive vice president since 1992, to permanently fill

Value Added continued from page 20

square-foot building with eight acres of Expanding product line much that a trucking company was grounds in Alva, Okla. The facility had VAP has produced and sold several launched to handle it. It owns 12 trucks previously housed a Wal-Mart store different types of bread and dough and 20 trailers and employs 15 full- and had several features that fit the products since that time. These time drivers. All this activity supports needs of VAP. These included climate include four varieties of baguettes, the vision of the cooperative in creat- control, open span sanitary design, three flavors of Danish rolls and the ing job opportunities in the area and loading docks and adequate utilities dough for a puffed pastry. Two sizes supporting the small farmer. and services. of “crazy bread” (a bread that is used Adapting to various situations in the The property around the facility for dipping) are being produced marketplace has provided valuable would allow for plant, warehouse and and sold. experience for VAP. The co-op has freezer expansion. The state-of-the-art, VAP’s dough and bread product successfully made necessary adjust- “high speed” baking equipment pur- markets continue to grow, and it has ments in labor, products and market- chased for the plant is very specialized the capability to produce almost any ing efforts. The co-op is effectively and incorporates the latest European imaginable type of bread product. The managed and will continue to benefit bakery technology for frozen, self-ris- newest addition to VAP’s product line producers while having a positive ing dough. It is used in manufacturing is a unique frozen cinnamon roll that impact on the entire area. flat and artisan bread products, which can be microwaved. “Good” does not The producers who launched the includes frozen, self-rising pizza even come close to describing the co-op say they made a very good initial crust—currently VAP’s main product. product. It is incredible, and sweet! choice in seeking out experts in the The decision to focus on pizza crust The plant has its main line running kind of food processing they wanted to production has proven to be a good at full capacity with pizza crust, while do. Dunker, who served as a consultant choice for the co-op. VAP is currently a pilot line (for orders of less than to the project in the very early stages of selling pizza crust to some of the 1,000 pounds) is running full time for the project, and his brother Harry, the nation’s largest retailers of frozen pizza. cinnamon rolls. They use this smaller co-op’s operations manager, together In 2001, the co-op was awarded a production line also to develop new have 60 years of experience in the bak- $500,000 Value-Added Producer Grant products. The main line has the capa- ing industry and plant set up. from USDA Rural Development. This bility to process 10,000 pounds of With accomplishments and strides grant was a working-capital grant that dough per hour. achieved so far by the co-op, who assisted them in branching out with VAP has 80 full-time employees, knows what could happen next? Some other dough products and in process- about 15 percent of whom are also pro- co-op members say a pizza-topping ing and marketing some additional ducers in the cooperative. The amount plant and toppings-producer venture dough and bread products. of freight transportation has grown so would be sweet! Stay tuned. ■

32 November/December 2003 / Rural Cooperatives the CEO post he ented and could work with the staff walleye. These fish require little or no had been holding and growers. Meanwhile, Farley has processing and are destined for the on an interim filed a wrongful termination lawsuit. local market or the live-haul and fresh basis since June. markets. Norris replaces Asian imports force The Illinois Department of Agricul- former CEO co-op to switch fish ture saw the new catfish co-op as a David Farley, Facing a tide of frozen catfish potentially important new avenue for who exited earli- imports from China and Vietnam southern Illinois agriculture. It con- er after only nine produced at half the domestic cost, tributed $6 million to the venture and Calcot CEO Robert months with the the Illinois Fish Farmers Co-op at USDA provided a $150,000 loan guar- Norris cooperative. Pinckneyville has discontinued pro- anteed by the city and a mortgage on Norris is only cessing catfish at its Prairie Lands the building. the seventh CEO in Calcot’s 76-year Seafood plant and cut its work force The processing plant will be sold history and the first Californian to to a small, core group. Doug Woj- with the equipment. The cooperative hold the job. The board was “looking cieszak, the co-op’s executive director, plans to continue to deliver technical for someone who could bring stability says the cooperative will shift to more services to its members. When the back into the company and bring Cal- profitable fish: hybrid stripped bass, cooperative started in 1999, the state cot back to the stature it has held over freshwater shrimp, largemouth bass had 12 fish and shrimp farms; now the years.” Norris says he is goal ori- and, potentially, perch, bluegill and there are more than 60.

Director leadership continued from page 25 overly flexible. Rather, they should use a blend of those traits, be identified as a suitable leader, it does not necessarily mean depending on the situation. Consistency is key—those being that the person will thrive in all leadership roles. led must come to understand and know the decision-making Indeed, a person may be a tremendous leader in one situa- processes of their leaders. tion, but not a good leader in a different situation, such as in Complete tasks—Leaders complete things when they’re a cooperative. These questions may need to be asked: supposed to be done, or make sure that those responsible get ■ How well will the prospective leader fit into the situa- it done. Leaders are prepared for action and are able to instill tion given the circumstances? Will the leader be likely to suc- in others the need to be prepared. Completing work and pro- ceed in the environment? jects in a timely manner creates respect and allows people to ■ How well will he or she fit, given the other leaders and witness the ability and integrity of their leaders. personalities involved? Take responsibility—“The buck stops here” is a slogan ■ Will the person be liked and accepted by the other coop- good leaders adopt. They are willing to take responsibility erative players, be they members, directors or employees? for negative events or occurrences that fall under their juris- ■ Does the situation seem to be one where the person will diction. They don’t try to pass problems off on someone else, have an adequate opportunity to grow into the leadership but take them on. They also know how to graciously take position and thrive? credit for success and—even more important—know how to ■ Does the person have the right educational background, give credit to others when it is due. experience and knowledge of cooperatives and business? Thought provoking—A good leader is able to get others ■ Is the person open minded about learning more about to think about things rather than just follow blindly. A leader being an effective director? Will he/she be willing to be fur- involves people by provoking thoughts through challenges ther educated, partake of training workshops and attend con- and by providing information. This trait often allows a leader ferences, etc.? to build relationships that will endure and create commit- ■ Does the person have the vision, values and staying power ment needed to complete tasks. necessary to fit the opportunities afforded by the cooperative? Effective leaders will have many of the qualities or traits These and other pertinent questions must be addressed when outlined here, and probably some others as well. Often, vari- working to select quality leaders for cooperatives in the current ous traits compliment each other, giving the person even competitive environment. Leader-quality people should be greater leadership stature and ability. If some traits are lack- sought out, even though it may be a challenge to recruit them ing, an effort should be made to improve in those areas. because they are often very busy and lack the extra time to take Understanding and knowing what traits to look for while on additional responsibilities and leadership roles. Knowing the identifying perspective leaders is critical. In addition, it is also traits to look for and the questions to ask can help identify the important to understand whether an identified leader will be best people to lead cooperative boards and cooperatives as we go a good fit in a specific situation. Even though a person may forward into a challenging and competitive future. ■

Rural Cooperatives / November/December 2003 33 2003 Article Index

Information appearing in Rural Cooperatives magazine during calendar year 2003 has been indexed to help you find past articles. Articles are indexed by month and page. Back issues can be found on-line at www.rurdev.usda.gov

Title Features Issue—Page A shared harvest Machinery co-ops could help small, Upper Midwest dairy farms March/April 24 AFT guide helps farmers and ranchers transfer land to the next generation July/Aug. 10 Annual Reports: How to read them and what they should tell you about your co-op Jan./Feb. 10 Apple industry study shows value of producer bargaining associations Sept./Oct. 6 Back to School NICE marks 75th anniversary with return to campus as co-op youth education program Sept./Oct. 25 Bargaining is big for small business Resurgence seen in bargaining co-ops March/April 12 Bumper crop buoys Kansas cotton co-op March/April 23 Congressional hearing focuses on possible need for more flexible co-op business model Nov./Dec. 9 Co-op development stages & timeline May/June 10 Co-op store part of Oneida Food Systems Jan./Feb. 28 Cooperative care logo loaded with symbolism May/June 10 Cooperative care mission statement May/June 32 ‘Cooperative’ comes first May/June 9 Cooperative exports decline in 2001; bulk sales fall but continue to dominate sector Nov./Dec. 26 Co-ops follow more than one path for nominating board candidates Nov./Dec. 21 Co-ops increase share of farm marketings; share of farm supply sales dips slightly May/June 19 Dismantling of Farmland continues; Smithfield buying pork business Nov./Dec. 15 Equity, tax issues prompt beef co-op to ponder switch Nov./Dec. 12 Facility closures always a tough decision for co-ops March/April 17 Farm Credit Banks merge in Midwest Jan./Feb. 24 Farming with 8.5 million neighbors July/Aug. 7 $44-million push for new geographic technology May/June 25 Frogs, snakes & kilowatts East Kentucky Power Co-op finds green in environmental program Jan./Feb. 16 Funding Business Development Centers July/Aug. 18 Great Lakes Pork Co-op adjusts plan to seek alternative packing plant May/June 8 GROWMARK certification program prepares directors for new challenges Sept./Oct. 27 Hard choices Hard white wheat varieties officer co-ops opportunities and challenges March/April 4 House calls In-home care givers form cooperative to provide vital service for elderly, May/June 9 disabled in rural Wisconsin Large co-ops see growth in ‘01, reverse declining net margins Jan./Feb. 20 Living with Sprawl As farms give way to subdivisions and traffic lights, America’s rural cooperatives struggle to adjust July/Aug. 4 Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31 Low-overhead approach taken by Dakota Lamb Growers Co-op May/June 7 Meeting the challenge: co-ops in the 21st century Jan./Feb. 4 Merrills first Northeast dairy family to win national land conservation prize July/Aug. 10 Methods for selecting and recruiting candidates for directors Nov./Dec. 22 Minnesota leads the nation in co-op business volume Sept./Oct. 18 More than a power source Brunswick Electric typifies commitment of cooperatives to support rural communities July/Aug. 15 More than milk Dairylea’s scope of farmer services moves beyond milk marketing Sept./Oct. 14 Natural beef anchors product line for co-op of Kansas family farms May/June 5 Negotiating the crossroads of a new century Jan./Feb. 7 Network difficulties Tales of two Iowa pork-producer networks show that bottom-up approach works best March/April 18 New days, new ways Co-ops, producers find many ways to prepare for the future Nov./Dec. 4 New global strategy Year-round citrus demand has Sunkist tapping foreign market supplies Sept./Oct. 4 New kids on the block Iowa beef co-op sees strategic partnership as best way to break into highly competitive retail beef market May/June 4 NMPF scales back CWT milk supply-balancing plan July/Aug. 28 No mountain too high Rural broadband service helping to save lives of isolated patients May/June 22 Oneida grocery co-op boosts community; helps keep more money on reservation Jan./Feb. 26 Orange Empire bows to urban sprawl in Southern California July/Aug. 8

34 November/December 2003 / Rural Cooperatives Port OKs Texas co-op lease July/Aug. 21 Newsline Professor’s idea blossoms into major co-op West Central Soy receives value-added ag award Jan./Feb. 34 conference for college students July/Aug. 30 Upstate Dairy Co-op targets teen market Revenue, margins trend downward for nation’s top Growmark purchases Agway’s agronomy, seed businesses 100 ag cooperatives Nov./Dec. 17 Agri-Mark to buy McCadam Cheese Role of cooperative principles Jan./Feb. 5 Farmland gets extension; 2002 losses at $346 million Seeking the best American Crystal Co-op pays $34 million for sugar plants Director leadership: what does it take? Nov./Dec. 25 Graves joins USDA advisors Southern hospitality Improving denim market sparks PCCA rebound Walton Electric Co-op makes a positive difference GROWMARK turns 75 with sales of $1.3 billion for Georgia Sept./Oct. 8 CHS nets $126 million Striking oil South Dakota Soybean Processors finds new ways Nilsestuen, Ziewacz head Wisconsin ag office March/April 29 to add value to crop March/April 20 Va. Tech NICE site; NCFC Sets PAL date Survey results: public shows strong preference TFC regains profitability after $1.8 million in cuts for doing business with cooperatives Nov./Dec. 14 Kansas co-op leader Joe Lieber dies Talking with pictures AgriBank top co-op bank Photo experts offer tips on how to better tell your co-op Alto Dairy GM Retires story with strong photos July/Aug. 22 Agway selling Telmark; CEO Cardarelli to step down The ‘closure’ dilemma CF eyes plant shutdown Conducting business in a way that helps keep both members and their Cal/West Seed, Senesco in pact co-op in business can be a challenge March/April 15 Dilland succeeds Wosje as Michigan Milk CEO The future of NICE Sept./Oct. 26 Dakota Pride, Canterra form Merridian Seeds venture The Greene Bean Project: Growers’ field of dreams LOL nets $98 million; consolidating feed mills is edible beans May/June 16 CHS opens Brazil office; ’02 sales at $7.5 billion Top co-op communicators honored in Madison Sept./Oct. 23 Golden Growers rejects change ‘Tough bargaining’ helps almond growers July/Aug. 19 Dakota Layers Co-op operating in Flandreau Trailblazers Co-op Communicators mark 50th anniversary Leadership development programs key to more Farmland eyes revamp, sale of meat business women winning seats on co-op boards May/June 13 DVM to purchase all Agri-Mark Lactoferrin Tr eaty of Oak Creek moved Oneida tribe to Wisconsin Jan./Feb. 29 Md.-Va. Milk Producers buy North Carolina dairy co-op Tull’s Anderson says co-ops not just ‘living in the past’ Nov./Dec. 31 Southern States motto: 180 degrees, 160 days Tune-up your meetings Smith to chair AMCOT Periodic analysis is necessary to ensure that cooperative board meetings are efficient, effective and productive May/June 26 Organic co-op plans new HQ as sales soar May/June 28 Turkey growers grateful for Nebraska, Michigan co-ops Jan./Feb. 33 NORPAC buying Simplot’s vegetable processing plant Tu rning problems into profits DFA boosts net margins; Camerlo succeeds Brubaker Alpaca co-op survives early dissension to build GROWMARK, TruServ form local retail pact in Ontario domestic fiber & products market March/April 8 Agway eyes sale of remaining assets 2-year waiting list for wildlife lectures Jan./Feb. 19 Alto Dairy trims 90 jobs U.S. Premium Beef offers to buy Farmland Mtn. Lamb Co-op, Rosen forge pact share in processing business July/Aug. 12 NMPF seeks voluntary plan to balance supply, demand U.S. Premium Beef seals purchase of Farmland National Beef Nov./Dec. 16 ND co-op plans DC restaurant USDA Outlook Conference to focus on critical challenges Jan./Feb. 13 NC growers market biodiesel USDA plays active role in farmland protection July/Aug. 9 Olsen to lead Tree Top co-op USDA providing $1.4 billion to expand rural broadband May/June 24 Mid-Missouri Energy raises $17 million USDA’s RBEG program stimulates business Wilson heads co-op foundation creation on reservations, other rural areas Jan./Feb. 30 Farmland turns $29 million profit for second quarter USDA’s REDLG program July/Aug. 17 AMPI sales top $1 billion for ‘02 USDA’s Value-Added Producer Grants invest New board, CEO make changes at Ocean Spray millions in innovative ag businesses March/April 11 Dividend allocation rule focus of legislation Walton saluted for business ethics Sept./Oct. 10 Foremost sales reflect dairy ills Waving the red flag Iowa hog co-op set to open processing plants Survey examines correlation between ethical Calcot makes progress payment environment and fraud in co-ops July/Aug. 13 MMPA members get $1.9 million patronage What went wrong at Agway? SW Farm Credit loans climb in ‘02 Cornell professors describe how co-op’s chickens David Holm to lead Iowa Institute for Co-ops came home to roost Jan./Feb. 15 Wisconsin’s Westby, ‘Little Creamery That Could,’ AGP sets volume record: Reagan sees member support July/Aug. 30 marks 100th anniversary Sept./Oct. 20 SSC, Farm Plan forge credit pact Wool Growers pick Etcheverry Magazine Departments PCP sells canning operation to focus on food processing Commentary/Editorial Wyoming Sugar enters alliance with Cargill Assessing the risks and opportunities ahead Jan./Feb. 2 Dakota Hay Co-op finds success in horse market Coopeative education can help renew and revitalize co-ops July/Aug. 2 Kentucky’s catfish co-op reels in supermarket order Setting up the forms Nov./Dec. 2 Montana educator develops co-op business lesson plans Shaping tomorrow’s cooperatives today Sept./Oct. 2 Meadow Farms Hog Co-op opens modern Illinois plant The keeper of the co-op faith March/April 2 Texas catfish co-op opens Why Cooperatives? May/June 2 NMPF adds three associates Farmers sue chairman, others who promoted co-op sale to ADM Focus On... Sidney Sugars in supply deal Ursa Farmers Cooperative Nebraska North Star Neighbors direct market co-op’s meat Ursa, Illinois Jan./Feb. 25 Foremost restructures in face of declining Midwest supply Ozark Mountain Pork Co-op source of Missouri Farm Pride Management Tip Zwald AMPI’s treasurer How does your local farm supply cooperative rate? March/April 22 LOL closes research facility NCBA fetes Kaptur, Oxley GROWMARK creates seed, agronomy subsidiaries in NE

Rural Cooperatives / November/December 2003 35 NFU fetes cooperator Swenson Oneida grocery co-op boosts community; Co-op community fetes heroes as four join Hall of Fame helps keep more money on reservation Jan./Feb. 26 Rhode Island dairy co-op launches own milk brand Co-op Development UW offers co-op educational site for youth, young members Co-op development: a tool to promote democracy, self-reliance March/April 17 Iowa Quality Beef opens Tama plant Sept./Oct. 28 Co-op development stages & timeline May/June 10 Indiana’s Countrymark offers metered biodiesel blending Videos, brochures promote Co-op Month in October Director Education and Development Co-op Development Forum slated for Minneapolis Co-ops follow more than one path for nominating Minnesota law opens co-op membership to new investors board candidates Nov./Dec. 21 Michigan Sugar 4th co-op in Midwest Agri-Commodities GROWMARK certification program prepares Breeding to head Kansas Co-op Council directors for new challenges Sept./Oct. 27 Bailey to head Co-op Development Foundation Seeking the best Court OKs ADM buying MCP, spinoff venture Director leadership: what does it take? Nov./Dec. 25 Calcot, Ocean Spray among co-ops with new leaders Tr ailblazers Bongards Creameries buys LOL’s Perham operation Leadership development programs key to more Bushel 42 Pasta closes women winning seats on co-op boards May/June 13 Agway energy firm offers green power Tune-up your meetings LOL Farmland Feed eyes ethanol co-products market Periodic analysis is necessary to ensure that cooperative Sun-Maid, Licente join for Canadian Juice Line board meetings are efficient, effective and productive May/June 26 Riceland Foods, Cargill in lecithin marketing alliance Dairy Barr interim NCFC president Nov./Dec. 28 Merrills first Northeast dairy family to win national Scholarships available for CCA Institute at Louisville land conservation prize July/Aug. 10 Former NMPF Exec. Pat Healy dies; backed Dairy Promo Act More than milk $119 billion in ’02 sales notched by top 100 co-ops Dairylea’s scope of farmer services moves beyond Alto turns dry milk into cheese for hungry milk marketing Sept./Oct. 14 Agronomy, seed expansions boost GROWMARK sales NMPF scales back CWT milk supply-balancing plan July/Aug. 28 Southern States lowers debt, weighs further asset sales Wisconsin’s Westby, ‘Little Creamery That Could,’ Florida sugar co-op closes jointly owned refinery marks 100th anniversary Sept./Oct. 20 FDA clears lactoferin use for co-op’s beef products Court confirms tax on co-op’s fertilizer Education New Calcot CEO seeks return of stability Back to School Asian imports force co-op to switch fish NICE marks 75th anniversary with return to campus ‘CHS Inc.’ now official name as co-op youth education program Sept./Oct. 25 GROWMARK certification program prepares Value-Added Corner directors for new challenges Sept./Oct. 27 Adversity to Advantage Meeting the challenge: co-ops in the 21st century Jan./Feb. 4 Pacific Coast Producers uses USDA grant to Negotiating the crossroads of a new century Jan./Feb. 7 develop single-serve fruit bowl market Sept./Oct. 12 Professor’s idea blossoms into major co-op Ag Marketing Resource Center helping producers conference for college students July/Aug. 30 develop value-added strategies May/June 15 Survey results: public shows strong preference ‘No go’ can be a good show for doing business with cooperatives Nov./Dec. 14 Feasibility study advises co-ops not to pursue tortilla project July/Aug. 20 The future of NICE Sept./Oct. 26 Sweet smell of success USDA Outlook Conference to focus on critical challenges Jan./Feb. 13 Oklahoma wheat producers use USDA financing to launch frozen-dough bakery Nov./Dec. 20 Energy USDA’s Value-Added Producer Grants invest millions Catch the wind in innovative ag businesses March/April 11 Co-op’s giant windmills work with Mother Nature to provide power March/April 4 Subjects Frogs, snakes & kilowatts Bargaining East Kentucky Power Co-op finds green in Apple industry study shows value of producer environmental program Jan./Feb. 16 bargaining associations Sept./Oct. 6 Bargaining is big for small business Environment Resurgence seen in bargaining co-ops March/April 12 AFT guide helps farmers and ranchers transfer land ‘Tough bargaining’ helps almond growers July/Aug. 19 to the next generation July/Aug. 10 Farming with 8.5 million neighbors July/Aug. 7 Communication/Education Frogs, snakes & kilowatts Adapting to change East Kentucky Power Co-op finds green in Educating members helps smooth transitions May/June 23 environmental program Jan./Feb. 16 Annual Reports: Living with Sprawl How to read them and what they should tell you As farms give way to subdivisions and traffic lights, about your co-op Jan./Feb. 10 America’s rural cooperatives struggle to adjust July/Aug. 4 Survey results: public shows strong preference for Merrills first Northeast dairy family to win national doing business with cooperatives Nov./Dec. 14 land conservation prize July/Aug. 10 Talking with pictures Orange Empire bows to urban sprawl in Southern California July/Aug. 8 Photo experts offer tips on how to better tell your co-op USDA plays active role in farmland protection July/Aug. 9 story with strong photos July/Aug. 22 Top co-op communicators honored in Madison Sept./Oct. 23 Farm Supply, Agronomy & Service A shared harvest Consumer Co-ops Machinery co-ops could help small, Co-op development stages & timeline May/June 10 Upper Midwest dairy farms March/April 24 Co-op store part of Oneida Food Systems Jan./Feb. 28 Battening Down the Hatches: House calls Co-op security measures intensified in post-September In-home care givers form cooperative to provide vital 11 world May/June 4 service for elderly, disabled in rural Wisconsin May/June 9 Co-ops increase share of farm marketings;

36 November/December 2003 / Rural Cooperatives share of farm supply sales dips slightly May/June 19 Governance Dismantling of Farmland continues; Smithfield Ask the right questions buying pork business Nov./Dec. 15 Members should probe reasons for co-op conversions, How does your local farm supply cooperative rate? March/April 22 other major changes May/June 20 Large co-ops see growth in ‘01, reverse declining Co-ops follow more than one path for nominating net margins Jan./Feb. 20 board candidates Nov./Dec. 21 Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31 Seeking the best Minnesota leads the nation in co-op business volume Sept./Oct. 18 Director leadership: what does it take? Nov./Dec. 25 More than milk Waving the red flag Dairylea’s scope of farmer services moves Survey examines correlation between ethical beyond milk marketing Sept./Oct. 14 environment and fraud in co-ops July/Aug. 13 Revenue, margins trend downward for nation’s Tune-up your meetings top 100 ag cooperatives Nov./Dec. 17 Periodic analysis is necessary to ensure that cooperative Ursa Farmers Cooperative board meetings are efficient, effective and productive May/June 26 Ursa, Illinois Jan./Feb. 25 What went wrong at Agway? Jan./Feb. 15 Legislative and Legal AFT guide helps farmers and ranchers transfer Finance land to the next generation July/Aug. 10 A shared harvest Congressional hearing focuses on possible need for Machinery co-ops could help small, Upper more flexible co-op business model Nov./Dec. 9 Midwest dairy farms March/April 24 Cooperative Marketing Association Program: Annual Reports: Another way grain co-ops can serve their members Jan./Feb. 24 How to read them and what they should tell you Equity, tax issues prompt beef co-op to ponder switch Nov./Dec. 12 about your co-op Jan./Feb. 10 Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31 Dismantling of Farmland continues; Smithfield NMPF scales back CWT milk supply-balancing plan July/Aug. 28 buying pork business Nov./Dec. 15 The ‘closure’ dilemma Funding Business Development Centers July/Aug. 18 Conducting business in a way that helps keep both members How does your local farm supply cooperative rate? March/April 22 and their co-op in business can be a challenge March/April 15 Large co-ops see growth in ‘01, reverse declining Tune-up your meetings net margins Jan./Feb. 20 Periodic analysis is necessary to ensure that cooperative board meetings Meeting the challenge: co-ops in the 21st century Jan./Feb. 4 are efficient, effective and productive May/June 26 Minnesota leads the nation in co-op business volume Sept./Oct. 18 Waving the red flag Negotiating the crossroads of a new century Jan./Feb. 7 Survey examines correlation between ethical New days, new ways environment and fraud in co-ops July/Aug. 13 Co-ops, producers find many ways to prepare for the future Nov./Dec. 4 Striking oil Livestock South Dakota Soybean Processors finds new ways Equity, tax issues prompt beef co-op to ponder switch Nov./Dec. 12 to add value to crop March/April 20 Great Lakes Pork Co-op adjusts plan to seek U.S. Premium Beef offers to buy Farmland share in alternative packing plant May/June 8 processing business July/Aug. 12 Low-overhead approach taken by U.S. Premium Beef seals purchase of Farmland National Beef Nov./Dec. 16 Dakota Lamb Growers Co-op May/June 7 USDA’s REDLG program July/Aug. 17 Natural beef anchors product line for co-op of What went wrong at Agway? Kansas family farms May/June 5 Cornell professors describe how co-op’s chickens Network difficulties came home to roost Jan./Feb. 15 Tales of two Iowa pork-producer networks show that bottom-up approach works best March/April 18 Fruits, Nuts New kids on the block Adversity to Advantage Iowa beef co-op sees strategic partnership as best way Pacific Coast Producers uses USDA grant to develop to break into highly competitive retail beef market May/June 4 single-serve fruit bowl market Sept./Oct. 12 U.S. Premium Beef offers to buy Farmland share in Apple industry study shows value of producer processing business July/Aug. 12 bargaining associations Sept./Oct. 6 U.S. Premium Beef seals purchase of Farmland National Beef Nov./Dec. 16 New global strategy Year-round citrus demand has Sunkist tapping Management foreign market supplies Sept./Oct. 4 Adapting to change ‘Tough bargaining’ helps almond growers July/Aug. 19 Educating members helps smooth transitions May/June 23 Facility closures always a tough decision for co-ops March/April 17 Grains & OilSeeds How does your local farm supply cooperative rate? March/April 22 Cooperative Marketing Association Program: Meeting the challenge: co-ops in the 21st century Jan./Feb. 4 Another way grain co-ops can serve their members Jan./Feb. 24 Negotiating the crossroads of a new century Jan./Feb. 7 Facility closures always a tough decision for co-ops March/April 17 The ‘closure’ dilemma Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31 Conducting business in a way that helps keep both members ‘No go’ can be a good show and their co-op in business can be a challenge March/April 15 Feasibility study advises co-ops not to pursue tortilla project July/Aug. 20 Sweet smell of success Marketing Oklahoma wheat producers use USDA financing Adversity to Advantage to launch frozen-dough bakery Nov./Dec. 20 Pacific Coast Producers uses USDA grant to develop Striking oil single-serve fruit bowl market Sept./Oct. 12 South Dakota Soybean Processors finds new ways to Bargaining is big for small business add value to crop March/April 20 Resurgence seen in bargaining co-ops March/April 12 The ‘closure’ dilemma Cooperative exports decline in 2001; bulk sales fall but Conducting business in a way that helps keep both members continue to dominate sector Nov./Dec. 26 and their co-op in business can be a challenge March/April 15 Cooperative Marketing Association Program: Ursa Farmers Cooperative Another way grain co-ops can serve their members Jan./Feb. 24 Ursa, Illinois Jan./Feb. 25 Co-ops increase share of farm marketings; share of farm supply sales dips slightly May/June 19 Dismantling of Farmland continues; Smithfield

Rural Cooperatives / November/December 2003 37 buying pork business Nov./Dec. 15 Statistics Great Lakes Pork Co-op adjusts plan to seek Revenue, margins tend downward for nation’s top alternative packing plant May/June 8 100 ag cooperatives Nov./Dec. 17 How does your local farm supply cooperative rate? March/April 22 Large co-ops see growth in ‘01, reverse declining net margins Jan./Feb. 20 Technology Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31 Catch the wind Low-overhead approach taken by Dakota Lamb Growers Co-op May/June 7 Co-op’s giant windmills work with Mother Nature Minnesota leads the nation in co-op business volume Sept./Oct. 18 to provide power March/April 4 More than milk $44-million push for new geographic technology May/June 25 Dairylea’s scope of farmer services moves beyond Meeting the challenge: co-ops in the 21st century Jan./Feb. 4 milk marketing Sept./Oct. 14 No mountain too high Natural beef anchors product line for co-op of Kansas Rural broadband service helping to save lives of family farms May/June 5 isolated patients May/June 22 New days, new ways USDA providing $1.4 billion to expand rural broadband May/June 24 Co-ops, producers find many ways to prepare for the future Nov./Dec. 4 New global strategy Trade Year-round citrus demand has Sunkist tapping foreign Cooperative exports decline in 2001; bulk sales fall market supplies Sept./Oct. 4 but continue to dominate sector Nov./Dec. 26 New kids on the block New global strategy Iowa beef co-op sees strategic partnership as best way to break into high- Year-round citrus demand has Sunkist tapping ly competitive retail beef market May/June 4 foreign market supplies Sept./Oct. 4 NMPF scales back CWT milk supply-balancing plan July/Aug. 28 Revenue, margins trend downward for nation’s top Utility Co-ops 100 ag cooperatives Nov./Dec. 17 Catch the wind Striking oil Co-op’s giant windmills work with Mother Nature South Dakota Soybean Processors finds new ways to to provide power March/April 4 add value to crop March/April 20 Frogs, snakes & kilowatts Ursa Farmers Cooperative East Kentucky Power Co-op finds green in Ursa, Illinois Jan./Feb. 25 environmental program Jan./Feb. 16 Wisconsin’s Westby, ‘Little Creamery That Could,’ Funding Business Development Centers July/Aug. 18 marks 100th anniversary Sept./Oct. 20 More than a power source Brunswick Electric typifies commitment of cooperatives Member Relations to support rural communities July/Aug. 15 Adapting to change No mountain too high Educating members helps smooth transitions May/June 23 Rural broadband service helping to save lives of Annual Reports: isolated patients May/June 22 How to read them and what they should tell you Southern hospitality about your co-op Jan./Feb. 10 Walton Electric Co-op makes a positive difference Facility closures always a tough decision for co-ops March/April 17 for Georgia Sept./Oct. 8 Network difficulties Walton saluted for business ethics Sept./Oct. 10 Tales of two Iowa pork-producer networks show that bottom-up approach works best March/April 18 Value Added The ‘closure’ dilemma Adversity to Advantage Conducting business in a way that helps keep both members Pacific Coast Producers uses USDA grant to and their co-op in business can be a challenge March/April 15 develop single-serve fruit bowl market Sept./Oct. 12 Trailblazers Ag Marketing Resource Center helping producers Leadership development programs key to more develop value-added strategies May/June 15 women winning seats on co-op boards May/June 13 Congressional hearing focuses on possible need for more flexible co-op business model Nov./Dec. 9 Rural Development Equity, tax issues prompt beef co-op to ponder switch Nov./Dec. 12 Ag Marketing Resource Center helping producers Great Lakes Pork Co-op adjusts plan to seek alternative develop value-added strategies May/June 15 packing plant May/June 8 Farming with 8.5 million neighbors July/Aug. 7 Low-overhead approach taken by Dakota Lamb $44-million push for new geographic technology May/June 25 Growers Co-op May/June 7 House calls Natural beef anchors product line for co-op of Kansas In-home care givers form cooperative to provide family farms May/June 5 vital service for elderly, disabled in rural Wisconsin May/June 9 New days, new ways Living with Sprawl Co-ops, producers find many ways to prepare As farms give way to subdivisions and traffic lights, for the future Nov./Dec. 4 America’s rural cooperatives struggle to adjust July/Aug. 4 New kids on the block More than a power source Iowa beef co-op sees strategic partnership as best way Brunswick Electric typifies commitment of cooperatives to break into highly competitive retail beef market May/June 4 to support rural communities July/Aug. 15 ‘No go’ can be a good show No mountain too high Feasibility study advises co-ops not to pursue Rural broadband service helping to save lives of tortilla project July/Aug. 20 isolated patients May/June 22 Sweet smell of success Oneida grocery co-op boosts community; helps keep Oklahoma wheat producers use USDA financing to launch more money on reservation Jan./Feb. 26 frozen-dough bakery Nov./Dec. 20 Orange Empire bows to urban sprawl in The Greene Bean Project: Growers’ field of dreams is Southern California July/Aug. 8 edible beans May/June 16 Southern hospitality USDA’s Value-Added Producer Grants invest millions Walton Electric Co-op makes a positive difference in innovative ag businesses March/April 11 for Georgia Sept./Oct. 8 USDA plays active role in farmland protection July/Aug. 9 Vegetables USDA providing $1.4 billion to expand rural broadband May/June 24 The Greene Bean Project: Growers’ field of dreams USDA’s REDLG program July/Aug. 17 is edible beans May/June 16 USDA’s Value-Added Producer Grants invest millions in innovative ag businesses March/April 11

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