USDA / Rural Development May / June 2012

R

u

r

a

l COOPERATIVES

A Taste of

Gold

Page 16
By Dan Campbell, Editor

n May 15, 1862, President Abraham

Lincoln signed into law an Act of Congress

creating USDA. His goal was to launch a

federal agency that would help create a

more prosperous nation by making it one

of the world’s leading producers of food and fiber. That

mission has been accomplished many times over, as

American agriculture today is the envy of the world.

But if Lincoln were to return to USDA as we celebrate

its 150th anniversary in 2012, he would undoubtedly be

amazed to see how USDA has evolved and grown. For

example, he would see highly skilled botanists and other

scientists at work in laboratories operated by USDA’s

Agricultural Research Service, where they are striving to

find ways to fight a wide range of plant diseases and to

breed new drought-tolerant and insect-resistant plant

species.

Lincoln would see USDA Forest Service foresters

implementing forest management plans that help ensure

that our national forests provide recreation, wildlife

habitat and an abundant source of timber for the nation.

He would also see USDA Foreign Agricultural Service

staffers studying markets around the globe, constantly

looking for new export opportunities for U.S. farmers.

At USDA’s Food and Nutrition Service, Lincoln would

see men and women striving to ensure that no child in

America ever goes to bed hungry. At USDA’s Natural

Resources and Conservation Service, he would see staff

members helping farmers and ranchers develop land

management plans that protect crucial wetlands and other

fragile land resources. He would see how USDA Food

Safety and Inspection Service workers stationed in meatprocessing plants are helping to ensure the wholesomeness

of the food that winds up on our dinner plates.

At USDA Rural Development, Lincoln would find an

agency with offices across the nation where staff members

help rural Americans accomplish the dream of

homeownership and support development of affordable

rental housing and community facilities, such as fire

stations, medical clinics and day care centers. He would

see other Rural Development staffers working with local

business developers and lenders to finance promising new

business startups and expansions, helping to create new

jobs in the process.

Lincoln would see how the Rural Utilities Service of

USDA Rural Development provides financial and

technical resources to help the nation’s rural electric

cooperatives keep rural America fully charged. Many of

these co-ops are also using USDA programs to extend

broadband services to all corners of the nation, improving

the competitiveness of rural communities.

And through the Cooperative Programs of Rural

Development, he would find an office that serves as the

nation’s leading source for cooperative educational

materials (including this magazine), research, statistics and

technical assistance, all designed to help improve the

operations of America’s cooperatives and to make more

people aware that the cooperative business-model is the

ultimate tool for sustainable economic self help.

So, while Honest Abe would undoubtedly be surprised

to see the diverse missions mentioned above (and many

more) that are accomplished daily at USDA, we think he

would be happy with the results of what he started that

spring day 150 years ago. ■

2 May/June 2012 / Rural Cooperatives

Commentary

If only Abe could see us now!

O
Features

Rural Cooperatives / May/June 2012 3

Volume 79, Number 3

May/June 2012

Rural Cooperatives (1088-8845) is

published bimonthly by USDA Rural

Development, 1400 Independence Ave.

SW, Stop 0705, Washington, DC. 20250-

0705.

The Secretary of Agriculture has

determined that publication of this

periodical is necessary in the transaction

of public business required by law of the

Department. Periodicals postage paid at

Washington, DC. and additional mailing

offices. Copies may be obtained from the

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Government Printing Office, Washington,

DC, 20402, at $23 per year. 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, articles in this

publication are not copyrighted and may

be reprinted freely. Any opinions expressed are those of the writers, and do not

necessarily reflect those of USDA or its

employees.

The U.S. Department of Agriculture

(USDA) prohibits discrimination in all its

programs and activities on the basis of

race, color, national origin, age, disability, and where applicable, sex, marital

status, familial status, parental status,

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with disabilities who require alternative

means for communication of program

information (Braille, large print, audiotape,

etc.) should contact USDA’s TARGET

Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write

to USDA, Director, Office of Civil Rights,

1400 Independence Avenue, S.W.,

Washington, D.C. 20250-9410, or call (800)

795-3272 (voice), or (202) 720-6382 (TDD).

USDA is an equal opportunity provider

and employer.

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,

USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or email:

coopinfo@wdc.usda.gov

This publication was printed with vegetable oil-based ink.

p. 4

04 Spawning a solution

Farmers, Indian tribes, environmentalists form co-op to restore Washington salmon run

By Stephen Thompson

08 When it comes to local food, co-ops are on the map

By Kathleen Merrigan

12 World Wide Web goes local

How the Oklahoma Food Cooperative uses the Internet to bring farmers, consumers together

By Adam Diamond

16 A Taste of Gold

Co-ops’ world-class cheeses help U.S. dominate international competition

By Dan Campbell

30 Capital Ideas

Lessons offered by dairy co-ops shed light on important equity capital issues

By Charles Ling

38 Keep the co-op candle burning!

2012 International Year of Co-ops perfect time to gear-up co-op education

By Jim Wadsworth

Departments

02 COMMENTARY

20 CO-OPS & COMMUNITY

24 UTILITY CONNECTION

28 CO-OP DEVELOPMENT ACTION

36 FOCUS ON: CO-ALLIANCE LLP

40 NEWSLINE

p. 8 p. 20

ON THE COVER: A judge digs into his work while evaluating cheese

entries in the 2012 World Championship Cheese Contest. U.S. dairy coops claimed a number of gold medals in the international competition,

held in Madison, Wis. Article on page 16. Photo by Kris Ugarriza,

Courtesy Red Wave Pictures

p. 30
4 May/June 2012 / Rural Cooperatives

Farmers, Indian tribes, environmentalists

form co-op to restore Washington salmon run

Spawning a solution
By Stephen Thompson, Assistant Editor

stephena.thompson@wdc.usda.gov

ention of the Pacific

Northwest often

conjures visions of

salmon leaping in

crystal-clear streams.

Unfortunately, the salmon runs are

much reduced compared to the past,

and many once-numerous species are

now listed as “threatened” and even

“endangered” in some watersheds.

Groundwater contamination and runoff

from farms may be contributing to the

problem.

The issue of agricultural activities

compromising salmon habitat has long

caused tension in coastal Washington

between Indian communities, for whom

the salmon are a vital cultural heritage,

and farmers. Recently, members of the

two groups have discovered ways to

work together to decrease water

pollution and bring back salmon habitat

without threatening farmers’

livelihoods.

Qualco Energy, a nonprofit

cooperative venture of farmers, the

Tulalip Tribes and conservationists, is

operating an anaerobic digester at

Monroe, Wash., in the environmentally

sensitive Snoqualmie River watershed.

It’s turning dairy manure into electric

power and helping to defuse a hotbutton issue in the area.

It’s a win-win for the farmers, the

conservationists and for the salmon.

The digester allows dairies to expand

their output while reducing nutrient

and bacteria levels in groundwater and

the nearby river. It also greatly reduces

odors in comparison to traditional

manure lagoons — a big concern in an

area with bedroom communities close

to the farms.

Flood control effort

sparks project

Dale Reiner runs a beef cattle ranch

on the Skykomish, near Monroe, that

has been in his family for over 100

years. In 1990, a flood caused major

erosion on the land and the river

threatened to change course, with the

potential to wipe out a large chunk of

his property. Reiner wanted to build

flood protection. “I wanted to save what

I got!” he says.

After finding it difficult to get the

required permits, Reiner decided to talk

to local conservationists. “I figured if I

worked with the environmental

community, I might get the ball rolling

a lot faster,” he says.

A friend put him in touch with John

Sayre of Northwest Chinook Recovery,

a nonprofit seeking to reclaim salmon

habitat. On a visit to the ranch, Sayre

was shown Haskell Slough, a backwater

Rural Cooperatives / May/June 2012 5

John Sayre (left) of Northwest Chinook Recovery and farmer/rancher Dale Reiner are helping to preserve the Haskell Slough (seen here) as an

important salmon rearing habitat in Washington. Opposite page (bottom): Dairy farmer Andy Werkhoven has reduced the environmental impact of

his operation by recycling the farm’s manure through an anaerobic digester. Photos by Alan Honick. Salmon photo courtesy U.S. Environmental

Protection Agency.

M
of the river that would wash out when

the river bed “migrated.”

“He said the slough could make

prime rearing habitat for young

salmon,” Reiner recalls. The problem

was that its current geography cut off

the slough from the river during

periods of low water flow.

Salmon have been central to the

Tulalip culture and way of life for

centuries. But population growth and

runoff from industrial activity and

farming have combined to make the

local waterways less hospitable to the

fish, which — along with overfishing —

has resulted in a decline in fish

populations. As a result, Chinook

salmon and steelhead in the Puget

Sound area are listed as “threatened”

under the Endangered Species Act.

Pacific salmon spend most of their

lives in the ocean, but they lay their

eggs and spend the early years of their

lives in freshwater streams and rivers.

The yearly salmon runs, in which the

adult fish return to the places they were

hatched to spawn and die, used to see

rivers teeming with the large fish, which

provided livelihoods to humans and

wildlife alike.

Saving crucial fish habitat

The reduced salmon run of recent

years is a problem with far-reaching

effects. Research has shown that the

upper forests of the Pacific Northwest

depend on the returning salmon for

essential plant nutrients: the fish return,

spawn and are eaten by animals,

including bears, which then spread the

nutrients in their droppings.

Together with a neighbor who

owned adjoining property, Reiner and

Sayre’s nonprofit put together a project

to save the slough from destruction and

reclaim it as salmon rearing habitat.

This would be accomplished by

connecting several ponds and

excavating a channel to the river.

Local environmental groups, the

Tulalip tribes and state and federal

agencies were involved in the project.

Reiner was able to save his property,

and Haskell Slough now serves as a

nursery for thousands of young salmon.

The project was finished in 1999.

“When it was opened, we had a big

party out on the property,” says Reiner.

“All kinds of politicians showed up;

there was a news helicopter — it was a

big deal.”

The project encouraged local Indians

and farmers to stop regarding each

other as adversaries and look for more

ways to work together for mutual

benefit. Daryl Williams, the Tulalip

Tribes’ environmental liaison, worked

with Sayre and Reiner on the Haskell

Slough project.

Co-op formed, pursues

digester project

After the success of the Haskell

Slough project, Williams says he,

Reiner and Sayre realized that they

worked well together, and they looked

around for other projects. It was

Williams’ brother, Terry, who got the

idea of an anaerobic digester to reduce

groundwater and stream pollution from

dairy manure.

In 2000, they set up Qualco Energy,

a nonprofit cooperative with three

members: the Tulalip Tribes; Northwest

Chinook Recovery; and Sno/Sky

Agricultural Alliance, a local farmer

group named after the Snoqualmie and

Skykomish rivers. In the local Indian

language, Qualco means “where two

rivers come together.” It’s headquartered in Monroe, where the Skykomish

and Snoqualmie merge to form the

Snohomish River.

The paperwork needed to create the

cooperative presented few difficulties.

As a nonprofit, “We’re not looking at

how to split revenues,” says Williams.

Sno/Sky recommended an attorney who

drew up the papers.

Even so, the project took a while to

get off the ground. Funding had to be

found, first for a feasibility study —

which was paid for by a USDA Rural

Development grant — and later for

capital. The feasibility study highlighted

the problem of low local power rates,

which made it difficult to make the

project pay for itself, says Williams.

That problem was solved by a

change in state permitting regulations

which allows the digester to use preconsumer food waste for up to 30

percent of its feedstock. The higher

energy content of the food waste

produces more gas for the generator.

Finding a site

Finding a suitable site for the

digester meant that it had to be close to

participating farms on available land.

Luckily, there was a piece of unused,

state-owned property in Monroe that

was close to ideal. It was a former

prison work farm that had operated as a

dairy — it even had a manure lagoon.

The land had another advantage,

too. Unlike most state-owned property,

it was not held in trust. That meant it

could be transferred to another

government agency — a requirement

which the Tulalip Tribes, as a sovereign

6 May/June 2012 / Rural Cooperatives

Digested manure liquid from the co-op’s anaerobic digester is sprayed on farm fields, providing

both irrigation and nutrients. Photo by Alan Honick
Rural Cooperatives / May/June 2012 7

nation, could fulfill. The land was

donated by Washington state to the

tribes, which in turn leases the property

to the co-op.

Altogether, says Reiner, it took

nearly eight years to overcome all the

obstacles. The $2.7 million for capital

and initial operating expenses came

from a low-interest loan from a local

bank, made possible by a federal tax

break. The digester was finished in

December 2008, began full-scale

operations the following February and

received its first payment for power

sales in March.

There have been startup problems.

The digestion process is complicated by

use of food waste, including blood from

a packing house, expired beverages (soft

drinks, beer and wine) and grease. The

food waste is highly liquid, says Reiner.

“Nobody else was combining cow

manure with so much other liquid.” It

turned out that the screw-press used to

remove liquid from the digested

compost wasn’t up to the job, requiring

a switch to roller presses at an

additional $80,000 cost.

The digester currently has manure

supply contracts with three nearby

dairies, producing 450 kilowatts of

power from the resulting biogas. It

produces more gas than the current

reciprocating generator can handle,

resulting in some of the gas being

flared.

How to use the excess gas is now

being studied, says Williams, with one

possibility being a boiler to provide heat

for sale to local customers. A steam

turbine would generate electricity at

times when heat demand was low.

Another possibility is tri-generation, in

which heat from a reciprocating

engine’s exhaust and coolant are

recovered and used as energy.

Co-op seeks more dairies

In the long term, expansion may

allow more local dairies to participate,

further reducing the possibility of

nutrient and bacteria contamination in

the rivers and helping the local

economy.

The cooperative has six directors, all

unpaid, two from each of the participating nonprofits. Sayre, representing

Northwest Chinook Recovery, also

serves as president. Williams is vicepresident and Reiner, representing

Sno/Sky Agricultural Alliance, is

treasurer. According to Williams and

Reiner, the co-op is run on a consensus

basis.

“It slows down decision-making, but

we get better decisions,” says Williams.

Day-to-day maintenance of the digester

is contracted out to the adjacent

participating dairy. Any profits not used

by the co-op are to be donated to local

conservation efforts.

Williams is optimistic about further

efforts to preserve the area’s precious

natural inheritance. He thinks the

Qualco cooperative shows that

conservation interests and farmers in

the area are both better off working

together. ■

Members of the Tulalip Tribes fish for salmon in waters protected from dairy manure contamination, thanks to a new anaerobic digester. The

digester operates on land donated by Washington state to the tribes, which in turn lease the property to a co-op. Photo by Alan Honick
8 May/June 2012 / Rural Cooperatives

By Kathleen Merrigan, Deputy Secretary

U.S. Department of Agriculture

ooperative models are

as diverse as is

America’s agricultural

industry. As consumer

demand for locally

produced foods has boomed,

cooperatives have innovated to meet

these demands in many different ways.

Today, co-ops are engaged in every

stage of the local-foods supply chain —

from production to packing, processing,

distribution, marketing and retail.

In late February, we launched an

exciting new tool at USDA to support

this work: the Know Your Farmer,

Know Your Food Compass, an

interactive map and accompanying

guide to USDA resources that support

local and regional food systems.

Cooperatives receive explicit

mention in the infrastructure section of

C

When it comes to localfood,

co-ops are on themap

The increasing popularity of local and regional food is helping to spur creation of new cooperatives. Children at Dayton Elementary (right)

in Dayton, Nev., harvest potatoes from the school's Healthy Communities Garden.
Rural Cooperatives / May/June 2012 9

the Know Your Farmer, Know Your

Food (KYF) Compass, where the

discussion focuses on how some

cooperatives aggregate product from

small and midsized producers and

market them collectively. But really,

cooperatives have a place in every one

of the eight Compass sections.

Likewise, many of the dots on the map

are in some way connected to co-ops.

That’s why we hope that

cooperatives and others will use the

KYF Compass as a tool to navigate

USDA resources and learn about new

business opportunities. Here are some

of the ways it can help:

• The Farm to Institution Section of

the KYF Compass highlights USDA’s

technical and financial resources to

build strong relationships between

farms and institutional buyers.

Cooperatives are already engaged in

developing these relationships. In

Colorado, for example, the Rocky

Mountain Farmers Union

Cooperative Development Center

helped a group of lamb and beef

producers start Local Brands Farm

and Ranch Markets Co-op, which

sells through local farm-to-school

programs. With the tools outlined in

the KYF Compass, other producer

co-ops can leverage these institutional

marketing opportunities.

• The Infrastructure Section discusses

food hubs, aggregation centers that

help small and midsized farms and

ranches collectively market their

products to reach larger buyers. Some

food hubs are organized as

cooperatives. They can aggregate

product through brick-and-mortar

facilities or online. For example, in

Washington state, Tom Husmann of

Olympia Local Foods developed an

online food aggregation hub for 50

local farmers and is developing a

shared kitchen cooperative venture as

well. He’s doing this with the help of

a Value-Added Producer Grant

(VAPG) from USDA Rural

Development.

The Northwest Cooperative

Development Center, which itself was

supported by a Rural Cooperative

Development Grant from USDA,

helped Husmann secure the VAPG.

These types of stories illustrate how

different USDA grants can be pieced

together to support many aspects of

local food system development.

• The Local Meat and Poultry Section

discusses USDA support for smallscale slaughter and processing
10 May/June 2012 / Rural Cooperatives

facilities around the country to help

local meat producers add value to

their products. USDA supports other

food processing activities as well. For

example, Local Roots Market and

Café in Wooster, Ohio, is using a

USDA grant to develop a shared

commercial kitchen. It expects 25

businesses to benefit from increased

revenue and 10 new businesses to

start up as a result of kitchen access.

Local Roots began in 2009 as a yearround farmers’ market and has

expanded rapidly since then,

incorporating as a cooperative in

2010. Today, it has about 800

members and sells food from 150

local producers, who take home 90

percent of their gross sales.

• The Healthy Food Access Section

discusses USDA support for the

development of farmers markets and

other retail alternatives to reach

underserved communities. By

coordinating the work of several

USDA agencies on this issue, the

Department has been able to expand

the number of farmers markets that

can accept electronic nutrition

benefits such as SNAP (food stamps).

The number of markets that accept

these benefits grew by more than 50

percent between 2010 and 2011.

Farmers markets that accept

electronic nutrition benefits often see

increased customer traffic and higher

revenues as a result.

Cooperatives are again at the

forefront of this work. Many farmers

markets are organized under a

cooperative structure and have ramped

up their efforts to reach new customers

in recent years. In Lexington, Ky., the

Farm and Garden Market Cooperative

Association began with fewer than a

dozen farmer-members in the 1970s

and now includes 75 members. In

Indiana, the Indiana Cooperative

Development Center is providing a

series of “farmers market boot camps”

to help market managers and vendors

train and collaborate.

Using USDA resources outlined in

the KYF Compass, such as our guide

for market managers on how to accept

SNAP and other benefits, these markets

can become even more successful.

This is just the beginning. Other

sections of the KYF Compass will

provide helpful resources as well —

about environmental stewardship,

career opportunities in farming and

food entrepreneurship, and research

and data to help cooperatives

understand the market and develop

successful businesses. There’s even a

section on how other federal agencies

Third-generation farmer C.J. Isbell of Rockville, Va., says he is hard pressed to keep up with

rising demand for his pasture-raised pork. USDA photo by Lance Cheung
R

uralCooperatives/May/June201211

aresupportinglocalandregionalfood

systems—agreatsourceof

informationforcooperativesinterested

insecuringfederalsupportforavariety

ofprojects.

WritingtheKYFCompasswasa

cooperativeventurehereatUSDA,so

it’sfittingthatitcontainssomuchof

usetothecooperativecommunity.The

mapandnarrativewillbecontinuously

updatedeveryfewmonths,sobesureto

checkbackregularlyfornewtools,

resources,anddotsonthemap.Letus

knowifyou’redoinginnovativework

withUSDAsupportthatyou’dliketo

behighlightedasacasestudyorblog

—simplysendusane-mailat:

knowyourfarmer@usda.gov.

Explore,shareandusetheKYF

Compass:it’savaluableguidetohelp

younavigatetheinsandoutsofUSDA

supportfortheworkyou’redoing.■

JoPendergraph’s(left)familyraisesspecialty

produceforchefsandmarketsincentral

Virginia.USDAphotobyLanceCheung.

Above:Visitorstowww.usda.govcanselect

the“KnowYourFarmer,KnowYourFood”

option(middleofUSDAhomepage,rightside)

tofindlinkstonumerouslocalfood-related

resources.
12 May/June 2012 / Rural Cooperatives

By Adam Diamond,

Agricultural Marketing Specialist

USDA Agricultural Marketing Service

he Oklahoma Food

Cooperative was

established in 2003 to

help consumers buy

locally produced food

and enable local producers to earn a

greater share of consumer food

expenditures through direct sales.

While building on an earlier wave of

buying club and retail food cooperative

proliferation in the early 1970s, the

Oklahoma Food Cooperative’s online

ordering format was the lynchpin that

enabled its success. The co-op could

not have functioned properly without

the Internet and its ability to connect

large numbers of geographically

separated people in real time at low

cost.

Three core values inspired the

creation of the cooperative, helped

define its initial structure and continue

to shape its development and growth.

The co-op’s articles of incorporation

explain that: “the activities of the

Oklahoma Food Cooperative are

governed by its core values of social

justice, environmental stewardship and

economic sustainability.”

Together, these values constitute a

“triple bottom line” that is becoming an

increasingly common baseline for

performance measures in the world of

socially responsible business enterprises.

T

World Wide Web goes local

How the

Oklahoma Food

Cooperative uses

the Internet

to bring farmers,

consumers

together

Food orders are assembled on delivery day at the main warehouse of the Oklahoma Food Cooperative. Photo by James Barham
In the case of the Oklahoma Food

Cooperative, the following three

principles govern its business

operations:

• Participation in the cooperative must

be financially viable for producers.

• Goods sold through the cooperative

must be produced with methods that

do not pollute ecosystems or

otherwise waste natural resources.

• The economic benefits of the business

should be distributed equitably and

not flow disproportionately to a small

segment of those involved in its

operation.

These core values have guided the

cooperative in working towards its goal

of building a local food system — a

network of producers and consumers

that is limited in geographic scope and

rich in diversity of product.

Search for local

food launches co-op

The initial impetus for the co-op’s

formation grew out of the challenges its

founder, Bob Waldrop, faced as he tried

to buy his household’s food from local

growers. In 2002, the year prior to

launching an organizing campaign for

the Oklahoma Food Cooperative,

Waldrop tried to buy as much of his

food as possible from local growers.

While he eventually managed to supply

80 percent of his household’s food from

local sources, he had to drive far and

wide throughout Oklahoma to do so.

He felt there must be a better way.

Waldrop and other like-minded local

food enthusiasts organized a series of

organizing and outreach meetings

around the state to gather support for

the creation of a statewide cooperative

focused on Oklahoma foods, which led

to the creation of the Oklahoma Food

Cooperative Organizing Committee.

After exploring the possibility of

opening a retail store as a way to

increase the availability of locally grown

food, the committee soon realized that

establishing a buying club would be

more feasible. It would not need as

much start-up capital and would be less

risky than a bricks-and-mortar store.

The question then became how to

create a buying club that focused

specifically on Oklahoma foods. With

no model to follow, a database of

Oklahoma producers was built up

through mailings to direct marketing

farmers and ranchers, from a “Made in

Oklahoma” website, newspaper

classified ads and from people who

contacted the co-op on their own

initiative.

The cooperative paid a software

developer, who worked at a discounted

rate due to his commitment to the coop’s goals and mission, to develop a

customized online ordering program

for co-op members. Products were

assigned unique codes in the database

and were then listed online. Consumer

members used the online portal to place

orders on the co-op’s website. Orders

were gathered on delivery day at a

church. From these humble beginnings

emerged a dynamic, sophisticated and

successful model for marketing locally

grown food.

Social networks

as organizing catalyst

Key to Waldrop’s ability to garner

support for, and participation in, this

incipient local food system was his

position as the music director at

Oklahoma City’s Grace Epiphany

Catholic Church. Through his job, he

had developed an extensive network of

church contacts from which he recruited the initial core group of co-op

organizers.

People in this core group reached

out to their social networks and grew

the consumer member base of the coop faster than would have been possible

through formal advertising efforts,

especially considering the limited

resources the group started with. Grace

Epiphany church members supported

Waldrop’s efforts and provided critical

support for the co-op in its early

months. They made a space available

for deliveries, administrative work and

photocopying, and also made many inkind donations because they believed in

the co-op’s mission.

Financing and Sales Growth

The value of products sold through

the cooperative grew from $100,000 in

2004 to $864,000 in 2010. In the same

time period, the number of consumer

members grew almost 50-fold, and the

number of producer members grew 10-

fold. Product offerings have also grown

dramatically, from 1,100 in 2006 to

more than 4,000 items now offered for

sale each month, ranging from sirloin

steak, to artisanal cheese, vegetables,

frozen pizza, flour, botanical soap and

plants.

Most of the cooperative’s financing

has come through the sale of lifetime

memberships for $50 (for both

producers and consumers) and from

commissions charged to buyers and

sellers on each transaction. For a $10

item, the consumer pays $11 and the

producer gets $9. With the onset of the

economic recession in 2008, the rate of

sales growth slowed, but sales still

increased 7.5 percent in 2009 from the

previous year, as demand for local food

continued to grow and outpaced growth

in overall food sales.

Business structure

and operations

During the first five years of

operation, the cooperative had no

formal employees. All work was done

by an all-volunteer board of directors,

an unpaid general manager (who did

double duty as president) and by 50 to

70 “volunteer” co-op members, who

were compensated at the rate of $7 an

hour in work credits (redeemable for

items sold through the cooperative).

Route drivers used their own vehicles

and were paid 36 cents a mile.

The operational structure was, and

largely remains, informal. Any co-op

member can be a route driver on a

contract basis. The volunteers are

responsible for setting up on delivery

day, sorting incoming items by

customer and route, and loading orders

Rural Cooperatives / May/June 2012 13
14 May/June 2012 / Rural Cooperatives

on trucks that transport them to pickup sites near where customers live.

It is quite a sight to see dozens of

volunteers quickly assembling

thousands of items to fill orders —

everything from lamb chops and kale to

eggs. Orders are labeled with the

customer’s name and route number.

There are separate tables for frozen,

fresh and nonperishable items. While

there is a somewhat chaotic appearance

to it, this assembly process has proven

to be surprisingly efficient in fulfilling

orders. The co-op reports that its loss

rate is only about 1.5 percent for the

600–700 orders shipped out on 48

delivery routes each month, containing

a combined total of about 10,000 items.

New-generation buying

club for Internet Age

In contrast to retail store-front

cooperatives or traditional buying clubs

that rely on printed catalogs or price

sheets, the Oklahoma Food

Cooperative relies on the Internet to

reach consumers, facilitate the

marketing of thousands of highly

differentiated products, take orders and

process payments. Computer

technology reduces much of the labor,

postage and paper previously associated

with sending catalogs, writing down

orders, mailing and processing checks

and notifying consumers of inventory

changes.

Each month, the co-op provides an

8-14 day ordering window (from the 1st

of the month through the 2nd

Thursday of the month). During the

ordering window, producers list

products for sale on their section of the

co-op’s website, complete with detailed

narratives about their farm and

information about the methods and

practices they use to raise animals or

grow crops.

At the beginning of each month,

members can open their orders by

perusing the offerings of more than 200

producer-members and placing a given

quantity of a particular good in their

electronic shopping basket. The order

portal on the co-op’s Website is flexible.

Customers can change the quantity of

an existing item, add new items or add

comments to their order until the close

of the order window. When they close

their order, customers have the option

of paying online with PayPal or paying

by check when they pick up the order.

Prior to delivery day, each producer

gets a list of orders. On delivery day —

the third Thursday of the month —

volunteers sort incoming orders from

producers by route and load them onto

trucks bound for any of the 48 pick-up

sites around the state, where members

have a four-hour window to pick up

their orders. Co-op volunteers are on

hand during this period to collect

payment and handle problems, such as

missing items.

This Internet-based system, in

concert with the network of distribution

routes, reduces producers’ distribution

and marketing costs to a bare

minimum. In addition, farmers are not

required to meet any volume thresholds

to sell through the co-op. Consequently, the barriers to entry for smaller

producers are very low.

Producers can start by selling a very

small amount and increase sales over

time as growing conditions, supply and

consumer demand allow. Producers

have complete autonomy in setting

their prices and pay only a 10-percent

commission to the co-op. Consumers

also pay 10 percent to the co-op for

shipping and handling.

Co-op infrastructure

To accompany the dramatic growth

in the co-op’s sales and its increased

dependence on paid professional staff,

the organization has substantially

increased its infrastructure in the last

four years. It has leased a new, 12,000-

square-foot warehouse as its operations

center and, with support from the

USDA Agricultural Marketing Service’s

Farmers Market Promotion Program,

has purchased three trailers — two of

them refrigerated — to transport goods

to customers.

Prior to leasing the warehouse, the

co-op’s delivery day was held in a large

warehouse-like structure on the campus

of Oklahoma State University in

Oklahoma City. The same facility was

also used for a weekly farmers market.

While the space was large enough, the

co-op’s limited access to it created

logistical problems. Everything needed

for delivery day had to be brought in

and taken out the same day.

With the leasing of the new

operations center in May 2009, the coop gained permanent storage space for

tables, coolers, trailers, refrigerators and

freezers. Producers can now drop off

items before delivery day. Items left

behind can be put in storage for later

pickup, while set-up and take down of

equipment for delivery day does not all

have to happen in one day.

Having the warehouse allowed the

co-op to streamline delivery day sorting

with separate, permanent shelving areas

Local

community

participation

was key to

development

of the co-op.
Rural Cooperatives / May/June 2012 15

for perishable and nonperishable items.

With a more efficient sorting process,

the number of volunteers has held

steady, at around 65, even as total sales

have increased more than eight fold

from its first full year of operation in

2004, through 2010.

In conjunction with leasing

warehouse space, in 2008 the co-op

purchased five trailers for use on

delivery day to pick up orders from

farmers and drop off customer orders

from the central operations center to

the various pick-up sites. Before the

trailers were purchased, most producer

members of the co-op were obliged to

rent trailers from a U-Haul dealer,

picking them up and dropping them off

each delivery day to bring their product

to market.

Obligations of producers:

Product quality and integrity

The Oklahoma Food Cooperative

places restrictions on what can be sold,

in line with the organization’s core

values of environmental sustainability,

social justice and economic viability, as

well as its goal of creating a local food

system. These marketing restrictions

include the following:

• All products offered for sale through

the co-op must be grown or produced

in Oklahoma.

• Producers must conform to

production standards set by the coop’s standards committee.

• No hormones can be administered to

livestock.

• The routine use of antibiotics in

livestock is banned.

• Grains and crops containing

genetically modified organisms are

prohibited.

• Reselling of farm products is not

allowed; producers are only allowed

to sell farm products they have

produced themselves.

• Processed and prepared foods may be

sold through the co-op, but such

items must incorporate significant

alteration of the original ingredients,

not just repackaging for resale. For

example, a baker may sell frozen

pizzas using cheese, tomatoes and

flour purchased from Oklahoma

producers, but a butcher would not be

able to cut someone else’s cuts of beef

into smaller packages and resell them

as his/her own.

To enforce these restrictions,

Oklahoma Food Cooperative arranges

for intermittent inspections of the coop’s producer-members by fellow

farmers to verify that they are, in fact,

producing the crops or animals they are

selling through the co-op in accordance

with the guidelines. In Waldrop’s

words: “We go to everybody’s farm, not

necessarily on any schedule, because it’s

volunteers who are doing it, [but] we

make sure that if they sell tomatoes,

that they have tomato vines...in

proportion to their sales.”

Quality, price setting,

and competition

The intense commitment of co-op

members to obtaining locally grown

foods produced with sustainable

production methods has led them to

value quality and process attributes of

the products they buy more than price,

allowing producer members of the coop to become “price makers” rather

than “price takers.”

The strong bargaining position of

producers within the co-op is evidenced

by the fact that when the co-op has

raised the commission levied on

producers to fund increased overhead

costs, the vast majority of producers

have raised their prices to compensate

for the higher commissions, without

suffering a decline in sales.

With no restrictions on price setting

or volume requirements, the Oklahoma

Food Cooperative provides an

accessible and responsive environment

within which producers and consumers

can interact. The Internet-based

ordering system allows consumers and

producers to interact across wide

distances in real time, adjusting their

purchases and product offerings in

response to changes in product

availability and consumer demand.

In general, the combination of the

software interface, the freedom of

producers to set prices, the month-long

open order window and the large

number of producers (200) and

consumers (3,800) allow for a fluid,

functional marketplace in which buyers

and sellers are able to meet their needs

in a highly transparent trading system.

To learn more, visit the Oklahoma

Food Cooperative website at:

http://www.oklahomafood.coop/. ■
16 May/June 2012 / Rural Cooperatives

Co-ops’ world-class cheeses helpU.S.dominate international competition

ATaste ofGold
Rural Cooperatives / May/June 2012 17

By Dan Campbell, editor

dan.campbell@wdc.usda.gov

or a college basketball

team, making it into the

“Sweet 16” round of

the annual NCAA

basketball tournament

is a mark of excellence. So it is for the

cheese industry, which has its own

version of “March Madness” in which

cheese makers from around the globe

compete every other year in the World

Championship Cheese Contest. (In the

odd number years, the contest is a U.S.-

only affair.) Shifting the sports analogy

to professional baseball

and the World Series,

this contest could be

viewed as the dairy

industry’s “World

Cheesies.”

There is a lot more

competition in the

cheese contest, however.

Rather than 68 college

basketball teams at the

start of the NCAA

tournament, or 30

professional baseball

teams, the World

Championship Cheese

Contest this year

attracted more than

2,500 entries that competed in 82

categories of cheeses and butters. These

categories range from the

“heavyweight” divisions — such as the

various Cheddar, Swiss and Provolone

categories — to much more highly

specialized niche cheeses.

Among the gold medal winners in

this year’s contest — held in Madison,

Wis., in early March — were a number

of U.S. cooperatives (see sidebar). The

contest has grown in recent years to

become a “must-see, ticketed event for

cheese lovers the world over,” says

Cabot Creamery spokesman Jed Davis.

This year’s contest sold out almost

immediately, and the 400 ticket holders

not only witnessed the competition, but

were also able to nibble on some of the

year’s best cheeses while “talking shop”

with other attendees and the international panel of judges.

Better Cheddars

Cabot Vintage Choice Cheddar was

named world’s best in the “Cheddar

aged two years or longer” class. The coop also won third place in that same

category. Cabot Creamery (a subsidiary

of the Agri-Mark cooperative) also won

third place for best reduced-fat cheese

for its 50 percent reduced-fat Cheddar,

as well as a third place for Cabot

cottage cheese.

While winning those awards was

very gratifying for the co-op, Davis says

“it was an even bigger thrill to make it

into the Sweet 16.”

That’s right, the gold medal winners

in those 82 classes also go head-to-head

in a playoff round that results in

selection of the cheese world’s own

version of the Sweet 16. These 16

finalists are then tasted and re-tasted

until the judges have selected the

world’s top three cheeses.

This year, the top three prizes all

went to European cheeses (see below).

But overall, U.S. cheeses dominated the

contest — especially in the

“heavyweight” categories, where U.S.

dairy co-ops tend to concentrate their

production. Overall, U.S. cheese

makers earned 55 of the 82 gold medals

up for grabs.

Switzerland came in second with

seven gold medals, while Canada was

third with six gold medals. Denmark

struck gold five times,

the Netherlands four

times, Germany and

Spain two times each and

Australia and Austria

each captured one gold

medal.

“Every medalist should

be extremely proud of

their accomplishment,”

says John Umhoefer,

executive director of the

nonprofit Wisconsin

Cheese Makers

Association, which hosts

the biennial competition.

Since its inception in

1957, the contest has

grown rapidly, and this year was “the

largest technical cheese competition

ever held,” Umhoefer says.

Practically perfect

To win a gold medal, there isn’t

much room for error. Like Mary

Poppins, a cheese or butter has to be

practically perfect in every way.

Explaining the judging process,

Davis says each cheese starts with a

perfect score of 100. “The judges look

for technical defects, which results in

F

Judges in the World Championship Cheese Contest get final instructions before tasting, sniffing, feeling and visually examining

some 2,500 cheese samples, as Tim Czmowski is doing (opposite page). U.S. cheese makers dominated the overall contest,

winning 55 of the 82 gold medals awarded. All photos by Kris Ugarriza, Courtesy Red Wave Pictures
18 May/June 2012 / Rural Cooperatives

deductions from your score.”

Associated Milk Producers Inc. (AMPI),

based in New Ulm, Minn., took home the

gold medals for salted butter and for mild

white Cheddar. To underscore how incredibly

fine the margin of victory can be, consider

that AMPI’s winning salted butter scored

99.9. Its winning Cheddar, made in Blair,

Wis., received three technical deductions of .1

each, resulting in a winning score of 99.7.

“We lost .1 of a point for a tiny wrinkle in

the package, .1 of a point for a slight bitter

taste, and .1 of a point for a rounded corner,”

says Joe Ganske, who has 40 years of service

as a cheese maker and grader with AMPI. In

Wisconsin, cheese makers like Ganske must

be licensed in order to practice a craft that is

held sacred in the state. After all, in what

other state do people attend sporting events,

proudly wearing hats that look like blocks of

cheese?

“The judges evaluate samples for flavor,

appearance, texture, body, color, packaging

and safety,” Ganske explains. AMPI’s

champion Cheddar was made in one of 18

new cheese-making vats the cooperative

purchased last fall. Ganske notes that the

cooperative is the first U.S. cheese maker to

install this type of innovative vat, which

features advances in technology and

automation that are making more and better

cheese from the same volume of milk.

In addition to the many U.S. and Canadian

entries in the highly competitive Cheddar

categories, AMPI faced competition from

Japan, New Zealand, South Africa and the

United Kingdom, among other nations.

AMPI also won second and third place awards

for a hot-pepper flavored and American

pasteurized process cheese, made at its

Portage, Wis., plant.

As is also the case with a number of other

U.S. dairy co-ops, most AMPI cheese is sold

to co-packers and to the broader food

industry, not directly to consumers under its

own brand. Food industry customers rely

heavily on the quality of the co-op’s cheese to

help them get an edge in an ever more

competitive food industry.

Experienced staff is key

Land O’ Lakes bagged a trio of first place

awards for: Cheddar aged 1-2 years, for

Monterey Jack and mild Provolone. The

winning Cheddar and Monterey Jack cheeses

Strong showing for co-op cheeses

Forty cheese experts — representing 17 nations and 10 U.S. states —

judged more than 2,500 entries from around the world during the 29th

biennial World Cheese Championships in Madison, Wis., in March.

Among the cheese and butter classes in which U.S. dairy co-ops won

gold medals were:

 Mild cheddar — AMPI;

 Cheddar, aged 1-2 years — Land O’ Lakes;

 Cheddar, aged 2 years or more — Cabot Creamery;

 Monterey Jack — Land O’ Lakes;

 Mozzarella, part skim milk — Foremost Farms USA;

 Provolone, mild — Land O’ Lakes;

 Baby Swiss — Swiss Valley;

 Cottage cheese, Upstate Niagara Co-op;

 Salted butter — AMPI;

 Unsalted butter — OATKA Milk Products Co-op Inc.

For more information on the contest, as well as complete results for

all entry classes and contest photos, visit:

www.worldchampioncheese.org.

Judges evaluate samples for

flavor, appearance, texture, body,

color, packaging and safety.
Rural Cooperatives / May/June 2012 19

were made at the co-op’s plant in Kiel, Wis.,

while the Provolone was produced in

Denmark, Wis. The co-op also picked up

second place for Cheddar aged 6-12 months

and third place for medium Cheddar aged 3-6

months.

The keys to Land O’ Lakes’ track record

for excellent cheese is the high-quality milk

used, as well as the deep experience of its plant

employees, according to Kevin Schwartz, plant

manager at both the Denmark and Kiel cheese

plants. “We average 17 years of experience

with our staff at the Kiel plant, and 14 years at

Denmark. Our people know how to make

great cheese, and they take a ton of pride in

our product.”

The co-op’s own cheese graders taste every

single vat produced. “They are so good that

they can sample a cheese after seven days to

predict the flavor and quality for aging,

ranging from 2-3 years,” Schwartz says. The

cheese samples Land O’ Lakes enters in the

contest are pulled straight from normal

production — no special “fancy treatment” is

used to prepare contest samples, Schwartz

stresses. That is also the policy of the other

co-ops contacted for this article.

Cheese makers say there is a marketing

value for winning awards. Most blue ribbon

winners issue press releases, place ads in trade

publications and trumpet the good news in

their own publications and websites.

Swiss Valley Farms — which won first place

for Baby Swiss cheese — issued a press release

soon after the contest and is placing an

advertisement in the June/July issue of Deli

Business magazine, a trade publication read by

many of its customers. The co-op will also

include an article about the contest in

Dairyman, its member magazine.

Swiss Valley Farms Baby Swiss cheese —

characterized by numerous small, shiny “eyes”

— stood out in part because of its

exceptionally creamy texture and a flavor that

is milder than traditional Swiss cheese. It also

won best of class for Baby Swiss in the 2008

competition.

More than pride at stake

Winning isn’t just a matter of pride and

marketing. The scores and feedback from

judges in contests can help cheese makers

perfect their product and their art. And cheese

continued on page 46
20 May/June 2012 / Rural Cooperatives

Editor’s note: This article was provided by

Walton EMC, an electric cooperative based

in Monroe, Georgia. The “Co-ops &

Community” page spotlights the efforts of

co-ops that fulfill the mission of

“commitment to community.” Whether

these efforts make a co-op’s hometown a

better place to live, or are helping people on

the other side of the world, co-ops are

reaching out to make a difference. If you

know of a co-op, a co-op member or co-op

employee whose efforts deserve to be

recognized on this page, please contact:

dan.campbell@wdc.usda.gov. Reprint

articles from co-op publications are welcome.

ould you go to a

counselor named King,

Sabo or Merlin? The

children helped by

Walton EMC

Operation Round Up’s beneficiary

Dream Quest sure would — and do.

King, Sabo and Merlin are horses in

Dream Quest’s equine-facilitated

psychotherapy and therapeutic riding

program, located in suburban Atlanta’s

Gwinnett County, which is served by

the cooperative. The organization

provides services for individuals with

behavioral, emotional, social,

intellectual or mild physical challenges

through the use of horses and riding.

The co-op recently granted $6,200

to the charity through its Operation

Round Up program.

Dream Quest founder Kay Watson

explains why horses are a vital part of

her counseling staff. “This program

works where traditional therapy may

not. The kids see it as having fun riding

horses, not going to a counseling

session,” she says. “The horses help kids

connect with us. They look at us as a

horse person, not a counselor.”

Co-ops & Community

Georgia electric co-op supports equine therapy

program, other community causes

W
Rural Cooperatives / May/June 2012 21

“There’s something about the horses

that lets kids connect,” says Jackie

Griswold, Dream Quest riding

instructor. “They like the idea that they

can control a 1,000-pound animal. And

they enjoy grooming and taking care of

the animals as much as they do riding

them.”

Griswold adds that the sessions give

some children a chance to get away

from their everyday situations filled

with strife and uncertainty. Kids as

young as five take part in Dream

Quest’s activities.

Besides one-on-one sessions, Dream

Quest runs a summer camp where

several children experience a week of

equine bliss. Besides riding and

grooming, campers get to do things like

decorate the horses with paint and

glitter.

That means not just any horse is

suitable for work at Dream Quest.

“The horse has to be calm and quiet

with a medium energy level,” says

Griswold. “Horses are naturally

claustrophobic, so they have to be OK

with people walking close beside and in

front of them.

“The work for the horses is not very

physically demanding, but it’s really

mentally demanding,” Griswold adds.

“It’s confusing. Horses respond to

movements and pressure from the

rider’s body. The kids are all over them,

so they have to try to figure out what to

do.”

Walton EMC began Operation

Round Up in 1997. Participants allow

the co-op to round their monthly

electric bill to the next dollar with the

resulting change going to a trust that

disburses the funds.

A 15-member volunteer board made

up of co-op members from across its

service territory governs the trust. The

board meets at regular intervals to

review applications from both

individuals and organizations in the

community. No funds can be used to

pay electric bills, ensuring the program

is not self-serving. The co-op picks up

all administrative costs, so every penny

donated goes back to the community.

Serving on the board is not a

ceremonial position. Board members do

background work and investigate

applicants. They bring their findings

back to the entire board for smart

giving decisions.

“Round Up is a cooperative of sorts,”

says Greg Brooks, Walton EMC

Communications Coordinator. “It

aggregates the tiny donations from tens

of thousands of members to make a

huge impact in the community. It’s a

natural extension of the seventh

cooperative principle — Concern for

Community.”

Other recent grants made by the coop include:

• The Cottage — $478 to buy a

multimedia projector for a Clarke

County children’s advocacy center.

• Northeast Georgia Council Boy

Scouts of America — $5,000 for

financial assistance to allow

underprivileged youth to participate

in its programs.

• Shepherd’s Staff Ministries —

$2,475 for emergency and transitional

housing in the Loganville area.

• The Next Step Foundation —

$3,000 for project “Kitchen

Education Support Group” for

mentally challenged adults in

Gwinnett County.

• Lilburn Cooperative Ministry —

$10,000 for various types of assistance

to those in need.

• Butterfly Dreams Farm — $7,500

to improve the grounds and

equipment for its Oconee County

therapeutic riding program.

• Gwinnett Environmental and

Heritage Center Foundation —

$2,500 for a field study program.

• Rainbow Community Center —

$1,500 for food and education in

Walton, Morgan, Rockdale and

Newton counties.

Additionally, five families received

$14,715 for various needs.

Walton EMC is a customer-owned

electric utility that serves 118,000

accounts over its 10-county service area

between Atlanta and Athens. ■

Dream Quest founder and counselor Kay Watson, center, reassures first-time rider Rylee while

Margaret Korges tends her mount. A bit apprehensive at first, most children quickly become

confident once they mount the calm horses. Opposite page: Ready to ride! Photos by Greg

Brooks, courtesy Walton EMC


24 March/April 2012 / Rural Cooperatives

Utility Co-op Connection

Surging oil industry sparks economy,

but also creates challenges for co-op

By Angela Schepp,

Business Development Manager

Northwest Communications Cooperative

he opening of the

Bakken Oilfield has hit

home like a sonic boom

in North Dakota,

creating a parallel

economic boom that is affecting most

aspects of life in the region. North

Dakota is reaping a billion-dollar

budget surplus thanks to the oilfield

development and all the related growth

it has triggered; unemployment has

dropped to less than 4 percent.

The Bakken formation underlies

about 200,000 square miles of parts of

Montana, North Dakota and

Saskatchewan. More than 550,000

barrels of oil are being produced

from it daily.

There are more than 200 drilling

rigs working the oilfield. Each rig drills

for about 30 days, then a pump is

installed and the drilling rig moves on

to another site.

While new income and job growth

like this would be the envy of much of

rural America, it is also creating

challenges for businesses and

government agencies that are hard

pressed to keep up with new demand.

The strain is being felt on water

supplies, sewage systems and

government services.

Many businesses are enjoying a

windfall of new demand for goods and

services, but are also struggling to keep

up. Northwest Communications

Cooperative is one of them. It is adding

staff and taking related actions to try to

keep up with the rapid expansion of

demand for its telecommunications

services.

Two-edged sword

Most people here are excited about

the economic prosperity the boom is

creating for communities. Home and

property values are rising, businesses

are growing and new neighbors arrive

every day. Even the most remote areas

are seeing more traffic than ever before.

When a rural region grows this fast,

there are bound to be growing pains,

and the Bakken Oilfield is most

definitely affecting every aspect of

community life. Housing, traffic, local

law enforcement and emergency

T
More than 200 oil drills are at work in

the Bakken Oilfield, which underlies

portions of North Dakota, Montana

and Saskatchewan. Photo courtesy

Journal Publishing Inc., Crosby and

Tioga, N.D.

The economic boom sparked by oil

production has resulted in a strain on

the region’s infrastructure, including a

housing shortage, despite efforts to

keep up with demand (opposite page).

Photo by Angela Schepp, courtesy

Northwest Communications Co-op
26 May/June 2012 / Rural Cooperatives

services, hospitals, schools and utilities

are all impacted.

Increased vehicular traffic has caused

road quality to deteriorate and resulted

in an increase in the number of traffic

accidents. Semi-truck traffic has

skyrocketed as big rigs haul in

equipment, fresh water and sand for the

oil drilling. They then turn around and

haul out salt water as a waste.

The result of all that heavy truck

traffic has taken a toll on road quality.

Most gravel roads, and even many

paved roads, are scarred with holes,

many of them huge. County road crews

are simply not able to keep up with all

the needed repairs.

The workload for law enforcement is

rising along with the numbers of

accident and crime reports. Fire and

ambulance departments, most of which

are staffed by volunteers who have

other full-time jobs, are being taxed to

the maximum; many are being called

out more than once each day to deal

with emergencies.

Telecom co-op

sees demand soar

Northwest Communications

Cooperative (NCC) is a small rural

telecommunications cooperative located

in the heart of the Bakken Oilfield. It

serves an area of 5,000 square miles in

northwest North Dakota. This service

territory is very rural, historically

averaging just over one customer per

square mile, although that ratio may

well have doubled with all the economic

activity of recent years.

The co-op has seen major increases

in demand for most of its services. In an

industry that has seen telephone

landlines decline by 5 to 20 percent

nationally in recent years, NCC has

seen an increase of almost 6 percent.

The number of Internet subscribers,

NCC’s most popular service, has grown

almost 25 percent in only 18 months.

Requests for new data circuits to

individual businesses have gone

“through the roof.” Demand for cable

TV, another popular service of the coop, has increased by almost 13 percent

in three years.

The co-op, which has functioned

with about 30 full-time employees for

many years, has added 11 full-time

employees in just the past year. It is

currently advertising for an additional

five employees.

But the area is facing a severe

housing shortage, so finding homes for

the new staffers is a big challenge. It has

also become difficult for the co-op and

other local businesses and governments

to compete for needed employees vs.

the higher paying oilfield jobs.

The need for construction projects

to extend services to customers

requesting telecommunications services

is growing exponentially. Building

facilities to new locations is important

for the co-op to grow its revenue base.

NCC is continually looking for ways to

find revenue to fund infrastructure

needs.

Most of the new businesses that have

opened have done so due to the oilfield.

Many of them need to communicate

with a home office in another state and

cannot conduct business without

communication services.

With so many newcomers looking

for places to live, communities in

northwest North Dakota have been

busy building townhomes, apartments,

hotels and single-family homes.

Virtually all of them want modern

telecommunication services.

Higher crime is undoubtedly the

most unwelcome “hitchhiker” that

comes with rapid growth. In response

to higher crime rates, NCC recently

introduced a new line of security

monitoring services. In addition to

round-the-clock monitoring for breakins, the co-op’s security service can

monitor temperature and carbon

monoxide levels, and even detect fires

or water leakages at a home or business.

Maintaining existing facilities

While striving to meet new demand

for services, NCC must also continue to

reinvest in its current plant and

equipment. Portions of some cable lines

that have been providing service for

more than 30 years must be replaced in

the near future.

NCC has replaced cable in a small

portion of its service area with fiber-tothe-home (FTTH) service. FTTH

brings a single strand of “glass” to each

home, providing unlimited bandwidth,

television service and telephone service.

NCC’s plans for the next three years

include replacing cable with FTTH in

six additional areas of its service

territory, at a cost of about $10 million.

Financing is being sought via a loan

from the Rural Utilities Service of

USDA Rural Development.

Demands on the co-op to locate and

mark (with flags) its underground cable

and fiber lines have been soaring due to

the oilfield work and the large numbers

of building contractors needing to dig

in the area. Even after the co-op flags

its underground lines, many times a

contractor will delay a project, or
Rural Cooperatives / May/June 2012 27

change its plans. This may then require

the co-op to send out yet another team

to mark the lines again.

Even marked lines sometimes get cut

by accident. Other times contractors

get in a hurry and don’t call utility

companies first, as required. In North

Dakota, they must call a statemaintained number, which in turn

notifies all utilities in the area of the

planned work. For some oil companies,

it is actually faster and cheaper to cut

cable or fiber lines, rather than to call

and wait to have the co-op mark the

lines.

When this occurs, it can interrupt

service to co-op members and result in

higher costs to the co-op. NCC has

thus had to make changes in some of its

policies and fees to keep its members

from absorbing the costs. These

include:

• A 50-percent surcharge is being

assessed for the time, materials and

equipment costs to repair NCC

cable/fiber lines that are cut.

• Calling the co-op a second time (or

third time, etc.) to mark the same

stretch of line (known in the trade as

a “re-spot”) is now being charged a

minimum of one-hour flat rate, or for

the actual time incurred. If excavation

does not take place within the

specified amount of days from the

first marking, the site is required to

request a re-spot.

• Cost for locating NCC underground

lines are being billed at the co-op’s

actual hourly rate for “design only”

jobs (meaning a contractor is working

up a bid for a job, and thus needs to

know where utility lines are located;

excavation in these cases may never

occur).

“In these and other ways, NCC is

striving to keep pace with the increased

demand for services,” says co-op

General Manager/CEO Dwight

Schmitt. “While we like the potential

for growth and welcome the

opportunity to serve more customers,

we must do so in a way that is beneficial

to our cooperative members.” ■

Workers operate an oil drilling rig in Divide County, N.D. Photo courtesy Journal Publishing Inc. Opposite page: A Northwest Communications Co-op

cable truck evidences service being extended to another new development. Photo by Angela Schepp, courtesy Northwest Communications Co-op
By Sarah Pike

sarah@cedc.coop

Editor’s note: Sarah Pike is an associate of

CooperationWorks!, a national organization

of cooperative development centers and

practitioners. These co-op centers provide

expertise across all aspects of co-op

development, including feasibility analysis,

business plan development, business launch

and training for operational success. For

more information visit:

www.cooperationworks.coop.

ooperative development

centers continue to

invest time and

resources to build

economic sustainability

across rural America. Supported by

USDA’s Rural Cooperative

Development Grant (RCDG) program,

these cooperative development centers

are further leveraging federal

investments through collaboration. The

result is multi-regional development

capacity in several different economic

sectors.

One recent example is the work of

RCDG-funded co-op centers with

ROC USA, a national nonprofit that

provides certification and financial

assistance to help convert existing

manufactured home communities into

resident-owned communities.

ROC USA’s mission is to make

resident ownership of good quality

housing possible nationwide. “Our

reason for being is to help homeowners

gain economic security through

resident ownership of their ‘mobile

home park,’ or manufactured home

community (MHC),” says Paul Bradley,

ROC USA president. “We are focused

on doing one thing really well and

doing it time and again for no other

reason than to preserve and improve

affordable communities and build value

for homeowners in MHCs.”

ROC USA achieves its mission “on

the ground” by training and supporting

regional nonprofits in completing co-op

conversions. To date, at least three

RCDG-funded centers have achieved

the status of certified technical

assistance providers.

New England

co-op conversions

In the fall of 2009, the Cooperative

Development Institute (CDI) became a

certified technical assistance provider,

covering the territory of Connecticut,

Rhode Island and Massachusetts. CDI’s

starting budget consisted of the

standard $50,000 grant from the

Corporation for Enterprise

Development (CFED), a sponsor of

ROC USA, $10,000 of which CDI paid

to the network to gain the needed

training and materials.

“The support of both ROC USA

and USDA has meant a great deal to

CDI’s success,” Noémi Giszpenc,

executive director of CDI, explains.

“Four of the five parks that we have

converted to cooperative ownership

have been in rural areas, which allowed

us to use RCDG resources to pay for a

portion of staff time and travel.” That

staff time has included the work of

CDI’s housing program manager, Andy

Danforth, who has made a five-year

commitment to the program, deferring

his compensation until the program

could cover his salary.

In its first two years, the CDI ROC

program operated with $30,000

annually of RCDG support through

USDA. This was used to leverage about

$9 million in capital investment for

resident ownership and improved

infrastructure. As the number of

converted communities in CDI’s

portfolio climbs, the ratio of RCDG

support to program income will

continue to drop, and the program will

become self-sustaining as well as

generate income for general operations.

“Our initial success has allowed us to

expand into Vermont in 2011 and now

Maine in 2012, supported by a $60,000

two-year award from a local philan28 May/June 2012 / Rural Cooperatives

Co-op Development Action

C

USDA co-op funds leveraged

to create resident-owned communities
thropist,” says Giszpenc. The growth of

the program has also led to job

creation. The program staff has grown

from the equivalent of one half-time

position to three full-time employees,

with the addition of two new part-time

co-op organizers in the spring of 2012,

she adds.

Midwest sees new co-ops form

Northcountry Cooperative

Foundation, a recipient of RCDG funds

from USDA and a ROC USA certified

technical assistance provider, is

converting rural manufactured home

communities into resident-owned

communities in the Midwest. To date,

NCF has assisted five communities in

Minnesota convert into cooperatives.

One example is Madelia Mobile

Village Cooperative, in Madelia, Minn.,

a community of 2,300 in south-central

Minnesota. The cooperative was

organized by residents as a strategy to

“take control of the community,”

provide for its improvement, stabilize

lot rents and help residents create a

platform for income- and asset-building

in a resident-owned, manufactured

home community.

The community was purchased by its

residents in December 2008 for

$460,000. The state housing finance

agency and a community-oriented

lender provided the financing for the

purchase.

At the time of purchase, about 75

percent of the households of Madelia

Mobile Village had incomes at or below

50 percent of Watonwan County’s areamedian income. The other 25 percent

had incomes at or below 80 percent of

the county’s area-median income. The

community is made up predominantly

of recent Latino immigrants.

Co-op conversions

in Pacific Northwest

The Northwest Cooperative

Development Center (NWCDC)

expanded its co-op development

services in 2008 to include

manufactured home communities.

NWCDC joined the ROC USA

network to leverage expertise and

resources, including co-op financing, to

help meet its customers’ needs.

“We really value the opportunity of

working with ROC and our national

network of colleagues,” says Ben

Dryfoos-Guss, NWCDC’s specialist.

“We are able to use well-tested

processes and resources in our work

with local residents, brokers and

owners.”

In its first two years, the NWCDC

ROC program operated with RCDG

support of about $25,000 each year.

This was used to leverage about $4.6

million in additional private and public

capital investment for resident

ownership.

To date, NWCDC has assisted three

communities in successfully converting

to nonprofit co-ops. One example is

Hidden Village, in an unincorporated

part of Thurston County, Wash.

Through co-op conversion, NWCDC

helped homeowners avert an imminent

threat of community closure and

homeowner displacement. Today, the

community offers good quality,

affordable manufactured homes for its

predominately senior residents.

Stabilizing housing for seniors

The mission of the MSC Fund of

the Cooperative Development

Rural Cooperatives / May/June 2012 29

Members of Sunrise Villa Cooperative in Minnesota — a resident-owned community that was

assisted by the Northwest Cooperative Foundation — accept a commemorative gavel during the

purchase ceremony for their manufactured home community. Opposite page: The Madelia Mobile

Village in Madelia, Minn., where another co-op was organized to help residents take control of

their community.

continued on page 47
By Charles Ling, Ag Economist

Cooperative Programs

USDA Rural Development

charles.ling@wdc.usda.gov

cooperative faces many challenges in

sourcing and maintaining an adequate level

of capital for financing its operations. Being a

cooperative, its equity capital is provided by

members and is therefore dependent on

members’ willingness to support the cooperative’s

undertakings.

Members’ equity retained by the cooperative represents a

substantial sum of their money and competes with the capital

needed for operating their farms. Most members therefore

prefer to have as little of their equity retained by the co-op as

possible, and for a short equity-revolving period. Co-ops use

a variety of means to redeem member equity in ways that

meet both the needs of the co-op and its members.

When a cooperative’s business is doing well, some

members may perceive that its market valuation is higher

than the book value and want to have access to the gain. This

may stoke the pressure to “sell off” the cooperative or

convert it to a public corporation.

To overcome these challenges and shore up an adequate

equity level, alternative capital financing methods have been

used by some cooperatives. These methods include: issuing

preferred stock; accumulating (unallocated) retained earnings;

capitalization using a “new-generation” cooperative model;

and allowing non-member capital to be invested in cooperatives (which usually requires a change in state co-op laws).

Capital

30 May/June 2012 / Rural Cooperatives

A

Lessons offered by dairy co-ops shed light on important equity capital issues

Ideas

continued on page 32
Rural Cooperatives / May/June 2012 31

The experience of dairy cooperatives can serve as an

example for answering some frequently asked questions

(FAQs) regarding cooperative equity financing, including the

following, grouped by specific financing alternatives.

Member equities

Question: Cooperative equities are furnished by

members and therefore are limited. How does a cooperative

gain access to capital without incurring long-term debt,

without selling off the cooperative, or without going public in

these situations:

• When the cooperative needs more capital?

• When members agitate to gain access to the perceived

high market value of the business?

• When pressure mounts to shorten the equity-revolving

period?

Answer: Members organize or join a cooperative to

market their farm production. They should provide the

cooperative with capital at a level that is commensurate with

the functions they want the cooperative to perform and the

benefits they want to derive from it.

If market value of the cooperative is higher than the book

value, it means the cooperative’s earnings and potential

future earnings are higher than can be expected, given its

level of equity capital. Members gain access to this higher

earning ability by receiving higher pay prices, premiums and

patronage refunds. Selling off the cooperative to gain the

value of the business is tantamount to “killing the goose that

lays the golden egg.”

Eventually, it is up to members to decide if they want the

cooperative to be viable or if they prefer other alternatives.

Preferred Stock

Question: What effects might issuing preferred stock

have on a cooperative’s practice?

Answer: Preferred stock may specify nearly any

conceivable right for shareholders. What effects preferred

stock may have on a cooperative’s practice depend on what

rights are specified. Preferred stock that pays dividends and

has preference in assets over common stock in the event of

the dissolution of the cooperative — the most common type

of preferred stock — probably would not have any impact. If

the preferred stock confers certain voting rights, the effect

would depend on what specific issues the preferred stockholders are entitled to vote on.

Retained earnings

Question: Many cooperatives expand non-member

businesses to accumulate retained earnings as permanent

equity. What might be the long-term effects of this practice

on governance?

Answer: Cooperatives may have non-member business

for various reasons. In any case, retained earnings belong

to the cooperative and thus are jointly owned by members.

Disposition of retained earnings is at the discretion of the

board of directors.

However, a marketing cooperative would not be

conforming to the Capper-Volstead Act requirements if its

non-member business were to exceed 50 percent of total

sales. Moreover, by accumulating permanent capital, the

cooperative may actually increase incentives for members

to sell off the cooperative or convert it to a public

corporation.

New-generation cooperatives

Question: Are new-generation cooperatives the answer

to co-op financing issues?

Answer: A new-generation cooperative requires

members to pay equity up front to acquire the delivery

rights. While this attribute may address the issue of raising

capital, the cooperative model introduces new issues,

mainly relating to delivery rights and property rights

(Torgerson).

Furthermore, many new-generation cooperatives are

organized for business opportunities that resemble venturecapital investment. They tend to process one product or a

narrow range of products. This presents additional risks as

compared with a cooperative that is organized to market

members’ product(s) through a variety of marketing

channels.

Outside (non-member) capital

Question: What changes in governance, organizational

structure and practice may be brought about by the new

cooperative laws enacted by some states that allow outside

equity capital?

Answer: There is a large variation regarding voting

power and earning distribution, etc., among the few state

laws that allow cooperatives to have investors. Differences

in governance and earning distribution rules will influence

cooperative organizational structure and practice

differently. It is better to analyze them on a case-by-case

basis. Furthermore, not every cooperative newly

incorporated under these state laws has outside (nonmember) investors. ■

Equity financing issues:

F A Q s
32 May/June 2012 / Rural Cooperatives

This article focuses on the equity financing practices of

dairy cooperatives in the hope that it can help all types of coops better understand capital financing issues.

Dairy co-op equity capital

Just as for any other type of business, dairy cooperatives

require an adequate level of capital to market members’ milk.

Besides bargaining (negotiating for milk prices and terms of

trade), co-ops may have diversified operations, including:

owning and operating milk-handling facilities, performing

value-added processing, and/or providing milk marketingrelated and other member services. Member equities are the

source of capital to support these operations.

The four basic categories of dairy cooperative equity are:

• Common stock — Common stock of cooperatives is

usually issued to prove membership, although it typically

has only nominal value. Based on the complete financial

data of 94 dairy cooperatives for the fiscal year ending in

2007, common stock only accounted for 0.1 percent of

total equities. (All numbers cited in this article are 2007

data, the year of USDA Cooperative Programs most recent

dairy survey (Ling, 2009). The survey is done every five

years; new statistics will be available after data collection on

dairy cooperatives’ 2012 operations is completed.)

• Preferred stock — Some dairy cooperatives issue

preferred stock, mostly to members to document retained

patronage refunds or their additional investment in the

cooperative. Preferred stock owned by members may be

considered as allocated equities. In 2007, preferred stock

was reported to be 7 percent of total equities.

• Retained earnings — Retained earnings can be derived

from non-member businesses which, in most cases, are

incidental to a cooperative’s dairy operation. Retained

earnings may also include allocated equities that are not

separately specified in the financial reports, net savings that

are yet to be allocated, or earnings that are difficult to

attribute to specific member transactions. Therefore,

retained earnings that are not likely to be subject to

allocation (or considered by some to be “permanent”

equity) should be less than the 10.8 percent of total equities

reported for 2007. In any case, retained earnings belong to

the cooperative and thus are owned by members.

• Allocated equities — The 94 cooperatives surveyed

reported that 82.1 percent of their equities were allocated

to members. Allocated equities are members’ capital from

one or more of these sources:

Retained patronage refunds — Retained patronage

refunds are net savings that are allocated to members based

on patronage, but which are retained to finance the

cooperative’s operations after a cash portion has been paid to

members.

Capital retains — Some cooperatives use capital retains to

finance the operations or, more often, for special projects,

such as building new plants. Money is withheld from

milk payment at a certain rate per hundredweight of milk.

Members must treat patronage refunds (both cash and

retained) and capital retains as income for tax purposes.

Cooperatives usually revolve retained patronage refunds and

capital retains back to members after a certain period of time.

Base capital plan — Some larger dairy cooperatives with

diversified operations have adopted base capital plans to

establish a more stable equity pool. Under such a plan, a

target base capital level is set at a rate per hundredweight of

milk marketed during a representative period. The base

capital may be funded by retained patronage refunds and/or

capital retains, or by other means of member contribution.

Bags of dehydrated milk powder fill a co-op warehouse. USDA photos by Lance Cheung
Rural Cooperatives / May/June 2012 33

Once a member attains the prescribed base capital level,

future patronage earnings allocated to the member are paid

in cash.

In summary, almost all equity capital of dairy cooperatives

is supplied and owned by members, including: common

stock, preferred stock, retained earnings and allocated

equities. By obtaining equity financing internally from

members, cooperatives do not incur the cost of soliciting

investment capital in the capital market.

Member loyalty is key

For an average member-producer delivering 3.1 million

pounds of milk in 2007, total allocated equity retained by the

cooperative was estimated at $59,000 per member

($1.91/cwt), quite a large sum of capital committed by

individual members. (Because retained equities also include

those yet to be revolved back to retired members and inactive

(former) members, equities actually retained for active

members should be somewhat less than this estimated

amount).

Members must treat retained capital, when allocated, as

income for tax purposes and pay taxes out of their own funds.

Although the retains are revolved back to members as

permitted by the cooperative’s earnings after a few years, the

present value of the retained capital is diminished because

taxes on them have to be paid upfront and the revolving

funds to be received in the future are discounted.

Members’ perceptions and attitudes towards retained

equities may vary with their respective membership status —

active members, retired members or inactive (former)

members — even though they all usually receive the revolved

equities on the same revolving schedule, which is determined

by the board of directors. These perceptions may include:

Active members — Active members may realize the

necessity to adequately capitalize the cooperative’s operations

to ensure that their milk is effectively and efficiently

marketed. Still, retained equities compete with capital needed

for members’ dairy farming operations, which is very

substantial because of the type of inputs used and assets

owned.

Members are usually supportive of a co-op’s need for

financing if the capital requirement is for the cooperative to

carry out basic milk marketing functions. A cooperative may

face some dissension if it attempts to invest in what some

members consider to be extraneous businesses, unless they

are convinced that the new ventures will:

• solidify the market for members’ milk, or

• help market members’ milk, or

• add value to members’ milk, and

• benefit members the most among all available alternatives

of investing the capital.

Retired members — Retired members may be content

with receiving retained equities that are revolved on a steady,

regular basis. They may consider such payments as

something akin to retirement annuities. However, some may

express dissatisfaction that no dividend is paid on the retained

equities and the cooperative uses their capital free of charge

— especially if the revolving period is long. If equity

revolving becomes erratic — usually due to the cooperative

encountering certain financial difficulties — they may

become disgruntled.

Inactive (former) members — Inactive members may be

farmers who have discontinued membership in the

cooperative and made other milk marketing arrangements, or

who have exited from dairy farming and transitioned into

other farming enterprises or have discontinued farming
34 May/June 2012 / Rural Cooperatives

altogether. Conceivably, they are the least satisfied with

equities being retained, because they may need the capital for

use in other endeavors. As their loyalty to the cooperative has

waned or becomes nonexistent, they may deem it

meaningless to have the retained equity sitting idly (from

their perspective) in the cooperative.

Equity financing alternatives

Some dairy cooperatives have tried alternative financing

methods to leverage members’ capital. Examples include:

structuring subsidiaries as public stock corporations or as

limited liability companies, entering into joint ventures with

other firms, or organizing as a new-generation cooperative. A

few have issued preferred stock, mostly to members.

Public stock corporation — There is one known case of

a dairy cooperative converting its fluid business subsidiary

into a publicly traded stock company. The idea was to use

investor financing and stock as tools for expansion and

growth, while members maintained the majority ownership

of the business. However, in less than three years, the

cooperative bought back all outstanding stock from minority

shareholders.

It can be difficult for a cooperative to operate a public

stock corporation subsidiary because there are fundamental

conflicts between benefits for member-producers and

investors’ focus on returns on investment. In the dairy

business, the conflict between producer milk pay price and

profit for investors may be difficult to reconcile.

Furthermore, with investor capital, the subsidiary and even

the cooperative may lose Capper-Volstead status in inter-state

commerce.

Preferred stock — A cooperative may issue preferred

stock to raise more funds from members or to tap nonmember capital. The most common type of preferred stock

pays dividend and has preference in assets over common

stock in the event of the dissolution of the cooperative. Some

preferred stock may be considered as equity capital while

others may look more like debt capital, depending on how

the rights of the shareholders are specified.

Limited liability company (LLC) — An LLC is a stateapproved, unincorporated association, just like a partnership

except that it protects its owners and agents from personal

liability for debts and other obligations of the LLC. Earnings

pass through to the owners (there are no non-qualified

retains) and enjoy single-tax treatment. An LLC may operate

on a cooperative basis or it may allocate earnings and assign

votes among its owners any way they want. Some producers

believe that an LLC provides greater flexibility for tapping

investor capital. However, the combination of producers and

investors in an LLC would result in the same conflicting

benefit issues as in a publicly traded subsidiary operated by a

cooperative.

Joint venture — An LLC may be a useful model for

established cooperatives to form joint ventures with other

cooperatives or firms. On the marketing side, a joint venture

LLC may be used by a cooperative and its partner to develop

and market certain dairy products. The cooperative supplies

dairy inputs and the partner provides technical or marketing

know-how to the LLC.

The joint-venture partners share the financing and the risk

of the business activities of the LLC. This organizational

model reduces the cooperative’s capital requirement and risk

exposure, while a market outlet for milk is secured. Many

recent joint ventures formed by cooperatives with other

business entities are organized as LLCs.

New-generation cooperative — Interest in the newgeneration cooperative model surged in the 1980s and 1990s,

largely in response to the market condition prevailing during

that time. It was believed that this form of cooperative

organization would solve the problem of depressed farm

income by engaging in value-added processing.

However, the attributes of the new-generation cooperative

model also have created some problems, mainly related to

delivery-right and property-right issues (Torgerson). After the

turn of the 21st century, interest in forming new-generation

cooperatives has cooled down substantially.

A distinct feature of the new-generation cooperative is its

equity financing method. It is unique even among

cooperatives:

• It requires significant equity investment as a prerequisite to

membership and delivery rights to ensure that an adequate

level of capital is raised.

• The delivery right is in the form of equity shares that can

be sold to other eligible producers at prices agreed to by

the buyer and the seller, subject to the approval of the

board of directors to satisfy members’ desire of having the

freedom to “cash in” on the hoped-for increases in the

value of the cooperative.

Only one dairy cooperative is known to have been

organized using the new-generation model. In 1995, a

cooperative in South Dakota was established to make

specialty cheese. But its remote location, the investment

needed to renovate its plant and the skill required to make

and market specialty cheese posed major problems. The newgeneration model proved no help. It suffered the same fate as

the struggling cooperative it was formed to replace and

ceased operation four years later.

Purpose and Means

Dairy cooperatives are prime examples of the traditional

model of a cooperative that is owned, controlled, financed

and used by members. Focusing on the business of marketing

members’ milk, dairy cooperatives benefit members by

enhancing returns to their milk production efforts; members

supply equity capital needed for the cooperative to carry out

its function as their collective milk marketing arm.

The cohesiveness between member purposes and

cooperative functions makes dairy cooperatives, as a group,

perhaps the most prominent agricultural marketing

cooperatives. This is because milk is highly perishable and its
Rural Cooperatives / May/June 2012 35

daily production must have an assured, ready market.

Most dairy farmers (84 percent of U.S. total in 2007) rely

on marketing services provided by their cooperatives. It is for

this reason that equity capital financing, in general, is not a

contentious issue for dairy cooperatives if the funds are used

for the core business of marketing members’ milk. Dairy

cooperatives are seldom used as a vehicle for investing in

ventures that are unrelated to member business (Ling, 2011).

The close bond between producers and their dairy

cooperatives may or may not be replicated in other

agricultural commodity sectors, depending on the

characteristics of the commodity and its market. Because no

two commodities are the same, the needs of respective

producers in marketing them also vary.

Cooperatives may be more essential to producers of

commodities that have to be marketed shortly after being

produced (such as vegetables, fruits and, of course, milk), or

that have no ready market outlet other than the cooperative,

than they are to producers of commodities that are storable

and have a longer marketing season (such as grains and oil

seeds) or that have multiple market outlets.

It stands to reason that raising or retaining equity capital is

more challenging for a cooperative that is regarded by its

members as but one of the competing market outlets for their

products than for a cooperative that is indispensible to

members.

It can be even more challenging for a farm supply

cooperative that has to compete with other supply stores in

the local market. There are hundreds, or even thousands, of

supply items, and it is unlikely that the cooperative can be the

best-value provider of every piece of merchandise. “Cherrypicking” by members in making purchases is inevitable.

However, it is difficult to raise equity capital from members

in this circumstance. (A food cooperative competing with

other stores may encounter the same issue.)

Regional farm supply cooperatives may have economies of

scale in product sourcing or in operating manufacturing

facilities, especially for major supply items such as seeds, feed,

fertilizer, chemicals, and petroleum products. They could

pass along cost-savings derived from scale economies to

members and thus better meet competition.

However, operating upstream manufacturing plants has its

own risks (such as volatile raw material prices) that require

the cooperative to have ample capital to cushion the shocks.

The challenge for these cooperatives is to have a solid and

broad membership base that sees the value of supporting the

cooperatives with adequate equity capital.

All these factors point to the fact that the cooperative

capital financing issue is really a reflection of a certain gap, or

disconnect, between member purposes and cooperative

functions. If this gap is narrow, it tends to be less of an issue;

if the gap is wide, it becomes a more serious issue.

The solution to the issue lies in assessing what members

want the cooperative to do and whether they are willing to

finance it with equity capital in the amount commensurate

with the benefits they expect to receive from a cooperative

that operate for members’ best interests. In some cases,

members may have to decide whether the cooperative is the

most suitable business model for what they want to

accomplish.

In recent years, the cooperative model has gained new

attention from social entrepreneurs and economic

development practitioners. Being owned, controlled and used

by members for mutual benefits, cooperatives are an

appealing tool to empower people to work toward their own

economic destiny. They can be adapted to be communitybased organizations to serve economic opportunity-deprived

or service-deprived areas.

Because such cooperative organizations are formed to

address public policy or social issues, it is appropriate to have

initial capital funding assistance from public or philanthropic

sources. Over the long term, however, they must be selfsustainable in order to be economically viable. Some

exemplary precedents are rural electric cooperatives and the

Farm Credit System.

References

• Farm Credit Administration. History of the FCA and the

FCS,

http://www.fca.gov/about/history/historyFCA_FCS.html.

• Ling, K. Charles. Marketing Operations of Dairy

Cooperatives, 2007, USDA Rural Development, Research

Report 218, July 2009.

• Ling, K. Charles. Cooperative Theory, Practice, and

Financing: A Dairy Cooperative Case Study, RBS Research

Report 221, April 2011.

• National Rural Electric Cooperative Association. History of

Electric Co-ops, http://www.nreca.coop/

members/History/Pages/default.aspx.

• Torgerson, Randall E. “A Critical Look at NewGeneration Cooperatives,” Rural Cooperatives, United States

Department of Agriculture, January/February 2001, pp.15-

19.

• U.S. Department of Agriculture. Rural Development,

Business and Cooperative Programs Public Meeting on

Research Transcript: September 27, 2005, http://www.

rurdev.usda.gov/rbs/pub/ResearchPublicMeetingTranscript.

pdf ■
By Laurel Mann,

Communications Coordinator

Co-Alliance LLP

f it sounds too good to

be true, it probably is.”

We’ve all heard that

warning. Jerry Werner,

a farmer in LaPorte

County, Indiana, certainly has.

But some things really do live up to

great expectations. Case in point, says

Werner, is Co-Alliance LLP (limited

liability partnership), a progressive new

co-op enterprise which is delivering

numerous benefits to the producerowners of its five member cooperatives.

Werner, a loyal member of several

co-ops, and his son, Adam, farm mostly

irrigated acreage near the small

community of Union Mills. Several

years ago, Werner and the other

farmers who own LaPorte County Coop were invited to join Co-Alliance

LLP, now owned by Midland Co-op,

IMPACT Co-op, LaPorte County Coop, Frontier Co-op and Excel Co-op.

“Today, my farming neighbors and I

are in a position where our patronage

refund checks are significant,” says

Werner. “Our equity is being redeemed

more aggressively. We are offered

competitive incentives to purchase

seed.”

Through Co-Alliance, farmers have

access to valuable proprietary

technology. “That couldn’t have

happened for us just a few years ago,”

Werner says. “At first, we thought, this

is too good to be true. But it is true,” he

adds. Werner, like many farmers, is

learning what the LLP business

structure can offer their local

cooperative.

Delivering return on investment

“Joining the partnership is one of the

best decisions farmers here could have

made,” says Werner, who now serves as

board vice president of Co-Alliance.

“We have a strong balance sheet. We

are diversified. We are positioned well

for the future.”

Almost immediately, local producers

gained a higher rate of return on their

co-op investment (and a higher return

on equity) than before.

For the business year ending Aug.

31, 2011, Co-Alliance achieved $1.01

billion in supply sales and marketing,

had a net income of $26.7 million and

all five co-op members returned a

record level of patronage — about $10

million — to shareholders across

Indiana, Ohio and Michigan.

Investing in future

More than 100 miles to the south,

Kim Ames has similar feelings about

Co-Alliance. Ames 4K Farm is a multigeneration/multi-family farming

operation that has long been an active

member of Midland Co-op. Ames’

family has seen many changes over the

course of his farming career in Putnam

County, Indiana.

One transition Ames fully supported

was the first collaborative effort

between the Midland and IMPACT

cooperatives. Through their LLP, the

two co-ops gained the strengths,

resources and leadership talent needed

to better serve customers and grow.

The three other local co-ops soon

sought to join the fold, resulting in the

formation of Co-Alliance as a five co-op

member business venture, of which

Ames is board president.

As a result, Ames and other Putnam

County farmers have seen significant

investments being made to improve

services and products — such as the

new, liquid 28 percent fertilizer hub on

a rail location not far from Ames 4K

Farm. The facility is one of two hubs

Co-Alliance operates. It is an asset

Ames knows will help the company

meet the demands of larger growers in

the future.

When the partnership was initially

proposed, Ames and other voting

farmers did their research. They knew

that the unique structure of a limited

liability partnership offers some

advantages over a traditional

partnership or merger. That has proven

to be true in this venture, he says.

36 May/June 2012 / Rural Cooperatives

Focus On: Co-Alliance LLP

Partnership delivers returns

for members of five co-ops

“I

Co-Alliance LLP is providing access to valuable proprietary technology and other

benefits to the members of the five cooperatives that own it. Above is the Malden grain

and agronomy facility in Porter County, Indiana.
Rural Cooperatives / May/June 2012 37

Producers have seen the board and

management team drive increased

efficiencies, bring home more advanced

technologies and represent local

growers in negotiations, wielding the

clout of a much larger organization.

“The definition of synergy is when

cooperative action gains results which

are actually greater than the sum of its

parts,” says Co-Alliance CEO Kevin A.

Still, who has more than 27 years

experience managing local cooperatives.

Still and John Graham, chief financial

officer of Co-Alliance, were instrumental in developing and implementing

the LLP business structure for the

venture.

Guided by the board’s vision and the

support of a talented senior management team, the five partner co-ops now

market under one brand. That means

five main offices, five accounting

systems, five employee groups, five

company cultures and five balance

sheets and operating statements have

been assimilated into one. Not an easy

task, but one that has proven to be

worth the effort.

New opportunities continue to be

evaluated, including possible additional

partners. “Our objective is smart

growth — not to be the biggest, but to

be the most efficient, innovative and

locally invested supplier for area

farmers,” Still says. “Size helps us

‘negotiate large’ with our suppliers, but

our intent is to remain ‘small’ and local

for each customer.”

Ames is pleased with the results he

sees as a co-op customer and owner. “It

is not difficult to convince someone to

do business with our partnership today,”

he says. “We are competitive.”

Retaining local control

In addition to a strong balance sheet

and the ability to invest in the future,

Clinton County farmer Dan Coapstick

believes that the partnership structure

offers a third significant benefit to

farmers that traditional partnerships

and mergers don’t: the retention of

local control.

“The ag economy is strong,”

Coapstick says. “As we push for growth,

we’re always mindful of the balance

between doing what is good for growers

in one area, and doing good for co-op

members as a whole.”

His opinion is widely shared by the

7,500 farmer-members who continue to

hold stock, vote and can serve as

directors on the still-existing boards of

the five partner co-ops. “The LLP

structure keeps the best features of

those partner co-ops intact and allows

us to keep decision-making as close to

the customer as possible,” says Still.

IMPACT Cooperative memberfarmers in Coapstick’s area wanted to

gain the efficiencies and economies of

size and scope, but were independent

enough that they also wanted to retain

local roots, local talent and local

control, he recalls. Local growers

understood they would receive

representation and ownership in the

LLP, based on the assets they brought

into the partnership.

Income and patronage are

distributed the same way, based on the

proportion of ownership in the LLP.

Simply put: when they vote to join the

LLP, growers exchange 100 percent

ownership of a smaller pie for the

opportunity to own a piece from a

much larger pie.

Lead, grow, give, remember

The synergies generated by CoAlliance LLP are at work in 2012.

According to Still, those synergies

include significant economies of scale,

risk management, diversification of

business, employee expertise,

information systems and capital access.

The challenges ahead for Co-Alliance

— as for any agribusiness supplier —

include consolidation and competition,

rapid technological advances, capital

requirements, the need to recruit and

retain excellent staff and the increasing

regulation of the industry.

“When we began the LLP, we

reduced our mission statement from a

paragraph to just four words: Lead,

grow, give and remember,” says Still.

“In everything we do, we want to lead

our markets, grow member profitability,

give back in communities and

remember our cooperative roots.”

The team at Co-Alliance continues

to seek ways to add value to the

relationships with the farmer. “The

beauty of a co-op is that all advantages

stay local. We serve the farmer, and we

also invest locally as an employer; we

pay taxes; we give time and financial

donations; we’re good neighbors and

good stewards,” Still says. “The beauty

of the LLP structure is that it allows a

farmer-owned co-op to do all those

good things in the most competitive,

effective ways. That’s why we created

the LLP.”

For more information about this coop partnership, visit: www.coalliance.com. ■

Co-Alliance LLP fact file:

• Leadership: 40 directors

representing five co-ops;

• LLP Leadership: 13

representatives from five co-op

boards;

• Business units: Power fuels,

propane, agronomy, grain

marketing, swine/animal

nutrition;

• Area served: Dozens of

facilities in Indiana, Ohio and

Michigan;

• $1.01 billion supply and

marketing sales;

• $343 million in assets;

• $26.7 million net income;

• $10.6 million in patronage paid

in 2012;

• 500 team professionals on staff.

• More than 54 million gallons of

gasoline and diesel and 16

million gallons propane sold.

• 375,000 tons of fertilizer sold;

• $44 million in crop protection

products sold;

• $37 million in seed sold;

• 59 million bushels of grain sold;

• $96 million in feed and animal

health products sold;

• 260,000 hogs marketed.
38 May/June 2012 / Rural Cooperatives

By Jim Wadsworth,

Education and Outreach Specialist

Co-op Programs

USDA Rural Development

Editor’s note: This article updates and

revises portions of an article that appeared

in the March/April 2001 issue of “Rural

Cooperatives.”Many co-ops heeded the call

to action sounded in 2001, but more still

need to do so, and 2012 International Year

of Cooperatives (IYC) is a good opportunity

to strengthen co-op education and member

relations.

ounger members are

not as loyal to the

cooperative as they

need to be.”

“I don’t feel that some

members fully appreciate what our coop offers them in service and benefits

compared to non-co-op businesses.”

“Why should I support the co-op

when it’s really just like any other

business?”

Sound familiar? Comments such as

these can provide stark evidence that a

cooperative’s member relations need a

tune-up, if not an overhaul.

When such perceptions become

prevalent at a co-op, improved member

relations through stronger education

and communications efforts are a

necessity. If a lack of loyalty and

commitment becomes pervasive and is

not adequately addressed, your co-op’s

future is not bright, regardless of where

the markets go.

Without proper attention to member

relations, member loyalty will usually

deteriorate over time. Under these

circumstances, members’ use, control

and ownership of the co-op will slip.

Most members need to be regularly

reminded that they are the most critical

asset of their cooperative, and that their

cooperative is critical to their future

success.

Even when the need for a strong

member relations program is well

understood by co-op leaders, too often

it does not get the kind of resources or

support needed to do the job. While

some cooperatives are doing a terrific

job with member relations and

communications, others are struggling,

allowing an environment to persist

where members (especially younger

ones) do not show the commitment to

“Y

Keep the co-op candle burning!

2012 International Year of Co-ops perfect time to gear-up co-op education

Candle graphic by Stephen Thompson
their co-op as did previous generations.

2012 International Year of

Cooperatives makes this the perfect

time to step up to the plate and spread

the word about your co-op and co-ops

in general. Promote the memberownership aspect of your business and

the products and services it provides.

Member pride and loyalty is most likely

to swell if the impact of the cooperative

business is seen and felt by many.

Motivated members further instill that

same pride and loyalty in others and a

positive momentum spreads through

the membership.

Pattern of “fall-off”

New cooperatives tend to have

vigorous member relations, with

member loyalty and optimism about

their new business running strong in

the early years. But this is an era of

continuous economic and structural

change in all business sectors. Many

cooperatives are restructuring their

operations (via mergers, acquisitions,

joint ventures, and other strategic

measures) to meet changing conditions.

Some co-ops are seeking new business

opportunities in increasingly complex

domestic and global markets.

The bottom line is that many

cooperatives have complex operations

and/or serve expanding geographic

areas. Under these circumstances,

members may feel they lack local

control. Other co-ops may have

continuity in structure and operations,

but still find themselves facing

significant challenges. Whatever the

case, it is common for members to feel

disconnected from their cooperatives.

Many co-op leaders believe

providing quality service and products

is their best member relations tool.

While essential, quality service alone

isn’t always enough to create

cooperative loyalty. Given the intense

competition they face, cooperatives

must do more. They need to be more

assertive in building member relations

in other ways. If members become

dissatisfied, the cooperative’s future will

be endangered.

Even if a co-op can’t always

implement the suggestions of members,

it is critical to let them know that they

have been heard and that their ideas

will be considered. For example, a

member may want to know why the coop can’t open at 6 a.m. The member

deserves a note or call back explaining

that there simply isn’t enough demand

to justify opening prior to 7 a.m., and

that the cost of staffing and “powering

up” that early would lose money for the

co-op and its members. A thoughtful

response to customers is important for

any business, but is especially vital for

co-ops.

The more members feel they have a

voice in the co-op through democratic

control, the stronger their commitment

will be. All members should be strongly

encouraged to vote in board elections

and attend the annual meeting. The

creation of advisory committees or

boards provide an excellent way for coops to gain a broader perspective of

member needs and opinions while also

forging stronger links with the

members who participate on them.

Continuous effort needed

A good member relations effort

should include:

• Communicating regularly with

members (this is vital);

• Educating members about their coop, its mission and co-op principles;

• Promoting the co-op continuously in

many ways to enhance its image;

• Motivating members by talking about

member responsibility, loyalty and the

benefits of cooperation.

Effective communications channels

are necessary in cooperatives for

disseminating timely information to

members, to educate, promote and

motivate. Strong communication builds

a cooperative connection to members.

Cooperatives that talk to their members

make them feel more connected and

more apt to be loyal.

Communications with members

should regularly include information

about:

• The cooperative’s background,

objectives, organization and general

operations.

• Cooperative principles and practices

and the benefits that members receive

from the co-op.

• Cooperative policies — especially

when adopting new ones or changing

old ones. Members must know why

policies are being developed or

changed and be kept apprised of how

policies affect them.

• Co-op products/commodities — why

they meet or exceed members’

expectations, how they should be used

and handled;

• Services — what’s offered, what’s new

and how these services are designed

based on member input;

• Cooperative plans — changes in

operations, equipment, services and

overall strategic direction.

• Future outlook — for business, the

general competitive environment and

for members.

• Cooperative finances — including

sales, savings and losses; overall

budgets and future financial plans;

development of new

products/services; and equity

redemption plans.

Member communication can be

accomplished through traditional means

— including the annual meeting, local

meetings, workshops, open houses,

tours, newsletters, bulletin boards,

informational leaflets and promotions.

Today, communication is occurring

more and more through electronic

means: e-mail, websites and social

media, as well as the long-established

electronic media of radio and television.

All methods are important and

management, directors and employees

need to take an active role in

communicating with members.

No member should be left in the

dark about important aspects of his or

her business. Communicate with

members in good and bad times. Help

them understand their cooperative’s

unique principles and practices and

remind them of their responsibilities in

those respects.

Strong communications should be

the foremost goal for improving

member relations in cooperatives. WellRural Cooperatives / May/June 2012 39

continued on page 46
40 May/June 2012 / Rural Cooperatives

Newsline

Send co-op news items to: dan.campbell@wdc.USDA.gov

Co-op developments, coast to coast

Organic Valley reports

record sales year

Organic Valley reports that its sales

rose to a record $715.6 million for

2011, a $95.9 million increase over

2010, for an overall growth rate of 15.5

percent. The nation’s largest organic

co-op made a profit $13.3 million, up

from $12.1 million in 2010. It also

welcomed 212 new members in 2011.

Additional highlights discussed at

the co-op’s annual meeting in La

Crosse, Wis., in March included:

• Recent completion of an expansion

project at its headquarters in La

Farge, Wis.;

• Construction is progressing on the

Cashton Greens Wind Farm,

Wisconsin’s first community wind

project;

• Launch of Organic Valley American

Cheese Singles, unprocessed, 100-

percent real organic cheese slices;

• Organic Valley Grassmilk, an organic

specialty milk produced from cows

that are 100-percent grass-fed.

USDA Deputy Secretary Kathleen

Merrigan addressed the co-op’ annual

meeting, highlighting USDA efforts to

promote organic agriculture. She

discussed the Know Your Farmer,

Know Your Food program and

identified challenges ahead for the

organic community.

“USDA is committed to helping

organic agriculture grow and thrive by

strengthening USDA’s National

Organic Program and better

integrating support for organic

producers across the Department,” she

said. “We also continue to support

cooperatives, a business model that’s

been very successful for organic and

other producers.”

There was plenty of good news from 2011 for Organic Valley member-producers, such

as Matt Fendry, who farms near Eau Claire, Wis. Record sales of $715 million showed an

increase of nearly $96 million from 2010. Photo courtesy Organic Valley
Rural Cooperatives / May/June 2012 41

“2011 was a unique year of recovery

after the previous recession years,”

CEO George Siemon says in the coop’s annual report. “We saw sales climb

back up to pre-recession growth levels,

which proves how vibrant the organic

marketplace is. This increase in sales is

driven by educated consumers,

especially by women who are making

lifestyle changes.”

Siemon says the co-op’s growth last

year largely resulted from other pools

of organic milk seeking membership.

“Most of these groups brought markets

with them as they saw the benefit of

being part of a bigger pool of organic

milk with diverse markets. Some of the

groups that joined us were the LOFCO

group from Pennsylvania last spring; 10

North Coast producers in Petaluma,

Calif., in August; two groups of organic

dairies in Oregon in late fall; and the

Humboldt producers in December.”

Survey: Americans rate

consumer co-ops highly

A large majority of Americans, 72

percent, believe that consumer

cooperatives — such as credit unions

and rural electric co-ops — are “helpful

to consumers.” Only 11 percent say coops are “unhelpful,” according to a new

national survey developed by the

National Cooperative Business

Association (NCBA) and Consumer

Federation of America (CFA).

Nearly one-third of Americans (29

percent), say they belong to a consumer

cooperative, the survey found.

“This survey illustrates that the

29,000 cooperatives in this country

offer a much-needed alternative that

consumers appreciate,” says Liz Bailey,

interim president and chief executive

officer of the NCBA. “At a time when

the entire business community is

focused on demonstrating shared value

and social responsibility, it’s gratifying

to know that Americans continue to

place their trust in member-owned,

democratically governed cooperative

business enterprises.”

Survey respondents rated consumer

cooperatives more highly than forprofit businesses on a number of

measures of quality and service. These

include: running their business in a

trustworthy manner; commitment to

quality service; keeping the best interest

of customers in mind; and offering fair,

competitive prices, among other

attributes.

“The Consumer Federation of

America has long believed that

cooperatives offer pro-consumer

services and enhance pro-consumer

competition in the marketplace,” says

Stephen Brobeck, executive director of

CFA. “It is gratifying to learn from this

survey that consumers agree with us.”

A representative sample of 1,008

adult Americans was surveyed in April

by Opinion Research Corp

International (ORC). Consumer

cooperatives are owned and democratically controlled by their members

— the people who use the co-op’s

services.

For more details, visit: www.ncba.coop.

Blue Diamond begins

plant construction

Blue Diamond Growers, a

cooperative owned by more than half of

California’s almond growers, broke

ground in April for a new manufacturing plant that will occupy an 88-

acre site in Turlock, Calif. The first

phase of the project is scheduled to be

completed in May 2013.

The new plant will provide about

200,000 square feet of building space

for manufacturing almond products that

An artist’s depiction of what Blue Diamond Growers’ new almond processing plant in Turlock, Calif., will look like upon completion.

Graphic courtesy Blue Diamond Growers
42 May/June 2012 / Rural Cooperatives

are exported worldwide. The threephased project will create about 500,000

square feet of building space over the

next 15 years.

“There’s no doubt that Blue

Diamond will bring numerous benefits

to the Turlock community, including

jobs,” says Mark Jansen, Blue Diamond

president and CEO. Blue Diamond

opened its last new plant in 1968 in

Salida, just outside Modesto. At that

time, California was producing 140

million pounds of almonds. This year’s

crop is expected to come in at about 2

billion pounds.

“We have kept pace with upgrading

new technologies in our plant

operations over the last 44 years, but

today we are celebrating the largest

single investment in the 102 years of

the almond industry’s existence,” Jansen

said during the ground-breaking

ceremony. The co-op will also soon

complete work on a state-of-the-art

research and development complex at

its headquarters in Sacramento.

“I would like to thank our growers

for entrusting their almonds to us to

make this investment,” Board Chairman

Clinton Shick added. “It will reap the

largest incremental returns to almond

growers who seek a secure future in the

almond business.”

Banner sales year

for sugar co-op; Contreras

succeeds Wedgworth

After seven years of hurricanes,

droughts and freezes, the Sugar Cane

Growers Cooperative, Bella Glade, Fla.,

achieved a banner season this year,

according to a report in the Palm Beach

Post. The 46-member co-op harvested

3.1 million tons of sugar cane, one of

the top five years in the co-op’s 52-year

history. It produced 374,266 tons of raw

sugar and 18 million gallons of

blackstrap molasses.

A freeze the previous season

devastated production, with the 265,682

tons of raw sugar produced being the

second-lowest yield in the cooperative’s

history, according to co-op

spokesperson Barbara Miedema.

Cooperative President and CEO

Antonio Contreras said more than 10

new production performance records

were set this season, including the

highest tonnage of sugar cane hauled

and processed in a day, and the highest

overall recovery of sugar from the cane,

the Post reported. While weather

conditions were ideal this season, the

cooperative’s members also farmed

more land, growing sugar cane on

68,456 acres, up from 61,650 acres a

year ago.

Contreras succeeded George

Wedgworth as CEO in January.

Wedgworth had been at the helm of the

co-op, of which he was a founder, for

52 years. He remains as board

chairman.

Wedgworth was credited as the

guiding force behind the co-op, from its

inception a half century ago to a

“world-class, vertically integrated sugar

cane operation that jointly owns the

largest sugar refining company in the

world,” according to John Hundley, coop vice president and secretarytreasurer of the board. The co-op coowns (along with West Palm Beachbased Florida Crystals Corp.) American

Sugar Refining (ASR) Inc. in Yonkers,

N.Y. ASR is the world’s largest cane

sugar refining company, with global

production capacity of 7 million tons of

refined sugar annually. ASR brands

include Domino, C&H, Redpath, Tate

& Lyle and Sidul.

“From the novel idea of organizing

the cooperative to overseeing its

construction, the expansions and

integration into the sugar cane refining

business, George was the driving force,”

Hundley says. “His leadership and

legacy are the basic foundation of the

cooperative, and will be carried out by

the new leadership.”

Contreras had been serving as

executive vice president for marketing

and refining operations for the co-op. A

native of Cuba, Contreras earned a BS

in business administration from the

University of Miami and a Masters in

international marketing from the

Thunderbird School of Global

Management in Glendale, Ariz. Jose

Alvarez has been named as chief

operating officer and general manager.

Jacobs to fill key

co-op role at Iowa State

An Iowa State University faculty

member has been appointed to a

research and extension position focused

on the economics of cooperatives and

working with Iowa co-ops to address

emerging issues. Keri Jacobs, an

assistant professor of economics, will

begin serving in the position on Aug.

15. Jacobs joined the ISU faculty in

2010 with interests in economics related

to agricultural business, land-use

decisions and agricultural policy.

The Iowa Institute for Cooperatives,

which represents 150 cooperatives in

the state, has expressed its commitment

to support Jacobs’ research and

extension program. The nonprofit

association currently is undertaking a

fundraising project with a goal of $1

million.

“This is one of the most exciting

periods in history for Iowa agriculture,”

says David Holm, executive director for

the institute. “Cooperatives play a

significant role in Iowa agriculture and

we enthusiastically look forward to

working with Dr. Jacobs to address our

members’ needs today and in the

future.”

The cooperative economist position

is similar to one held for 31 years by

Roger Ginder, an ISU professor of

Keri Jacobs
Rural Cooperatives / May/June 2012 43

Flint Energies, a user-owned electric

cooperative serving central Georgia, is

celebrating its 75th anniversary. The co-op

received its charter from the Rural

Electrification Administration (REA) on April

23, 1937.

“Today brings back a lot of great

memories,” Sr. Vice President Jimmy Autry

said in April during an event marking the

anniversary. “But the most important

memory is that of members working

together to create a lasting organization to

meet their own needs.”

From a modest beginning, serving just 90 members, Flint

today has 240 employees and serves more than 84,400

meters. Flint’s physical plant consists of more than 6,406

miles of distribution line and 50 substations to provide

energy services to residential, commercial, industrial and

agricultural members in parts of 17 central Georgia counties.

Like all cooperatives with such deep roots, Flint Energies

has benefited from the dedication of countless members and

staff. It is the people, after all, that define a cooperative.

One colorful example of the type of people it takes to

build a successful co-op is mentioned in the co-op’s history

book: “Flint hired Sam Hobbs, who worked with the

construction contractor, as a service and maintenance man

in February 1938. A little-known fact about Sam Hobbs, a

gruff and crusty man, is that he had a heart of gold. Many

times when going out to collect an overdue electric bill, he

would find sickness or other trouble in the home. He would

return to the office and pay the bill out of his pocket.”

Flint expects revenues to surpass $190 million in 2012, and

through their elected board, the members now direct a

corporation with more than $300 million in assets.

“What really sets us apart is our payment of capital

credits,” Autry said. “They are the retained margins left over

at the end of each year and are the most significant source

of equity for most cooperatives. Capital credits are

somewhat similar to the dividends that investor-owned

utilities pay to their shareholders.

“The difference is that the cooperative’s ‘shareholders’

are also the people that it serves and the ‘dividends’ (capital

credits) are distributed to those member/consumers. Capital

credits reflect each member’s ownership in the

cooperative,” said Autry. “Flint has paid back to its members

every dollar of patronage earned from our first day in 1937

through a portion of 1984.”

Flint is the eighth largest of Georgia’s 42 electric co-ops

and ranks as the 36th largest of the nation’s nearly 1,000

rural electric cooperatives. ■

Flint Energies turns 75
44 May/June 2012 / Rural Cooperatives

Moark LLC, a Land O’Lakes subsidiary, donated

more than 1 million eggs to nine food banks across

the United States in time for the Easter holiday. For the

fifth year in a row, egg producers have teamed up

with Feeding America’s network of food banks in the

fight against hunger.

Moark’s contribution marks the second egg

donation in the third year of the First Run program. As

part of the First Run program, Land O’Lakes and its

subsidiaries have committed to donating truckloads of

fresh product to food banks quarterly to help alleviate

hunger nationwide.

“As a national, farmer-owned cooperative, Land

O’Lakes is committed to helping the growing number

of people struggling to put food on their tables,” says

Land O’Lakes Foundation Executive Director Lydia

Botham. The First Run program is part of Land

O’Lakes’ larger Feeding Our Communities initiative – a

program dedicated to helping alleviate hunger locally,

nationally and internationally. ■

Moark donates

1 million eggs

Part of a shipment of 1 million eggs is loaded onto a truck for distribution to a number of community food banks around the

nation. The eggs were donated prior to Easter by Moark LLC, a Land O’ Lakes subsidiary.
Rural Cooperatives / May/June 2012 45

economics who retired in 2010. Ginder

was a nationally recognized expert in

cooperative finance and strategic

management.

In her new position, Jacobs will focus

on the role of cooperatives in the

evolving industrial organization of:

agricultural markets; vertical

integration; innovation and product

development; contracting; ownership,

control rights and governance

structures; organizational strategies;

finance and the equity structure of

cooperative firms; regulation and

taxation of cooperative entities; and risk

and risk-sharing in commodity markets.

Jacobs, a native of Monticello, Iowa,

earned a doctorate in economics from

North Carolina State University and

bachelor’s degree in business

administration and economics from Coe

College.

AMPI reports

$2 billion in sales

Associated Milk Producers Inc.

(AMPI) says that staying focused on

maximizing members’ returns helped it

achieve positive results in 2011. Leaders

announced at the co-op’s annual

meeting in March that the dairy

marketing cooperative, owned by 3,000

Upper Midwest dairy farmers, achieved

sales of $2 billion last year.

Although weak milk volume

challenged all dairy manufacturers in its

region last year, the cooperative’s

diversified manufacturing network

increased returns in key areas. “Our

cheese-packaging plant in Portage,

Wis., and the New Ulm, Minn., butter

plant contributed stellar returns to the

bottom line,” AMPI President and

CEO Ed Welch told some 400

delegates and guests at the meeting in

Bloomington, Minn.

The 2011 performance marks the

fifth consecutive year of growth in both

consumer-packaged butter and cheese.

The cooperative’s butter business

increased 22 percent and packaged

cheese sales climbed 43 percent in five

years.

Operational highlights include:

• A $7.5 million investment was made

to purchase and install 18

technologically advanced cheese vats

to improved production efficiency and

cheese yield.

• The co-op’s three consumerpackaging plants all achieved Safe

Quality Food certifications; all 12

plants will have the designation in

2012.

• For the third consecutive year, the

number of members earning the

AMPI Milk Quality Award increased.

More than 450 producers received the

award for consistently achieving the

cooperative’s high milk standards.

USDA rural-sociologist

receives honor

Thomas W. Gray, Ph.D., a rural

sociologist with the Cooperative

Programs office of USDA Rural

Development, received an award for

outstanding service from the Southern

Rural Sociology Association (SRSA) on

Feb. 7, at the association’s annual

meeting in Birmingham, Ala. Gray has

held a series of offices in the

organization, most recently serving as

president.

SRSA is a professional social science

association oriented to enhancing the

viability and quality of rural life,

communities and the environment in

the South and to encourage similar

work nationally. The organization is

inclusive of other social sciences and

includes practitioners at the university,

community, government, and nongovernment organization levels.

Gabriel new chief

economist at FCA

The Farm Credit Administration

(FCA) has appointed Steve Gabriel as

associate director of the Agricultural

and Economic Policy Team and as

FCA’s chief economist. He succeeds

John Moore, who retired after 40 years

of federal service.

“FCA has benefited from Steve’s

knowledge, skills and experience for

many years,” says FCA Chairman and

CEO Leland A. Strom. “And I know

that he will provide outstanding

leadership as the agency’s chief

economist.”

Before his appointment, Gabriel

served as a senior financial analyst and

program manager for systemic risk

analysis in the Risk Supervision

Division of FCA’s Office of

Examination. He began his federal

government career as an agricultural

economist at USDA’s Economic

Research Service. He joined FCA in

1989, leaving it in 2000 to serve for six

and a half years as a senior financial

economist at the Federal Deposit

Insurance Corporation. He came back

to FCA in December 2006.

Gabriel has a B.A. in economics

from Loyola University of Chicago, an

M.S. in finance from the University of

Illinois and a Ph.D. in agricultural

economics from the University of

Illinois.

The FCA is the safety and soundness

regulator of the cooperative Farm

Credit System and the Federal

Agricultural Mortgage Corporation

(Farmer Mac). It charters, regulates and

examines the 95 banks, associations,

service corporations and specialpurpose entities of the Farm Credit

System, which makes loans to

agricultural producers and their

cooperatives nationwide. ■

Thomas W. Gray
46 May/June 2012 / Rural Cooperatives

makers agree that producing a top

cheese is both a science and an art, not

unlike producing fine wine.

While winning first prize is a great

honor, Davis says for Cabot the main

goal is to consistently make a strong

showing. “You aren’t going to always

win the blue ribbons, but we want to

make sure that our cheeses are always in

the hunt.”

The awards are usually displayed by

co-ops in places where the public

and/or employees can view them all

year. Cabot, for example, will put its

awards on display at the Cabot

Creamery Visitor Center in Vermont,

which attracts a heavy flow of tourists.

“The members love it when their

cheese wins a prize — it’s a great source

of pride on the farm,” Davis says.

“They know you can’t make great

cheese without great milk, and that all

starts on their farms.”

Among the states, Wisconsin was

tops with 30 gold medals, while New

York was second with nine gold medals.

California and Vermont each earned

three golds, while Idaho and South

Dakota earned two gold medals each.

Illinois, Indiana, Iowa, Minnesota, Ohio

and Utah each took home one gold

medal.

The FrieslandCampina cheese

factory in Steenderen, Netherlands,

emerged from the Sweet 16 with the

overall top prize for its Vermeer semisoft, reduced-fat cheese, which earned a

score of 98.73 in the final round of

judging. First runner-up, with a score of

98.55, was Winzer Kase, a smearripened, semi-soft cheese made by

Kaserai Grundbach in Wattenwil,

Switzerland. Second runner-up was

Appenzeller Kase, made by Karl

Germann, of Appenzell, Switzerland,

which scored 98.34.

The winning cheeses in the contest

were auctioned off, raising $140,000 for

charitable causes. ■

A taste of gold

continued from page 19

informed members are usually more

loyal to their cooperative.

Education efforts should focus on

cooperative principles, practices and

benefits. “Education is a social process

.... Education is growth.... Education is

not a preparation for life; education is

life itself.” Those words of philosopher

and theorist John Dewey, convey that

education is a vital lifelong process.

Education is the lifeblood of a

cooperative and must be a continuing

priority. Members use, control and

benefit from their cooperatives. They

need to be reminded of it and hear it

regularly.

While co-op members are the most

important “audience” for co-ops to

communicate with, the general public

— especially the young — should also

be communicated with on a regular

basis. Creating a favorable impression

of your co-op in the community can

pay huge dividends for the co-op the

next time you are seeking community

support for a project, such as for a

change in a zoning classification or a

new business permit needed for a

facility expansion.

Directors need to be educated on

understanding financial statements and

many other important aspects of the coop business to successfully meet their

responsibilities. Organizations such as

the National Council of Farmer

Cooperatives and state co-op

associations conduct excellent directortraining programs that co-ops can take

advantage of. Cooperative employees

also should be well-schooled in

cooperative principles and should

understand that they have a role to play

in improving member relations

Members can also serve as co-op

educators, talking to new or potential

co-op members about the benefits they

receive from membership. They can

talk to students, including their

children’s classmates and friends, about

what a co-op is and what they do for

their members and communities.

Some co-ops (such as Cabot

Creamery/AgriMark, Organic Valley

and Florida’s Natural, among others)

have tailored their regional and national

advertising efforts and/or packaging to

highlight the fact their company is

“farmer owned.” Marketing studies

have shown this message resonates with

consumers.

Not “just another business”

The United Nations-declared 2012

International Year of Cooperatives is an

exciting opportunity to communicate

with members and the public about

your co-op – why it is special and not

“just another business.”

Keep the co-op candle burning

brightly. If your member relations and

promotion efforts are flickering or have

even gone out, it is time to re-light

them. Communications must be a core

function of every cooperative.

If as manager or director of a

medium or small co-op you don’t have

time to focus on communications as

much as you should, consider adding a

staff communications specialist or

designating a staffer to spend at least

half their time on communications and

education. If the co-op is too small for

even that, consider using the services of

a public relations firm that works with

co-ops, or forming a member

committee that can develop some

communications or promotion projects.

For more ideas about promoting coops during IYC, visit:

http://social.un.org/coopsyear. The

Cooperative Programs of USDA Rural

Development can also provide co-op

education publications for hand-outs.

See pages 22-23 of this issue for a few

ideas, and visit: www.rurdev.usda.gov,

then follow the “cooperatives” links. ■

Keep the co-op candle burning!

continued from page 39
Rural Cooperatives / May/June 2012 47

Foundation is to find cooperative

solutions to the issues facing senior

citizens in rural America. In many

communities, senior citizens make up a

majority of the residents in

manufactured home parks. They are

particularly vulnerable should their

parks be put up for sale.

Since 2006, CDF has granted more

than $230,000 to support technical

assistance for co-op conversion work by

organizations such as ROC USA, the

New Hampshire Community Loan

Fund, Rural Community Assistance

Corporation, and the Twin Pines

Foundation.

“Our recent grants to ROC USA

have been particularly effective,” says

Kevin Edberg, a member of the

advisory committee

for the MSC Fund.

“ROC re-grants

funding to certified

technical assistance

providers (CTAP)

that are in the process of finalizing

deals, helping to push those projects

over the finish line, resulting in new coops and dozens of new units of co-op

housing.”

CDF hosted a forum in March,

“Cooperative Solutions for Affordable

Rural and Senior Housing,” to shed

light on the importance of converting

rental communities to housing

cooperatives in order to achieve

financial stability, especially for rural

seniors. Speakers included Judy

Canales, administrator for the Rural

Business-Cooperative Programs of

USDA Rural Development; Terry

Simonette, president and CEO of NCB

Capital Impact; Stacey Epperson,

president & CEO of Next Step; U.S.

Representative James Clyburn of South

Carolina, and Mike Sloss, managing

director of ROC USA Capital, among

others. For more information about the

forum, visit the Senior Resource Center

section of CDF’s website: www.cdf.coop.

The partnership between the ROC

USA network and the nation’s

cooperative development centers is

proving to be an effective one. Bradley

explains that “co-op development

centers really get both the

organizational development and the

business development aspects of our

work.”

Cooperative development centers,

RCDG funding and ROC USA all play

essential roles in promoting cooperative

housing development. By combining

the skill and financial resources they

each offer, and continuing to identify

new partners and leverage additional

funding, a stronger, thriving rural

America will emerge. ■

Co-op Development Action

continued from page 29
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48 May/June 2012 / Rural Cooperatives