Rural COOPERATIVES COOPERATIVES

USDA / Rural Development Septamber/October 2007

Thinking

Outside the

Carton

USDA / Rural Development September/October 2007

Thinking

Outside the

Carton
The two feature articles about farm supply cooperatives

that lead off this issue of Rural Cooperatives both tell

remarkable stories. One is an account of how Southern States

Cooperative in Richmond, Va., has come back from the brink

of bankruptcy five years ago. The turnaround involved painful

staff reductions, the selling of assets and out-sourcing of some

functions (including retail credit operations and the co-op’s

transportation fleet). 

But even with all those moves, the turnaround would have

failed without the support of the co-op’s loyal members,

employees and suppliers. They stuck by the co-op because

they know how much this cooperative has meant to producers

and others throughout its broad service area. 

CEO Tom Scribner is candid in saying that the co-op’s

policy of “laying all of its cards on the table” when dealing

with suppliers and others was the only way it was able to

overcome the rumor mill and continue to carry out the

business moves it had to make. The article concludes with

Scribner’s checklist of “lessons learned” — something all coop directors and managers should review carefully. 

The cover story salutes California’s Fruit Growers Supply

Co. on its 100th anniversary. Even though it is the nation’s

oldest regional farm supply co-op, it has always existed

somewhat in the shadow of its internationally famous sister

co-op, Sunkist Growers. But the success of Fruit Growers also

holds valuable lessons for all co-ops. 

The fact that it was organized as, and has remained, a

grower- and packer-owned cooperative has been key to

enjoying a century of success, its managers and directors say.

When dealing with a perishable product like citrus, and

different production regions, the co-op business structure is

“the best that you could adopt,” says Fruit Growers President

Nazir Khan. 

While some bemoan slow decision making as a drawback

of co-ops in a fast-moving business world, Khan sees

advantages to the collaborative decision-making process that is

a hallmark of cooperatives. “You may not be able to make

decisions as rapidly, but you also avoid rash or impulsive

decisions.” 

As a co-op, Fruit Growers looks at the interests of all its

different districts and growing regions. “Chances are, we will

have considered every nook and cranny of the important

decisions we make,” says Khan. “I believe it forces a better

decision in the end,

even though the

process might not

be a simple one.” 

Sunkist President

Tim Lindgren (and

former Fruit

Growers Supply

president) agrees

that the co-op business structure is ideal for ensuring that the

6,000 grower-members and 40 packer-shippers supported by

the sister co-ops have their voices heard and their needs met. 

“Fruit Growers has prospered because it stayed focused on

supplying member needs. It hasn’t branched out into a lot of

areas that aren’t part of the program. It has provided

tremendous service to Sunkist packinghouses and growers, for

no charge, and pays them (through dividends) to do business

with the co-op. It’s an unbeatable combination.” 

That’s not to say “business as usual” will cut it for co-ops

any more than it will for any other type of business that

expects to thrive in a market where competition is always

king. Fruit Growers is completely revamping its information

technology systems — a huge undertaking that offers

increased efficiencies throughout the organization.

The effort is progressing “on time, on budget and as close

to seamlessly as you can get,” says board Chairman Nick

Bozick. He credits that result to a collaborative effort and

“many long hours put in beforehand by our planning teams.” 

Improving the co-op’s data systems and other operations is

essential as the American citrus industry has to deal with evergrowing levels of foreign competition, Bozick stresses. 

Maintaining good relationships between management and

directors is “like anything in life,” says Lindgren. “It takes

trust, communications and transparency. It takes a while in a

co-op to develop full, mutual respect between board and

management. So once it is established, you must nurture it,

communicate and allow participation. Trust (between

directors and management) can carry you a long way once

established, but you can never compromise that trust.” 

— Dan Campbell, Editor ■

COMMENTARY

Co-op structure aids longevity

2 September/October 2007 / Rural Cooperatives

“Trust (between

directors and

management) can

carry you a long way

once established, but

you can never

compromise that

trust.”
Rural Cooperatives / September/October 2007 3

Rural COOPERATIVES (1088-8845) is published

bimonthly by Rural Business–Cooperative Service,

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the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial

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To file a complaint of discrimination, write to USDA,

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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.

Mike Johanns, Secretary of Agriculture

Thomas C. Dorr, Under Secretary,

USDA Rural Development

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or

Fax (202) 720-4641

This publication was printed with vegetable oil-based ink.

Rural COOPERATIVES COOPERATIVES

September/October 2007 Volume 74 Number 5

p. 4

p. 10

p. 14

p. 28

On the Cover:

Board members of Fruit Growers Supply Co. tour some of the co-op’s

then new timber holdings in Northern California, circa-1910. The coop, now celebrating its 100th anniversary, still owns timberland in the

Pacific Northwest, the earnings from which benefit citrus growers.

Photo courtesy Fruit Growers Supply Co.

FEATURES 

4 Thinking Outside the Carton 

100 years ago, Fruit Growers Supply founders made investments that still bolster citrus

industry

By Dan Campbell

9 Farmer co-ops set net income record; gross

business volume hits $126.5 billion

10 Back from the Brink

Support of members, employees and suppliers vital to Southern States’ turn-around effort 

By Jim Erickson

14 Emerald Pastures

Ireland’s dairy co-ops adopt range of strategies in response to changing markets

By Michael Ward

28 Worker-owned/ESOPs can help preserve

business in rural America 

By Bruce J. Reynolds

32 Corn Condos for Sale

Growth and innovation key to Heartland Co-op’s success 

By Stephen Thompson

DEPARTMENTS

2 COMMENTARY

20 VALUE-ADDED CORNER

23 UTILITY CO-OP CONNECTION

26 CO-OP DEVELOPMENT ACTION 

35 NEWSLINE

42 PAGE FROM THE PAST
4 September/October 2007 / Rural Cooperatives

By Dan Campbell, editor

dan.campbell@wdc.usda.gov

he sight of foresters

planting seedling trees

in the lush conifer

forests of the Pacific

Northwest is not

unusual. But a team of foresters

planting more than 1.5 million seedling

trees on 3,400 logged acres is

noteworthy because of the emblem on

their caps: Fruit Growers Supply Co. —

a farm and packing supply cooperative

with annual sales of $165 million. The

co-op is owned by more than 6,000

citrus growers and citrus

packer/shippers in California and

Arizona. 

So why would citrus growers employ

foresters to care for 350,000 acres of

timberland in Northern California,

Oregon and Washington? And what has

the health of an evergreen forest in

Washington got to do with the financial

health of citrus orchards nearly 1,000

miles to the south?

It all goes back to one of the worst

natural disasters in the nation’s history:

the San Francisco earthquake of 1906.

The tragedy motivated the citrus

growers of a century ago to take action

that today’s growers and packers remain

thankful for as Fruit Growers celebrates

its 100th anniversary this month. The

co-op’s founders were thinking “outside

the box” a long time before that became

a catch phrase for innovative, forwardlooking business planning. In the true

spirit of cooperative business, they

weren’t just thinking of themselves, but

of future generations of growers who

would follow in their furrows. 

Co-op born of disaster

Early on the morning of April 18,

1906, San Francisco was struck by a

devastating earthquake that sparked an

even more destructive fire. Together,

the earthquake and fire destroyed more

than 80 percent of the city and killed an

estimated 3,000 people. About 300,000

of the city’s 410,000 residents were left

homeless, and monetary damage was

put at more than $400 million.

So great was the demand for lumber

to rebuild San Francisco in the weeks

and months following the earthquake

that California citrus growers were

unable to buy wood for fruit crates

needed to ship their crop to market. 

Members of the Southern California

So much lumber was diverted to San Francisco

following the earthquake and fire in 1906, that Fruit

Growers Supply was formed to help source lumber

needed for citrus packing crates.

T

Thinking Outside

100 years ago,

Fruit Growers Supply

founders made

investments that

still bolster the 

citrus industry
Rural Cooperatives / September/October 2007 5

Fruit Growers Exchange (today known

as Sunkist Growers) responded by

forming Fruit Growers Supply Co. on

Oct. 5, 1907, as a separate, but closely

related, cooperative. Its mission then, as

today, is to ensure the availability of

materials needed to grow, harvest, pack

and ship members’ citrus fruit. 

Fruit Growers soon began buying

timberland and sawmills in Northern

California to ensure a steady supply of

raw material for the wood shook needed

for fruit crates. Eventually, the co-op

became one of the largest private

owners of forestland in California,

peaking at about 387,000 acres in 1999. 

In the 1950s, wooden fruit crates

were supplanted by corrugated

cardboard cartons, and Fruit Growers

sold its sawmills and built a carton

manufacturing plant in City of Industry,

Calif., northeast of Los Angeles. But it

elected to keep the timberland and to

continue to use it as a renewable

resource that helps reduce the overhead

cost of operating the nation’s oldest

regional farm supply co-op. Indeed, the

co-op operates without requiring any

type of capital investment from its

members. 

“The fact that we run this great

organization without any member fees

or retains, and that we get paid

dividends for doing business with the

co-op is a direct result of having

resources such as the timberland,

combined with our highly efficient

management,” says Fruit Growers

Chairman Nick Bozick, a thirdgeneration citrus grower with 1,000

acres of citrus and a packing operation

in the Coachella Valley, south of Palm

Springs. 

In addition to supplying members’

needs for cartons, the co-op operates a

pallet-manufacturing subsidiary, United

Wholesale Lumber Co., and operates

six large farm supply stores, called

operation centers, throughout the

citrus-growing region of California and

Arizona. Each operation center stocks

about 8,000 items. 

“Fruit Growers stocks everything we

need to grow and ship our citrus: from

fertilizer to pruning shears, from

herbicides to chain saws and ladders,”

says Bozick, who lauds the operation

centers for their product quality, deep

inventory geared specifically for citrus

orchards, low prices and knowledgeable

staff. 

A friend in need

The value of a supply store that is

always there for you, especially in an

emergency, is one of the primary

reasons farmers put so much support

and faith behind supply co-ops. That

fact was recently brought home for

Board Vice Chairman Mark Gillette, a

fourth-generation citrus grower with

2,000 acres of trees and a 1.25-millioncarton per year packing business near

Dinuba, about a half hour south of

Fresno. 

“One unfortunate aspect of farming

today in California is the big upsurge in

thefts and vandalism that we have to

contend with,” says Gillette. Anything

made of copper or brass — as is found

on pipe couplings, orchard wind

machines and irrigation systems — is

fair game for vandals looking to make a

few bucks from the scrap metal trade.

Gillette recently suffered $7,000 in

damage from thieves who “probably got

$50 worth of parts. Much as we would

the Carton 

About 80 million cartons and

other fruit containers are

produced each year at the

Fruit Growers Supply

manufacturing plant in

Ontario, Calif. Opposite

page: Citrus growers, such

as these, in the early days

of the 20th century had the

foresight to buy timber

resources for the future of

their industry. Today, the coop employs a staff of

foresters to care for its

350,000 acres of timberland.

Photos courtesy Fruit

Growers Supply 
6 September/October 2007 / Rural Cooperatives

like to, we can’t monitor 2,000 acres of

citrus trees at all hours. By the time you

realize you’ve been hit, the parts are

long gone.”

The expense of replacing lost parts

wasn’t the biggest problem the thieves

caused to Gillette’s orchard – it was the

hemorrhaging of 400 gallons per

minute of precious irrigation water in

this bone-dry growing environment.

Spare parts were needed fast to make

the repair. A distress call to his nearest

Fruit Growers operations center was

made. Not only did it stock the exact

parts he needed, but the parts were in

his hands within the hour. 

“This is not the type of stuff you

can run down to your local Home

Depot and buy,” Gillette says. He

recalls another emergency on a

Christmas day when his local Fruit

Growers store opened its doors and

again helped him out of a jam. 

Not only does Fruit Growers carry

extensive inventories of irrigation

system supplies geared for citrus, it will

design an entire irrigation system tailormade for a grower’s operation. These

days, most growers opt for microemitter systems for maximum efficiency

and water conservation. 

Bill Chaney, another board member

who farms 3,000 acres (two thirds of

which is leased) of citrus in Arizona,

installed a new micro-emitter irrigation

system 10 years ago. “We did the first

320 acres with another supplier,”

Chaney recalls. Unhappy with the

quality he got for

the price, Chaney

asked Fruit

Growers to design

and supply the

irrigation system

for another 1,500

acres. 

“With Fruit

Growers, I got a

superior system,

engineered so we

didn’t need any big

pipes, and we saved

about 25 percent

on a very sizable

bill,” Chaney

says. The co-op

even convinced

him that he could

do the

installation

himself (Fruit

Growers does not do installation). He

has done his own installation ever since. 

The presence of Fruit Growers also

has the collateral benefit of helping to

keep down the farm supply prices of

competitors, says Chaney. 

Box not just a box

The carton manufacturing plant in

Ontario is perhaps the crown jewel in

the Fruit Growers system. “State-ofthe-art” is an over-worked adjective in

the agriculture industry, but when it

comes to the Ontario container plant,

Bozick says it is dead-on accurate. “It is

simply the best, most efficient plant of

its kind, although we continue to tweak

it to make it even more efficient.” In a

typical year, the plant will produce 80

million citrus containers with a

workforce of about 65 production

employees. 

In addition to producing all of the

cartons its members need, Fruit

Growers also produces containers for

non-members and industrial users

during periods of lower demand by the

co-op. Profits from these non-member

sales go back into maintaining the plant

and funding member dividends.

Dividends in recent years have run

In addition to manufacturing a wide variety of fruit containers in Ontario,

Fruit Growers Supply also has labs where engineers design and test as

many as 40 new fruit containers every year. Upper left: the co-op also

operates a pallet manufacturing plant. 
Rural Cooperatives / September/October 2007 7

about 10 cents a box. 

To the uneducated eye, a fruit carton

may appear to be a simple container.

But looks can be deceiving. Each size

and style of citrus carton is carefully

engineered in Fruit Growers’ own

design lab to provide maximum

protection, breathe-ability and moisture

absorbing characteristics at the lowest

possible weight. The slightest flaw, such

as air vents cut just a little too sharply,

can lead to damaged fruit, says co-op

president Nazir Khan. 

The requirements of the everchanging retail environment into which

Sunkist (Fruit Growers’ sister co-op)

markets fruit means that new types and

designs are constantly needed. In 2005

alone, Fruit Growers was called on to

design and produce 40 new cartons and

other containers. This trend accelerates

as the industry becomes more

diversified both on the production side

— where clementines and other new

tangerine-type varieties are gaining

popularity — and in the retail sector,

where warehouse-type outlets are

gaining a bigger share of the market.

The warehouse store operations also

require that the supplier, in effect,

manage the produce sections. 

At any one time, Fruit Growers may

be asked to supply 200-300 different

packaging items. On an hour’s notice, a

packing house can typically pick up any

of those items. 

“Sunkist responds to many market

demands, and Fruit Growers must be in

lock step to meet those demands,” says

Khan. “In the past, containers only

needed to get the product to the retail

outlet. Containers were not part of the

display. Today there is more demand for

containers — such as clamshell trays

and various sizes of bags with

promotional coupons printed on them

— that go directly into the hands of the

consumer.” 

Sunkist marketers often come up

with a design concept, which Fruit

Growers engineers then go to work on

to turn into reality. “We experiment

with different weights and how a carton

will ship, striving to maximize the

integration of the carton with pallet and

trucking configurations,” Khan says.

“Innovation here is constant; we strive

to ensure that the containers we provide

to Sunkist are the ones that the rest of

the industry will try to emulate.”

Industry migration and

future of timber holdings

Just as the growth of metro Los

Angeles has driven much of the region’s

once huge dairy industry into

California’s San Joaquin Valley and even

outward into New Mexico, Idaho and

other western states, so has it displaced

much of the citrus industry that once

thrived there. However, unlike the dairy

industry, the mild temperatures citrus

requires confine the West’s citrus

industry to the southern third of

California, the San Joaquin Valley and

to southern Arizona.

Today, sizable citrus plantings are

found primarily around Indio,

Coachella and in Ventura County. But

acreage losses there have been offset by

new plantings to the east, in areas such

as Fresno and Tulare Counties. These

areas were once deemed too hot and

dry for commercial-scale production,

but new varieties and advances in

irrigation technology have made these

Central Valley counties hugely

productive. As a result, industry citrus

acreage has been stable for many years

at around 296,500 acres. 

The situation around Phoenix and

Yuma in Arizona is similar, with citrus

giving way to development. 

The fact that not all growers in the

path of urban sprawl elect to move their

operations when they finally sell their

land to make way for houses and strip

malls has led to a debate within Fruit

Growers. It’s the same debate that many

co-ops wrestle with when members and

their children leave the industry: the

desire to sell co-op assets and distribute

— or reinvest — the proceeds. In the

case of Fruit Growers, this has led to

discussion in recent years about the

possibility of selling the timberland.

“If you are impacted by urban

pressure, then your perspective is likely

to be short range if you believe that you

may not be able to continue farming

long-term,” says Khan. “But most

growers see the timberland as a trust

that makes both Fruit Growers and

Sunkist very, very strong.” 

As a sister co-op of Sunkist Growers, most of the

cartons and containers Fruit Growers Supply

produces are used to ship Sunkist citrus. But

during periods of low member demand, the plant

also produces for non-members, the earnings

from which help defray plant operation costs.
8 September/October 2007 / Rural Cooperatives

Some of the co-op’s timber acreage

has been sold, which is why total

holdings have decreased from about

375,000 to 350,000 acres. But that has

mostly been as a result of selling less

productive holdings in California, and

using the proceeds to reinvest in more

productive timberland in Oregon and

Washington, says Tim Lindgren,

currently Sunkist president but prior to

that the president of Fruit Growers

from 1978 to 2003. 

It was during his tenure at the helm

of Fruit Growers that the timberland

holdings were about doubled, and when

the Ontario container plant was

opened. He also spearheaded the

expansion of the co-op’s handful of

small supply stores into the large

operation centers of today. 

While no formal motion to divest

the co-op’s timberland has been made,

the Fruit Growers directors (most of

whom also sit on the Sunkist board) did

hire a consultant in 2005 to study the

economics of maintaining ownership vs.

selling it and reinvesting the proceeds.

The clear conclusion, Bozick says, was

that maintaining ownership of the

timberland was the best alternative. 

“Wall Street tells you to look at all

your assets and make sure they are

generating the maximum returns,”

Bozick says. “We did that, and it was

determined that we are getting a return

that far exceeds any other that could be

gained from selling the timberland.” 

Lindgren agrees. “At the end of day,

the amount of money we would have

received back didn’t justify a sale. The

timber yields a very good return on

investment, providing full funding of

Fruit Growers and its services to

Sunkist.” 

Environmental considerations

Constantly changing environmental

regulation is something all farmers have

to contend with. “But everything you

experience in production agriculture,

you see it first and you see it in spades

in timber,” says Lindgren. “Our forests

still represent the American frontier,

and people are very protective of the

forests and watersheds and all the

things forests contribute to.” Forests

provide wildlife habitat and recreation,

provide erosion control and even help

cool water in streams, which is vital for

the fish, he notes. 

To help manage the resource in a

complex regulatory environment, Fruit

Growers employs a staff of 25 forestrytrained employees who oversee timber

sales, logging and reforestation. 

About 69 million board feet

of timber, worth $32 million,

was sold in 2005. The co-op

foresters manage the

timberland on a sustained-yield

basis, planting seven trees for

every one they cut. As a result,

actual wood fiber reserves have

been increasing by about 3 to 5

percent each year.

And there may be even more

benefits for members on the

horizon. Carbon trading, in

which landowners receive

tradable “carbon credits” that

have a monetary value based on

the amount of carbon their

trees remove from the

atmosphere, could provide

another return. 

Studies have shown that

older trees are far less

beneficial in this regard than

young trees, Lindgren notes. So, by

taking out older trees and replacing

them with younger trees, air quality

benefits, Lindgren says. 

With the rapid expansion of metro

Phoenix and Yuma poised to displace

much of his orchard land, director Bill

Chaney says that if anyone should have

been in favor of a sale of the co-op’s

timberland, it would have been him. 

“I guess I could take the stance that

in 10 years, I may well be largely out of

the citrus business, so to heck with

future of the other growers. Let’s just

cash in now. But the timberland is such

a wonderful resource for offsetting the

overhead of Fruit Growers and keeping

it financially strong. It also has a residual

effect that helps strengthen Sunkist. I’ve

never had to put a dime into that

timberland, but it has put a lot more

than dimes back into my operation. 

“The forefathers of Fruit Growers

made that investment so their children

and the children of their fellow growers

would have this resource to help them

in future years,” Chaney continues. “I

have no doubt we made the right

decision in electing to preserve it as a

trust for this great organization and

future generations of growers.” ■

More than 8,000 farm supply items needed by citrus growers — from special irrigation systems to

gloves and picking sacks — are available at each of the six Fruit Growers Supply operation centers.
Rural Cooperatives / September/October 2007 9

Editor’s note: Information for this article was compiled by the

Statistics Staff of USDA Rural Development, Cooperative

Programs, including Katherine C. DeVille, Jacqueline E. Penn

and E. Eldon Eversull.

armer cooperatives had a record $3.2 billion

in pre-tax net income in 2006, fueled by farm

supply sales – especially by higher prices for

petroleum products. This marks the second

consecutive year that a new net income

record was set. Net income shot up by 24 percent from 2005,

when $2.5 billion in net income was reaped by the nation’s

farmer-owned cooperatives. 

Overall farm supply sales increased by almost 17 percent,

with petroleum sales alone registering a $5 billion gain. On

the marketing side, sale of crops, livestock and value-added

products by cooperatives decreased 2 percent. The biggest

reason was lower milk prices, which resulted in a $2 billion

decline in dairy sales. However, milk prices in 2007 are

sharply higher, and with corn prices up, co-op marketing

sales appear poised for a possible new record in 2007. 

Gross business volume of $126.5 billion for farmer

cooperatives increased $5 billion from 2005, nearing the

record $128 billion recorded in 1996, according to USDA

Rural Development. Although not a record, gross business

volume continued the general upward trend in sales that

started in 2004 (figure 1).

Equity capital held by co-ops increased 2 percent, to

almost $20 billion, but remains low at 42 percent of all assets.

Cooperative assets grew by 3 percent, to almost $48 billion,

while liabilities grew to $28 billion (figure 2). 

Patronage refunds grew 24 percent to $500 million, up

from $400 million in 2005.

Farmer cooperatives remain one of the largest employers

in many rural communities, with overall employment of

F

Farmer co-ops set net income record;

gross business volume hits $126.5 billion

Table 1—U.S. farmer cooperatives, comparison of 2006 and 2005

Item 2006 2005 Change

Billion $ Percent

Sales (Gross)

Marketing 76.5 78.0 -1.98

Farm supplies 45.9 39.3 16.72

Service 4.1 4.3 -4.90

Total 126.5 121.7 3.96

Balance sheet

Assets 47.9 46.6 2.80

Liabilities 28.0 27.0 3.35

Equity 19.9 19.5 2.03

Liabilities and net worth 47.9 46.6 2.80

Income Statement

Sales (Gross) 126.5 121.7 3.96

Patronage income 0.5 0.4 24.15

Net income before taxes 3.2 2.5 24.13

Employees Thousand

Full-time 123.4 125.4 -1.62

Part-time, seasonal 57.3 54.4 5.26

Total 180.7 179.9 0.46

Million

Membership 2.6 2.6 -0.08

Number

Cooperatives 2,675 2,896 -7.63

continued on page 40
10 September/October 2007 / Rural Cooperatives

By Jim Erickson

Editor’s note: Erickson recently retired as

communications director of Southern States

Cooperative, but not before writing this article about how

the co-op has righted its fiscal position in recent years.

he day in late September 2002 began

routinely enough for Tom Scribner, then the

executive vice president and chief

merchandising officer at Southern States

Cooperative. Directors of the regional farm

supply co-op were at the corporate office in Richmond, Va.,

for a regular board meeting, one where Scribner had given a

report at the board’s afternoon session the preceding day.

Before the new day in early fall ended, however, the board

had asked him to take the helm as Southern States’ president

and chief executive officer, and he was quickly immersed in

efforts to turn around a co-op teetering on the financial

brink.

The coming days would be a

never-ending stream of meetings

with bankers, consultants, the coop’s member-leaders, employees and

other stakeholders. The decisions and

recommendations he made to the Southern

States board in the following weeks and months

were rarely easy or painless. But now, some 60 months

later, the co-op has just posted what Scribner views as a

breakthrough year with profitable results exceeding its

budget goals. 

How did Southern States — which in its 76-year history

prior to 1999 had never lost money on its own operations —

come so close to financial disaster? And how was the co-op

able to turn the situation around? 

Learning lessons the hard way 

Conversations with Scribner, the co-op’s Executive Vice

President and Chief Financial Officer Leslie Newton, and

T

Back from

the Brink

Support of members,

employees and

suppliers vital to

Southern States’

turn-around effort
Rural Cooperatives / September/October 2007 11

Executive Vice President and Chief Operating Officer

Wesley Wright, offer ample evidence of the roller-coaster

ride Southern States has been on. Lessons learned often came

the hard way, but they provide a checklist of pitfalls to avoid

and management tools and practices needed to turn around a

faltering business. Scribner firmly believes many of those

tools and practices are just as vital for keeping a sound

company moving forward and avoiding the problems that

plagued Southern States.

Newton recalls that after joining the Southern States’

treasury department, the co-op was performing at record

levels in the 1996 and 1997 fiscal years. 

“Along with others in our industry, we developed quite a

corporate ego, and beginning in 1998 the emphasis turned to

growth and expansion into new business ventures,” she

observes. “The prevailing view among many in agriculture at

the time was that growth was the only way to keep from

falling behind and eventually becoming irrelevant.”

Meanwhile, Scribner had come on board in 1998 as a vice

president in information systems after some 20 years with the

Landmark and Countrymark co-ops in the Midwest. Elevated

to executive vice president in 2001, he didn’t anticipate how

quickly his job responsibilities again would change. 

Evidence that the acquisitions weren’t working came early

and continued to mount, but only after the growth spiral had

caused the co-op’s debt level to balloon. At the same time,

weather factors and weak commodity prices applied even

greater pressure on Southern States’ operations. Ink on the

bottom line turned red. 

Feeling the squeeze

With banks demanding debt repayment and operations

showing a loss, the co-op’s already-thin liquidity position was

squeezed even further. Newton feared it was only a matter of

time — a very short time — before the co-op would be

unable to make its payroll. 

Farmland Industries’ Chapter 11 bankruptcy filing in May

2002 and the fact Agway also was struggling for its survival

had put cooperatives under the financial microscope. Rumors

about the future of Southern States began to surface as well.

(Editor’s note: Agway later filed for bankruptcy and both

Agway and Farmland subsequently were liquidated.) 

It was in this environment the Southern States board

acted, entrusting Scribner with the huge task of turning

around the business. His initial challenges were numerous,

encompassing both short- and long-term priorities. These

included eliminating the negative cash flow before the co-op

ran out of money, giving nervous bankers evidence the large

sums they had loaned would be repaid and implementing a

restructuring plan that gave the co-op a fighting chance to

have a future.

Initial decisions came quickly and included: 

• Cutting some 1,100 jobs, about one-fourth of the Southern

States work force at that time. 

• Bringing in a “turn-around” firm and appointing one of its

principals as chief restructuring officer. 

• Implementing rigid procurement and inventory controls

tied to 16-week cash forecasts. With the co-op’s liquidity at

dangerously low levels, this step was especially crucial. 

• Selling a number of properties, some of which were part of

the co-op’s core operations. But most were non-core and

what Scribner describes as “nice-to-have” assets. In some

instances, the underlying value of the real estate involved

was more than an asset’s projected 10-year earnings

potential. Proceeds went to pay down debt. 

• Out-sourcing business functions, such as the co-op’s

transportation fleet and retail credit operations, to reduce

costs and improve service. After some initial resistance to

the credit change, the new program through John Deere

Credit has been well received. Equally important, creditrelated losses have dropped dramatically. In the last fiscal

year, Southern States posted a net gain in the credit area

due to recoveries on accounts earlier written off.

Fending off unsolicited buyouts

“The job cuts and selling-off of assets were especially

tough,” Scribner notes. “But they were probably easier for

me to deal with because being new in my position meant I

didn’t have the emotional ties that others had. The reality

was we had no choice; delays only would have made things

worse.”

Scribner says another critical aspect was an early decision

to separate ongoing, core business operations from

restructuring activities such as closings and sales of real

estate. Unencumbered by these issues and concerns,

operating personnel were better able to focus on running the

business. 

While major changes — such as selling entire operating

divisions — were never off the table, Southern States had

analyzed its various activities and determined that its basic

farm supply business model was viable. But it wasn’t long

before the co-op received unsolicited offers to acquire its

The chief restructuring officer said that the difference between companies

that succeed and those that fail could be found in their employees.
12 September/October 2007 / Rural Cooperatives

feed, petroleum and insurance operations. 

“As we went through the due diligence process, one thing

became clear,” Scribner recalls. “The Southern States name

was quite valuable and that’s what the companies that

approached us really wanted. We realized the value of our

name, too, as well as the importance of these operations to

offering a complete market basket of products and services.

We ultimately opted not to sell any of the operations, even

though the short-term financial benefits would have been

substantial.”

Communications also played a key role. Thursday and

Friday meetings were begun for various management teams,

and employees received updates on the co-op’s evolving

situation either during group meetings with management or

via communications from Scribner through Southern States’

Intranet site. 

Scribner, Newton and others from senior management

also met with boards and managers of local co-ops Southern

States manages under contract. Communications efforts also

extended to Southern States lenders, with meetings and

conference calls used for progress reports and responding to

questions. 

In addition, information provided to Southern States’

directors was expanded with interim board reports and by

having all officers review their respective areas of

responsibility at every board meeting.

Easing cash-flow problems 

To ease the pressure on cash flow, Southern States needed

cooperation from its vendors and suppliers. After receiving

candid information about the co-op’s situation and the steps

being taken to deal with it, the vast majority of suppliers

agreed to extend payment deadlines. 

“We concluded the only way to deal with the rumor mill

was to lay all our cards on the table whenever we met and

talked with people,” Scribner says. “If people know you’re

being open with them, they’re much more likely to maintain

trust and confidence in what you’re doing.”

More tough decisions had to be made, however. An

existing plan to grow Southern States’ farm and home

products business with private dealers was scrapped due to

capital constraints and because the effort detracted from

serving the co-op’s core agriculture customers. In addition,

the number of private dealers was reduced to those the co-op

could economically serve. Minimum order requirements were

instituted, credit was cut off to dealers whose accounts were

delinquent and the number of different products in inventory

was greatly reduced. 

Another difficult, but financially important action, was

freezing benefits in the co-op’s defined benefit pension plan. 

“Our board of directors was directly involved in virtually

all these decisions,” Scribner observes, adding that directors

were also willing to make the tough calls.

Members show confidence

An early indicator the co-op had member support and

confidence came soon after Scribner took the helm. The coop had a program that allowed members to pre-pay for inputs

and other supplies they intended to purchase and take

delivery on the following year. Depending on how long their

money was in Southern States’ control, members earned

credits that expanded their purchasing power. 

For Southern States, the program was a major tool for

financing the build-up in inventories needed for the spring

season. Scribner and Newton concluded members would be

reluctant to put money into the program for fear of its being

caught up in bankruptcy, rumors of which were running

rampant. Accordingly, a separate “bankruptcy-proof” account

was established as an option for anyone with such concerns. 

It was good news indeed when the pre-pay program

subsequently neared its budget goal. But the most interesting

and, for Southern States leaders, heartening aspect was that

most participants eschewed the bankruptcy-proof account

and put their funds in the regular program. Because there

was no difference in the amount of credits that could be

earned, it was a clear indication members were confident of

the co-op’s ongoing viability and were willing to support the

organization. 

Evidence of lender confidence in Southern States’

progress came in October 2004 when a new financing

package was successfully negotiated. The new plan provided

for long-term and seasonal funding, as well as a tremendous

increase in liquidity.

Both Scribner and Newton attribute much of the co-op’s

turn-around success to its “rope holders” — employees at all

levels whose loyalty to the organization and commitment to

Southern States’ farmer-members never faltered. According

to Newton, the chief restructuring officer (CRO) — a

veteran of working with struggling businesses — told her

when he first arrived that the difference between companies

that succeed and those that fail could be found in their

employees. 

The CRO observed that Southern States employees

exhibited a greater desire to have the co-op survive than

“The only way to deal with the rumor mill was to lay all our cards

on the table whenever we met and talked with people.” — Tom Scribner
Rural Cooperatives / September/October 2007 13

those at any other company he had known. 

Maintaining momentum

As Southern States’ position gradually improved,

management moved to keep the momentum building. Drawing

on earlier experience with a well known, major retailer, Wright

took the lead in implementing a more disciplined approach for

running the co-op’s various operations and for measuring

virtually every important aspect of the business. 

Under Wright’s direction, Southern States also gathered

and analyzed demographic data on its retail locations to

determine the best product mix for each and to establish a

priority list for various types of store

improvement efforts. Some two dozen such store

development projects have been completed or are

on the drawing board for the current fiscal year. 

In addition:

• Improved budgeting tools were implemented, details on

each day’s business results were made available the next

morning, and the time for reporting month-end results was

cut from 15 business days to five. 

• Data on customer purchases was organized so it could be

used for efficiently targeting the co-op’s marketing efforts. 

• A manager training program abandoned during the co-op’s

cost cutting/restructuring period was reinstituted. 

• Retail operations in heavy crop production areas in western

Kentucky, eastern North Carolina and Georgia were

reconfigured to a “hub and spokes” system designed to cut

costs and maintain Southern States’ presence in these

highly competitive markets.

• A new retail location was opened in West Virginia, the first

such facility added in more than a decade.

Lessons learned

Actions the co-op has taken reflect many of the lessons

learned during the past five years, Scribner says, but he offers

others as well: 

• Practice fiscal conservatism, an extremely important factor

in a cyclical industry such as agriculture.

• Maintain adequate liquidity and control overhead.

• Recognize when your restructuring is complete and when

it’s time to begin re-growing the business.

• Establish clear accountability for actions.

• Have a well-defined scope of work for any outside

consultants who may become involved, as opposed to

leaving such assignment(s) open-ended.

• Make sure you have the right people in the right jobs. In a

restructuring as extensive as Southern States’, that inevitably

requires a blend of veteran employees and new talent.

Southern States’ historic mission — providing farmermembers with a complete line-up of products and related

services for growing all types of crops and livestock —

remains the same. But the co-op has changed in many other

ways Scribner is convinced will serve the organization well in

the future. ■

“The job cuts and selling off of assets were

especially tough,” says Southern States CEO Tom

Scribner (seated) of the effort to trim the co-op’s

costs. With him are Leslie Newton (center),

executive vice president and chief financial

officer, and Wesley Wright, executive vice

president and chief operating officer. Photos

courtesy Southern States
14 September/October 2007 / Rural Cooperatives

By Michael Ward

Editor’s note: Ward is deputy director of the

Centre for Cooperative Studies at the

National University of Ireland in Cork,

Ireland. This is the first of two articles that

examine the state of cooperatives in Ireland.

The second article, which looks at the future

of small dairy co-ops and farms in Ireland,

will appear in the Nov.-Dec. issue.

Emerald

Pastures 

Ireland’s dairy co-ops adopt range of strategies

in response to changing markets 
Rural Cooperatives / September/October 2007 15

rish farmers and their

cooperatively owned

businesses are operating

in an environment of

increasing uncertainty.

The accelerating rate of change in the

agricultural policies of the European

Union (EU), combined with structural

changes at the processor and retail

levels, have resulted in Irish dairy cooperatives adopting a range of strategic

responses to address the changing

demands of the agribusiness

environment.

Structure of Irish dairy co-ops

As of the end of 2004, Ireland was

home to 31 dairy cooperatives with

88,569 members and total sales of 10.44

billion euros. These include co-ops with

holdings in Public Limited Companies

(PLCs). Co-op-PLCs were created

when a number of bigger co-ops

converted substantial percentages of

their assets into PLCs, which were

listed on the Irish Stock Exchange. The

co-ops and individual co-op members

still own substantial interests in these

PLCs. 

Membership and sales varied

dramatically from cooperative to

cooperative, depending not only on the

size of the co-op but also on farm size.

The number of co-ops has steadily

declined from the 1960s as a result of

mergers. These co-ops can be

categorized as large, medium, small or

very small. 

The three largest dairy co-ops — Kerry,

Glanbia (now one of the largest cheese

producers in the United States after the

opening of the Southwest Cheese plant

at Clovis, N.M., in which it is the

largest shareholder) — account for 82

percent of the total sales of Irish dairy

co-ops and 44 percent of the members.

While Kerry and Glanbia grew via the

PLC route, Dairygold recently decided

to take a different route for financing

growth. In 2006, instead of setting up a

PLC, Dairygold Co-op created, from

many of its new ventures, a subsidiary

called Reox Holdings and launched it in

a non-publicly listed “grey market,”

which sold shares to farmers and nonfarmers. The value of Reox shares has

gained 25 percent in the first five

months since its launch (see Irish

Farmers Journal, Dec. 30, 2006). 

Medium sized co-ops account for 14

percent of total sales and 47 percent of

members.

Small co-ops that process milk account

for 3 percent of total sales and 5

percent of co-op members. Examples

are the Newmarket co-op, which

produces cheese, and North Cork,

which produces casein. 

Very small co-ops collect milk and then

sell it to larger co-ops to process. For

example, Boherbue Cooperative Society

organizes the collection of a 4.5-

million-gallon milk pool and sells

directly to Cadbury’s plant at Rathmore

in County Kerry for manufacture of

chocolate crumb, an important base

ingredient in milk chocolate. In nearly

all cases, the small cooperatives also

operate farm supply stores and some

operate grocery supermarkets, such as

Supervalu outlets (an Irish wholesalerowned chain). They account for 1

percent of the total dairy sales and 3

percent of co-op members. 

Problems and challenges

Manufacturing milk — Of the total

Irish milk supply, 63 percent is used for

butter production and 21 per cent for

cheese. The price of manufacturing

milk is declining because of weaker

world markets and EU policy changes.

Currently, the EU has surplus milk

production of about 20 per cent, and

the EU Commission believes that price

reductions will lead to increased

consumption. In addition, export

refunds have been reduced significantly,

which impacts exports, according to Dr.

Noel Cawley, CEO of the Irish Dairy

Board. In the last year, the world

market outlook has considerably

strengthened.

Casein — The casein market is

strong at the moment and is important

for the Irish dairy industry, which

produces almost 30 per cent of the total

EU casein. Almost half of Ireland’s skim

milk is used to manufacture casein.

Liquid milk industry — The liquid

milk industry is highly fragmented, with

24 processing plants run by 16 co-ops

and companies. This is in marked

contrast to Denmark, which is served

by one liquid milk dairy co-op, and

Holland, which is served by two. In the

Republic of Ireland (ROI), the National

Milk Agency is charged with regulating

the market. Recently, this has become

ineffective due to increasing imports

from Northern Ireland. These imports

are mainly in the form of own-label (or

private-label) milk, which is cutting into

the market share of the main Irish

dairies. 

The main beneficiaries of this trend

are Northern processors rather than

Northern farmers. In Northern Ireland,

in contrast to the practice in the ROI,

milk bought at manufacturing prices is

used to supply liquid milk processors.

Consumers have been moving towards

“own-brand” milk, which is much

cheaper than the branded products. In

fact, there is enough milk being

produced at manufacturing prices in the

North to supply the entire ROI market.

Supermarket own-brand labels — The

power of the supermarkets relative to

processors has greatly increased. This

trend has accelerated due to the

I
16 September/October 2007 / Rural Cooperatives

increasing use of “own-brand” labels,

which restrict the prices co-ops are able

to charge. Own-brand labelling

identifies the product with the retailer’s

name, instead of the producer’s or

processor’s name. The consumer is

denied knowledge of where the product

comes from and who produces it. All

assurances of quality are given by the

retailer, who can then source at the

cheapest possible prices. 

Fewer farmers — The continuing

decline in the number of people

engaged in full-time farming, especially

dairy farming, is putting pressure on the

turnover and profits of co-op stores,

especially for animal feed and fertilizer.

Inactive shareholders — As farmers

leave the farm and become inactive, the

traditional Irish co-op problem of

inactive shareholders is exacerbated.

The potential for decisive control being

exercised by non-users has become a

serious issue in some cooperatives,

including those with PLC holdings. For

example, of the 10,842 shareholders in

one of the larger co-ops, only 3,636

actually supply milk to the co-op and

only 7,712 are actually alive! In addition

to the member-suppliers, there are

another 400 milk suppliers who are not

members. 

Scale of operations — In scale of

operations, the Irish dairy industry lags

behind its international competitors. In

New Zealand, by comparison, Fonterra

Cooperative handles about 97 per cent

of the country’s milk. In Holland, the

Friesland Coberco and Campina co-ops

together account for about 80 per cent

of Dutch milk. Arla Foods, with 16,700

dairy farmers and turnover of 3.8 billion

euros, is the dominant co-op in Sweden

and Denmark. Ireland’s four largest

processors (Glanbia, Dairygold, Kerry

and Lakeland) would need to

amalgamate to achieve similar scale. 

Strategic responses

In the face of all of these problems, it

might seem that the best way forward

would be to: a) amalgamate all the

existing co-ops to achieve greater scale

of operations, b) cut costs by refusing to

handle the milk of very small farmers

and c) encourage marginal farmers to

do something else with their time —

perhaps convert their farm house into a

bed & breakfast business and learn to

nurture tourists instead of cattle! 

Instead, however, Ireland’s dairy coops have shown considerable creativity

in identifying new ways of diversifying

their activities.

Diversification and development

of dairy and other ag products

Many cooperative leaders are

annoyed by criticisms from

commentators about a so-called overreliance by Irish co-ops on low-margin

commodity products. They argue that

reliance on commodity products

happened simply because it was the

most profitable option available at that

This Glanbia facility in Ballyragget, County Kilkenny, includes the cooperative’s headquarters offices. Photo courtesy Glanbia
Rural Cooperatives / September/October 2007 17

time, given the EU subsidies that were

available. As times change, more and

more co-ops, large and small, are

diversifying. 

Acquisitions and in-house

innovations have resulted in quiet, but

steady, diversification with value-added

product lines and the opening of new

niche markets. But it is not only giant

co-ops such as Kerry and Glanbia that

have been able to enjoy the fruits of

diversification. Here are just a few

examples of diversification by the

smaller co-operatives:

• Lakeland’s development of a food

service milk business; 

• Bandon co-op’s involvement in

growing and marketing onions;

• Connacht Gold’s development of

specialized herb butters for export

under the Dairy Board’s Kerry Gold

brand and under its own brand for

German supermarkets;

• Tipperary Co-op’s production of

Emmental and Gouda cheeses, which

it markets in France through its own

cheese-packing and distribution

centre at Dijon.

To provide alternative income

possibilities to milk suppliers with

capped milk quotas, a number of

cooperatives, including Tipperary Coop, have become involved in the

mushroom business. Bandon embarked

on diversification into the onion

business for similar reasons.

It is interesting to note that even in

Denmark, the cooperative that paid the

highest milk price in 2006 (and is on

track for doing the same in 2007) is the

tiny Bornholm co-op, which produces

and markets a mind-boggling range of

cheeses, including 260 varieties of

yellow cheese and 25 types of blue

cheese, all made to order (Irish Farmers

Journal, Nov. 4, 2006).

Diversification in trading and

services

Both larger and smaller co-ops are

engaged in diversifying their services

and catering for the non-farm market.

Perhaps a significant difference between

large and small is that the smaller ones

are more likely to be rooted in a local

community and confine their business

activities to that community and its

immediate neighbourhood.

Declining numbers of farmers,

especially dairy farmers, Irish and EU

restrictions on fertilizer use, EU

commodity quotas and structural

reforms resulting in less intensive

farming have all combined to slow

down demand for products such as

animal feed and fertilizers. This has

adversely impacted co-op stores, and

several cooperatives have closed some

smaller stores and concentrated on

building up regional units with a wider

selection of farm supplies.

This restructuring has not always

been popular, because it further reduces

communication between farmers and

their cooperative. The larger

cooperatives have suffered most in this

regard.

In an effort to offset lost farm trade,

many cooperatives have been

diversifying and restructuring their

retail outlets so as to capitalize on an

increasing demand for do-it-yourself

(DIY) supplies and hardware goods

among non-farming rural dwellers and

urban dwellers within their catchment

area.

Dairygold Co-op has announced the

launch of superstores under the new

4HOME brand, with the intention of

becoming Ireland’s leading household

goods and DIY retailer. Dairygold is

proposing to open 30 new stores

countrywide. Ten of these will be within

the Dairygold milk catchment area,

mainly by developing existing stores. A

further 20 will be franchised outlets.

The intention is to help smaller

independent hardware and DIY stores

compete against the major chains by

‘buying in’ and taking advantage of

Dairygold 4HOME’s purchasing and

marketing power.

Many smaller co-ops are adopting

strategies similar to Dairygold’s. For

example, one of the smallest co-ops,

Mullinahone, has developed a

substantial hardware wholesaling

business in Ireland and even has a fulltime representative based in the U.K. In

the words of one manager of a small coop, “The real market is in catering for

hobby farmers and non-farming rural

or small town dwellers.”

Lakeland Co-op rolled out a Town

and Country Stores retail concept, but

more recently has been cutting back on

farm stores in response to perceived

inefficiencies in this sector. Wexford

Co-op opened a new filling station and

convenience store near New Ross in

mid-2003. Tipperary, Newmarket and

Boherbue Co-ops have all recently

opened Supervalu supermarkets by

buying into the independently Irishowned Supervalu retail franchise. In the

case of these smaller co-ops, the prime

aim has been to service people in more

remote communities and to maintain

local employment.

This shift by dairy cooperatives to

serve non-farmer customers is

interesting for a number of reasons.

First, the non-farmer customers are not

being invited to become shareholders

and join in a cooperative project. Profit

and cash flow to support the core

farming members are the main driving

forces. 

Second, the consumer emphasis is in

the non-food area at a time when

cooperatives and farmers are being

subjected to the power of multinational food retailers. Ireland, unlike

the U.K., has no significant consumer

co-op tradition in either food or

hardware. Indeed, many Irish dairy

cooperatives had dismantled their food

shops in towns and villages around the

country at about the time when the

amalgamation frenzy was at its peak.

This facilitated the unhindered growth

of very large, privately owned food

stores, such as Dunnes Stores in

Ireland, Tesco and Marks & Spencer

from the U.K. and LIDL from

Germany.

Non-agricultural diversification

In an effort to circumvent a

declining rate of growth and falling

profits in agricultural activities, both

cooperatives and PLCs have been

investing in non-agricultural areas. As a

consequence of the rise of the “Celtic

Tiger” (as the expanding Ireland
18 September/October 2007 / Rural Cooperatives

economy has been nicknamed) and the

resulting property boom in Ireland, all

cooperatives have been paying greater

attention to managing their land and

property assets. 

Some cooperatives, especially those

located in towns, have been relocating

and/or disposing of valuable property,

to the annoyance of some of their

members. Some co-ops have become

directly involved in the development of

new commercial property interests.

Both Donegal Creameries and Lee

Strand cooperative have diversified into

student apartments. Lee Strand has also

become involved in providing urban

parking spaces and its milk suppliers are

being paid a four-cent-per-litre bonus

from the profits resulting from this type

of diversification.

Rural development activity

Unlike most of their European

counterparts, Irish agricultural

cooperatives, though referred to as

“dairy co-ops,” are actually multipurpose co-ops. Traditionally, they have

had a broad-based developmental role.

More recently, both cooperatives and

PLCs have involved themselves in EU

programs that promote rural

development, e.g., the EU’s LEADER

program. Cooperatives, such as

Lakelands, Town of Monaghan,

Newmarket and North Cork, have

drawn attention to the importance of

servicing part-time farmers and

providing off-farm employment. The

Irish Cooperative Organization Society

is also very much involved in rural

development activity and offers

consulting services and advice to both

LEADER groups and cooperatives.

The logic of overseas acquisitions by

PLCs with cooperative shareholding is

supported by many farmers, especially

the larger ones, as essential for

development in a highly competitive

global food market. Other farmers,

however, especially smaller ones, are

beginning to question who will really

benefit from such development: milk

suppliers and rural dwellers or outside

investors? 

Smaller farmers are increasingly

realizing that their future depends on

the local availability of well-paid, offfarm and part-time employment. They

are looking to their cooperatives to

provide leadership and investment to

this end. 

Given the declining numbers of

dairy farmers and the increasing scale

and economies required to dairy farm,

Irish cooperatives will have to consider

adopting an even broader

developmental role in the rural

community if they are to meet the

needs of existing members. This wider

focus might also provide useful roles for

the retired farmer. It would also provide

a wider role for those cooperatives with

investments in PLCs for using their

allocated surpluses from the PLCs.

The role or obligation of

cooperatives in promoting broad-based

development draws attention again to

the membership issue. From a

cooperative perspective, the

development process must actively

involve those to be developed. There

are lessons here for cooperatives

becoming involved in non-core farm

activities, whether they are large or

small cooperatives.

Marketing the co-op difference

This is one strategy which might

have countered the power of the

supermarkets, but it appears to have

been largely ignored in Ireland. Little

attempt has been made to communicate

on the packaging of co-op brand

products that there is something special

about cooperatives — that these are

businesses which are owned and

democratically controlled by farmers

who take a pride in the quality of their

products. This is all the more surprising

considering that recent surveys in

America and Canada have reported that

about two-thirds of consumers surveyed

say that they trust cooperatives and

would rather buy farm products from

farmer-owned cooperatives. 

A recent consumer survey suggests

that Irish consumers might well have

similar positive attitudes toward Irish

farmers and their cooperatives.

According to a survey published by Agri

Aware, consumers have confidence in

Irish farmers as producers of quality

foods. The majority of respondents

perceived retailers as benefiting most

from the price of foods and farmers

benefiting the least. 

In the age of the Enron and

WorldCom scandals (not to mention

recent banking scandals reported in

Ireland), promotion of the cooperative

difference could provide Irish

cooperatives with a distinctive

competitive advantage which could be

difficult for others to imitate. This

advantage would enable cooperatives to

create a successful brand image (the sort

of brand image that KerryGold has

managed to create in Germany.

Risky business?

Small can be risky, but so can PLCs.

Many would argue that staying small is

just too risky. The small co-op is denied

economies of scale, putting itself at a

cost disadvantage when dealing with the

giants. Moreover, small co-ops, like

small football clubs, cannot afford to

buy the most expensive talent, so will be

KerryGold cheeses and butter are

marketed internationally. Photos courtesy

Irish Dairy Board, USA 
Rural Cooperatives / September/October 2007 19

condemned to a lingering, twilight

existence in the depths of the third

division.

But many of the leaders of the smaller

Irish dairy co-ops point to the

competitive advantages of smallness.

Their arguments are supported by Arndt

Reil’s recent study which showed that

Ireland’s relatively fragmented dairy

industry is, for the second year running,

at the top of the profits league, well

ahead of such mighty competitors as

Denmark, Holland and Belgium. And,

within the Irish industry, the small

players have been highly entrepreneurial

and are able to match and often exceed

the milk prices of the giants.

Scale issues in production, marketing

and purchasing are addressed with the

help of a variety of federations, joint

ventures and second-level co-ops. It is

also argued in co-op circles that the

most expensive talent is not necessarily

the best. Perhaps the most successful

network of cooperatives on the planet,

the Mondragon Cooperative

Corporation in Spain, limits the range

of salaries to a ratio (lowest to highest)

of about 1:6. This highly

entrepreneurial group has also

addressed the problem of retailing

dominating the food supply chain. 

The Eroski group of businesses,

many of which are multi-stakeholder

co-ops owned jointly by consumers and

workers, has become one of the largest

retailers in Spain and has achieved

considerable economies of scale in its

purchasing and marketing activities by

setting up a joint venture with a French

retailer-owned cooperative.

Perhaps the greatest risk confronting

Ireland’s cooperatives is the danger of

demutualization, particularly in the

smallest co-ops. In spite of their best

efforts, many Irish co-ops, large as well

as small, are in the unenviable position

of having a substantial number of

members who are not active farmers.

This means that it may be in the

financial interests of a strong cohort of

non-user members to demutualize a coop, even though it is highly efficient at

meeting the needs of its user members.

The PLC path brings with it the danger

of users losing control to outside

investors interested in making money

from farmers, not for them.

Co-op solutions for changing needs?

The socio-political climate of the

post Celtic Tiger years is less

supportive of cooperative ways of

working. The privatization, income taxcutting agenda has been adopted

enthusiastically. Some officials have

even raised the question of whether or

not cooperatives really need their own

central registry. Some businesses are

keen to keep a foot in both cooperative

and conventional business camps. 

This is perhaps why Ireland

pioneered the hybrid co-op/PLC.

Perhaps it is also why co-ops in Ireland

seem reluctant to market the

cooperative difference as a key

competitive advantage. This is in

marked contrast to the U.K. Consumer

Cooperative movement, which is using

the cooperative idea as the basis of a

successful brand image.

There is also reluctance to develop

new kinds of cooperative solutions to

the changing problems of Ireland’s

agricultural co-ops. Even though some

co-ops now have more workers than

member suppliers, and other co-ops sell

more through their retail outlets to

ordinary consumers and gardeners than

to farmers, no attempts have been made

to consider the possibility of developing

multi-stakeholder models which could

breathe fresh life into often-lackluster

businesses. Again, this is in marked

contrast to the innovative strategies of

Mondragon and ignores Shann

Turnbull’s well-argued demonstration

of the competitive advantages of multistakeholder mutuals (Turnbull, 2000) in

the age of Enron.

While this paper has questioned the

non-involvement of other stakeholders

as cooperative members, diversification

into non-agricultural activities has been

driven by the desire to improve the

viability of member-farmers.

Agricultural cooperatives are still

predominantly focused on the best ways

to meet producers’ needs. However,

many of their diversification strategies

are market-led by perceived consumer

needs, but without actively involving

the consumers in ownership and

control. 

Perhaps the most promising way

forward is for consumer and producer

to recognize that their mutual needs

can be met more effectively only if

consumers and farmers cooperate with

one another. The seeds of this strategy

are already evident in the farmers’

markets and community-supported

agriculture partnerships that are

burgeoning in North America, Japan,

mainland Europe, the U.K. and Ireland.

Cooperation between co-op sectors

Another positive development in

Ireland has been the launching in 2006

of a Cooperative Forum for Ireland.

The Forum brings together all of the

main cooperative sectors in the country,

including farmer co-ops, housing coops, credit unions and community

development co-ops. This has already

had a valuable impact in enabling

cooperation with relevant government

departments in the reviewing and

updating of cooperative legislation.

Editor’s note: References are available 

on request from the author at

Michael.ward@ucc.ie. ■

The PLC path

brings with it the

danger of users

losing control to

outside investors

interested in

making money

from farmers,

not for them.
20 September/October 2007 / Rural Cooperatives

By Dan Schofer

e-mail: dan.schofer@wdc.usda.gov

Editor’s note: Schofer was a co-op development specialist with

USDA Rural Development when he wrote this article; he recently

became deputy director for outreach with USDA’s Farm Service

Agency. 

outh Dakota’s state motto, “Great Faces,

Great Places,” refers to Mt. Rushmore

National Memorial, the Crazy Horse

Memorial and many other breathtaking

scenic vistas the state offers. It is also a land

of great co-op and value-added venture development

opportunity, which USDA Rural Development is working to

promote. 

“USDA Rural Development in South Dakota is interested

in strengthening and developing South Dakota’s rural

cooperatives to provide increased economic opportunities to

farmers and rural businesses,” says Mike Jaspers, the state

director for USDA Rural Development. “By furthering the

development of agricultural products, we are securing a

future for the next generation as well as providing increased

economic opportunities.” 

Rural Cooperative Development Grants, Value-Added

Producer Grants and the Small Minority Producers Grants

(the later program will be featured in the next issue of “Rural

Cooperatives”) are all tools being used in this effort. 

Value-Added Ag Development Center 

Since 1999, the Value-Added Agriculture Development

Center (VAADC) in Pierre has been a valuable partner in

helping farmers’ ideas become productive, economic realities.

VAADC’s mission is to foster the creation of producerowned, value-added agriculture by offering technical

assistance, staff support and by championing value-added

agriculture. VAADC is funded through USDA’s Rural

Cooperative Development Grant (RCDG) program. 

Cheri Rath, VAADC executive director since early 2005,

grew up on a farm near Aberdeen, S.D., and was with the

Governor’s Office of Economic Development before heading

VAADC. Supporting the center are established agriculturalbased associations, South Dakota state government agencies

and South Dakota State University.

“South Dakota has traditionally lagged behind

neighboring states in value-added agriculture,” says Rath.

“VAADC has turned that situation around with many

partnerships and is now able to deliver quality technical

S

VALUE-ADDED CORNER

South Dakota: great faces, great places —

and great value-added opportunities 

The Dakota Provisions plant in Huron, S.D., is owned and operated by 44 turkey producers. The plant now employs 500 people and

produces beef and pork food products, as well as those made from turkey. Photo courtesy Dakota Provisions 
Rural Cooperatives / September/October 2007 21

South Dakota Wheat Growers (SDWG) began life in 1923

as a wheat pool, serving growers along the James River,

which flows through eastern North and South Dakota. Today,

the full-service grain and agronomy cooperative has more

than 3,600 active producer-members across a region that

encompasses about 37,500 square miles. 

In addition to wheat, growers raise soybeans and,

increasingly, corn. The rapidly expanding ethanol industry

has made corn the largest volume commodity handled by the

cooperative. The co-op markets more than 90 million bushels

of all grain each year. 

SDWG is the dominant grain and agronomy co-op of the

region. Some of its central storage facilities can empty 500

trucks a day and load 440,000 bushels of grain in fewer than

12 hours. The co-op processes, transports, stores and markets grain, and offers members a menu of inputs and services.

Two joint ventures provide feed and petroleum. Six highspeed shuttle train loading facilities and eight other rail-loading

facilities can link growers to

ethanol plants and wheat mills 

to the east. They are also linked 

to export markets through the

Pacific Northwest, as well as 

livestock markets.

Although SDWG is a large,

diversified co-op, it still turns to

the South Dakota Value-Added

Agricultural Development Center

for expertise (VAADC). 

Blended grains mean added

value

VAADC recently helped some

of the co-op's wheat growers

with a project already under way:

a wheat processing facility in

McLaughlin. The facility will

enable the growers’ cooperative

to clean and blend grains to

meet flour millers' specifications for high-end flours. 

Enhancing the process of segregating, blending and 

preserving the identity of grain prior to shipment will help

area producers expand their marketing options. 

For its part, VAADC staff work with all sizes and stages 

of development, both of producer cooperatives and of other 

value-added agricultural enterprises. They engage with

businesses involved in grain, livestock, food processing,

renewable energy, emerging technology and specialty

products.

VAADC Executive Director Cheri Rath and her staff connected the co-op's management to the State AgProcessing

Facility Refund monies and New Market Tax Credits. These

efforts were successful, saving the co-op almost $2.8 million

for buildings, equipment and infrastructure. Co-op CEO Dale

Locken says, "VAADC was instrumental in helping us...make

the McLaughlin upgrade feasible." ■

SDWG identity-preserved grains add value 

assistance to farmers, cooperatives and other agribusinesses.

Past projects have involved aquaculture, buffalo processing

and patented grain processing, all of which have

demonstrated the ingenuity and entrepreneurial spirit of our

farms and rural communities.”

Through a vast network of federal, state and local

partners, VAADC has dramatically increased its capacity to

deliver technical assistance. 

Dakota Provisions LLC

Dakota Provisions, in Huron S.D., is a state-of-the-art,

poultry harvesting and processing business owned and

operated by 44 turkey producers. In 2003, individual turkey

growers in the community realized that they needed to

capture more economic return from their birds. They were

looking for a profitable, long-term market that provided

stability and security. They were planning and investing for

South Dakota Wheat Growers’ (SDWG) wheat segregating facility in McLaughlin loads its first

train. The concrete silos were already there, but the steel loading structures and new tracks

were recently added. Photo courtesy SDWG
22 September/October 2007 / Rural Cooperatives

their grandchildren’s livelihood and quality

of life. 

In 2003, they organized an exploratory

committee to look at marketing

opportunities for their flocks. Working with

the Governor’s Office of Economic

Development, VAADC organized meetings,

compiled research and helped with local

infrastructure issues. The research and

analysis derived from a feasibility study

showed that the proposed business structure

and plant could be viable.

A business plan was developed using the

assumptions and projections of the feasibility

study. This led to the current organizational

structure, financials and plant designs. The plant was

financed in part by direct producer investments. VAADC

helped Dakota Provisions through the funding

process and forging of a comprehensive

financial package. 

Dakota Provisions’ turkey processing plant,

near Huron, also cooks beef and pork

products, but is not involved with cattle or

hog slaughter. 

The plant came on-line in early 2006,

providing ready-to-eat meats, poultry and

protein products for the retail and foodservice markets. The plant now employs 500

people and harvests 16,000 turkeys each day.

It hopes to double that amount by 2009. 

Ready-to-eat products are available cooked,

oven roasted, netted or with collagen casings.

For food-service customers, Dakota Provisions

provides turkey breasts, boneless pork hams, natural roast

beef and chicken-formed deli items, as well as deli slicing

logs. Deli trays and platters with turkey, beef, pork, chicken

and cheese items are available to retail partners. The plant

also provides raw commodity products. 

“There are very few opportunities for consumers to

purchase products raised on the family farm and brought to a

world-class facility that prides itself on innovation and food

safety,” says Rebecca Steele, director of sales and marketing

for Dakota Provisions. “That is what Dakota Provisions

provides.” 

Hayco Premium Forage

Hayco Premium Forage is a partnership between a family

of farmers and a processing business in Sioux Falls, S.D.

Hayco owns the production and processing from seed to

packaged value-added product. Products include a variety of

different mixtures of high-quality forage combined with

other ingredients to maximize the nutritional value for either

horses or cattle. Hayco guarantees that its forage products

are sun-dried, certified weed-free, blister beetle-free and

dust-free. Products promote equine performance and

digestion.

The challenge that Hayco faced was to

maximize the market potential of these

products. “Just because you are good at

sales, doesn’t mean you don’t need help in

developing a marketing plan to take

advantage of the larger market

opportunities,” explains Mitch Olson,

director of marketing for Hayco.

VAADC helped Hayco create a unique,

comprehensive marketing plan. VAADC

conducted market research to determine the

best and most likely customers for Hayco’s

premium forage products. The research

showed that these target customers were

female horse owners, 30-50 years old, married in two-income

households. Olson praised Rath and VAADC for providing

“top-quality technical assistance.”

Hayco has developed a partnership with

Triple Crown Nutrition Inc. to produce “Safe

Starch” brand feeds. Urban markets of the

East Coast are currently the primary

customers, but the marketing effort is now

national in scope. 

Hayco has sold shipping containers of

products to livestock owners in Pacific Rim

countries and is looking to expand further in

this market. Recreational riders in the

national parks, national forests and on other

public lands are a growing market segment for

Hayco because they are now required to show

that any feed brought onto these lands is

certified weed-free. 

Value-Added Projects 

USDA Rural Development’s Value-Added Producer

Grants (VAPG) may be used for planning activities and for

working capital for marketing value-added ag products and

for farm-based renewable energy. 

Eligible applicants are independent producers, farmer and

rancher cooperatives, agricultural producer groups and

majority-controlled producer-based business ventures.

Dakota Farms International

The Walter family farm, near Willow Lake, S.D.,

incorporates more than 45 years of expertise in farming and

15 years in raising registered and certified seed. Dakota

Farms International Ltd. is an agricultural products

marketing company based on the Walter family farm with the

objective of marketing a variety of agricultural products

domestically and for export. 

The company was formed in 1994 with a focus on

exporting food products to Asia. In 1997, Dakota Farms

completed its first shipment to Asia.

Soy-based foam produced in South

Dakota will be used in the seats of

the 2008 Ford Mustang. Below: a

sunflower snack produced by

Dakota Farms International

continued on page 41
Rural Cooperatives / September/October 2007 23

By Anne Mayberry

USDA Rural Development

Utilities Programs 

anne.mayberry@wdc.usda.gov

mong the challenges

facing the electric utility

industry today is the

need to address climate

change. Increased

energy efficiency and conservation,

combined with alternative fuels and

technology, will all play a role in

reducing carbon dioxide emissions and

dependence on traditional fuels. 

Efforts to make significant

improvements in clean-coal technology

are underway because coal is still

among the most reliable and affordable

sources of baseload power. Indeed, coal

is the source of about 50 percent of our

nation’s electricity. Rural electric

cooperatives, owned by the consumers

they serve, recognize the need to

dramatically reduce carbon dioxide

emissions without huge run ups in

electric rates. 

The Electric Power Research

Institute (EPRI) earlier this year

released a study on how technology can

reduce the cost of cutting carbon

dioxide emissions while meeting the

growing demand for electrical power.

While much of the technology still

needs to be developed for efficient

commercial use, EPRI points out that

energy efficiency and renewable energy

projects are the first steps to reduce

carbon dioxide emissions.

“Rural electric cooperatives are

among the leaders in the electric utility

industry when it comes to

implementing innovative alternative

energy programs,” says James Andrew,

administrator of USDA Rural

A

UTILITY CO-OP CONNECTION

The Right Thing to Do

This 18 megawatt Minnesota wind farm is owned and operated by Dairyland Power Cooperative. Wind is just one of a number

of renewable energy resources being developed by the nation’s rural utility cooperatives. Photos courtesy Dairyland

Electric co-ops

pursuing cutting-edge

renewable energy,

conservation projects
24 September/October 2007 / Rural Cooperatives

Development’s Rural Utilities Program.

“Cooperatives are owned by their

members and answer to their

communities. They want to find ways

to reduce carbon emissions while

continuing to provide safe, reliable and

affordable electric power.”

As a result, phrases such as “carbon

sequestration,” “biomass,” and

“methane digestors,” uncommon a

generation ago, are now used on a

regular basis. 

Basin Electric’s renewable energy 

Basin Electric Power Cooperative in

North Dakota has a history of

developing alternative energy,

conservation and efficiency programs.

Basin Electric currently has research

projects underway on both carbon

sequestration and clean coal. 

“In 2005, our consumer members

passed a resolution to have 10 percent

of generating capacity provided by

renewables,” Daryl Hill, spokesman at

Basin Electric, explains. “Many of our

members are farmers and ranchers.

They support strong environmental

standards.”

Basin Electric’s subsidiary, Dakota

Gasification Co., is involved in the

largest carbon dioxide (CO2)

sequestration project in the world at its

Great Plains Synfuels Plant, near

Beulah, N.D. It is the only commercialscale coal gasification plant in the

country. 

Because carbon capture technology

for coal-fired electric utilities is still

new, Basin Electric is planning to

evaluate carbon dioxide removal

technologies for coal-based power

plants at its Antelope Valley Station,

also near Beulah, to determine which, if

any, are technically, economically and

commercially feasible. 

Basin Electric and other electric

utilities with older coal-fired, baseload

plants are assessing their investments

because continuing to supply consumers

with reliable, low-cost energy while

meeting environmental responsibilities

requires a balance. “We have an

obligation to serve our members,” Basin

Electric CEO Ron Harper notes. “We

also have an obligation to grow

responsibly and cleanly. We are

committed to responding to the world’s

need to reduce carbon emissions. It

won’t be without challenges, but it’s the

right thing to do.” 

Support from USDA Rural

Development 

USDA Rural Development’s Utilities

Program is providing financial

assistance in the quest to increase use of

alternative sources of electric power. It

made a $36 million loan to finance a

heat-recovery project that captures

waste heat from pipeline compressors.

The project will generate more than 20

megawatts of electricity. 

Another Utilities Program loan

recently helped support a breakthrough

project to produce hydrogen from

renewable resources, such as wind.

Basin Electric’s wind generation

portfolio has a capacity of about 135

megawatts and will be expanding. 

Basin’s wind-to-hydrogen

demonstration project would allow

electricity produced from wind to

produce hydrogen, which could then be

used as a transportation fuel or to

produce electricity when wind resources

aren’t available. It’s the first project of

its kind in the region. 

U.S. Sen. Byron Dorgan was on

hand for a dedication ceremony at the

end of July. Dorgan noted that “This

project is a breakthrough for North

Dakota and the wind and hydrogen

energy industry as a whole. This

demonstration will give us an idea of

what the future might look like.”

Cleaner burning coal & wind

Rural electric utilities in South

Carolina also recognize the value of

burning cleaner coal. Because as much

as 70 percent of their electric power is

generated by coal-fired plants, co-ops

there are partnering with the University

of South Carolina to establish a Center

of Excellence to research cleaner, more

efficient methods to burn coal. 

Mike Couick, CEO of Electric

Cooperatives of South Carolina, says

this statewide association has always

promoted conservation. “While the

United States is considered the OPEC

of the world in coal reserves, we have to

work toward smarter use of our energy

resources. Conservation is just part of

the story. We want to make sure we

have enough electricity in the future,

and make sure it’s as clean as it can be,”

Couick said. 

Chicago is known as the Windy City,

but a more rural area to the city’s south

was recently honored as the wind

cooperative of the year by the U.S.

Department of Energy. Illinois Rural

Electric Cooperative is the first co-op

in Illinois to erect a wind turbine, an

effort that was supported with a $1.3

million USDA Rural Development

Utilities Program loan. 

Sean Middleton, the co-op’s manager

of engineering explained, “We at

Illinois Rural believe that if you can

generate electricity from renewable

resources at the right price, it’s the right

thing to do.” This project not only

generates additional electrical power,

but future growth could add millions of

dollars to the local tax base.

Co-ops investing in biomass 

In addition to wind power, rural

electric cooperatives are adding biomass

energy to their portfolios. Anaerobic

methane digestors are a type of biomass

energy — electrical power generated

from wood waste, agricultural

byproducts and animal waste. In

addition to 18 megawatts of windgenerated power, Dairyland Power

Cooperative, a generation and

transmission cooperative in Wisconsin,

uses landfill gas-to-energy plants to

produce enough power for 8,800 homes

and “cow power,” through an animal

waste-to-energy process, to power

1,500 homes.

Neil Kennebeck, director of

planning for Dairlyand, explains that

anaerobic digestion of animal waste

reduces the potential for ground and

surface water contamination, and

reduces the need for pesticides and

herbicides on the farm. 

“Dairlyland’s programs receive

excellent support from members,”
Rural Cooperatives / September/October 2007 25

Kennbeck says. “We’re ahead of the

regulatory requirements for use of

renewables; Dairyland has been

developing alternative energy sources

since 1998.” 

Dairyland’s conservation programs

are popular among the membership.

One example is the cash incentives for

members to purchase energy-efficient

heat pumps and other appliances.

Additionally, Dairyland and its rural

electric cooperatives have given away

about 10,000 high-efficiency, compact

fluorescent light bulbs so far in 2007. 

Meeting demands of growth

Florida is one of the fastest growing

states in the nation and the demand for

electric power there is increasing at an

even faster rate. Seminole Electric

Cooperative Inc. is looking at a number

of solutions to meet the demand for

electric power, which in Florida is

growing 4 percent annually. 

“We have one of the largest in-state

portfolios of renewable energy — about

75 megawatts — which meets 4 percent

of consumers’ needs,” notes Executive

Vice President and General Manager

Tim Woodbury. Seminole is one of the

largest nonprofit generation and

transmission electric cooperatives in the

United States, providing wholesale

power to 10 rural electric distribution

cooperatives.

Seminole recently formed a

partnership with Landfill Energy

Systems (LES) for use of methane from

municipal landfills to generate

electricity. LES will build two landfill

gas-to-energy projects — its first in

Florida — and Seminole will get 15

additional megawatts from these two

projects, giving the co-op enough

renewable capacity to power 50,000

homes.

“Seminole is working to build its

renewable portfolio with cost-effective

projects because they’re a win for our

members and the environment,” says

Jeff Fela, Seminole’s senior public

affairs representative. Like more than

90 percent of the rural electric

cooperatives, Seminole is also actively

promoting energy efficiency, including

use of compact fluorescent lighting. 

Electric cooperatives nationwide —

often in response to their consumers’

requests — have played an active role

in alternative energy, conservation, and

efficiency programs and are

increasingly looking to technology to

help address climate change. EPRI’s

study notes that all technologies —

ranging from efficiency and renewable

energy to carbon capture and

distributed energy — will play a role in

protecting the environment while

meeting the need for affordable,

reliable electric power. ■

Dairyland’s Five Star Dairy

Farm uses a digestor (upper

left) to produce methane gas

from animal waste, which is

used to power generators.

Another source of renewable

energy, Seven Mile Creek

Landfill Generating Station

(upper right), uses waste from

landfills to generate electric

power. The Lake Mills, Iowa,

landfill gas-to-energy facility

(left) also generates renewable

energy from methane gas.
26 September/October 2007 / Rural Cooperatives

By Jane Livingston,

jane_livingston@verizon.net

n 2004, the Food Processing Center (FPC)

at the University of Nebraska was

researching ways to improve the profitability

of small farmers in the region. Its producerdriven research showed that farmers wanted

better ways to distribute and market their food locally. At the

same time, consumers were saying they had a hard time

finding enough locally produced food.

In a survey of existing producer-consumer linkages around

the country, the FPC came across the Oklahoma Food Coop. It had many of the attributes the Nebraskans were

looking for, including strong leadership. They invited the coop’s dynamic president, Bob Waldron, to speak at the annual

banquet of the Nebraska Sustainable Agriculture Society.

The event was attended by staff of the Nebraska Cooperative

Development Center (NCDC), which has joined FPC in

supporting the Nebraska effort. 

How the hybrid model works

The Oklahoma Food Co-op is owned by its members, as

are all food co-ops, but it is unusual in that it has both

vendors (producers) and customers (consumers) as members.

It’s also different in that it has no storefront or market stall.

Instead, the co-op maintains a “virtual marketplace” on a

Web site where vendor-members each month post their

available products.

These vendor-members set their own prices and fill orders

New Hybrid on Great Plains

I

CO-OP DEVELOPMENT ACTION

Increased consumer access, education paying off for local producers & shoppers
placed on-line by customer-members during a week-long

ordering window. Deliveries are made to a central drop-off

site and sorted so that customers pick up a single order and

pay a single invoice. 

As the Nebraska group discovered, there are other benefits

to the on-line hybrid co-op model. Vendors — farmers,

ranchers and value-added processors, such as bakers — also

post their methods of production, product details and other

important information for consumers on the Web site. 

Educating customers about their food is a priority for

many producers. Now, the co-op’s member-customers have

easier access to local food and information about it.

The Nebraska co-op was launched quietly during the

midst of the summer growing season of 2006. The plan was

to “go slow,” feeling its way forward during the first year. By

May 2007, the co-op had grown to around 120 members —

including about 24 producers. By August, the membership

had climbed to 171, including 33 producers, with more new

members joining every week. 

Developer's role

“They really took the ball and ran with it,” says FPC’s

Mark Hutchison about the proactive role taken by NCDC,

which also awarded the co-op a small grant to cover legal fees

as the innovative, hybrid-ownership model was hammered

out. In addition, NCDC helped the co-op procure a liability

insurance plan for producer members — a big draw for smallscale farmers and ranchers who want to sell to institutional

buyers, such as the university. 

Co-op Vice President Libby Broekemeier (also one of the

co-op’s most active consumer-members) says, “Having some

resources lined up — the planning and development grant and

the funding for legal advice — and just having those folks with

us — was a big help. It gave us the sense that we’d have the

money and other resources we needed to take the next step.”

Broekemeier, a professional volunteer coordinator with

prior experience in food co-op marketing, has (like the other

10 board members) generously shared her expertise with her

co-op. She organizes the monthly Delivery Days to meet the

expectations of both producers and consumers, and to make

sure volunteers have a good time working together.

“A real key to the co-op’s success,” says NCDC’s Cranford,

“is that it addresses distribution. By pooling their resources

and getting all the product together at once in the same

place, producers are leveraging their valuable time.” Some

farmers and ranchers even organized themselves so that only

a few drivers have to make the delivery run each month. 

Volunteers with vision

Although the co-op depends on a few volunteers to sort

each month’s orders at the two drop-off sites, Hutchison

notes that farmers already put in longer hours than most

people. By becoming member-owners of the cooperative,

they reallocate some of those hours in order to better move

The Village Pointe Farmers Market in Omaha, Neb., counts a

number of Nebraska Food Co-op producer-members among

its vendors. Opposite page: Farmers markets are great places

to teach children about nutrition and marketing skills — and

to have fun! Photos courtesy Village Pointe Farmers Market

CooperationWorks!, the national co-op of cooperative

development centers, has recruited some highly regarded

instructors to the faculty of its popular training program:

“The Art and Science of Cooperative Development.” The

program consists of two intensive five-day sessions. 

In September, James Baarda, an agricultural economist

with USDA Rural Development’s Cooperative Programs, and

long-time co-op developer Gerald Ely, who served as director of USDA's Cooperative Development Division from 1990

to 1995, joined other co-op leaders to inform and instruct

participants in the second session of the 2007 program.

Topics included co-op legal and tax matters, finance and

capitalization strategies, feasibility and financial analyses,

governance and management issues, conflict resolution

and developing stakeholder capacity. CooperationWorks!’

curriculum combines case studies, site tours, small group

work and presentations. 

The spring session of the 2008 program will be held in

Madison, Wisc. For more information, contact: Audrey

Malan at: cw@vcn.com or (307) 655-9162. ■

CooperationWorks! draws top

names to training program

Rural Cooperatives / September/October 2007 27

continued on page 40
28 September/October 2007 / Rural Cooperatives

By Bruce J. Reynolds, Economist

USDA Rural Development

bruce.reynolds@wdc.usda.gov

mployee ownership can help a business

prosper by creating financial incentives for

performance and by providing more selfmanagement of working conditions and

policies. These benefits may accrue whether

businesses are organized as cooperatives or as Employee

Stock Ownership Plans (ESOPs) when workers have a

majority control. 

Employee owners in rural communities also help retain

businesses that may otherwise be closed down. Worker

cooperatives and ESOPs are more prevalent in some urban

centers of the United States, but conditions are favorable for

their expansion in rural America. Worker cooperatives

operate a wide variety of businesses, as demonstrated at a

recent conference (see sidebar, page 31).

This article examines the potential growth of workerowned businesses in the rural economy. 

CENTROL Crop Consulting 

Many rural businesses, especially in farming areas, were

historically established as farmer cooperatives to provide

better marketing services and farm supplies for their

members. As farmers use more specialized and

technologically complex agricultural services, there can be

efficiencies for them to target which ones are most and least

critical for their ownership and control. Spin-offs from

farmer cooperatives that involve employee ownership may

improve operations of some services and, at the same time,

Worker-owned/ESOPs can help

preserve business in rural America

E

Brian Foster is one of 28 employee-owners of CENTROL, a crop consulting business in Twin Valley, Minn. Employee-ownership

proponents say this business model can help many types of rural businesses survive. Photo courtesy CENTROL 
Rural Cooperatives / September/October 2007 29

concentrate farmers’ business monitoring and governance

where they can have more impact, as shown by the example

of CENTROL, in Twin Valley, Minn. 

Services such as CENTROL’s — with highly

individualized staff expertise not centered in a hierarchy of

management and supervisors — are readily operated as

worker-owned businesses. CENTROL Crop Consulting

assists farmers in agronomic decisions. At one time it was

owned by local farmer

cooperatives and CENEX

(now CHS), but in 2002 it

was spun-off as a 100

percent worker-owned

ESOP. 

One reason for

CENTROL’s conversion

is that agronomic

consultants often leave

farmer cooperatives to

start their own businesses,

but may create firms too

small to offer jointly

shared expertise. Dennis

Bergland, CENTROL’s

CEO, points out that

its primary asset is the

expertise of its staff of

28 consultants. And

although their work is

carried out individually,

they work together in sharing information. 

Ownership by the staff has improved performance and the

prospects for longevity of the business. Like a cooperative,

CENTROL has democratic governance. 

Home care market

Most jobs in rural areas are in non-farm services, and the

off-farm share of employment is steadily increasing over

time, according to a study by USDA’s Economic Research

Service. Retirement related services, such as home care, are a

growth segment for both the urban and rural economy. 

Home care businesses are ideally suited to be owned by

their workers. Indeed, the largest worker cooperative in the

United States is Cooperative Home Care Associates in New

York, which has inspired the formation of similar

cooperatives in several cities. 

Home care services can greatly improve quality of life in

small towns that lack specialized housing and care centers for

the elderly. Since many seniors want to remain in their

communities, they will seek home care that enables them to

age in place. Recent cooperative development work by local

community action agencies and USDA Rural Development’s

office in Wisconsin has helped establish home care

cooperatives in rural communities (Rural Cooperatives, MayJune 2003). 

Cooperatives provide the elderly with care-givers who are

owners of the business, with a larger stake in maintaining

quality than hired workers. This advantage is particularly

important for elders who receive unsupervised care in their

homes. 

These two examples

are encouraging because

of the potential in rural

America for either startup worker owned

businesses or for

sustaining small

businesses as

cooperatives or ESOPs.

Demography of small

business

Many small businesses

in rural America were

started as family-owned

businesses. When these

sole proprietors reach

retirement age and lack

family members

interested in taking

over, transferring

ownership to their employees may offer mutual benefits.

John Logue of the Ohio Employee Ownership Center

finds that as sole proprietors in urban areas sell their

businesses, they often either find another proprietor/investor

or are bought by a larger business seeking multiple locations.

By contrast, he observes, retiring-owner sales of rural

businesses more often result in closure. 

Competing firms often buy such businesses to acquire

inventory and customer lists and are not interested in

operating at these locations. 

Such acquisitions are frequently closed and the employees

are released. It may not always be the case that these

locations are unprofitable. The employees might be able to

own and operate a sustainable business that benefits

themselves and local customers. 

Self-employment entities, without any hired employees,

are by far the most numerous type of business in the United

States. But most rural jobs are provided by small businesses

that employ workers, defined as having fewer than 500

employees. The Small Business Administration (SBA) reports

data for several different sizes of businesses based on their

The success of Cooperative Home Care Associates in New York has

inspired many similar employee-owned co-ops to be formed,

including this home care co-op in Wisconsin (seen during a board

meeting).
employment range (www.sba.gov/advo/

research/ st_msa_nonmsa95_04.txt). 

Rural businesses in selected ranges of

employment size for three regions of

the United States in 2004 are reported

in the table below. It includes subtotals

for the four different ranges of

employment size. There were 198,590

small businesses reported for rural

America in 2004. Of rural businesses

with employees, the most common size

is 5-9 employees. Businesses that

employ from 10-19 and 20-99 workers

each account for more than 46,000

businesses in rural America. 

Of course, there is no way to know

how many of these firms have family

members or other sole proprietors lined

up for ownership succession. Many

small businesses lack a succession plan

and the owners are unaware of the

advantages of selling to their

employees. SBA reports that about 30

percent of family-run companies

succeed into the second generation, but

only 15 percent survive into the third

generation (www.sba.gov/successseries/vol7/success.txt).

These employees are likely to prefer

keeping their jobs and the retiring

owners may want to see their lifetime of

work survive as on-going businesses.

Customers are better off if the local

businesses they patronize keep

operating. There is, in fact, a special tax

benefit to retiring owners for keeping a

small business going by selling to its

employees. 

1042 Rollover

Changes in federal tax laws in 1984

provided for deferment of capital gains

taxes on stock sold to employees. The

initial owners defer the tax by rolling

the proceeds into another business

investment, and hence it is dubbed the

“1042 rollover.” The investment

rollover can include a simple purchase

of stock in a U.S.-based company, but

its key feature is the incentive created

for proprietors or owners in a closely

held business to develop a succession

plan of transferring ownership to

employees. 

ESOPs have been more frequently

used for the 1042 rollover than worker

cooperatives. One reason for this is that

accomplishing a 100 percent purchase

of many companies by employees in a

3-to-5-year period can be financially

prohibitive. Whether organized as an

ESOP or a worker cooperative, 30

percent of the stock must be purchased

in the first year as the minimum

amount to qualify for a 1042 rollover.

But a worker cooperative, unlike an

ESOP, cannot remain for the long-run

with 30 percent ownership. 

The ESOP is flexible in this regard

because if outside investors owned 70

percent of a company, they could

gradually transfer more ownership to

employees and take the 1042 rollover

on all incremental transfers.

Furthermore, as pointed out by Dan

Bell of the Ohio Employee Ownership

Center, when ESOPs have a majority

share of ownership they can establish

effective democratic governance of the

business. 

While ESOPs are more flexible than

cooperatives in regard to ownership

shares, they involve more administrative

cost because of their regulatory linkage

to the Employee Retirement Income

Security Act (ERISA). Such costs

include the appointment of a trustee to

administer the reporting requirements

for holding employee shares as part of

their retirement plan and having annual

firm value appraisals. In the case of

CENTROL, they incur annual ESOP

costs of about $10,000-$15,000. A

worker cooperative is not subject to

ERISA regulations, so it can be applied

to businesses with relatively small

employment and modest earnings. 

Challenges in ownership transfers

The transfer of ownership to a

worker cooperative during a relatively

short period of three-to-five years is

challenging. Technically, a 100 percent

ownership transfer follows in a matter

of days or months after a cooperative is

30 September/October 2007 / Rural Cooperatives

Rural businesses in selected ranges of employment size, 2004

Employees 5 - 9 10 - 19 20 - 99 100 - 499 Row totals

West 19,492 11,612 11,306 5,628 48,038

Central 37,003 21,472 22,188 11,923 92,586

East 23,947 13,734 12,741 7,544 57,966

Rural U.S. 80,442 46,818 46,235 25,095 198,590

Source: Small Business Administration
Rural Cooperatives / September/October 2007 31

formed, but the original owners become

members of worker cooperatives with a

maximum of 70 percent of the equity. 

Over the following years, the

cooperative is committed to redeeming

the remaining 70 percent of the original

owners’ member equity. Succession plans

aim to accomplish such redemptions in a

relatively short time frame, such as threefive years, but flexibility can be built into

these agreements to deal with economic

contingencies. 

Another challenge is the transfer of

management know-how in leading and

administering an effective business

operation. Many small business owners

doing hands-on management may not

have bothered with written policies and

operating manuals. During the period of

their membership in a worker

cooperative, they need to put their knowhow in writing and transfer their

specialized knowledge to the new

leadership of the business.

Worker financing of the initial 30

percent of the business and subsequent

purchase of the original owner’s

remaining shares usually requires the

cooperative to borrow from a bank. For

businesses with good customer relations

with a local bank, continued banking

relationships to help cooperatives sustain

operations would be desired by all

parties. 

USDA Rural Development can play

an important role in assisting small

business owners with certain key aspects

of succession planning. Foremost is

disseminating information about

opportunities in transferring ownership

to employees. Other policy actions may

include various types of financial support

to workers interested in owning the

company where they are employed. 

These types of support may include

grants to enterprises or to rural

development centers and making it

possible to use loan guarantees. 

The impact that worker cooperatives

can have on the rural economy in

retaining businesses and jobs has not

been accorded sufficient recognition.

This strategy deserves a place on the

agendas of rural development planning

and policy discussions. ■

Workers who run their own cooperative businesses came together at the University of North Carolina campus in Asheville, N.C., for the Eastern Conference for

Workplace Democracy (ECWD), July 20-22. It was the first time the conference

has been held in the South. 

The event was hosted by the Southern Appalachian Center for Cooperative

Ownership and the Federation of Southern Cooperatives/Land Assistance Fund, a

group of 35 predominantly black farmer cooperatives and credit unions in Alabama

and Mississippi. The event drew 145 people from 24 states, including members of

other cooperatives, unions and other organizations. 

The ECWD is a regional organization of employee-owned and -operated businesses, including worker cooperatives and Employee Stock Ownership Plans

(ESOP). Members include Equal Exchange, a fair-trade coffee and cocoa producer near Boston; Chroma Technology Corp., a 100 percent employee-owned ESOP

lens manufacturer in Rockingham, Vt.; and Little Grill Collective, which operates a

café in Harrisonburg, Va. ECWD is a regional partner of the United States Federation of Worker Cooperatives (USFWC).

With a theme, “Building Cooperation East and South,” the conference organizers this year hoped to help re-ignite the worker cooperative movement in the

South, which was home in the 1980s to 11 worker cooperatives, many of which are

no longer operating. 

Conference-goers heard a keynote by former United Steelworkers President

Lynn Williams, who has helped convert traditional businesses to worker ownership. A tour of local co-ops, a fundraising auction, films on worker cooperation and

a skit by young people were also part of the conference. 

A committee was formed to work with the USFWC to collaborate with unions to

foster worker cooperatives as a possible solution to job loss and for mutual support. The resolution also called for supporting legislation for a U.S. employeeowned bank. 

Participants in one session discussed finding concrete ways of working with

other types of cooperatives, such as the need for a local farmer network to help

restaurant co-ops to find local produce. Worker co-ops were also considered as a

possible strategy to provide jobs for the hard-to-employ, and to help to provide jobs

and bring services back to New Orleans. 

"The conference provided many opportunities to talk with other cooperative

leaders about the key issues cooperatives face, from structure issues, to capitalization challenges, to questions of member participation and governance,” said

Lynn Benander of Co-op Power, a consumer-owned energy cooperative. 

For a more detailed version of the ECWD history, visit:

http://www.usworker.coop/about/history/regional. ■

— By Ajowa Nzinga Ifateyo

Eastern Conference on Workplace Democracy

Worker-owned businesses share ideas

during North Carolina conference 
32 September/October 2007 / Rural Cooperatives

By Stephen Thompson

e-mail:stephenA.thompson@wdc.usda.gov

he strategy for success for Iowa’s Heartland

Cooperative is based on an aggressive

approach to growth, providing superior

customer service and business innovation at

all levels of the operation.

Heartland, a West des Moines-based marketing and

service cooperative for farmer-members in central Iowa, has

grown through consolidation and merger with more than a

score of smaller cooperatives, some going back to the early

years of the 20th century. The latest merger occurred July 1,

when it joined with the smaller Central Counties

Cooperative, creating a co-op business with 340 employees

and projected annual sales of more than $560 million. 

Innovations include new grain storage options for

members and offering increasingly advanced levels of

precision agriculture to help ensure that farmers apply only

the fertilizers and crop protectants needed. 

Grain ‘condos’

One recent innovation is Heartland’s “grain

condominium” program, which provides storage space for

members. The cooperative didn’t invent the grain-condo

concept, but co-op management adopted it after taking a

T

Corn Condos for Sale 

Growth and innovation key to Heartland Co-op’s success 

Heartland Cooperative in West Des Moines, Iowa, has grown through a number of mergers, and today has 340 employees and

projected sales of $560 million. This grain bin in Rippey, Iowa, was built in 2006. Photos courtesy Heartland Cooperative
Rural Cooperatives / September/October 2007 33

careful look at existing arrangements in North Dakota and

Minnesota.

Grain storage is, of course, a vital part of doing business

for commodity farmers. Being able to store grain after

harvest frees producers from having to sell when prices are

seasonably low. Shortages of grain storage space in recent

years, combined with transportation bottlenecks, have

resulted in grain in some areas being stored outdoors for

extended periods. This often results in quality losses. 

One answer is for farmers to build storage facilities

themselves. This not only requires a sizable capital investment;

farm-based storage also imposes costs and inconveniences that

many farmers would prefer not to deal with.

Under Heartland’s condo program, an LLC is set up as

the ownership entity for two storage bins, each of which can

hold 500,000-700,000 bushels of grain. These are built on

co-op property near an elevator. 

Shares for 5,000 bushels of storage are available to co-op

members for $5,750 each. The shares are valid for the life of

the facility and are freely transferable. Just as important, the

owner retains title to the grain, so he or she can continue to

participate in USDA non-recourse marketing loan programs.

The 5,000-bushel storage rights apply to any combination of

soybeans and corn. Members can call ahead before delivering

to arrange for proportions.

Many advantages

The grain-condo project offers numerous benefits to

farmers. Besides being substantially cheaper than the

equivalent space in grain bins built on the farm, the facilities

are constructed of more durable materials and potentially

offer a much longer service life. In addition, much of the

worry and bother of maintaining on-farm grain bins are thus

eliminated for the farmer. 

The risks of storage, such as quality issues, are transferred

to the LLC, and, without the day-to-day responsibility,

farmers are free to travel – all without paying commercial

storage prices.

“A lot of our members are in their fifties or older,” says

Tom Hauschel, executive vice president for grain. “And they

don’t like having to climb to the top of the bin to inspect the

grain. The co-op takes care of all that.” 

Shareholders are billed for electricity, maintenance,

insurance, handling and other expenses at a current rate of

$230 per year. Another benefit: though each shareholder

owns part of a specific storage facility, he or she can take

their grain to any of the participating storage sites, adding a

welcome measure of flexibility.

In keeping with the co-op’s business philosophy (see

sidebar), the grain condominium project helps not only its

members, but the cooperative itself. “We only have so much

capital,” says Hauschel. “Not having to spend it on additional

storage allows us to focus on new receiving capacity, so we

can serve more communities.”

The grain-condo project was started in 2005 in

cooperation with six other Iowa cooperatives. Together, they

hired counsel to draw up the legal documents. Each co-op

runs its own condominium project. They share only the

jointly developed legal framework.

Other member services include such standard service coop programs as agronomy services, livestock feed and

petroleum supply. Heartland also offers training in the

principles of grain marketing. 

Heartland CEO Larry Petersen says the Iowa cooperative is run in accordance with six core business principles:

• Profitability — both for members and for the cooperative.

Petersen says that the cooperative exists to help its

members grow and prosper. But that mission requires

good profitability for the cooperative itself, so that it can

best serve its members’ needs.

• Adherence to honesty and ethics in running the business.

• A willingness to confront hard facts — to “take the bull

by the horns,” in making decisions. “We took a good look

at getting into ethanol production,” says Petersen, “but

after two years we decided it wasn’t a good fit for us. We

do have small investments in ethanol, but we think that

our own plant would expose us to some serious risks.

Currently, there’s such a euphoria about the whole industry that some kind of shakeout is bound to happen.”

• Empowerment, with accountability, for co-op employees.

“We don’t believe in a centralized management model,”

says Petersen. “We think we have to allow our people on

the front lines to make decisions.” That means employees must be held accountable for their actions. However,

Petersen stresses that they mustn’t be afraid of making

the inevitable mistake once in a while. “You have to allow

people to have occasional failures without fear of losing

their jobs,” he says. This approach requires training and

on-the-job coaching to be effective, Petersen says.

“You’ve got to have the right people for the job. Some

people are just too nervous to accept the responsibility.”

• An orientation toward growth. “We keep an eye open for

possible mergers,” says Petersen. “And we’re constantly

exploring new ways to pick up market share.”

• Continuous improvement. “We’re always looking at ways

to improve processes,” Petersen says. ■

Core business principles

guide Heartland
34 September/October 2007 / Rural Cooperatives

Taking precision ag to next level

Heartland’s efforts to expand its support for precision

farming is another major thrust of the co-op, Heartland CEO

Larry Petersen says. Precision agriculture uses data on

variations in soil conditions and plant development in a single

field to determine such variables as seed planting density and

depth, and chemical application, from one part of the field to

the next. Satellite monitoring and Global Positioning System

(GPS) data are used to automate these processes. 

Using technology available today, precision agriculture

systems can determine the position of a piece of farm

machinery to within a centimeter, and application rates can

be controlled just as precisely. The benefits include greater

yields and lower costs while preventing wasteful chemical

application, cutting down significantly on harmful runoff. 

“Precision ag isn’t new, but we’re taking it to the next

level,” says Petersen. Heartland offers cutting-edge, precision

ag technology in alliance with two Iowa-based companies,

KINZE Manufacturing Inc. and Ag Leader Technology Inc.

But technology is only part of the equation. “Having a good

working relationship with the farmers is just as important as

offering the right services.” 

Hauschel is quick to point out the advantages of size in

serving the needs of co-op members. “We have a large

elevator base, and that gives us better access to more

markets,” he says. “We get a lot of direct pick-ups to ethanol

plants.” And Heartland’s merger with Central Counties

further enhances its marketing advantages.

Merger offers better rail transport

Heartland’s recent merger with Central Counties

Cooperative fits well with its core principles, Petersen says.

The two co-ops had little geographical overlap, and didn’t

really compete with each other, except possibly at two

locations. Their corporate cultures were compatible.

Moreover, Central Counties operated a shuttle-train loading

facility on the Union Pacific Railroad and one on the Iowa

Northern — both of which, Petersen says, will integrate

nicely with Heartland grain-handling facilities. Iowa

Northern is an innovative line known for offering shippers

switching services on its tracks, saving time and money.

“We have a Union Pacific loading site elsewhere, along

with a Norfolk Southern facility in Des Moines and four

locations on the Iowa Interstate Railroad,” Petersen says. 

Together, the locations will offer a higher degree of

flexibility in shipping grain to markets on the West Coast,

the South and the East. Hauschel puts it this way: “At

different times of the year, some markets pay more for grain

than others. But to take advantage of the better price, you

have to be able reach that market economically and on time.

Having multiple access to more rail routes means that we’re

better positioned to do that.” 

“It’s not full arbitrage,” says Petersen, “But the Central

Counties facilities will be closer to some of our locations.”

Merging the two co-ops did not mean that employees

were let go. Speaking before the merger was completed,

Petersen emphasized, “We’re committed to keeping

everyone. Some may have to change locations, but we’re

going to try to keep the inconvenience to a minimum.” 

Management duties shift

In such mergers, it’s usually the upper managements that

are most affected. The new Heartland found room for

Central Counties executives, some with similar positions,

others whose responsibilities changed markedly. 

Mark Melhus, the former CEO of Central Counties, is

now vice president for operations. He says that the transition

has gone “as well as can be expected.” The Central Counties

facilities have been incorporated into the existing business

structure, requiring employees to learn new practices and

adapt to new equipment. 

Adopting Heartland’s accounting system meant new

computers and software. “People are learning a lot of new

stuff,” says Melhus, who adds that the inevitable small mixups and delays have caused some frustrations for customers. 

Asked how Heartland’s different corporate culture has

affected employees, Melhus says, “It depends.” Heartland’s

“empowerment” doctrine means that facilities managers are

being asked to do more in some ways, but in others things

are more centralized.

Petersen says that the Central Counties merger won’t be

the last. 

“The board continues to see that consolidation has

positive benefits for our producers,” he says. While the co-op

has no immediate plans for further expansion, “We’re

keeping the door open for when something appropriate

comes along.” 

Petersen says he believes that mergers not only improve

infrastructure, but help reinvigorate the organization. “You

get new expertise. You get to see how the new people do

things differently. It’s a chance to re-create the company.” ■

Heartland was inspired to begin its “grain-condo” program

by similar systems in North Dakota and Minnesota. These

three bins in Malcom were erected in 2004-2006.
Rural Cooperatives / September/October 2007 35

Retiring dairy farmers

concerned by production costs,

succession issues

Most of the 333 farmers who

participated in Cooperatives Working

Together’s (CWT) fourth herd

retirement this year cited high

production costs as a key reason why

they chose to sell their herds, according

to a survey. CWT mailed

questionnaires to all of those farmers

whose bids were accepted in the CWT

herd retirement earlier this year. 

About 62 percent of the 333 farmers

returned the survey, conducted to

provide greater insight into the reasons

why producers submit bids and whether

they intend to continue dairy farming

in the future.

Major factors cited in making the

retirement decision included: 

• Increased production costs: 59%

• No one to pass the dairy on to: 40%

• Pursue other types of farming: 37%

• Wanted to retire: 26%

• Family health issues: 25%

• Financial difficulties: 20%

• Environmental pressures: 15%

• Pursue non-farm employment: 12%

• Opportunity to start with a new herd:

8%

• Opportunity to sell farm: 7%

• Wanted to move dairy: 1%

• Other: 4%.

Three-quarters of the producers

were age 50 or older. More than half

relied on dairying for more than threequarters of their income. 

Just 12 percent said they planned to

enter dairy farming again, with 80

percent of that group planning to start

again at their current location, but most

with a smaller herd. 

NEWSLINE

Send items to: dan.campbell@wdc.USDA.gov

Ag Processing Inc. (AGP), an Omaha, Neb.-based soybean processing

cooperative, has rejected what it terms a “hostile takeover bid” made by Ag

Processors Alliance LLC (APA), a company that was recently formed to attempt to

buy the co-op. The would-be-buyer is offering $850 million for AGP, which is

owned by more than 200 Plains and Midwest grain cooperatives. 

AGP, which had $2.4 billion in

sales and earnings of more than

$62 million in 2006, held a special

board meeting in mid-August to

respond to the unsolicited buyout

bid. “AGP’s board of directors and

management staff maintain a

constant and open dialogue with

member-owners, and there has

been no interest expressed in

selling the company,” said AGP

President and Board Chairman

Brad Davis. “AGP continually reinvests in our core business, and

our members have expressed

support for the strategic

direction of their cooperative. 

“This hostile attempt is not in

the best interest of AGP, our

cooperative members, or their

business operations either

today or in the future,” he continued. “After review, the unsolicited bid was

soundly rejected by the AGP board of directors and we do not intend to have any

discussions with this newly formed group.” 

“It's done, finished, over,” Mike Maranell, AGP senior vice president, told the

Omaha World News. “Our board of directors doesn’t want to do business with

those people. Our board responded very firmly, and the answer was ‘No.’ I don't

think there’s going to be any meetings.”

The paper also quoted Mark Lakers, president of Ag and Food Associates, as

saying he believed a majority of AGP’s member co-ops want the board to consider

the offer. He said APA planned to hold informational meetings in late August to

explain the offer and to answer questions.

AGP member cooperatives each hold one vote. ■

AGP rejects hostile takeover bid 

Ag Processing Inc., with annual sales of $2.4

billion, is resisting a hostile takeover bid.

Photo courtesy AGP
36 September/October 2007 / Rural Cooperatives

CWT Chief Operating Officer Jim

Tillison said that the survey “confirms

that increased production costs,

especially high feed and fuel expenses,

have really changed the economics of

the dairy sector, to the point where they

are pressuring some producers out of

the business. 

“The survey is also consistent with

anecdotal stories and survey results

from previous herd retirements that

while economics drives many to submit

bids, many producers also are looking

for an opportunity to stop dairying

permanently because of health or

family succession issues,” Tillison said.

“In fact, many just want a graceful way

to exit the business after many decades

of milking cows.”

Cooperatives Working Together is

being funded by dairy cooperatives and

individual dairy farmers, who are

contributing 10 cents per

hundredweight assessment on their

milk production through December

2007. The money raised by CWT’s

investment is being apportioned among

several supply reduction programs to

improve the national all milk price. For

more on CWT’s activities, visit

www.cwt.coop.

DFA closing Calif. cheese plant

Dairy Farmers of America Inc.

(DFA) has announced changes to its

American cheese division, including the

closure of the cooperative’s Corona,

Calif., cheese plant and the transfer of

DFA’s American cheese (large-bag

shredded and packaged) business in

Corona and Zumbrota, Minn., to

Wisconsin-based Schreiber Foods Inc.

The cheese plant has lost much of its

local milk supply as housing

development in the Chino Basin has

accelerated in the past decade. Many

dairy farms have relocated to the state’s

San Joaquin Valley or other states. 

More than 300 employees at DFA’s

Corona facility were notified that the

facility would operate at a reduced

capacity beginning Aug. 31 and would

cease production of American block

cheese and whey products by Dec. 31.

An additional 70 employees at the

Zumbrota facility and 11 employees at

DFA’s headquarters in Kansas City,

Mo., also were notified that their

positions would be eliminated. A

comprehensive effort is underway to

ease the burden on workers and their

families.

“Although it is difficult to make

decisions that result in the elimination

of jobs, we have an obligation to our

members to make decisions that benefit

them,” DFA Chairman Tom Camerlo, a

dairy farmer in Florence, Colo., said in

a press release announcing the closure.

“Market conditions and operating

results have hindered success at our

Corona plant and in our American

Cheese division. We constantly look for

ways to end losses, and stimulate

profitability.” 

David Parrish, chief operating officer

of DFA’s Western Area Council, which

supplies milk to the Corona facility,

noted that the members support the

changes. “Although dairy farmers never

want to see the plant they ship milk to

close its doors, our member-owners

understand that we need to operate

profitably,” he said. “With many DFA

customers providing multiple outlets for

milk, our members will continue to

have a market for their milk. This is the

very nature of cooperative

membership.”

“Schreiber will continue to produce

top quality products for our customers,”

Carmelo said. 

Block cheese and whey production

employees in Zumbrota and Monett,

Mo., will not be affected as DFA plans

to continue its commodity American

cheese operations in these facilities.

Additionally, these changes will have no

impact on DFA’s Borden branded or

private label retail cheese business.

Oregon electric co-op to 

pursue ocean wave power

PNGC Power of Portland, Ore., and

Ocean Power Technologies Inc. (OPT)

have signed an agreement to float a

wave-energy buoy off the coast of

Oregon. If this test project is successful,

they plan to expand the scope of the

project.

PNGC will pay $500,000 to OPT to

build and install the first PowerBuoy®

system at the Reedsport (Ore.) OPT

Wave Park. OPT will build and deploy

a 150 kilowatt, non-grid-connected

PB150 PowerBuoy. 

This effort is the first phase of

OPT’s plan to install about 14 of the

buoys that would generate two

megawatts of power about 2.5 miles off

the coast near Reedsport. OPT has

been issued a preliminary permit by the

Federal Energy Regulatory

Commission (FERC) for up to 50

megawatts of capacity at the site, the

largest such facility in the nation. 

Major portions of the system will be

fabricated in Oregon and integrated

near Reedsport. 

PNGC Power is a Portland, Ore.-

based electric power cooperative serving

15 distribution cooperatives with service

territory in seven western states. In

High production cost was the biggest reason for producers retiring their herds

under the CWT program. Photo by Larry Laszlo
Rural Cooperatives / September/October 2007 37

addition to this agreement for the first

PowerBuoy, PNGC will be supporting

OPT in the permitting process and

with on-shore power transmission for

the project. PNGC Power also intends

to work cooperatively with OPT and to

provide its expertise regarding grid

interconnection and its experience in

meeting the standards of the Bonneville

Power Administration, which operates

much of the region's power system.

“Working with OPT on the project

is consistent with our desire to

investigate promising new generating

technologies,” says PNGC Presdient

and CEO John Prescott. “The

Reedsport OPT Wave Park represents

innovative renewable generation

technology which holds the promise of

helping us meet our future energy

needs.”

An agreement previously signed by

OPT and PNGC provides a framework

under which PNGC and OPT may

continue to work together in

connection with a 50MW wave power

park. PNGC will have the option to

participate in ownership or power

purchase in future commercial phases of

the project. PNGC Power also plans to

work with other utilities to increase

participation in this first-of-a-kind

project in Oregon.

New book examines

utility co-op’s struggles

Co-op Survivor is the title of new

book tells the story of Harrison Rural

Electrification Association (HREA) in

West Virginia. It covers the co-op’s

eight-year struggle, from very dark days

until today, when the co-op is an

important and trusted community

partner. 

HREA, the only electric cooperative

headquartered in West Virginia, is a

small cooperative with about 6,000

members. It has been plagued by

perceived high rates and a poor public

image.

Co-op Survivor illustrates how sound

crisis communications techniques and

the value of teamwork within a

cooperative family can help turn even

the most troubled cooperative around.

For more information, visit:

www.dopeydogs.com.

Cooperative Foundation grants 

supporting co-op education

The Cooperative Foundation has

approved cooperative education-based

grants to four organizations: Consumer

Cooperative Management Association

(CCMA), Minnesota Association of

Cooperatives (MAC) Education

Foundation, the National Cooperative

Business Association (NCBA) and

NCERA-194 Research on

Cooperatives.

CCMA received a $5,200 grant to

support its 2007 annual conference.

Designed by the University of

Wisconsin, the conference provides

training for directors, managers and

staff of retail food co-ops with a focus

on co-op and community sustainability. 

The MAC Education Foundation

received a $2,500 grant to sponsor the

seventh annual Senior Cooperative

Housing Conference, which provides

educational resources for senior

cooperative housing members, board

members, managers and

developers/professionals. 

NCBA is getting a $5,000 grant for a

federal research project on cooperatives.

It will collect and analyze economic

data on cross-sector cooperative activity

and identify a strategy to develop

research of topics leading to a deeper

understanding of the impact of

cooperatives. 

The NCERA-194 received a $1,000

grant to support six students and/or

faculty members at Kansas State

University to attend both the NCERA -

194 Research on Cooperatives Annual

Meeting and the Farmer Cooperatives

Conference in November 2007. 

CHS acquires DDG business;

sells Brazilian soybean shares

CHS Inc. is purchasing a distillers

dried grain (DDG) business from

Commodity Specialists Co. (CSC).

Steve Markham and Sean Broderick,

current managers of this operation for

CSC, will continue to direct the activity

of the unit as employees of CHS.

The DDG business provides

“exceptional sourcing for current CSC

customers and provides an excellent

supply complement to CHS grain and

by-product customers, both

domestically and internationally,” says

Rick Browne, senior vice president,

CHS Grain Marketing. “Putting

together CSC's marketing and industry

expertise with our global access and

established distribution capabilities will

enhance the already high level of

service and market execution to both

ethanol plant suppliers and DDG

customers.”

In another move, CHS is selling a

portion of its share in Multigrain AG to

Mitsui & Co. LTD. Multigrain AG is a

holding company of Brazil-based

agricultural commodity business

Multigrain SA. Multigrain is primarily

involved in soybean origination and

marketing through multiple locations in

the rapidly expanding agricultural

regions of northeast Brazil. The

company is also involved in other

commodity trading, including wheat

and sugar.

Under the agreement, Mitsui will

own 25 percent of Multigrain AG,

PNGC will be using huge buoys such

as this to harness the power of ocean

waves off the coast of Oregon. Photo

courtesy PNGC 
38 September/October 2007 / Rural Cooperatives

acquiring shares also from the other

majority shareholder, PMG Trading.

NMPF partners with USDA

on animal identification system

The U.S. Department of Agriculture

announced a partnership with the

National Milk Producers Federation

(NMPF) to register dairy farm, dairy

calf and heifer-grower premises as part

of the National Animal Identification

System (NAIS). 

“This landmark agreement is another

tremendous step forward as we move

ahead with NAIS,” said Bruce Knight,

undersecretary for USDA’s marketing

and regulatory programs. “It builds on

agreements previously announced with

the National Pork Board, the FFA and

the U.S. Animal Identification

Organization to promote animal health

by providing producers with the

information they need to take the

important step of registering their

premises and protecting their

animals.”

NMPF is spearheading the effort of

IDairy, a consortium of dairy cattle

associations formed in 2005 to promote

NAIS in the dairy industry. Since

IDairy was established, more than

30,000 dairy producers have registered

their premises under the NAIS, but as

many as 35,000 commercial dairy farms

and dairy calf and heifer-grower

operations are yet to be registered.

IDairy’s goal is to have 100 percent of

the operations registered to help animal

health officials quickly respond to an

animal health emergency. 

Under the agreement, NMPF, with

the cooperation of the rest of the

IDairy consortium, will conduct an

outreach campaign, including direct

mail, advertising, Internet activities,

dairy and trade show presentations and

individual contacts with producers,

including on-site visits.

NAIS consists of three components:

premises registration, animal

identification and tracing.

Earlier this year, USDA announced

the availability of $6 million for

cooperative agreements, subject to

availability, to support nonprofit

agricultural organizations to promote

NAIS and to increase participation in

premises registration.

Organic Valley distribution

center to boost economy of

southwest Wisc.

After more than a year of planning

and construction, Organic Valley

employees, state and local officials,

business leaders and community

members gathered in Cashton, Wisc.,

July 27 to celebrate the grand-opening

of a new, $17.5 million Organic Valley

Distribution Center. The new facility

will serve as the primary warehouse and

distribution center for Organic Valley,

America's largest cooperative of organic

farmers and one of the nation's leading

organic brands.

The new facility provides ample

evidence that organic products have

moved from a niche market into

mainstream consumption, co-op

officials say. 

The 80,000-square-foot distribution

center is located on 40 acres in the

Cashton Greens Business Park, an

innovative new development where

businesses will create and use renewable

energy, such as biomass conversion of

manure and sawdust, biodiesel and wind

energy. It includes an automated

storage and retrieval system.

“The new Organic Valley

Distribution Center is a symbol of our

co-op's growth and its ongoing

commitment to creating sustainable

communities through organic farming,”

said co-op CEO George Siemon.

“Anchoring our distribution in Cashton

is a step to fulfill our mission to help

bring economic vitality to rural

Wisconsin.”

The facility was built using a number

of “green” building practices, including

fly ash in the cement, recycled cotton

for insulation in the walls and recycled

steel throughout the building; a white

roof to reflect the sun's heat and

decrease energy costs in refrigeration;

waterless urinals; and automatic faucets

that recharge their batteries with the

flow of water.

Organic Valley sales hit $334 million

in 2006.

Green Plains Renewable

Energy, Great Lakes Co-op to

merge

Green Plains Renewable Energy Inc.

has entered into a merger agreement

with Great Lakes

Cooperative, Everly,

Iowa. Under the

agreement, Great

Lakes’ members will

receive cash and Green

Plains’ common stock

valued at about $20

million. Grain from

Great Lakes’ elevators

will be used for Green

Plains’ ethanol

production as well as

marketed locally and

throughout the

United States. 

The transaction

must be approval by

Great Lakes’

members, and Green Plains will be

required to file a registration statement

with the Securities and Exchange

Commission ("SEC") in connection

with the proposed merger. 

Created in 2001 from the merger of

two longstanding northwest Iowa

cooperatives, Great Lakes is a memberowned cooperative that operates one of

the largest networks of grain elevators

This artist’s conception shows how Organic Valley’s

new distribution center should look upon completion.

Groundbreaking for the $17.5 million complex was held

in late July. Photo courtesy Organic Valley 
Rural Cooperatives / September/October 2007 39

in Iowa. It operates a federally-licensed

public grain warehouse, provides grain

marketing services and supplies feed,

fertilizer, chemicals, petroleum in

northwestern Iowa and southwestern

Minnesota. 

It has about 100 employees and 14.5

million bushels of grain storage capacity

at its seven sites in northwestern Iowa,

including four locations with mainline

rail facilities. 

Green Plains’ second ethanol plant is

currently under construction less than

one mile away from — and on the same

rail line as — Great Lakes’ Superior

grain facility. 

Great Lakes’ investment in other

regional cooperatives, worth about

$11.3 million, would be placed in an

escrow account for its members and

excluded from the merger.

East Iowa Central to merge 

with Members Mutual Oil

Members Mutual Oil Co. has

approved a merger with East Central

Iowa Cooperative. About 86 percent of

Mutual Oil members voted in favor of

the merger. Members Mutual Oil will

now become part of the Energy Division

of East Central Iowa Cooperative. 

The merger provides farmers and

consumers with additional marketing

opportunities, reduced costs and

increased efficiencies, the co-op said in

a press release. Other efficiencies created

by the merger could include lower

employee insurance costs and fewer

equipment needs. Both co-ops had been

supplying the same basic territory with

propane and diesel. 

The Energy Division will have its

office in Waterloo and the general

administration office is in Hudson,

Iowa. Kurt Raymond will be the

operations/administration manager, and

Terry Grant will be the sales/marketing

manager. Both will report to East

Central Iowa Cooperative General

Manager Dennis Maas. 

Minnesota Soybean Processors

in agreement with Bunge

Minnesota Soybean Processors has

entered into a service agreement with

Bunge North America for its soybean

processing facility in Brewster, Minn.

Under the agreement, Bunge will

provide commercial and administrative

support to the processing operations.

“While we have strong relationships

with our local farmers, we will look to

Bunge to expand our markets, since the

company has extensive experience

marketing meal and oil both

domestically and for export,” says Bruce

Hill, president of Minnesota Soybean

Processors. “We will also be able to tap

into Bunge's operational expertise as

needed.”

“This service agreement with

Minnesota Soybean Processors gives

Bunge access to additional meal and oil

supplies in an area of the country where

we don't currently have a presence,”

said Greg Bechtel, general manager,

Bunge Oilseed Processing. “We look

forward to working with the co-op in

serving its members, current customers

and in reaching new markets.”

The facility has approximately 70

employees who will retain their

positions.

Minnesota Soybean Processors was

founded as a farmer-owned cooperative

in 1999 with the goal of building and

operating its own soybean processing

plant. The co-op has grown to nearly

2,400 farmer members from Minnesota,

South Dakota and Iowa. In December

2003, Minnesota Soybean Processors

opened a crushing plant in Brewster,

Minn., that has expanded to include a

vegetable oil refinery and a biodiesel

plant.

Tillamook selects new CEO

The Tillamook County Creamery

Association (TCCA) board of directors

has selected Harold Strunk as its chief

executive officer. Strunk has more than

25 years of consumer packaged-goods

experience. He joins the dairy

cooperative from Eagle Family Foods

Inc., where he simultaneously served as

executive vice president of sales and

international vice president and general

manager of the Canadian division since

2001.

As executive vice president of sales,

he was responsible for all U.S. retail,

special channel and foodservice sales

activities. His duties as vice president of

international included sales, marketing

and supply chain for all international

businesses.

Before working at Eagle Family

Foods, Strunk was with Borden Inc. He

started at Borden in 1986 as retail

development manager of Borden

Grocery, and served in positions of

increasing responsibility until 1996,

when he became director of process

improvement for Borden Food Corp.

He held that position for two years

until Borden was purchased by Eagle

Family Foods, and he was appointed

director of sales support.

“I am very impressed with what has

been accomplished over the past few

years and look forward to working with

the Tillamook team to continue to

build this great enterprise,” said Strunk.

He will be the seventh CEO of the 98-

year-old cooperative.

Co-op strategies to be focus

at Farmer Co-op Conference

The 10th Annual Farmer

Cooperatives Conference, organized by

the University of Wisconsin Center for

Cooperatives, will be held November 5-

6, 2007, in St. Paul, Minn.

The conference will focus on

“Valuing the Cooperative Business in the

21st Century,” and will include sessions

Tillamook CEO Harold Strunk

continued on page 40
40 September/October 2007 / Rural Cooperatives

that explore the value maximization of

cooperative assets and business structure

strategies for the future. It will look at

the business structure changes at

FCStone Group, South Dakota Soybean

Processors, Gold Kist and others. Other

topics will include benchmarks and

performance optimization and

understanding the value of the

cooperative during times of change. 

Conference, program and

registration information is posted on

the University of Wisconsin Center for

Cooperatives website at

www.uwcc.wisc.edu/farmercoops07.

For questions about the conference,

contact: Anne Reynolds, University of

Wisconsin Center for Cooperatives,

(608) 263-4775, atreynol@wisc.edu.

Newsline

continued from page 39

181,000 workers. The number of fulltime employees fell 2 percent, to

123,000, while part-time and seasonal

employees grew to 57,000.

Farm numbers continue to decline

and grow in size, as do farmer

cooperatives. Cooperative memberships

were 2.6 million in 2006, slightly lower

than in 2005. Many farmers are

members of more than one cooperative,

hence cooperative memberships exceeds

U.S. farm numbers. There are now

2,675 farmer cooperatives, down from

2,896 in 2005, due primarily to mergers

and consolidations. ■

their product. 

This strategy seems to be working.

Not only is the membership growing,

the co-op is attracting some pretty hefty

new members, such as the University of

Nebraska at Lincoln, where the whole

idea for the hybrid co-op took root.

“The university can have 1,000

seatings at one meal,” says NCDC's

Elaine Cranford, who has been involved

with the co-op since the first meeting in

2004. “That's a lot of food. Now it's at

a point where we need to develop

strategies for serving the wholesale

markets.” Her use of “we” is

appropriate, because Cranford is rapidly

becoming one of the most

knowledgeable people in the region

regarding sustainable, local food

systems and linking producers to

consumers. 

Broekemeier says people who aren’t

even co-op members have volunteered

to help it succeed. “Their incentive is to

help create a new system that increases

accessibility to local foods and provides

farmers with an outlet for marketing.

It's a community-based effort instead of

looking at big corporate conglomerates

as the guys we want to have taking care

of our food needs. We'd rather do it

ourselves.” ■

Co-ops Set Net Income Record

continued from page 9

New Hybrid on Great Plains

continued from page 27
Rural Cooperatives / September/October 2007 41

Dakota Farms markets a wide variety of bulk, nonprocessed products, including soybeans, barley, corn,

buckwheat, rye and many varieties of wheat. Non-GMO,

transitional, certified-organic products — as well as

traditionally grown products — are available. 

Packaging can be tailored to customer specifications.

Value-added products include several types of wheat flour,

soy flour and meal and a soy trail mix. 

“The challenge is to gain more of the end price by moving

further up the supply chain,” explains Tim Walter, president

of Dakota Farms. “The higher the risk, the higher the return.

We wanted to get out of the commodity business, where even

premiums for certain grains eventually trail off as production

increases and markets adapt.”

In 2004, Dakota Farms received VAPG funds for

marketing barley tea. “The grant helped a great deal,” Walter

says. “Costs involved with a start-up of a new product line are

high. Developing products and marketing internationally is

tough, and we could not have stayed afloat without assistance

from USDA Rural Development.” 

A roaster was purchased from Turkey, shipped and set up

at Dakota Farms. The process of making the tea was not easy,

and there were several setbacks. Specialists from Turkey had

to be flown to South Dakota to perfect the process.

Initially, the tea was going to be made from conventionally

grown barley, but strong competition from China made this

economically impossible. Dakota Farms then looked at using

organically grown barley for a high-value boutique tea.

Walter then cultivated a relationship with a Japanese

distributor. Dakota Farms produced a tea in bags and

packaged the product under the Japanese firm’s name.

Organic barley was purchased from several farmers in South

Dakota, as well as Iowa and North Dakota. 

Dakota Farms recently developed its own brand of

organic, boutique tea packed in tins for the domestic market.

The brand name, “Bushido,” is Japanese for “Way of the

Samurai Warrior.” Dakota Farms unveiled Bushido last June

at the World Tea Expo in Atlanta, Ga., where the response

was “overwhelming,” Walter says. 

Markets are always changing, and the Japanese tea market

has begun to move away from individual bags to ready-todrink teas. Dakota Farms is moving with the market,

developing a ready-to-drink product line of Bushido barley

tea which should be test-marketed this fall. 

South Dakota Soybean Processors

South Dakota Soybean Processors (SDSP) is a value-added

LLC, owned and operated by its 2,100 farmers in South

Dakota and Minnesota. The crushing plant in Volga, S.D.,

employs 60 people and crushes an average of 80,000 bushels

per day, or 28 million bushels annually. SDSP’s goal is to be a

financially solid business that maximizes the economic return

to its members through development of quality products and

competitive marketing. 

“We are a stand-alone, independent cooperative business,

owned and controlled by our farmer-members,” explains Tom

Kersting, commercial manager for SDSP. The challenge

SDSP faced was to create better returns for members by

further processing soy oils. To develop innovative products

and stay competitive, SDSP had to vertically integrate. 

SDSP received VAPG funds to conduct a feasibility

analysis and to establish a working capital account for new

value-added products. SDSP set up an independent company,

Urethane Soy Systems Co. (USSC), in which it holds a

majority ownership. Due to price increases for petroleumbased inputs, soy oil is now very competitive. 

USSC looked for various applications, including sprayfoam seat components, insulation for buildings and spray-on

bed liners for pickup trucks. “We are one of the few

companies in the United States that provides soy-based

products to the polyurethane industry,” says Eric Geiger,

director of research and development for USSC.

USSC cooperated in a research consortium with the Lear

Corporation (one of the world’s largest suppliers of

automotive-interior systems and components), Ford,

Henosol, Bayer and the United Soy Board to develop and use

soy-based polyurethanes. Soy-based foam has been used in

seat cushions for the Ford 500 and Chevrolet Impala models,

and will be used in the 2008 Ford Mustang. 

Since 2005, USSC has been providing materials for spray

insulation used in homes and industrial buildings. This

market is strong and growing. The spray-on truck bed liner,

trademark named “Bio Tuff,” is the first soy-based, spray-on

bed liner. 

“SDSP is appreciative of the support provided by USDA

Rural Development,” says Kersting. “The VAPG program

has had an impact here at SDSP. It is a good investment in

South Dakota and our community.”

Program delivery and customer service

“Our programs have a lot to offer cooperative and rural

businesses, especially small and limited-resource producers,”

explains Gary Korzan, cooperative development specialist for

South Dakota.

In many cases, outreach to potential rural businesses and

communities is the starting point in a working relationship

with Rural Development. For several years, Korzan made

presentations to students in Co-op 101 classes at South

Dakota State University. He participates in the annual ValueAdded Conference meeting in Brookings, S.D., to create

awareness and promote the availability of the VAPG

program. Participating at the South Dakota State Fair is

another annual opportunity for outreach and education. 

For more information on USDA Rural Development

programs, visit: www.rurdev.usda.gov. ■

South Dakota: Value-added Opportunities

continued from page 22
42 September/October 2007 / Rural Cooperatives

50 Years Ago...

From the September & October 1957 issues of News for Farmer

Cooperatives

What’s in a name? (cover article)

What’s in a name? A number of cooperatives answer:

“Plenty.” They know from experience the value of adopting as

their corporate names the brand names thoroughly familiar to

the trade and consumers. Even before the formal change

occurred, the brand names of these co-ops were well known.

Adopting their brand names has

helped keep their brands before the

public and has supplemented brand

advertising and product

merchandising.

Sunkist Growers probably had

more years of experience under its

previous names than most.

Incorporated in 1895 under the

name Southern California Fruit

Exchange, in 1905 it changed to

California Fruit Growers

Exchange. In 1952 it changed again

to Sunkist Growers.

“We feel that from the trade and public relations point of

view, there is much to be gained in incorporating the brand

name in the corporate name,” said general manager F. R.

Wilcox. “When the brand is included in the corporate name,

all printed matter adds to the total publicity for the firm.”

No special problems were involved in the Sunkist

changeover. Of course, it had to revise stationery and other

printed material. It made no change to packaging as a result of

the change in corporate name, although changes in printing

the packages had to be made.

Gold Spot Dairy Inc. of Enid, Okla., has had several years

of experience since adopting its brand name as its corporate

name. Organized in 1930 as Enid Cooperative Creamery

Association, the change to Gold Spot Dairy was made in

1954.

“Much of our mail and checks came in made out to Gold

Spot Dairy,” Manager Ralph T. Goley said. “Since the public

was better acquainted with Gold Spot than Enid Cooperative,

we feel that there is considerable advantage in having the

name Gold Spot before the public as much as possible. The

only disadvantage was the necessity of changing our

letterheads, statements, signs and so forth. And we used up

most of our old material before making these changes.” This

co-op made no special changes in packaging, production, or

distribution. Since the trade and public were well acquainted

with the Gold Spot name, there was no special reaction to the

change.

Cooperatives cautious about whether to join the group

with new names may hear in this combined voice of

experience an encouraging: “Come on in, the water’s fine.”

Credit union serves rural families and groups

Noble County Credit Union, Albion, Ind., is

demonstrating how a rural credit union can render service to

rural groups, as well as to rural families. The credit union has

over 2,800 members and its share savings and annual loan

volume each exceed $1 million. Both are increasing rapidly.

Official members of this credit union include 78 rural

organizations, such as 4-H Clubs, dairy herd improvement

associations, township Farm Bureau

groups, PTAs and others. 

These groups have regular share

accounts and borrow from the

credit union when necessary.

Several rural churches have used

credit union loans for erecting new

buildings or for making repairs.

The credit union’s service

program keeps it abreast of growing

community needs. Two illustrations

pretty well represent how it renders

quality service to its members and the community, which is

both timely and adequate. When building its new office, the

credit union provided for a basement conference room and

immediately made it available for community group meetings,

free of charge. It is in use almost daily.

When it hired a fieldman, the credit union selected one of

its outstanding young farmer-members — its “Corn King” for

two successive years — to represent and serve the credit

union. It equipped him with a new station wagon and

equipped it with two-way radio “in order to better serve

Albion County farm families.” The new fieldman helps farm

families with farm planning and money management

problems in addition to his work of expediting regular saving

and lending operations.

PAGE FROM THE PAST

From the archives of Rural Cooperatives

and its predecessor magazines
Rural Cooperatives / September/October 2007 43

30 Years Ago...

From the September & October 1977 issues of Farmer Cooperatives

Co-op in Denmark invests $100,000 in U.S. co-op

Officials of a new associate member cooperative of

Farmland Industries, Kansas City, Mo., thought $25 was too

little for membership. So, the new

associate member, Dansk

Landbrugs Grovvareselskab

(DLG), of Copenhagen, Denmark,

sent along another check for

$100,000 to be invested in

Farmland equities.

Farmland officials decided to put

the money in loan capital notes.

DLG looks to Farmland as a

possible source for the 250 tons of

soybean meal it needs every year.

The Danish cooperative also markets grain, feedstuffs,

fertilizer and agricultural chemicals to its 15,732 members and

150 branches.

Associate members may buy common stock in Farmland

Industries and may receive all privileges and rights of

common stockholders except that of voting. Another associate

member of Farmland is Zen-Noh, a national Japanese

cooperative with headquarters in Tokyo.

After the harvest, gleaning by cooperation aids needy 

Metro area gleaning cooperation is “putting it all together”

in a four-county area of Oregon. The elements are senior

citizens, the handicapped, lowincome families, farmers with

leftover crops, community service

and government agencies, and the

old-time “helping hands” principal.

Under the program, local

farmers are asked to donate what

they have left after commercial

harvest is completed. The crops

are picked by people with marginal

income and shared with

handicapped and elderly citizens.

The gleaned items involve surplus from gardens, weatherdamaged crops, late-ripening items on plants, misshapen

products and items that are of non-marketable quality, size or

condition.

The gleaning program began when Monika Belcher of the

Washington County Community Action Organization of

Hillsboro, Ore., took the idea from agency to agency to try to

stir interest. In 1973, a committee was formed, and the

program grew rapidly and guidelines were established. Some

125 households benefited from the gleaning program’s first

year.

By 1976, the program served 3,290 people in 1,129

households. In-store value of donated produce was estimated

at about $102,000.

10 Years Ago...

From the September/October 1997 issue of Rural Cooperatives

Record gross revenues, but not net profits, for Top 100 coops 

The nation’s 100 largest agricultural cooperatives reported

record revenue for the second year in a row in 1996.

Operating revenue totaled more than $74 billion, up nearly

$11 billion from the 1995 record.

However, net margins for the year

were down. 

Strategic alliances, higher grain

prices and increases in value-added

processing by cooperatives were

major contributors to the rise in

revenue. However, 52 percent of

that increase was realized by just

two cooperatives: Farmland

Industries and Harvest States

Cooperatives. They represented

nearly a quarter of total operating

revenue for the Top 100 co-ops, up from 20 percent in 1995.

Crop, dairy and livestock marketing sales continue to show

tremendous gains, increasing more than 18 percent, to $55

billion, from the $46 billion recorded in 1995. This increase

doubles the gain made the previous year. 

While three-quarters of the cooperatives that market their

members’ products had higher sales in 1996 than in 1995, 75

percent of the gain was generated by just 10 cooperatives. 

Grain sales accounted for about 65 percent of the total

increase, followed by milk sales, which accounted for about 20

percent of the increase.

Farm supply cooperatives enjoyed substantial sales gains in

1996, following a year of relatively small gains in 1995. Farm

supply sales rose 15 percent, to nearly $19 billion. However,

70 percent of that gain was due to five co-ops. 

Sales increased for nearly every supply category, with 85

percent of the increase attributed to higher feed, fertilizer and

petroleum sales. ■
44 September/October 2007 / Rural Cooperatives

United States

Department of Agriculture

Washington, DC 20250

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