Rural

COOPERATIVES COOPERATIVES

USDA / Rural Development September/October 1999

The Price

Is Right

AGP sets pace for 

soybean industry with

new pricing program

The Price

Is Right

AGP sets pace for 

soybean industry with

new pricing program
2 September/October 1999 / Rural Cooperatives

“Cooperation is people working

together to solve problems and seize

opportunities.” 

This simple but concise statement is

the opening line of a report I recently

received that examines how U.S. farm

policy might be adapted to emphasize

greater reliance on cooperatives in the

21st century. The report, prepared by a

task force led by USDA Rural Business-Cooperative Service (RBS) staff,

envisions an expanded role for cooperatives in improving and stabilizing

agricultural markets while helping to

maintain a dispersed ownership of our

nation’s agricultural resources.

This is a fitting thought as we celebrate National Cooperative Month in

October. Nationwide, there are about

47,000 cooperatives that do everything

from helping farmers process and market their crops to providing electric

and telecommunications services for

rural families, farms and other businesses. Still other co-ops provide financial services, housing and food. Yet, like

many of you, I believe we have barely

begun to tap the full potential of cooperatives to help people improve their

quality of life. 

USDA Rural Development has taken bold action in recent years to deliver

on our promise to better support the

nation’s cooperative movement. As the

latest indication of this, I’m pleased to

report that Secretary Glickman and I

have requested that Congress provide

additional funding for USDA’s cooperative services program in fiscal year

2000. 

In addition to providing technical

assistance to co-ops through RBS,

we’ve restructured our business loan

programs to funnel more financial

resources to cooperatives. We can now

offer loan guarantees for the purchase

of stock in new cooperatives. We are

encouraging cooperatives to increase

their use of this program, and participation is rising steadily. 

Through the Rural Utilities Service,

USDA Rural Development provides

about $2.8 billion each year to build

new or improved utility services for

rural Americans, much of which is

delivered through user-owned cooperatives. Now we are expanding our

efforts in areas such as Internet access

and Distance Learning and Telemedicine (DLT). Since 1993, we have provided $81 million for DLT projects to

improve health and education services

in rural America. 

In the past, the co-op development

branch of our cooperative services program had only a handful of co-op

development specialists located in our

national office and three field locations.

Now, all 47 USDA Rural Development

state offices have a staff member

assigned to do cooperative development work. Working with our national

office staff, these specialists are providing another valuable resource to help

launch new cooperatives to serve rural

Americans. We’ve also increased funding for USDA’s Cooperative Development Grant program, through which

we provide money to the nation’s co-op

development centers. 

And, of course, USDA Rural Development remains the world’s leading

source for cooperative educational

materials, distributing as much as a

quarter-million pieces of co-op literature each year. Many of these publications, including this magazine, are 

now available over our website,

www.rurdev.usda.gov. I was pleased

recently to hear a report from a co-op

development volunteer in Africa who

— once he exhausts his hard copy supply

of USDA co-op primers — plans to

“pull down” additional copies from the

Internet while in Africa.

If you or someone you work with is

trying to start or improve the performance of a cooperative, contact USDA

Rural Development. To be connected

to our nearest state office, call (202)

720-4323, then follow the voice

prompts. Or call our national office at

(202) 720-7558. We’re here to help you

solve problems and seize opportunities,

cooperatively!

Jill Long Thompson

Under Secretary, USDA Rural Development

COMMENT A R Y

Solving rural problems

through cooperatives
Rural Cooperatives / September/October 1999 3

FEA TURES

4 Network Difficulties

Termination of Georgia wood co-op provides lessons for export

co-op development

Alan Borst

8 Taking Flight

Sioux Honey cooperative finds sweet success in new products

Pamela J. Karg

14 The Price Is Right

AGP sets pace for soybean industry with new pricing program

Patrick Duffey

19 The Changing Role of Trade Groups and

Dairy Co-ops

Jerry Kozak

21 Large Cooperatives Unifying: 

A Strategic Trend To Monitor

James J. Wadsworth

25 Calcot’s Tom Smith, Other Outstanding

Communicators Win CCA Honors

27 Net Business Volume, Net Income for Farmer

Co-ops Decline in 1998

DEP A R TMENTS

2 COMMENTARY

13 IN THE SPOTLIGHT

29 NEWSLINE

RURAL COOPERATIVES (1088-8845) is published

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of public business required by law of the Department.

Periodicals postage paid at Washington, DC. Copies

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DC, 20402, at $3.50 domestic, $4.38 foreign; or by

annual subscription at $15.00 domestic, $18.75 foreign. Postmaster: send address change to: Rural

Cooperatives, USDA/RBS, Stop 3255, Wash., DC

20250-3255.

Mention in RURAL COOPERATIVES of company and

brand names does not signify endorsement over

other companies' products and services.

Unless otherwise stated, contents of this publication are not copyrighted and may be reprinted

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source will be appreciated but is not required.

The United States Department of Agriculture (USDA)

prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual

orientation, and marital or family status. (Not all prohibited bases apply to all programs). Persons with

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To file a complaint of discrimination, write USDA,

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Building, 14th and Independence Avenue, SW,

Washington, D.C. 20250-9410, or call (202) 720-5964

(voice or TDD). USDA is an equal opportunity

provider and employer.

Dan Glickman, Secretary of Agriculture

Jill Long Thompson, Under Secretary,

Rural Development

Dayton J. Watkins, Administrator,

Rural Business–Cooperative Service

LaJaycee Brown, Director of Public Affairs

Dan Campbell, Managing Editor

USDA Design Center, Design

Have a cooperative-related question?

Call (202) 720-6483, or

Fax (202) 720-4641, Information Director,

This publication was printed with vegetable oil-based ink.

United States Department of Agriculture

RCOOPERATIVES u

ral COOPERATIVES

September/October 1999 Volume 66 Number 5

On the Cover:

The recent installation of this double-walled, automated soy flour bagging

system has helped AGP increase production while providing customers with

a superior packaged product. For a report on how AGP is leading the soybean industry in new value-added activities, see page 14. Photo courtesy AGP

Story on pages 14-18.
4 September/October 1999 / Rural Cooperatives

By Alan Borst, 

Economist

USDA Rural Development

n every cooperative venture, there are lessons to

be learned that can help

in future endeavors. Yet

even with the best education, sound

technical assistance and low risks, some

cooperatives never really take off. That

was the case with a Georgia co-op

organized to help forest product companies tap export markets.

Beginning in the late 1980s, wood

networks — associations of small- and

medium-sized wood product firms —

were established across America. In

April 1993, President Clinton spoke at

an Oregon forest conference where he

hailed the potential of such networks as

economic development tools. Other

speakers also promoted wood networks

as a way to save both jobs and oldgrowth forests by adding value to what

member wood product companies

already produced from trees. 

Through the early 1990s, the flexible network economic development

program concept was sweeping the

country, driven by the precedent of

economic success among networks in

Northern Italy, Asia and other regions.

During this period, economic development agencies at the federal, state and

local government levels, along with

non-profit associations, were committing funds to such network development projects, including several targeted at forest product companies.

Most of these network ventures

were organized as non-profit associations with a general mandate to

improve the economic welfare of their

wood product clientele through various

joint activities. Some of these associations included a joint marketing component. Others did not.

One network organized as a marketing cooperative with the relatively specific mission of facilitating member

export sales was the Georgia Wood

Export Marketing Co-op, or “GeorgiaCo,” as it was known. Some important

lessons in export marketing cooperative

development can be drawn from GACO’s six-year history of operations.

These lessons are of particular importance for economic development specialists or cooperative organizers.

The GA-CO case

In 1988, the industrial marketing

division of the state utility, Georgia

Power, proposed that small- and medium-sized wood products companies

should form an export marketing cooperative to facilitate their foreign sales.

Georgia Power worked with other

sponsoring organizations to support

GA-CO, including the Georgia

Forestry Commission; a major law firm

(which handled Georgia Power’s

accounts); the Southeast Lumber Manufacturers Association; University of

Georgia Cooperative Extension Service;

Georgia Department of Industry,

Trade, & Tourism; and the USDA Forest Service-Region 8. Several similar

cooperatives had been organized across

the Southeast and throughout the United States. Georgia Power sold large

amounts of electricity to wood products

companies, and took an interest in

expanding their customers’ foreign sales

base in order to “export kilowatts.”

The idea for the co-op was planted

by a speaker from the Wood Products

Marketing Cooperative (WPMC) of

Alabama, who made a presentation at

the Forest Products Global Marketing

Conference in Atlanta during the fall of

1988. During this presentation, it was

revealed that a large amount of funding

had been secured for the WPMC. The

majority of shipments were being

shipped from western Alabama through

the port of Savannah, Ga., into foreign

markets. WPMC trucks were going

right past some GA-CO member mills. 

Georgia Power’s economic development specialists took note of this development, and concluded that there was

no reason why Georgia mills could not

tap into this export market flow. The

co-op’s export mix was planned to be

35 percent hardwood and 65 percent

softwood, with European and

Caribbean markets as primary targets.

GA-CO had an initial goal of generating new annual sales of $2 million for

its 13 members. A few of these members had some export experience at the

time the co-op was organized.

Sponsors did much of the up-front

organizational work to establish GACO, easing the burden for prospective

co-op members. Georgia Forestry

Commission staff obtained a ruling

from Georgia’s attorney general which

authorized the network to be incorporated as an agricultural marketing

cooperative. An attorney from Georgia

Power’s law firm obtained an export

trade certificate of review from the

U.S. departments of commerce and

justice, which conferred the co-op with

protection from the threat of antitrust

Netw ork Difficulties

Termination of Georgia wood co-op provides lessons for export co-op development

I
Rural Cooperatives / September/October 1999 5

legal actions. The attorney also drew

up the co-op’s by-laws and did the work

to incorporate it under Georgia’s agricultural cooperative statute, with the

consequent benefits of limited liability

protection; single taxation on distributed net earnings; and further limited

antitrust protection for operations.

Sponsors and executives from the

member-companies visited their congressional representatives in Washington, D.C., to secure funding for the

project and to check on the export

trade certificate of review program

process. Several small grants, loans and

donations of goods and services from

sponsoring organizations were

obtained, although far less than had

been the case for other network projects which had been started a few years

earlier in the region. Georgia Power

donated the time of a manager who

coordinated the co-op’s organizational

tasks during its first year and also

offered surplus equipment to GA-CO.

During 1989, orientation meetings

were held in Savannah, Macon and

Atlanta for prospective members. Staff

presented the virtues of coordinating

export marketing through a co-op

structure. At the time, domestic prices

were depressed and export markets

were seen as viable outlets for Georgia

wood product companies. The different demands of importers were highlighted, along with the importance of

being a committed supplier. Sponsoring staff planned to present the ideas,

do some of the up-front organizational

work and then step back and let the

members make up their own minds.

About two dozen companies attended the Savannah meeting, of which half

agreed to participate in the co-op. The

company representatives discussed the

need to find new markets and to

strengthen their businesses before passing them on to the next generation.

One sponsor described the initial feeling among members as “guarded optimism.” There were no illusions that

GA-CO would carry its member firms,

but it was thought that the co-op could

be a factor — potentially adding a little

profit to its members’ margins. One

sponsor reported that there was a general state of apprehension among some

sponsors because it was the first time

many of them had worked together.

The sponsors withdrew from GACO after helping with its establishment. One sponsor had its budget for

economic development activities cut,

and a couple of sponsors had their

activities with the co-op limited due to

regional disputes related to the scope of

assistance and targeted beneficiaries. It

became difficult for some sponsors to

justify their GA-CO assistance, given

their mission and regional jurisdiction.

Some sponsors reported that GA-CO

members did not fully take over the

coordination functions after the sponsors withdrew from management. No

one stepped forward to “stir the pot.”

Sponsors felt that the cooperative

mechanism had been delivered, and

that now it was up to members to make

it self-sufficient.

Lack of economic need

There was consensus among

stakeholders that the primary reason

for the termination of GA-CO was

the lack of economic need among

members for the alternative foreign

markets to which the co-op provided

access.

During the initial planning phases of

the co-op in the late 1980s, domestic

prices were relatively weak, and export

markets were viewed as potentially

important alternative sales outlets.

However, domestic markets for members’ wood products had been at record

highs throughout the 1990s, while targeted foreign markets had been in

recession and complicated by technical

trade barriers and unfavorable macroeconomic factors, such as a strong dollar making U.S. exports more expensive. Members did not conduct much

export business and sold very limited

volumes through their co-op because

domestic sales were both simpler and

more profitable. Smaller mill operators, such as GA-CO members, did not

have the working capital to tie up in

large export shipments, which might be

refused by the importer or subject to

some technical problem in transit, or at

the border. Because of their individual

fears of such losses, the co-op idea had

some initial appeal as a way to reduce

this risk through collective action.

During the late 1980s, domestic lumber prices were fairly low, so more attention was focused

on export markets. USDA Forest Service photo
6 September/October 1999 / Rural Cooperatives

European customers wanted highgrade, special orders of wood products

in metric sizes. European builders

wanted the most valued wood from

logs, and had little demand for the lower valued wood, leaving the mills with a

lot of firewood and otherwise nonsaleable byproducts. European carpenters tended to custom-build the wood

components of their houses, and did

not think in terms of standardized

sizes, as did American builders. During

the first two years of GA-CO’s operations, domestic prices for member

wood products increased by 20 percent

while Caribbean sales were flat and

European sales declined. By the time

GA-CO dissolved in spring 1997,

domestic prices had increased about 40

percent relative to their level at the

time of the co-op’s establishment while

export markets remained depressed.

One of the sponsoring staff said his

experience with GA-CO, in light of

this lack of economic need, reminded

him of well-meaning boy scouts who

eagerly help a senior citizen across the

street, only to find that the person did

not want to cross the street. While

GA-CO members earned record profits in domestic markets, some

Caribbean accounts previously serviced

by a few co-op members were taken

over by huge mills that under-priced

them. European markets were more

difficult to serve, and were declining

because of macroeconomic factors and

technical trade barriers. GA-CO’s total

export sales between 1991 and 1996

were slightly over $1 million, and

annual sales never exceeded $300,000.

In 1994, as European markets weakened and members declined to sell

through the co-op, the Savannah sales

operations were consolidated in Valdosta, Ga.

Weak cooperative culture

Several sponsors and member executives commented that there was an

absence of a “cooperative culture”

among Georgia wood product firms.

One respondent noted that, although

cooperative wood export ventures had

been tried before in the region, there

was not the history or culture of cooperation among mills that existed among

farmers in the Upper Midwest, where

he had spent some time. Another sponsor believed that there was a stronger

cooperative ideology among the forest

product firms in the Pacific Northwest,

where most forests are on public lands

and where there is more ease with government presence. 

In Georgia, by contrast, most mills

use wood from privately owned forest

stands and there is less government

involvement in the forest products

industry. One respondent asserted that

wood product companies in the Georgia area were conservative, independent, and distrustful of competitors,

even with regard to information

already publicly available. Another

sponsor reported that there were early

doubts about whether the prospective

co-op member executives could work

together.

Limited effort limits potential losses

There had been several previous

attempts at export cooperation for

wood products in the Southeast. One

failed because of technical trade barriers related to the pine nematode, unfavorable exchange rate shifts and loss of

its markets to competing suppliers.

Two other ventures were dissolved early

on in GA-CO’s six-year life.

GA-CO chose not to try to ally with

other wood co-ops because of differences in missions and geographic and

functional orientation. However, it did

invite mills from the Carolinas to join as

members. A few mills from South Carolina did become GA-CO members.

The lesson learned from the experience of some of the other wood export

networks known to sponsoring staff was

heeded, as such high up-front fixed

costs had been incurred by networks

which had failed before a single log was

exported. One co-op member was

already an experienced exporter, and

enjoyed good working relations with

some of the other members when GACO was formed. Despite some early

misgivings among some of the stakeholders, co-op members agreed to

operate through the experienced member’s export marketing staff rather than

risk incurring high fixed costs by establishing their own office and staff before

GA-CO was proven. The experienced

mill member had a sufficiently powerful

and positive place within its industry to

function as the co-op’s sales agent.

The experienced mill member insulated co-op members from the financial

risks of export transactions by paying

member firms within 10 days — 30

days at most — while waiting 60 days

or longer to receive payment from

importers. There was some initial concern among some of the members and

sponsoring staff, who worried that such

a dominant member could subvert the

co-op towards its own purposes. Upon

reflection, respondents were impressed

with the experienced mill member’s

service and confirmed that none of

their fears were realized. These members knew of other failed wood co-ops

that had lost the up-front costs of

expensive building leases and contracted management employees.

One sponsor commented that the

decision to administer through the

experienced member seemed to work

out well and did minimize potential

losses. However, the sponsor wondered

whether or not it also limited potential

gains which could have been achieved

through a more ambitious effort with

independent cooperative management.

Lack of member consensus

Members had different visions on

how GA-CO could best serve their

interests, and disagreed on the amount

of capital they were willing to contribute to fund cooperative operations.

Some sponsors viewed GA-CO with

guarded optimism as a tool that could

help members become more globally

competitive. One member executive

believed that a cooperative structure

for export could work well for wood
Rural Cooperatives / September/October 1999 7

products because many importers

wanted to deal with one, large supplier

that could fill individual orders. A

cooperative could consolidate such

orders from its suppliers while also

serving as a liaison between membersuppliers and importers. In his experience with exporting, he found that foreign buyers generally prefer the

security of dealing with large suppliers

with recognizable trademarks. These

importers are concerned with quality

assurance through certification of some

kind, while domestic buyers are looking for adequate quality at the best

price and are willing to determine quality

through personal inspection. 

A co-op structure, he concluded,

could best help small mills collectively

meet the demands of foreign buyers. A

co-op could function as a stable supplier

with multiple member sources and could

also provide the standardized quality

assurance wanted by foreign buyers.

Another stakeholder described the

Georgia wood products industry as

conservative and risk-averse followers

of secure market trends. One sponsor

reported that many smaller mills were

focused on the next quarter’s returns,

and they were not committed to supplying export markets when greater

returns were available in domestic markets. One mill executive said his interest

in exporting was to reduce supply and

raise prices in his domestic markets.

There was pressure to make the first

export sale in order to prove the viability of the export marketing co-op

structure. In December 1990, the first

sale to the Caribbean Island of Curacao

was transacted and highlighted with a

media release. Eight of 13 members

made at least some sales through the

co-op, while the vast majority of business came from a core of two or three.

Some members viewed the co-op as

having been formed to compete on

large accounts, yet large inquiries from

importers never came through. They

perceived a mismatch between the

smaller import inquiries that GA-CO

forwarded to members, and the larger

inquiries in which members were interested. One member reported wishing

that GA-CO could have worked proactively on market development and dealing with export sale complications

rather than only being an order taker.

The initial mission of GA-CO was to

increase member export sales at the

margin. Existing individual member

export accounts were not turned over as

co-op accounts. Some members expected GA-CO’s value to come from its

ability to handle large accounts which

few or none of the individual members

could meet on their own. GA-CO was

designed so importers had a right to

choose the individual member-supplier

they wanted to fill their orders.

The size of the working capital

account limited the volume of export

business the co-op could conduct. For

any given market period, the volume of

export accounts receivable the experienced member mill could manage was

tied to working capital from member

contributions. Members voted to allow

GA-CO officers to take out a loan to

increase the working capital. One of the

sponsors further increased the working

capital pool by matching member contributions. At one point, members discussed the idea of boosting their financial commitment to GA-CO through

even more contributions to the working

capital pool. Members were unable to

achieve consensus on this point.

There was simply no consensus

among members on what kinds of

export marketing services should be

offered, and how much capital should

be invested to support those services.

When it became clear that members

were not going to use their co-op, the

decision had to be made whether to

shelve the co-op or liquidate it. Putting

the co-op into inactive status, but

maintaining its structure, would cost

some money to keep up the bank

account and continue issuing reports.

The decision was made to dissolve the

enterprise.

Another challenge that complicated

coordination was GA-CO’s attempts to

concurrently serve the export needs of

two different kinds of members — softwood and hardwood lumber mills.

Softwood mills are a lower margin,

higher volume business that works

through larger operators. The profitable shipping range of hardwood logs

is narrower than for softwood, probably around 100 miles. After softwood

trees are harvested, they are replanted

and farmed, while hardwoods are naturally replenished. Huge, multi-national

corporations have a presence in the

softwood industry, while there are only

small hardwood mills. 

Some larger corporations have been

Lumber derived from softwood was expected to account for 65 percent of Georgia-Co’s

exports. USDA Forest Service Photo

continued...page 31
By Pamela J. Karg

Field Editor

oney mustard dripping

from honey-glazed

pretzels with a tall, cold

glass of honey beer.

Honey-nut cereals. Honey-glazed

chicken. Honey barbecue sauce and

meat marinades. Tea, cough drops and

power drinks with honey. There’s raw

honey and spun honey. And then

there’s all those flavored honeys —

such as clover, cranberry, orange peel

and apple blossom — produced from

bees pollinating specific types of blossoms or by adding a second product.

Take a look at the latest product

introductions at the supermarket or in

the food service industry, and honey is

all the buzz. It’s no accident that this

food, cherised since ancient times, is

finding new ways into today’s consumer

marketplace.

“Honey is a unique item to sell,”

admits Jim Powell, vice president of

sales and marketing at Sioux Honey

Association, Sioux City, Iowa. “Honey

is a mainstream product, but it’s not

used in every meal, and it’s certainly

not used the same way it was just a generation or two ago. People today don’t

know exactly what to use honey in, and

we know they’re not using it in cooking

and baking like they used to.”

So the Association — with its familiar Sue Bee Honey brand name — is in

a continual quest to find new ways to

get consumers worldwide to increase

honey consumption. The co-op’s marketing and research teams are busy as

the bees their members keep producing

new products, building a quality reputation and finding new efficiencies.

Beekeepers meet needs with co-op

With $200 and 3,000 pounds of

honey, five beekeepers located near

Sioux City formed a marketing cooperative in 1921, and named it after the

city it was founded in. The cooperative

was designed to help members market

their honey at greater profit by providing service and equipment, processing/packing facilities and complete

marketing and sales operations.

In the early days, honey was marketed under the Sioux Bee label, but was

changed in 1964 to Sue Bee in order to

facilitate the correct pronunciation.

Over time, other lines of honey were

added and now include Clover Maid,

Aunt Sue and Natural Pure North

American brands.

Previously, honey was delivered to

one of seven packing facilities located in

Sioux City, Anaheim, Calif.; Waycross,

Ga.; Temple, Texas; Umatilla, Fla.;

Lima, Ohio; and Wendell, Idaho. As

transportation improved, honey-producing areas moved westward and the association streamlined operations. Today,

only the Sioux City, Waycross and Anaheim plants serve the cooperative.

With a 17-percent share of the U.S.

honey market, Sioux Honey is the

largest honey marketer in the world.

There’s only one company — in Germany — that comes close to capturing

as much market share as does the cooperative. 

Currently, there are some 340 members, most of whom live in the western

two-thirds of the United States, with

others in Florida and Georgia. The

membership is organized into 13 districts, with a director representing each

of these member areas.

“We had up to 1,200 members in

the 1970s,” explains Mark Mammen,

8 September/October 1999 / Rural Cooperatives

Taking Flight

Sioux Honey cooperative finds sweet success in new products

H

Sue Bee Honey accounts for 17 percent of the U.S. honey market. It is packed and shipped at 

facilities in Sioux City, Iowa (above), Anaheim, Calif., and Waycross, Ga. Photo courtesy 

Sioux Honey Association
Rural Cooperatives / September/October 1999 9

vice president for member relations.

“But apiaries have grown, consolidated

and modernized like the rest of most

agricultural businesses. Our membership numbers are down, but the

amount of product marketed grows.”

A changing membership

A majority of the operations were

originally small. Today, the cooperative’s board puts a priority on accepting

commercial members who market at

least 40,000 pounds of honey annually.

In fact, 45 percent of the membership

markets less than 40,000 pounds of

honey annually. They account for only

5 percent of the association’s annual

crop. The bulk of the membership —

about 43 percent — markets between

40,000 and 250,000 pounds annually.

They account for 45 percent of sales.

The top 12 percent of members, 41

farmers who market over 250,000

pounds annually, account for 50 percent of the crop sold through the Sioux

Honey Association.

Dale Bauer, a Sioux Honey member since the mid-1970s, is a commercial operator near Fertile, Minn. In

1951, then 16-year-old Bauer needed

a job and went to work for a local beekeeper. After a few years of military

service, the Nebraska native and his

wife, Lois, moved to her neck of the

woods in northwestern Minnesota.

Beekeeping seemed as good a job as

any other did, and the couple went at

it with enthusiasm.

“From 1957 to 1974, we were private. We weren’t members of the cooperative because we were buying an

operation and trying to pay it off,”

Bauer explains, almost apologetically.

“We needed every dollar we could get,

and the marketing fee you had to pay

as a co-op member cut into that money.

I’m not so sure it was the best way to

go, but you gotta do what you gotta do

at the time.”

Bauer has served on the Sioux Honey

board for 21 years, the past eight as

vice chairman. He’s also currently a

member of the National Honey Board.

The Bauers, their son and their

daughters’ families are involved in the

operation. Every last drop of the golden

nectar is marketed through the cooperative. They are paid year-round,

though honey production is a seasonal

operation.

“Many people think beekeeping is a

hobby. I can tell you it’s not. It’s been

my life’s work,” Bauer explains.

While the family home and honey

extraction and spinning operations are

located on a seven-acre parcel, the

Bauers’ 8,000 hives are spread across the

countryside, where the bees feed on

alfalfa, sweet clover and sunflowers.

Every two weeks or so, the Bauer crew

makes the rounds of hives placed at least

two miles apart. They check the wooden structures, the bees and the honey.

Bees, like people, are vulnerable to diseases and parasites, sometimes at epidemic proportions. Bauer says it takes a

trained apiarist eye to catch and address

problems early and avert disaster.

The farmers who own all the fields

where the bees do their work are paid

in honey at the end of the year. Since

honey is a natural product, the type of

flowers from which bees gather nectar,

the geographical region and the weather influence its flavor. The presence of

hives in any given area is a win-win situation for both Bauer and other farmers.

“A lot of people don’t realize there’s

a greater demand for commercial beekeepers than ever before,” Bauer says.

“Without pollination offered by commercial beekeepers and the millions of

hives they haul to places like California, you wouldn’t have almonds, melons or cucumbers [among dozens of

other crops]. There aren’t the big, natural hives I remember seeing in the

woods as a kid. So now agriculture has

to depend on commercial beekeepers

to pollinate so many crops.”

Making honey

The National Honey Board estimates that there are 211,600 beekeepers in the United States who tend some

three million honey-producing

colonies. The average worker bee

makes only one-twelfth of a teaspoon

in its lifetime. Bees visit 50 to 100

flowers during one collection trip, tapping two million flowers to produce

one pound of honey. U.S. per capita

consumption of honey is just over one

pound.

A worker bee’s entire existence

revolves around pleasing a queen bee,

which lives about 50 times longer than

a worker bee. Therefore, beekeepers

and the industry invest a lot of time

and effort into queen bee production.

To produce queen bees, beekeepers

take a worker bee egg and graft it into

a cell cup. The hive is queenless and

the worker bees pay special attention to

the egg in the cell cup, feeding it royal

jelly to help it grow big and strong. It’s

the queen bee, the only sexually developed bee in the hive, that lays all the

eggs to re-populate the colony.

Some keepers select their queens

based on hygienic qualities or bees that

don’t make much propalis, the substance bees use to seal the cracks of

their hive. The Bauers select their bees

for production and gentleness.

The bees and hives are at peak production rates right around the last

week of June in northern Minnesota.

From then until the first frosts, the

Protective clothing prevents bee stings as

honey is collected from bee colonies

belonging to Dale Bauer of Minnesota, a

Sioux Honey co-op member since the mid

1970s. Photo by Mark Walters
10 September/October 1999 / Rural Cooperatives

Bauer family is busy. The sealed honeycombs are collected and the wax is cut.

In a centrifuge, the comb is spun to

separate the wax from the honey. A second centrifuge spins the product again,

removing more of the wax. There’s one

pound of wax for every 100 pounds of

honey. The wax is sold for further processing into candles or floor wax and

cosmetics.

The Bauers and other cooperative

members are responsible for supplying

the association with honey extracted

from the honeycomb. This liquid product is most often shipped to processing

plants in 55-gallon drums, which contain approximately 650 pounds of honey. Collectively, the membership produces about 40 million pounds of honey

annually but markets as much as 60 million pounds around the world, Powell

says. The difference is made up through

non-member honey purchased by the

cooperative to meet customers’ needs.

At the Bauers’ operation, the honey

is loaded onto 50,000-pound tankers

and shipped to the Sioux City plant.

Two to three tankers leave the family

operation every week.

After unloading at the plant, the

honey is melted for easier handling.

From a large inventory, Sioux Honey

follows sophisticated blending techniques to assure consistent flavor and

appearance. In the processing facility,

there are flash heating and cooling

units, filter presses and pumps that

deliver the finished product to the

packaging line. These packaging lines

include bottle cleaning, filling, capping,

front and back labeling and group

packaging. All finished goods are delivered to storage areas by a system of

conveyors. The completely automated,

high-speed packaging lines produce up

to 8,000 cases of finished product in

eight hours.

Still, the cooperative is constantly

upgrading automated production

equipment and maintaining stringent

sanitary conditions, Powell explains.

Vast warehouses with computer-controlled inventory facilitate quick-filling

and shipment of orders for all products

packaged by Sioux Honey. Warehouses

are strategically located, which guarantees easy delivery to customers anywhere in the U.S. and throughout the

world, he says.

Research and development

Besides its familiar brand name,

Sioux Honey has several claims to technological fame: exclusively designed

equipment and top-notch laboratory

facilities. The cooperative’s spun honey

spread mixing tanks and seed grinders

were developed by the co-op’s research

staff and are found nowhere else. 

From the days of the Egyptian

pharaohs, through the Greek and Roman

civilizations up to the present, honey

has been treasured both as a medium of

exchange and as a rare taste treat. And

its popularity today has been boosted by

its image as healthy food — an image

that has provided a boost to Sioux Bee

Honey marketing and product development efforts. 

Honey is 100 percent pure and composed primarily of carbohydrates, so

there’s no fat or cholesterol. One tablespoon of honey contains less than two

milligrams of sodium, which the Food

and Drug Administration considers

“sodium free.” A tablespoon has about

60 calories. The product can be kept at

room temperature. 

Because of its high fructose, honey

is sweeter than sugar. While it’s low in

nutrients, honey does contain more

than refined sugars, a fact noticed by

scientists.

A 1998 food science and human

nutrition review found that honey contains trace amounts of antioxidants and

a wide array of vitamins, minerals and

amino acids. Additional research is

underway to discover other benefits of

honey.

Honey contains vitamins such as B6,

thiamin, niacin, riboflavin and pantothenic acid. Essential minerals include

calcium, copper, iron, magnesium, manganese, phosphorus, potassium, sodium

and zinc. There are approximately 18

different amino acids, adds Dr. Susan

Percival of the University of Florida’s

Food Science and Human Nutrition

Department. She conducted a study of

honey last year.

Whether stirred into tea or coffee,

spread across toast or eaten off a

spoon, honey appears to boost a person’s daily supply of antioxidants.

“Antioxidants perform the role of

eliminating free radicals, which are

reactive compounds in our bodies,”

says Percival. “Free radicals are created through the normal process of

metabolism and are believed to contribute to many serious diseases when

left unchecked.”

But it still comes down to taste and

use. Consumer habits have changed,

and where and how honey is used must

change, says Sioux Honey’s Jim Powell.

With two-person family incomes,

hectic lifestyles and people who want

meal prep time to last no longer than a

few minutes in a microwave, food is

changing. More chicken nuggets are

sold every year, so Sioux Honey has

found a new market: its own Sue Bee

barbecue sauce.

National Honey Board-sponsored

projects debuted at this summer’s Institute of Food Technologists annual meeting included battered and marinated

catfish products using honey as an

ingredient, consumer acceptance of

roasted chicken injected with honey

marinades and quality enhancement of

chicken baked without skin using honey

marinades.

The Board and Sioux Honey each

continue to eye more industrial

avenues. ■

Honey’s healthy image helps marketing
Rural Cooperatives / September/October 1999 11

Yet it’s the product quality that is the

foundation of the cooperative’s success,

and the success of its members.

“Color, flavor and moisture are the

qualities we constantly need to monitor,” Powell says. “We also need to

look at contamination by antibiotics or

even pesticide residues picked up in

fields by the bees.”

Samples of honey coming into any

of the three plants is tested and graded

for clarity, type, flavor, moisture and

color. The most advanced methods and

the most exacting standards are used to

assure that every grade of honey packaged under the Sue Bee label is the

finest available anywhere, he says.

Members are paid color and moisture

bonuses.

“Quality is the utmost concern

because we have such a natural product

to begin with,” adds Bauer.

On a random lot basis, the cooperative will test a member’s honey for sugar syrup adulteration, miticide residues

or any other adulterant that may cause

financial damage, explains Mammen. If

something is found, the member is

notified and the quality control department of the cooperative must give

approval before any payments are

issued for a member’s honey production. Any member whose honey causes

further contamination is responsible

for reimbursing the Association for all

damages resulting from the contamination, or the person loses his or her

membership, he adds.

Finding new industrial markets

Once the Canadian cold fronts slide

south and the fall season ends, the

Bauers pack up their bees and move

south. Their son, Daniel, daughter

Tammy and son-in-law Brad Campbell

manage the hives that are placed in

Texas for the winter. Daughter Jodi and

son-in-law Darren Straus manage the

hives the Bauers place in Mississippi.

The Bauers make their winter home in

Texas and keep track of both operations.

“When our children were young,

they’d spend the first semester at

school in Minnesota and the second

semester at school in Texas. When they

got to be seniors, though, we let them

make a choice. All three graduated in

Minnesota,” Bauer explains.

In fact, the greatest amount of honey

that’s marketed through the cooperative comes from Minnesota and North

Dakota. Other top-producing states

include California, Montana, South

Dakota, Texas, Idaho and Nebraska. So

the Bauers and many of their fellow

beekeepers in Minnesota and North

Dakota could see each other for most

of the year — north or south.

The Bauers count themselves lucky.

Not only do they escape the blizzards,

sub-zero temperatures and frozen

engine blocks of the Minnesota winter,

but they also have children who are

interested in beekeeping. That’s not

necessarily the case across the industry.

“There aren’t a lot of young people

going into beekeeping right now,”

Bauer says. “I don’t think too many can

see the nature of it and how it can be a

full-time career.”

Just like their shifting members,

Sioux Honey is also eyeing places it can

move its products. Its global presence

extends to the Middle East, Far East,

Europe, South America and Central

America. But new product development occurring in the United States

through retail and industrial sales show

promise.

The cooperative’s advanced processing technology allows it to produce

honey by the bucket, by the barrel or

by the tanker truck for industrial use.

Its transportation network ensures

prompt delivery of honey, which is used

in a variety of products — from cereals

and baked items to brewery and meat

products.

Honey usage in manufactured food

and beverages is at an all-time high.

Consumers associate honey with naturally good quality, boosting the image

of products containing it.

A sampling of companies that have

recently introduced new honey-flavored products to capture the imagination of health-focused consumers

include: Celestial Seasons of Boulder,

Colo., which has an herbal tea sampler

that features Honey Lemon Ginseng;

Caffe D’Amore of Pasadena, Calif.,

which has eight new teas that blend

together black tea, honey, creamers and

spices; and Oregon Chai of Portland,

Ore., which has introduced Oregon

Chai Charger, a caffeinated tea featuring

honey, to an existing line of organic

Lab technicians in Sioux City, Iowa, monitor product quality and assist food manufacturers in

finding new ways to incorporate honey in their products. Photo courtesy Sioux Honey Association
12 September/October 1999 / Rural Cooperatives

chai, which is a type of tea. The Sue

Bee logo also appears on some Arizona

brand beverages.

Strong sales, weak prices

The cooperative’s ability to create

demand for honey is essential because

it’s been a tough market in recent years

for beekeepers such as Bauer. According to Powell, the honey industry experienced major changes in the past three

years. Most of those changes center on

price and production — basic supply

and demand economics.

“Three years ago, there was an

undersupply of honey throughout the

world and, because of that, it forced

prices up,” Powell explains. Prices are

now only about half that amount.

Those drastic price fluctuations are

not taken lying down, however. The

co-op is responding by concentrating

on industrial and food service markets,

both here and abroad, to fuel demand

and maintain stable prices to members.

Bulk sales of honey have increased and

Sioux Honey Chief Executive Officer

Gary Evans says the association intends

to continue the pursuit of sales in this

area because of the potential for greater

growth.

“Areas of manufactured food and

food service open opportunities for

honey markets that, heretofore, we

have not fully exploited,” he says.

“The cooperative is the way to go,”

Bauer adds. “Consumption may not

being going up as much as we’d like to

see it go, but working together through

the cooperative to expand markets is a

good way for a bunch of people to kind

of control their destiny.”

As he sits on the board, Bauer

watches directors and staff who try to

get the best money for the farmer’s

product. He witnesses the pooling of

resources from individual farms and the

job the cooperative’s employees do, day

in and day out, to sell members’ honey.

“This cooperative’s strengths are its

honesty, integrity and impeccable reputation for quality,” Bauer adds. “It’s given

me peace of mind since I started to

market through the cooperative rather

than worrying about doing it on my

own. Now I can concentrate on the

bees and knowing my cooperative is

doing an excellent job in marketing.” ■

Microbrewers have

a taste for honey

At the Fourth Street Brewing Co. in

Sioux City, Iowa, Sue Bee Honey Ale

has become a popular drink. Working

with people such as Larry Chase,

Fourth Street’s head brewer, Sioux

Bee Honey is finding that the small

breweries sprouting all across America have a definite taste for honey. 

The American beer scene is experiencing a renaissance, of sorts.

Microbreweries, brew pubs and

home brewers have provided most of

the momentum towards making craft

beers — those made using traditional, complex recipes and costly ingredients to brew many classic styles of

beer. In 1980, there were only four

microbreweries and no brew pubs.

By 2000, it is estimated that there will

be close to 3,000 of them. Only one in

six fail, a success rate that is turning

heads in the brewing industry and

giving Sioux Honey ideas for the

future.

Even large breweries have recognized this new market for specialty

and flavorful beers. From well-hopped

pale ales to robust, flavorful stouts,

Americans now have more beer types

on the shelves in their favorite tavern

than at almost any other time in history. And that includes more and more

beers containing various flavorings

such as fruits, herb, spices and, of

course, honey.

According to Chase, honey generally rounds off the flavor profile of

beer. It boosts the alcohol a bit and

gives the brew a floral aroma, offsetting some of its bitter flavors from

hops. The character added by honey

depends on what floral type of honey is used and when the honey is

added to the beer. Honey’s contribution overall is relatively subtle, so a

stout or porter which uses darker

malt ingredients will have less

noticeable honey character than a

light lager with the same amount of

honey, Chase explains. ■

Dale Bauer’s bee colonies are prepared for shipment to Texas each winter. Photo by Mark Walters
Rural Cooperatives / September/October 1999 13

By Pete Penner

Chairman of the Board

Sun-Maid Growers of California

“With 30 percent of the California

raisin market, the entire industry

needs to be successful in order for 

Sun-Maid to be successful.”

- Pete Penner

Co-op description: Sun-Maid Growers

of California is celebrating its 87th

continuous year as a grower-owned

cooperative. The cooperative began in

1912 as the California Associated

Raisin Co., which adopted Sun-Maid as

its brand name in 1915. The co-op’s

familiar logo was first created that same

year and soon became one of America’s

best known trademarks. In 1922, the

cooperative changed its name to SunMaid Raisin Growers to identify more

closely with the popular brand-name.

Sun-Maid currently operates a 130-

acre processing and packaging facility

owned and managed by its grower

members.

Personal information: Pete Penner

began farming in 1955 and currently

oversees 300 acres of grapes and 200

acres of deciduous fruit in Reedley,

Calif. A member of Sun-Maid since

1960, he became a Sun-Maid director

in 1968. Penner served as vicechairman from 1976 to 1986, when he

was elected chairman, a post he held

until April 1999. Penner currently

serves as second vice-chairman of

Sun-Maid.

In addition to his longtime work

with Sun-Maid, Penner is very active in

several community and business organizations in the Fresno County area

and continues to be a driving force in

the California raisin industry. He has

served as chairman of the Raisin

Administrative Committee and is the

current vice chairman of the RAC. He

is also chairman of the California

Raisin Marketing Board, which is

charged with promoting California

raisins and expanding markets for the

industry.

Developments at Sun-Maid Growers: “Sun-Maid is currently expanding

and enhancing its sales and marketing

functions and continuing to develop

new ways of producing and marketing

raisins. As with most businesses today,

changing technology, regulation and

consumer demands require us to be

creative and flexible. We’re trying to be

proactive in meeting these challenges,”

he explains.

Sun-Maid’s goals: “Sun-Maid is in the

strongest financial position in our

history,” Penner says, “and we’re

continuing to find ways to maintain

this strength and provide the best for

our grower members. Sun-Maid

represents about 30 percent of the

raisin producers and we operate under

a Federal marketing order which affects

the entire raisin industry. As a result, to

be successful the entire California

raisin industry needs to be successful.”

Biggest concerns of raisin growers:

“Raisins are an extremely laborintensive crop,” Penner explains, “so

labor supply is a critical and ongoing

concern for our industry. In 1998, labor

shortages resulted in huge problems for

our members and all raisin growers, so

we need to find ways to both automate

and assure an adequate supply of

workers now and in the future.”

“Water is another big issue in California,” he continues, “as is urban

encroachment and other land-use

issues. We’re also very concerned with

the aging face of agriculture in general.

We have to find ways of continuing the

family farm by allowing young people

to stay in the business of farming, not

only in the raisin industry but in all of

agriculture.”

What are the key rural develop

issues facing Western farmers and

ranchers? “As I mentioned, water and

urban encroachment are big concerns

for us and the entire agricultural

industry,” Penner stresses. “California’s

raisin-growing region is confined to a

relatively small area in the San Joaquin

Valley. This area is feeling growth

pressure from urban areas within the

region and from metropolitan areas in

northern and southern California. This

means more land and water is shifting

from agriculture to residential use. As

an industry, agriculture must find ways

of protecting its resources through

education of the public and

maintaining a presence in the land-use

planning arena.” ■

IN THE SPO TLIGHT

Pete Penner, Sun Maid board chairman.
14 September/October 1999 / Rural Cooperatives

By Patrick Duffey, 

Information Specialist

USDA Rural Development

early 16 years ago, agricultural producers from

the farm fields of the

Midwest bankrolled a

new business that would strengthen the

nation’s then-weak soybean processing

industry and give farmers a greater role

in determining the future of the market

for soybeans. Today, as a more mature

“teenager” in terms of operating years,

Omaha-based Agricultural Processing

Inc. (AGP) is still setting the industry

pace as it prepares to enter the new millennium with annual gross sales that

will soon top $4 billion. That’s a dramatic increase from the $700 million in

sales it recorded in 1983. 

AGP, owned by 285 local and 10

regional cooperatives, will take on

another pioneering role for the industry this fall when it begins paying premium prices at its nine processing

plants for soybeans that meet graduated

level standards for oil content. The

new program took effect Oct. 1. 

Jim Lindsay, AGP’s chief executive

officer, says the cooperative is “excited

about the opportunities and benefits our

new oil premium program presents to

our cooperative members. It represents

another avenue to add value to soybeans

for farmers throughout the cooperative

soybean processing system.”

While the pricing program is new to

the soybean industry, component pricing or value-added marketing is routine

to other agricultural industries as both

producers and processors try to match

commodity traits with the demand of

food manufacturers and consumers. In

grain, the protein content of wheat has

been measured for decades to determine

for price. The dairy industry calculates

price to producers based on the protein

content of milk, which is a critical factor

for making cheese. Oil content has been

measured in some specialty types of

grains used in particular markets.

Lindsay anticipates this type of buying will become a standard practice in

the future. “We believe farmers should

be rewarded for providing a product of

higher value. AGP has made a sizable

investment and commitment to launch

this oil premium program for their

benefit,” he says.

Value pricing origins

AGP started building the foundation

for the value-pricing system 18 months

ago in cooperation with field testing by

14 Iowa local cooperatives, Charles

Hurburgh at Iowa State University and

the Iowa Soybean Promotion Board.

Research was initially conducted at

AGP’s processing plant and vegetable

oil refinery at Eagle Grove, Iowa. AGP

studied ways to obtain an accurate

assessment of soybean value prior to

processing. Computers were linked

with near-infrared transmission (NIT)

technology which provides rapid and

accurate whole grain analysis of delivered soybeans. The equipment has now

The Price Is Right

AGP sets pace for soybean industry with new oil pricing program

N

Soybean oil formulations are monitored in AGP laboratories. In 1998, the cooperative

processed more than 1.5 billion pounds of soy oil. Photos courtesy AGP
Rural Cooperatives / September/October 1999 15

been installed at all nine of AGP’s soybean plants.

AGP employees have been trained

to use the new equipment. NIT computer data, combined with normal

grading procedures, were compiled and

analyzed by AGP. Testing revealed that

the new system more accurately and

efficiently calculates the various oil levels, and computes and prints out settlement forms at the time of delivery. It

assesses the soybean value and reflects

that in prices paid to producers.

Last year, AGP field tested 240 soybean samples representing 137 varieties

in Iowa growing zones. Tests revealed

significant oil and protein variances in

today’s mix of varieties which have been

bred and selected for yield.

The highest yielding soybeans can

vary by more than three pounds of oil

per bushel. The 30 percent variance in

oil content equates to more than 150

pounds of oil per acre of soybeans

yielding 50 bushels per acre. Larry

Burkett, AGP senior vice president for

corporate and member relations, says

project data convinced AGP that

selecting seed varieties with above average oil content — without sacrificing

yield — would generate added value.

The oil premium would add to the

market price, increasing farmers’ return

per bushel and profit per acre.

Given the new technology, segregated marketing of differentiated commodities is expected to catch on.

Oil content variances in today’s seed

varieties are not expected to initially

translate into sizable value premiums,

Burkett indicated. “The real advantage

to growers lies in the future, when new

varieties will have improved oil content

and generate greater value levels than

are present today. Premiums will likely

increase with that oil content advance

in new varieties.”

Oil in advanced varieties

“If a value-added system could be

adopted industry-wide, all U.S. soybean farmers would have greater

opportunities to add value to their

operation,” Burkett says. “The system

would also create a way to provide

incentives for the development of seed

varieties that could focus on value components and also benefit soybean farmers and their industry by making soybeans more competitive in world oil

and food markets.”

Burkett relates, “Our ability to work

together as a cooperative soybean system was the key in striving for new

heights in the soybean market and

strengthening prices for farmers. It

proved to be the catalyst for introducing the new program.”

AGP builds market

This type of attention to the needs

of both producers and customers has

helped AGP emerge as the world’s

largest cooperative soybean processor,

and the fourth largest overall soybean

processor in the United States. Since

its formation in 1983, AGP has been

committed to being a successful valueadded company that returns its profits

to the local and regional cooperatives

that represent 300,000 farmers from

16 states in the United States and three

Canadian provinces. AGP annually

purchases and processes more than 5.5

million acres of members’ soybeans at

its plants in Iowa, Missouri, Nebraska

and Minnesota. As the nation’s third

largest vegetable oil refiner, AGP ships

products by truck and rail to food service companies for use as ingredients in

nationally recognized food products or

for specialty processing.

At the end of fiscal 1998, the co-op’s

pre-tax return on investment was 17.6

percent. AGP spent a record of more

than $1.3 billion to purchase corn, soybeans and milo for processing. AGP

also retired $10.7 million in allocated

equities, making it current with the

1991 allocated equities balance. Members have $298.3 million in allocated

equities invested in AGP. By adding in

retained earnings and capital stock, the

total is actually $354 million.

Midwest ties to soybeans

In the 1930s, the Midwest became

the hub of U.S. soybean production.

Cooperatives began building soybean

processing plants in the 1940s, recalls

Burkett. 

“These plants evolved into a highly

efficient system. And with all the

investment in new uses, the potential in

future diets and possibilities with

biotechnology, we believe soybeans

have just started their climb. Soybeans

offer a continuous, bright future for

farmers,” Burkett says.

AGP entered the processing scene 

in 1983. “At that time, the soybean

industry was plagued by weak margins

and considerable inefficiency. It was a

case of something good evolving out 

of a very bad condition at the time,”

Burkett says.

AGP added several hundred rail cars this year to enhance members’ access to markets and

speed deliveries. 
16 September/October 1999 / Rural Cooperatives

AGP’s Lindsay 

Discusses Co-op’s

Growth, Management

Patrick Duffey, 

Information Specialist

USDA Rural Development

James Lindsay has been the first and

only chief executive officer and general manager in the nearly 16-year

history of Ag Processing Inc. He had

prior business experience with corn

and soybean processing as an executive with Archer-Daniels-Midland. For

four years he was chairman of the

National Oilseeds Processing

Association. The Omaha-based cooperative he heads has become the

world’s largest cooperative soybean

processor and an aggressive player in

the U.S. market. In this interview, he

discusses the cooperative’s progress

and aspects of his management philosophy.

Question: What is AGP’s mission?

Answer: AGP serves local cooperatives and their agricultural producerowners by performing the primary

business functions of acquisition, processing and marketing of agricultural

products. It adds value to farm commodities and flows its earnings to producers through member cooperatives.

Q: How did AGP build its financial

standing in its short 16-year history?

Answer: When the company first

started, its aim was to survive.

It had a high debt-to-equity

ratio, prompting the bank to keep a

close eye on it. We reduced expenses

and hired the right people, which

helped the company turn the corner.

When you reduce costs, you add to

production and improve your plants. 

A commodity-based business can

operate on small margins with a high

volume. It took two to three years to

reach our competitive goals. After

that, AGP learned it could survive. The

company needed to produce $115 million income in gross margins per year

before expenses. More capacity was

necessary to compete with major soybean processing companies. As our

concerns turned to being competitive,

our competitors were also expanding.

We always had a watchful eye for

potential disasters that we couldn’t

work through.

AGP’s board and management

developed a strategic plan for the

company to invest its resources and

expand the business. Three considerations were necessary for us to

achieve 15- and 20-year goals: 1) To

get attention, a project must produce

three times the annual interest rates

(rate of return). Any project at two

times or less is not

realistic unless it

takes time to grow.

2) What will a project do to the company if it fails?

Does it threaten the

destiny of the company? AGP avoids

big-risk projects. 3)

Debt-to-equity considerations. In a depression, a company works more carefully. It’s reasonable to work from a 20-30 percent

position. In some cases, you can even

stretch to 60 percent, but it’s good to

build back to 30 percent.

Rail transportation is vital to AGP’s

operation, so it leases rail cars to ship

products to its customers. From a

financial point of view, leasing is the

same as going into debt, even though

it doesn’t show on the balance sheet.

We report both the actual debt to

equity and debt to lease and equity

combined. We tell our members the

real rate so they don’t get the wrong

impression.

Q: What has prompted AGP’s

extensive expansion in recent

years?

Answer: Much of the expansion

The AGP Food Group supplies

soybean oil and flour that are

used in a wide variety of food

products, adding value

between the farm gate and

consumers’ plate.

James Lindsay

“Jim Lindsay, our first and only

CEO, compiled a staff that attacked

costs with a vengeance. They built the

cooperative into today’s very diversified company that operates many businesses. AGP has kept per-bushel costs

at the same level or lower, in some cases, even with years of inflation.”

New technology was introduced into

its multiple-plant system and crush

capacity was expanded from 300,000

bushels per day to more than 630,000,

thanks to new facilities at Emmetsburg,

Iowa, and Hastings, Neb. In vegetable

oil refining, AGP climbed from zero to

third largest in the nation. Through

refining, AGP now markets multiple

food-grade oil products, lecithin and

feed fat.

Industrial uses for soybeans

Further value-added processing is

underway at the methyl ester plant at

Sergeant Bluff, Iowa, where AGP pio-
Rural Cooperatives / September/October 1999 17

has been defensive, keeping pace

with the industry. AGP has built two

new soybean processing plants and a

new corn processing plant. The new

plant at Hastings is the first cooperative soybean processing plant in

Nebraska. Also, most free standing

soybean oil refineries have been going

out of business. 

To survive, most processors have

their own refineries. AGP expanded its

refining capacity with a new plant at

Eagle Grove, Iowa, and is now building

a new refinery at Hastings. Refined oil

has become a high-quality, commodity-priced product that’s sold on the

basis of price and service. The business goes to those who provide the

best service. AGP builds its business

around quality and service.

Q: Where is the future in soybean

exports?

Answer: Farm programs always

held an umbrella over soybean prices.

Argentina and Brazil, our major soybean producing competitors, continued to build infrastructure. To stay

competitive, AGP now wants to

process beans into exportable products instead of merely bulk beans. We

can produce corn and soybeans

cheaper than any country in the world. 

We should grow hogs and chickens

here. Whole grains face stiff tariffs in

some countries. You add more jobs in

the United States through processing.

In trade, it’s best to keep everybody

interdependent. You’re less likely to

get belligerent with them. It’s nice to

have balanced trade.

Q: What is AGP’s future direction?

Answer: Diversity is critical to the

company’s future. As we add new businesses to diversify, our objective is to

become a low-cost producer in that

new business. AGP has expanded into

the feed, hog and grain businesses. 

We’re constantly in a see-saw

state in the hog business — production is low and processing high or vise

versa. Farmers need to expand more

into value-added processing such as

Farmland Industries has done and

share in the good and bad times with

one another. 

Hog processors had to get prices

to the point where producers stopped

shipping to them as supplies outstripped the processing capacity. This

resulted in heightened interest in

value-added swine processing cooperatives. We congratulate Farmland

Industries for setting a base price it

paid for hogs. As a farmer-owned

company, we need to keep producers

in mind.

AGP is basically a processor and

wholesaler. It would be wise to continue to follow that pattern. We don’t

envision getting into a business in

which we have little knowledge, such

as farm production supplies. Our real

success may be judged in another 50

years because we’re a youngster in

the market. 

We’re currently doing what our

stockholders want, adding value to

soybeans and their investment. We

have an extremely active membership.

We meet with them twice yearly at 

regional meetings and at the annual

meeting to apprise them of finances,

the grain situation and technical subject areas ranging from transportation

to marketing.

We encourage producers to do

business with their local cooperatives.

But there is a tendency from farmermembers to put too much pressure on

locals for services at less than cost. If

farmers insist on a lot of free services,

it erodes the profits flowing back to

them. Nothing is free.

This is a time of high consolidation

in agribusiness with movement toward

some form of integrated food product

systems. In the future, AGP may be

processing different commodities, perhaps in concert with an allied company. If alignment becomes important in

the farm-food sector, AGP will find an

alliance.

Some members are already aligning in pork and wheat. We anticipate

more shrinking of the number of locals

into larger operations, much as has

occurred with farms. We also envision

more centralization in marketing. The

regionals will become grain partners

with locals. AGP is positioning itself

with locals seeking an alignment. 

We’re prepared to step in rather

than let a local be sold to a competitor, particularly in the areas surrounding our plants. Part of AGP’s challenge

is to help farmers identify with valueadded products. We see ourselves as

a catalyst in the food-farm sector,

working in alliances. ■

neered new industrial uses for soybeans. Soy diesel, spray adjuvants and

solvents and cleaners have been developed as environmentally friendly

replacements for petroleum-based

counterparts, Burkett explained.

“Corn processing added another

dimension to AGP,” indicated Cal

Meyer, vice president, soybean/corn

marketing. “Our AGP Grain Cooperative, owned by AGP and 200 local

cooperatives, markets more than 300

million bushels of grain annually and

assists several member cooperatives

under a marketing agreement.” 

Expansion at Hastings, on the western edge of the corn-production belt,

boosted processing capacity to 45,000

bushels per day. AGP began ethanol

production there in 1996 and was subsequently expanded.

“With the corn and soybean plants

at Hastings, AGP has the capacity to

ship trains containing DDGS (dis-
18 September/October 1999 / Rural Cooperatives

tiller’s dried grain solubles, a high-protein ingredient used in livestock feeds),

pelleted soyhulls and soybean meal to

the West coast dairy and poultry markets,” Meyer says.

Feed diversification

AGP’s diversification into the feed

business has also paid dividends. Many

of Consolidated Nutrition’s feed plants

owned jointly by AGP and ArcherDaniels-Midland are located near

AGP’s soybean plants, and represent a

valuable market for soybean meal. 

The building of a new soybean oil

refinery at St. Joseph, Mo., in 1985

marked AGP’s entry into value-added

refining. Since then, AGP has both

expanded its refining capacity and formulation capability due to increased

demand from food companies. Today,

AGP invoices nearly 600 specific formulations of vegetable oils appearing as

ingredients in food products that

consumers use on a daily basis.

“All of AGP’s business groups are

positioned for continued growth,”

Burkett noted, “and enable us to better

serve more local cooperatives and their

farmer-owners. The next dimension is

the new soybean oil pricing program.”

Looking ahead, AGP expects to 

remain competitive in a global marketplace.

“In the coming millennium, world

economic conditions will continue to

be of concern not only to AGP but to

everyone in agriculture,” Lindsay says.

“International markets are critical to

the success of our industry. During

challenging financial times on the farm,

the mission of AGP to add value

beyond the farmgate by returning

earnings to farmers through their local

cooperatives becomes even more

crystal clear.” ■

AGP expands

global presence

Given its strong financial base, AGP

is emerging from a period of

unprecedented expansion which

exemplifies food integration that

enhances returns to AGP members.

These expansions enabled AGP to

effectively compete in the global

economy. Shipping soybean meal to

20 countries helped push international exports up 198 percent in fiscal 1998. To fortify market presence,

AGP has:

■ Diversified into corn processing in

1996 with a new plant at Hastings,

Neb. Capacity was recently expanded

by 50 percent.

■ Entered soybean processing

operations with new plants at

Emmetsburg, Iowa and Hastings,

Neb. Created a soybean market at

Hastings for more than 36 million

bushels of farmer-produced grains

per year in central Nebraska.

■ Opened a new vegetable oil refinery in 1998 at Eagle Grove, Iowa, and

broke ground for a new refinery in

1999 at Hastings.

■ Added a new methyl ester plant at

Sergeant Bluff, Iowa. Soy methyl

ester is used in solvents, cleaners,

agricultural spray adjuvants, cosmetics and soydiesel. It is exploring

new uses, such as explosives.

■ Upgraded existing plants such as

at Mason City, Iowa, where storage

has been boosted 150 percent. 

■ Began manufacturing Amino Plus,

a high-bypass soybean meal shown

by AGP research to increase milk

production by as much as 10 percent

in lactating dairy cattle.

■ Purchased interest in

Protinal/Proagro, a broiler production, processing and marketing company that also markets livestock feed

and seed in Venezuela.

■ Opened AGP Hungary, a premix

and feed company owned by AGP

and 12 farmer cooperatives in Hungary.

High-tech monitoring equipment in AGP plants assures consistent quality. 
Rural Cooperatives / September/October 1999 19

By Jerry Kozak, 

Chief Executive Officer

National Milk Producers Federation

ears before the Capper-Volstead Act

allowed cooperatives to

collectively bargain on

behalf of their members’ economic

interests, U.S. dairy leaders established

the National Milk Producers Federation to create a single, national presence for dairy associations. NMPF was

formed back in 1916, making it one of

the first national, commodity-oriented

organizations to promote the economic

and political interests of farmers and

their collectively owned creameries and

marketing organizations.

But - as the cliché goes - times have

changed. While milk itself is still essentially the same as it was 85 years ago,

the dairy industry is structurally very

different than before. And with a new

century sure to pose new challenges, it’s

important to examine how a membership association like NMPF must

evolve to better represent the needs of

its member cooperatives. Let’s start by

looking at how the industry has

changed.

A historical perspective

At the end of World War II, there

were roughly 3.5 million dairy farms in

the United States. Today, 50 years later,

there are 100,000. There were more

than 1,000 dairy cooperatives half a

century ago. Today, while there are still

more than 200 dairy co-ops, just 20 of

those market half of all the milk produced in the United States (roughly

160 billion pounds annually). The top

three cooperatives alone (Dairy Farmers of America, Land O’Lakes and

newly merged California Dairies) market approximately 50 billion pounds of

milk annually.

It’s also worth noting that, 30 years

ago, only 65 percent of the nation’s

dairy farmers marketed their production through a cooperative. That figure has grown to 83 percent today. So,

while the number of farms and cooperatives has declined, the marketing

presence of farmer-owned dairy co-ops

has actually expanded during the past

generation.

One of the primary missions of our

organization, like countless others

based in Washington, D.C., is to provide representation in Congress and

with the federal agencies that regulate

our industry. That’s a key reason why

NMPF was formed, and it’s still at the

forefront of what our members look to

us to do. As long as the government has

a presence in the production and distribution of dairy products, it will be

important to have a Washington-based

presence for dairy farm organizations.

In fact, there was a time not long

ago when the dairy cooperatives that

belong to NMPF asked whether they

still needed a national presence. And

after looking at their needs and the

realities of the dairy industry, the

answer they arrived at was a resounding

“yes” - they need to have a recognized

and consistent voice on Capitol Hill

and with the USDA, Federal Drug

Administration, Environmental Protection Agency and other agencies whose

activities have a daily impact on the

operation of dairy farms.

Dairy co-op issues changing

So, National Milk continues to fill a

unique and important role for its members. But the assortment of issues in

which we’re involved is changing, and

thus our role is evolving in relation to

where we’ve been in the past. For

example, take the issue of international

dairy standards.

Ten years ago, the manner by which

European nations determined the composition of their cheese was of little or

no concern to U.S. cheese manufacturers. We didn’t import or export enough

of the product for us to bother comparing notes with other cheese-producing

countries. But as the U.S. government

and other nations work through the

World Trade Organization to increase

global trade in products such as cheese,

ice cream and butter, it is critical for

the U.S. dairy industry to involve itself

in that process. And it’s the role of

NMPF to give American farmer-owned

dairy cooperatives a seat at the table

when international dairy standards are

constructed.

The Changing Role of Dairy Trade

Groups and Co-ops

Jerry Kozak

Y
20 September/October 1999 / Rural Cooperatives

Environmental concerns

Environmental regulation is another

area where NMPF has evolved to better reflect the needs of its members. As

most farmers are aware, the USDA and

EPA are developing a new regulatory

approach to managing the environmental impact of animal waste. The regulations that result from this process could

have as significant an economic influence on dairy farmers as the Federal

Milk Marketing Order program or

dairy price supports. So, it’s important

to have a national organization such as

NMPF to bring dairy producers’ concerns to federal regulators as they

design the new animal waste guidelines.

Our evolving mission also reflects an

increasing concern with consumers’

attitudes towards our members’ products. The leading concern of dairy consumers, according to most attitudinal

surveys, is not price, variety or taste,

but food safety. Dairy has an admirable

record of providing safe, high-quality

products, but in this information-intensive age, one isolated pathogenic outbreak can have national — even international — consequences. NMPF must

serve as an educational voice for the

media and consumers during times

when a national presence is required to

keep consumer-oriented issues in their

proper context. No individual cooperative, or regional organization, has the

same capability.

Sorting through information

Another factor that will determine

how NMPF changes in the future is the

transformational influence of information technology. At the core of our mission is the exchange of information —

not so much data, such as a financial

services or marketing organization

would manage — but ideas, news and

perspective. For decades, NMPF

served as a conduit for opinions and

ideas both from Washington to our

members, and vice versa. That

exchange often took weeks or months,

and was reliant on paper correspondence. Today, thanks to the ubiquity of

computers, we have the capability of

moving that information much more

thoroughly and rapidly. The use of

email and the Internet enables NMPF

to more rapidly and effectively communicate both to our members and the

rest of the world. 

Truth be told, thanks to information

technology, the same news that we provide to our members sometimes can be

obtained by them directly from the

source (Congress, USDA, WTO, etc.).

Where NMPF’s role becomes more

crucial is the addition of context to that

information. Our interpretation of

events, and our assessment of the

impact of those events on the dairy

industry - these are where NMPF adds

value to the daily flow of information

within the industry. And as we all

become increasingly bombarded with

the facts, figures and conjecture of the

Information Age, the role of a trade

association increasingly will be screening this flow of information so that it is

useful and instructive to our members,

and not just confusing.

Ultimately, the role and scope of

NMPF is a mirror image of its own

membership. 

NMPF reflects both the hopes and

fears of dairy producers and their cooperatives. As the number of farms

declines and those remaining get larger

- and the same pattern applies to cooperatives themselves - NMPF will continue to evolve to best reflect the needs

of its changing membership base. ■

RECs on track for Y2K

Status reports on electric power

supply and delivery into 2000 indicate

that the nation’s cooperative electric

utilities are on track with the rest of

the industry in preparing to keep the

lights on when the calendar changes.

Eighty-six percent of the electric

cooperatives participating in a survey

of the electric utility industry reported they had achieved Year 2000 readiness by the June 30 goal set by the

U.S. Department of Energy. Another

13 percent said they would be ready

before the end of the year.

Data from 96 percent of 858 electric cooperative distribution systems

were compiled as part of a comprehensive assessment of electric distribution readiness contained in “Preparing the Electric Power Systems of

North America for Transition to the

Year 2000: A Status Report and Work

Plan,” delivered to DOE by the

North American Electric Reliability

Council (NERC). As requested by

DOE, NERC is the official coordinator of Year 2000 readiness, risk assessment and contingency planning for

the electric utility industry.

The survey of electric co-ops,

fourth in the series begun last year,

was conducted by the National Rural

Electric Cooperative Association,

Arlington, Va., the trade association

representing private, consumerowned cooperative utilities. The

nation’s nearly 1,000 private, consumer-owned cooperative electric

utilities serve more than 32 million

people in 46 states. Electric cooperatives serve 13 million businesses,

homes, schools, churches, farms, irrigation systems, and other establishments in 2,600 of 3,128 counties in

the United States. 

For information on how USDA

can assist your cooperative with Y2K

readiness, visit our website at

www.ocio.usda.gov/y2k/index.htm, or

make a toll-free call to the President’s

Council on Year 2000 Conversion at

1-888-872-4925. ■
Rural Cooperatives / September/October 1999 21

By James J. Wadsworth,

Agricultural Economist

USDA Rural Development

Editor’s note: This article stems from

forthcoming RBS Research Report 174,

“Cooperative Unification: Highlights

From 1989 to Early 1999”, in which

highlights of unification activities, most

of them among well-known cooperatives, are described. That report is an

offshoot of RBS Service Report 57,

Cooperative Restructuring, 1989-1998.

nifications — mergers,

consolidations and

acquisitions. What

does the future hold?

In the September/October 1998

issue of Rural Cooperatives, Catherine

Merlo provided an overview of recent

cooperative merger activity (When

Cooperatives Combine, pp. 18-23),

pointing out the big deals completed,

the benefits, doubts and sticky points of

merging. Her article also discussed the

merger aftermath and potential for

more mergers.

This article adds to that discussion

by recognizing the broad extent of the

unification activity during the past 10

years, conceptualizing unification as a

component of strategic planning. It

also raises questions to consider in the

future as the true implications of largescale unifications manifest themselves.

Unification - to what extent?

To provide a rough estimate of

cooperative unification activity, figure 1

graphs activities derived from removals

from USDA’s cooperative mailing list

from 1989 to 1997 (each year, farmer

cooperatives are dropped from the

mailing list because of mergers, consolidations, acquisitions, dissolutions,

etc.). The unifications are those cooperatives that indicated they merged or

consolidated, or were acquired by

another cooperative. The trend of

these statistics shows the peak year of

activity is 1991, with 135 unifications.

Other high years were 1992 (107) and

1995 (90). Low years for co-op unification were 1997 (57), 1994 (61), and

1992 (68).

From 1989 through 1997, USDA

Rural Development documented a total

of 777 unifications. Of those, 65.8 percent were identified as mergers and

consolidations, and 34.2 percent were

acquisitions. These unifications included cooperatives of all sizes, although

many of them were local or smaller

cooperatives.

RBS Research Report 174 describes

51 selected unifications that took place

from January 1989 through early 1999.

While selection for this study was arbitrary, the unifications were sorted

according to cooperative size or perceived market impact. Unifications

were categorized by type of cooperative

or activity performed. As a result, 20

unifications were labeled as “dairy,”

nine as “farm supply,” eight as livestock

and seven as “fruit and vegetable.” Four

cooperative unifications were labeled

“grain” and three involved “finance”

(CoBank and its counterparts). The top

years for unification activity among this

sample were 1995 and 1998, with nine

occurring each year. 

Cooperative unification activity

occurred in a broad and scattered pattern across the United States, most of it

in California, Washington State, the

Midwest, the Mid-South and parts of

the East. 

Looking over the past 10 years —

and even further back — it is clear that

cooperatives have been making unification choices for some time. However,

recent unifications have involved larger

cooperatives and expanded the presence of nationwide cooperatives with

broad expanses of membership.

A strategic planning direction

Unification is a direction often chosen in response to dynamic trends and

industry conditions, and the inherent

need for cooperatives to realize member goals. Such conditions often pressure organizations to change or consider

change (figure 2). 

In strategic planning, cooperatives

respond to trends affecting their operations and service to members by assessing alternative strategic directions that

will allow them to continue to accomplish organizational and system-wide

goals. Figure 3 shows cooperatives have

three directional choices. They can: 1)

make internal changes to improve

structure, efficiencies and operations;

2) unify with other cooperatives or

companies; or 3) develop marketing

agreements, joint ventures, strategic

alliances or other working business

relationships with other organizations.

Unification, often conducted to

achieve stronger industry position, also

provides cooperatives with opportunities to use new strategies. Figure 4

illustrates cooperative strategic positioning and potential growth channels

that often result from unification.

Flowing from unification are a variety

Large cooperativ es unifying:

A strategic trend to monitor

U
22 September/October 1999 / Rural Cooperatives

of probable strategies that come into

play. Unification develops a strategic

position that will often propel the surviving entity into one or more potential

strategy channels of: vertical integration, horizontal integration, scale

economies, capacity expansion, synergies and efficiencies.

Unification can create a surviving

cooperative that: 1) participates in two

or more vertically adjacent industries

(vertical integration); 2) expands an

existing line of business and amassing

resources or bargaining power to share

market risks by accumulating volume

required to realize scale economies in

product procurement, sales, transportation and distribution (horizontal integration and scale economies); 3) substantially increases assets and

operational base resulting in greater

capacity and improved use of resources

(capacity expansion); or 4) collapses

specific facets of operations into more

efficiently managed and operated central functions (synergies, efficiencies). 

Examples of such strategies during

amalgamations are prevalent. For

instance, the numerous mergers involving Mid-America Dairymen led to the

formation of Dairy Farmers of America

and brought about horizontal integration, economies of size/scale, vertical

integration involving value-added

products, and more efficient use of

capacity. Those, in turn, created significant growth for the cooperatives

involved and formed a cooperative of

significant size and scope. 

In today’s business environment,

growth is one of the critical goals of

unification for cooperatives. Economies

of size, greater market prominence and

membership enhancement are all

growth factors that cooperatives strive

to achieve. Vilstrup, Cobia and Ingalsbe (Cooperatives in Agriculture, Chapter

20, Prentice-Hall, 1989) contend that

growth is considered a sign of a

healthy, successful business, pointing

out that advantages to growth are associated with economies of size and the

ability to achieve marketing and bargaining power, political power, legislative influence and financial strength.

Questions to contemplate

So, growth through unification has

been prevalent, intriguing and is altering traditional agricultural markets.

Now, what does it mean? Why are

some cooperatives making the choice?

These are worth contemplating since

experience and evidence indicate that

unification is often the hardest choice

for cooperatives to make and then pursue. Unification alters cooperative culture, internal and external structure,

governance, asset base, membership

boundaries and more. It also often

involves a drastic change in operations

and overall organizational and governance structure.

With the kinds of growth the cooperative movement has seen lately - the

development of large regional cooperative organizations - it’s worth raising

some questions. Let’s start with member governance and service:

How large can cooperatives become on a

nationwide basis and still be effective organizations well represented and well governed by member owners? Will producer

members be better served, or will the dilution of joined cooperative cultures and the

resulting broad governing bodies, water

down the level of member-owner control?

In other words, will cultures be

diluted as cooperatives grow into larger

and more widespread organizations,

crossing broad geographic boundaries?

Will the transformed cooperatives have

less member representation and governance? And, will those mega-cooperatives be stronger and better able to

serve members?

The ongoing and fast structural

change in agricultural industries clouds

the answers to these questions. Clearly,

some agricultural markets need to be

consolidated for higher member benefits. Some are fragmented by too many

competing organizations given the limited producers and resources involved.

Some often contend that overcoming fragmentation can be a significant

strategic opportunity, and that once

barriers to consolidation are overcome,

the structure of an industry can be

improved for those that consolidate.

The structures of agricultural industries in dairy, farm supply and cattle,

for instance, are changing due to consolidation. The artificial insemination

industry has seen considerable consolidation. Once an industry with a large

number of stud operations, it has now

consolidated into four cooperatives and

FIGURE 1

Unifications, based on USDA mailing list drops

160

140

120

100

80

60

40

20

0

1989 1990 1991 1992 1993 1994 1995 1996 1997

Merger or consolidation Acquisitions Total
Rural Cooperatives / September/October 1999 23

Farmland,

Cenex Harvests

States move closer

to merger 

The boards of directors of Farmland

Industries, Inc., Kansas City, Mo., and

Cenex Harvest States Cooperative, St.

Paul, Minn., have voted to combine

operations, effective March 1, 2000. The

new organization would be called United

Country Brands and have projected

sales of nearly $20 billion. The boards

met Sept. 22 to sign final unification documents. Informational meetings in 37

cities will follow in October and November. The members of both cooperatives

will vote Nov. 23 on the consolidation.

Both organizations have complimentary businesses and overlapping memberships. The consolidation would

increase opportunities to add value to

the grain and livestock raised by producers. A desire to be a stronger player

in a fast-paced and changing global

agricultural food system coupled with

accelerated concentration brought on

by the industrialization of U.S. agriculture is triggering the union, officials

report.

Not lost on the participants are the

opportunities to achieve substantial

operational savings and to open windows to expanding markets. An expected $500 million in consolidation savings

during its first six years will be offset

somewhat by the expense of forming

United Country Brands. A segmented

base-capital plan that provides members with proportional investment in the

businesses they use will become effective Sept. 1, 2000. 

Leadership slots for the proposed

new cooperative have been designated

by an interim board. Bob Honse, Farmland’s chief operating officer, would be

the initial chief executive officer through

Dec. 31, 2003. John Johnson, president

of Cenex Harvest States, would be president of United Country Brands until

Dec. 31, 2004, then take over as CEO.

Current CEOs H.D. “Harry” Cleberg of

Farmland and Noel Estenson of Cenex

Harvest States will become advisors to

the new cooperative until their planned

retirements on Dec. 31, 2000. 

During a transition period through

Dec. 31, 2001, Elroy Webster, Cenex

Harvest States chairman, will head the

34-member interim board (17 from each

cooperative). Al Shively, current Farmland chairman, will become the new

vice chairman. After that, a 25-member

board would be elected, consisting of 18

producers and seven local cooperative

managers. 

What could be the last separate

annual meetings of the two cooperatives will be held Dec. 2-3 (Cenex

Harvest States) and Dec. 7-8 (Farmland).

Although United Country Brands’ office

of leadership would be based in Kansas

City, where Farmland is building a new

headquarters, the new cooperative

would maintain a significant employee

presence at Inver Grove Heights, Minn.

Should the merger be approved,

employee relocation should be minimal.

The total number of employees in each

city would remain about the same, officials report. Grain and energy interests

would be based at Inver Grove Heights,

while refrigerated foods and livestock

would be centered at Kansas City.

The proposed new cooperative

would not impact the joint agronomy

venture started more than 12 years ago

by Cenex and Land O’Lakes, Inc. That

venture—continued after the merger of

Cenex with Harvest States—will carry

forward, officials report. United Country

Brands will share half ownership with

Land O’ Lakes, and business will be conducted in both Kansas City and Inver

Grove Heights. 

Both Cenex Harvest States and Land

O’Lakes also have a 55 percent interest

in CF Industries, Inc., an inter-regional

manufacturer and distributor of fertilizers.

a select number of private firms. The

dairy industry, overall, continues to

consolidate. Though fragmentation in

that industry still applies in certain

areas, Dairy Farmers of America and

Land O’Lakes, for instance, continue to

gain large- scale prominence. The number of players in the industry has shrunk.

Consolidations in the farm supply

industry also are prevalent, including:

Land O’Lakes and Countrymark,

Cenex and Harvest States, and the

prospect of Farmland and Cenex Harvest States. 

The changing structure of certain

industries cannot be ignored. However,

overcoming fragmentation and seeing

industries consolidate, perhaps toward

the “rule of three” (which asserts that

there is only room for two or three

major competitors in an industry sector-the companies that can supply the

volume and service needed to support

demand), invites more questions.

How effective is unification for industries and its participants? Will they

improve along with member services of the

remaining cooperatives? How will largescale unifications affect other cooperatives

(local and regional) in the industry or

related industries?

The structural changes taking place

will pressure existing cooperatives with

comparatively slight industry involvement or market share. It may force

them to consider unification or other

action. The impact of such pressure

must be carefully weighed. Continuing

to serve producer-members in the most

efficient and beneficial way, given

changing structures, should be the ultimate goal of remaining cooperatives.
24 September/October 1999 / Rural Cooperatives

So, cooperatives must assess the implications of unification on their market

position and revenue-driven business

practices as well as on service.

Figure 5 summarizes the potential

impacts and implications of unification.

Given significant change via unification, there are a number of unknowns

to contemplate. What will be the

impact on: 1) member service and governance, 2) other cooperatives and

firms, 3) industry and industry performance, and 4) subsequent strategy

employment and organizational/operational change? Cooperative leaders

must keep attuned to unifications

affecting their cooperative and their

industry and what impact these structural changes have on the organizations

and services to members.

Unifications among co-ops are

expected to continue, and to further

alter the structure and scope of agricultural industries. Questions as to the

effectiveness of further consolidation

arise. The answers won’t be easy to

assess, but time and a keen eye on the

impacts of such unification activity will

eventually produce a clearer picture.

Research and/or analyses beyond merely

describing unification activities are

needed to gain a greater understanding

of how unification is impacting industries and of its effect on cooperative

cultures and operations. ■

FIGURE 2

Trends and conditions pressuring cooperatives

Broken boundaries

of traditional marker

Value-added 

concept, vertical

integration

Fewer and larger

farms

Global economy, economic boom

Lower level of government intervention

Striving for relative market power

(rule of three) Need for critical

mass, economics

of scale, market

share

Competitive 

pressure from

large/strong coop- eratives and 

private firms

Cooperative

(Change?)

FIGURE 3

Industry dictated strategic positioning

Terms & Conditions

Organization, Adjustment, Planning, and Position

Industry Change

Organizational &

System-wide goals

Internal

change Unification Ventures,Agreements

Alternative

Strategic

Directions for Goal

Accomplishment

External conditions

Decision nodes

FIGURE 4

Strategy potential of unification

Unification

Vertical 

integration

Horizontal

integration Scale

economics

Capacity

expansion

Synergies

efficiences

FIGURE 5

Strategic implications (questions) of unification

Members

service,

governance?

Industry and

industry 

performance?

Subsequent

strategies, 

organizational

change?

Other

cooperative

firms?

Unification

Impacts &

implications

Industry Strategic

Positioning

Growth

Organization, Adjustment, Planning, and Positioning
Rural Cooperatives / September/October 1999 25

ommunication is a cornerstone of cooperatives, and a professional organization

recognized outstanding contributions

to the field at its annual meeting in

Omaha, Neb.

Tom W. Smith, chief executive officer of the Calcot cotton and almond

marketing cooperative, was named

the1999 CEO Outstanding Cooperative Communicator Award.

Presented by the Cooperative

Communicators Association, the award

recognizes Smith’s efforts to promote

better understanding of his cooperative

among members, customers, employees and the general public. Smith

received the honor at CCA’s annual

institute in Omaha.

Leader of the Bakersfield, Calif.-

based cooperative since 1977, Smith

was cited for expanding the scope and

substance of the company’s communications program and for adopting a

strategic plan that emphasizes a strong

communications component at virtually all levels of Calcot’s operations.

He started his career with Calcot in

1957 as a field representative just after

graduating from Texas A&M. Even

though he wasn’t trained as a journalist, one of his earliest duties was to edit

Calcot’s award-winning publication,

“The Calcot News.” Smith says he

found this a tough assignment, but it

opened his eyes to the need for communications vehicles that provide a

direct link between management, coop members and others.

Under Smith’s leadership, Calcot

has grown from marketing 500,000

bales of cotton annually to as many as

2 million. He currently is guiding the

expansion of Calcot’s marketing services to include almonds, a step taken

in part to help members suffering from

depressed cotton prices. Smith says he

believes communications efforts are

particularly important when times are

tight. Cutting back such programs to

prove austerity to members is a huge

mistake, he notes.

Communicators from Cenex and

GROWMARK earned top cooperative

career awards from the CCA.

Jantzen’s co-op career honored

Jean Jantzen, recently retired vice

president of public relations with

Cenex Harvest States, received CCA’s

Klinefelter Award given for career

achievement in cooperative communications. Jantzen’s retirement earlier

this year marked the end of a 35-year

career with cooperatives, originally

with Cenex, St. Paul, Minn., and then

with Cenex Harvest States after Cenex

and Harvest States merged in 1998.

During her career, she moved from

an administrative support role to key

positions in the public relations area,

honing skills in areas ranging from

corporate and marketing communications to media relations, meeting planning, cooperative education, governmental affairs and human resources.

Her communication skills and understanding of cooperatives helped her

rise through the ranks to become one

of the first women named a Cenex vice

president.

GROWMARK’s Hastings recognized

GROWMARK’s corporate relations

manager received CCA’s Graznak

Award. Ann Hastings received the

award in recognition of career achievements and excellence in cooperative

communications by a CCA member 35

years of age or younger. 

She joined GROWMARK, Bloomington, Ill. in 1993 as publications

manager and was named to her current

position in 1995. She has also worked

at the Illinois Soybean Association,

Bloomington, and the Coles-Moultrie

Electric Cooperative, Mattoon, Ill.

She’s a University of Illinois graduate

with a degree in agricultural communications.

In 1997, she attended the Graduate

Institute of Cooperative Leadership at

the University of Missouri. She is

working on a master’s degree in business administration at Illinois State

University, Normal. Hastings serves

on the CCA board and the Illinois

Cooperative Coordinating Committee.

Merlo, Haynes, Farmland honored

Two communicators and the communications staff of a major farmer

cooperative received top honors in

CCA-sponsored competitions.

Calcot’s Tom Smith,other

outstanding communicators 

win CC A honors

C

Tom W. Smith, CEO Communicator of the

Year. 
26 September/October 1999 / Rural Cooperatives

Catherine Merlo was named writer

of the year, primarily on the strength

of articles written for USDA’s Rural

Cooperatives magazine (see item below).

Merlo, of Bakersfield, Calif., heads a

communications firm that works closely with a number of cooperatives and

related organizations. She formerly

worked with Calcot. The recipient of

awards in a number of categories in

this year’s CCA writing competition,

Merlo was cited by judges for her ability to address a wide variety of assignments.

Page Haynes, communications specialist at Tennessee Farmers Cooperative in Lavergne, earned photographer

of the year honors. Judges said

Haynes’ winning photographs demonstrated both an ability to capture the

subject matter and eliminate outside

distractions. They also praised her skill

in capturing human emotions and feelings in her feature photos of people.

Best-of-class award in the special

projects competition went to the communications staff of Farmland Industries, Kansas City, Mo., for its web site

(http://www.farmland.com). Judges

said the site was a model of useful

information. The Farmland site won in

that category of competition and then

earned best-of-class honors among all

winners in special projects categories.

1999-2000 officers elected

CCA officers for 1999-2000 are:

President Patricia Keough-Wilson,

Minn-Dak Farmers Cooperative; Vice

President Lani Jordan, Cenex-Harvest

States; Secretary Heather Berry, Association of Missouri Electric Cooperatives; and Treasurer Tim Brown, Arizona Electric Power Cooperative.

Other directors include Ann Hastings;

Mark Bagby, Calcot; Karla Harvill,

Gold Kist; Leta Mach, National Cooperative Business Association; and

Sheryl Doering Meshke, Associated

Milk Producers. 

CCA formed in 1952 and is an

organization of some 400 communications professionals who work for cooperatives and closely allied organizations

throughout the U.S., Canada and

Europe. It can be found at www.CoopComm.com. Its 2000 annual meeting

will be held June 24 to 28 at Grouse

Mountain Lodge, Whitefish, Mont. ■

Klinefleter award winner Jean Jantzen

(left) and Graznak award winner Ann

Hastings at the CCA Communications

Institute in Omaha.

Rural Cooperatives

wins editorial 

honors

Rural Cooperatives magazine won

a number of editorial and photography honors during the Cooperative

Communicators Association (CCA)

annual Communications Institute in

Omaha, Neb. 

Among the honors were three

first place writing awards, for:

“When Cooperatives Combine”

(September/October ‘98 issue),

about the merger trends among

cooperatives; “Hooked on Catfish”

(May/June ’98 issue) about the Delta

Pride catfish cooperative in Mississippi; and “The Triumph of the

Dawson Workers’ Cooperative”

(March/April ’98 issue) about a

worker-owned textile cooperative.

Another article, “Pooling for

Power” (July/August *98 issue),

about an effort by California farmers

to lower their cost for electricity,

won a third place writing award.

Catherine Merlo, the author of all

the articles, was named CCA

“writer of the year.” The magazine

was awarded third place honors as

best overall co-op member magazine, and USDA photographer Ken

Hammond won a second place

photography ribbon for a portrait of

a West Virginia seamstress. 

CCA strives to promote

improved communications and

public affairs programs among

farmer- and consumer-owned cooperatives. 
Rural Cooperatives / September/October 1999 27

Editor’s Note: Information for this article

was compiled by the Statistics Staff of

USDA’s Rural Business-Cooperative Services, including Charles A. Kraenzle,

Celestine C. Adams, Katherine C. DeVille,

Jacqueline E. Penn and Ralph M.

Richardson

Business volume of the nation’s

farmer-owned cooperatives declined to

$104.4 billion in 1998, down from

$106.7 billion in 1997, according to

data compiled by USDA’s Rural Business-Cooperative Service. Business volume includes gross receipts from the

sale of crops, livestock, farm supplies

and services collected by the nation’s

3,651 farmer cooperatives.

Farmer cooperatives’ net income of

$1.7 billion in 1998 was down from

$2.3 billion in 1997. That’s the lowest

income level since 1993 and well off

the income record of $2.36 billion set

in 1995. Lower margins for farm

supplies, poultry and sugar were major

factors that caused the income decline.

Losses suffered by a number of cooperatives also hurt the overall income

performance.

Crop and livestock marketing

receipts dropped 1.5 percent, farm

supply sales declined 3.8 percent and

service receipts and other income fell

3.5 percent in 1998. Among the major

products marketed, grain and oilseed

dollar volume dropped the most (13.6

percent), largely due to significantly

lower prices.

The drop in farm supply sales was

due mainly to lower prices for livestock

Net business volume, net income for

far mer co-ops decline in 1998

TABLE 1 

Farmer cooperative numbers, net income, and memberships, 1998 and 19971

Principal product Cooperatives2 Net income3 Memberships

marketed and

major function 1998 1997 1998 1997 1998 1997

Numbers Million dollars 1,000

Marketing:

Cotton4 15 16 64.0 67.7 41.3 42.7

Dairy 228 239 447.2 369.7 92.9 104.9

Fruit & vegetable 249 259 76.9 189.7 44.0 44.0

Grain & oilseed 964 1013 441.4 437.0 728.7 745.0

Livestock & poultry 98 108 -71.2 191.4 197.8 270.3

Rice 17 18 7.3 7.3 12.9 14.0

Sugar 52 51 -12.1 -2.0 15.9 13.8

Other products5 240 239 64.0 52.5 264.9 263.2

Total marketing 1,863 1,943 1,017.5 1,313.3 1,398.4 1,497.8

Farm suppy6 1,347 1,386 578.8 834.6 1,773.7 1,743.2

Related-service7 441 464 146.0 166.5 180.6 183.1

Total 3,651 3,793 1,742.3 2,314.4 3,352.6 3,424.2

1

Preliminary. Totals may not add due to rounding. 2

Operations of many cooperatives are multi-product and multi-functional.They are classified in most

cases according to predominant commodity or function indicated by business volume. 3

Net income less losses and before taxes. 4

Cooperative cotton gins included with related-service cooperatives. 5

Includes bean and pea (dry edible), nut, tobacco, wool, fish and miscellaneous marking cooperatives. 6

Data for 1997 memberships were revised. 7

Includes trucking, cotton gins, storage, artificial insemination, rice driers and other services cooperatives

TABLE 2

Cooperative business volume, 

1998 and 19971

Commodity Net volume2

or function 1998 1997

Million dollars

Products marketed:

Cotton 2,961 3,004

Dairy 25,324 23,374

Fruits & vegetables 9,423 9,268

Grains & oilseeds3 21,295 24,639

Livestock & poultry 9,555 9,578

Rice 932 930

Sugar4 2,445 2,284

Other products5 4,737 4,765

Total products 76,671 77,843

Supplies purchased:

Crop protectants 3,163 3,125

Feed 5,367 5,988

Fertilizer 5,161 5,371

Petroleum 6,420 6,756

Seed 730 702

Other supplies6 3,384 3,238

Total farm supplies 24,226 25,181

Services & other income:7 3,520 3,647

Total business volume10,4418 10,6670

1

Preliminary. Totals may not add due to rounding. 2

Volume includes value of products associated

with cooperatives that operate on a commission

basis or bargain for members’ products.

Excludes intercooperative business. 3

Excludes cottonseed.

4

Data for 1997 were revised. 5

Includes dry edible beans and peas, fish, nuts,

tobacco, wool, and other miscellaneous products. 6

Includes building materials, containers, hardware, tires-batteries-accessories (TBA), farm

machinery and equipment and other supplies. 7

Includes trucking, ginning, storage, artificial

insemination, rice drying and other.
feed, petroleum and fertilizer. Feed sale

receipts alone dropped 10.4 percent

from 1997. The drop in farm supply

sales, as well as the lower margins, also

had a significant impact on earnings of

farm supply cooperatives. Net income

of $578.8 million was down nearly 31

percent.

Farm marketing cooperatives —

those that sell crops, livestock and value-added products for their members

— also suffered a steep 22.5 percent

decline in net income. Fruit/vegetable,

poultry and sugar cooperatives all suffered significant income drops. Bucking

the trend were dairy co-ops, which

posted a 21-percent income gain. Net

income for grain and oilseed cooperatives increased 1 percent despite substantially smaller sales volumes.

Co-ops reflect farmer trends

Cooperatives continued to expand as

reflected by total assets reaching a

record $46.5 billion in 1998, an

increase of 5.8 percent from nearly $44

billion in 1997. To finance this expansion, total liabilities also grew to $26.6

billion from $25.5 billion, a 4.5 percent

increase. More importantly, however, a

larger proportion of total assets were

financed by net worth as it jumped to

nearly $20 billion from $18.5 billion,

an increase of 7.6 percent.

The number of U.S. agricultural

cooperatives dropped to 3,651, down

from 3,791 in 1997, reflecting the

changing structure of agriculture.

Mergers, consolidations, acquisitions

and dissolutions resulted in a loss of

195 cooperatives. However, 55 cooperatives were added to the list in 1998.

Membership in farmer cooperatives

totaled 3.35 million in 1998, down 2.1

percent from 1997. The number of

memberships was larger than the number of farmers in the U.S. because many

farmers belong to more than one cooperative.

Cooperatives employed 173,782

full-time employees in 1998, up from

172,199 in 1997.

28 September/October 1999 / Rural Cooperatives

FIGURE 2

Cooperatives’ Net Business Volume,

1994-98 120

100

80

60

40

20

0

Billion dollars

1994 95 96 97 98

106.7 104.7 106.2

89.3 93.8

FIGURE 1

Cooperatives’ Net Income, 1994-98

2.5

2.0

1.5

1.0

0.5

0.0

Billion dollars

1994 95 96 97 98

1.96

2.36

2.25 2.31

1.74

Farmland, CenexHarvest States

Top NCB’s list

Two agricultural organizations that

recently announced plans to consolidate operations top the list of the

largest U.S. cooperatives, published

by the National Cooperative Bank

(NCB), Washington, D.C. The annual

list recognizes America’s top 100

cooperatives with annual revenues

greater than $325 million.

Farmland Industries, with 1998

revenues of nearly $8.8 billion, and

Cenex Harvest States, with nearly $8

billion in 1998 revenues, were the 

largest agricultural cooperatives in

the Co-op 100 list. In addition, the two

organizations are the largest cooperatives in the United States. 

Consolidation among agricultural

cooperatives was a major trend in

1998. Nine of the agriculture cooperatives listed in last year’s report were

partners in mergers with four of the

top 100 cooperatives, notes the NCB

report. Agriculture remains the dominant industry sector in the NCB list,

represented by 42 cooperatives with

combined revenues of $60 billion,

compared to 49 ag cooperatives with

$57 billion on the 1997 list.

Top 15 on 1998 NCB Co-op 100®

Name 

‘98 Revenue ‘97 Revenue Ag Rank

$ millions

1. Farmland Industries $8,775 $9,148 1 

2. Cenex Harvest States $7,959 $9,124 2 

3. Dairy Farmers of America $7,325 $3,862 3 

4. Land O’ Lakes $5,174 $4,195 4 

5. Wakefern Food Corp. $5,159 $4,613 – 

6. TruServ Corporation $4,328 $4,224 – 

7. TOPCO Associates Inc. $4,000 $3,900 – 

8. Associated Wholesale 

Grocers

$3,180 $3,129 – 

9. ACE Hardware Corp. $3,120 $2,907 – 

10. Ag Processing Inc. $2,615 $2,948 5 

11. Roundy’s Inc. $2,516 $2,611 – 

12. Spartan Stores $2,409 $2,475 – 

13. Do-It-Best Corp. $1,948 $1,749 – 

14. Certified Grocers of CA Ltd. $1,832 $1,827 – 

15. Lumbermen’s

Merchandising Corp. $1,700 $1,656 – 
Rural Cooperatives / September/October 1999 29

NEWSLINE

Wisconsin’s Karg new field editor

Pamela Karg, Baraboo, Wis., is now

the field editor of Rural Cooperatives

magazine, published bi-monthly by

USDA Rural Development. As field

editor, she writes several feature stories

in each issue as well as assists in editing

articles. Karg’s cooperative knowledge

was formed at Foremost Farms USA, a

Wisconsin-based dairy cooperative,

during which time she earned numerous writing and photography awards

from the National Milk Producers Federation and the Cooperative Communicators Association (CCA). In 1991,

Karg received CCA’s Michael Graznak

Award, presented annually to an outstanding young cooperative communicator. She went on to serve CCA as a

director and as its president. In 1995,

Karg opened her own communications

business and now writes for cooperative

publications, agricultural and dairy

newspapers and magazines, commercial

television and community radio.

Gold Kist,

Cotton States

Insurance

founder dies

David

William

Brooks, 97,

retired

founder of

Gold Kist Inc.

and of Cotton

States Insurance Companies, died Aug.

5 in an Atlanta hospital. Brooks

obtained bachelor’s and master’s

degrees in agriculture from the University of Georgia and began teaching

agronomy at age 19, making him one of

the youngest faculty members at the university. In recent years, he served in a visiting position which, he pointed out,

made him the oldest professor on campus.

Brooks left the university in the early

1930s to form Georgia Cooperative

Cotton Producers Association. In 1974,

the company was renamed Gold Kist

Inc. With annual sales of more than $2

billion, Gold Kist is the second largest

poultry processor in the United States.

Brooks served as general manager of

Gold Kist until he retired in 1968.

Brooks organized Cotton State Mutual

Insurance Co. (CSIC) in 1941 to provide farmers with a source of fire and

windstorm insurance. He served as

chairman of the board of CSIC until

1983. It now serves 10 states in the

Southeast and had sales of $265 million

in 1998.

Three California cooperatives merge

More than 98 percent of the members of California Milk Producers, San

Joaquin Valley Dairymen and Danish

Creamery Association approved merging the three cooperatives, effective

Aug 1, 1999. The new cooperative is

named California Dairies Inc. and will

be the nation’s second largest dairy

cooperative in terms of milk volume.

California Dairies will annually market

13 billion pounds of milk from 700

members through five manufacturing

plants. Until 2001, the three chief executives of the predecessor cooperatives

will function as executive vice presidents.

Glencoe, AMPI consider merger

Glencoe Butter and Produce Association, Glencoe, Minn., has signed a letter

of intent to negotiate a merger with

Associated Milk Producers Inc., New

Ulm, Minn. AMPI and Glencoe will

immediately begin negotiating a definitive agreement to merge the two cooperatives. Glencoe members own an

agricultural services division and dairy

manufacturing plant. The plant produces barrel cheddar and provolone

cheeses. AMPI dairy farmer-members

share in the ownership of manufacturing plants in the Upper Midwest. In

1999, the combined cooperatives will

market five billion pounds of milk and

manufacture a full line of consumerpackaged dairy products.

Land O’Lakes, Swiss Valley partners

Land O’Lakes, St. Paul, Minn., and

Swiss Valley Farms, Davenport, Iowa,

announced a joint venture to combine

the fluid milk and cultured dairy product businesses of the two organizations. Following approval by directors,

the cooperatives proposed the formation of the alliance on or about Oct. 1,

1999. The venture, with combined

annual revenues of $480 million,

would bring together the cooperatives’

six Midwestern milk and juice bottling

plants and two cultured dairy product

plants. The Land O’Lakes plants are in

North and South Dakota, Minnesota

and Wisconsin. The Swiss Valley plants

are in Iowa and Illinois.

Carey named UDA executive director

Dermot T. Carey has been named

executive director of United Dairymen

of Arizona (UDA) in Tempe. Carey was

with Michigan Milk Producers Association before joining UDA in 1993 as

director of operations. He is an honors

graduate from the University College

D.W. Brooks
30 September/October 1999 / Rural Cooperatives

Cork, Cork City, Ireland, where he

majored in dairy and food technology,

engineering, microbiology and chemistry.

MMPA pays equity capital retains

The Michigan Milk Producers Association issued $4 million in equity payments to producers who shipped milk

with the company in 1987 and 1988.

Included in the cash payments was the

final payment of the cooperative’s

Equity Capital Retain Program, which

was discontinued in 1987. Along with

the balance of the Equity Capital

Retains, the $4 million payment included all 1987 equity and half of 1988

equity. Earlier this year, MMPA members received $1.9 million in cash payments generated from the cooperative’s

1997-98 fiscal year. 

“It is not easy in today’s dairy industry to finance a cooperative exclusively

from its profits, which MMPA has done

since 1987,” Kirkpatrick says. “The

need to stay competitive requires

MMPA management to continually

review our plants and operations while

providing a competitive pay price to

our members.”

LOL Answer Farm celebrates 25 years

The Land O’Lakes Answer Farm,

one of the nation’s leading crop and

livestock research facilities, celebrated

its 25th anniversary in September. The

farm maintains a 180-cow dairy unit;

uses more than 1,400 calves and 300

litters of pigs in animal nutrition, management and health research annually;

and has a seed research system supported by more than 700 local cooperative

test plots. The celebration recognized

the Answer Farm’s long heritage of

developing new products, services and

technologies which deliver value to

producers by helping them maximize

production efficiency, increase productivity and enhance profitability.

USWP now Spring Wheat Bakers

There’s a new name and marketing

strategy in place for the United Spring

Wheat Processors at its new plant in

McDonough, Ga. The cooperative is

using the name Spring Wheat Bakers

for both its products as well as its identity with members, grain procurement

partners, flour milling partners and

suppliers, reports Gary Lee, chief executive officer and president. The plant is

the first national par-bake co-manufacturer in the country. It will manufacture frozen dough and partially baked

frozen bread products for the foodservice and in-store grocery markets. The

cooperative is owned by 2,800 spring

wheat growers in Minnesota, Montana

and North and South Dakota. Its headquarters is located in Fargo.

Wentworth ethanol plant planned

The Lake Area Corn Processors

Cooperative is building a 40-milliongallon ethanol plant near Wentworth,

S.D. The $43 million dry mill ethanol

plant is the biggest construction project

in the history of Lake County, S.D. It is

estimated that farmers will receive an

extra 10 cents per bushel of corn within

a 50-mile radius of the plant. Its annual

expenses are estimated at $50 million

and $60 million, including $33 million

for corn. Thirty-five people will be

employed at the plant, which will have

an approximate annual payroll of $1.3

million. Fundraising for the valueadded facility is taking place this fall

across South Dakota. The 12- to 14-

month construction project is expected

to begin in spring 2000.

Tree Top acquires Watermill Foods

Tree Top Inc., a Selah, Wash., apple

marketing cooperative, recently

acquired Watermill Foods Inc., a Milton-Freewater, Ore., processor of

frozen sliced apples, cherries and

plums. Watermill markets its products

around the world in bulk as valueadded items to industrial manufacturers.

California Custom Foods dissolved

The fruit and vegetable processing

and marketing cooperative Pacific

Coast Producers (PCP), Lodi, Calif.,

has announced that California Custom

Foods has been dissolved and its operations rolled back into the cooperative as

Pacific Coast Producers-Flexible Packaging Division. The dissolved company

had been founded as a California corporation by PCP in 1989.

Seald-Sweet celebrates 90th

Florida’s oldest sales and marketing

organization marked its 90th annual

meeting in Vero Beach this past summer. The cooperative is Florida’s

largest shipper of fresh fruit to both

domestic and international customers.

In addition, it markets non-citrus fresh

fruits and vegetables, including Vidalia

onions and Louisiana sweet potatoes.

This past year, the organization formed

Seald Sweet LLC to facilitate the marketing of other fruits and vegetables in

North America and to expand citrus

marketing opportunities in off-season

months. 

“We are trying to structure our business in a way which protects the

strengths and advantages of a cooperative, but, at the same time, adds the

commercial flexibility of a limited liability company,” noted Bruce McEvoy,

Seald Sweet’s chief executive officer. 

At the board meeting held in conjunction with the annual meeting, John

Luther was re-elected chairman while

Richard A. Fort Jr. was re-elected vice

president.

Bullock to step down in 2000

Amid a cranberry glut hurting the

entire industry, Ocean Spray Cranberries Inc. announced that Thomas E.

Bullock, chief executive officer, is stepping down in 2000 after three years in

the top spot and 18 years with the

cooperative. Bullock is the third Ocean

Spray executive to announce his departure this year. According to Ocean

Spray, Bullock presented a “major transition plan” to the Lakeville-Middleboro, Mass., cooperative board that will

have him assist in the search for his

successor before leaving. 

“One of the challenges I*ve faced —

and one my successor will face — is
Rural Cooperatives / September/October 1999 31

continuing to create value for our

grower-owners, who are suffering 

from lower-than-expected returns due

to crop surpluses and low prices,” 

Bullock says. 

PLA, IPLA discuss consolidation

The boards of Interstate Producers

Livestock Association, Peoria, Ill., and

Producers Livestock Association,

Columbus, Ohio, are discussing a possible consolidation. A feasibility study is

being conducted, especially in light of

PLA’s recent announcement of similar

discussions with MFA Livestock Inc.,

Marshall, Mo. PLA serves more than

34,000 livestock producers throughout

Ohio, Indiana, Michigan and other

areas of the eastern Corn Belt. ILPA

serves farmers and ranchers in Illinois,

Iowa and Missouri and markets nearly

2.5 million head of livestock annually.

USDA Rural Utilities Service

receives Hammer Award

Employees from USDA’s Rural Utilities Service received a Hammer Award

from Vice President Gore’s National

Partnership for Reinventing Government. The award was presented to RUS

Administrator Wally Beyer on behalf of

the RUS team. The award is given to

government employees who cut paperwork, reduce costs, increase efficiency

and improve customer service. RUS was

cited for reducing regulatory burdens

that cut more than 427 pages of regulations from the Federal Register.

DariGold now Northwest Dairy 

After nearly a year of discussions,

Darigold Farms has adopted new

names. Driven by the cooperative’s goal

to achieve superior economic advantage for dairy farmers, both the corporate name change to WestFarm Foods

and the cooperative name change to

Northwest Dairy Association support

its broader marketing strategy.

From 1961 to 1988, the cooperative’s name was Northwest Dairymen’s

Association. Its processing and marketing arm was known as Consolidated

Dairy Products Co. From 1929 to 1984

the Seattle, Wash., cooperative primarily

produced and marketed dairy products

under the Darigold brand, and had

changed its name to Darigold during

the 1980s.

SWEPCO, Committee, WST

withdraw Cajun Bankruptcy

settlement

Southwestern Electric Power Company, Committee of Certain Members

and Washington-St. Tammany Electric

Co-op have withdrawn their joint reorganization plan for Cajun Electric

Power Co-op as part of a settlement

reached in late August to end Cajun’s

four-and-a-half-year-old bankruptcy.

The agreement came during a settlement conference ordered by the U.S.

District Court in Baton Rouge, La.

Bidders wanted Cajun’s non-nuclear

assets and the opportunity to sell

wholesale power to Cajun’s 11 member

distribution cooperatives. 

Chugach to install world’s largest

assured-power fuel cell

A new system for generating power

that is virtually pollution-free and

requires little maintenance will be

installed for the U.S. Postal Service by

Chugach Electric Association, a member-owned cooperative and the largest

utility in Alaska serving customers at

over 69,000 metered locations from

Anchorage to the northern Kenai

Peninsula and from Whittier to Tyonek.

The new fuel cell system will be

installed at the Anchorage Mail Processing and Distribution Facility. The

cell system is expected to be operational early next year. It will be the

world’s largest assured-power fuel cell

installation. The system will be owned

and maintained by Chugach. Each cell

will generate 200 kilowatts of electricity, enough to supply electricity for

nearly 150 homes. ■

attracted by the highest margins in

hardwoods and have tried to establish a

presence, but have failed. GA-CO sales

ended up being well over 90 percent

softwood products. During the 1991-

96 period in which the co-op operated,

hardwood export market prices were at

a 10- to 15-year low.

Causes for failure

The potential to serve foreign markets was provided through the co-op

structure, with staff passively monitoring importer inquiries, but not engaging in any market-building activities.

There was consensus among mill executives interviewed that the sponsors did

an excellent job of getting the cooperative venture organized, but the business

cycle in the wood products industry

worked against the GA-CO effort.

The consensus among memberexecutives and sponsors was that the

co-op ended for three reasons. First,

there was a lack of a driving economic

need for mill members to enter export

markets. Second, there was not a

“cooperative culture” among mill

members to ease that coordination.

Third, there was no agreement among

members about how the cooperative

should operate and be funded.

Mill members were free to individually pursue more profitable, secure and

easy transactions in domestic markets,

and that is what they did. However, the

decision to operate through the facilities and staff of the experienced GACO member limited the size of the

other members’ investments and risks.

However, several respondents interviewed after GA-CO was dissolved

commented that members seemed not

to be soured on the cooperative

process. One member believed that in a

future situation where domestic markets were weak and export markets

were relatively strong, the export co-op

structure might yet work for them. ■

continued from...page 7
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