Rural

COOPERATIVES COOPERATIVES

USDA / Rural Development July/August 2000 USDA / Rural Development July/August 2000

Spiral of success:

co-ops spin off benefits 

to rural communities
2 July/August 2000 / Rural Cooperatives

Rural America is far less dependent

upon production agriculture today than

it was when I was a girl growing up on a

farm in Indiana. In those days, when you

graduated from high school, you had

two basic life choices to make: A) take

the steps that would eventually enable

you to assume control of your family’s

farm, or B) kiss the farm goodbye and

move to town to find your future. 

Today, for many rural people choices

are increasing. That’s because every

year, an increasing number of light

industry, high-tech and service industry

firms are relocating all or some of their

operations to rural communities. 

These businesses have found that

rural America is not only a great place

to live, but a great place to do business.

A ready supply of highly motivated

workers with a strong work ethic is one

of the major attractions. These firms

also have learned that many suburban

and urban workers are anxious to escape

the “rat race” of city life.

Improvements in the rural infrastructure — telecommunications, water and

sewer, transportation, etc.— are helping

to fuel this movement. The programs of

USDA Rural Development are playing a

major role in accelerating the rate of

business diversification in rural areas

and in helping electric cooperatives and

others to finance improvements in rural

infrastructure. A little more than 65

years ago, President Franklin Delano

Roosevelt set the stage for the transformation of rural life when he created

USDA’s Rural Electrification Administration. A series of articles in this issue

(beginning on page 6) provide an

overview that shows how important this

act was to the nation, and how vital

these programs remain for the future of

the rural population. 

Few in agriculture would deny that

this trend of rural economic diversification is a healthy one. It can even help

hold families together, as in the case

where one child stays home to run the

family farm while her brother buys a

nearby house and takes a job at an

Internet service provider that located in

the county seat. Even if the trend

toward fewer, larger farms stops tomorrow (and few believe that it will), we

need this type of economic diversification to prevent many rural areas from

becoming de-populated. 

But does this mean that the rural

economy is no longer heavily dependent

on the farm economy? Absolutely not!

Without a strong, thriving farm sector,

the overall rural economy will suffer

severely in most regions. The fate of

farmers and farmworkers is inexorably

linked with the general fiscal health of

rural America. 

Value-added processing cooperatives

are another vital link in this chain of

economic diversification. They represent a way to achieve diversification and

vertical integration within the farming

industry. These cooperatives have the

power to transform a community from

one that is solely a producer of raw

commodities into a producer of finished,

or partially finished, goods. These cooperatives not only generate higher

income for farmers, they create jobs and

boost the local tax base. They also help

attract “spinoff” businesses, new housing, schools and community facilities to

rural communities. 

I hope you’ll read the article in this

issue (page 16) based on five case studies,

funded under a cooperative research

agreement from the Rural BusinessCooperative Service of USDA Rural

Development. It provides insight into

how cooperatives benefit rural communities. These studies include a look at how

South Dakota soybean growers — tired

of shipping their raw crop out of town

and then buying back the soymeal that

was processed from it in other states —

opened their own soybean processing

plant. You’ll also learn why Missouri corn

growers decided to go into the ethanol

business and how changes in pork production methods are helping an Iowa

farm supply co-op gain new economic

strength. In each of these and the other

cases cited, the researchers found that the

rural communities have benefited greatly

from these new business ventures.

So let’s continue placing our economic eggs in more than one basket, without

ever forgetting that agriculture is still the

foundation of the rural economy — and

will be for a long, long time to come. 

Jill Long Thompson,

Under Secretary, USDA Rural Development

COMMENTARY

Putting our eggs in more than one basket
Rural Cooperatives / July/August 2000 3

RURAL COOPERATIVES (1088-8845) is published

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prohibits discrimination in all its programs and 

activities on the basis of race, color, national origin,

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

(voice or TDD). USDA is an equal opportunity

provider and employer.

Dan Glickman, Secretary of Agriculture

Jill Long Thompson, Under Secretary,

Rural Development

Dayton J. Watkins, Administrator,

Rural Business–Cooperative Service

Gladys Rodriguez, Director of Public Affairs

Dan Campbell, Managing Editor

Vision 2000/Kota, Design

Have a cooperative-related question?

Call (202) 720-6483, or

Fax (202) 720-4641, Information Director,

This publication was printed with vegetable oil-based ink.

United States Department of Agriculture

Rural

COOPERATIVES COOPERATIVES

July/August 2000 Volume 67 Number 4

On the Cover:

Pasta spirals down a loading chute for loading and shipping from Carrington,

S.D., to food ingredient customers across the nation. Cooperatives such as

Dakota Growers Pasta Co. spin off numerous economic and social benefits to

rural communities, according to a new USDA-sponsored study. Story on page

16. Photo courtesy Dakota Growers Pasta Co. 

FEATURES

6 When the lights came on

USDA program brought electricity and a better way of life to

rural America

Dan Campbell

Pamela J. Karg

16 Generating rural progress

Study finds that new-generation and traditional co-ops have

major beneficial impacts on rural communities

Patrick Duffey

25 How well are dairy cooperatives performing?

Carolyn Liebrand

DEPARTMENTS

2 COMMENTARY

15 IN THE SPOTLIGHT

22 MANAGEMENT TIP

28 NEWSLINE SPOTLIGHT

23 N
4 July/August 2000 / Rural Cooperatives

Dan Campbell,

Managing Editor

ri Valley Growers, for

68 years one of the

nation’s premiere fruit

and vegetable cooperatives, filed for Chapter

11 Bankruptcy on July 10 after accumulating more than $200 million in

debts during the past three years. Even

though the co-op’s financial status has

been precarious for several years, the

bankruptcy announcement sent shockwaves through California’s agriculture

industry and could have severe consequences for the co-op’s 500 growermembers, 11,000 seasonal and yeararound employees, businesses that

trade with the co-op, and farm-dependent business throughout the state.

Tri Valley announced that it plans to

idle two of its tomato-processing

plants. That move would leave some

500,000 acres of processing tomatoes

without a home. With the canned

tomato industry in an over-supply situation, much of that crop may have to

be disked under.

Tri Valley will also process a reduced

amount of its members’ fruit crops this

summer. It will accept only 70 percent

of its members’ pear crop, 85 percent

of their peaches, 33 percent of their

tomatoes and 85 percent of their

grapes. Growers were also told that

they would only receive 70 percent of

the payment they had expected for

their 1999 crops, and would receive

only 60 to 70 percent of the market

price for the reduced percentage of

their 2000 crop processed by the co-op. 

“This will definitely put some growers out of business. It’s going to cost

many low-income workers their jobs and set off a

chain reaction that will

hurt farm-related businesses throughout the

state,” said Robert

Hansen, manager of the

Suisan Valley Fruit

Growers cooperative, a

farm supply co-op with

many members who ship

their fruit to Tri Valley.

The impact of so much

fruit and tomatoes entering the market “without a

home” could cause commodity prices to drop to

“fire sale” levels, he

warned.

The state’s cling peach

growers association

responded with a plan to pay members

to pull out some orchards. Industry

groups also launched an effort to urge

USDA to ease the situation by buying

more fruit and tomatoes. At press deadline for this issue, USDA had just

formed a special task force under

Deputy Secretary Richard Rominger to

study the situation. 

Jeffrey P. Shaw, Tri Valley president

and CEO, said the Chapter 11 filing

“is our best path for the continuation

of our company’s operations and services.” Unlike a Chapter 7 bankruptcy, which provides for the liquidation

of a failing business, Chapter 11 is

meant to provide protection from

creditors to allow time for a business

to reorganize its operations, including

plans for paying creditors as much as

possible. Shaw’s letter to membergrowers cited examples of other wellknown corporations that have

emerged successfully

after a Chapter 11 filing, including Texaco,

TWA, America West,

Continental Airlines,

Toys ‘R’ Us and 7-11

stores.

However, according

to a report in the July

12 Modesto Bee newspaper, Shaw told growers

at a private meeting that

there is no hope of saving the co-op, which is

instead gearing its

efforts to process as

much of this year’s crop

as possible and then

seek a buyer for its

operations. Indeed, the

credit plan being

worked out with the bankruptcy court

reportedly stipulates that the company

must be sold by this Feb. 1. 

Tri Valley cans about half of the

nation’s peaches and apricots, and a significant share of the canned tomatoes,

fruit cocktail, pears and other fruit and

vegetable products. There is no way

other processors can absorb so much

tonnage this season, so an immediate

cessation of Tri Valley operations would

be “a catastrophe for California agriculture” and could even impact crop prices

in other states, said Randall Torgerson,

deputy administrator for USDA’s Rural

Business-Cooperative Service. Even the

reduced operations being contemplated

at press time will exact a heavy toll on

the industry, he said.

As recently as May, press reports

from California indicated that the

struggling co-op was finally beginning

to see some signs of improved operaTri Valley Growers files Chapter

11 bankruptcy

T
Rural Cooperatives / July/August 2000 5

tions. In late June, the co-op was still

denying rumors of impending bankruptcy. But then the co-op’s main supplier of canning material — Crown,

Cork and Seal — declined to continue

doing business with the co-op after it

could not obtain a secured debt position equal to the co-op’s banks. That

action, in turn, caused the co-op’s

banking consortium to reduce a loan

package for the 2000 canning season

from $325 million to $270 million. The

result “was like offering seven bags of

feed to a hungry horse that requires 10

bags of feed to work efficiently,” said

Terry Barton, president of the California Pear Growers association.

These two actions came as a shock

to co-op leaders, who, until that point,

had been pleased with the progress

being made to put their house back in

order. “We had reduced our short-term

debt by $60 million, cut inventory by

$70 million and significantly improved

our levels of service,” Shaw said. But,

he noted, “Clearly, the problems associated with the canned tomato market

have hampered our progress.” 

Barton, Hansen and other representatives of the pear industry traveled to

Washington, D.C., in mid-July to seek

USDA help in easing the crisis. They

suggested that USDA purchase

120,000 tons of raw pears and 1 million

cases of canned pears, and that it offer

non-recourse loans to cover the $30

million shortfall their growers suffered

on the 1999 crop. They also urged

USDA to help secure a loan guarantee

to cover the $55 million shortfall in

credit TVG had been seeking.

On July 21, Vice President Al Gore

announced that USDA would purchase 1.4 million cases (64 million

pounds) of pears to help struggling

farmers. Purchases are made on a

low-bid process (call 202-720-4517

for details). The canned pears will be

donated to domestic food assistance

Programs, including the National

School Lunch program, which provides meals to 27 million school children each day.

“Many growers are deciding

whether it makes sense to pick this

year’s crop given uncertainties in the

marketplace,” Gore said. “This purchase will reassure growers and make

sure the pears are used to provide

nutritious meals for schoolchildren and

needy families rather than simply going

to waste.”

The Tri Valley situation has also

left “an enormous surplus of tomatoes,” according to John C. Welty,

executive vice president of the California Tomato Growers Association

(CTGA), a member-owned bargaining association. CTGA has requested

that USDA agree to make an emergency purchase of $40 million to $50

million worth of surplus canned

tomatoes under its Section 32 program. A purchase of this size would

“effectively remove surplus tomatoes,

provide a degree of relief to Tri Valley

Growers and improve overall conditions in the industry,” said Welty. California supplies 95 percent of the

nation’s processed tomatoes and 40

percent of the world’s supply.

Shaw, who in March 1999 succeeded

Joe Famalette and an interim manager,

said the co-op’s attempts to return to

profitability have been stymied in large

part by unfavorable, long-term contracts, an industry-wide oversupply of

tomatoes, and processing plants running under capacity. Despite these

challenges, he said the co-op had been

making major progress in key areas this

year prior to the cutback on its operating loan. ■

Don Muhm, retired farm reporter for

the Des Moines Register, has written a

book that chronicles the history of the

National Farmers Organization from its

inception in the mid-1950s through the

close of the 20th century. The book, The

NFO: A Farm Belt Rebel, The History of

the National Farmers Organization,” is

published by Lone Oak Press, Red Wing,

Minn.

Muhm’s book covers events surrounding the organization

throughout his career covering the farm beat in Iowa and nearby

Midwestern states. This includes the NFO’s origins as a farm

protest movement, and later maturation into a combination farm

organization/cooperative led by Missouri farmer Oren Lee Staley.

It advocated massive public demonstrations to drive the plight of

farmers home to the public. 

Muhm’s pictures of hog shootings and milk dumping are

included. Others show mass meetings and organizational

leaders who have served the organization. Later cooperative

marketing initiatives in the post-Staley era are also discussed,

along with financial challenges the organization has constantly endured.

USDA Rural Development supported writing of this manuscript through a cooperative agreement with the Department of Economics at Iowa State University. 

“Students of group action in agriculture will welcome this

addition to their library. It provides insights into a period in

American agriculture marked by swift structural change in the

makeup of farm operations and the marketing institutions serving them,” says Randall Torgerson, deputy administrator of

USDA’s Rural Business-Cooperative Service. 

Copies are available through Lone Oak Press, 1412 Bush

Street, Red Wing, MN 55066. A limited number of copies

are also available from the USDA Rural Business-Cooperative

Service at $25 hardcover and $17 softcover. Checks, payable

to “U.S. Department of Agriculture,” and accompanied by

your name and address, should be sent to: USDA Rural

Development, Attn.: Dan Campbell, Stop 0705, 1400 Independence Ave. SW., Washington, D.C., 20250-0705. ■

History of NFO charts farm protest movement
6 July/August 2000 / Rural Cooperatives

Dan Campbell, 

Managing Editor 

ixty-five years ago, America was is in the grips of

the worst economic

depression of the 20th

century. In rural areas, the situation

was particularly bleak — especially for

the 6 million Americans who earned

their living as farmers. At a time when

90 percent of the urban population had

electricity in their homes, only one in

10 rural Americans had electric service.

The power companies felt the low population densities of the nation’s rural

heartland simply would not yield the

type of profits they needed to justify

extending service to 95 percent of the

nation’s land mass.

President Franklin D. Roosevelt

realized that living standards in rural

areas would continue to lag behind

urban areas without electric service,

and that it would take bold, decisive

action to help rural Americans get it.

So on May 11, 1935, he signed an executive order creating the Rural Electrification Administration (REA) within

the U.S. Department of Agriculture.

This federal agency helped rural Americans all across the nation form userowned cooperatives and provided them

with loans needed to build a rural electric infrastructure. These co-ops, in

partnership with USDA/REA, brought

electric service to even the most

remote corners of the nation. 

Electricity was the fuel for the economic engine that revolutionized rural

life. In pre-electricity days, farm chores

were often done by the dim light of

kerosene or coal-oil lamps. Those

flickering lights all too often illuminated faces of rural people crushed in their

prime by the rigors of rural life, Agriculture Secretary Dan Glickman said

during an event in Washington, D.C.,

marking the 65th anniversary of the

creation of the REA. 

Glickman recalled the daily struggles of rural people in those pre-electricity days by quoting Senator George

Norris, one of the co-sponsors of the

Rural Electrification Act: “I had seen

firsthand the grim drudgery and

grind...I had seen the tallow candle in

my own home, followed by the coal-oil

lamp. I knew what it was like to take

care of farm chores by the flickering,

undependable light of the lantern in

the mud and cold rains of the fall, and

the snow and icy winds of winter. I

recall the...scenes of harvest and the

unending, punishing tasks performed

by hundreds of thousands of women,

growing old prematurely; dying before

their time....”

President Roosevelt found these

conditions unacceptable, Glickman

said. “If private utilities wouldn’t find a

way to wire rural America, he would

see to it that the government loaned

the money necessary to make it happen.” Within just a few years of that

order, 300,000 rural Americans had

electrical power, an increase of 25 percent. The rate of “wired” farms continued to climb with each passing year. 

Electricity eased many of the burdens for rural life. Work could be done

much more efficiently and safely with

electric light. Electricity meant that

refrigeration systems — which helped

When the lights came on 

USDA program brought electricity and a better way of life to rural America

S

USDA used posters such as this to spread the word about the benefits of electricity for 

farmers and other rural people. USDA photo
Rural Cooperatives / July/August 2000 7

keep food supplies safe and created new

opportunities for the production and

shipment of perishable commodities —

became far more widespread. Electricity helped mechanize many tasks that

had previously been done by hand.

Electricity was not

simply an added convenience for rural

Americans. It helped

make them the world’s

most productive producers of food and

fiber and dramatically

improved their living

standards.

Breaking the bonds

of poverty

“The day the lights

finally came on at our

farm, I remember my

mother cried,” former

Agriculture Secretary

Bob Bergland recalled

during the anniversary

celebration. They were

tears of joy, he said,

because with the arrival

of electricity on his parents’ subsistence farm

near the border of

Minnesota and Canada,

“she finally saw a chance for our family

to break the bonds of poverty.

“We lived in poverty, as did most of

the other 6 million farms then operating in the United States,” he said. “You

struggled to stay alive.”

Bergland recalled the first three electric appliances his family bought. The

first purchase was electric lights for the

house, followed by a toaster and then a

“98-cent hair curler my mother bought

at J.C. Penney and kept all her life.”

Art Campbell, Deputy Under Secretary for Policy and Planning at

USDA Rural Development, said he

too has vivid memories of the day his

parents’ farm was wired for electricity.

“I remember singing with robust glee

in celebration as our little strip of

houses along a dirt road was connected to electricity. We sang out with joy

and no small amount of amazement:

Oh the lights, the lights, Lottie Mae

got light and we got lights! Oh the

lights, the lights.” 

Campbell said, “REA is government at its best: doing things critical

for the common welfare that are

beyond the ability of individuals to

do for themselves.” 

Glenn English, CEO of National

Rural Electrification Cooperative Association (NRECA), described the REA as

“a partnership between government and

ordinary people who have used cooperatives as a business device to own the

utilities that mean so much to them.” 

REA, English

continued,

enabled rural coops to build “the

finest electrical

infrastructure in

the nation, barnone...REA is a

great program that

performed great

deeds,” he said,

noting that it built

half of the nation’s

electric infrastructure. He also

praised REA/Rural

Utilities Service

(RUS) as a highly

efficient program.

Electric circus

To help

educate rural people in

the 1930s

about how

they could

use electricity

in their homes

and on their farms,

REA sponsored a traveling road show,

which became known as the “electric

circus.” Louisan Mamer was one of

REA’s first employees, hired in 1935

to help stage those road shows. She

was presented a Lifetime Achievement

Award during the anniversary ceremony and shared some memories of those

early days. 

Mamer recalled being intrigued by

an REA advertisement seeking people

with “a pioneering spirit.” Born in 1910

and raised on a farm in southern Illinois,

where her father cleared 1,000 acres of

Illinois River bottom land, Mamer said

she knew well the hard labor of rural life.

So when the chance came to leave home

to attend the University of Illinois at

Urbana, she took it. 

The REA road show used two big

circus tents, one for a general meeting

and the other to demonstrate electrical

appliances and farm equipment,

Mamer recalled. One of her main

duties was to speak to farm wives to

help them “convince their husbands to

pay to join a cooperative.” 

Small radios and electric irons were

among the first appliances sold. In the

North, washing machines were in big

demand, while refrigeration was more

of a priority in the South.

Mamer also trained other instructors so that they could conduct workshops, and she developed training

materials, remaining with REA until

her retirement in 1981.

“Education, inspiration, involvement and recognition” are the keys to

success in life and business, Mamer

Louisan Mamer receives a Lifetime Achievement Award from USDA

Rural Utilities Service Administrator Chris McLean. Inset photo:

Mamer, circa 1935, making a presentation about the use of electricity in the home and on the farm during one of the “electric circus”

shows. USDA photos
With 85 to 90 percent of its sales to farmers and other rural

residents, Central Iowa Power Cooperative leaders knew

they needed to do something to promote electrical use in the

countryside. Otherwise, the investments by local farmers and

rural residents through their electric cooperatives for generating stations and transmission lines were inevitably going to

be borne by fewer and fewer people.

“We had done a few things to try to stimulate electrical

sales, but it became apparent it was a bigger job than we had

the resources for,” said Mel Nicholas, who was then working

with Central Iowa Power Cooperative (CIPCO), a Cedar Rapidsbased generation and transmission cooperative. CIPCO is the

wholesale power supplier for 13 rural electric distribution

cooperatives and one municipal cooperative. Together, CIPCO

and the CIPCO Systems supply the electric service needs of

250,000 Iowans who live in a service territory that stretches 300

miles diagonally across northeastern Iowa to its southwestern

corner. CIPCO has participated in the loan program of USDA’s

Rural Utilities Service since 1946. 

In 1980, CIPCO sold less electricity than it had in the previous year. That’s when Nicholas hatched an idea to have all of

Iowa’s power-generation cooperatives pool their resources

to fund what would eventually become the Iowa Area Development Group (IADG). By 1985, Iowa’s farm economy had

been badly battered and rural electric sales were flat, at

best. IADG’s formation that year could not have come at a

better time.

“Our goal was jobs and wealth creation in rural areas,” says

Dennis Murdock, CIPCO chief executive officer. “There was little focus at the time on job creation in rural areas served by

electric cooperatives, which were also the parts of Iowa where

the farm crisis had taken a heavy toll on farm men and women

who were searching for off-farm income opportunities.” 

During the past 15 years, IADG and Iowa’s rural electric

cooperatives (REC) have been instrumental in creating business and community development opportunities across Iowa.

IADG is the marketing and economic development agency for

nearly 70 of Iowa’s rural electric cooperatives and select

municipal electric systems across the state. IADG has assisted with over 850 successful business expansions and new

locations. This growth represents capital investment of more

than $2.5 billion and more than 26,000 new jobs. 

USDA has credited IADG with initiating 57 grants and

loans totaling more than $16 million for projects across the

state that led to 2,900 new jobs. All IADG services are offered

at no charge to new and expanding businesses, compliments

of Iowa’s rural electric cooperatives.

IADG’s sponsors are the generation and transmission

cooperatives serving Iowa, which includes CIPCO, Cedar

Rapids; Corn Belt Power Cooperative, Humboldt; Northwest

Iowa Power Cooperative, LeMars; and Northeast Missouri

Electric Power Cooperative, Palmyra. The Iowa Farm Bureau

Federation is also an IADG sponsor. The two have been

working together since 1997 to advance value-added agricultural opportunities in Iowa.

How did the electric cooperatives and their new economic

Iowa RECs reach 15-year milestone

for rural development 

said. “Let people know what they do is

appreciated.”.

REA legacy all around

As America celebrates REA’s 65th

anniversary, the wisdom of Roosevelt’s

action in 1935 is obvious: 95 percent of

all rural Americans now have electric

service and nearly half of all rural electric lines in the nation were built under

this program. Through REA, $56 billion has been invested in rural electric

service for rural Americans. The program — now administered under the

Rural Utilities Service of USDA Rural

Development — continues to invest

more than $1 billion in rural electric

infrastructure development each year.

Some say USDA’s rural electric program has served its purpose and is no

longer needed. But electric systems are

aging and must be upgraded to meet

the increasing power demands of rural

customers. The program will be “just

as important to rural America in the

21st century as it was

in the 20th century,”

Bergland said.

English predicted

that reliability will

become a key issue

for electric service in

the years ahead. He said the only power systems in the nation built to meet

federal standards are those financed by

the Rural Utilities Service. RUS could

help bring the entire electric infrastructure of the nation up to these high

standards, he said. 

RUS Administrator Chris McLean

said USDA’s rural utility programs are

Pamela J. Karg

Field Editor

8 July/August 2000 / Rural Cooperatives

President Roosevelt’s creation of the USDA Rural Electrification

Administration in 1935 brought electric light and power to rural

people, and eased many burdens of rural life. USDA photo
development entity know what industries to attract or to

expand? Where did they start in the face of a farm and a rural

economy spinning quickly out of control?

The answers came through research conducted by the

internationally known Battelle Institute. “IADG hired the firm

to comprehensively study Iowa’s development advantages

and assets, and come up with a list of the kinds of industries

the state might have the best chance of attracting,” said

Bruce Hansen, vice president of marketing on the six-person

IADG staff, located in West Des Moines, Iowa.

Hansen said the list identified viable industries for the state,

including biotechnology, electronics, metal fabrication, plastics,

furniture and other wood products, printing and publishing, value-added agriculture and food processing, warehousing and

distribution, and telecommunications. 

“These are our priorities and we keep a clear and definite

mission surrounding these priorities,” Hansen said. For example, IADG worked hard during the waning months of the 1980s

and during the 1990s to help re-build Iowa’s egg industry.

Iowa was the No.1 egg-producing state in the 1950s, but it

had fallen to 24th in the nation by the late 1980s. 

Through targeted marketing and national promotions, Iowa

has climbed back to the top. In 1999, Iowa produced 6.7 billion

eggs, second only to Ohio, which produced nearly 8.2 billion.

The state is now number two in layers on feed and in gross

egg production.

IADG worked with Southwest Iowa Egg Cooperative in

Massena, which went into full production in December

1999. It expects to market some 156 million eggs worth up to

$7 million. The co-op is owned by 275 Iowans and Iowa entities, primarily area farmers who wanted better prices for

their corn.

IADG and the local REC, Farmers Electric Cooperative in

Greenfield, helped the egg cooperative get started. In addition, IADG and Farmers Electric helped Southwest Iowa Egg

secure a 10-year, no-interest $400,000 loan from USDA Rural

Development under its Rural Economic Development Loan

program. The program provides zero-interest loans to Rural

Utilities Service-financed electric and telephone utilities to

promote rural economic development and job creation. The

impact of the egg facility is being felt throughout the community with added employment and a new corn market for

local farmers. 

The list of success stories goes on for IADG and Iowa’s

RECs. The Rural Housing Institute (RHI) recently opened a

new manufacturing plant to become a resource for communities to develop, finance, and build affordable housing in rural

areas. RHI received an $80,000, zero-interest loan from USDA

Rural Development, which was sponsored by Eastern Iowa

Light & Power in Wilton. 

Meanwhile, T.I.P. Rural Electric Cooperative in Brooklyn,

Iowa, applied for and received $450,000 zero-interest loans on

behalf of the Rosewood Farms food-processing project. This

business will upgrade, renovate and re-open the former Louis

Rich plant in Sigourney, Iowa.

“These are just a few recent examples of many projects

that IADG and the Iowa RECs have helped develop across

Iowa during the past 15-years,” said Hansen. “The success of

IADG is a fine example of the determination of Iowa’s RECs.

Similar to the 1930s — when rural Iowa leaders stood up to

the challenge of bringing electric power to the countryside —

the RECs continue to be innovators with the foresight to help

change the economy and landscape in rural Iowa.”

For more information on the Rural Economic Development

Loan program, visit our website at:

www.rurdev.usda.gov/rbs/busp/redl, or contact any USDA

Rural Development field office or USDA Service Center. Or

call (202) 720-4323, then enter “1” and follow the voice

prompts to be connected to your USDA Rural Development

state office. ■

vital to ensure that rural people are not

left on the wrong side of a digital or

social/economic divide. “Dramatic regulatory and market changes are occurring in the telecommunications, electric

and water utility sectors,” McLean said.

“Without the help of RUS, rural America will have a more difficult time keeping pace with the revolutionary changes

being experienced in these industries. It

is imperative that the federal government be actively involved in providing a

funding network of support services to

ensure full participation in the 21st century economy.”

Glickman concurred, saying “The

infrastructure required to keep rural

America viable and competitive grows

more sophisticated every day. Sixty-five

years ago, it was basic electricity. In

today’s high-tech, information economy,

it’s Internet access, modems and satellites.

“We are beginning to see a gap similar

to the one we saw earlier this century,

with most of the tools of the Information

Age concentrated in the hands of urban

and suburban Americans,” Glickman

said. Rural communities, meanwhile, are

in danger of being left behind,” he noted.

“RUS is responding with more resources

for programs such as distance learning

and telemedicine to bring improved educational opportunities and health care

services to rural communities.

“All of us together still have a big hill

to climb,” Glickman continued. “Let’s

make this anniversary more than a celebration. Let’s use it as inspiration to

work that much harder to ensure that

rural Americans enjoy affordable access

to modern electronic tools they need to

prosper in the 21st century.” 

Editor’s note: Below and following are

four profiles of rural electric cooperatives

that RUS works closely with and which are

making a major impact on the economy

and quality of life in rural America.

Rural Cooperatives / July/August 2000 9
The Pennsylvania Rural Electric Association and its

member cooperatives have been key players in establishing

distance learning and telemedicine network links that allow

rural schools, libraries and hospitals to access information

and specialized training previously only available in urban

areas. But now the association is involved in another initiative that gets to the heart of life in rural areas: wastewater

management.

Three years ago, an innovative on-lot sewerage treatment system installed at a Catherine Township, Pa., residence had a decidedly statewide significance. The system

at the home of Valley Electric Cooperative member Gary Discavage was the start of the PREA’s Rural Wastewater Initiative, an ambitious effort to find a solution to wastewater disposal problems in rural

areas and work out an

innovative licensing

agreement with the

state.

Large areas of rural

Pennsylvania are neither served by central

sewage systems nor

suitable for conventional septic or sand

mound systems.

“A virtual moratorium on development

has been imposed in

many areas as a

result,” said Russ Biggica, PREA director of

public affairs. “We’re

talking about some of the most rural of rural areas, and people can’t sell their homes. They can’t will them to their children. They can’t give them away. It’s all because of the

problems associated with wastewater disposal and groundwater contamination.”

The solution is the innovative septic systems PREA, local

electric cooperatives and state agencies started testing in

1998. PREA can be credited with helping rural people find a

solution that Biggica said does not promote urban sprawl

yet does promote improved health and safety.

“We did our demonstration projects in which we showed

that the system has cleaner water flowing out of it than is

coming out of many of our rural wells,” he said. 

In the new system, solids settle and are retained in a

septic tank before the liquid effluent passes through a filter

and, by gravity, into a box filled with sand, where it is filtered

still further. The sand box also contains a recirculating pump

that distributes, or doses, the effluent over the filter media

several times before it is discharged. The filter works

through the activity of micro-organisms that colonize the

spaces between the sand particles and use the waste material in the effluent for food. Finally, an ultraviolet filter kills

any remaining bacteria that might have survived. The effluent meets or exceeds federal Clean Water Act standards.

PREA is now working to get the system accepted by the

state Department of Environmental Protection (DEP) for routine use without need for special permitting.

“We need to consider the economic side of the problem.

A virtual moratorium on housing and development exists

because there are no central sewerage systems, which creates a hardship for many rural people,” Biggica said.

Pennsylvania has an abundance of water, but it also has

abandoned acid mining

facilities, past farming

practices that included

heavy use of chemicals, and old, leaking

sewerage systems. In

many areas of rural

Pennsylvania, owning

land and investing in

property had become a

losing proposition.

“We have shallow

soil here because of

the glaciers, and we

can no longer use the

soil or traditional septic technology,” Biggica said.

As a service organization, PREA works with local electric co-ops to provide

professional and technical assistance, such as developing

comprehensive local development strategies and seeking

out-of-state and federal economic development grants.

Pennsylvania co-ops, for example, spurred job creation by

guaranteeing 24 zero-interest loans secured through USDA’s

Rural Business-Cooperative Service. The projects funded by

these loans benefit entire rural communities, not just areas

served by rural electric co-ops.

“Helping rural areas find a remedy for wastewater disposal problems is a priority for PREA and its member cooperatives,” he stressed.

With more than 60 years of experience in providing

affordable and reliable electric service, co-ops are a readymade delivery system for improving the economic health of

their rural communities, Biggica added. As a result, co-ops

do more than just supply power. They aggressively work to

Pennsylvania co-ops take development underground

Continued on page 27

The on-lot sewerage treatment system tested in rural Pennsylvania by the state’s

electric cooperative association uses the newest technology to produce an 

effluent that exceeds EPA standards.

10 July/August 2000 / Rural Cooperatives
In eastern Maine, rural towns average about 361 people.

Remove the two largest communities in the territory served by

Eastern Maine Electric Cooperative (EMEC) and that average

would drop to 281 hardy Nor’easters.

“With populations so low, many towns cannot afford a town

office, much less someone to focus their energy on economic

development, so along comes the concept of regional development,” explains Charles McAlpin, director of public relations

for EMEC, headquartered in Calais, Maine, one of the two

largest communities in this most rural of rural Maine regions. 

Economic development professionals agree that development is more successful if undertaken on a regional basis,

when individual towns work together as part of a larger community. “The regional effort has three primary advantages,”

McAlpin adds. “Those include more people to share the workload, more money with which to operate, and greater political

clout to influence state and federal policy.”

Three years ago, EMEC entered the planning effort in a big

way, helping small towns and businesses band together to

talk about regional economic development. By helping encourage business growth, promoting the region to perspective

businesses and encouraging internal changes to make the

region more marketable, EMEC assists the Maine Department

of Economic and Community Development and regional councils. EMEC is committed to bringing a renewed quality of life to

its members who live in parts of Aroostook, Penobscot and

Washington counties, which border Canada.

To that end, EMEC has worked with several councils,

including Eastern Maine Development Corporation, Sunrise

County Economic Council (SCEC) and Saint Croix Economic

Alliance (SEA). EMEC took a more direct role, as well. The

co-op applied for a $700,000 zero-interest, pass-through loan

on behalf of a local company, Washington County Psychotherapy Associates (WCPA). With this money as part of a

multi-tiered financing package, WCPA will establish a youth

treatment facility that will create 65 new, skilled jobs in the

region. 

This financing was possible through the Rural Economic

Development Loan program of USDA Rural Development.

Under this program, electric cooperatives participating in

USDA/RUS programs can apply for pass-through loans for

businesses creating jobs in depressed rural areas. The cooperative’s involvement in the project did not end with the loan,

however. EMEC also sold a building to the City of Calais, purchased by the city for a business incubator under the

Community Development Block Grant program. The city is

leasing the building to WCPA for the project, thereby cutting

the project’s starting cost.

Although the program was available for some time, it had

gone unused because — to be useful — it needed the type of

major regional development effort now underway, says Jim

Dean, chief executive officer of EMEC. “A lot of people in the

Calais area and elsewhere across the state worked in a very

coordinated way to bring this about.” Those backers included

Maine Governor Angus King, Congressman John Baldacci and

Senators Olympia Snowe and Susan Collins and numerous

governmental organizations. 

Among the project’s many benefits are new, quality jobs

and the ability to treat children at home in Maine. Children

who are clients of WCPA are currently sent out of state for

treatment, at great cost. This project saves the state money,

brings funds to a depressed region from out of state, and, most

importantly, will allow local parents to be more involved in the

recovery of their children. 

In Washington County, where unemployment was in the

double digits in the late 1990s, the state and businesses such

as EMEC have helped refocus efforts on a variety of economic

development resources. The efforts established a strong partnership between the State Planning Office and the Sunrise

County Economic Council to build long-term economic development capacity for the county. The partnership prompted the

SCEC to begin a $1 million endowment drive. 

The state also spent more than $20 million in Washington

County for the new Port of Eastport, reconstruction of Route 9

and for infrastructure improvements in numerous communities.

Meanwhile, Cherryfield Foods expanded cranberry beds.

Atlantic Salmon of Maine built a new processing plant in

Machiasport, which added 30 jobs. And Destiny 2000 

plans to enhance opportunities for tourism while conserving

cultural and natural resources. 

The SCEC commissioned “Cultivating Jobs from the Sea in

Washington County” to develop strategies that encourage the

growth of targeted sectors of Washington County’s marine

economy. These sectors include: Fish Processing, Aquaculture

Support Services, Wild & Cultured Shellfish, Marine

Engineering and Fabrication, Marine Biotechnology, and

Marine Research Conferences and Institutes. Harvesters,

aquaculturists, and business people in Washington County are

already putting these strategies to work.

“Regional economic development efforts affect the EMEC

service territory,” McAlpin said. “It must be stressed that

these are private efforts that cooperate with state efforts, but

are independent of them. While co-op staff have varying levels

of involvement with these different organizations, we encourage anyone with an interest in the future of their region to support these groups when the opportunity arises.” ■

— Pamela J. Karg, Field Editor

Maine co-op building support for economic development

Rural Cooperatives / July/August 2000 11
12 July/August 2000 / Rural Cooperatives

Mohave Electric Cooperative and its power supplier

joined forces to draft an innovative service agreement in

less than four months that helped attract a major new

industry and is the source of 650 construction and/or permanent jobs added to its Arizona service area. The area’s

investor-owned utility had tried — unsuccessfully — for

three years to accomplish the same feat.

“This was an innovative power supply agreement that

became this utility’s and

the state’s first venture

into retail power wheeling

— long before deregulation took effect in Arizona,” says Mark Harris,

communications manager

for Mohave Electric Cooperative (MEC), headquartered in Bullhead City,

Ariz.

Mohave Electric and

its generation and transmission source, Arizona

Electric Power Cooperative (AEPCO) — both

long-time participants in

USDA’s Rural Utilities Service loan program — put

together a package that included 80 megawatts of hourly

demand so that North Star Steel Co., a division of Cargill,

Inc., would locate its $140 million manufacturing plant in

Kingman, Ariz. 

The North Star plant was the first to be built in Arizona

that is deriving benefits from the Environmental Technology Manufacturing Act (ETMA). The ETMA gives long-term

tax benefits to companies that primarily produce manufactured goods through recycling, and companies that

are committed to renewable-energy product manufacturing. The North Star mill has a high-tech, automated processing system that uses electric arc furnaces to make

about 500,000 tons of construction-grade steel from vehicle bodies, appliances and other recycled material that

are shipped by road or rail.

When ground was broken in 1995, the plant brought

some 500 construction jobs. Now about 150 permanent

jobs have been added to Kingman and Mohave County.

The estimated economic impact of the plant on the county is $23.75 million.

The power supply contract required the Western Area

Power Administration to build a switching yard, funded by

North Star, under existing transmission facilities at the

plant site. Through the contracted arrangement, North

Star takes power directly off the grid at the best market

price available, Harris said. 

Power delivery is handled by the AEPCO dispatch center in Benson, Ariz. Power travels over WAPA lines, but

service is provided by Mohave Electric. At no time

throughout the negotiations and contract signing

were Mohave Electric

assets put at risk, and the

cooperative assumed no

new debt.

“It also set a precedent

in that Citizens Utilities

ceded a portion of its service territory to Mohave

Electric. So the North Star

plant became an island of

our service territory, surrounded by an IOU

(investor owned utility), “

Harris said.

“That MEC and AEPCO

were able to work together to meet the needs of a

new customer is a good example of what cooperatives

are all about,” said Fred Grigg, a MEC director. He was

involved in the negotiations over the contract, and also

witnessed MEC’s efforts to help Citizens Utilities and

North Star negotiate an agreement during the previous

three years.

“We were excited by the mill’s impact on local economic development,” Grigg added.

MEC serves all of Bullhead City as well as parts of

Mohave County, including the areas north and south of

Kingman. Now MEC provides an island of electrical service to the North Star mill near Kingman’s borders, which

is otherwise served by IOU Citizens Utilities.

“This type of contract provides North Star with energy at

costs that will help ensure the mill’s success,” said Robert

E. Broz, chief executive officer of MEC. “Our member-owners and AEPCO member-owners benefit through increased

sales without incurring debt for capital investment. We

worked hard with North Star to make this happen.” ■

– Pamela J. Karg, Field Editor

Mohave Electric Co-op’s quick response attracts

major source of jobs to service area

Mohave Electric CEO Robert E. Broz (left) worked with the North Star

company to provide power to its mill without the cooperative incurring debt for capital investment. Photo by Mark E. Harris, courtesy MEC
Rural Cooperatives / July/August 2000 13

op co-op communicators

were honored by their

peers in Montana in June

for outstanding work and

dedication to cooperatives. Awards

were presented during the annual institute of the Cooperative Communicators Association (CCA).

James Leuenberger, Shawano,

Wis., received the H. E. Klinefelter

Award, given annually to a CCA

member who has raised the standards

of cooperative communications and,

in doing so, has contributed significantly to the cooperative way of doing

business. Leuenberger is vice president of information and public relations for Cooperative Resources

International (CRI).

Raised on a Fort Atkinson,

Iowa, dairy farm,

Leuenberger

earned a bachelor’s

degree in dairy science and a master’s

degree in agricultural

journalism from Iowa

State University. He

served as a 4-H and youth

agent with the Winneshiek

County Extension Service in

Iowa before joining the National Holstein Association in Brattleboro, Vt. In 1975, he was named

vice president of public relations of

what ultimately became known as 21st

Century Genetics. 

As the industry consolidated, 21st

Century became part of the new CRI

organization in 1993 and Leuenberger

assumed his present position at that

time. He now manages a staff of 17 in

four different locations. He also serves

as managing editor of the cooperative’s

cattle breeding publication, Horizons.

Sheryl Doering

Meshke, Lake Crystal,

Minn., received CCA’s

Michael Graznak Award,

given annually to a young

communicator and CCA

member who has demonstrated excellence in

cooperative communications. Meshke is communications

director for Associated Milk Producers

Inc., at New Ulm, Minn. 

Meshke manages the communications and government relations department. She is in charge of the co-op’s

monthly magazine and its member

and employee newsletters and

serves as treasurer of AMPI’s

political action committee. In

addition, she is the cooperative’s spokesperson and media

relations coordinator. Before

joining AMPI in 1991, she

was editor and advertising

director with Madelia

Media Inc. and

worked as a journalism intern at The Land

magazine and Country Times

newspaper at Amboy, Minn. 

She earned a bachelor’s degree in

agricultural journalism at South Dakota

State University. She currently is pursuing a graduate degree in business

communication at the University of St.

Thomas in Minneapolis. She serves on

the CCA board.

CCA named Catherine Merlo, Bakersfield, Calif., as writer of the year.

Merlo, who heads a communications

firm that works closely with a number

of cooperatives and related organizations, formerly worked with

Calcot, a Bakersfield-based

cotton and almond marketing cooperative. Merlo was

cited by judges for her ability to address a variety of

writing assignments.

Bob McEowen, field editor with the Association of

Missouri Electric Cooperatives, Jefferson City, earned

photographer-of-the-year honors.

McEowen’s photography focuses on

subjects that convey the message that

there are opportunities in rural areas

and that rural areas are a good place to

live and work.

Best-of-class award in the special

projects/programs competition went to

David Eaheart of Farmland Industries,

Kansas City, Mo., for that company’s

campaign entitled “Support Trade for

Farmers, for Farmland, for You.”

Judges said the winning entry stood out

due to a comprehensive approach to

cooperative communications that

included well-written stories, good use

of contemporary graphics and a design

that supported the theme.

Honored for Publication of the Year

was Janet Hunter, editorial director of

the Farm Credit Bank of Texas, Austin,

for that company’s Landscapes magazine.

The publication showed “exceptional

creativity, originality, readability and

quality over a broad scope of content,”

judges said. 

USDA Rural Development’s Rural

Cooperatives won a third place award for

best magazine, and field editor Pamela

J. Karg won a second place news writing award for an article about President

Clinton’s visit to an Arkansas tomato

cooperative. ■

Co-op communicators honored

T

Sheryl Meshke and

James Leuenberger 

Photo courtesy CCA
14 July/August 2000 / Rural Cooperatives

ach year, thousands of

people die, are injured

or lose property

because they didn’t

receive adequate

warning of approaching weather hazards or natural disasters. When people

know disasters are coming, they act.

For many, the best chance they have to

avoid an approaching weather emergency is the 24-hour disaster warning

network of the National Oceanic &

Atmospheric Administration (NOAA). 

Agriculture Secretary Dan Glickman has announced

that the U.S. Department of Agriculture

and the Department

of Commerce are

creating a partnership to extend

NOAA’s emergency

radio service to more

rural areas of the

nation, large portions

of which still do not

have coverage.

Through the agreement, the Rural Utilities Service (RUS) of

USDA Rural Development will encourage the installation of

emergency radio

transmitters by identifying rural utility

towers not currently

receiving the NOAA transmissions.

NOAA will work with the utility coops to install the transmitters to provide the warning signal to that area.

“The cost of installing radio transmitters is small when you consider the lifesaving service it will provide to millions

of rural people nationwide,” Glickman

said. “West of the Mississippi River,

more than two-thirds of the land area is

still not covered by this vital radio service, and large areas of the eastern third

of the country also lack coverage.”

Inadequate warnings of approaching

hazards, such as floods, tornadoes and

hurricanes, are particularly acute in the

nation’s rural areas. Once the transmitters

are installed, households will be able to

receive warnings through NOAA radios,

the Internet, pagers and telephones.

“This agreement is a real life saver

for rural Americans,” said Jack Kelly,

assistant administrator for the National

Weather Service. “The Rural Utilities

Service’s long-standing relationship

with electric and telephone cooperatives will make it easier to identity

weather radio transmission sites, as

well as partnering with them to install

transmitters.”

Utilities willing to mount a transmitter will be asked to donate power to

run it, including an emergency back-up

power source. The savings from using

existing towers and power supplies can

more than double the deployment of

weather radio transmitters.

Jill Long Thompson, USDA under

secretary for rural development, said

this is an ideal public service effort for

rural utility cooperatives to pursue.

“What better way for cooperatives to

show their commitment to public service than making this life-saving technology available in their service areas?” 

For more information on this program, contact RUS’ national office at

(202) 720-1255 or visit the NOAA

website at www.nws.noa.gov/nwr. ■

USDA, Commerce join forces to

boost early warning system

E

Missouri rural electric officials discuss how a new NOAA weather alert system will be installed along powerlines.

Photo by Jim McCarty, courtesy Missouri Electric Cooperative Association
Rural Cooperatives / July/August 2000 15

Co-op description:

Agrilink Foods is a $1.5 billion

national food company that processes

and markets a variety of product lines

of branded, private label and foodservice products in 32 facilities located

throughout the United States and in

Mexico. Included in Agrilink Foods’

portfolio are the Birds Eye,

Veg-All, McKenzie,

Comstock, and

Wilderness

brands.

Agrilink

Foods is a

wholly owned

subsidiary of

Pro-Fac

Cooperative,

an agricultural

marketing cooperative which consists of

more than 600 membergrowers. It processes fruits, vegetables

and popcorn through its subsidiaries,

Agrilink Foods and AgriFrozen. ProFac Cooperative is also now doing

business under its Agrilink name and

only uses the Pro-Fac name in legal

documents. 

Professional background:

Mullen graduated from St. Leo College, St. Leo, Fla., with a bachelor of

arts degree in education. Before joining

the Pro-Fac Cooperative family, he was

with Globe Products Co., Clifton, N.J.;

The Nestle Co., White Plains, N.Y.;

Farmland Industries, Franklin Park,

Ill.; and Butoni Foods, South Hackensack, N.J.

Mullen joined Agrilink Foods in its

Nalley Fine Foods division in Tacoma,

Wash., in 1990. After three years there,

he moved to Agrilink’s Curtice Burns

Foods. In 1996, Mullen was named chief

operating officer for Agrilink,

Rochester, N.Y. Six months later, he was

promoted to president and chief executive officer.

Community and industry roles:

Mullen serves on the boards of

directors for the following

organizations: American

Heart Association, Genesee Valley Region; Grocery Manufacturers of

America; National

Food Processors Association; St. Leo College; The Popcorn

Institute; United Way

of Greater Rochester;

Rochester Institute of Technology, School of Food, Hotel

and Travel Management national

advisory board; and Chase Manhattan

Bank, northeast regional advisory board. 

Greatest challenge facing Agrilink:

Our greatest challenge is one of continuing to compete and grow in the

extremely competitive food business,

where mergers continue to create fewer,

but much larger companies with greater

economies of scale. We must be a lowcost operator in everything we do, from

purchasing to manufacturing to administrative functions. This is the challenge

I’ve presented to our employees and will

continue to pursue as we move forward.

How do you view your

communication role as the CEO?

“I’m a true believer in the impact

communications can have on all aspects

of business and I promote this passionately in any conversation, meetings, etc.

Our communications mission is to

explain ‘why we do what we do,’ and we

have a variety of vehicles to help achieve

this goal. I am committed to sharing this

vision, in person, wherever possible.”

Mullen is about to begin another

series of employee meetings across the

country. These ‘road shows’ will be

similar to what he did a couple years

ago when he met with all employees, in

small meetings during day and evening

shifts over several weeks. The first

series of meetings was prior to

Agrilink’s acquisition of the former

Dean Foods Vegetable Co., which has

now doubled the number of employees.

This year’s trip will mean meetings, in

larger groups, to address the nearly

6,000 employees now part of Agrilink.

“When I meet with employees or

members and they understand our mission...our core values...our strategic

thrusts, then I know we are getting that

message throughout the organization,”

Mullen explains. “We recently produced an orientation video for new

employees and I was thrilled to hear

some of the concepts about being a

‘low-cost producer,’ ‘excellence in performance,’ and ‘working together as

teams’ being repeated by our employees

in the video. That tells me our communications efforts are working.” ■

Dennis M. Mullen

President & CEO, Agrilink Foods, Inc., Rochester, N.Y.

Cooperative Communicators Association’s CEO Communicator of the Year

Dennis Mullen: “Our mission is to explain

why we do what we do.” Photo courtesy Co-op

Communicators Association

IN THE SPOTLIGHT
16 July/August 2000 / Rural Cooperatives

Generating rural progress

Study finds that new-generation and traditional co-ops

have major beneficial impacts on rural communities

s the new millennium

opens, the U.S. food

system is still in the

midst of profound

structural changes that will have a significant impact on farmers, agribusinesses (including cooperatives), rural

communities and consumers. These

changes include a wave of new farmerowned processing cooperatives formed

by growers who see their best odds for

success hinging on their ability to keep

more of the value-added dollars generated from their crops and livestock.

Consider the case of Great Plains

wheat producers, who in 1997 received

only 10 cents of each consumer dollar

spent on cereal and bakery products.

Nationwide, farmers reaped just 23

cents for every consumer dollar spent

on food in 1997, compared with 37

cents per food dollar in 1980.

During the 1990s, more than 50 new

cooperatives were established in the

Upper Midwest, with most of them

based in rural communities. This surge

of interest in forming new-generation

cooperatives (NGCs) is creating spinoff economic benefits to the communities where these new businesses locate.

This study focused on the Midwest

because it is the home of the greatest

concentration of cooperatives in the

United States. Nine of the top 10

cooperatives, when ranked by 1997 revenues, are located in the Midwest.

Among them are Farmland Industries,

Cenex Harvest States, Growmark,

Land O’ Lakes and grocery wholesale

cooperative Associated Wholesale Grocers of Kansas City. There are also

many smaller co-ops in the region,

ranging from credit unions and rural

electric cooperatives to natural foods,

housing, and agriculture co-ops.

One of the objectives of the study,

conducted during the fall of 1997 and

the winter of 1998, was to summarize

the experiences of cooperatives and

their impact on local communities.

How co-ops boost rural communities

All cooperative businesses, the study

notes, are based on three fundamental

operating principles: one vote per

member; the business is owned by

those who use it; and earnings are

returned to members in proportion to

how much they use the cooperative.

These principles exemplify the differences between cooperatives and

investor-oriented firms (IOF). IOF voting is based on the number of shares

owned, ownership is not limited to

those using the business, and earnings

are returned to stockholders in proportion to investment.

“As user-owned organizations, cooperatives provide a model for individual

self-help and empowerment that

strengthens bonds leading to greater

community awareness and involvement,”

says Randall Torgerson, deputy administrator of USDA’s Rural Business-Cooperative Service (RBS). “Cooperatives

have been created in response to the

A

Editor’s note: A group of Midwest university professors collaborated on a study that includes a close look at five cooperatives and the

impact they have had on their respective communities. These

included three new-generation cooperatives, a traditional cooperative that had changed its relationship with members, and a group

of local governments using a cooperative business model to deliver

services in rural areas.

Coordinating the study were David Trechter, University of Wisconsin-River Falls, and Robert King, University of Minnesota.

Contributors were: Robert Cropp and Anne Reynolds, University

of Wisconsin Center for Cooperatives; Kimberly Zeuli, University

of Kentucky; Roger Ginder, Iowa State University; Evert Van der

Sluis, South Dakota State University; Michael Cook, Deanne

Hackman and Kristi Livingston, University of Missouri-Columbia; Gary Goreham and Frayne Olson, North Dakota State University; Beth Honadle, University of Minnesota; and Linda Jacobson, University of Wisconsin-River Falls.

The following material has been excerpted or summarized from

their study, USDA/RBS Research Report 177, by Patrick Duffey, a

writer/editor with USDA Rural Development’s public affairs office.

The full text can be accessed on the USDA Rural Development website at: www.rurdev.usda.gov/rbs/pub/research.htm. 

Soybeans are inspected prior to processing

at a plant built by South Dakota farmers who

were tired of shipping out raw product and

bringing back in finished product. 

Photo courtesy South Dakota Soybean Processors 
Rural Cooperatives / July/August 2000 17

needs of agricultural producers and other rural residents faced with rapidly

changing forces that affect their livelihoods and well-being. Cooperatives not

only provide access to markets not otherwise reached, but also provide member-owners with an opportunity to

improve incomes and services.”

Traditional agricultural cooperatives

are easy to join and difficult to leave.

In contrast, new-generation cooperatives are more difficult to join, but

often easier to leave. The substantial

up-front investment farmers or ranchers need to make in new-generation

cooperative stock is linked to delivery

rights and responsibilities.

Cooperatives usually have a positive

impact on rural communities in part

because operating and service decisions

are made locally. Thus, cooperatives

have little incentive to close or move

their operations in order to increase

their return on investment. Net earnings are returned to members and

cooperatives contribute to local economic development. They also help to

foster an attitude of self-help and selfinitiative in a community.

When agricultural commodities that

had been shipped out of a region are

instead processed locally, it generates

more jobs and local income. Processing

and other new cooperative facilities

enhance the local tax base and

strengthen the demand for retail sales

and services, triggering the creation of

other local businesses. This, in turn,

may trigger the need for new housing

and improvements in local schools and

other community facilities.

Cooperatives may also increase the

social cohesion of a community by providing local meeting places and a greater

sense of community pride. A cooperative

store may become the social and economic hub of a community. Cooperatives also make donations to local service

clubs and create scholarships.

Following are highlights from the

research report relating to each of the

five cooperatives studied.

Farmers’ Cooperative

Association, Keota

Farmers’ Cooperative Association,

Keota (FCAK), is a farm supply and

grain marketing cooperative located

about 40 miles southwest of Iowa City.

It had gross sales of more than $22 million in 1997 and a membership of 668.

It employs 47 people, making it one of

the larger employers in Keota.

FCAK is working with Farmland

Industries on an innovative program that

could help reverse the decline in the

state’s hog industry. In 1997, Iowa

ranked first among all states for hog production, with 22 percent of the nation’s

hogs. But production is shifting to the

South and Southwest, and some producers felt their operations had to change.

Iowa farm numbers have fallen and

the remaining operations are growing

larger. The decline is a major concern

because hog production adds value to

the state’s corn crop, creates a market

for other feedstuffs and demand for

farm services and equipment. It also

creates jobs in the marketing, slaughter

and processing sectors.

New production technologies have

led to the construction of large-scale,

low-cost hog production farms. These

farms are designed to meet consumer

New-generation cooperatives get farmers closer to the consumer through value-added 

processing, and the organizations that these innovative farmers build help bring diverse 

economic vitality to rural communities.
18 July/August 2000 / Rural Cooperatives

demand for leaner, more consistent

pork products. In turn, meat packers

need large numbers of uniform-quality

hogs from a single source. Also, an

increasing percentage of this country’s

food supply is distributed via highly

integrated agribusiness firms. Larger

scale hog operations have benefited

from these trends.

The “traditional” hog producer with

less than 500 sows is struggling to compete with these mega-farms. Capital

costs and associated market risks prevent many young people from entering

hog production.

FCAK had been losing business to

competitors offering various services to

farmers, such as record keeping. The

cooperative’s board approached Farmland Industries for assistance and met

with an Iowa State University Extension specialist to discuss possible

responses to these structural changes in

hog production.

Farmland offers a “contract-building

system” for its farmer-owners, and

manages another type of swine program for independent producers,

known as an “alliance farm system.”

Traditionally, farmers have retained

ownership of production facilities and

their hogs, accepted all risks and

reaped all returns for production. The

alliance system offers a way to help

smaller operations expand hog production, including construction guidelines

for buildings and simplified financing,

as well as a source of high-geneticquality feeder pigs. Farmland offers

marketing agreements that include

market price-risk sharing programs,

futures contracts and carcass-merit

pricing. Other services include access

to swine specialists to assist with management, and feed and services provided by the local farm supply cooperative.

Under the contract-building system,

farmer-members invest in the hog-finishing buildings and provide labor for

the hog-finishing process. Farmland

retains ownership of the pigs, assumes

price and production risks, provides the

feed and covers health maintenance

costs. In some contracts, a premium is

paid for reaching defined performance

standards, but most participating farmers

receive a guaranteed payment per pig

space.

Both programs require that the hog

farmer purchase feed from FCAK if the

farm is located within a 25-mile radius

of the cooperative. This agreement

holds for 10 years, after which a farmer

is free to purchase feed from anyone.

Thus the local cooperative benefits from

higher feed sales and other services.

Each month for nearly a year, the

board discussed the pros and cons of

participating in Farmland’s hog production systems. The FCAK board had

to decide whether to invest members’

capital to encourage hog production

(which would require building a new

feed mill), or to expand grain handling

and storage facilities.

The board eventually opted for the

Farmland hog programs, and held

three meetings to present its proposal

to the members. Member reaction

ranged from those who thought the

proposal was a great idea, to those who

saw the plan as a threat to their own

hog operations and a loss of their economic independence.

Based on member reaction, the

board voted to adopt the Farmland hog

programs (state law required a membership vote to formalize the plan),

even though it lost members in the

ensuing controversy. By 1997, eight

members were participating in the

Farmland program — a small number,

but those eight farmers represent about

half of the cooperative’s feed business.

Their increased level of business justified the cooperative’s investment in a

new feed mill, which is benefiting all

members. FCAK was also able to hire a

grain-marketing specialist who provides members with precision agricultural services. Those members with

Farmland contracts have reduced their

market risks. The Farmland program

has also helped younger producers

obtain the resources needed to enter

the business.

The program got off to a somewhat

rough start — some members felt

Farmland should have provided more

details early on about the contractual

arrangements, and there were some

initial disease problems. But since then,

participating farmers appear to be happy with the program.

Some farmers initially had trouble

securing credit to participate, but local

financial institutions are now more

familiar with the program and are more

willing to make loans to farmers wishing to enroll in it. Between 1990 and

1997, gross sales for the cooperative

increased 137 percent, from $9.4 million to $22.2 million, although not all

that growth can be attributed to the

swine program.

Iowa producers are meeting consumer demand for leaner, more consistent pork products by

following a Farmland swine program. Meeting consumer expectations can mean better

prices to producers. Photo by Jim Tucker, courtesy Farmland 
Rural Cooperatives / July/August 2000 19

Ultimately, this swine program

boosted economic activity in the city

and county. Higher net corn prices

resulted because corn no longer had to

be trucked out of the area. The higher

profit levels and experience in financing the programs increased the availability of credit from the local bank.

Construction of hog facilities provided

employment for local building contractors and increased the need for local

veterinarians. More young people have

been able to remain in the community.

The cooperative added employees and

other local businesses also gained. A

new library has been built, the local

park has been improved, and community pride has increased.

The co-op has also provided benefits to non-members. With a gas station and tire service, home heating and

air conditioning services, etc., FCAK

provides the community with muchneeded competition for both agriculture and consumer goods and services.

Because contract-hog production is

often controversial, a cooperative

entering this business arena must provide ample information to its members

outlining the benefits to them, the

impact on the cooperative’s profitability, availability of new services, and the

potential economic impact on the local

community in terms of business and

employment. Such major projects take

a minimum of two years.

The cooperative feels it is keeping

hog production in the hands of farm

families and can have many multiplier

effects by offering more services to its

members and the community.

Enhanced profitability of the farmers

spills over to enhance business activity

in the local community and more local

employment opportunities.

Northeast Missouri Grain

Processors (NMGP)

Northeast Missouri Grain Processors (NMGP) cooperative opened Missouri’s first ethanol plant on April 29,

2000, at Macon, Mo., about 60 miles

north of Columbia. When fully operational, it will produce 15 million gallons of ethanol and 100 million pounds

of dry distiller’s grain (DDG), a highquality livestock feed, annually from 6

million bushels of corn.

The cooperative’s 311 farmer-owners invested $5.6 million in the facility,

which cost $23.5 million to build. The

project was launched in 1994. Like

many other ethanol plant operations,

this one is structured as a new-generation cooperative. While Missouri is not

the epicenter of the new-generation

co-op movement, this ethanol cooperative nonetheless illustrates the opportunities and challenges faced by those

attempting to transplant this business

innovation into new areas.

NMGP, organized in

1995, currently has a 13-

member board and 30

employees. During the

organizational phase, site

applications were received

from nine counties representing 15 communities.

Information meetings were

conducted in 25 counties. A

limited liability company

was eventually formed to

own and operate the plant

and sell the byproducts.

Initially, 274 members

purchased 1,632 units of

stock at $2,500 per unit, or slightly

more than $4 million in producer equity. In a second equity drive, both existing and new members purchased an

additional 428 units at $3,000 each.

NMGP holds an 84 percent share of

the LLC that owns the ethanol plant.

The cooperative faced an initial challenge in raising equity capital. Local

farmers were unfamiliar with new-generation cooperatives and there was

uncertainty about federal and state legislation affecting ethanol production.

Missouri’s variable weather also often

puts heavy demands on a farmer’s cash

flow reserves, and state law restricts the

sale of investment securities. Once

Macon was selected as the plant site,

cooperative backers had to contend

with a drop-off in support for the venture among producers in other area

communities who had hoped their

town would win the new facility.

After an initial period of uncertainty

about this new organizational form, the

state of Missouri has been very helpful

in the formation of new-generation

cooperatives. The Missouri Department of Agriculture hired a cooperative

marketing specialist to assist producers

with cooperative development. The

state legislature created grant programs

to assist with activities such as feasibility

studies and business plans for projects

that add value to agricultural commodities. The state also provided partial loan

guarantees for value-added projects.

Producers consider increased profitability derived from processing their

corn as the primary direct benefit of

the new cooperative, and they anticipate higher corn prices as well. New

jobs and an expanded local tax base are

rated as the primary community benefits. The cooperative is also credited

with stimulating related business activity, such as trucking.

Five key lessons for those launching

new cooperatives were learned from

this case study: 1) remain flexible

(NMGP changed its initial opinion

about the type of technology to be

employed at its ethanol plant and

regarding the prerequisites of a good

plant site); 2) don’t underestimate the

time required to develop a new-generation cooperative (it took time to educate farmers, lenders, state legislators

and state agencies); 3) state statutes

governing new-generation co-ops must

be well understood and may need to be

changed; 4) economic development

programs at the state and local level are

often ill suited to cooperatives; and 5)

tap the knowledge and expertise of othNortheast Missouri producers are putting their commodity 

product into a new ethanol plant. Photo courtesy NMGP
20 July/August 2000 / Rural Cooperatives

ers interested in rural development,

such as rural electric cooperatives.

If this cooperative proves successful,

the board, farmers and community

leaders say they believe it will provide a

powerful model for other value-added

processing cooperatives in Missouri. As

board Chairman John Eggleston said,

“It will be much easier to be second

than to be first.”

South Dakota

Soybean Processors

South Dakota Soybean Processors

(SDSP) transforms members’ soybeans

into soy oil and soy meal. Prior to its

existence, lack of a soybean processing

plant in the state forced producers to

ship soybeans to neighboring states.

About 40 percent of the processed

beans were transported back to South

Dakota again in the form of soy meal

for livestock feed.

This new-generation cooperative

began operating in late 1996. It

processes raw soybeans into crude soybean oil, high- and low-protein soybean meal, and soybean hulls. Soy meal

is sold throughout the Midwest, the

Pacific Northwest and Canada. Soy oil

is marketed to Harvest States Cooperative in Mankato, Minn.,

where the oil is

further refined

for human consumption. The

hulls are pelleted by SDSP and

sold to an outside vendor.

To launch

the cooperative,

organizers conducted nearly

200 meetings,

reached 6,000 farmers and developed a

limited membership plan and a uniform

marketing agreement. Members were

initially required to purchase a minimum of $5,000 in shares. The board

voted to build the $32.5 million plant

in Volga, S.D. It is still the only soybean processing plant in South Dakota.

As of 1998, the cooperative had

2,092 members, about 70 full-time

workers, an annual payroll of $2 million, total assets of $48.4 million and

$29.2 million in member-owned equity

in the plant. Sixty-eight percent of the

$8.5 million in net proceeds in 1998

was returned to members as cash

patronage refunds.

The cooperative’s processing capacity was expanded from 50,000 to 65,000

bushels of soybeans per day in the first

six months of the plant’s operation, and

later expanded again to 70,000 bushels.

As has been the case in many similar

projects, the site-selection process

caused a temporary rift to develop

among the founders of the cooperative.

Farmers and other community

members needed a large amount of

information to convince them to commit to the cooperative. SDSP would

not have been possible without a group

of very active individuals committed to

achieving the goal of developing a soybean processing facility.

The plant has helped raise soybean

prices in the area and has generated

profits during its first two years of

operation. However, continued vigilance by the cooperative’s members and

management will be critical to its continued success. They

will need to

monitor

regional,

national and

global market

conditions

for soybeans

and soybased products.

Resources

required for

developing and operating a successful

cooperative often are limited in rural

areas. New-generation cooperatives,

like other cooperatives, must operate

efficiently, which requires sufficient

member territory. On the other hand,

SDSP’s early success motivated local

leaders to become involved with other

value-added endeavors in the region

and has inspired others to seek financial

opportunities by participating in newgeneration cooperative activities. Perceived negative impacts include heavier

rail and truck traffic and possible

reduced economic opportunities for

local grain elevators.

The cooperative is credited with

stimulating the local economy, creating

new jobs, a higher tax base and new

activity in service industry businesses.

Directors and co-op members take a

great deal of pride in having created a

locally owned soybean processing

cooperative in a market dominated by

large, powerful multi-national companies and regional cooperatives.

The Dakota

Growers Pasta Co.

The Dakota Growers Pasta Co.

(DGPC) at Carrington, N.D., is recognized as one of the most successful

new-generation cooperatives to emerge

in the Great Plains. New-generation

cooperatives such as DGPC appear to

do best when they develop and/or

exploit a niche value-added market.

DGPC capitalized on the growing popularity of pasta and established itself in

this expanding niche market.

In 1996, North Dakota was the

country’s leading producer of durum

wheat, which is the primary input for

DGPC pasta, but durum production

has been hit by serious disease problems in recent years and production

had been declining.

Dakota Growers mills its durum

wheat into semolina, which is used to

produce pasta products. The cooperative is one of only a few fully integrated

pasta manufacturers in the United

States. The cooperative was developed

under nearly ideal conditions with substantial assistance from the state for

feasibility and marketing studies and

other facilitation assistance from the

state association of rural electric cooperatives. Most of the 1,085 members

reside in South Dakota. In 1997,

DGPC had 247 employees.

DGPC state-of-the-art facilities

turn durum wheat into high-quality

semolina, durum flour, and millfeed;

Soybeans harvested in South Dakota can now be

processed by a farmer-owned cooperative, which benefits not only growers, but the rural economy of the

area. Photo courtesy South Dakota Soybean Processors. 
Rural Cooperatives / July/August 2000 21

the co-op then processes semolina

using advanced Italian pasta processing

equipment. By 1998, annual capacity

reached 30 million pounds. Net revenues, sales, net incomes and patronage

dividends have climbed steadily.

DGPC gave Carrington a psychological boost and came on the heels of an

agricultural decline and very demoralizing time for farmers. The plant is credited with helping to boost durum prices

substantially, although the smaller harvests have also played a role in the higher prices. Members gained a market for

durum wheat, new crop research on

durum and production advice from the

cooperative. DGPC also benefited nonmembers by improving the market for

durum wheat (non-members can access

DGPC’s grain-marketing pool). Members also learned about the food industry

and why durum of the highest quality is

required for production of pasta.

An improved tax base and more and

better jobs are seen as major benefits of

the pasta plant. Among negative factors

cited by some is that the plant contributed to a housing shortage,

increased traffic and a more transient

population. This study reveals that, in

addition to higher income, farmers also

choose to join NGCs based on the likely impact on their community. 

Locating a new-generation cooperative manufacturing plant in a community works best when community and

cooperative officials focus on their

shared interests. Strong, hard-working,

visionary leadership is essential both to

initiate the cooperative venture and to

attract the manufacturing plant to a

community. Farmers need information from trusted

sources, including the

cooperative’s officials

and leaders and

neighbors in their

own communities.

Western Areas Cities and

Counties Cooperative (WACCO)

Local governments, especially those

in rural areas, are facing a number of

challenges. Population levels, particularly in the Great Plains, are stagnant

or shrinking. Agriculture, long the economic bulwark for many rural areas, is

undergoing a structural transformation

toward fewer, larger, more vertically

integrated and much more technologically sophisticated farms and ranches.

Consolidation means fewer potential

local leaders, fewer children for the

schools, and consumers who often

bypass local stores. Resistance to

increases in taxes, particularly the property taxes upon which many local governments depend, has created significant fiscal constraints. Within this

context, Western Areas Cities and

Counties Cooperative (WACCO) at

Fergus Falls, Minn., was developed.

WACCO is a cooperative organization owned by the governments of seven

counties and 18 small towns. It is a model that could have widespread application throughout the United States, especially in rural areas. Local governments

nationwide are facing increasingly complex demands as activities previously

performed by federal or state governments are being transferred to the local

level. Citizens are also demanding more

efficient delivery of services.

A common response to similar pressures in the private sector has been to

consolidate into fewer, larger firms.

There has been no parallel trend in the

public sector. Resistance would likely

be quite vigorous if two counties proposed a merger. WACCO allows local

units of government to realize the

economies of scale associated with consolidation without the real and emotional costs that come with disbanding

existing local governmental structures.

WACCO’s initial goal was to purchase municipal supplies and services

(e.g., snow plow blades, road salt, office

equipment and supplies) at reduced

prices. By aggregating orders and acting as a broker with competing suppliers, WACCO generated significant savings for its members.

WACCO also has facilitated equipment sharing among member governments. It has created an inventory of

equipment available in each of its

member communities. Members negotiate rental terms among themselves.

Leased equipment is moved from community to community as need arises.

One community realized substantial

savings by renting a rarely used piece of

equipment from a neighboring municipality. This one transaction more than

paid for annual dues to WACCO.

WACCO has become a major

provider of training for local governmental employees. Prior to WACCO,

training workers typically took place in

the Twin Cities, at significant expense.

WACCO has been able to bring trainers

to western Minnesota. WACCO also

acts as a clearinghouse of information

and a liaison with state and national regulatory agencies. 

WACCO estimates that during a

typical year it saves members in excess

of $500,000. ... Cooperatives, which played a key

role in the evolution of the food system, are increasingly viewed as an institutional tool for enhancing farm profitability and fostering the development

of rural communities. In the best

cooperative development projects,

there is a synergistic relationship

between the project and the community. The cooperative benefits from the

expertise and financial assistance of the

state and local governments and the

communities receive real (jobs, taxes)

and intangible (psychological boost,

model for others) benefits. ■

Photo courtesy Dakota Growers Pasta Co.
22 July/August 2000 / Rural Cooperatives

James Matson

Agricultural Marketing Specialist

USDA-Rural Business Services

Editor’s note: This article is excerpted

from the author’s forthcoming report

“Cooperative Feasibility Study Guide”

(USDA/RBS Service Report 58), available

soon on USDA Rural Development’s website, www.rurdev.usda.gov. 

armers and their cooperatives continually search

for that “next great idea.”

After they think they’ve

found it, the real work begins. 

Background studies are necessary to

determine whether that great idea is

viable and if farmers should invest time,

effort, crops and money in it. 

Feasibility studies are a useful tool

and valid for many kinds of projects.

Evaluation of a new venture, both from

new groups and established businesses,

is the most common application, but

not their only use. Studies can help

groups determine whether to expand

existing services, build or remodel facilities, change methods of operation, add

new products, or even merge with

another business. A feasibility study can

assist decisionmakers whenever they

need to decide among alternative

development opportunities.

This analytical tool used during the

project planning process shows how a

business would operate under an

explicitly stated set of assumptions —

the technology used (the facilities,

types of equipment, manufacturing

process, etc.) and the financial aspects

of the project (capital needs, volume,

cost of goods, wages etc.). 

The feasibility study represents the

first time in a project development

process that the pieces are put together

to see if they perform together to create a technically and economically feasible concept. The study also shows the

sensitivity of the business to changes in

these basic assumptions.

Feasibility studies contain standard

technical and financial components.

The exact appearance of each study

varies, depending on the industry studied, the critical factors for that project,

the methods chosen to conduct the feasibility study and the study budget.

Emphasis can be placed on various sections of an individual feasibility study,

depending upon the needs of the group

for whom the study was prepared. 

The objective consultant

The feasibility study evaluates the

project’s potential for success. Its perceived objectivity is important in

determining the credibility placed on

the study by potential investors and

financiers. The creation of the study

also requires a strong background

both in the financial as well as the

technical aspects of the project. That’s

why outside consultants conduct most

feasibility studies. 

Although in principle it is possible

for a group member to conduct the

study, outside consultants produce most

feasibility studies. Prospective members

and financiers see the objective evaluation of a concept as an important aspect

of the study. This objectivity can provide helpful information that might

have been overlooked by people participating directly in the project.

Hiring a consultant to create the

study can be the most important decision in the creation of the study. The

list below provides possible criteria for

selecting a good consultant. A group

should determine that the consultant is

qualified to create the feasibility study

for the particular project. Also, any

consultant must be able to work well

with the group.

Criteria of a Good Study Consultant

1. Previous experience conducting feasibility studies;

2. Experience with the industry to be

studied; 

3. Understands cooperatives;

4. Willingness to listen to the group’s

ideas;

5. Works closely with designated contact members of the group;

6. Accepts reasonable revisions to the

submitted study;

7. Accomplishes the study within an

agreed deadline;

8. Works within the group’s designated

budget;

9. Provides clear, useful information in

the completed study.

Experience

Does the consultant have an adequate background to prepare the feasibility study? Before contracting a consultant, the group should review

samples of previously prepared studies

and speak with others for whom the

potential consultant has worked. 

If the project is of sufficient size and

complexity, it may hire several consultants to complete various aspects of the

feasibility study. Multiple consultants

can reduce the dependency on a single

person or company. It also can permit

the group to select experts from several

fields. However, it can complicate the

coordination and consistency of the

Consultant’s feasibility study

can predict success of ‘next great idea’

F

MANAGEMENT TIP
Rural Cooperatives / July/August 2000 23

information received.

The consultant preferably would

have experience in the industry under

study. The consultant may be an

expert at creating feasibility studies

but, if he or she has no knowledge of

the specific industry, probably will not

correctly identify critical factors for

that industry. Given business complexity, it is almost impossible for one person to have experience in all areas of a

business. 

Often, a team of consultants assembles feasibility studies. For example, a

cooperative development specialist

from the USDA might work jointly

with industry specialists to create the

feasibility study. Some consulting firms

resolve this issue by having feasibility

specialists and contracting with industry experts to create a feasibility study.

Cooperative knowledge

The consultant should also understand the unique aspects of cooperatives. Tax implications and business

considerations of cooperatives differ

from those of other businesses. These

factors could decrease or increase project risks. The consultant should be

familiar with cooperatives to properly

evaluate these effects. 

The consultant should avoid preconceived notions about how the project will function. The study should not

be an “off-the-shelf” document put

together from previously created studies. Rather, the consultant should pay

particular attention to the ideas that the

group has developed and craft a unique

study suited to their needs. 

The consultant should work closely

with designated members of the group

and be receptive to their suggestions.

Also, the consultant should be prepared

to make technical revisions or to correct errors at their recommendation.

Revisions are a normal part of the feasibility study process. 

Revisions should focus on the validity of the assumptions and the technical

design of the study. Using an outside

consultant brings objectivity to the feasibility study rather than merely providing the results that group wants.

Consultants have a legal obligation to

provide a responsible analysis. They

should not be asked to alter the results

merely to conform to members’ desires

for a project’s viability.

Meeting deadlines & costs

When selecting a consultant, timeliness is an important consideration.

Projects are time sensitive. Usually,

decisions to proceed await information

provided in the feasibility study. 

So care and diligence required to

prepare a well-crafted study must be

balanced against the desire for speed. If

a qualified consultant cannot complete

a well-designed study in a time frame

that serves the group’s needs, he or she

should not be used. 

On the other hand, the timeline

must be realistic. A consultant can only

progress as fast as a group makes the

required decisions, provides information to the consultant and carries out

its other project responsibilities.

Cost is an important factor. The

expertise and skills that consultants

offer a project must be weighed against

their expense. A quicker timeline could

increase the charge of a consultant. At

times, preparing a pre-feasibility analysis can decrease the effort required to

complete the feasibility study and

reduce the cost.

Useful information

Some public programs offered by

the USDA’s Rural Business-Cooperative Service, community development

offices, the Small Business Administration and local business incubator programs provide technical assistance at

no, or minimal, cost to groups creating

feasibility studies. 

A consultant should be willing to

provide the data used to generate the

financial tables and scenarios reported

in the feasibility study, and preferably

an electronic spreadsheet format that

can be easily manipulated. Though

requesting this information can moderately increase the cost of a feasibility

study, access to the actual data permits

the group to use the information later.

This data can reduce the cost in

creating the business plan, if the group

proceeds to that stage. It can also

decrease the effort required for revisions, if the group changes the project

in the future to differ from those in

the study.

The legal ties that bind

Once the consultant has been selectCo-op managers and directors need to evaluate and to communicate up-front with consultants

to ensure the final report provides sound advice for following up on that “next great idea.”

Photo by Glen Liford, courtesy Tennessee Farmers Cooperative
24 July/August 2000 / Rural Cooperatives

ed, the group should give him or her

detailed instructions on the requirements for the study. A paid consultant

should be hired with a legally binding

contract between the parties. The

group should consult legal counsel for

assistance with this contract. 

The contract should state clearly the

requirements and role of both the group

and the consultant. It should have timelines, delivery dates, explicit deliverables

and agreement on what is to be accomplished before payment is made. 

Often consultants receive a down payment before the study begins. The balance is paid only after the study has been

reviewed and accepted by the group

(and, possibly, financiers, if appropriate).

This gives the group more leverage to

encourage timeliness or revisions. 

The contract should designate a

third party arbitrator to resolve any disputed items.

Before signing the contract, the

group should discuss with the consultant arrangements for cost overruns,

time delays and revisions. As Murphy’s

Law states, “Everything costs more and

takes longer.” The group should discuss

with the consultant what considerations

will be made for these issues. 

Changes after signing the contract can

be costly or delay the study results, so all

parties should be clear what as to what is

expected prior to initiating the study.

Reviewing the study

Selection of the consultant does not

end the group’s responsibilities. A qualified member or a small committee

should be designated to work closely

with the consultant. They work to

assure that the feasibility study presents

the ideas that the group identified for

study. They track the study at all stages

and work with the consultant reviewing

and clarifying ideas during the study

development process.

Members with appropriate abilities

or backgrounds should be selected for

this task. It is critical that these “contact members” commit sufficient time

to work with the consultant. These

members represent the group’s interests to the consultant. They are the key

contact for providing clarification and

additional information that the consultant may require. 

These members should give periodic

reports regarding the progress of the

feasibility study. They also should work

with the other group members and advisors to gather the information needed to

prepare the feasibility study. These

members should express the wishes of

the entire group and not their own.

Members or outside financiers will

often judge the perceived reliability of

the entire study based on its least accurate piece. An otherwise well-conducted

feasibility study could be viewed as inaccurate or useless by a simple mistake. 

To prevent this, the study should be

carefully reviewed. It should be examined for overall clarity and logical consistency, and the appropriate questions

should be asked. Is the language appropriate? Is the document well organized? Can someone who is not familiar with the project understand the

study? The reviewers should confirm

assumptions and assure that the

assumptions have been explained.

The report serves as a compilation

of project efforts. Potential members,

financiers and others use this document to help determine their support

for the project. The report should

present conclusions from the study. It

should be professional in its organization and its presentation. Details

should be included such as a table of

contents, page numbers and references

that make understanding the document easier.

Although the contact members take

on the lead in working with the consultant, the entire group should review the

study carefully before deciding to

accept it. 

Advisors such as cooperative development specialists or extension agents

can provide an objective review of the

study and offer insights on content or

assumptions. This outside review can

be especially useful, when consultants

have prepared the report.

The group refines the report before

it is completed. Often a series of draft

reports are presented as the study proceeds. Changes are then conveyed to

the consultant.

Accepting the completed study

After the review is complete, the consultant normally makes a final report to

present key findings and recommendations. 

The group usually makes the preliminary decision to accept or reject the

study. Often, the contact members who

have been working with the consultant

and have the most knowledge of the feasibility study, make a recommendation to

accept or reject the study. 

The final decision rests with at least

the entire steering committee. In many

circumstances, the entire group must

grant final approval.

Approval should be based on the technical quality of the study. Does it fulfill

the work expectations that the group had

when contracting with the consultant?

Do the ideas presented differ substantially from those of the members for the

project? Does the study contain significant errors? Is the study sufficiently comprehensive to permit informed decisions

about continuing with the project? If key

information is lacking the group should

decide to have the study revised. 

A well-crafted, but negative, feasibility study can prevent the group from

undergoing considerable trouble and

expense to learn the same information

later in the project process. By the same

token, a feasibility study with a positive

economic return should be scrutinized

and not accepted merely because it

makes the project seem possible.

Written records of the decision-making process should be made and kept in a

safe place. Group members need to be

aware of their legal responsibilities for

due diligence. In the development of a

project, an attorney should be kept

appraised and provide appropriate legal

consul.

The next great idea for your farm or

your cooperative could be just around

the corner. But before betting the farm

on it, take time to hire a consultant to

do a feasibility study to ensure you

understand where that next great idea

can lead you. ■
Rural Cooperatives / July/August 2000 25

By Carolyn Liebrand

Agricultural Economist

USDA Rural Development

airy farmers and their

milk marketing cooperatives join the list of commodities to be hard-hit by

volatile market prices last year. But let’s

take a step back to review the financial

performance of these individuals and

organizations at the end of the 1990s. 

A picture of the financial performance of dairy cooperatives in the

United States was developed from the

results of a 1998 USDA survey.

Detailed information on cooperatives’

1997 finances were collected as a special

part of one of USDA’s annual mail surveys of agricultural cooperatives. Thirty-nine percent of the nation’s 226 dairy

cooperatives supplied complete data.

However, these 88 cooperatives represented about 96 percent of the total

assets held and 90 percent of the milk

handled by U.S. dairy cooperatives.

Overall, dairy cooperatives used

$5.15 per hundredweight (cwt) of milk

of total assets to market their members’

milk in 1997. Of their total assets, 55

percent ($2.84 per cwt) were current

assets; 26 percent ($1.32 per cwt) were

net property, plant and equipment; and

the remaining 19 percent ($1 per cwt)

were investments in other cooperatives

and assets (table 1). 

On the other side of the ledger, total

liabilities were 60 percent of total assets

($3.12 per cwt), current liabilities were

43 percent ($2.22 per cwt), and longterm liabilities were 18 percent ($0.90

per cwt). The remaining 40 percent of

total assets consisted of member equity

— both allocated ($1.70 per cwt) and

unallocated ($0.34 per cwt). 

Fluid milk and finished product sales

by dairy cooperatives were $19.85 per

cwt, which made up 88 percent of their

total income. The second largest segment of income came from supply sales

($1.77 per cwt), but these were just 8

percent of total income. The other 4

percent of total income came from other sales, service receipts and other

income, and patronage refunds from

other cooperatives. 

Net margins before tax was $0.30 per

How well are dairy

cooperatives performing?

D

Table 1—Consolidated balance sheet per cwt, by type of dairy cooperative, 1997

Type of cooperative

Bargaining Bargaining- Hard-product Branded- Diversified

Item only balancing manufacturing cheese & fluid processing All

$/cwt % $/cwt % $/cwt % $/cwt % $/cwt % $/cwt %

Current assets .91 75.4 1.45 61.5 2.84 58.1 6.62 65.8 3.62 53.1 2.84 55.1

Net PP&E 1/ .13 11.1 .78 33.1 1.86 38.1 2.89 28.7 1.70 25.0 1.32 25.6

Investments in other co-ops .13 10.6 .09 3.9 .17 3.5 .38 3.8 .81 11.9 .56 10.8

Other assets .03 2.9 .04 1.5 .01 0.3 .16 1.6 .68 10.0 .44 8.5

Total assets 1.20 100.0 2.35 100.0 4.88 100.0 10.06 100.0 6.81 100.0 5.15 100.0

Current liabilities .80 66.1 1.32 56.2 1.94 39.7 4.69 46.6 2.79 41.0 2.22 43.0

Long-term liabilities .04 3.1 .22 9.4 .73 14.9 .90 9.0 1.31 19.2 .90 17.5

Total liabilities .83 69.1 1.54 65.7 2.67 54.6 5.59 55.6 4.10 60.1 3.12 60.5

Allocated equity .30 24.8 .78 33.0 2.08 42.6 3.55 35.3 2.23 32.8 1.70 33.0

Unallocated equity .07 6.1 .03 1.3 .14 2.8 .92 9.1 .48 7.1 .34 6.5

Total equity .37 30.9 .81 34.3 2.22 45.4 4.47 44.4 2.72 39.9 2.03 39.5

Liabilities and equity 1.20 100.0 2.35 100.0 4.88 100.0 10.06 100.0 6.81 100.0 5.15 100.0

Number of cooperatives 45 4 9 10 20 88

Milk handled 19,632 16,475 5,434 1,265 71,627 114,432

(million pounds)2/

Note: Totals may not add due to rounding.

1/ Property, plant and equipment.

2/ Total milk volume handled by cooperatives, net of inter-cooperative transfers.
26 July/August 2000 / Rural Cooperatives

cwt. The ratio of net margins before tax

to total income was 1.3 percent. Return

on the assets used by cooperatives to

market milk was 7.1 percent (measured

by dividing net margins before taxes and

interest expense by total assets).

Performance by group

A portrait was also developed by

type of dairy cooperative, based on the

variety of functions the cooperative

performed to ensure a market for

member milk. There were differences

in the financial structure of cooperatives, depending upon their primary

function. The following dairy cooperative categories were identified:

• bargaining-only — focus exclusively on negotiating milk prices

and do not own plants; 

• bargaining and balancing — bargain for milk prices and manufacture about 25 percent of the milk

handled into commodity products

in their own plants;

• hard-product manufacturing —

most member milk used in their

own, large-scale manufacturing

plants where they make undifferentiated, commodity dairy products;

• branded-cheese marketing and fluid

processing — typically process all

their member milk in their own

plants, manufacturing and marketing specialty or branded cheese, or

bottled fluid milk, respectively;

• diversified — manufacture or

process more than half the milk

they handle into both differentiated

and commodity products, as well as

bargain for milk prices.

For this study, diversified and fluid

processing cooperatives were grouped

together.

Assets

Bargaining-only cooperatives used $1.20 to market 100

pounds of milk, while branded-cheese cooperatives used

$10.06 per cwt. The other

types of dairy cooperatives fell

in-between this price spread. 

Bargaining-only cooperatives’ current assets of $0.91

per cwt accounted for 75 percent of their total assets. For

the other groups, current assets

made up between 53 percent

(diversified and fluid processing cooperatives) and 66 percent (branded-cheese cooperatives) of total assets.

Property, plant and equipment (PPE)

accounted for only 11 percent of bargaining-only cooperatives’ total assets,

reflecting their lack of facilities. In contrast, PPE was 25 percent of total assets

for diversified and fluid processing and

38 percent for hard-product manufacturing cooperatives. 

Diversified and fluid processing

cooperatives had the highest level of

investment in other cooperatives and

other assets, $1.49 per cwt, which was

22 percent of total assets. The others

had low proportions of assets invested

in other cooperatives and other assets,

with the exception of bargaining-only

cooperatives where investments in other cooperatives represented 11 percent

of their assets.

Liabilities and equity

Total liabilities (current plus longterm liabilities) ranged from $0.83 per

cwt for bargaining-only cooperatives to

$5.59 per cwt for branded-cheese marketing cooperatives. However, liabilities

made up the largest proportion of total

assets for bargaining-only cooperatives,

69 percent, compared to the other

groups of cooperatives, which ranged

from 55 percent (hard-product manufacturing cooperatives) to 66 percent (bargaining-balancing cooperatives). 

Diversified and fluid processing cooperatives had the most long-term liabilities, reflecting a greater investment in

plants and facilities and

reliance on borrowed

capital. Long-term liabilities for the remaining groups ranged

from 15 percent of

total assets for hardproduct manufacturing

cooperatives to 3 percent for bargainingonly cooperatives.

Members of bargaining-only cooperatives held the lowest

equity stake in their

cooperatives, $0.37 per

cwt (30.9 percent of

Table 2—Average financial profile of dairy cooperatives, by type, 1997

Million dollars per cooperative 

Bargaining Bargaining- Hard product Branded- Diversified

Item only balancing manufacturing cheese & fluid processing All 

Total assets 5.3 38.7 66.3 14.1 243.9 67.0

Total liabilities 3.6 25.4 36.2 7.8 146.6 40.5

Total equity 1.6 13.3 30.1 6.3 97.3 26.5

Milk and dairy 

product sales 69.7 245.5 228.1 32.5 796.0 258.2

Net margins 

before tax .3 3.4 6.5 1.4 12.9 3.9

Milk handled per cooperative 

(million pounds)1/ 436 1,648 1,359 141 3,581 1,300

Number of 

cooperatives 45 10 4 9 20 88

Note: Totals may not add due to rounding.

1/ Net of inter-cooperative transfers.

0

5

10

15

20

25

30

B-O B & B HPM B-C D & FP All

Milk and dairy product sales

Supply sales

Other sales

Service receipts and other income

Patronage refunds received

Figure 1—Dairy cooperative sales and income

 per cwt, by type, 1997
Rural Cooperatives / July/August 2000 27

total assets). Member equity in hardproduct manufacturing cooperatives was

45 percent of total assets, the largest

share among the groups. However,

member equity per 100 pounds of milk

was highest for branded-cheese cooperatives at 44 percent of total assets. 

Most member equity was allocated

(directly assigned to individual members), regardless of the cooperative’s

primary function. Bargaining-balancing and hard-product manufacturing

cooperatives had the smallest portions

of unallocated equity (not assigned to

members) among the different types

(4 percent and 6 percent of total equity, respectively). About one-fifth of

the branded-cheese and bargainingonly cooperatives’ equity was unallocated.

Sales and income

Milk and dairy product sales per

hundredweight ranged from $14.90 for

bargaining-balancing cooperatives to

$23.16 for branded-cheese cooperatives. Ninety-nine percent of the hardproduct manufacturing cooperatives’

income came from milk and dairy

product sales, $16.79 per cwt, the highest proportion among the groups (fig.

1). Milk and dairy product sales of

$22.23 were 87 percent of total income

for diversified and fluid processing

cooperatives, the smallest proportion

among the different types. 

However, diversified and fluid cooperatives had the largest proportion of

supply and other sales (12 percent of

total income) along with bargainingonly cooperatives where 11 percent of

total income was from the sale of supplies and other items. The other three

types of cooperatives had minimal sales

of these types.

Net margins

Net margins before tax per 100

pounds of milk ranged from $0.06 for

bargaining-only cooperatives to $0.98

for branded-cheese cooperatives. Hardproduct manufacturing cooperatives

had the second largest net margins

before tax, followed by diversified and

fluid processing and bargaining-balancing cooperatives.

Branded-cheese cooperatives realized

the highest profit margin (4.1 percent of

total sales). Hard-product manufacturing cooperatives yielded the second

highest net margins to sales (2.8 percent). Diversified and fluid processing

cooperatives’ net margin was 1.4 percent

of sales, and similarly, bargaining-balancing cooperatives’ was 1.3 percent of

total income. Bargaining-only cooperatives generated the lowest net margins

(0.3 percent of total income).

Average 

The average (per cooperative) financial statement for each type highlights

the magnitude of their differences

(table 2). Diversified and fluid processing cooperatives were the largest cooperatives, on average, in terms of total

assets, milk and dairy product sales, net

margins, and volume of milk handled.

On average, diversified and fluid processing cooperatives used almost 50

times the assets used by bargainingonly cooperatives and four times the

assets used by the second largest type

of cooperative in terms of assets —

hard-product manufacturing cooperatives.

Diversified and fluid processing

cooperatives’ average milk and dairy

product sales were more than three

times larger than for bargaining-balancing cooperatives, the second largest

type in terms of average sales. Brandedcheese cooperatives had the lowest

average milk and dairy product sales

per cooperative, reflecting their generally smaller size.

Diversified and fluid processing

cooperatives had the highest net margins, on average, almost twice those of

the next highest. Branded-cheese

cooperatives had the second smallest

net margins. But, these were more

than four times the average net margins of bargaining-only cooperatives

and were generated with less than half

the average milk and dairy product

sales of bargaining-only cooperatives,

an indication of the value-added

nature of branded-cheese cooperatives’ operations.

To obtain a copy of the full report,

visit our website at:

www.rurdev.usda.gov/rbs/pub/research.

htm. ■

attract new businesses to rural areas, plus help existing

businesses expand. In addition, PREA and its member-cooperatives undertake projects that improve both rural infrastructure and the rural quality of life - cornerstones to economic development and job creation.

“We are perceived as rural advocates,” Biggica added.

“We did not get into the business of electricity for the money-making end of it. We are in the electricity business for

quality of life issues. You can have the best economic

development plans in the world, but if you don’t have sewers and roads and good schools — if you don’t have a good

infrastructure — your economic development plans don’t

work.” 

As rural advocates, PREA officials expect to sign a memorandum of understanding with the Pennsylvania environmental department to establish the first-ever public-private partnership in septic system installation. Under the agreement,

rural cooperatives not only financed research into the new

technology but will also have a hand in ensuring it is properly

licensed, installed and managed.

“With our reputation, we got through the regulation system three times faster than other groups coming forward

with new technology,” said Biggica. “And now we have the

regulatory agency acknowledging that they trust us enough

to ensure the technology is used correctly.” ■

– Pamela J. Karg, Field Editor

Continued from page 10
28 July/August 2000 / Rural Cooperatives

Blue Diamond buys MacFarms

Blue Diamond Growers, Sacramento, Calif., is acquiring MacFarms of

Hawaii, one of the nation’s largest

macadamia nut retailers, from Campbell Soup Co. for an undisclosed price.

The deal will be financed entirely from

the cash flow of MacFarms, which last

year generated sales of $30 million,

according to Walt Payne, president and

chief executive officer of Blue Diamond. The purchase includes 3,900

acres of macadamias and a processing

plant in South Kona, Hawaii. 

Payne added that Blue Diamond is

no stranger to the macadamia markets.

The cooperative has been marketing

MacFarms’ nuts to businesses worldwide as an ingredient for such food

products as cookies and candies for

nearly two decades. During that period,

MacFarms has become the global

leader in ingredient, or industrial sales.

Now, as owner of MacFarms, Blue Diamond also will market MacFarms’

retail product, which today represents

about half the annual MacFarms sales.

Cenex Harvest States names new CEO 

North Dakota native John D. Johnson is the new president and chief executive officer of the producer-owned

Cenex Harvest

States Cooperatives. He

succeeded

Noel Estenson, who

retired June 1.

Johnson, 51,

joined the former Harvest

States Cooperatives in

1976 as a feed consultant, later becoming a regional sales manager and finally

general manager of the GTA Feeds division. In 1995, he was named Harvest

States president and CEO. Johnson

became president and general manager

of Cenex Harvest States when the co-op

was formed in June 1998. Estenson, 61,

joined Cenex as a credit manager in

1963 and rose through the ranks to

become president and CEO in 1987. He

was named CEO of the merged Cenex

Harvest States in 1998.

McLean new USDA/RUS leader

Christopher A. McLean has been

sworn in as administrator of the Rural

Utilities Service (RUS) of USDA Rural

Development. McLean succeeds Wally

Beyer, who retired October 31, 1999.

“Chris McLean is dedicated to the

biggest task RUS faces today — making sure that rural America is not left

behind as we advance into the information age,” Agriculture Secretary Dan

Glickman said. “He comes prepared to

help rural Americans meet their needs

for safe drinking water, modern

telecommunications and an adequate

supply of electrical power.”

As the administrator of RUS, McLean

will oversee financing for rural electric

cooperatives, telecommunications and

water programs, and administer the distance learning and telemedicine loan and

grant program. The RUS loan portfolio

contains over $42 billion in investments

in rural utility infrastructure. McLean

will also serve as governor of the Rural

Telephone Bank, a public/private lending institution that promotes rural

telecommunications infrastructure.

Previously, McLean worked in the

U.S. Senate for more than 15 years,

NEWSLINE

John D. Johnson

Blue Diamond Growers has acquired MacFarms of Hawaii, which markets $30 million worth

of macadamia nuts annually. Photo courtesy Blue Diamond Growers
Rural Cooperatives / July/August 2000 29

serving as a legislative assistant and

legal counsel to Sen. James Exon of

Nebraska, and later as legislative counsel to Sen. Bob Kerrey, also of Nebraska. While at the Senate, he worked on

telecommunications, budget, transportation and trade issues. He was

instrumental in crafting the universal

service and rural provisions of the

Telecommunications Act of 1996. 

McLean received a B.S. and J.D.

from Creighton University, Omaha,

Neb. He also holds a Master of Laws

degree from Georgetown University.

Internet-based meat exchange forms

IBP, Cargill, Smithfield Foods,

Tyson Foods, Gold Kist and Farmland plan to invest $20 million to

create an Internet-based meat market. The four investor-oriented firms

will each control 21.5 percent of the

new company while the two cooperatives will each control 7 percent.

Buyers on the exchange will pay subscription fees and there will be transaction fees and advertising to cover

the cost of the operation. Each of the

six companies will still compete

through this new channel as well as

through traditional channels.

Farmington co-op buys new

technology 

A small Farmington, Maine, cooperative has purchased a portable grain

roaster that can process grains, corn

and soybeans into a nutritious, tasty

animal feed. Maine farmers hope it will

translate into large savings so they no

longer have to buy processed feeds

from other states or Canada.

The machine was put through its

paces when a truckload of locally

grown soybeans was poured through a

chute into the gas-powered roaster and

heated to 280 degrees. The machine

roasts and cools the product to air temperature at a speed of 12 tons per hour. 

This is the only grain roaster in the

state, said John Harker, of the state

Department of Agriculture. Farmers

looked into buying them, but the cost

was prohibitive. This year, grants and

loans became available, and the local

co-op took the initiative. 

“Importing feed has been the highest cost for dairy farmers,” Harker said.

“This machine will reduce their costs

and will also give them the opportunity

to expand their soybean production.”

The department contributed a

$10,000 grant and a $15,000 low- interest loan toward the $30,000 purchase.

The group took out a loan from Finance

Authority of Maine, and four farmers in

the cooperative pitched in $5,000 apiece. 

Citrus World to buy plant

Citrus World Inc., Lake Wales, Fla.,

has purchased the Sun Pac Foods Inc.

citrus processing plant in Bartow for an

undisclosed price. “We need the Sun

Pac facility to keep up with production

of our premium juice products,” said

Steve Caruso, chief executive officer of

Citrus World, parent company of

Florida’s Natural Growers. “Our plans

are to grow this business.”

The plant employs 80 people and

processes about 5.5 million boxes of

oranges into juice annually. Citrus

World plans to retain current employees and expand the facility sometime

in the future. Sun Pac, based in

Brampton, Ontario, Canada, had been

processing oranges under contract

with Citrus World since 1994. 

Florida’s Natural Growers is the

largest citrus cooperative in Florida,

with 12 member organizations representing more than 1,000 growers and

60,000 acres of citrus groves. It

processes more than 20 million boxes

of oranges into frozen concentrated

and not-from-concentrate juice. It

markets under brand names such as

Florida’s Natural, Grower’s Pride,

Donald Duck, Bluebird, Adams and

Texsun. 

Apple cooperative to close

Chief Tonasket, Okanogan County,

Wash., closed its apple packing cooperative this summer, putting 80 employees out of work. In the past decade, the

72-year-old co-op went from packing

about 90,000 bins of fruit to 27,000

bins last year.

“It’s very, very sad, but basically the

hole was too deep,” General Manager

Steve Skylstad said. Most of the Chief

Tonasket employees were laid off in

mid-July after the remaining Red Delicious apples in storage from the 1999

crop were sorted and packed. Most

employees were seasonal, but about 12

were full time. Chief Tonasket once

packed apples for 80 farmers, but only

15 remain. They will have to find new

warehouses.

Chief Tonasket’s annual payroll is

$1.2 million, much of which is spent

Kentucky grain farmers eye ethanol plant 

Kentucky Gov. Paul Patton recently presented a USDA grant for $95,000

to a group of western Kentucky grain producers to finance a study on

ethanol production. Patton delivered the check from USDA Rural Development to Ronald Berry, president of the Hopkinsville Grain Elevator. The

2,200-member cooperative of grain producers from 17 western Kentucky

counties plans to use the money to match $30,000 in state money and pay for

a study assessing the feasibility of ethanol production. 

“While commodity prices remain at historically low levels and changes in

tobacco production present additional downward pressures in our rural economy, it is essential that we look together at new and innovative ways to add

value to our traditional farm products,” Patton said.
30 July/August 2000 / Rural Cooperatives

in local businesses, Skylstad said.

Local orchards that were ripped out

after the disastrous 1998 apple crop

were part of the problem. Also, farmers who raise high-quality fruit left the

co-op to get more money at packinghouses in Brewster and Wenatchee.

About 80 percent of the co-op’s tonnage was in old varieties of Red Delicious apples. Those Reds have

brought the lowest selling prices in

recent years.

No figures are available to show

how many of Okanogan County’s

29,000 acres of orchards have been

removed since 1998, but some industry leaders believe up to 20 percent are

no longer producing fruit.

N.J. to sell new blueberry products 

A new blueberry venture is seeking

to create a market for a “JerseyBlues”

iced tea. Also hitting fruit stands and

some stores this summer is a mashed

blueberry spread called pomace. The

products are being test-marketed in

New Jersey and Japan. They were

developed by researchers at Rutgers

University as a way to raise blueberry

prices, which have been depressed.

Project sponsors include Rutgers,

USDA and the Pinelands Commission,

a state agency that manages the 1.1-

million-acre Pinelands national reserve.

In 1998, New Jersey farmers produced 36 million pounds of blueberries

worth $28.4 million. The 79 cents a

pound that farmers received that year

was well below the $1 per pound they

earned in 1997 and the all-time high of

$1.61 per pound in 1978. 

Sandy and acidic soils of the Pine

Barrens, covering 22 percent of the

state, are perfect for cultivating

berries and have made New Jersey

second in the nation in blueberry production, behind Michigan, and third

in cranberry production. However,

cranberry prices plummeted from $55

a barrel in 1997 to roughly $10 this

year, primarily because of a production surge that outpaced static

demand. 

In New Jersey, hundreds of acres of

blueberry fields were converted into

cranberry bogs. From 1993 to 1998,

cranberry farming jumped nearly 600

acres, to 3,980; during the same period,

blueberry acreage

dropped from 8,100

to 7,500.

Blueberry

growers then lobbied the state to

impose a fee of sixtenths of a cent per

pound, in part for

research and development. Some

money went to the

Rutgers project,

along with a

$95,000 grant from

the USDA, $29,000

from the Pinelands

Commission,

$36,000 from the

New Jersey Agriculture Experiment

Station, and $5,000 from the state

Farm Bureau. 

To market the products, growers

incorporated Blueberry Health Inc.

Its goal is to make blueberry juice as

mainstream as orange, apple and cranberry juices. Growers predict blueberries could be especially big among

consumers because of their potential

health benefits — they are among the

richest sources of certain antioxidants

that some studies have linked to slower aging and reduced cancer risk. 

Honse to take over Farmland reins

The Farmland Industries board of

directors has named Robert W. Honse

to the position of president and chief

executive officer, effective

Sept. 1. At the

same time, the

board appointed Farmland’s

current president and

CEO, H.D.

“Harry” Cleberg, as consultant to

Honse from

Sept. 1 to Dec. 31.

Honse holds a bachelor’s degree in

chemical engineering from the University of Virginia and joined Farmland in

1973 as project manager at its Lawrence,

Kan., fertilizer plant. In 1986, he became

general manager at Farmland’s phosphate manufacturing operations in central Florida. Since returning to the coop’s headquarters in Kansas City in 1989,

Honse has held a variety of senior management positions, most recently as

Farmland executive vice president and

chief operating officer.

Upstate Farms expands milk facility

Upstate Farms Cooperative is planning a multimillion-dollar expansion of

its milk production and distribution

facility in Cheektowaga, N.Y., a change

that will trim 25 jobs at its Jamestown

plant. Relocation of milk processing

operations from Jamestown to the

cooperative’s facility in Cheektowaga,

effective Sept. 8, will cut eight jobs

from the Jamestown payroll. Another

16 jobs will be cut in June 2001,

according to David Crisp, Upstate

Farms chief operating officer. 

Upstate Farms is expanding its

Cheektowaga plant by 27,000 square

Blueberry tea may just be a hit with consumers — it’s the right

color for kids and it’s healthy, which adults appreciate.

Robert W. Honse
Rural Cooperatives / July/August 2000 31

feet, adding more cooling and storage

capacity. The cooperative recently purchased a vacant office building in

Cheektowaga, which it expects to use

for administrative personnel. Upstate

Farms, owned by some 400 dairy farmers, produces more than 200 products

under Upstate Farms, Bison, Milk For

Life and Aahhh! labels. The Cheektowaga liquid products plant employs

175 workers, and its Bison cultured

products plant, in Buffalo, employs

another 120 in the production of

yogurt and chip dip. 

States launch inquiry into big dairy 

Massachusetts, Connecticut and

Vermont have launched an antitrust

investigation into the growing market

clout of Suiza Food Corp., a Dallasbased dairy processor that one study

says now controls 70 percent of the

region’s milk supply. The attorney general’s offices of the three states joined

forces in the inquiry, officials said.

Suiza has rapidly emerged as the major

player in the New England milk market

through an aggressive strategy of buying smaller dairies. But regulators are

concerned that this expanding market

share threatens to limit choices for

both farmers and consumers. 

Over the past three years, Suiza has

bought Seward’s Dairy, Rutland, Vt.;

Garelick Farms, Franklin, Mass.;

Nature’s Best Dairy, Cranston, R.I.; New

England Dairies Inc., Hartford, Conn.;

and Grant’s Dairy, Bangor, Maine. It also

has acquired the milk processing facilities of Canton-based Cumberland Farms

Inc. in Massachusetts and in New York,

and processing plants owned by West

Lynn Creamery in Massachusetts. 

As Suiza has bought milk companies,

it has closed four processing plants in

New England, a consolidation that

effectively limits the market for farmers

and dairy co-ops, the states claim. The

company’s buying spree has already

begun to affect some Vermont farmers.

In February, the St. Albans Cooperative Creamery learned that it was going

to lose its long-time co-packaging customer, Stop & Shop Supermarkets, to

Suiza. ■

LOL sells fluid plants, continues

cheese plant study

Illinois-based Dean Foods Co. is buying the Upper Midwest fluid milk

operations of Land O’Lakes (LOL) Inc. The companies also are forming a

joint venture to market and license some products to expand their reach.

Terms of the agreement, closed July 1, were not disclosed. The deal is subject

to regulatory approval.

LOL, Arden Hills, Minn., is a food and agricultural cooperative doing

business in all 50 states and more than 50 countries. Dean Foods, Franklin

Park, Ill., is a processor and distributor of regionally branded and privatelabel dairy products. The purchase includes four fluid dairy plants — in

Woodbury, Thief River Falls and Bismarck, N.D., and in Sioux Falls, S.D.,

as well as a new extended-shelf-life dairy plant at Richland Center, Wis.

The division generates annual sales of about $310 million and markets a

full line of fluid milk, yogurt, creams, sour cream and cottage cheese, 85

percent of which is sold under the Land O’Lakes brand name. The two

businesses will each hold a 50 percent stake in the joint venture that will

develop and market cream, half and half, sour cream and extended-shelflife products.

“The joint venture allows us to extend the reach of our most innovative

fluid dairy products, and we will use the proceeds from the sale to build and

strengthen our core businesses on behalf of our members,” said Chris

Policinski, Land O’Lakes executive vice president and chief operating officer

of the dairy foods value-added group. Meanwhile, the Midwest would make

an excellent home for what would be the largest cheese plant in the eastern

United States, according to a feasibility study by LOL and Alto Dairy Cooperative, Waupun, Wis. The two proposed building the plant earlier this year.

Executives with the cooperatives said the facility would ultimately handle

more than 1.7 billion pounds of milk annually, generate more than 100 jobs

and include an annual payroll of about $6 million. 

The feasibility study said Upper Midwest dairy producers have an advantage in resources, particularly water and crop production. They also have

edges in experience, expertise, long-standing production and processing

infrastructure, market presence and reputation. Officials with both cooperatives said they would study the possibility of building the plant in Wisconsin,

the nation’s leading cheese producer. The state lost market shares to newer

and larger plants in California and other western states in the 1990s.

But Alto and LOL leaders have yet to decide to build the plant. Besides

location, issues include environmental requirements, construction costs,

financing options and economic support. No timetable for a final decision

has been set.
Rural

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