Rural

COOPERATIVES COOPERATIVES

USDA / Rural Development January/February 2000 USDA / Rural Development January/February 2000

Co-ops in the

21st Century

Co-ops in the

21st Century
2 January/February 2000 / Rural Cooperatives

With the ever-increasing size of

farming operations, concentration of

marketing and processing of agricultural commodities, and consolidation

of the banking industry, the traditional

economic ties of the farm sector and

rural communities have been changed.

Larger farms are less dependent on

local implement dealers and farm suppliers. Because of their large size, these

farms can sometimes negotiate better

prices with larger, but more distant suppliers. They are also less dependent on

local lending institutions.

As a result, less of the capital generated by agricultural production is

remaining in rural communities. This

trend has a negative impact on local

businesses. Agricultural production still

generates a significant portion of the

income in rural economies and loss of

that capital weakens the fabric of rural

communities.

I believe, as do the authors of the

articles in this issue of Rural Cooperatives, that cooperatives can play a key

role in ensuring that more of the capital generated by agriculture remains in

local areas and supports other businesses in rural communities. 

Managing a farming operation will

never be an easy task. However, participation in a cooperative can make it

easier and more profitable. As I have

noted before, cooperatives that process

their commodities into value-added

products earn higher profits for their

members. For example, a cooperatively owned and operated soybean processing plant that recently began production in a Midwest state means an

extra 40 cents per bushel to its members. In this particular case, this is 40

cents per bushel that was leaving the

state because the processing was taking

place in a neighboring state. 

I predict that the number of valueadded cooperatives will increase significantly in the near future, as will the

number of cooperatives serving small

producers of fruits, nuts and vegetables. These cooperatives will provide

primary processing operations such as

cleaning and bagging for local farmer’s

markets.

I also believe that we will see a similar increase in marketing cooperatives

that have the potential to provide more

equity in the distribution of economic

power in the food chain. However,

farmers must also make the decision to

become more entrepreneurial through

the use of marketing cooperatives.

There are slightly more than 2 million

farmers today selling to a handful of

buyers. The result is that farmers are

price takers.

Marketing cooperatives will be even

more important in the future because

the advances in technology and globalization, as one author notes, are

becoming the defining pressures on

agriculture. Individual producers may

not have the where-with-all to adapt to

rapid changes in global markets,

whereas cooperatives could perform

those functions for them. 

Traditional federal farm policies

have inadvertently discouraged “pooling” or marketing cooperatives because

of subsidies directed to individual

farmers. These policies need to be

changed to give producers a more level

playing field and an opportunity to

earn more of the food dollar. In the

same way health care purchasing cooperatives use the power of numbers to

obtain better and less expensive health

care, farmers who pool their commodities could enjoy a better position in the

market and be less reliant on the government. And the additional income

would help strengthen rural communities and rural economies.

Jill Long Thompson

Under Secretary, USDA Rural Development

COMMENTARY

Co-ops keep farm-generated

capital at home
Rural Cooperatives / January/February 2000 3

FEATURES

4 Co-ops’ share of farm marketings 

up slightly in ’98

Charles Kraenzle

7 Co-ops in the 21st century

Five writers view what lies ahead for co-ops in the new century

R. Torgerson, E. Eversul, G. English, C. Snyder, P. Hazen

17 Seeing the forest for its trees

Cooperatives promote sustainable forestry and tap green trends

Pamela J. Karg

23 New model, old ways

Wisconsin farmers find new life serving burgeoning 

organic markets

Pamela J. Karg

28 Asset growth for largest co-ops show resilience

to declining revenues

David S. Chesnick

32 Depressed ag sector puts squeeze on 

largest co-ops

David S. Chesnick

DEPARTMENTS

2 COMMENTARY

16 A CLOSER LOOK AT...

22 IN THE SPOTLIGHT

38 NEWSLINE

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Dan Glickman, Secretary of Agriculture

Jill Long Thompson, Under Secretary,

Rural Development

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Rural Business–Cooperative Service

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United States Department of Agriculture

Rural

COOPERATIVES COOPERATIVES

January/February 2000 Volume 67 Number 1

On the Cover:

The sky is the limit — or is it? — as cooperatives enter a new century and a

new mellennium. What will the future hold? Five experts take a look at issues

confronting the co-op movement as we enter a new era. 

Story on page 7. Illustration by Mike Cressy
4 January/February 2000 / Rural Cooperatives

Charles A. Kraenzle, 

Director

RBS Statistics Staff

USDA Rural Development 

Editor’s Note: Assistance in developing estimates of cooperatives’ shares of farm marketings and farm production expenditures

was provided by staff members of the Rural

Business-Cooperative Service of USDA’s

Rural Development: David Chesnick, 100

largest cooperatives; Dave Cummins, grains

and oilseeds; Eldon Eversull, farm supplies;

Andy Jermolowicz, fruits and vegetables

and tobacco; Charles Ling, milk; and Bruce

Reynolds, cotton and cottonseed.

recent U.S. Department of

Agriculture analysis

showed that farmer cooperatives’ share of total

farm marketings — including crop, livestock and poultry — was 30 percent in

1998. That’s up from 29 percent in

1997, but below the 32 percent reported for 1996 (fig. 1). The 1998 market

share was based on cooperatives’ net

marketing business volume of $76.6 billion, down from $77.8 billion in 1997

and the record $79.4 billion in 1996.

The major factor in the overall

increase in cooperatives’ share of farm

marketings was the significant increase

in cotton and cottonseed share to 43

percent in 1998 from 38 percent in

1997. Increased marketings of the

1997 cotton crop by cooperatives was

the major factor. 

Cooperatives’ share of major farm

production items — feed, seed, fertilizer, crop protectants and petroleum —

purchased by the nation’s farmers was

29 percent in 1998, the same as in

1997. The 1998 share of farm supplies

purchased was based on cooperatives’

net sales of $24.6 billion, down from

the record $25.2 billion in 1997. 

Most milk sold through co-ops

Farmers market a large percentage

of their milk through cooperatives.

Cooperatives’ net sales of milk and

milk products totaled $25.3 billion in

1998, up nearly $2 billion, or 8.4 percent, from 1997. U.S. farm cash

receipts for milk was up nearly $3.4 billion, or 16.1 percent, in 1998, due to

higher milk prices. As a result, co-ops’

share of total U.S. farm cash receipts

for milk was down slightly in 1998, to

86 percent from 87 percent in 1997

(table 1). 

Nationally, the quantity of milk sold

to plants and dealers in 1998 was up

nearly 1.0 percent from 1997. At the

same time, the U.S. price per 100

pounds of milk was up an average of

15.3 percent. Co-ops’ share of milk

sales at the first-handler level includes

the value of milk for which cooperatives bargained with processors over

price and terms of trade for members. 

Co-ops’ share of grain and oilseed

marketings at the farm-gate dropped

from 43 percent in 1997 to 40 percent

in 1998. During 1998, farmer cooperatives marketed $21.3 billion of grains

and oilseeds, down from $24.6 billion

in 1997. Since grain production was up

and related prices were sharply lower in

1998, it appears co-ops’ loss in U.S.

grain share was mainly due to a proportionately smaller increase in the quantity of grains marketed by co-ops at the

farm-gate. 

Co-ops’ share of cotton/cottonseed

cash receipts was 43 percent in 1998,

up from 38 percent in 1997. The net

value of cotton and cottonseed purchased by farmer cooperatives was

nearly $3 billion, down 1.4 percent

from 1997. However, farm cash

Co-ops’ share of farm marketings 

up slightly in ‘98

A

FIGURE 1

Co-ops’ shares of U.S. farm marketings and farm production expenditures, 1982-98

34

32

30

28

26

24

22

1982 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

Farm Marketings1/ Major Farm Production Supplies2/

1/ Based on U.S. farm cash receipts.

2/ Based on U.S. cash expenditures for crop protectants, feed, fertilizer, petroleum and seed.
Rural Cooperatives / January/February 2000 5

receipts for cotton and cottonseed were

down 9.1 percent for the 1997 crop. 

Co-ops accounted for 19 percent of

the nation’s fruit/vegetable sales in 1998,

the same as in 1997 and 1996. Their

sales of fruits and vegetables totaled

nearly $9.4 billion in 1998, up 1.3 percent from a year earlier. Total U.S.

average cash receipts for fruits/vegetables was up 2.3 percent in 1998. This

change, however, was not large enough

to change co-ops’ share of fruits and

vegetables marketed off the farm. 

Cooperatives’ share of livestock

(including wool and mohair) marketings was 14 percent in 1998, up from

12 percent in 1997. Co-ops’ net sales

of livestock was $7.4 billion in 1998,

down $42 million, or 0.6 percent.

However, total U.S. cash receipts for

livestock/wool decreased 11.4 percent

from 1997 to 1998, due to lower prices,

especially for hogs and pigs.

Cooperatives’ share of “all other”

marketings, such as poultry, dry edible

beans and peas, tobacco, nuts, rice and

sugar, was 12 percent, down from 13

percent reported for 1997. Co-ops’

“all other” marketings in 1998 totaled

$10.2 billion, a 1.6-percent increase

from the $10.1 billion marketed in

1997. In comparison, total U.S. cash

receipts for “all other” marketings

increased 5.8 percent. The biggest

increase was in miscellaneous marketings, such as hay, grasses and other

field crops. 

Figure 2 shows the most recent 5-

year market-share trends for selected

farm commodities marketed by farmer

cooperatives. Grain/oilseed and cotton/cottonseed shares varied. Milk,

fruit/vegetable and livestock/wool

shares were fairly level. 

Share of farm production

expenditures holds steady

Co-ops’ share of major farm production items—feed, seed, fertilizer, petroleum and crop protectants—was 29

percent in 1998, the same as in 1997.

Co-ops increased their market share of

only one major farm input, petroleum.

Co-ops’ shares of fertilizer, crop protectants and seed remained the same,

while feed’s share dropped slightly to

21 percent (table 2 and figure 3). 

Total U.S. farm cash expenditures

for the five major supply items

decreased 2.7 percent from 1997 to

1998, while co-ops’ sales decreased 3.9

percent. Co-ops’ sales of feed was $5.4

billion, down from $6 billion, or 9.7

percent, in 1997. Total feed expenditures also declined, falling 4.9 percent.

Co-ops’ 50-percent share of petroleum expenditures set a record high. The

previous record was 46 percent in 1991.

Co-ops’ sales of petroleum totaled $6.6

billion in 1998, down from $6.8 billion,

or 2.1 percent, from 1997. However,

total U.S. farm expenditures for petroleum fuel and oils in 1998 was $5.6 billion, down from $6.2 billion, or 10.4

percent, due mainly to lower fuel prices.

FIGURE 2

Co-op’s shares of U.S. farm products marketed, by commodity group, 1994-98 

Percent of U.S. cash recipts

100

80

60

40

20

0

1994 95 96 97 98

Livestock and wool Fruits and vegetables

Cotton and cottonseed Grains and oilseeds

Milk

Table 1—Cooperatives’ shares of U.S. farm marketings, 

by selected commodity group, 1998-96

Commodity group 1998 1997 1996

Percent of U.S. cash receipts 1/

Milk and products 86 87 86

Grains and oilseeds 40 43 50

Cotton and cottonseed 43 38 32

Fruits and vegetables 19 19 19

Livestock and wool 2/ 14 12 13

All other 3/ 12 13 13

Total 4/ 30 29 32

1/ Estimates are rounded to the nearest whole percent. Selected data items were revised for 1996

and 1997.

2/ Includes mohair.

3/ Includes poultry and eggs, dry edible beans and peas, nuts, rice, tobacco, sugarcane, sugar beets,

honey and other miscellaneous marketings.

4/ All farm commodities weighted by value.
6 January/February 2000 / Rural Cooperatives

Calculating co-ops’ share of petroleum expenditures is more difficult than

for the other farm supply items because

a major proportion of co-ops’ petroleum sales is for nonfarm use. Based on

previous research, farm use was estimated to be 43 percent. This percentage

was applied to co-ops’ net sales in calculating market share. This can vary

from year to year, depending on weather conditions and other factors.

Co-ops’ lowest share of the major

farm supply items was seed, at 10 percent, unchanged from 1997 and 1996.

Co-ops’ share of total U.S. cash expenditures for seed was a high of 19 percent in 1987. 

Cooperatives’ sales of major farm

supplies totaled $21.1 billion in 1998.

Petroleum sales accounted for more

than $6.6 billion, or 31.4 percent, of the

total. Co-ops’ sales of seed and crop

protectants were up, while all others

were down. This was the same for corresponding total U.S. cash expenditures. 

Feed accounted for the second

largest proportion of co-ops’ farm supply sales (25.6 percent), followed by

fertilizer (24.5 percent) and crop protectants (15 percent). Seed accounted

for only 3.5 percent. Total U.S. feed

expenditures accounted for 43.5 percent of the major farm supplies purchased, followed by fertilizer (18.5 percent), crop protectants (15.8 percent)

and seed (12.5 percent).

Methods used in developing co-op

shares

Cooperative-share estimates for

selected commodities and farm supplies

are based on data from the following

sources. The annual survey of farmer

cooperatives conducted by USDA’s

Rural Business-Cooperative Service,

other Cooperative Services studies,

cash receipts from farm marketings and

farm production expenditures published by USDA’s Economic Research

Service (ERS) and Cooperative Services’ commodity specialists. 

Co-ops’ shares of farm marketings

represent estimates of cooperative

activity at the farm-gate or first-handler level. Share estimates for farm

production items represent cooperative

activity in sales of supplies to farmers.

The share estimate for each commodity was based on dollar value and yearto-year changes in related data or on

physical quantity (where available). In

most cases, the share estimate was

based on dollar value.

For those commodities for which

physical quantity handled by cooperatives was not available, cooperatives’

shares of farm marketings were estimated by first subtracting gross margins from net cooperative business volume. These estimated “payments to

farmers” were then related to their

respective total U.S. cash receipts,

adjusted for crop year, to calculate the

percentage share figures. 

Shares of the major farm supply

items were estimated by first subtracting from co-ops’ net business volume

the volume of business exported, sold

to other firms and used for nonfarm

purposes. These adjusted business

volumes were then related to their

respective total U.S. cash expenditures

to calculate their percentage share

estimates. ■

Table 2—Cooperatives’ shares of major U.S.

farm production expenditures, 1998-96

Farm production item 1998 1997 1996

Percent of U.S. farm production expenditures 1/

Fertilizer 45 45 44

Petroleum 50 45 44

Crop protectants 34 34 32

Feed 21 22 21

Seed 10 10 10

Total 2/ 29 29 28

1/ Estimates are rounded to the nearest whole percent.

2/ The five major farm production items weighted by value. Data for 1997 were revised.

FIGURE 3

Co-op’s shares of selected U.S. farm production expenditures, 1994-98

Percent of U.S. cash recipts

60

50

40

30

20

10

0

1994 95 96 97 98

Seed Feed

Crop protectants Fertilizer

Petroleum
Rural Cooperatives / January/February 2000 7

Randall Torgerson, 

Deputy Administrator

Cooperative Services

USDA Rural Development

tructural change in the

food and agricultural

industries in the last quarter of the 20th century

was phenomenal and appeared to be

accelerating as we approached 2000. It

even piqued the interest of Congress,

where a bill was introduced to place a

moratorium on mergers, acquisitions

and consolidations — but the bill

excluded cooperatives! Despite the

bill’s defeat in November 1999, it clearly defined public concern over concentration and other structural changes in

the food and agricultural industries.

Farmer interest in structural change

revolves around: (1) the growing disparity in market power between farmers and their suppliers and buyers; (2)

the inevitable loss of market access as

concentration accelerates; (3) the market challenge of competing with lowcost imports produced under conditions of fewer environmental, food

safety and labor controls than are faced

by domestic producers; (4) the increasing use of production contract terms

that alter the entrepreneurial role of

producers; and (5) the growing use of

genetically modified organisms and

related production and marketing controls placed on them by property-right

owners. These issues suggest that producers must assume more control of

their industry by working together

through the development of effective

cooperatives and a coordinated cooperative system. 

An important opportunity, if farm

operators are to have more control

over their industries, is to make better

use of provisions of the Capper-Volstead Act of 1922. It allows them to

organize and coordinate their marketing activity without fear of prosecution

under the antitrust laws. This limited

antitrust immunity not only enables

producers to develop market power on

their behalf to better deal with other

competitors, but also helps them

address supply chain issues from a wellcoordinated position of strength. 

A major element of marketing in the

new millennium will focus on organization for pricing of products and services offered by producers and on linking local value-added strategies with

coordination among these otherwise

fragmented cooperatives. 

More cooperative bargaining

Contracting is on the increase in

many crop and livestock sectors. Much

of this increase is associated with the

trend toward identity-preserved marketing based on special characteristics

that are genetically incorporated into

crops or livestock. Both marketing and

production contract producers can

organize to represent their interests

through cooperative bargaining associations. The primary role of these assoCooperative marketing in the new

millennium

S

Co-ops in the 21st Century
8 January/February 2000 / Rural Cooperatives

ciations is to negotiate acceptable price

and service contract terms on behalf of

producers. They also: serve important

roles as clearinghouses for contract

information; provide a member education role; promote product use in

domestic and foreign markets; develop

partnerships with similar groups in

other countries; promote, foster and

discuss marketing cooperative operations; and serve as a voice for producers

in industry affairs. They are a core

group in representing the occupational

interests of producers as farm business

persons in the policy arena and in the

marketplace.

To more effectively perform this

role, cooperative bargaining associations — whether single or cross-commodity — will work legislatively

toward establishing institutional rules

that augment the bargaining process.

This will include provisions for good

faith negotiations, dispute resolution

mechanisms and enforcement procedures. These will be crafted to effectively represent both associations negotiating marketing contracts and those

negotiating production contracts on

behalf of piece-wage growers. 

The negotiation process will

become more accepted as a method for

producer/processor communications

and problem resolution. As a result, it

will establish the important farmgate

values of product and service that are

so desperately needed as a benchmark.

Coordination of value-added

cooperatives

Value-added marketing will continue to be emphasized in the 21st century

as a means of market development and

bringing home to producers a greater

portion of the marketing margin

between the farmgate and the consumer’s purchase price. The emphasis

of many “new generation” cooperatives

is on pooled marketing, using delivery

rights as a basis for membership investment in processing and marketing

activity. 

Vertical integration of this type

assures producers of a market and the

preservation of their role — through

collective action — as farm entrepreneurs. The economic rationale for this

strategic approach is that deliveries are

limited to the delivery rights owned by

cooperative members. Therefore, supplies can be better tailored to meet

demand. More delivery rights can be

purchased by existing members, or new

members can be added, as the market

for the product grows.

A limitation to this approach is the

potential for creation of many relatively small processing cooperatives at the

very time major processors and retail

buyers are procuring from fewer but

larger suppliers on a managed delivery

basis. This fragmented selling situation

— as characterized by many ethanol-,

egg- and pasta-producing cooperatives

— can be overcome by following the

model established by beet sugar manufacturing cooperatives, which organized a marketing agency-in-common

called United Sugars to market their

output nationally.

While markets for bulk commodities will still exist, the development of

nutriceuticals and other bio-engineered crop varieties suggests that a

more segmented marketing pattern

could develop. It will involve marketing identity-preserved crops that incorporate some value-added characteristics and moving away from non-differentiated bulk commodities.

It can be noted that publicly traded

companies generally have not done

well in commodity marketing, while

privately held businesses have dominated. Cooperatives can build on their

strength in local origination of grains

and other commodities by engaging in

orderly commodity marketing on a

pooled basis. This implies engaging in

storage, regular release of grain to the

market and pricing it according to different uses or characteristics. A clear

trend at present toward use of directmembership commodity marketing

organizations will continue to grow in

the new millennium. 

Small producers will find local marketing opportunities in fresh markets

by using cooperative packing and primary processing (shredding, dicing,

bagging) operations for produce. In a

number of instances, farmers’ markets

can be organized on a cooperative basis

to provide regular and attractive outlets

for locally grown fruits, herbs and vegetables. Links with school districts, federal and state institutional facilities and

other outlets can also be developed as

market outlets.

Cooperative policy role

One important question about the

future of cooperatives is whether favorable governmental policies will assist in

their development — which, for the

most part, has not been the case since

the 1930s. Federal price-support programs, with the exception of cotton,

have generally discouraged pooling

through cooperatives and thereby

diminished the price- stabilization role

cooperatives play. The price floor was

established by offering subsidies directly from the government to each individual farmer as either non-recourse

loans or deficiency payments. A better

alternative — clearly demonstrated and

used by the cotton sector — gives

farmers the option of receiving the

government subsidy through a cooperative marketing pool. Forthcoming

Congressional hearings addressing the

adequacy of the Federal Agriculture

Improvement and Reform Act, or lack

thereof, will offer an opportunity to

explore these and other pro-farmer features of farm policy.

The rapid structural change in agriculture that threatens the existence of

individual farm operations will be

turned to advantage by recognizing the

strength derived from building cooperative systems. Farm operators will be

able to preserve their entrepreneurial

role through cooperative action and,

thereby, maintain dispersed ownership

in agriculture, a distinctive quality of

American agriculture that will persevere in the new millennium. ■
Rural Cooperatives / January/February 2000 9

E. Eldon Eversull, 

Agricultural Economist

USDA Rural Development

ooking forward into the

new millennium, the

mantra for cooperatives

selling farm supplies will

be as it has always been: faster, better

and cheaper. But there are many other

issues on the horizon that farm supply

cooperatives will have to face.

There will continue to be more

mergers and consolidations. Twentyfive years ago, there were numerous

regional farm supply cooperatives that

had their operations based in one or

two states. Mergers, acquisitions, and

bankruptcies have decreased the number of regional farm supply cooperatives that operate in such limited geographic trade territories and increased

the number with national and international operations. 

This trend will continue in the new

millennium, probably leaving two or

three national/international farm supply cooperatives and one or two

regional cooperatives with smaller,

multiple-state operations. 

As farmers have decreased in number and increased the size of their

operations, local farm supply cooperatives have also followed suit. There

were more than 2,700 local farm supply cooperatives in 1975. By 1999,

there were fewer than 1,400. In another 25 years, there could be much less

than half this amount. Many local

cooperatives will have statewide or

multiple-state operations. With two to

three of these large farm supply locals

per state, there will only be 100 to 200

farm supply locals with many branch

outlets to serve their members. 

There will be one area of new

growth in the farm supply cooperative

sector. They will be started and

patronized by “hobby” farmers whose

primary source of income will be from

off-farm employment. These customers have grown accustomed to

making Internet purchases and will

start virtual cooperatives as buying

clubs for their farm supply needs. 

Global economy

Meanwhile, the vertical integration

and globalization of agricultural markets are fast becoming the defining

pressures on agriculture today. One

need only look at the recent breakdown of the Seattle World Trade

Organization meeting to see global

pressure on the agricultural sector.

While weather is still a determining

factor for yearly prosperity, producers

can no longer monitor weather and

agricultural commodities only in surrounding production areas. They must

also monitor weather and agricultural

commodity output in other countries.

Information, or the lack of it, has

become a valuable asset in and of itself. 

Industries are adapting to integraFarm supply cooperatives:

a look on and over the horizon

L

Co-ops in the 21st Century
10 January/February 2000 / Rural Cooperatives

tion and globalization by designing

products that have a common appeal

and can be sold in just about any country. Business philosophies are also

being adjusted. Reliance on bulk commodities for the masses usually means

high volumes but low margins. Adaptation of new technology, market segmentation, customized production and

market power as means to higher margins and a stronger market position

seem to be the engines of future

growth.

Technology has spurred consolidation in the seed industry, much of it

occurring in the last decade as several

crop protection manufacturers have

purchased the leading row crop seed

firms. There was much synergy in this

consolidation. In addition, they were

driven by the ability to genetically

modify plant material to include desirable traits or resist damage caused by

popular crop protectants. 

Market segmentation has allowed

firms to focus on the needs of larger,

more prosperous farmers and offer

goods and services that cater to their

specific needs. In turn, organizations

that adopt this segmentation can

acquire farm accounts that produce

higher sales volume. Market power is

transforming the food industry as

supermarket chains merge into fewer

yet larger companies. By focusing on

what their customers expect in the

supermarket, these large chains then

exercise considerable power over the

whole food system. Ultimately, they

can impact what and how farmers

grow their fruits, vegetables, livestock

or grains.

Can cooperatives adapt?

Many farm supply cooperatives will

continue to operate with the same philosophy as today: faster, better, and

cheaper, and will do well. Some will

look to technology and improved market position to prosper. Others will

fail, even though using one or both of

these philosophies.

Cooperatives are owned by their

users, so they reflect the desires of

their farmer-owners. They also reflect

what’s happening within the cooperative’s membership. Understanding

membership’s business and their

expectations for the cooperative is

essential to its survival.

Currently producers are concerned

about over production, low margins

and income, government regulations

and policy, changing markets and consumer opinions of genetically modified

organisms (GMOs). A growing number of farmers are also asking about

the future: can their cooperative develop more niche markets for specialty

crops with desired traits? 

More farmers are also concerned

about finding markets for their livestock and dealing with environmental

issues, such as animal waste. Some

farmers are marketing their livestock

directly to consumers and don’t have

the knowledge or resources needed to

deal with new environmental standards. Cooperatives will undoubtedly

be asked to provide a bigger role than

just providing feed. Their members

will want more forward integration

into livestock processing, marketing

and waste handling.

Coopfarmsupplies.com

Technology is in the driver’s seat for

information dissemination and sales in

the near future. A recent National

Agricultural Statistics Service farmer

survey found that 40 percent owned

computers and 29 percent had Internet

access. Just two years ago, businesses

saw the Internet mainly as an information and sales tool. Many people

thought it would be a long, long time

before consumers would pay for information or buy products from it. 

The Internet will continue to

expand and will become an increasingly important input to agriculture and

cooperatives. Most of the products

that farm supply cooperatives sell are

bulky items (feed, seed, fertilizer, crop

protectants and petroleum products)

that are hard to transport to distant

customers at a reasonable cost. Service,

or advice, lends itself well to the Internet. Information about products that

farm supply cooperatives sell would be

an excellent service on the Internet.

For example, in feed sales, a cooperative could provide: product information and prices for rations available

based on livestock type; measured performance of the feed in trials; disease

prevention, identification and treatment; and record keeping on feed purchases made by the farmer.

The Internet could also become a

tool for dealing with the issue of waste

management. There could be links

from the cooperative’s feed site to university-sponsored research on new

digester technology, or technology

that increases the oxygen levels in

lagoons to promote faster decomposition of the waste. Perhaps feed cooperatives could link members with excess

animal waste to members who need

fertilizer. There is, of course, other

information on the Internet that could

help farmers make smart purchases of

feed, seed, fertilizer, crop protectants,

and petroleum products.

Farm supply cooperatives — on the

horizon

The year 2025 is a long way off, but

no longer than the time since 1975.

Who would have guessed how ubiquitous the use of personal computers,

genetically modified organisms, satellite technology, and the globalization

of agriculture would have become in

just 25 years? But what do these

changes mean for farm supply sales? 

There will be more sales coordination. For feed sales, computers will

design rations, maintain records on

weight gain and performance and

coordinate delivery. There will be

more stringent regulations on feed

ingredients, and feed cooperatives will

test and maintain records for each customer. 
Rural Cooperatives / January/February 2000 11

Grain and livestock buyers, in turn,

will want to know exactly what went

into each animal or crop. They will

want farmers and their cooperatives to

track every last input and output, just

as the manufacturing or the computer

industries already have to do.

With fewer farmers, global information systems and positioning satellites will be used to optimize delivery

routes. Technology will have turned an

animal waste product into a valueadded product. Seed and crop protection sales will align closely as crop protection manufacturers integrate even

more into the seed industry. Gradually,

a majority of consumers will overcome

their reluctance to accept GMOs and

more seed modifications will be made.

All farmers will demand more

information and services. Cooperatives

will provide extensive scouting services

and problem solutions. Crop protectants will focus on specific types of

seed and they will be applied with

sophisticated equipment using new

technology. 

Soil tests will be conducted for

organic matter and crop protectants

will be applied where needed, not

broadcasted. The use of expensive

equipment to apply crop protectants

will further consolidate sales into farm

supply cooperatives that can pool

financial resources to buy the equipment and provide the information, service, and record keeping on use that

will be necessary.

Fertilizer sales will be further regulated as the damage of their over-use

and even terrorist and illegal drug

manufacturer misuse grow. GPS-type

technology will allow farm supply

cooperatives to apply only the necessary nutrients to specific field areas.

Again, as with crop protectant application equipment, this equipment will

also be expensive and will require large

volumes to be cost effective. 

Record keeping of fertilizer use will

be necessary. Pooling the resources

required to provide this equipment

and information is a farm supply cooperative’s specialty. Fertilizer cooperatives will also need to align with feed

cooperatives to handle animal waste

products. Pollution from animal waste

misuse will mandate it while the loss of

a valuable fertilizer resource will

necessitate it.

Petroleum sales will also benefit

from route coordination using a GPS

(global positioning system) -type system. Computer-designed routes will

aid bulk delivery of fuels. With fewer

farmers and thus potential customers,

more farm supply cooperatives will

operate other businesses, such as convenience stores in predominately rural

areas. The additional margins generated from non-farm customers will be

needed to support agricultural operations in these cooperatives. 

Farm supply cooperatives that sell

propane for home heating will become

more closely aligned with rural electric

utilities (RECs). The consumer will

soon receive one bill for electricity,

home heating fuel, cell phone, and

satellite television provided through an

alliance of RECs and farm supply

cooperatives that sell petroleum products.

What’s over the horizon?

In the first decade of the 1900s, a

man was born in the Midwest and he

started farming with a horse. He was

happy to plow a couple of acres in a

day. He had a son a half-century later

who started farming with a 50 horsepower tractor that could plow about 10

times what his father could in a day.

Another 50 years has passed and that

son now writes articles on farm supply

cooperatives. The land is rented. A

plow has not touched any of the land

in the past 15 years. What a difference

a century has made.

Transportation of farm supplies

from cooperatives to their members

will undergo vast changes. Carriers

may use air-transport to ship bulky

items to farms. If the science fiction

technology of Star Trek someday

becomes reality, perhaps supplies will

be “beamed” from co-op to farm.

Livestock within breeds will be genetically similar and rations will be developed for each farm based on specific

traits desired in the livestock grown.

Each animal will be remotely monitored and the cooperative will adjust

rations based on the animal’s health

and production.

Seed, fertilizer and crop protectants

will be sold as a unit and applied in

one pass. Cooperatives will operate

application equipment remotely and

the equipment will hover over the

ground to minimize soil compaction.

Field sensors will monitor the crop’s

growth and notify the cooperative

when crop protectants are needed.

Petroleum will no longer be the

energy source of choice. Fuel cells

powered by hydrogen or some other

environmentally friendly fuel will power farm equipment. Most equipment

will be operated remotely, with farmers in their control center consulting

cooperatives for advice when problems

occur or service is needed.

These over-the-horizon ideas about

farm supplies in the new millennium

will likely be far short of changes that

will actually occur. But, as long as

there are mouths to feed, there will be

farmers who will purchase inputs and

services from farm supply cooperatives

that they own. These farm supply

cooperatives will heed their members’

needs, adapt to technology, deal with

market pressures and opportunities,

and continue to serve members in the

new millennium. ■

Seed, fertilizer and crop

protectants will be sold as a

unit and applied in one pass.
12 January/February 2000 / Rural Cooperatives

By Glenn English,

CEO

National Rural Electric Cooperative

Association 

onventional wisdom holds

that deregulation of any

industry creates winners

and losers. Of course, the

big winner is supposed to be consumers, who are always told they will

get greater choice and lower prices

because the invisible hand of the marketplace will replace the heavy hand of

government regulation. In reality, the

big losers will be those who cannot

compete because of high costs or unacceptable service.

It came as no surprise to anyone

that the electric utility industry was

next in line to be “deregulated.” Twenty years of deregulating financial services, transportation, telecommunications and natural gas industries made it

inevitable that we’d be the next up on

the block.

But that’s old news. The pertinent

question is: Will we be able to help

consumers be winners in the new millennium?

First, we need to recognize that the

playing field may change, but the game

will still be played according to rules.

Deregulation implies a wide-open marketplace without rules. That simply

isn’t going to happen. Electricity is key

to our way of life and no responsible

legislature, state or federal, is going to

let fast-buck artists play loose and fast

with such a critical service. What we’re

talking about is really re-regulation. 

Whatever happens, the electric utility industry will continue to be regulated. It will just be regulated differently. Our challenge is to make certain

that any new legislation treats electric

cooperatives fairly and preserves for

them their unique ability to serve their

owners. 

Fortunately, we are holding our

own for the present. The recent bill

reported out of the House of Representatives’ Commerce Subcommittee

does no harm to the electric cooperative industry.

We will be on guard against amendments and new language that will certainly be introduced and which, if enacted, would do great damage to our owners. The highest priority we have is to

protect their rights to control their own

fate and our right to serve them. 

But with the rights come responsibilities. If the experience of the last 20

years tells us anything, it tells us that a

successful transition from a regulated to

a deregulated industry requires that

businesses be more financially flexible in

order to survive in a much more competitive marketplace. Success is meaProviding power beyond 2000

Co-ops in the 21st Century

C
Rural Cooperatives / January/February 2000 13

sured by how fast a business moves with

the market, responds to the market and,

most importantly, makes the market.

Specifically, those who prosper in a

deregulated market learn to use marketing and pricing strategies based on

market research that clearly segments

customers into groups with similar

needs. It really boils down to knowing

who your customers are and what they

want from you, and then producing it

for the lowest possible price. The electric cooperative industry has a special

relationship with its customers. As

cooperatives, we are mandated to think

first of our customers, not our bottom

line. We can expect more and more

Americans to wake up to the benefits of

being served by cooperatives as it

becomes clearer to them that the large

investor-owned electric utilities must

satisfy their investors first, not their

customers, and that some classes of

customers just aren’t attractive to them.

For the past three years, the electric

cooperative industry has steadily differentiated itself from other segments of

the electric utility market. The creation

of a new brand, Touchstone Energy, is

the most obvious part of that process.

But the brand does more than renew

our commitment to a long-standing

practice of putting consumers first. It

also provides a center around which our

industry can unify because the Touchstone Energy brand takes our already

established commitment to the community and extends it to the nation. It

makes it clear that the focus of the electric cooperative industry is the customer, not the bottom line. Research

verifies that our status as cooperatives

has enormous appeal to all consumers

because they understand they have a say

in how the cooperative is managed and

the services it performs. This assumes

even greater importance in a time of

great uncertainty that always accompanies deregulation.

Electric co-ops were created 60

years ago to bring electricity to rural

America. Today, many parts of the

country that were once rural are now

suburban and even urban. Under

deregulation, the benefits of being

served by an electric cooperative will

not be restrained by artificial boundaries, but will be open to all who have a

common interest in protecting their

access to reliable and affordable electricity. First Rochdale Electric Cooperative in New York City is only the forerunner of new electric cooperatives all

over the nation. 

We also understand that the cooperative’s value to the community is not

based on the generation, transmission

and distribution of electricity alone.

Time after time, the owners of electric

cooperatives have endorsed the common practice by cooperatives of providing them with propane and natural

gas, telecommunications services, clean

drinking water and wastewater management. It’s all part of fulfilling our

obligation to our customers to make

certain they have access to services that

either would not be available to our

customers or would be prohibitively

expensive. 

The creation of regional service

cooperatives (Servcos) within our

industry allows local co-ops to more

effectively increase the number and

variety of products and services that

can be offered by combining service

territories. This is a case where bigger

is better for the right reasons. We can

expect to see more Servcos because

they provide a way for electric cooperatives to do even more to meet the

needs of their members. 

But, as with any effort to “re-regulate,” there are those who perceive they

will be losers if anyone else gains.

Among them will be those who do not

welcome competition from the cooperatives and will go to any length to deny

electric cooperative customers greater

choice in selecting a provider for a specific service. This we have to expect. A

competitive marketplace is not a tea

party. Our industry will have to be prepared to fight for the rights of its owners to enhance their lives by having

access to new services and products

through the cooperative. If the marketplace truly works, then the costs of

competing will determine whether the

members of a single cooperative or a

Servco composed of many distribution

cooperatives wishes to add new products or services to its menu.

All this assumes, however, that we

act like cooperatives, and that our entry

into new markets with new products

and services is motivated by a desire to

serve our customers because they genuinely need whatever it is we’re selling.

If we have done our homework, we will

know whether our consumers are likely

to respond favorably. We will have told

the owners about the opportunities and

the challenges. We will have a full

appreciation of the likely reaction from

the community as a whole and we will

have met it head-on. 

As we enter a new millennium and a

new marketplace for electric power, we

must ask ourselves if we’re ready. Being

ready means we are:

•Price competitive

•Service oriented 

•Knowledgeable about our members

•Proud to be cooperatives

•Involved in our community.

If, as an industry and as individual

cooperatives, we can answer, “Yes,”

then tremendous opportunities lie

ahead. Answer “No” to any one of

them, and we have our work cut out

for us. 

Editor’s note: Any opinions expressed in

this article are those of the author, and do

not necessarily reflect those of USDA Rural

Development or its employees. ■
14 January/February 2000 / Rural Cooperatives

Charles E. Snyder

President & CEO

National Cooperative Bank 

s we turn the corner and

enter a new century, the

U.S. economy is at an alltime high. As cooperative

financial institutions, we too have

been riding the wave of prosperity.

Where do we go from here? Are we

prepared to meet the challenges of the

new century?

If the past decade is any indication

of what we have to look forward to, it is

going to be a bumpy ride. The recent

trends — industry consolidation, technological advancements and a shifting

legislative agenda — offered a dizzying

pace of change.

Cooperative financial institutions

will need to be able to turn these trends

into opportunities in order to compete

in the new millennium. We will need

to continually adapt with customers to

meet their needs.

Industry consolidation

Industry consolidation will continue,

especially within the financial services

arena. Recent legislation providing for

banking modernization will allow

banking, insurance and stock brokerage

to be sold under one roof. Competition

with large and well-capitalized companies will increase as firms merge to

provide one-stop shopping.

With banks increasingly becoming

more like fast-food outlets, there will

be tremendous opportunity. Super

banks will offer a cookie-cutter

approach to business. They will tell

customers to fit in their box. Cooperative financial institutions must react

swiftly, listen to customer needs and

offer creative solutions. 

Technological advancement

The use of computers and the delivery of products and services via the

World Wide Web will be paramount to

our success. E-commerce allows likeminded people to cooperate with efficiency never before seen. Cooperatives,

by their very nature, should be able to

capture this value if they are able to

manage change at “Internet speed.”

Evaluating how members can use the

Web, how we can partner to deliver

“added value” through a virtual world

is critical. While still relatively

unknown, cooperative financial institutions are well aware that the Web will

change the face of how we do business.

While still in its infancy, we know

that over the next five years there will

be strong customer demand for Webbased products. By devoting significant

resources to Web solutions today,

cooperative financial institutions can

position themselves appropriately for

the future. At the same time, customers

continue to demand that we provide

services via traditional but more efficient means. It will be a challenge for

us to balance these demands.

Shifting legislative agenda

We have already seen how to harness the power of cooperation in order

to impact legislation. The grassroots

effort of the credit union campaign in

the late 1990s is a prime example of

how to focus and use our fundamental

strengths as cooperatives. The onus

will be on all of us to promote the

dynamic world of cooperation to

ensure that cooperatives benefit from

future legislation.

We have our marching orders. To

meet the new century’s challenges head

on, cooperative financial institutions

must stay focused. We must look to our

strength — that of cooperation — and

exploit it. Our cooperative foundation

offers us a few things the competition

does not have — a unique ability to

collaborate effectively, and an uncommon affinity with our customers.

While the shape of cooperatives may

change, it is our core values that will

facilitate our growth in the new millennium. ■

Consolidations, technology, politics

to impact co-op financial institutions

A

Co-ops in the 21st Century
Rural Cooperatives / January/February 2000 15

Paul Hazen,

CEO

National Cooperative 

Business Association 

s we enter a new century,

people across America 

are hopeful that the

challenges and

opportunities on the horizon will lead

to better lives for themselves, their

families and their communities. In

their search for better times, they are

also searching for values — values that

some fear may have been lost during

the 20th century. Yet, that is not the

case, for the values they seek — selfhelp, self-responsibility, equality,

democracy, honesty, openness and

caring for others — are alive and well

within cooperatives around the world.

That is why I predict a cooperative

renewal in this new century. 

This renewal, or renaissance, is

already happening in communities

throughout rural America. The heart

of most rural communities is the businesses that occupy Main Street. Main

Street businesses have long been icons

of American life and are often the

focus of economic, social and civic

activity of rural communities. It is a

well-known economic fact that $1

spent in a community will generate

seven dollars in additional economic

activity. 

Unfortunately, Main Street businesses faced severe challenges during

the latter half of the 20th century. The

corner grocery stores, fast food franchises and local hardware stores found

themselves competing with national

chains and box stores. These huge corporations had tremendous capital

resources and purchasing power. Seeking to increase returns for their stockholders, for-profit companies sought

the least expensive production costs

and closed local offices and factories.

Today, there are many vacant storefronts on Main Streets across America

because these locally owned small

businesses were unable to compete.

When a multinational corporation

takes profits out of a community, the

only people who benefit are the

investors outside of the community. 

Instead, people can participate in

the cooperative sector of the economy

to help build a community that benefits them and their neighbors. In many

rural communities, cooperatives play

an important role as the economic

engine creating jobs and increasing

rural incomes. As a result, rural communities prosper because the economic benefits that cooperatives generate

stay in the local community. A locally

owned, member-controlled cooperative doesn’t move its operations overseas. 

Independent business owners are

discovering the power of cooperation

across the United States. There is an

explosion of purchasing and marketing

cooperatives owned by small businesses. Main Street businesses are competing successfully in a global economy

against huge competitors because they

belong to a cooperative. 

Currently, there are over 250 purchasing and marketing cooperatives

serving 130,000 small businesses. Dry

wall contractors, pharmacies, fast food

franchises, electrical distributors,

hotels and carpet stores are only a

small sample of the types of businesses

served by cooperatives. Volume buying, joint advertising, central billing,

reservation services, employee training

and benefits, financing and insurance

are some of the services that purchasing cooperatives provide to their members. For example, a fast food franchise

restaurant with $1 million in sales

could cut 2 percent on food costs

through a cooperative for an annual

savings of $6,000. At the end of each

year, it would receive a healthy patronage dividend from the cooperative.

Many people never saw independent small business owners as natural

allies and participants in the cooperative sector of our economy. But,

increasingly, these small business owners are facing the same economic and

social issues that consumers and farmers have competed against for decades.

Keeping small businesses prosperous

and on Main Street through cooperatives builds community. In this new

century, these organizations will be the

fastest growing segment of the cooperative sector of the economy.

It is our cooperative values of selfhelp, self-responsibility, democracy,

equality, equity and solidarity that

appeal to the owners of small businesses. Survey after survey, these are the

same values that Americans everywhere yearn for and these are the values that foster trust in cooperatives —

trust that will also increase consumer

use of cooperatives everywhere. ■

Cooperatives build community values

A

Co-ops in the 21st Century
16 January/February 2000 / Rural Cooperatives

Co-op type: Founded in 1984,

Hazelnut Growers of Oregon (HGO)

is the largest U.S. processor and

handler of hazelnuts.

Service provided: Markets nuts from

150 members, as well as nuts from nonmembers in two plants. In addition, the

cooperative operates two retail store

outlets. At peak processing time, 250

people are employed by the

cooperative.

CEO/President: Leonard

Spesert

Board chairman: A ninemember board of growers

governs the co-op. Tom

Peter serves as chairman. 

Geographic area:

Hazelnuts were first

brought to Oregon in the

1800s, where 99 percent of U.S.

hazelnuts grow in the rich soil of the

Willamette Valley. Hazelnut trees

thrive on the mild valley winters. Of

the state’s 27,000 acres of hazelnuts,

about 37 percent are processed and

marketed through HGO and its

Westnut subsidiary.

Product highlights: The hazelnut first

became part of the Chinese diet about

5,000 years ago. Hazelnuts have a mild,

sweet flavor and are used in baked

goods, tortes, liqueurs and candies

around the world. Oregon hazelnuts

are also commonly called “filberts.”

The name honors Saint Philibert,

whose August 22 feast day corresponds

with the beginning of hazelnut season

in England, and for the appearance of

the nut’s husk, noted

for having a “full

beard.” Hazelnuts are

an excellent source of

protein; high in fiber,

iron and calcium; and

are cholesterol-free,

with over 90 percent

of the fat content unsaturated. Oregon

Orchard Hazelnuts are the co-op’s

signature gourmet retail product, its

first proprietary retail brand venture.

The brand was introduced in 1998,

targeted toward the expanding specialty

foods industry. Candy-coated flavors

include milk chocolate, yogurt, dark

chocolate, butterscotch, strawberry

cheesecake, cherry chocolate, espresso

mocha, and mint chocolate. Five-ounce

vacuum-packed-can flavors include

salted, jalapeno, cajun red eye, hickory

smoked, dry Roasted (unsalted) and

French roasted (unsalted). All canned

items have no oil added. New product

flavors are sweet hazelnut creme and

chocolate hazelnut spread, which can

be poured into a coffee beverage or

used as a desert topping. 

Recent developments: Although

Turkey supplies enough nuts to meet

world demand, HGO has expanded its

market share with a higher quality nut,

aggressive marketing and new products. For only the second time in its

15-year history, HGO is admitting new

members. Two capital improvement

projects are also underway. First, the

co-op has a new Ball Deck sizer, which

quickly separates jumbo in-shell nuts

from the smaller ones. Through better

separation, employees can dry nuts and

move them through the system quicker.

Second, the co-op is the first to use an

Elbiscan Laser Sorter on hazelnuts.

This machine finds defective nuts and

foreign material as they move along a

conveyor, and then shoots jets of air to

remove bad nuts, shell pieces and other

unwanted materials. 

For more information: Hazelnut Growers

of Oregon, P.O. Box 626, Cornelius, OR

97113; (503) 648-4176; fax 648-9515; or

http://www.hazelnut.com. ■

A CLOSER LOOK AT...

Hazelnut Growers of Oregon 

Cornelius, Oregon

The majority of U.S. hazelnuts are grown and marketed through this Oregon

cooperative.
Rural Cooperatives / January/February 2000 17

By Pamela J. Karg

Field Editor

think that I shall never see a poem as lovely as a tree” opens

Joyce Kilmer’s famous

poem memorized for decades by millions of schoolchildren. Now the poem

could very well serve as the rallying cry

for a growing number of woodland

owners who are sustainably — and

cooperatively — managing and marketing their timber.

“We’re trying to identify and capture

a growing area of interest,” explains

Tom Thieding, president of the Sustainable Woods Cooperative in southwestern Wisconsin. “People are looking

at green construction, energy efficiency,

where their products are coming from

and how those resources are managed.

And this isn’t just happening with individuals. You’re seeing more municipalities talking about ‘green construction.’

We’re committed to managing our forest lands in a sustainable way, logging

them with discretion and building efficiencies into how we prepare that lumber for the marketplace.”

Almost three years old, the Sustainable Woods Cooperative includes 85

members who own 10,000 acres of

woodlands that stretch across some of

the same landscape that Frank Lloyd

Wright, John Muir and Aldo Leopold

called home. Three hours away, a second sustainable forestry project is taking shape in the Mississippi River

coulee region north of LaCrosse, Wis.,

and Winona, Minn. 

Other woodlot owners across the

two states are also discussing sustainable forestry practices and the formation of cooperatives to process and dry

the harvested wood. Credited with getting landowners to think sustainably

about their forests and helping give

birth to these new cooperatives is Jim

Birkemeier.

Birkemeier’s Timbergreen Forestry

is nestled against the Baraboo Bluffs, a

national natural landmark designated

by the U.S. Park Service because of its

unique bio-diversity and geological

treasures. On his 300-acre farm purchased by his family in 1973, Birkemeier has patiently brought his forest

back to full vigor while reaping

increased financial rewards.

“When I started talking about sustainable forestry, all I did was get people irritated,” Birkemeier recalls. “The

industry was making big money off the

forests and landowners didn’t think

their timber was worth managing.”

What is sustainable forestry?

Economists rank the forest products

industry as one of the world’s most

important for both the global economy

and the environment. It represents

close to 3 percent of the world’s gross

economic output. In the United States,

an estimated 10 million non-industrial

private forest (NIPF) owners (individuals, partnerships, trusts and clubs, for

example) control nearly 60 percent of

commercial forests. 

East of the Mississippi River, NIPF

ownership is estimated at over twothirds of the region’s timberland. In the

West, the majority of forests are in

public ownership. The 261 million

acres in NIPFs protect watersheds,

provide wildlife habitat, offer scenic

beauty and supply nearly 50 percent of

the timber harvested in the United

States, according to the USDA Forest

Service. This supply is critical for many

large wood products manufacturers.

Weyerhaeuser Co., for instance, harvests nearly 60 percent of its timber

supply from NIPFs nationally, and 90

percent of these lands are in the South. 

Birkemeier maintains that landowners would act differently if they were

educated about sustainable forestry

Seeing the forest for its trees

Cooperatives promote sustainable forestry and 

tap green trends

“I

Sustainable forestry practices include harvesting dead or oldest timber first and using horses

to reduce the harvesting impact on the remaining forest. Photo courtesy The Nature Conservancy
18 January/February 2000 / Rural Cooperatives

practices. Annual property and capital

gains taxes can discourage sustainable

forest management. Without proper

estate planning, some owners are

forced into decisions that can prevent

them from passing forests from one

generation to the next. 

Woodland owners’ immediate financial circumstances too often determine

whether forests will be managed sustainably or not. Birkemeier went to

work, calculating income gains and

training people to take a new look at

their woodlots — to see the forest for

its individual trees. To prove his ideas,

he took an inventory of every foot of

his own forest. 

The Forest Products Buyers Group

defines sustainable forestry as woodlots

that are “managed with proper consideration for the needs of the entire natural ecosystem of the woodland. Generally, this means that timber is

harvested in such a way that protects

local water sources, maintains biodiversity in the area, and respects indigenous

rights. Today’s generally accepted standards for sustainable forestry take into

account many different types of forests

and ecosystems, social concerns, the

impact on the community, and profitability.”

Following what he learned in college

forestry classes and from the sustainable

forest management practices used by

Wisconsin’s Menominee Tribe, old,

dead and fallen trees were hauled out

and processed into usable board feet.

“I built a sawmill with solar kilns

and ended up developing a better

income for this family farm than I

could have done making hay or raising

cattle,” Birkemeier explains.

He worked with a nearby Amish

community and their horse-drawn

equipment to carefully and efficiently

harvest logs. The solar kilns added

more efficiency into his system and

proved that quality board feet could be

produced. And Birkemeier found buyers willing to pay more for the lumber

because of the extra measures he took.

The results? People looked at their

own woodlots with renewed interest. 

Environmentally, Birkemeier proved

that sustainable approaches revitalized

the forest because landowners selectively removed the worst trees first.

Jim Beeman of Hiawatha Sustainable Woods Cooperative agrees. A former forest products buyer and selfemployed mill operator, Beeman

became disgusted over lumbering practices and helped start the Mississippi

River coulee region cooperative. It has

53 members who own some 6,000 acres

of woodland in western Wisconsin and

southeastern Minnesota.

“I was doing what other foresters

were doing,” Beeman says. “I advocated

clear-cutting of large, old oaks because

the younger ones needed the light and

space to grow. Everyone is trying to get

the most out of their piece of the pie.

Landowners didn’t know any better

than to take what they were offered by

the buyer. Loggers knew they needed to

do whatever it took to hold down costs

and get the trees out so they could

make money. And the corporations

would make the money. It was an adversarial situation, up and down the line.”

The logger had heard about Birkemeier and read about the Sustainable

Woods Cooperative. With experience

as a member of a food and an electric

cooperative, Beeman and his neighbors

met to discuss other approaches. 

“No one else in this industry ever

said you should be honest, open, selfsufficient until we learned that the

whole cooperative umbrella offered us

a difference from what was happening

in so much of the rest of the corporate

world,” Beeman says. “Now, we’re not

trying to buy trees from our members.

Instead, we’re promoting the wise use

and harvesting of them. That’s a whole

different way of thinking.”

Violent windstorms over the past

two summers downed an estimated

170,000 acres of timber in Hiawatha’s

region of the two states. Rather than

cutting live trees, members are busy

salvaging downed timber from their

own lands. The logs will be processed

into value-added flooring, millwork

and other products.

Certified wood an option

Salvaging downed timber is a pivotal

approach to sustainable forestry.

Through practices such as salvaging,

landowners’ lumber can become certified. The Forest Product Buyers Group

defines the ‘certified’ label on lumber

or wood products as signifying that the

wood comes from a well-managed forest. The label, issued by an independent auditing organization, guarantees

or certifies that the wood in the product was harvested from a forest that is

managed according to a comprehensive

set of environmental and social principles and practices. 

As the wood goes from forest to

processor to wholesaler, it is tracked

and monitored by the certifier to ensure

that the end product is kept separate

from uncertified wood. This “chain of

custody” by the certifier guarantees that

the buyer and the end consumer know

what they are buying and actually get

what they are paying for.

The wood certification is voluntary.

The label tells customers that the forest, its ecosystem, and local forest

economies have been protected in

bringing the product to market.

“But when we originally talked to

forest owners, explained the costs and

explored the benefits, not a single forWoodlot owners representing 10,000 acres

are getting people to think cooperatively

about the value of their forests. Photo

courtesy The Nature Conservancy
est owner could believe this would pay

off,” Birkemeier notes. “The 10- to 15-

percent projected increase in value for

certified wood is dwarfed by a 13-percent per year stumpage price rise and

the 200-percent variation in bids for

logs from area sawmills. It appears the

costs of the “chain of custody” would

eat up any real increase in value of certified wood products. Individually, few

small woodlot owners are likely to benefit from selling certified logs from

their forest.”

However, that’s where he believes a

cooperative makes sense.

“A value-added cooperative that

would sell certified flooring, millwork,

architectural lumber and other wood

products is a much better proposition

for forest owners,” Birkemeier says.

“Producing high-quality wood prodRural Cooperatives / January/February 2000 19

“On planet Earth, we’re still at a very young age,” maintains Jim Beeman of Hiawatha Sustainable Woods Cooperative. “Too many of us are just beginning to talk about biodiversity. But people like the Menominee have been taking

care of it for generations.”

View a photo of Wisconsin taken from outer space and

one area stands out — Menominee County, home of the

Menominee people and their forest. Casual observers assume

the forest is pristine. The fact is, however, that it’s one of the

most intensively managed forests in the Western Hemisphere.

Over two billion board feet of lumber have been removed from

the forest in the last 140 years, yet the volume of sawtimber is

greater than when the reservation was established.

The Menominee have lived in northeastern Wisconsin and

on Michigan’s Upper Peninsula for generations, where ancestral tribal lands once stretched for some 10 million acres. Following several treaties and land cessions, the Menominee

established a 235,000-acre reservation in 1854 in northeastern

Wisconsin. It’s covered with white pine, hemlock, sugar

maple, red maple, red oak, basswood, and yellow birch.

The tribe has earned a reputation for pioneering sustainable forest management. The Menominee were the first

Native American tribe to have forest lands independently certified as sustainably managed. The 220,000 acres of forest

were the first in the United States and Canada to hold dual

environmental certification from both the Forest Stewardship

Council-approved SmartWood and Scientific Certification

Systems.

The “secret” to the tribe’s forestry leadership and success

lies in its management. According to oral history recorded by

Spindler and Spindler in 1971, Menominee chiefs offered the

following advice to the tribe on how to live on a smaller land

base.

“Start with the rising sun, and work toward the setting sun,

but take only the mature trees, the sick trees, and the trees

that have fallen. When you reach the end of the reservation,

turn and cut from the setting sun to the rising sun and the

trees will last forever.” 

According to the tribe, the concepts of sustainability in forest ecosystems and surrounding communities revolve around

three components. First, the forest must be sustainable for

future generations. Second, the forest must be cared for

properly to provide for the many varying needs of people over

time. Third, all the pieces of the forest must be maintained for

diversity.

The allowable cut on the Menominee Forest is 29 million

board feet per year, though the tribe often harvests only about

half that amount. Only non-food forest products are sold to

outsiders, including the timber and wood products of the

community-controlled business known as the Menominee

Tribal Enterprise (MTE).

The Menominee have a deep feeling for the forest, and

that feeling guides their use. Financial gain is not the driving

force. As one elder said, “Everything we have comes from

Mother Earth — from the air we breathe to the food we eat —

and we need to honor her for that. In treating the forest well,

we honor Mother Earth.” 

Sustained-yield forestry does have its marketing advantages and challenges. Successful marketing requires detailed

planning because the harvested species are not always the

ones in demand. Tribal marketers developed clientele, educated them about the Menominee harvesting system, and

soon found they had loyal customers. Customers initiate the

procurement process with enough lead-time for their particular needs. Sales are steady and the lumber commands a premium price because of its reputed quality.

Some 15 products, including lumber, sawlogs, veneer logs,

and pulpwood, are sold. Most of the product (85 percent)

goes to end-users. Lumber is marketed to local “small-dimension” plants and paper mills. Specialty woods are sold to local

manufacturers for production of items such as windows and

Venetian blinds. Wood chips are sold to paper mills for pulp,

and shavings are sold to a company that processes them for

animal bedding. When necessary, bark and chips are used as

fuel for the MTE steam plant.

By tapping into “green” markets with its dual certification,

the Menominee have received premium prices. MTE’s longterm plan aims to eliminate inefficiencies in the primary

wood-processing facility, and to diversify and increase valueadded processing. In the late 1990s, MTE was developing

international markets such as hemlock studs in Japan and

hard maple in the United Kingdom. ■

“Start with the rising sun”

Sustainable forest a tradition for Menominee Indian tribe
20 January/February 2000 / Rural Cooperatives

ucts is very easy to do on a small scale.

A group of owners can mill, dry and

manufacture retail products, and will

learn a lot about forestry in the process.

The cooperative virtually eliminates

the chain of custody. Certification

makes sense and gives a special niche to

make marketing even easier. If any premium is possible for certified wood, it

will go directly back to the forest owner who manages the land. Higher

demand for certified wood will mean

lower marketing costs, giving another

‘certified premium’ directly to the forest owner to encourage even better forest management for the future.”

Creating and targeting markets

Creating a market is key. According

to Arnie Klaus, manager of Woodworkers Northwest, establishing sustainable

forests requires a demand for sustainable forest products. “Today, the

demand for certified wood products is

still very low and the supply of these

products is sparse; thus the investment

of landowners, mill owners, and woodworkers is limited,” Klaus said in a

recent letter to members.

Based in Bellingham, Wash., Woodworkers Northwest is a non-profit,

educational organization whose members represent all phases of woodworking: forest landowners, lumber recyclers, mill owners, crafters, wholesalers

and retailers. Members share a common interest in creating a value-added,

sustainable resource enterprise in timber-depressed communities. Klaus says

members recognize a potential opportunity to lead a regional certified wood

movement and introduce a brand name

that is synonymous with protecting and

nurturing the forest ecosystems of the

Pacific Northwest.

“But now there is an economic paradox, the chicken-and-egg paradox of

risk and demand,” Klaus says. “These

woodworkers are dedicated to creating

a certified wood products movement

but cannot risk the costs associated

with certification until there is a market

demand. Some of our members are certified, but most are not, and we do not

have a complete chain of custody, or

vertical integration, of certified woodworkers. They are waiting for the

demand.”

“What we’re trying to do and can

accomplish, I think, is connect the end

user with the forest,” Wisconsin’s

Thieding explains. “We just need to

make sure we’re talking to the right

people about our products because

competitive pricing will be a challenge.”

His cooperative has targeted home

construction designers, who exercise

much control over the materials used.

Thieding says board members are also

working with the Wisconsin Green

Building Alliance to better understand

and target potential customers.

“But this is somewhat comparable to

the organic foods market,” he says.

“Price is an issue. It’s a barrier and we’ll

have that to some extent. But, through

processing, we’re hoping to capture

some efficiencies so we’re a little more

competitive on price.”

Like their Wisconsin counterparts,

Natural Balance Forestry Cooperative

in Everson, Wash., assists landowners

with forest management planning and

sustainable forestry certification. Yet

the co-op targets local artisans as buyers of its wood and then markets highquality, value-added wood products.

“As a leader in the sustainable

forestry movement, Natural Balance

harmonizes human economy with forest ecology,” explains Fenton Wilkinson of the co-op.

The Sustainable Woods Cooperative received $26,780 from the Wisconsin Department of Agriculture, Trade

and Consumer Protection, under its

Agricultural Development and Diversification program. These funds are

enabling the co-op to research marketing and sales potential for certified sustainable wood products. This money

was in addition to a $15,300 grant the

co-op received in 1998 from Wisconsin’s Rural Economic Development

program, administered by the state’s

department of commerce. This grant

was used to develop a long-term business plan, and leveraged an additional

$15,300 in funding.

“People are interested in ‘green’

construction. In addition, there are governmental units such as the Madison

(Wisconsin) School District that are

looking at incorporating more ‘green’

materials into their buildings,” Thieding says. “We believe we can deliver a

product that meets people’s functionality expectations, and was harvested and

handled in a responsible way.”

Thieding adds that Sustainable

Woods is also one of the first cooperatives to combine the forest management component with processing, marJim Birkemeier is credited with getting landowners to think sustainably about their forests and

giving cooperative members ideas for their own solar sawmill and drying operations. Photo by

Pamela J. Karg
Rural Cooperatives / January/February 2000 21

keting and sales of the lumber. “Each of

us could do it alone,” he says. “But the

challenge is doing it as a cooperative

because you’re trying to accomplish

something on a little bigger scale and

you’re trying to service the needs of a

good number of landowners. We want

to show that this can be accomplished

using the cooperative model.”

Basic co-op education needed

As cooperative members, though,

Thieding and Beeman see education as

key to the success of their new organizations. Many of their landownermembers are urban or suburban

dwellers who inherited the land, purchased it for hunting or picked it up as

an investment. The co-ops spend time

educating landowners about their

forests, how to manage them sustainably and why those practices can

increase the value of the lumber. But

the members are also two or three generations removed from farm organizations like cooperatives.

“The only other [co-op] experiences

our members may have had are credit

unions,” Thieding says. “But even that

was limited. So we went back to Co-op

Education 101, and it’s been successful.

We also gave them the by-laws to read

and that really helps them understand

that the control and ownership goes

beyond just a membership certificate.”

“Actually, it’s pretty easy to start a

cooperative for sustainable forestry

because your potential members have

heard so many bad stories about the

logging industry,” adds Beeman. “Local

word-of-mouth spread that this was a

new option.”

The concept of equity was an

important one. Potential members

understood the sustainability concepts,

but the marketing and processing sides

required start-up cash. The state grants

helped spur member investments. 

Both cooperatives rely on members

for sweat equity, too. Sustainable

Woods has nearly completed one solar

kiln, built by member volunteers on

Saturday mornings. The cooperative’s

three- to five-year plan calls for up to

eight kilns, a sawmill, warehouse, boiler

kilns and a sales office. By the end of

2000, they hope to have completed a

kiln, the warehouse and a sales office.

The Hiawatha co-op anticipates building similar facilities. But leaders from

both co-ops admit it’s been slow going.

“We’ve had so much to take care of right

away, and it seems people need time to

adjust,” Beeman notes. “Everything

moves slow. To make things happen is

really challenging. At the same time I say

that, however, it’s also very rewarding

when we accomplish a task. I’ve never

come across a group of people that has

been as satisfying to be a part of.” ■

Markets are looking up for woodlot owners who formed cooperatives and are educating themselves to their potential. Poet and journalist Alfred Joyce

Kilmer was born in New Brunswick,

N.J., in December 1886. He was killed

on a French battlefield near Seringes in

1918 while serving as a sergeant during

World War I.

Kilmer’s most famous poem, “Trees”

was published in 1914 and has been

criticized for its sentimentality and confused simile. He is credited with writing

war poems that were far better, such

as “Rouge Bouquet,” which was published the same year Kilmer died.

As a tribute to the poet and “Trees,”

soldiers in his WWI unit purchased and

established the Joyce Kilmer Memorial

Forest in North Carolina near Great

Smoky Mountains National Park. It’s

acclaimed as the East’s most stunning

old-growth forest. The forest is a few

thousand acres of mostly old-growth,

yellow poplar and maples. These trees

only exist because the logging company went bankrupt before they could be

cut, reports Robert Hutchinson, director of Southeastern Forest Trust, Inc.

Walking through this forest of massive trees is described as similar to

walking through the California redwoods — tree trunks measure over 25

feet in circumference, the crowns are a

couple of hundred feet high, and the

forest floor has exceptionally diverse

flora in the humid, rain-forest-like conditions. 

It’s a must on any old-growth forest

list, and worth a special trip to see,

Hutchinson adds.

I think that I shall never see 

A poem as lovely as a tree. 

A tree whose hungry mouth is

pressed 

Against the earth’s sweet flowing

breast; 

A tree that looks at God all day 

And lifts her leafy arms to pray; 

A tree that may in summer wear 

A nest of robins in her hair; 

Upon whose bosom snow has lain; 

Who intimately lives with rain. 

Poems are made by fools like me, 

But only God can make a tree. 

— Alfred Joyce Kilmer ■

Joyce Kilmer Memorial Forest 
22 January/February 2000 / Rural Cooperatives

Larry D. Steward

President and CEO

Minn-Dak Farmers Cooperative

“ANAFTA, GATT, WTO, sugar finding a way into this country by circumventing trade barriers are all impacting the American sugar industry.” 

- Larry D. Steward

Co-op description: 473 farmers own

Minn-Dak Farmers Cooperative,

founded in 1972, at Wahpeton, N.D.

In 1999, they planted 102,900 acres of

sugarbeets, the result of a three-year

expansion approved in 1994. That vote

included $14 million in environmental

projects over a five-year period along

with a $63 million, three-year plant

expansion.

Minn-Dak is a member-owner of

United Sugars Corp., Minneapolis; and

Midwest Agri-Commodities, San Francisco. The co-op's interest in valueadded processing led to the 1989

founding of Minn-Dak Yeast Co. As a

stock company, Minn-Dak Yeast operates with Minn-Dak Farmers as its

majority stockholder. Universal Foods

(Red Star), Milwaukee, Wis., is the

minority stockholder. Minn-Dak also

holds an equity position in ProGold,

the limited liability company that owns

the Wahpeton corn wet-milling plant.

Personal information: Steward holds

a bachelor's degree in math and

chemistry from the University of

Nebraska-Kearney. Before joining

Minn-Dak in 1990, he was with Great

Western Sugar, Billings, Mont. He

serves on the boards of United Sugars

Corp. and Midwest Agri-Commodities,

chairs United Sugars' executive

committee and serves as

chair of Minn-Dak

Yeast. He is a trustee of

the United States Beet

Sugar Association,

Washington, D.C.

Steward is a member of

the National Council of

Farmer Cooperatives'

executive council.

What concerns him? "Like all of

agriculture, Minn-Dak must become

more efficient, fine-tuning our whole

system from the grower all the way

through marketing," Steward says. The

issues that will plague the sugarbeet

industry and family farms in the 21st

century include global environmental

regulations, international trade

agreements, technology and American

consumerism.

"But my major concern right now is

low commodity prices. Sugar prices are

flat and there's too much sugar. Our

growers have been paid less the last two

years, and that trend is not good

because poor commodity prices are

impacting this area's entire rural economy," he adds. Steward is concerned

over how rural Minnesota, and especially North Dakota, are going to fund

public infrastructure such as building

and maintaining roads. "There aren't

enough dollars in these sparsely populated states to meet all our public service needs," he says. 

Other key issues? "A major challenge

for agriculture and rural America is

finding a way to make the urban

consumer care about the status of

agriculture. We need to make these

consumers realize they have a vested

interest in an economically-healthy

agricultural system," says Steward.

"This nation's consumers spend the

lowest percentage of disposable income

on food of any developed nation. That

could change unless the current farm

crisis is turned around. And we cannot

turn it around without the support of

that urban consumer base. This may be

the greatest challenge in the first few

years of the 21st century," he adds. ■

IN THE SPOTLIGHT

Larry D. Steward of Minn-Dak

Farmers sees struggles in rural

America.
Rural Cooperatives / January/February 2000 23

Pamela J. Karg, 

Field Editor

t began as the collective idea

of seven farmers who were

tired of seeing their fellow

farmers “dropping like

flies,” as one Wisconsin farm after

another closed. They felt there had to

be a better way they could pull together to increase their returns and keep

producers in business. 

Their answer was to form the

Coulee Region Organic Produce Pool

Cooperative (CROPP), which has

more than fulfilled the fondest wishes

of its founders. With a phenomenal

growth rate of 60 to 70 percent in

recent years, it has grown into the

largest organic farmer cooperative in

the United States. After 12 years of

operations, CROPP has 200 members

in 11 states and annual sales of $50

million to the ever-growing number of

consumers who demand organic foods.

But this success has also forced it to

deal with growing pains.

Looking for alternatives

The number of dairy farms in Wisconsin has dropped by 39 percent

since 1989, from 34,110 to 20,715.

However, the number of cows has

remained fairly stable, between 9.1

million and 9.6 million head. Still,

rural communities take an economic

hit every time a barn door closes. 

“It was a difficult reality for these

rural communities,” says Theresa Marquez, CROPP’s director of marketing.

“The farmers realized that the trend

(of farm closures) was almost irreversible, so they started asking themselves how they could do something

different rather than go out of business

themselves.”

Having lived through the agony of

the 1980s farm crisis, farmers around

LaFarge, Wis., were looking for an

alternative to growing chewing-variety

tobacco, a vital cash crop for many, but

one which appeared to have an uncertain future. They ultimately decided to

grow and market organic vegetables,

forming a cooperative to market their

produce. Some of the growers also had

dairies and felt the time was right to

develop the organic dairy products

market.

Most farmers had lived through the

awakening environmental movement

of the 1960s and 70s and had not really

changed the way they did business,

says Karl Pulvermacher of Lone Rock,

Wis. He gave up a career selling agricultural chemicals to farm in what he

felt was a more sustainable way.

“I’m really concerned about what I

see in some other types of agriculture,

where toxic chemicals are placed on

the soil, year after year after year, all in

the name of profit and with absolutely

no foresight as to what’s going to happen to the soil, what’s going to happen

to the groundwater and what’s going to

happen to the people who use this

food,” Pulvermacher says. “I think we

have to be concerned about that.

That’s why they pay me a premium to

produce organic milk. There are added

costs, because I’m managing the problem, not just buying a solution.”

With financial backing and business

guidance from the Wisconsin National

Farmers Organization, the dairy division of CROPP was born, recalls

Wayne Peters. He’s one of the founding farmers and is currently president

of the board.

“Though dairy farms around us were

dropping off like flies, our situation

wasn’t desperate,” the Chaseburg,

"At first, we had no sense of a larger future. A company wanted to buy organic cheese from us.

They thought they could sell it, but they couldn't. So we started looking for other markets. That

got things rolling," says co-founder and current board chairman Wayne Peterson (right), a

Chaseburg, Wis., dairy producer. 

New model, old ways

Farmers find new life serving burgeoning organic markets

I
24 January/February 2000 / Rural Cooperatives

Wis., dairy producer recalls. “We just

really wanted to make things better for

ourselves. At the time, we were all

working toward being organic, in one

way or another. Until we all got together, we didn’t know what to have for

rules. There were no models, here or

abroad, just a little bit in vegetables.

There was no certified organic milk.

We made the rules to fit our own situation. Now our standards are the basis

for much of what’s happening in

Europe.”

Brand name developed 

CROPP produced and sold its first

organic cheese as a private-label product by the early 1990s. With the

encouragement of consumers who

were concerned with food quality

issues and who wished to purchase

more natural, nutritious food grown

without the use of pesticides or herbicides, CROPP developed its own

brand name — Organic Valley — and

expanded its line.

“At first, we had no sense of a larger

future. A company wanted to buy

organic cheese from us. They thought

they could sell it, but they couldn’t. So

we started looking for other markets.

That got things rolling. We set up a

farmgate price at $17.50 per hundredweight, an average of $4 to $6 per hundredweight over conventional milk

prices. Holding a stable pay price has

been our biggest challenge and accomplishment,” adds Peters.

The cooperative had to learn fast,

says George Siemon. He’s also one of

its founding dairy farmer members

who now, uncomfortably, wears the

titles of president and chief executive

officer. The Wisconsin NFO opened

doors to dairy plants for the new organization. In turn, CROPP talked to

cheesemakers about manufacturing

organic products for the cooperative

market. 

“We started as a cooperative with a

fairly anti-cooperative viewpoint,” says

Siemons. “I don’t mean to be hard on

the other cooperatives, but our farmers

didn’t feel good that the cooperatives

had maintained their integrity. And we

used to be a bunch of farmers who

would pound our fists on the table and

ask, ‘Why is $10 (per hundredweight)

milk $3 (per pound) cheese?’ Well,

now we understand and our farmers

understand. We still probably think

there’s something wrong somewhere,

but farmers need to be informed.”

To this day, CROPP’s four divisions — dairy, eggs, meat and produce

— hold monthly pool meetings that

are open to all members. There the

members debate what’s good for their

farms and the organic production systems they follow vs. what’s best for

their cooperative. The answers are

never easy.

Struggling with capitalization

One issue they struggle with is capitalization. CROPP needs equity to

expand. Since Organic Valley only

owns one plant in Chaseburg, Wis., it

works with a network of dairy plants

and other organic farmer organizations

across the United States to procure

enough fruits, vegetables, meats, eggs

and dairy products to fill its growing

customer list. Three major dairy cooperatives that co-pack products under

the Organic Valley Family of Farms

consumer label are Land O’Lakes,

Inc., Arden Hills, Minn.; West Farm

Foods, Seattle; and Farmers Co-op

Creamery, McMinnville, Ore.

Another cooperative relationship

Organic Valley has is with Organically

Grown Cooperative in Oregon, which

helps the Wisconsin-based cooperative

procure and market potatoes, squash

and bananas. 

Even with these relationships,

though, CROPP needs more money.

The solution being developed is a preferred stock program that will allow

consumers to help the farmers fund

the capitalizations needed to meet

growing demands.

Until taking ownership of its first

dairy production facility last year, the

cooperative’s staff worked exclusively

with small, specialty cheese plants and

other dairy manufacturers across the

United States to produce organic dairy

foods. (About 65 percent of production

is marketed under the Organic Valley

Family of Farms consumer label; the

remaining sales are industrial ingredients processed for the organic foods

market.) The solution to the capitalizaOrganic Valley works with a majority of small dairy and food plants across the United States to

produce an array of retail products under its own brand name for consumers, as well as industrial

ingredients for the organic foodservice industry. The only processing plant the cooperative

actually owns is a butter operation in Chaseburg, Wis.
Rural Cooperatives / January/February 2000 25

tion challenge is a preferred stock program being developed to allow consumers to help the farmers fund the

capitalization needed to meet growing

demands.

“The consumer wants to support

the farmer,” Siemon says. “The consumer wants to be connected to the

farm. Organics is especially that way,

so we’re trying to bring together two

interested forces and still remain 100-

percent organic farmer owned.”

Recently, the cooperative also

became the first nationwide marketer

of organic meat products, thanks to an

$18,800 grant from the Wisconsin

Department of Agriculture, Trade and

Consumer Protection, under its Agricultural Development and Diversification program. It allowed the cooperative to access professional and technical

expertise in the meat industry in order

to rapidly enter the marketplace,

Siemon says. “Without this seed money, we could not have introduced the

comprehensive product line that our

farmers were capable of supporting,”

he adds.

CROPP developed 22 organic meat

products to add to its existing line of

produce, dairy and egg products. The

cooperative diversified its product

offering to include organic pork and

poultry products. In a previous project,

the meat pool developed frozen-packaged beef hot dogs, ground beef patties

and bulk ground beef.

The recent project brought together family farmers to produce organic

pork on a standardized basis. CROPP

developed value-added products at

selected manufacturing plants, and it

has begun distributing them nationally. 

The annual revenue projections for

the cooperative as a whole are about

$50 million for fiscal 1999. “Organic

meat has the potential to be as large or

larger than our current business, which

is dominated by our dairy sector,”

Siemon says.

Growing membership poses

challenges

Membership growth is another challenge. In 1999, it took on 51 new farms

in its dairy division alone. For larger

organizations, that would be just one

month’s list of new members. But supply and demand are critical if producers

are going to be guaranteed payment of

several dollars a hundredweight more

than the going local milk price. 

“Size is the challenge we’ve had,

and there’s a world of farmers out

there who need someone to work for

them,” Siemon says. “We’re going into

the future boldly. Maybe, someday,

we’ll look back and say we got too big.

But I believe in systems and foundations, and we’ve laid ours out here at

the cooperative.” 

1988

• Seven farm families found the Coulee

Region Organic Produce Pool, the

nation's first organic vegetable and

dairy cooperative. 

• CROPP's premier product is the

nation's first organic cheese. 

1989

• Consumer demand for more natural,

nutritious foods encourages CROPP

to launch "Organic Valley," its own

brand name. 

• For the first time, CROPP's organic

cheese is shipped nationally. 

• CROPP steps up in-house production

with its own cut and wrap program,

the first of its kind in the organic

industry. 

1990

• Organic Valley introduces the nation's

first cultured organic butter. 

• It also launches the first organic salted butter. Both are shipped nationwide. 

1992

• CROPP is selected to be the first

organic milk supplier for the country's

first national organic yogurt brand

(Horizons). 

1995

• The Organic Valley line expands with

the launch of the first organic cream

cheese. 

• The nation's first organic Swiss

cheese is introduced. 

1996

• Three more organic "firsts" are

launched: organic Parmesan cheese,

organic Romano cheese, and organic

whipping cream. 

• Organic Valley Sharp Cheddar cheese

becomes the first organic cheese to

win the prestigious first place award

in the American Cheese Society's

competition. 

• Organic Valley opens its second

warehouse called CROPP Too. 

1997

• Organic Valley is first again at the

American Cheese Society competition (for Organic Valley Cultured Butter). 

• The first organic cottage cheese is

launched and shipped nationally. The

first organic sliced cheese is also

introduced. 

• Organic Valley organizes the first

national initiative to certify organic

meat. 

1998

• Organic Valley introduces the first

"Stringles," organic cheese made for

eating on the run. 

• Organic Valley revolutionizes the

organic milk category by launching

"Ultra Organic Milk, the first organic

milk to offer a shelf life three times

longer than regular organic milk.

1999

• CROPP is the first nationwide

marketer of organic pork and poultry

meat products.

Organic Valley Firsts 
26 January/February 2000 / Rural Cooperatives

“I couldn’t have believed it would

get this big this fast,” adds Peters. “A

50- to 70-percent increase each year!

The co-op does give many more farmers a chance to do organic. We’ve only

lost two of our original seven farmermembers. A few more would have disappeared if the co-op hadn’t existed.”

Preserving farms, saving the environment and making a closer connection with the people who grow the

food supply are the reasons behind

consumers’ willingness to pay more for

organic dairy products, says Marquez.

But the No. 1 reason organic sales

continue to climb is health. Organic

dairy sales account for less than onehalf percent of the 20 billion pounds of

milk marketed annually in the United

States. 

Yet Marquez and market analysts

project the organic dairy niche can be

expanded to at least 4 percent of milk

sales. Others predict it can grow 10-

fold in the next few years. That’s

Some employees carry non-traditional titles such as "cheese wiz" and "Ps & Qs assistant" as

evidence of the cooperative's one-time disdain for the ordinary. But as the organization has

grown, titles, job descriptions and other trappings of big business become important, says former

dairy farmer George Siemon, who now uncomfortably wears the title of general manager and

chief executive officer. He was recently appointed by Secretary Glickman to USDA's Advisory

Committee on Small Farms.

Coulee Region Organic Produce Pool

Cooperative defines “organic” as a philosophy and system of production that

mirrors the natural laws of living organisms and emphasizes the interdependency of all life. From the soils, crops and

livestock, to the manufacturing plant and

packaged product, all are certified organic by an independent certification

agency. 

The core philosophy of organic certification includes resource stewardship,

conservation ethics and promotion of a

safer food supply. Healthy farming practices provide safe, nutritious food to

consumers today and lead to clean air,

water and living soil for future generations. In addition, every vat of cheese,

batch of butter, load of eggs, and pallet

of vegetables is tested or graded to

exacting standards before it is sold. 

“We view our pool of high-quality

Grade ‘A’ organic milk, eggs and vegetables as precious commodities,” says

CROPP’s Theresa Marquez. “Sharing our

exceptional products with consumers is a

driving force behind our marketing

effort.”

In its egg and meat divisions, for

example, strict organic standards

require chickens never be given hormones or antibiotics. The hens eat certified organic feed grown without synthetic pesticides. In the summer they

eat out-of-doors on chlorophyll-containing plants. In the winter, they eat alfalfa

and kelp, all of which contributes to

deep yellow yolks. Their diet includes

oyster shells and natural minerals for

strong eggshells. Inside each nutrientdense egg is a complete organic package of essential vitamins, minerals and

high-quality proteins.

In the dairy division, bovine hormones or antibiotics are never used in

production. All Organic Valley milk is

produced exclusively by the farmers in

the cooperative on their small family

operations. The pastures and feeds

used are 100 percent certified organic,

and their cows enjoy fresh air and exercise that gives them an average life

span twice the U.S. industry average.

The 11th annual Upper Midwest

Organic Farming Conference 2000,

“Organic Agriculture at the Crossroad,”

is scheduled for March 16-18 at the University of Wisconsin-LaCrosse and features 42 workshops, including seven

five-hour seminars. It is a project of the

Midwest Organic and Sustainable Education Services, a nonprofit organization working to educate farmers on

organic agriculture. Over 35 organizations from across Minnesota, Iowa, Illinois and Wisconsin are sponsors. For

more information or to register, contact

Faye Jones, N7834 County B, Spring Valley, WI 54767; (715) 772-6819; or visit the

conference Website at http://agile.net/

UMOFC/.

Organic: a philosophy & production system
Rural Cooperatives / January/February 2000 27

because of the estimated 52 million

Americans — or about 20 percent of

the population — who are part of the

“new green mainstream.”

“When one of these consumers

looks at our product and sees that it

costs 50 cents or a dollar more, they

decide that they can spend a little bit

more for their health and the environment,” says Marquez.

According to the “Natural Foods

Merchandiser,” an industry trade publication, organic milk sales hit a record

high in 1996, followed by a lull in 1997

and yet another record-breaking year

in 1998. Although organic dairy sales

seem to be soaring, it’s still a niche

industry with plenty of room for

growth. 

Giving consumers an option

Between 1996 and 1997, organic ice

cream sales grew 292 percent and

organic cheese sales jumped 153 percent, according to the Organic Trade

Association’s (OTA) first organic manufacturer market survey, released in

1998. Forty-six percent of sales in the

organic dairy category came from sales

in mainstream retail markets, and OTA

reported that in the conventional

supermarkets’ organics category,

organic dairy product sales have been

exceeded only by canned/jarred products. Clearly, new distribution channels for organic dairy products —

although not necessarily increased

sales at the local natural foods cooperative — are creating the impressive

growth, says Siemon.

“We have a wide spread of consumers, from the mainstream to vegetarians,” he says. “Organic sales at the

natural foods stores were doing well,

so now huge chain stores are making

room for our products and not charging all the huge slotting fees they normally would. But we’re not robbing

from the natural foods stores. Rather,

we’re expanding the customer base.”

Siemon sees it as giving consumers

an option — whole milk, organic milk,

milk in a re-sealable consumer package. And that remains, too, the mission of the cooperative: to give market

support for sustainable agricultural

practices that are beneficial to the

environment.

“CROPP’s membership consists of

small- and mid-sized family farmers

developing creative and sustainable

solutions to farming and financial challenges,” adds Marquez. “Many of our

members have used organic methods

for many years and are now in the

forefront of organic farming education. They sponsor field days, speak at

seminars, work with legislators and

continue to experiment on their own

farms with methods that work in cooperation with nature respecting the

interdependency of all life.” ■

The newest marketing venture for CROPP/Organic Valley will tap into the organic meat department, which is no longer confined to the local natural food store. Organic foods are becoming

mainstream and appearing on traditional supermarket shelves.

CROPP operates by these seven primary goals:

• Cooperatively market certified

organic products produced exclusively by Organic Valley members.

• Market nutritious, wholesome food

as directly as possible to the consumer.

• Establish farmer-determined food

prices to reflect fair return and to

use these prices to guide the cooperative’s marketing.

• Encourage a farming future that

emphasizes ecological diversity

and economic sustainability.

• Enable a healthy human livelihood

by providing quality employment,

cooperation, organic education and

community growth.

• Practice environmental awareness

and cooperative principles in all

aspects of production, handling,

marketing and operations.

• Promote a respect for the dignity

and interdependence of human,

animal, plant, soil and global life.

CROPP’s guiding

principles
David S. Chesnick, 

Agricultural Economist

USDA Rural Development

Editor’s note: This is the second of three

articles providing an overview of the

cumulative performance of the nation’s 100

largest farmer-owned cooperatives in 1998.

The first part appeared in the NovemberDecember issue.

hile the balance sheet is

not a perfect indicator,

it does provide a good

snapshot of the overall

financial strength of a cooperative business. The asset side of the balance sheet

lists all the resources the cooperative has

invested for its operations. The equity

and liability side shows how these

resources are financed. 

Despite the lower revenues in 1998,

total asset value increased by 10 percent,

hitting a record high of $27 billion.

Table 1 shows the consolidated balance

sheet of the Top 100 agricultural cooperatives for the years ending in 1997 and

1998. Dairy cooperatives were the driving force behind this increase. Dairy

cooperatives’ assets jumped 34 percent

in 1998 followed by diversified,

fruit/vegetable, sugar and cotton co-ops.

Farm supply, poultry/livestock and rice

cooperatives were the only commodity

groups to show a contraction in their

asset base. Grain cooperatives didn’t

show much of a change.

Current assets rebound

Current assets are an important part

of a business’ liquidity. After falling 8

percent in 1997, current assets for the

Top 100 rebounded with a 5-percent

increase in 1998. This increase was the

result of higher amounts of accounts

receivable and inventory levels. Cash

balances, on the other hand, continued

their declining trend. 

Why are cash balances important?

Cash is the most liquid current asset.

The value is known and there is minimal

risk associated with it. However, holding

too much cash is not optimal. The

opportunity cost of investing in productive assets could be forgone if too much

cash is held. Cash levels for all 100

cooperatives continue to fall, reaching a

five-year low. Cash balances at the end

of 1998 stood at $759 million, a 9- percent decline. 

There are several reasons for the

decline in cash balances. One relates to

28 January/February 2000 / Rural Cooperatives

Asset growth for largest co-ops shows

resilience to declining revenues

W

Table 1—Combined Balance Sheet 1997-1998,

Top 100 Agricultural Cooperatives

Assets 1998 1997 Difference Change

Current Assets Thousand $ Percent

Cash 759,386 834,032 (74,646) (8.95)

Accounts Receivable 5,570,426 5,053,278 517,148 10.23 

Inventory 5,721,322 5,479,140 242,182 4.42 

Other Current Assets 1,134,936 1,148,951 (14,015) (1.22) 

Total Current Assets 13,186,070 12,515,401 670,669 5.36 

Total Investments 3,507,187 2,894,563 612,624 21.16 

Net PP&E 8,452,471 7,749,014 703,457 9.08 

Other Assets 1,827,747 1,407,537 420,210 29.85 

Total Assets 26,973,475 24,566,515 2,406,960 9.80 

Liabilities

Current Liabilities

Total Short-Term Debt 2,903,766 3,349,553 (445,787) (13.31) 

Accounts Payable 3,422,342 3,059,852 362,490 11.85 

Member Payables 636,405 534,467 101,938 19.07 

Patron And Pool Liabilities 1,321,893 1,107,841 214,052 19.32 

Other Current Liabilities 1,501,970 1,571,411 (69,441) (4.42) 

Total Current Liabilities 9,786,376 9,623,124 163,252 1.70

Total Long Term Debt Less Current Portion 5,804,913 4,856,132 948,781 19.54 

Other Liabilities And Deferred Credits 1,038,060 721,186 316,874 43.94 

Total Noncurrent Liabilities 6,842,973 5,577,318 1,265,655 22.69

Total Liabilities 16,629,349 15,200,442 1,428,907 9.40

Minority Interest 481,261 380,019 101,242 26.64 

Member Equity

Preferred Stock 1,427,613 1,817,836 (390,223) (21.47) 

Common Stock 681,041 653,496 27,545 4.21

Equity Certificates And Credits 5,986,067 4,773,403 1,212,664 25.40 

Unallocated Capital 1,768,144 1,741,319 26,825 1.54

Total Equity 9,862,865 8,986,054 876,811 9.76 

Total Liabilities And Equity 26,973,475 24,566,515 2,406,960 9.80
cash management practices leading to

efficient use of cash by cooperatives,

thus requiring lower cash balances.

Another reason relates to better access

to open lines of credit. Therefore,

cooperatives do not need to hold excessive cash. On the negative side, some

cooperatives are experiencing poor cash

flows. Net cash flows for all cooperatives were down, mostly due to the poor

cash flow from operations. 

Only two commodity groups had an

increase in their cash balances — dairy

and grain. It’s not a coincidence that

both of these groups of cooperatives had

an increase in their net margins and positive cash flows from their operations. 

Accounts receivable are comprised

primarily of debts owed to cooperatives

by their members, usually for product

purchases. Accounts receivable jumped

10 percent in 1998, ending the year at

$5.6 billion. An increase in this category bears watching. If this increase in

accounts receivable is a natural extension of higher sales revenue, then there

shouldn’t be much of a problem. However, if this increase is a result of tighter

cash flows for members, the cooperative

may be looking at a higher writeoff for

bad debts in the future. Accounts

receivable for all Top 100 cooperatives

reached 8.1 percent of total operating

revenues, up from 7.6 in 1997.

Farm supply, grain, poultry/livestock

and sugar cooperatives had lower

accounts receivable in 1998. As a percent of total revenues, only farm supply,

grain and sugar cooperatives experienced declining values over the past five

years. Poultry/livestock and rice cooperatives displayed an increasing trend of

accounts receivable to total revenues.

The other cooperatives fluctuated and

did not show any trends.

Inventories often constitute a substantial portion of current assets. In

1998, inventories were 43 percent of

total current assets. However, inventories often have little to do with a cooperative’s liquidity. In most cooperatives, a

certain level of inventory must be kept.

If inventories are inadequate, sales volume declines below an attainable level.

Conversely, excessive inventories expose

a cooperative to storage costs, insurance,

taxes, obsolescence, and physical deterioration. Inventories are considered to

be the least liquid of all current assets.

Inventory levels for the Top 100

increased 4 percent in 1998, to $5.7 billion. Farm supply, grain and rice cooperatives carried fewer inventories in

1998 compared to 1997. Much of the

decline for these cooperatives can be

attributed to lower sales. Fruit/vegetable cooperatives had the largest dollar

value increase in inventories, followed

by cotton, dairy, diversified, and sugar

cooperatives. Poultry/livestock cooperatives typically do not carry much inventory. 

Investments hit record highs

Cooperatives invest in both noncooperative and cooperative ventures.

Non- cooperative investments usually

indicate investments in joint ventures or

other for-profit subsidiaries. Investments in other cooperatives generally

represent business done with those

cooperatives. Total investments in cooperatives and other businesses increased

dramatically (21 percent) in 1998, reaching a record $3.5 billion (table 2). Most

of this increase is due to two cooperatives. These two cooperatives accounted

for 34 percent of the total amount

invested by the Top 100 in 1998, up

from 22 percent in 1997. 

Investments in other cooperatives

(excluding financial cooperatives)

increased 13 percent to end the year at

$1.7 billion. The majority of the investment here reflects non-cash patronage

refunds. However, more recently these

investments have been taking the form

of joint ventures between two or more

cooperatives. Diversified and farm supply cooperatives make up the majority of

investments in other cooperatives. 

Investment in other businesses

reached $1.5 billion, a jump of 41 percent. Most of these investments are in

“for profit” joint ventures with other

cooperatives or businesses. The dairy

cooperatives held more than 50 percent

of total investment in non-cooperative

businesses in 1998. These investments

mostly involved processing facilities and

other value-added activities.

Investment in cooperative banks

remained steady despite the drop in

funds borrowed from these financial

Rural Cooperatives / January/February 2000 29

Table 2—Cooperative Investment From 1994-1998,

Top 100 Agricultural Cooperatives

1994 1995 1996 1997 1998

Thousand $

Bank For Cooperatives 367,257 385,911 415,851 356,622 356,278 

Other Cooperatives

20% or Less Ownership 808,539 940,411 1,181,843 1,070,340 1,208,529

Greater Than 20 % Ownership 226,760 274,922 362,136 438,224 492,258

Other Businesses 

20% or Less Ownership 39,297 157,827 127,936 159,344 172,357

Greater Than 20% Ownership 168,885 61,206 102,641 357,118 520,320 

Other Investment 537,449 447,165 472,833 512,915 757,445

Total Investment 2,148,187 2,267,442 2,663,240 2,894,563 3,507,187

Table 3—Sources Of Short-Term Debt 1994-1998,

Top 100 Agricultural Cooperatives

1994 1995 1996 1997 1998

Thousand $

Current Portion Long-Term Debt 435,984 389,816 901,549 984,351 611,995

Banks For Cooperatives 1,137,871 1,596,793 1,665,247 1,289,646 1,058,240

Commercial Banks 506,034 593,588 703,848 658,400 838,360

Notes Issued By Cooperatives 228,848 268,233 328,839 256,327 228,484

Other Nonfinancial Entities 24,176 26,824 14,049 20,990 15,909

Commercial Paper 95,062 147,767 108,699 134,063 146,083

Government Sources 49,432 28,203 45,677 3,078 4,685

Other Sources 4,998 4,474 1,326 2,698 10

Total Short Term Debt 2,482,405 3,055,698 3,769,234 3,349,553 2,903,766
30 January/February 2000 / Rural Cooperatives

institutions. Investment in cooperative

banks stood at $356 million in 1998,

down $1 million dollars from 1997. 

Investment in fixed assets continues

to expand 

Cooperatives need to invest in fixed

assets in order to be competitive. These

include investing in such things as stateof-the-art processing facilities or equipment that makes their operations run

more efficiently. 

Investment in fixed assets by the Top

100 has steadily increased since 1994.

Fixed assets increased 9 percent, to $8.5

billion in 1998. Driving this expansion

were dairy, diversified and farm supply

cooperatives. These three commodity

groups accounted for 78 percent of the

total increase. Two commodity groups,

rice and poultry/livestock, had a net

decline in fixed assets. 

Other assets jumped 30 percent, ending the year at $1.8 billion. These assets

include such things as goodwill, patent

rights and long-term receivables. Diversified cooperatives hold nearly 60 percent of the total amount of other assets.

Current liabilities inch upward

After peaking in 1996, short-term

debt has fallen each of the last two years.

Table 3 compares the amount of various

short-term debts over the past five years.

Short-term debt fell 13 percent, to $2.9

billion in 1998. 

Leading the decline were grain and

farm supply cooperatives. Some grain

cooperatives appear to have refinanced

some of their long-term debt, causing a

$399 million drop in the current portion

of long-term debt, a decline of 93 percent. Farm supply cooperatives required

less operating loans in 1998. Total shortterm loans outstanding fell 45 percent,

to $268 million. 

However, just four cooperatives were

the driving force behind the decline in

short-term loans for farm supply cooperatives. These cooperatives appeared to

transfer their operating loans with cooperative banks to long-term bonds issued

by the cooperative.

Poultry/livestock and rice cooperatives also required fewer operating loans

in 1998. All sources of short-term debt

for these commodity groups were lower

in 1998. The amount of operating loans

for rice fell from $183 million to $136

million while those for poultry/livestock

fell 2 percent to $92 million. 

Cotton and sugar cooperatives

increased their use of every type of

short-term loan. Cotton cooperatives

increased their amount of operating

loans by 43 percent, to $167 million.

Sugar cooperatives mirrored the

increase of cotton, jumping 44 percent,

to $65 million. The largest increase

from both commodity groups was with

the cooperative banks, which accounted

for 62 percent (cotton co-ops) and 65

percent (sugar co-ops) of the increase. 

Fruit/vegetable and dairy cooperatives both lowered the amount of longterm debt currently due, mostly through

refinancing their term debt. However,

the increase in operating loans from all

sources pushed up the total amount of

short-term debt. Both commodity

groups increased the amount of operating loans from both cooperative and

commercial banks. Fruit/vegetable

cooperatives jumped 20 percent, to $475

million, while dairy increased 5 percent,

to $183 million.

Diversified cooperatives increased the

amount of long-term debt, thus also

increasing their current portion of that

debt. They also transferred their operating loans from notes and cooperative

banks to commercial banks. The net

result was an increase of 7 percent, to $1.2

billion of outstanding short-term debt.

Accounts payable for the Top 100

increased by 12 percent, to $3.4 billion.

Most of this increase was due to the

dairy and diversified commodity groups.

Dairy had the largest increase, $219 million, a 51-percent increase. The diversified cooperatives increased the amount

in their accounts payable by $197 million, ending the year at $1.2 billion. 

Only farm supply and poultry/livestock cooperatives had lower accounts

payable. Farm supply cooperatives had

the largest decrease, $137 million, ending the year with $821 million.

Poultry/livestock cooperatives typically

carry few accounts payable and 1998 was

no exception as this sector had only $6.5

million worth of accounts payable, compared to $7.3 million in 1997.

Cotton, fruit/vegetable, grain and

sugar cooperatives also had increases in

their accounts payable. Yet, they were

not in the magnitude of the dairy and

diversified cooperatives. Rice cooperaTable 5—Sources of Member Equity 1994-1998,

Top 100 Agricultural Cooperatives

1994 1995 1996 1997 1998

Thousand $

Preferred Stock 1,413,779 1,636,409 1,762,257 1,817,836 1,427,613 

Common Stock 538,958 570,932 602,265 653,496 681,041 

Equity Certificates And Credits 4,392,034 4,320,151 4,911,467 4,773,403 5,986,067 

Unallocated Capital 1,254,377 1,556,453 1,656,132 1,741,319 1,768,144

Total Equity 7,599,148 8,083,945 8,932,121 8,986,054 9,862,865

Table 4—Sources Of Long-Term Debt 1994-1998,

Top 100 Agricultural Cooperatives

1994 1995 1996 1997 1998

Thousand $

Bank For Cooperatives 1,929,252 2,256,784 2,747,684 2,831,301 2,567,208

Bond Issued By Cooperative 807,075 1,076,743 1,305,092 1,225,200 2,196,060

Commercial Banks 495,095 378,430 673,887 900,694 701,160 

Insurance Companies 490,501 398,279 355,366 512,670 597,030 

Industrial Development Bonds 224,134 212,834 192,108 181,011 197,715 

Capital Lease 63,147 54,477 57,758 63,668 34,463

Other Nonfinancial Entities 22,457 8,079 6,034 19,096 16,355

Government Source 2,360 1,224 1,064 1,044 894

Other Sources 110,713 128,557 159,463 105,799 106,023

Total Long-Term Debt 4,144,734 4,515,407 5,498,456 5,840,483 6,416,908

Long-term Debt Less Current Portion 3,708,750 4,125,591 4,596,907 4,856,132 5,804,913
Rural Cooperatives / January/February 2000 31

tives, at $33 million, showed no change. 

“Members payable” represents cash

patronage refunds, dividends and

revolving equity that have been declared

but not yet paid. Liabilities in this area

jumped 29 percent, to reach $1.3 billion.

The largest increase is attributed to the

dairy cooperatives, which accounted for

88 percent of the total increase in member payables. Farm supply cooperatives

were the only commodity group to have

a significant decline in the members’

payable, dropping 51 percent to $95

million.

Funds owed to members in the form

of patron and pool liabilities jumped

$214 million, ending the year at $1.3

billion. Dairy, fruit/vegetable and grain

cooperatives account for 77 percent of

the total patron and pool liabilities outstanding. Of these three, only the grain

cooperatives experienced a decline. 

Long-term debt jumps

Continuing a trend that started in

1997, the largest agricultural cooperatives appear to be transferring some of

their short-term debt to long-term. As

mentioned earlier in this report, shortterm debt fell 13 percent. During this

same period, long-term debt less current

portion jumped 20 percent, to reach an

all-time high of $5.8 billion. Table 4

illustrates the sources of long-term debt

for all top 100 cooperatives. 

Cooperative banks continue to provide the bulk of long-term debt. However, the use of these sources fell 9 percent, ending the year at $2.6 billion.

Pushing this decline were farm supply,

dairy and grain cooperatives. These

three commodity groups represent 39

percent of total borrowed funds from

this source. Grain cooperatives had the

largest decline. Their use of cooperative

banks fell 130 percent, to $237 million,

which represented 70 percent of the

total decline. The use of cooperative

banks by farm supply cooperatives fell

$94 million, ending the year at $564

million, while dairy dropped $15 million, ending the year at $191 million.

However, all commodity groups did

not share this decline. Diversified,

fruit/vegetable and sugar cooperatives,

which compose 55 percent of this

source’s total amount, increased their

use of cooperative banks. Diversified

cooperatives increased their use of these

funds by 23 percent while fruit/vegetable and sugar both had a 3-percent

increase. 

Commercial banks held less cooperative debt in 1998 than in 1997. Cooperatives borrowed $200 million less from

this source, down from a record high of

$901 million in 1997. Only the diversified commodity group borrowed more

from commercial banks, increasing their

amount from $380 million to $438 million. 

An interesting trend in the last few

years is cooperatives financing their own

debt by issuing bonds. Only

poultry/livestock, rice and sugar did not

issue their own debt. While diversified

cooperatives held 43 percent of the total

amount of debt issued by the largest

cooperatives, it was the dairy, farm supply and grain cooperatives that contributed the largest increase. These

three commodity groups accounted for

83 percent of the $971 million increase.

It appears that cooperatives are transferring their debt from traditional sources

to these self-financing instruments.

Other sources of debt include debt

held by insurance companies, industrial

development bonds, capital leases, and

government and other non-traditional

sources. The use of these other sources

increased by 8 percent. Most of this

increase is due to diversified and farm

supply cooperatives, which make up 81

percent of the total other sources of

debt. 

Minority interest continues rapid

expansion

When a cooperative holds more than

a 50-percent interest in a subsidiary, the

cooperative must consolidate the financial statements of the subsidiary with its

own statements. If the cooperative does

not own 100 percent of the subsidiary,

there will be a minority interest that

represents the claim of outside investors

in the subsidiary that is consolidated

into the parent cooperative. 

The amount of minority interest held

in cooperatives’ subsidiaries increased by

27 percent, to $481 million. However,

almost all of that increase was a result of

one cooperative, which acquired several

subsidiaries and joint ventures during

the year. 

Member equity hits record high

Total member equity jumped 10 percent in 1998, to a record high $9.9 billion. Table 5 shows the breakdown of

the various types of equity. 

Common stock is generally used to

represent the voting rights in an incorporated cooperative and represents 7

percent of total equity outstanding.

However, a few cooperatives use common stock as a form of equity allocation.

These cooperatives accounted for most

of the increase, with a majority of the

increase (58 percent) coming from one

diversified cooperative. Two fruit/vegetable and one grain cooperative

accounted for another 41 percent of the

increase. With the exception of these

four cooperatives, there is usually little

change in the amount of common stock

outstanding.

Almost all cooperatives use equity

certificates to allocate equity to members. Equity certificates increased to $6

billion up $1.2 billion from 1997. All

commodity groups showed an increase.

However, nearly 40 percent of the

increase was from one cooperative

transferring its allocated equities from

preferred stock to equity certificates.

Several other cooperatives transferred

equity from their unallocated account to

equity certificates. This is why the

amount of equity certificates jumped

despite lower net margins generated by

these cooperatives.

Preferred stock may represent investments by employees and the general

public as well as members. Several value-added activities by some cooperatives

use preferred stock for investment in

these activities. In other instances,

retained patronage refunds and per-unit

retains are classified as preferred stock.

Whatever the reason, the combined value of preferred stock fell by 21 percent,

to $1.4 billion in 1998. As mentioned

earlier, much of the decline was due to

reclassification of preferred stock to

allocated certificates. 

Unallocated equity is generally

income from non-member business and

other income on which the cooperative

has paid taxes. It is typically used as a

reserve to offset losses incurred. In

1998, dairy, farm supply and rice cooperatives were the only commodity

groups to show an increase in their unallocated equity. The increase in these

three commodity groups was more than

enough to offset the drop in the other

five groups. Total unallocated equity

increased 2 percent to $1.8 billion. ■
32 January/February 2000 / Rural Cooperatives

David S. Chesnick, 

Agricultural Economist

USDA Rural Development

Editor’s note: This is the final article in a

three-part series providing an overview of

the commutative fiscal performance of the

nation’s 100 largest agricultural cooperatives in 1998. Part I appeared in the

November-December issue; Part II begins

on page 28 of this issue.

griculture continues to

suffer through a period

of depressed commodity

prices, impacting not

only farmers but the businesses that

deal with them. Cooperatives are no

exception. While some cooperatives

are weathering this crisis well, most are

not as fortunate.

The average performance measures

for all 100 cooperatives show some

deterioration during 1998. Tools

developed to analyze cooperatives’

financial performance include four

types of performance measurements.

These measurements are standard

ratios found in most financial textbooks. A list of these ratios and averages for all Top 100 cooperatives are

presented in Table 1. 

These major areas of measurement

include:

• Liquidity, which shows the cooperative’s ability to meet short-run obligations;

• Leverage, which shows the risk associated with financing and the cooperative’s ability to meet its long-term

and short-term obligations;

• Activity, which shows the efficiency

of how well the cooperative uses its

assets; and

• Profitability, which shows the net

return on the cooperative’s operations.

Liquidity

The most common liquidity ratios

used today are the current and quick

ratios. Both evaluate a cooperative’s

short-term liquidity by measuring the

degree to which it can meet its shortterm obligations. Liquidity implies the

ability to convert assets into cash in the

current period. Liquid assets include

cash, marketable securities, accounts

receivable, inventories and other debt

that is to be paid to the cooperative

within the current fiscal year. Figure 1

illustrates the average liquidity ratios

for all Top 100 cooperatives.

The current ratio is calculated by

dividing total current assets by total

current liabilities. The higher the

ratio, the more liquid the cooperative

is. However, a note of caution is warranted. Interpreting these ratios —

beyond the conclusion that they represent current resources over current

obligations at a given point in time —

requires a more in-depth look at the

trends of the individual parts that make

up the ratio. For example, during a

period of business contraction, current

liabilities may be paid off while there

may be a concurrent, involuntary accumulation of inventories and uncollected receivables causing the ratio to rise.

The average current ratio for all the

largest 100 agricultural cooperatives

declined from 1.38 to 1.35 in 1998 —

the lowest value in the past five years.

Even though combined current assets

for the combined Top 100 cooperatives

increased more than the combined current liabilities, as reported in an earlier

article, most of these cooperatives

found the opposite true. This illustrates

the influence of some of the largest

cooperatives on the combined balance

sheets. 

Fruit/vegetable, grain, and rice

cooperatives, on average, had increasing

current ratios. The other commodity

groups had either no change or a lower

Depressed ag sector puts 

squeeze on largest co-ops

A

Table 1—Ratios for all Top 100 cooperatives for 1994-1998

1994 1995 1996 1997 1998

ratio

Current ratio 1.38 1.37 1.36 1.38 1.35

Quick ratio 0.77 0.75 0.78 0.79 0.77

Debt-asset 0.60 0.61 0.62 0.60 0.60

L-t debt to equity 0.40 0.41 0.45 0.49 0.51

times

Times interest earned 6.00 4.62 4.73 5.85 5.44

Asset turnover 3.55 3.41 3.65 3.76 3.47

Fixed asset turnover 18.48 16.86 17.03 18.63 15.12

percent

Gross profit margin 15.10 14.77 13.62 13.45 14.27

Net operating margin 2.61 2.57 2.11 2.01 1.95

Return on total assets 6.90 7.30 7.16 7.39 7.25

Return on member equity 11.73 11.19 11.00 12.04 11.83
Rural Cooperatives / January/February 2000 33

average value for their current ratio.

The fruit/vegetable cooperative group

had a higher current ratio, due mostly

to a build-up of inventory. For grain

cooperatives, the ratio was generally

higher, due mostly to lower current

debt. It was also higher for rice cooperatives because of higher accounts

receivable, which — along with lower

debt — slowed the decline in current

assets.

Lower cash balances and accounts

receivable — combined with higher

debt, accounts payable and pool liabilities — pushed down the current ratio

for cotton cooperatives. The dairy

cooperative sector’s decline was attributed to higher accounts payable and

liabilities due members in relation to

current assets. Diversified co-ops had

lower inventory levels, higher shortterm debt and accounts payable while

farm supply co-ops had lower amounts

of receivables, which pulled down

their current ratio. For poultry/livestock cooperatives, a combination of

several factors caused the decline in

the current ratio. Sugar remained

unchanged from the prior year.

The quick ratio is calculated the

same way as the current ratio, but

inventories are excluded from current

assets. The theory behind this suggests

that inventories cannot be converted to

cash as quickly as other current assets

during liquidation. Also, if the inventory needs liquidation, the cash value

would likely be much less than the

book value. Therefore, it can be

argued that the quick ratio is a better

measure of liquidity. 

The average quick ratio for all

cooperatives followed that of the current ratio and fell from 0.79 to 0.77 in

1998. However, the decline in the

FIGURE 1—Current and Quick Ratio

1.6

1.2

0.8

0.4

0

1994 95 96 97 98

Prior Year Current Quick

FIGURE 2—Dept to Asset Ratio

0.62

0.61

0.60

0.59

0.58

1994 95 96 97 98

Prior Year restated

FIGURE 3—Long-term dept to equity

0.6

0.5

0.4

0.3

0.2

0.1

0

1994 95 96 97 98

Prior Year restated
34 January/February 2000 / Rural Cooperatives

quick ratio was not as large as the drop

in the current ratio. This would indicate that, on average, inventory levels

are either not increasing as fast as other current assets, or that they are

falling faster than other current assets.

Cotton, fruit/vegetable and farm

supply co-ops had larger declines in

their quick ratios than in their current

ratios. These cooperatives had a relative build up of inventory over the past

year. However, cotton co-ops maintained a strong liquid position, with an

average quick ratio above 1.0. All other

commodity groups averaged fewer

inventories compared to other current

assets.

Leverage

Leverage relates to the capital

structure or sources of financing for a

cooperative. There are several important perspectives on analyzing capital

structure, including an examination of

the difference between debt and equity. 

Equity is the basic risk capital put

up by co-op members. The risk inherent in member equity is the uncertainty or unspecified return. Sometimes

there is no defined repayment schedule. There must be some equity within

the capital structure to bear the risk

associated with the cooperative’s business. 

Debt, on the other hand, is the use

of external funds and must be repaid at

specified times regardless of the cooperative’s financial condition. Failure to

pay the principal or interest typically

results in members losing control of

their cooperative.

Financial leverage is the use of debt

to increase returns on member investments. Thus, if the fixed cost of the

debt is lower than the returns those

funds generate, the excess returns will

accrue to members. However, if the

revenues were less than the fixed cost

of the debt, member equity would

make up the difference. This is the

concept of leverage.

The first leverage ratio, debt-toasset, is calculated by dividing total liabilities by total assets (figure 2). This

represents the claims of outside interests on the cooperative’s assets. The

average debt-to-asset ratio for all

cooperatives remained steady at 0 .60.

With the exception of poultry/livestock cooperatives, most commodity

groups didn’t remain constant. 

Cotton, dairy, diversified, and

fruit/vegetable co-ops increased their

relative use of debt. Cotton and

fruit/vegetable cooperatives used higher amounts of working loans to finance

an increase in their inventories and

receivables. Both dairy and diversified

co-ops increased overall assets. However, dairy relied on short-term debt

and member payables to finance the

expansion while the diversified co-op

sector relied heavily on long-term

debt.

The other co-op commodity groups

showed a strengthening of their equity

base. Farm supply cooperatives used

members’ equity to pay off a substantial portion of their working loans.

Grain cooperatives transferred current

debt for long-term debt and paid off

the rest with retained patronage

FIGURE 4—Times interest earned

7

6

5

4

3

2

1

0

1994 95 96 97 98

Prior Year restated

FIGURE 5—Local and Fixed Asset Turnover

20

18

16

14

12

10

8

6

4

2

0

1994 95 96 97 98

Prior Year Local Asset Fixed Asset Turnover
Rural Cooperatives / January/February 2000 35

refunds. Rice cooperatives apparently

sold off inventory and used the proceeds to pay off working loans. Sugar

cooperatives increased fixed assets

through retained patronage refunds.

The second leverage ratio is longterm debt-to-equity (figure 3). Since

both equity and long-term debt take a

long-run view of financing, it should

be a natural comparison between the

two. Unlike the relatively unchanged

debt-to-asset ratio discussed earlier,

the long-term debt-to-equity ratio

increased steadily over the past five

years to end 1998 at 0.51. This would

indicate that, on average, either cooperatives are transferring their debt

from short-term to long-term or they

are decreasing the amount of member

equity in relation to long-term debt. 

Diversified, fruit/vegetable, grain,

poultry/livestock and rice cooperatives

were leading the trend of shifting their

capital structure to more long-term

debt in relation to equity. Diversified

and fruit/vegetable cooperatives accumulated more debt than equity, with a

larger percentage of that debt being

long-term. Meanwhile, most of the

grain, poultry/livestock and rice cooperatives had a higher amount of equity

financing, but are also moving their

debt from short-term to long-term

obligations. 

Cotton and dairy are using more

overall debt in their operations but are

also using more equity for long-term

financing. Sugar cooperatives are generally moving from debt to equity

financing while farm supply cooperatives have maintained similar balance

in their capital structure.

The last leverage ratio is the times

interest earned (TIE). This mainly

looks at how many times net revenue

will cover interest expense. It is calculated by dividing earnings before interest and taxes by interest payments. A

note of caution: this ratio looks at the

minimum expenditures needed to cover debt payments. It does not include

fixed payments such as principal and

lease payments. 

The average TIE ratio for the

largest cooperatives dropped from 5.8

to 5.4 in 1998 (figure 4). This marks

the first decline since 1995. Both higher interest expenses and lower net margins before interest and taxes pushed

the average ratio lower for all. 

Some cooperatives were able to

improve their TIE ratio. Cotton coops had a larger increase in their

income than interest expense. Thus,

they had a higher interest cover ratio.

Grain, rice and sugar cooperatives lowered interest rates while increasing

their bottom line. Fruit/vegetable coops improved their average ratio, primarily as a result of one cooperative.

Without that co-op to pull up the

average, fruit/vegetable cooperatives

would be at the same level as in 1997.

The situation was very similar for

the dairy sector, where one cooperative

pulled down the average. This cooperative, which typically carries a small

amount of debt, had a substantial

increase in debt while income fell.

Diversified and poultry/livestock coops had higher debts and interest

expenses while net margins before

interest and taxes fell. Farm supply

cooperatives generally had lower net

margins pulling down their TIE.

FIGURE 6—Gross and Net Operating Margin Percentage

16

14

12

10

8

6

4

2

0

1994 95 96 97 98

Prior Year Gross margin Net op. Margin

FIGURE 7—Gross and Net Operating Margin Percentage

14

12

10

8

6

4

2

0

1994 95 96 97 98

Prior Year ROA ROE
36 January/February 2000 / Rural Cooperatives

Even though the average cooperative had five times the earnings to cover interest expense, diversified, poultry/livestock and sugar cooperatives

had average TIE ratios between 1 and

2. This does not necessarily mean further stress in these sectors would be a

cause for grave concern for these cooperatives. Many of these cooperatives

operate on a pooling basis and, after all

expenses, the final payment to members leaves little margin for distribution. Thus, these cooperatives generally have low TIE ratios. However, the

diversified co-ops have been carrying a

large amount of debt and the decline

in their net margins is a concern.

Activity

Where the first two types of ratio

examined the liquidity and capital

structure, the next two look at the

operating performances. Activity ratios

reveal how much revenue is generated

by each dollar invested in the cooperative’s assets. Higher ratios here generally mean higher efficiency within the

cooperative.

The first activity ratio, local asset

turnover, is calculated by taking the

total revenues divided by local assets.

Local assets are total assets less investments in other cooperatives. Investment in other cooperatives is generally

not considered a revenue-producing

asset. Therefore, it makes sense to

leave it out of the calculation when

looking at the local asset turnover

ratio. 

The average local asset turnover

ratio took a dramatic turn, falling to

the second lowest point in the past five

years (figure 5). The average ratio fell

from 3.8 to 3.5, primarily due to slower sales growth compared to the

growth in local assets. All commodity

groups experienced a decline in their

local asset turnover ratio. More than

two-thirds of the Top 100 co-ops had a

declining ratio.

The commodity groups with the

largest changes were dairy and poultry/livestock. The dairy cooperatives

increased their average local assets at a

higher rate than the increase in sales,

causing the turnover ratio to fall. Poultry/livestock co-ops’ ratio was pushed

down by lower sales. Cotton cooperatives would be in the same situation as

poultry/livestock cooperatives, with

the exception of one cooperative that

cushioned the fall for all cotton cooperatives. Diversified, farm supply, grain

and rice cooperatives also saw their

ratio fall due to lower sales. Meanwhile, sugar co-op ratios fell because of

a relatively higher increase in local

assets compared to their sales. The

local asset turnover ratio for fruit/vegetable cooperatives fell because of both

higher local assets and lower sales.

The second activity ratio, fixed asset

turnover, looks at how efficiently the

cooperative uses its fixed assets to generate sales. This ratio is calculated by

dividing total operating revenues by

net fixed assets. 

While a ratio value out of line with

what would be considered “normal”

may be a cause for alarm, further

examination of the details will be needed to ascertain whether a problem

exists. For example, a cooperative with

fully depreciated assets could have a

high ratio due to the low value of its

fixed assets. On the other hand, a

cooperative that is expanding its operations could have a temporarily

depressed ratio because the new capacity is not fully used at this time. Therefore, other information — such as the

average age left on the fixed assets and

how much new equipment is purchased — will be needed to help interpret the fixed asset turnover ratio. 

The average Top 100 agricultural

cooperative purchased $17 million in

fixed assets in 1998, down from $17.8

million in 1997. Total net fixed assets

for all the Top 100 co-ops hit a record

amount of $8.5 billion. The average

age of fixed assets (estimated by dividing net fixed assets by depreciation

expense) was down from 9.3 years in

1997 to 9.1 years in 1998. These figures would suggest that while cooperatives are expanding their fixed asset

base, the industry as a whole didn’t

build excess capacity. At the same time,

though, a few cooperatives had substantial investments and appeared to

have built excess capacity for future

growth.

The average fixed asset turnover

ratio fell from 18.6 to 15.1 in 1998 —

the lowest in the five-year period. Most

commodity groups had a lower average

fixed asset turnover ratio caused by

lower sales. However, dairy cooperatives actually had higher sales without a

corresponding increase in assets. Yet, a

few dairy cooperatives had substantial

declines in their ratio that pulled down

the average ratio for the group. While

a couple of cotton cooperatives

increased their capacity, most of the

decline in their fixed asset turnover was

caused by lower sales. Similarly,

fruit/vegetable cooperatives increased

their average capacity along with lower

sales.

Profitability

Profitability ratios measure the

power of the cooperative’s earnings.

With poor earnings, the co-op may

find it cannot meet its obligations and

will be forced out of business. However, cooperatives can have other objectives than to accumulate high returns.

The nature of a co-op is to fill a market need of its members. Therefore,

co-ops’ profitability ratios can be, and

usually are, lower than those of

investor-owned firms. However, comparisons of the same cooperative or

group over time are very informative.

The four profitability ratios used in

this report include gross margin percent, net operating margins, return on

total assets and return on member

equity.

Gross margins are the excess of revenues above the cost of goods sold. All

operating and non-operating expenses

plus payment of patronage refunds,
Rural Cooperatives / January/February 2000 37

dividends and income taxes must be

covered by the gross margins. Gross

margins also indicate the pricing policy

of the cooperative. In other words, is

the cooperative charging enough for

the products sold or paying too much

for member products to cover its

expenses?

Figure 6 depicts the five-year trend

for the average gross margin percentage and net operating margins for the

Top 100 agricultural cooperatives. Following a gradual decline since 1994,

gross profit margins increased to 14

percent of total sales in 1998, up from

13 percent in 1997. More than 70 of

the Top 100 cooperatives registered an

increase in their gross margins. 

Dairy cooperatives were the only

commodity group averaging a lower

gross margin percentage. The situation

facing most dairy co-ops was that the

costs associated with their sales

increased more than their revenues.

Thus, gross margins were suppressed.

No other commodity group averaged a

lower gross margin percentage.

Net operating margin percentage

looks at the amount of margins that is

generated by operations expressed as a

percent of total revenue. It is calculated by taking the gross margin less

operating expenses and dividing that

by total revenue. Indirect

income/expense items (patronage

refunds, interest income/expense,

gains/losses on the sale of assets, and

any other extraordinary revenues or

expenses not directly related to operations) are not included in the calculation. 

Net operating margins as a percent

of total revenues continued a downward trend, reaching its lowest level at

1.9 percent. Only two commodity

groups had an increase in net operating margins percentage: fruit/vegetable

and grain co-ops. The fruit/vegetable

cooperatives had both declining revenues and operating expenses. However, the decline in revenues was relatively greater than the decline in expenses.

Grain cooperatives also showed declining revenues. Yet, they were able to

control their operating expenses and

actually increase their operating margins. All other commodity groups

experienced lower net margin percentages. Diversified, cotton, farm supply,

poultry/livestock rice and sugar all

averaged higher gross margins but

lower net margins. This would indicate

these cooperatives lost some efficiency

within their operations.

Return on total assets (ROTA) is

calculated by taking net margins before

taxes and interest divided by total

assets. This ratio looks at the return on

the total investment by all parties associated with the cooperative. After

reaching a five-year high of 7.39 percent in 1997, return on total assets

took a dip in 1998, ending the year at

7.25 percent (figure 7). Only fruit/vegetable and grain cooperatives averaged

a higher ratio in 1998. Grain cooperatives saw improvement in their net

margins, enabling them to post a higher average return on assets. Fruit/vegetable cooperatives, while averaging

higher net margins, relied on slower

growth of their asset base compared to

their net margins to boost their return

on assets.

Lower net margins were the cause

for most declining ROTA values.

However, some industries — such as

the dairy and sugar commodity

groups — showed a higher increase in

their asset base compared to their net

margins. A few cotton cooperatives

also experienced a larger increase in

their asset base. This will put downward pressure on their ROTA ratios.

Some of these cooperatives appear to

be building for the future. The other

cooperatives generally had lower margins pulling down the ratio.

The last ratio compared in this

report is the return on member equity

(ROE). It is calculated by dividing the

net margins after interest and taxes by

total member equity. The reason interest and taxes are excluded is because

interest is a return to creditors and taxes are a return to government. Excluding these will provide a true return on

member equity. What is interesting

about this ratio is the fact that despite

the wide fluctuations between the different years for each cooperative, the

average return on member equity for

all Top 100 cooperatives has remained

steady between 11 percent and 12 percent. 

Diversified, farm supply and poultry/livestock cooperatives had substantial declines in their average ROE

ratios, pulling down the overall average. Much of this decline is attributed

to declining margins. Sugar cooperatives again ended the year with a net

loss, yet the loss was not as large as the

prior year and their return on equity

improved. Fruit/vegetable cooperatives boosted their ROE with the help

of two cooperatives. Dairy, cotton,

grain and rice cooperatives all had a

larger percentage increase in their net

margins compared to their increase in

equity. 

In summary, the downturn in the

agriculture sector hurt farmers and their

businesses. Liquidity indicators point

toward a less liquid position for many

larger cooperatives at the same time

they accumulate more debt. At present,

there doesn’t seem to be too much of a

concern. However, if the lower activity

and profitability of these cooperatives

doesn’t improve, agriculture could see

more consolidation and change in the

cooperative community. ■
FCA Chairman Marsha Martin dies

Marsha Pyle Martin, chairman and

chief executive officer of the Farm

Credit Administration (FCA), died Jan.

9 in Austin, Texas. Martin, appointed to

a six-year term by President Clinton in

1994, was the first woman to serve as

chairman in the 65-year history of the

FCA, an independent federal agency

responsible for regulation and examination of the Farm Credit System — a

network of farmer-owned cooperative

financial institutions. Martin was also

the first woman senior executive in the

Farm Credit System, serving as vicepresident of the Farm Credit Bank of

Texas, and the first woman to serve as

director of the Farm Credit System

Insurance Corporation.

“We are surprised and saddened by

the loss of our colleague, who was such

a vibrant force,” said FCA board member Mike Reyna. “America’s farmers

and ranchers and the entire Farm

Credit System lost someone who has

worked tirelessly for them, and for all

of agriculture.”

A lifelong advocate for farmers,

ranchers and rural America, Martin

spent more than 30 years working in

agriculture and agricultural finance. In

her role as FCA chairman, Martin fostered efficient and competitive credit

markets for borrowers. She is credited

for inspiring the FCA board to develop

a strategic vision to ensure the longterm viability of the system and keep

pace with the rapidly changing financial services industry.

Among the honors awarded to Martin during her career was the Klinefelter Award in 1990 from the Cooperative Communicators Association,

honoring her for her work to promote

improved cooperative communications

programs. 

Martin is survived her husband, two

children and two grandchildren.

DFA, Dairyworld discuss joint

venture

Dairy Farmers of America, Kansas

City, Mo., and British Columbia-based

Dairyworld Foods at the end of

November signed an agreement to

develop the first-ever collaborative

business effort between Canadian and

U.S. dairy producers. The proposed

agreement will lead to the joint marketing of specialty dairy ingredients

from DFA’s limited liability company,

Main Street Ingredients, LaCrosse,

Wis., and Dairyworld’s joint venture

partner, Pascobel Inc. of Quebec.

Dairyworld Foods has 1,750 Canadian farmer-members and processes

fluid milk, cheese and other dairy products. DFA has 25,000 U.S. farmermembers and manufactures and markets a complete line of dairy products

as well as supplying fluid milk to

processors across the nation.

Land O’Lakes, Mitsui building largest

cheese plant

Land O’Lakes (LOL), Arden Hills,

Minn., and Mitsui, Japan’s largest trading company, have formed a joint venture to build a new cheese plant in

Tulare, Calif. When fully operational,

the plant will be capable of processing

up to six million pounds of milk a day

into bulk cheddar and mozzarella

cheese. The initial structure of the joint

venture will be a limited liability company with LOL holding a 70-percent

share and Mitsui a 30-percent share.

The two organizations anticipate additional partners will join in the venture.

This will be LOL’s third California

plant. Its two others include a multiproduct plant in Tulare and a cheese

plant in Orland.

CoBank stockholders elect directors

Stockholders of CoBank, Denver,

Colo., elected Wayne Seaman, Ralston,

Iowa, and Ronald Schuler, Gold River,

Calif. to the board of directors. Seaman

is the former chief executive officer of

West Central Cooperative and serves as

a director with Home State Bank and

the Iowa Ag Finance Board. Schuler is

president and CEO of the California

Canning Peach Association. He also

serves on the board of the National

Council of Farmer Cooperatives, Ag

Network of California, the National

Bargaining Committee and the California Agriculture Bargaining Advisory

Committee.

Meanwhile, five people were reelected to the board. They include

Donald Benschneider, a Payne, Ohio,

grain farmer; Stephen Caruso, CEO of

Citrus World, Inc., Lake Wales, Fla.;

John Stanley Dean Sr., president and

CEO of Amicalola Electric Membership Corp., Jasper, Ga.; Gordon Lamb,

an Oakfield, N.Y., dairy producer; and

Otis Molz, a Deerfield, Kan., rancher.

CoBank, with $22 billion in assets on

June 30, 1999, is part of the $84 billion

Farm Credit System. It provides financial services to approximately 2,600

agricultural cooperatives, rural utility

systems, Farm Credit associations and

other businesses serving rural America.

UW-Madison honors Truman

Torgerson

The University of Wisconsin-Madison’s Center for Cooperatives Library

38 January/February 2000 / Rural Cooperatives

NEWSLINE

Chairman and CEO Marsha Pyle Martin
was dedicated during a ceremony in

October as the Truman Torgerson

Cooperative Collection. Torgerson, who

died in 1996, was a nationally recognized cooperative leader and a pioneer

in the dairy industry. He is credited with

organizing the Lake-to-Lake Dairy

Cooperative, where he served from

1947 to 1982 as general manager. The

cooperative’s Keil, Wis., cheese plant

was the first in the nation permitted to

apply the U.S. “AA” designation on its

cheddar cheese, and the Lake-to-Lake

brand is still recognized nationally. 

Among the many honors bestowed

upon Torgerson during his life was the

Honorary Recognition Award from the

UW-Madison’s College of Agricultural

and Life Sciences for his contributions

to the dairy processing and marketing

fields, and the “Food Industry Man of

the Year” award during the 1969 World

Dairy Expo in Madison for helping to

improve and promote dairy cooperatives. The National Milk Producers

Federation, Wisconsin Farm Bureau,

World Food and Agriculture Organization and Wisconsin Agricultural and

Life Sciences Alumni Association also

bestowed their top honors on him. 

A UW graduate in 1939 and an

NCAA light-heavyweight boxing

champion, Torgerson began his career

as an ag education teacher in Rusk

County, Wis., then became ag extension agent before being named CEO

and general manager of Lake-to-Lake

in Manitowoc, Wis. 

The Cooperative Collection, which

recently became part of the TaylorHibbard Library in the Department of

Agricultural and Applied Economics,

was made possible by a contribution

from the Torgerson family. 

Southern States

discontinues member

magazine

Southern States

Cooperative, Richmond, Va.,

after more than 50 years, has

discontinued publication of

its “Cooperative Farming”

member magazine. Instead, it

has formed a partnership

with “Progressive Farmer”

magazine to publish special

Southern States inserts within each issue. Southern States

President and CEO Wayne

Boutwell says the partnership

will allow the cooperative to more

quickly establish its identity with a vast

audience of farmers and more active

farmers in its 17-state territory.

Co-ops form Soybean Research

Company

Land O’Lakes, FFR Cooperative

and Limagrain Genetics formed SOYGENETICS, LLC, a new soybean

research company dedicated to the

development of elite soybean varieties.

It is headquartered in Lebanon, Ind.,

with Stephen J. Baluch as chief executive officer. Research stations will operate at Lebanon; Chatham, Ontario;

Fort Dodge, Iowa; Mount Vernon, Ill.;

and Jackson, Tenn. Existing soybean

research programs from each of the

owners serve as the foundation for the

new company, the third largest soybean

research company in North America.

New products will be available to each

participant on an equal basis. Any

opportunities to offer products into the

seed trade are being evaluated and a

strategy will be announced later, the

organizers report.

Land O’Lakes, Arden Hills, Minn.,

a food and agricultural cooperative, has

sales in all 50 states and more than 50

countries. FFR Cooperative, West

Lafayette, Ind., is an inter-regional

cooperative that includes Southern

States Cooperative, Richmond, Va.;

Tennessee Farmers Cooperative,

LaVergne, Tenn.; Growmark, Inc.,

Bloomington, Ill.; and Land O’Lakes.

Limagrain, Peoria, Ill., is the U.S.-

based subsidiary of Groupe Limagrain,

a global seed supplier based in

Chappes, France, and owned by 600

French farmers. It is the leader of the

European seed industry and ranks

fourth in the world for seed sales.

Missouri dedicates power plant

Missouri electric cooperatives dedicated their new St. Francis Power Plant

near Poplar Bluff this past fall. The

plant is the result of a partnership

between Associated Electric Cooperative and Duke Energy, a North Carolina-based company that sells electricity

and natural gas. A third partner,

Siemens-Westinghouse, built and operates the plant. The plant is needed

because of a tight power supply situation for existing and potential customers, said Jim Jura of Associated,

which has a sister plant to the St. Francis project under construction in Oklahoma. O.B. Clark, president of the

Associated board, said the co-op is

committed to meeting members’ future

needs. “We are taking a huge step forward. We have $800 million committed

to new projects,” Clark explained.

GEN~SYS, Engage sign egreement

GEN~SYS Energy and Engage

Energy US, LP, signed a co-marketing

agreement to coordinate efforts for the

wholesale purchase and sale of energy

and energy-related products in the

Mid-Continent Area Power Pool and

Wisconsin Upper Michigan System

area of the Midwest. GEN~SYS is a

Minnesota cooperative corporation

founded by Dairyland Power Cooperative, LaCrosse, Wis., and includes

Corn Belt Power Cooperative, Humboldt, Iowa. Engage is a joint venture

company of the Coastal Corp, Houston, Texas, and Westcoast Energy, Vancouver, British Columbia. “Given the

developing wholesale electricity marketplace in Wisconsin and surrounding

states, this relationship allows

GEN~SYS to optimize its generation

resources, while managing its exposure

to the volatility of wholesale energy

markets,” said Chuck Sans Crainte,

GEN~SYS president and chief executive officer.

GEN~SYS’ presence in the MAPP

region, coupled with Engage’s risk and

credit management practices and the

application of its national experience in

electricity and gas trading, will bring

additional options to customers in the

MAPP and WUMS areas, San Crainte

added. ■

Rural Cooperatives / January/February 2000 39

Dedicating the Truman Torgerson Cooperative Collection are (from

the left): Robert Cropp, director, University of Wisconsin Center for

Cooperatives; Ellen Fitzsimmons, associate extension dean;

Randall Torgerson, USDA/RBS deputy administrator; Mrs.Truman

(Ruth) Torgerson; Richard Bishop, chairman, UW Department of

Agriculture and Applied Economics; Elton Aberle, dean, UW

College of Agriculture and Life Sciences.
40 January/February 2000 / Rural Cooperatives Rural

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