USDA / Rural Development March/April 2010

R

u

r

a

l COOPERATIVES

Page 12

The Little Co-opThat Could
By Dallas Tonsager, Under Secretary

USDA Rural Development

Editor’s note: The following commentary is based on remarks

Tonsager delivered in January at the Fourth Annual Iowa

Renewable Fuels Association Conference in Des Moines, Iowa.

hen Congress passed the Energy

Independence and Security Act of 2007, it

established a significant challenge to the

nation to produce 36 billion gallons of

biofuels by 2022 to power cars, trucks, jets,

ships and tractors. However, only 15 billion of the 36 billion

gallons can come from corn ethanol. We are nearing that

point. The Energy Information Administration predicts that

ethanol production will grow from about 11 billion gallons in

2009 to 12.95 billion gallons in 2010.

This poses a substantial challenge to the nation as we tap

other renewable fuel sources. But we can achieve it if the

technology and lender confidence are there.

Biofuel production is an evolutionary process. As with

computer technology, the newest version is always just ahead

of us. To reach our goal, second-generation biofuel

technologies will need to become commercially viable,

including those that turn crop residue (such as corn stover)

and energy crops (such as switchgrass) into ethanol. Thirdgeneration biofuel technologies that turn feedstocks into

advanced biofuels will also be needed. USDA’s Research,

Education and Economics Service is researching the

technology needed for this effort, while USDA Rural

Development is working to forge the necessary business

deals.

The conversion efficiency of ethanol production has

improved markedly in the past decade. For example, just 200

bushels of corn can now be processed into about 540 gallons

of ethanol. It would take no more than 40 gallons of fuel to

produce that crop, so we would net about 500 gallons to

distribute. That’s a huge improvement over the conversion

rate of the early 2000s. It is reasonable to expect we will see

similar advances in next-generation biofuels, given the

current rate of advances in technology.

USDA has been promoting the economic opportunities

derived from emerging local and regional food systems. In

the Midwest, we should

also consider the

economic opportunities

afforded by a regional

energy system. The

production and use of

renewables on a regional

basis make economic sense

and represent a historic economic opportunity for

agricultural producers and rural America.

How do we do this?

By working backward from the 36 billion-gallon target,

using a regional supply-chain approach. We should focus on a

diverse group of dedicated feedstocks, including: 1. perennial

grasses; 2. energycane (similar to sugarcane); 3. biomass

sorghum; 4. oil seed crops and algae; 5. woody biomass. In

using crop residues and planting special “energy crops” to

produce biofuels, we must do so in a way that doesn’t deplete

soil fertility or create problems for other crops (see page 19

of this issue for more on this topic).

A business model similar to how we developed the ethanol

industry can be used in this effort. Capital was found for

ethanol projects in the 1990s by issuing proposals that asked

for public participation in a project. With the membership

fees paid, business plans were developed and prospectuses

were issued to sell stock in a company.

If enough people were willing to invest, we would be able

to complete a project. We could spread the investor risk and

the credit risk as widely as possible.

To encourage public support, cooperatives are a great

business model. New-generation cooperatives, unlike

traditional cooperatives, are financed through the sale of

delivery rights. Delivery rights represent a member’s right to

deliver a specific amount of commodities to the cooperative.

A Rural Development staff member in Iowa told me about

a new-generation cooperative operating a producer-owned

ethanol plant that is producing more than 30 million gallons

per year. Within two months of its formation, 400 area

residents had invested in the plant and become memberowners of the company. The shareholders are area farmers

who are also the primary suppliers of the corn processed in

the facility. The producers are contractually obligated not

2 March/April 2010 / Rural Cooperatives

Commentary

Co-op business model well suited for

next-generation biofuel development

continued on page 36
Features

Rural Cooperatives / March/April 2010 3

Volume 77, Number 2

March/April 2010

Rural Cooperatives (1088-8845) is

published bimonthly by USDA Rural

Development, 1400 Independence Ave.

SW, Stop 0705, Washington, DC. 20250-

0705.

The Secretary of Agriculture has

determined that publication of this

periodical is necessary in the transaction

of public business required by law of the

Department. Periodicals postage paid at

Washington, DC. and additional mailing

offices. Copies may be obtained from the

Superintendent of Documents,

Government Printing Office, Washington,

DC, 20402, at $23 per year. Postmaster:

send address change to: Rural

Cooperatives, USDA/RBS, Stop 3255,

Wash., DC 20250-3255.

Mention in Rural Cooperatives of

company and brand names does not

signify endorsement over other

companies’ products and services.

Unless otherwise stated, articles in this

publication are not copyrighted and may

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

necessarily reflect those of USDA or its

employees.

The U.S. Department of Agriculture

(USDA) prohibits discrimination in all its

programs and activities on the basis of

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

status, familial status, parental status,

religion, sexual orientation, genetic

information, political beliefs, reprisal, or

because all or part of an individual’s

income is derived from any public

assistance program. (Not all prohibited

bases apply to all programs.) Persons

with disabilities who require alternative

means for communication of program

information (Braille, large print, audiotape,

etc.) should contact USDA’s TARGET

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

To file a complaint of discrimination, write

to USDA, Director, Office of Civil Rights,

1400 Independence Avenue, S.W.,

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

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

USDA is an equal opportunity provider

and employer.

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,

USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or email:

coopinfo@wdc.usda.gov

This publication was printed with vegetable oil-based ink.

p.8 p. 12

ON THE COVER:

City Market/Onion River Co-op in Burlington, Vt., started life as a fullservice grocery store amid a swirl of controversy, but it now counts

nearly one in four city residents as co-op members. See page 12. Photo

by Ben Sarle

4 What Cooperatives Do

Market access, countervailing power and yardstick roles enhance economic efficiency

By Charles Ling

8 Better Beginnings

FarmStart offers a helping hand to new farmers and ag co-ops

By Stephen Thompson

12 The Little Co-op That Could

Vermont food co-op overcomes initial skepticism to win hearts (and wallets) of city

By Dan Campbell

19 Cellulosic biofuel development must balance

need to maintain soil quality

By Stephen Thompson

20 Community Wind

Maine island community lowering energy costs with wind-power project

By Alan Borst

24 Controlling Counterparty Risk

How country elevators can protect against the downside

By Paul Narduzzo

26 Regional Network Boosts Competitiveness

Diverse interests in S. Minnesota come together to tap new business opportunities, markets

By Anne Todd

Departments

2 COMMENTARY

11 UTILITY CO-OP CONNECTION

16 CO-OP EDUCATION

28 CO-OP DEVELOPMENT ACTION

30 NEWSLINE

34 PAGE FROM THE PAST

p. 20
4 March/April 2010 / Rural Cooperatives

By Charles Ling, Ag Economist

Cooperative Programs

USDA Rural Development

charles.ling@wdc.usda.gov

Editor’s note: This article is a sequel to

“What Cooperatives Are (and Aren’t),”

Rural Cooperatives, Volume 76, Number

6, November/December 2009.

he year 2012 has been

declared by the United

Nations General

Assembly as the

International Year of

Cooperatives in order to highlight the

contribution of cooperatives to socioeconomic development worldwide.

That same year also will be the 90th

anniversary of the publication of

“Economic Philosophy of Cooperation,” the first academic paper on

the theory of cooperation, published in

the American Economic Review (Nourse,

1922; Hess). The piece was written by

Edwin G. Nourse, who later became

the first chairman of the Council of

Economic Advisers, Executive Office of

the President, 1946-49.

This may be an opportune time to

review Nourse’s ideas on cooperation

and see if they have relevance to the

reality of the market performance of

cooperatives today and, therefore, if

they deserve to be relearned.

Nourse’s primary focus, along with

the oft-quoted “brief remarks” he made

years later (Nourse, 1945), was on the

role agricultural cooperatives played in

the marketplace. This arose from his

observation that the attempt to apply

the cooperative form of organization to

economic needs and problems in

agriculture was critically important.

Purposes of cooperation

The following examples are taken

from Nourse’s paper to illustrate how

farmers organize cooperatives to

perform various market functions

jointly and efficiently in various market

situations — functions that cannot be

satisfactorily carried out alone by

individual farmers:

1) Cooperation for market access — An

example is a small fruit-producing area

far from any large market. The product

is perishable, hence both risk and

marketing expense are high. Volume is

not large enough to attract a private

distributor. Facing this situation,

producers have the option of organizing

a cooperative association to market

their products. These cooperatives have

frequently demonstrated the ability to

achieve successful results where private

outside entrepreneurship fails to

perform.

2) Local to regional coordination — A

local cooperative creamery may initially

be effective in meeting the competition

of other small, private creamery

operations. However, when competing

creameries have grown to be entities of

great size, the competition must be met

by a distributing organization of equal

scope. This will often be achieved

through federation of the cooperative

creameries across a region which may

embrace an entire state, several states or

parts of a state.

3) Region-wide associations — In many

instances, growers in horticultural

regions have organized and integrated

highly efficient businesses that serve

producers across an entire production

region by assembling, processing and
distributing their products. T hese

agencies have eliminated wasteful

competition both at the local shipping

point and at the central markets.

Furthermore, they are the instruments

of the producer and owner of the

goods, and hence are likely to be more

aggressive in the effort to reduce

expense and wastage in the handling

process and to improve quality and

enlarge outlets.

(Author’s note: Cooperative

organizations covering entire

production regions have been most

prevalent in California because of the

characteristics of the state’s economic

geography. T his type of cooperative

organization was called “the California

plan” and was promoted on a national

scale in the 1920s by Aaron Sapiro, with

varying degree of successes and failures

(Sapiro; Larsen, et al).)

C o u n te rva i l in g p o w e r

T he above examples show how

cooperatives are organized and grow to

enable farmers to exercise “countervailing power” in the market-place,

although the term was not coined until

the 1950s when economist John

Kenneth Galbraith cited the type of

cooperatives made famous by Sapiro as

an example for his explanation.

Nourse certainly recognized the

importance of countervailing power if

cooperatives are to have a strong

market position. As he stated: “Possibly

the keynote of the philosophy lies in the

idea that a means must be found for

giving agriculture a type of organization

whose productive and bargaining units

respectively will expand in step with the

growing needs of the agricultural

techniques (and its accompanying

capital demands) and of the size

requisite to an effective bargaining

position in contact with the units of

commercial organization with which

they must deal.”

P ro - m a rk e t

Nourse said that the theoretical

implication of agricultural cooperation

“is preeminently that of functional

reorganization rather than

comprehensive economic regeneration.”

In other words, the farmer takes the

essential facts of the market as given

and, working together with other

producers through the cooperative,

seeks to be in the most effective market

position to compete. T hus, the

distinctive economic philosophy of this

business form is viewed “as a means to

improve the lot of both farmer and

consumer by improving the efficiency

of the economic machine.”

Cooperatives enable farmers to

effectively compete in the marketplace

and garner market signals that put them

in a position of prompt and sensitive

response to the reaction of the

consuming public and guide their

farming business decisions. According

to Nourse, the cooperative objective is

twofold (Nourse, 1945):

1) “It is to make the most

economical and efficient market

channel by which whatever volume of

product farmers see fit to produce gains

access to the attention and the

purchasing power of all who might use

such a product. (For supply-buying coops, most economical access to the best

sources of the goods they need.) T hus,

a true supply-and-demand price is

allowed (and aided) to express itself for

the guidance of producers.”

2) “It aims to reflect these market

conditions back most promptly and

fully to producers in ways that will both

guide and, so far as possible, assist them

in changing their methods so as to

continue production and to prosper or

to shift to more suitable lines of

production.”

C o m p e ti tive ya rd stic k

In Nourse’s view, the cooperative is a

means for promoting and maintaining

competition in the marketplace. T he

supply-demand-price dynamic

“provides a powerful stimulus to the

association to devise further economies

of method which will enable them to

maintain the level of net returns to the

grower. Such competition also spurs the

private agency to outdo the cooperative

in its efficiency in order to hold its

business.”

He used the term “yardstick” years

Rur al Cooper atives /M arch/April 2010 5

Market access, countervailing power and yardstick roles enhance economic efficiency
6 March/April 2010 / Rural Cooperatives

later (Nourse, 1945), when he said the

place for the agricultural cooperative in

the nation’s business “is primarily that

of ‘pilot plant’ and ‘yardstick’ operation.

Its objective is not to supersede other

forms of business but to see that they

are kept truly competitive.”

The cooperative is to “occupy

certain strategic points, and there to set

a plane or pace of competition which

will assure for the farmer efficient

service at true long-run cost.” When

such services (manufacturing,

distributing, transporting, financing,

etc.) are furnished efficiently and

economically (which means in a truly

competitive manner), “there is no

occasion for the farmer to occupy the

field and divert some of his capital and

some of his managerial time and effort

to these tasks and away from his main

enterprise of farm production.”

Farmers should remain vigilant.

Nourse cautioned: “It is of the upmost

importance, however, that farmers shall

have both the legal institutions and the

organizational ‘know-how’ to step into

these fields when and to the extent that

service is inadequate or unduly high in

cost. It is important also that they

remain in each of these fields with an

organization sufficiently large to attain

high efficiency so that farmers shall be

protected against any subsequent lapse

in the quality of service or temptation

to profiteer in charges by the

noncooperative service agencies.

“But it is just as important that the

cooperatives recognize when they have

in fact attained their real objective by

demonstrating a superior method of

processing or distribution or by

breaking a monopolistic bottleneck, and

that they should then be content merely

to maintain ‘stand-by’ capacity or a

‘yardstick’ operational position rather

than try to occupy the whole field or a

dominating position within it. In some

cases, they may be well advised in

entirely terminating operations once

they have stimulated regular

commercial or manufacturing agencies

to competition amongst themselves.”

Nourse’s economic philosophy of

cooperation may be summed up in a

nutshell: Cooperatives make it feasible

for farmers to jointly market their

products. The cooperative may evolve

to a scale large enough to effectively

bargain with other market participants

and/or to avail itself of scale economies

in processing and marketing operations.

Subject to the same market disciplines

and supply-demand-price dynamics as

any business, the presence of the

cooperative challenges other market

participants to operate efficiently and

thus strengthens the competitive market

mechanism. When the market for

members’ products has become truly

competitive, the cooperative may want

to assume only a stand-by position but

maintain the legal institutions and

organizational capacity to reenter the

field, if necessary. Table 1 summarizes

all these points in the left column.

Examples in real life show that

Nourse’s ideas on cooperatives are still

very relevant today. Consider dairy

cooperatives, which as a group are the

most prominent U.S. agricultural

marketing cooperatives. A point-bypoint comparison of dairy cooperative

practices to Nourse’s theory is

summarized on the right column of

table 1. It shows that market

performance of dairy cooperatives

coincides with the basic principles

posited by Nourse’s economic

philosophy of cooperation.

With current renewed interest in the

cooperative form of doing business, it

may be worthwhile for the newgeneration of cooperators to relearn

Nourse’s ideas and fully understand the

roles cooperatives play in the

marketplace.

Editors note: More details on cooperative

theory and practice using dairy cooperatives

as a case study will be available in a

forthcoming research report from the

Cooperative Programs office of USDA

Rural Development. ■

“The cooperative is a means for promoting and

maintaining competition in the marketplace...Its

objective is not to supersede other forms of

business,but to see that they are kept truly

competitive.”
Rural Cooperatives / March/April 2010 7

References

Galbraith, John K. “American Capitalism: The Concept of Countervailing

Power,” revised edition, Houghton Mifflin Company, Boston, 1956; esp.

Chapter XI, The Case of Agriculture, pp. 154-165.

Hess, Jerry N. Oral History Interview with Dr. Edwin G. Nourse,

Washington, D. C., March 7, 1972, Harry S. Truman Library,

Independence, Missouri.

http://www.trumanlibrary.org/oralhist/nourseeg.htm.

Larsen, Grace H. and Henry E. Erdman. “Aaron Sapiro: Genius of Farm

Co-operative Promotion,” The Mississippi Valley Historical Review, Vol.

49, No. 2, 1962, pp. 242-268.

Nourse, Edwin G. “The Economic Philosophy of Co-Operation,”

American Economic Review, Volume XII, No. 4, December 1922, pp. 577-

597.

Nourse, Edwin G. “The Place of the Cooperative in Our National

Economy,” American Cooperation 1942 to 1945, American Institute of

Cooperation, 1945, pp. 33-39.

Sapiro, Aaron. “True Farmer Cooperation,” Journal of Agricultural

Cooperation, Volume 8, 1993, pp. 81-93, reprinted from the World’s Work,

May 1923, pp. 84-96.

United Nations. “United Nations Declares 2012 International Year of

Cooperatives,” Press Release DEV/2784, December 21, 2009, New York.

Economic philosophy of cooperation

Cooperatives are organized for efficiently carrying

out specific business functions.

Cooperatives can be of any size (and can be local,

regional or national in scope) that allows them to

function efficiently in the marketplace.

Cooperatives afford farmers the organizational sizes

for exercising countervailing power.

Cooperatives are pro-market; they let the market

supply-and-demand price be the guidance for

producers.

Cooperatives are a means for farmers to promote

and maintain competition — as the competitive

yardstick.

In those fields where the market has become truly

competitive and farmers can be well served by

other firms, cooperatives may want to cede the field

and assume only a stand-by position (to preserve

members’ capital, time and efforts for use on the

farm), while maintaining the legal institutions and

organizational capacity to step in if there is a

relapse of market inadequacy.

Market performance of dairy cooperatives

49,675 dairy farmers in 155 cooperatives marketed

83 percent of U.S. milk in 2007.

The smallest local cooperative has a few members

marketing less than 1 million pounds of milk per

year; the largest one has more than 10,000

members in the 48 contiguous states and markets

tens of billions of pounds of milk.

Collective bargaining for better prices and terms of

trade is the exercise of countervailing power.

Dairy cooperatives and their member-farmers are

subject to the disciplines of the market in a free

economy.

To be competitive, processors must match the

effectiveness and efficiency of dairy cooperatives.

Dairy cooperatives have comparative advantages

in procuring milk and have major shares in making

hard products (71 percent of butter, 96 percent of

nonfat and skim milk powder, and 26 percent of

cheese — the latter decreased from 34 percent in

2002). Their shares are less significant in sectors

that are capital-, technology- and service-intensive

and that carry high product and market risks (7

percent of fluid milk, 4 percent of ice cream, 11

percent of yogurt, 14 percent of sour cream. Their

share of cheese has also declined in recent years).

However, dairy cooperatives have the wherewithal

to take up the slack if the market fails to perform

well.

Table 1 — Comparison of Nourse’s cooperative theory and dairy cooperative practice

Note: Data from “Marketing Operations of Dairy

Cooperatives, 2007,” USDA/RD Research Report

No. 218, 2009.
8 March/April 2010 / Rural Cooperatives

“She’s incredible!” dairy farmer Teresa Lawton says of her FarmStart advisor. “She makes it easy to see the business’s

strengths and weaknesses.” Photo courtesy Farm Credit East
By Stephen Thompson, Assistant Editor

eginning farmers and

small agriculture

cooperatives often find

it hard to raise the

necessary working

capital for a successful launch. But in

the Northeast, there is a new resource

they can tap into. Farm Credit East and

CoBank are offering a new program —

FarmStart LLP — a credit and training

program designed to help new farmers

and farm-related businesses get off to a

solid start. As part of the producerowned Farm Credit System, both of

these cooperative lending institutions

have service to agriculture as their top

priority.

“Our field consultants noticed that

new farmers needed working capital,”

says David Boone, program manager.

“They’d put everything they had into

their new businesses, they were carrying

mortgages and equipment loans, but

they had nothing to spend on operating

expenses. They were using credit cards

to buy what they needed.”

Both the management and the board

of directors of Farm Credit East

thought that a program addressing this

problem would mesh well with the

Farm Credit Administration’s mandate

to its member banks to help more

beginning farmers. The board decided

to set aside funding for high-risk loans

to small beginning farmers and small

farm-related businesses and

cooperatives.

In partnership with CoBank, Farm

Credit East established FarmStart as a

separate limited liability partnership

(LLP) to administer the program.

FarmStart offers loans of up to $50,000

for working capital to qualifying

applicants.

Solid business plan a must

The requirements are stringent. The

applicant must be able to show that he

or she is of good character, demonstrate

business ability and produce a solid

business plan that shows that the

borrower has the capacity to repay the

loan. He or she also must agree to

accept help and supervision from a

FarmStart representative, to undergo

regular reviews of the business’ books

and to attend educational seminars on

financial management.

To help participants keep on top of

their finances, Red Wing Software, a

firm specializing in farm and business

software, donates a copy of its

CenterPoint accounting software to

each participant. Participants are

expected to graduate to conventional

credit within five years of enrolling in

the program.

Good character and good credit

rating requirements are key to making

the program work, says Boone. “A

credit score under 650 probably isn’t

going to work. We ask for two

character references; sometimes our

loan officers know the [people used as]

references. And we do a little research

on our applicants.”

The program’s first participant, in

2006, was a young producer who grew

his crops in greenhouses. Farm Credit

East had provided him with a long-term

real estate loan of $150,000, an

equipment loan of $50,000 and a Farm

Service Agency-guaranteed operating

loan of $100,000. However, the young

farmer still needed additional operating

money. With only 16 percent equity in

his operation, he wasn’t very likely to

get it through conventional credit

channels. A $50,000 FarmStart loan

gave him what he needed to get over

the top; three years later, he’s well on

his way to paying off the loan.

The FarmStart program currently

has 52 participants; only one borrower

is currently delinquent. Since the

program started three years ago, only

one loan has shown a loss. Advisors are

all qualified business consultants and

are required to take a one-day training

course every year.

“They help the borrowers develop a

monthly cash-flow budget,” says Boone.

“They sit down with them and talk

about how things are going and do a

review every two or three months. If

they’re getting off budget, they talk

about how to get back on track.”

Generation to generation

The program also tries to address

the problem of passing a farm business

down between generations. “We have a

program called Generation NeXt,

where we sit down with father and son

and discuss how to make the

transition,” says Boone. “And we do a

seminar on taking over the family

business.”

Ben Fisk, a 21-year-old maple syrup

producer in New Hampshire, had

different problems. He’d started his

business as a child, using gifts and

inherited equipment from parents and

relatives and, later, with funds from a

full-time job. He slowly built up the

Rural Cooperatives / March/April 2010 9

Better

Beginnings

FarmStart offers a

helping hand to new

farmers and ag co-ops
10 March/April 2010 / Rural Cooperatives

business by reinvesting the profits. All

was going well until a severe ice storm

ruined much of his equipment.

A FarmStart line of credit helped

him rebuild the business. However, Fisk

found the training offered by the

program just as helpful as was the loan.

“It wasn’t just borrowing money — it

was help in learning how to budget,” he

says. “You learn different ways to look

at your operation and to use money.”

Help he received learning how to use

bookkeeping software was also

important. And although he hasn’t been

able to yet use everything he’s learned,

he says: “If I can learn what I need to

before I get there, all the better.”

Advisor proves invaluable

In March 2006, Teresa Lawton

started a small dairy on a 25-acre

Massachusetts farm that’s been in her

family for 200 years. “I needed to find a

way to make a small operation pay,

because you can’t expand here like you

can in other places,” she says.

Lawton had worked for the

Massachusetts Department of

Agriculture as a dairy inspector, where

she learned about the growing market

for whole, unpasteurized milk. She

decided to try producing raw, grass-fed

milk, which would fetch a premium price.

With the proper license and labeling,

farmers are permitted to produce and sell

raw milk in Massachusetts. However, the

milk must be sold on the farm; retail

stores are not allowed to stock it.

She started out with just five

Ayrshire cows, a hardy breed known for

low somatic cell counts and efficient

milk production from a grass diet. After

she started to expand production, she

applied to Farm Credit East for a line

of credit to buy hay, and learned about

FarmStart.

“I don’t like to borrow,” says

Lawton, “but sometimes, I’m just a

little short. Now I don’t have to use

credit card debt.”

However, like Fisk, she found the

training just as helpful as the credit.

Lawton sees her relationship with her

FarmStart advisor, Briana Bebee of

Farm Credit East, Middleboro, Mass.,

office, as one of the great benefits of the

program. “She’s incredible,” Lawton

says. “I really enjoy meeting with her

and going over things. She makes it

easy to see the business’s strengths and

weaknesses.”

Lawton says that the methods she’s

learned under the program have given

her a new understanding of her

operation’s efficiency and profitability.

“I’m now milking 25 cows,” she says,

“And I’m making less profit per cow

than when I only had five or six.” That

kind of knowledge is vital in making

investment decisions.

Other new ventures owned by young

operators that have been helped by

FarmStart include a dairy cow hooftrimming service, a welding business

and a fertilizer- and lime-spreader. A

trucker and various types of small

farming operations have also received

help from FarmStart.

However, so far no new farm

cooperatives — one of the primary

targets the program was designed to

help — have yet applied for assistance.

“We’d like to find some co-ops to

work with,” says Boone. “We’ve had

some discussions, but nothing definite.”

Interested co-ops, or farmers interested

in starting one, can contact Boone at

dave.boone@ farmcrediteast.com for

more information. ■

Merger creates Farm Credit East

Farm Credit East is a new association with 19 offices that combines the

credit and financial services teams of First Pioneer Farm Credit and Farm Credit

of Western New York. The merger of these two co-op lending institutions,

which became effective Jan. 1, 2010, was approved by more than 90 percent of

both associations’ stockholders in separate votes conducted last November.

With more than $4.2 billion in assets, the merger allows Farm Credit East to

offer more capacity and resources to its members. It has nearly 11,000

customers in a six-state territory that includes New Hampshire, Massachusetts,

Connecticut, Rhode Island, New York and New Jersey.

Both predecessor associations have a shared history providing tax, record

keeping, consulting, appraisal and other services to members. Farm Credit East

is part of the cooperative Farm Credit System.

“We will continue to work everyday on the credit and financial services

needs of farmers, commercial fishermen, forest products businesses and farm

related businesses,” says CEO Bill Lipinski.

In a recent column, Lipinski noted that the real value of being a Farm Credit

member is in knowing that agriculture remains the focus of Farm Credit in good

times and bad. And times have been pretty rough recently for many members in

the Northeast, including those in the dairy, nursery, tobacco and timber

industries.

Lipinski notes that the staff has worked hard to develop contingencies with

many customers suffering through the slump. “We did careful projections and

credit analysis,” Lipinski writes. “Based on the best industry advice, we

recommended and approved substantial increases in operating lines to help

keep many businesses afloat. For some, we added new conditions and FSA

[USDA Farm Service Agency] guarantees. And, most importantly, our customers

stepped up with more collateral, better business plans and more frequent

financial reporting.

“Sometimes, even with our best efforts, a single increase in a line of credit

was not enough. That’s when we considered an additional increase to fund

operating losses above those of our original projection.”

While these efforts can’t save the day in every case, they have proved the

difference for many.
By Anne Mayberry

Rural Utilities Service

USDA Rural Development

anne.mayberry@wdc.usda.gov

ay 11 is the 75th

anniversary of the Rural

Electrification

Administration (REA),

the predecessor agency

to the Rural Utilities Service of USDA

Rural Development. When President

Franklin Roosevelt signed the executive

order creating the REA in 1935,

unemployment was 20 percent. Average

annual wages — for those employed —

were $1,600. You would expect to pay

10 cents for a gallon of gas. If you lived

on a farm, you — along with 5.5

million other farm

families nationwide —

probably would not

have had electricity.

Without electricity,

residents in rural areas

were not able to enjoy

the same economic

advantages as their

urban counterparts.

Water for livestock,

cooking and cleaning

had to be hauled from a

well. There was no

refrigeration. During

warm weather, dairy

farmers risked milk spoilage, which

meant that all their milk had to be

thrown out. Work was finished in

darkness, or by lantern light.

For years, electric utilities insisted

that it was not profitable to sell

electricity to farmers. But rural

electrification was viewed as a desirable

step toward improving the lives of rural

residents. Signing the executive order

was the first step toward creation of the

agency.

Yet, while the executive order

established the importance of rural

electrification, it did not spell out

details of how the program was to be

designed or implemented. For example,

the agency was originally intended to be

part of the U.S. Department of the

Interior. While there was general

agreement that low-cost financing was

key to bring electric power to rural

areas, many expected the electric

industry to participate in the program.

Established as a temporary agency,

one of REA’s first decisions was to

determine how to best fund

construction of electric systems in rural

areas. Again, the utility industry, which

had the expertise and capability of

acting on short notice, seemed to be the

preferred course of action. The plan

they set forth was to connect 351,000

rural residents and businesses.

But according to the utility industry,

rural electrification was a social, rather

than an economic, problem. There was

no agreement on the definition of

profitable service or the extent of the

work to be done. These divergent

views, along with utility industry

concerns about the rural electrification

program, resulted in a shift that

eventually led to the creation and

funding of rural electric cooperatives.

Farm co-op roots led

to electric co-ops

Farmers had a history of working

with agricultural marketing

cooperatives. It was this experience that

led to an agreement under which REA

would furnish the engineering and legal

Rural Cooperatives / March/April 2010 11

Utility Co-op Connection

Electricity service transformed rural America

continued on page 23

Well into the 1940s, much of rural America still relied on

kerosene lamps for light. Below, electric co-op line

crews brought life-changing energy to farms and rural

towns.
By Dan Campbell, Editor

dan.campbell@wdc.usda.gov

hen word got out that

the city of Burlington,

Vt., had awarded a lease

to a natural foods co-op

to operate the

downtown area’s only full-service

grocery store, it sparked an intense,

emotional debate among residents. One

local senior cut to the heart of the

matter at a town hall meeting when he

shouted: “You better not take away our

red meat and make us eat granola!”

But fears that tie-dye-clad hippies

would be taking away their deep-fried

corn chips and force feeding them with

tofu proved unfounded. Today, Tony

the Tiger entices shoppers from boxes

of Kellogs Sugar Frosted Flakes, while

nearby shelf-mate EnviroKidz Organic

Amazon Frosted Flakes call out to

shoppers who are equally interested in

preserving the rain forest as in filling

their bellies.

In the words of Clem Nilan, the

store manager, City Market has become

a “hybrid co-op store,” offering

members a wide variety of natural and

organic foods, as well as a full line of

conventional groceries. Providing this

choice to members has proven to be a

highly successful business formula for

what Nilan calls “The Little Co-op that

Could.” Last year, City Market/Onion

River Co-op rang up $27 million in

sales. Receipts have risen by at least 10

percent the first seven years of

operation and by 7.5 percent during last

year’s recession.

The reasons for the co-op’s success

go well beyond offering both

conventional and organic/natural foods.

City Market also goes all out to procure

as much locally and regionally grown

food as possible, operates popular

community outreach programs to better

serve senior citizens and low-income

residents, supports and interacts with

other farm and food co-ops and is

striving to make the store a “green”

operation.

Evidence of the latter can be seen in

12 March/April 2010 / Rural Cooperatives

The Little Co-opThat Could

Vermont food co-op overcomes initial

skepticism to win hearts (and wallets) of city
the 136 solar panels recently installed

on the roof, which are expected to

provide up to 3 percent of the store’s

annual power needs (with payback on

the investment expected in five years).

Store closure opens

door for co-op

As is often the case with food co-ops,

the Onion River Cooperative began life

as a food-buying club. When it started

in 1973, the co-op focused on procuring staple foods, such as organic flour,

for its members. As demand increased,

it offered more foods and eventually

rented a storefront. Further growth

resulted in the co-op making several

moves to larger quarters around Burlington.

The opportunity to leap into the

ranks of full-service grocery stores

occurred in 1999, when the downtown

area’s only major grocery store closed.

“The city wanted to make sure there

was still a grocery store downtown, in

part to serve the needs of seniors,

people with limited mobility and recent

immigrants,” said Nilan, speaking as

part of a co-op panel at the USDA Ag

Outlook Forum in February. The city

put out a request for proposals to lease

a vacant city property and operate a

new grocery store there.

Since the co-op was getting ready to

move again anyway, it decided to

submit a bid. The competition

eventually came down to the co-op and

a popular regional grocery chain.

Winning the bidding competition

“should have been a walk in the park,”

for the regional grocery, Nilan says. But

the chain store placed a number of

demands on the city, including the

construction of a parking garage next to

the store.

The city had a number of demands

of its own, ranging from the hours of

operation to requiring a plan for how

the store would meet the needs of

seniors and people with low-tomoderate incomes. The store operator

would also be required to carry an array

of home-grown Vermont products.

Onion River Co-op readily agreed to

meet those demands and did not ask for

a parking garage.

The city council eventually voted 12-

2 in favor of offering a 100-year lease to

the co-op. The result was what Nilan

terms a “firestorm” of protest. “The

question came up over and over: how

could a natural foods store meet the

needs of all the people of the city?”

Many people were worried that prices

would shoot up under the co-op if it

replaced conventional groceries with

organic and natural foods.

The chain store backers launched a

petition drive to force a referendum,

calling for the city to provide an

$800,000 subsidy (primarily to pay for

the parking garage). The referendum

was defeated, but many residents still

felt the city was ignoring the will of the

people.

Early success and struggle

The co-op used a $3 million

Business and Industry (B&I) guaranteed

loan from USDA Rural Development

to convert the vacant building into a

modern grocery store. Despite the

controversy surrounding its birth, the

co-op was a hit with the public as soon

as the doors opened in early 2002.

“Sales were never an issue,” Nilan

says. Burlington is a city of 38,000

people (the state’s largest city), and City

Market counts 9,000 of its households

as co-op members. Even in the severe

recession, membership climbed sharply.

The co-op business model and the

sense of trust and goodwill it fosters

“really resonates” in the community,

Nilan says.

But as many a co-op manager or

director can attest to, strong sales do

not always convert to profitability, and

City Market’s success was far from

assured. Shortly after the store opened,

the work force was unionized, and cost

controls for both goods and labor

seemed to go out the window.

“We nearly went under, even with

Rural Cooperatives / March/April 2010 13

Big things come in small packages: Although City Market covers only 16,000 square feet,

more than 1 million people entered it last year. Local foods are big sellers, such as the

100,000 gallons of milk from two small Vermont dairy co-ops that the store sold during the

past two years. Photo by Ben Sarle

Media gave extensive coverage to the

protests that followed the awarding of

the store lease to a natural foods co-op.
great sales,” Nilan says. It took a couple

of years of struggle to get the ship

turned around.

Products purchased for resale are a

grocery store’s largest cost center, so

getting the co-op’s cost-of-goods in line

was the biggest challenge faced in

improving the store’s margins. Target

margins were set for each department

and best practices were identified.

Early on, the store had been

foundering due to not keeping a “live

time” connection between changing

costs and retail prices, Nilan says. The

situation began to improve with a push

to keep point-of-sale (or POS) records

accurate and with the introduction of

back-door scanning. The latter occurs

on the receiving dock as each newly

purchased item is electronically scanned

to verify that the cost is the POSrecorded cost. If there is a discrepancy,

this scan raises a warning if there is a

margin issue.

Costs are now well in hand, and the

store has been profitable enough to see

its patronage per member shoot up

from $27 in 2008 to $77 last year. That

meant an extra $250,000 was pumped

back into the community around

Thanksgiving.

Valuing workers

The co-op operates on the basis of a

triple bottom line that stresses

commitment to: people/social

responsibility, environmental

stewardship and financial success. “Coops pride themselves on treating people

fairly,” Nilan notes, and the success of a

food co-op is highly dependent on the

performance of its workers. So, City

Market does all it can to keep good

people on board.

The store has 173 employees,

including 129 full-time workers (or 75

percent of the total workforce). “That’s

many more workers than a conventional

grocery our size would typically have,”

Nilan says. That’s because grocery

chain stores have a much more

centralized infrastructure for functions

such as marketing.

Unlike many other stores — where

the goal is to maintain as many parttime workers as possible to avoid having

to extend health and retirement benefits

to them — City Market takes the

opposite tack, trying to provide benefits

for as much of the staff as it can.

Nilan says the co-op pays wages that

average 25 percent more than those

paid by conventional supermarkets in

the region. Its wages average 93 cents

per hour above the “livable wage” for

Burlington, where 65 percent of the

workers reside.

The co-op does a dollar-for-dollar

match, up to 6 percent, of the pay

workers route into their 401(k)

retirement plans. Employees earn four

weeks of paid vacation in their first year

on the job, get benefits for riding mass

transit to work and receive a 15-percent

discount on purchases at the co-op.

Perhaps best of all, the co-op pays

100 percent of the cost for healthcare

insurance premiums for its full-time

staff. “Once staff begins contributing to

paying premiums, you are really just

reducing their wages — taking it out of

one pocket instead of the other,” Nilan

says.

The co-op has worked hard to

recruit workers of varied racial and

ethnic backgrounds to better reflect the

diverse demographics of the city, which

is changing due to immigration.

Promoting local/regional foods

City Market sold about $4 million in

locally grown foods last year. “We could

easily double or triple that amount if

more was available,” Nilan says. “We

have a lot of ‘holes’ that we would like

to fill with local foods.”

The goal is to offer at least 1,000

Vermont-produced products. Last

November it far exceeded that

benchmark, selling 1,700 home-grown

products.

Not only are co-op members eager

to buy more locally produced foods, but

this trade also has a big impact on the

local economy. Nilan notes that the

multiplier effect for agricultural trade in

Vermont is 2.5 (meaning every dollar

spent on farm products changes hands

two and half more times), one of the

highest rates for any industry. He

estimates that 65 cents of every dollar

spent at City Market stays in Vermont.

“When we buy from local producers,

even more of our money stays in

Vermont,” Nilan says. “Our state’s No.

1 export is money; our No. 1 import is

food. So growing more local food is a

great way to make Vermont’s economy

more sustainable.”

A big concern in New England is the

14 March/April 2010 / Rural Cooperatives

Co-op staff members gather about the National Award of Excellence the store won in 2008

from the National Co-op Grocers Association. Facing page: Community outreach programs,

such as the free lunches and teas it provides at local senior centers, have helped gain

many new members for the co-op. Photos courtesy City Market
Rural Cooperatives / March/April 2010 15

rate at which small dairy farms are

disappearing. “They are being lost at an

alarming rate, as are small bottling

facilities,” says Nilan.

To help support family dairy farms

while supplying members with highquality milk, City Market and two other

Vermont Co-ops — Hunger Mountain

in Montpelier and the Middlebury Coop — are buying whole milk from one

of the two remaining Vermont family

bottling facilities, Monument Farms.

The three co-ops retail the gallons

under the Co-op label. The label lists

the three dairy co-ops next to their

pledge not to use bovine growth

hormones.

“We told the farmers we will pay you

what you think you need for the milk,

and pay you the same rate every single

month, so that there’s none of this up

and down stuff,” Nilan says. “We like to

call this our way of promoting domestic

fair trade. When we put this label on

our milk, sales took off.” More than

100,000 gallons have been sold in two

years.

“Selling local food is not easy — it is

a labor of love,” Nilan says. “You have a

lot more vendors to work with, and you

need more people on the receiving

dock.”

City Market has developed a spreadsheet to help keep track of what foods

are coming from what growers and

when. Missing all too often from the

local food matrix are products that

require more infrastructure, such as

oatmeal, because of the loss of

processing facilities in Vermont during

the past 20 years or so. “The lack of

this infrastructure and the high price of

land are serious hurdles to providing

Vermont with more local food,” Nilan

says.

The co-op works hard on in-store

signage to let members know more

about the foods for sale. Helping in this

effort is a color key under which purple

means local, green means organic, and

orange means conventional. The store

often posts signs about the farms that

produce the food.

City Market offers a discount of 5

cents for every reusable cloth bag a

customer fills, which resulted in 14

percent fewer disposable bags being

used last year. But Nilan says he thinks

it will require a statewide ban on plastic

bags to really wean most shoppers from

their “disposable bag dependency.”

He cites the co-op’s membership in

the National Cooperative Grocers

Association (NCGA) as a major factor

in its success. NCGA’s 112 member coops support each other by sharing

financial and marketing information

and working as a virtual buying group.

“For example, if we want to see how

our produce section is doing compared

to others, we can pop online and see the

figures from other members,” Nilan

says. “This is very helpful when you

operate an independent store and need

some comparative data to see how you

are doing.”

Reaching out to the community

More than 1 million people entered

the store last year. “And we’re not a real

big store — just 16,000 square feet.”

The average size for a grocery store

these days is closer to 70,000 square

feet, he notes.

“None of the things we do, socially

or environmentally, would work unless

we won the hearts and minds of the

people,” Nilan says.

Burlington has won awards as one of

the healthiest cities and best places to

live in America. “It is a gorgeous place

to live,” Nilan says. But even here, one

in five children is living in food

insecurity. “And while we were doing a

good job redeeming food stamps, we

continued on page 36

City Market sold $4 million worth of

local/regional foods last year. The top

10 selling local/regional foods were:

1. LaPlatte River Angus Ground Beef

2. Vermont Maple Syrup

3. Cabot “Seriously Sharp” Cheddar

4. Co-op Milk Gallons

5. Misty Knoll Chicken

6. Cabot Butter

7. Maple Meadow Farm Brown Eggs

8. Local Honey Crisp Apples

9. Organic Local Carrots

10. Local Potatoes

Going loco for local
16 March/April 2010 / Rural Cooperatives

Co-op Education

By Maria Miller, Director of Education

National Farmers Union

he next generation of co-op leaders is taking

time not only to learn the history of

cooperatives, but also what really makes

them work in today’s economic and social

environments.

Nearly 100 students from nine states came together

recently in Minneapolis, Minn., to learn about cooperatives

from co-op experts, employees and – perhaps most

importantly – co-op members of all ages. The students were

participants in the College Conference on Cooperatives,

sponsored by the CHS Foundation and hosted by the

National Farmers Union (NFU) Foundation.

Tour helps co-op concepts

‘come alive’ for future

cooperative leaders
“T he conference provided me the

opportunity to gain a very broad

perspective of youth involvement in the

U.S. cooperative moment,” said

conference attendee and speaker

Mingwei Huang of Illinois. “I come

from a student housing co-op

background – a very small niche of the

co-op movement. I learned a lot about

agriculture, retail, food and rural

electric co-ops, credit unions and rural

community economic development.”

Huang agreed with others that to

foster a vibrant generation of co-op

leaders, it’s necessary for youth to

understand all kinds of co-ops and to

learn from leaders in the various

cooperative businesses.

T he Feb. 20-22 event included

participants from Minnesota,

W isconsin, South Dakota, Nebraska,

North Dakota, Kansas, Iowa, Illinois

and Colorado. Many of the participants

are attending a community college,

working on a bachelor’s degree or

pursing a master’s degree, for which an

understanding of the cooperative

business structure is important.

To make cooperative education come

alive for the participants, students

visited the

headquarters of CHS

Inc., one of the

nation’s leading

agricultural

cooperatives. “Don’t

limit your learning to

your current

education,” said

W illiam Nelson,

president of the CHS

Foundation. He

challenged the visitors

to “get involved in

things that you cannot

complete in your own

lifetime” as a way to

truly make a

difference.

T he students

also visited REI, a

consumer cooperative

that is one of the

nation’s leading

sporting equipment

retailers. Other stops

on the tour included

Mississippi Market

Natural Foods Co-op

and 7500 York

Cooperative. T he

latter is a retirement

housing cooperative

where residents said

they appreciate being

able to play an active role in

determining their living environment.

“T he conference expanded my

knowledge of cooperatives,” said Angie

Koch of South Dakota. “Meeting

speakers and others in attendance

allowed me to make many

connections.”

Presenters included members,

directors, employees and managers

from traditional and value-added

agricultural cooperatives. Attendees also

gained perspectives from electric,

housing and worker-owned co-ops, as

well as consumer cooperatives, such as

Rural Cooperatives /March/April 2010 17

Facing page: Students learned about what it takes to run a successful food co-op at Mississippi Market

Food Co-op in St. Paul. From left are: Simone Cahoj, Jeremy Gragert, Brock Grewe, Todd Speltz and Bjorn

Bergman. Below, Allison Melius (left) and Mingwei Huang check out the produce section. Photos by Maria

Miller, courtesy National Farmers Union
18 March/April 2010 / Rural Cooperatives

credit unions. Representatives from

USDA Rural Development and the

Peace Corps provided perspectives on

cooperative development in the United

States and abroad.

“Cooperatives are corporations

where people work together to solve

common problems, seize exciting

business opportunities and provide

themselves with goods and services,”

said Greg McKee, assistant professor

and director of the Quentin Burdick

Center for Cooperatives on the North

Dakota State University campus. “Coops are here to stay.”

By touring cooperatives and being

able to quiz co-op leaders, members

and government experts, participants

walked away with a better

understanding of the current

challenges facing today’s co-ops

and the future opportunities for

co-op structured businesses.

Twin City co-op industry

leaders attended the conference

luncheon, giving the attendees a

chance to network. Amy Gales,

central region president of

CoBank, also addressed the

group.

Conference coordinator Cathy

Statz, education director for the

Wisconsin Farmers Union, said

the activities of Farmers Union

involve cooperation, education

and civic activism. “Our own

history is closely tied with the

cooperative movement,” said

Statz. “Cooperatives were made

possible by legislative activity,

and brought to life in

communities both rural and

urban. Events like these bring

these topics together.”

Additional supporters of the

conference included CoBank, The

Cooperative Foundation, SPIRE

Federal Credit Union, CHS Inc., MAC

Education Foundation, Federated

Youth Foundation and FUI

Foundation.

For more information about NFU

and its programs, visit: www.nfu.org. ■

“Cooperatives are corporations

where people work together to solve

common problems, seize exciting

business opportunities and provide

themselves with goods and services.”

The co-op tour included a stop at 7500 York, a memberowned/member-run housing cooperative – the nation’s first senior

housing co-op and considered to be a model of successful

independent living for seniors. Below: Tour participants walked

away with a better understanding of what can be accomplished

with co-ops.
Rural Cooperatives / March/April 2010 19

By Stephen Thompson, Assistant Editor

stephenathompson@wdc.usda.gov

ellulosic biofuels offer

promise for a

sustainable future, but

only if certain

precautions are taken,

according to speakers who addressed:

“Biomass for Energy & Conservation:

Can We Do Both?” It was one of

dozens of panel talks that focused on a

wide array of agricultural and rural

issues at the 2010 USDA Agricultural

Outlook Forum in February, held just

outside Washington D.C.

Rattan Lal, professor of soil science

at Ohio State University, called for

restraint in using crop residues for

generating fuels such as ethanol. Lal

reminded the audience that ethanol

produced from corn alone will be

unable to meet future production

targets, leaving “second generation”

ethanol produced from cellulose to fill

the gap.

Crop residues offer a tempting

source of cellulose for this purpose,

said Lal. However, he continued, these

residues are extremely valuable for the

maintenance of soil quality. Good crop

production, he said, is dependent on

returning most crop residues back to

the soil, maintaining what he called

“humus capital.”

Removing an excessive amount of

crop residues can lead to loss of soil

nutrients, erosion and the reduction of

vital biological activity, such as

beneficial microbes and earthworms,

Lal said. Soil loss from erosion, he

noted, is directly related to loss of

mulch cover, while earthworm activity

is vital for proper hydraulic

conductivity in the soil. He told the

audience that higher levels of soil

organic carbon, maintained by

retaining crop residues, are correlated

with higher grain and soybean yields.

Lal said that up to 25 percent of

total biomass could be harvested safely.

However, he cautioned against the idea

that cellulosic ethanol can be produced

using low inputs on marginal soils. He

maintained that replacing 10 percent of

petroleum fuel requirements in the

United States would require using 43

percent of current cropland. He

suggested that mitigation of carbon

dioxide emissions could be better

accomplished by increasing fossil fuel

efficiency, conserving and restoring

forests and grasslands and sequestering

carbon in soils.

Joe DiTomaso, an ecologist at the

University of California-Davis, told

participants that perennial grasses

grown as cellulosic biofuels crops could

pose a danger of escaping fields and

becoming invasive. Such grasses

include switchgrass, Miscanthus X.

Giganticus, and giant reeds. Many of

the characteristics that make them

attractive as biofuel crops are also the

characteristics of weeds, he said. Those

traits include competitiveness, pest

resistance and tolerance to drought,

salinity and low fertility. Indeed, some

of the species now proposed as

cellulosic crops are already listed as

noxious weeds in some localities, he

said.

DiTomaso suggested that

precautions be taken before a perennial

grass crop is adopted. Those would

include choosing crops that have been

shown not to have high risks of

invasiveness in the target area and

taking active measures to minimize

escape. For instance, he said, standard,

non-sterile switchgrass is not suitable

for cultivation in California because of

a high escape risk. Cultivation areas

must be chosen with caution as well, he

said, and the conversion of natural

habitats should be avoided.

Other suggestions included breeding

crop varieties to minimize invasive

traits; developing individual antidispersal, management and eradication

protocols before planting; and

establishing and funding an industry

plan to quickly detect and eradicate

escaped crops.

Douglas Karlen, of the Soil, Water,

and Air Resources Research Unit of

the USDA Agricultural Research

Service in Ames, Iowa, repeated Lal’s

assertion that crop residues are vital for

C

Switchgrass and other “energy” crops

will likely play a role in the future of

biofuels. USDA Photo

continued on page 23
20 March/April 2010 / Rural Cooperatives

Maine island community lowering

energy costs with wind-power project

CommunityWind Alan Borst, Ag Economist

Cooperative Programs

USDA Rural Development

onventional electricity

generation from fossil

fuels is associated with

several policy problems,

including pollution,

import dependency from countries with

hostile or troubled governments, trade

deficits and periodic price shocks.

Renewable energy sources are clean

fuels that are domestically-based and

substantially local.

Wind is one of the lowest cost and

fastest growing renewable energy

sources in the United States. Wind
Rural Cooperatives / March/April 2010 21

power provides clean and cost-effective

energy generation, increases rural

incomes, hedges against fuel price

shocks and increases energy security.

Most U.S. wind-energy projects are

remotely owned by large corporations,

while the remaining fraction is owned,

wholly or in part, by local residents and

businesses — referred to as “community

wind.” According to Windustry, a

Minneapolis-based nonprofit

organization working to increase wind

energy opportunities for rural residents,

as of January 2010, community wind

makes up 1,521 megawatts (MW) of the

total 35,170 MW of U.S. wind energy.

Community wind energy projects have

all the benefits of remotely owned wind

projects and some important additional

ones.

Community wind developer Own

Energy identifies three important

benefits:

• Ownership is retained in the

community and profits are “recycled”

there, creating incremental jobs,

wages, business income and local

pride.

• Community wind developers and

their financial partners are typically

U.S.-based, further ensuring that

profits from these projects are

pumped back into the home economy,

not shipped overseas.

• Increased success rate of community

wind projects leads to increased

knowledge, awareness and acceptance

of wind power, thus reducing public

opposition.

The bottom line: few would dispute

that community wind is good for the

economic development of rural

communities and for the entire U.S.

wind-energy industry.

Best in the West,

Least in the East

Community wind is geographically

concentrated in five states: Minnesota,

Washington, California, Iowa and

Texas. These five states have 88 percent

of developed U.S. community wind

power. States east of the Mississippi

River have 2.5 percent of U.S. comBelow, left: Community members turned out to celebrate the start up of their three new wind turbines on the Fox Islands,

Maine. Photo by Peter Ralston. Below: The new wind turbines jut up from the rugged coastline of central Maine. Photo by

David A. Tyler. Photos courtesy Island Institute
22 March/April 2010 / Rural Cooperatives

munity wind. This is partly due to the

more limited wind resources available

in much of the East, especially the

Southeast. It is also because of higher

population density and real estate

patterns. Landowners tend to own

smaller parcels of land, which makes

project development more difficult.

Mark Anderson summed up the New

England situation in the May 2007

edition of Windpower Monthly by

commenting that it is a region “where

vistas are sacred and naysayers can be

rich and powerful.”

Massachusetts has by far the most

community wind of any eastern state,

with 15 megawatts (MW).

Massachusetts has been relatively

successful at promoting community

wind development through a series of

programs and incentives over the last

decade. The coastal town of Hull,

outside of Boston, installed the first

community-owned utility-scale wind

turbine in New England in 2001. It

proved to be popular enough that a

second, larger wind turbine was

installed in May of 2006.

With the success of the Hull project

as precedent, several other community

wind projects were developed in

Massachusetts. All of these projects

have been developed by either

municipalities or a single business or

organization. The cooperative model

that has been so successful with

community wind projects in the

Midwest and West had not been used in

New England until recently. All that

changed recently on a Maine island.

Wind Power Down East

The largest community-owned wind

project in the East was recently

completed on the island of Vinalhaven

— one of the Fox islands — in

Penobscot Bay off the central Maine

coast. The hope of the project

developers and local community wind

advocates has been that this project

could serve as a template that would

stimulate similar projects. There is

evidence that this is happening.

On Nov. 17, 2009, the $14.5-million

Fox Islands Wind Project was officially

commissioned. Governor Baldacci and

Maine House Speaker Hannah Pingree

joined community and project leaders

to dedicate this wind-energy venture.

The three General Electric 1.5-

megawatt wind turbines were installed

in the summer of 2009 and started

generating electricity in December.

This project is providing stabilized

power supplies and lower energy costs

for the islands' residents, who had been

paying more than double the national

average for their electricity.

Since wind speed is not constant, the

three turbines actually generate just

under 30 percent of their total rated

capacity of 4.5 MW — about 1.3 MW

per hour — or 11,600 MW hours per

year. Residents consume about 10,500

megawatt hours of electricity per year.

Any surplus energy will be sold to

Central Maine Power, their electricity

supplier. Residents consume about

10,500 megawatt hours of electricity

per year. Any surplus energy will be

sold to Central Maine Power, their

electricity supplier.

There will be a surplus in the winter,

when the wind blows harder, and a

deficit in the summer, when electricity

will be purchased from the Central

Maine grid. The electricity generated

from the project is expected to offset

5,400 tons of carbon dioxide emissions.

The Fox Islands have a history of

generating their own power. Maine’s

strong offshore winds historically made

these communities viable by filling the

sails of ships carrying granite, timber

and other vital products between islands

and the mainland. There was once a

mill system that used hydropower for a

granite-cutting operation. There have

also been coal-fueled and dieselpowered generating plants on

Vinalhaven. Now this wind energy

project is considered a model for

communities along the Atlantic Coast.

Several other Maine island and coastal

communities are now looking at wind

power as a viable alternative or

complement to conventional energy

sources, including Monhegan, Swans

Island and Frenchboro.

The Island Institute in Rockland, a

development group that focuses on

Maine's 15 year-round island

communities, is one of the entities that

was involved with the development of

the Fox Island project. It reported that

a neighboring island has already voted

to develop wind energy: “This past

summer Monhegan ... voted with a 75-

percent majority of ratepayers and

taxpayers to proceed with plans to erect

a small turbine on the island’s highest

hill: Lighthouse Hill. This proposed

turbine will supply more power than

can be used to meet all the island’s

winter electric needs and about a third

of its summer needs.”

Co-op Wind

The Fox Islands wind project has

been successful because of the

combination of the residents being

faced with relatively high electricity

costs and the presence of an excellent

wind resource. The economics for the

project were solid. This has been the

same combination that has spurred the

recent development of several

community wind projects in coastal

Alaska. In both Alaska and Maine, rural

electric cooperatives have been the

project developers.

For most of the last century, the Fox

Islands have secured their electricity

through a small investor-owned electric

utility — Vinalhaven Light & Power

Co. In October 1974, the islanders

voted with an 80-percent majority to

organize the Fox Islands Electric

Cooperative and to buy out Vinalhaven

L&P. In 2001, the co-op began to

explore the idea of developing wind

power.

The timeline shows that:

• In spring 2007, the Island Institute

organized a co-op meeting to discuss

wind power on the islands.

• In the fall of 2007, the co-op funded a

feasibility study for a wind project.

• In the spring of 2008, community

meetings were convened to discuss

the proposed project.

• In early 2008, the cooperative

formally requested assistance in

pursing the wind-power project from

the Island Institute.
Rural Cooperatives /March/April 2010 23

• In August 2008, the co-op voted to

approve the wind project by a vote of

284 to 5.

T he project was financed with a

combination of loans from the Rural

Utilities Service of USDA Rural

Development and a tax-equity investor.

As reported on the Fox Islands W ind

website (http://www.foxislands

wind.com/background.html), a forprofit firm had to be formed to take

advantage of the tax credits.

Philip Conkling, president of the

Institute, worked with Dr. George

Baker, a seasonal resident of

Frenchboro Island who is also on the

faculty of the Harvard Business School,

to complete a preliminary economic

analysis for the cooperative as well as a

financial model suggesting how the

island communities might finance a

local wind-power project by finding a

tax equity investor and by selling power

and renewable energy credits via the

Fox Islands Co-op's submarine cable.

Because such a tax investment was

not available to the nonprofit Fox

Islands Electric Cooperative, a separate

for-profit Fox Islands W ind LLC

(FIW ) was formed to take advantage of

the tax credits, with Baker selected as

CEO. He and the Island Institute

secured the commitment of a Maine

company for a roughly $5-million

investment in exchange for the tax

credits the federal government allows

to encourage investments in renewable

energy projects. Permanent financing

was obtained via a loan from the Rural

Utilities Service.”

W hile the Fox Islands wind project is

currently negotiating a turbine noise

issue with some dissatisfied neighbors,

it is moving forward and setting an

example that is stimulating the development of other coastal community wind

projects.

expertise, in addition to loans, for newly

formed rural electric cooperatives. One

year to the date of the executive order,

Congress approved legislation creating

the REA.

T he 1937 Report of REA noted that

the most spectacular increase of rural

electrification in the history of the

United States had been achieved. More

than 1.2 million farms had electric

service, and the gap between urban and

rural standards of living was closing.

For the first time in history, thousands

of rural communities had hope of

securing electricity.

During the 1940s, REA funded

cooperatives, which built rural electric

systems with tremendous speed. In

1944, still over one-half of the nation’s

farms did not have electric service. Yet

by 1953, over 2.5 million farms had

electricity and REA had loaned nearly

$2.8 billion to 983 rural electric

cooperatives, 44 public power districts

and 25 electric companies.

Seventy-five years later, there can be

no doubt that REA has had a

tremendous impact on rural America. It

is credited with transforming a life of

darkness and drudgery into one of

productivity and prosperity. REA’s

successor, the USDA Rural Utilities

Service (RUS), loans approximately

$6.6 billion annually to rural electric

cooperatives to continue to bring

modern, reliable service to rural

America.

“T he electrification of rural America

is considered one of the biggest

engineering triumphs of the last

hundred years,” says RUS

Administrator Jonathan Adelstein. “T he

role of the Rural Electrification

Program was one of the greatest

successes in government technology

programs of all time.”

Editor’s note: Sources for this article

include: Electricity for Rural America, by

D. Clayton Brown, Greenwood Press,

1980; Rural Lines newsletters and Report

of the Administrator (various dates), both

published by the Rural Electrification

Administration of USDA.

Uti l i ty C o -o p C o n n e c ti on

continued from page 1 1

maintaining soil quality. He said that an

“industrial” approach must be avoided

when contemplating feedstocks for

biofuels in order to avoid causing

environmental damage. Preserving

landscape diversity allows the land to

fulfill vital functions beyond growing

crops, including sequestering carbon,

providing wildlife habitat, recycling

nutrients and protecting soil and water

quality.

Karlen said that each farm should be

approached as a system, and that

addressing individual problems

separately should be avoided. “T here’s

no single solution,” he told the

audience. Instead, local landscape

characteristics and other factors should

be taken into account when choosing

feedstock crops, and different

conversion methods — such as thermochemical pyrolisis and traditional

fermentation — should be evaluated in

each instance.

According to Karlen, questions that

should be answered when evaluating

farming practices include:

• W hat are the water and air quality

impacts of current practices?

• W hat is the best spatial arrangement

of plants on the landscape?

• Is the soil degrading or improving?

and

• Are crop and livestock production

affecting environmental quality?

In all cases, he said, resource needs

must be matched with appropriate

conservation practices, and landscape

plans must be constantly evaluated and

modified as needed.

C e l lu lo sic b io fu e l d eve lo p m e n t m u st b a la n c e

n e e d to m a in ta in so i l q u a l i ty

continued from page 1 9
24 March/April 2010 / Rural Cooperatives

By Paul Narduzzo, Executive Vice President

CoBank, Regional Agribusiness Banking Group

Editor’s note: Narduzzo oversees the financial services provided to

CoBank’s U.S. agricultural cooperative customers and the institutional lending relationships with agricultural credit associations.

CoBank is a $58-billion cooperative bank that provides loans,

leases, export financing and other financial services to agribusinesses

and rural power, water and communications providers in all 50

states.

deal is a deal. But what happens if one of the

parties in that deal can’t uphold his or her

end of the bargain? In rural America, even in

the best of times, it can mean the difference

between a profitable season and financial ruin.

In today’s economic environment, businesses of all sizes

and across every sector of the economy have ample reason to

worry whether supply-chain partners can deliver on their

contracts. American agribusiness is not immune from

economic challenges, and now is a critical time for country

grain elevators — a linchpin of the U.S. grain handling and

grain marketing system — to evaluate their business

relationships and to take steps to protect themselves from

counterparty risk.

“Counterparty risk” is a term that has received a great deal

of media attention in recent months in relation to the

financial crisis that rocked Wall Street last year. At the most

basic level, one of the driving forces behind the credit crisis

was the failure of complex hedging strategies — used to

mitigate counterparty risk — employed by large banks and

insurance companies. The consequence: some of the most

storied names in the financial world were brought to their

knees and forced into bankruptcy or liquidation.

The concept of counterparty risk, however, is not limited

to Wall Street, and it isn’t new to the nation’s agribusiness

complex. During a commodity price run-up in the mid1990s, some country grain elevators experienced a string of

producer defaults. That specter reared its head again in

recent years as soaring commodity prices spurred fears that

some producers who locked in sale contracts before the

dramatic market run-up might walk away from contracts in

order to sell their corn, soybeans or wheat to another buyer

at a higher price.

Fortunately, those fears did not turn into reality in terms

of any kind of meaningful trend.

Situation for 2010

For the 2010 growing season, the situation has changed.

The national and global downturn has reduced demand for

some products produced by U.S. agribusiness, putting some

sectors of the agricultural industry under significant financial

How country elevators can protect against the downside

Controlling

CounterpartyRisk
Rural Cooperatives / March/April 2010 25

stress. Commodity prices, while still volatile, have softened

dramatically from the record highs realized in 2008. Corn,

which peaked near the $8-per-bushel level, is now trading

between $3 and $4 per bushel. Wheat and soybean prices

have also retreated sharply.

As a result, the nature of counterparty risk in agribusiness

has been transformed as well. From our standpoint at

CoBank, as one of the largest financiers of grain in the

country, we believe the new counterparty risk for elevators is

on the selling side of the house.

The reality is that, in some cases, once-dependable

customers for country grain elevators are facing difficult

market conditions. Dealing with this new risk requires

managers and boards to shift their way of thinking and

employ available risk management strategies. In Cobank’s

view, grain elevators need to consider taking the following

steps:

• Grain elevators should consider limiting cash-sale

contracts. It can be a recipe for problems if a third-party

finds itself in a financial bind — or worse, bankruptcy —

and can’t live up to the contract. Instead, elevators should

consider using basis-sale contracts and maintaining a short

futures position, which will protect them from most of the

counterparty risk resulting from price swings. This is not a

new process for most country elevators.

Let’s say an elevator has a cash sale contract to deliver

corn in November for $5 per bushel. But there is a problem

in the industry of the third party, and that third party can’t

buy the corn from the elevator when it comes time for

delivery. For this example, let’s also assume the price of corn

has dropped to $3 a bushel at the delivery date. The elevator

may be able to sell the corn to someone else, but it’s going to

be at $3 a bushel, meaning the elevator will take a $2-perbushel loss on the deal. That can have a big impact on a

country grain elevator’s balance sheet.

Under a basis-sale contract, an elevator and the thirdparty buyer agree on the basis level — which is the difference

between the local cash price and the futures price for a

commodity on the Chicago Board of Trade. Let’s say the

agreed upon basis is negative 30 cents, with a cash price of $5

per bushel and the futures price at $5.30. Under this

scenario, the elevator would have a short futures position at

$5.30 per bushel.

Fast forward to delivery time. Just as in the first example,

let’s assume that demand has softened, and the spot price of

corn has dropped to $3 per bushel; the futures price is $3.30

per bushel, meaning the basis remains at negative 30 cents.

As the delivery date approaches, the elevator would exchange

its futures position with its counterparty, showing a $2-perbushel gain from the futures contract in its margin account.

The elevator’s final cash sale price is established by the

combination of the price at which the futures contract was

exchanged ($3.30-per-bushel) plus the basis of negative 30

cents, which yields $3-per-bushel. The country grain elevator

got $2 per bushel from the futures contract — and therefore

maintained its $5-per bushel selling price.

Under such an example, if the counterparty were to back

out of the contract at the last minute, the elevator would be

OK. The elevator could turn around and sell to another

buyer at the spot price and still be made close to whole,

depending on the basis level at the time of the sale as well as

freight costs. Country elevators that are doing business with

any sector of the agribusiness industry — good or bad —

should strongly consider adopting this practice if they are not

doing so already today.

• Grain elevators need to know their customers. When

elevators sell to a third party and deliver the product, they

often receive most of the funds when the grain leaves on a

rail car, but some customers are given 10 days or longer to

pay. These credit terms, too, are a counterparty risk.

But how should an elevator decide which customers

should be required to pay cash upfront and who should be

given 10 days or longer to pay? A good practice is to require

all customers to fill out a standardized credit application.

Such forms require the customer to disclose basic business

information as well as more in-depth financial information,

such as whether they have been subject to any judgments,

collections or liens in the past. In addition, these forms

typically require the customer to disclose credit references,

including the name of their bank. As a matter of practice,

grain elevators should check those references thoroughly

before extending credit terms.

Additionally, elevators should take supplemental steps to

find out about the businesses they are selling to by keeping

an ear to the ground and talking to industry contacts to see if

there is any word on the street that might raise red flags.

Often, industry insiders have information that will not appear

on a credit application that may be pertinent to a decision

about extending credit to a customer.

Some economists predict that the economy may begin to

rebound in the next six to nine months, which would be good

news for U.S. agriculture and every other industry. But even

if stronger commodity prices do return as part of a broader

turn around, country grain elevators must continue to be

vigilant on the issue of counterparty risk. Employing

appropriate mitigation strategies will safeguard elevators

from the possibility that, one day, a deal might not be a deal.

■
26 March/April 2010 / Rural Cooperatives

By Anne Todd,

USDA Rural Development

Note: USDA’s 2010 Agricultural Outlook

Forum included a session that examined

how the investment strategies of

organizations from government, private

and nonprofit sectors are helping to support

business development and job creation in

rural America. This article draws from the

presentation of AgStar’s John Monson

about efforts to build a strategic, long-term

regional network to increase business

opportunities for southern Minnesotans.

ur perspective in how

we invest matters

greatly. Informing our

investment decisions

from a regional

perspective is a cultural shift in

thinking,” says John Monson, vice

president of the AgStar Rural Capital

Network, referring to the Southern

Minnesota Regional Competitiveness

Project. This initiative was launched in

2008 to encourage strategic planning

for southern Minnesota on a regional,

collaborative basis to better spur

investment and sustainable economic

growth.

For 90 years, AgStar Financial

Services, a financial services cooperative

serving rural Minnesota and northwest

Wisconsin, has worked to enhance life

for its customers who work in

agriculture and live in rural America. In

2007, to further its mission, AgStar

formed the Rural Capital Network — a

team devoted to supporting community

and economic development,

infrastructure needs and revitalization

projects.

In 2008, AgStar’s Rural Capital

Network (RCN) began focusing on the

concept of tying rural economic

opportunity to economic research. The

ultimate objective is to strengthen the

region’s economy by forging a common

regional perspective and providing

support for sustained private leadership.

The result should be that local

businesses become more competitive on

Diverse interests in southern Minnesota come together

to tap new business opportunities, markets

Regional NetworkBoosts Competitiveness

Creating new business opportunities by developing synergy between southern Minnesota’s base industries of agriculture,

manufacturing and health care is a primary goal of the Southern Minnesota Regional Competitiveness Project. Below right: The

Mayo Clinic in Rochester, Minn., has an expansive research program, extending from basic science to clinical trials. Farm photo

by Stephen Thompson/USDA; research photo courtesy Mayo Clinic.
Rural Cooperatives / March/April 2010 27

a global scale, rather than just operating

in a “survival” mode.

To launch the initiative, RCN

introduced the concept to a group of

organizations. The group hired staff

from the Rural Policy Research

Institute (RUPRI), based at the

University of Missouri-Columbia and

led by Mark Drabenstott, to research a

new regional investment plan for

southern Minnesota. Thus, the

Southern Minnesota Regional

Competitiveness Project was born.

Local solution to

global challenge

The Southern Minnesota Regional

Competitiveness Project is a

partnership of organizations, businesses

and government agencies that are

working together to create a strategic

economic development plan for

southern Minnesota.

The project encompasses a region

made up of 38 counties with a

population of 988,000 people. Southern

Minnesota is ag-intensive and has a

strong manufacturing base and worldrenowned medical research facilities,

including the Mayo Clinic and the

Hormel Institute.

The project is self-funded and led by

AgStar, RCN and 15 other partners

from the private sector, nonprofit

groups and government agencies. This

collaborative project made funds

available to RUPRI to provide the

analysis and facilitative leadership at

regional roundtable meetings. Private

investment and leadership has been a

big differentiator of the process,

compared to many other initiatives,

Monson notes.

The project’s goals are for southern

Minnesota to be able to better compete

in the global economy, to form

partnerships to cooperate on a regional

basis, to identify investment

opportunities and to enhance the

region’s ability to innovate and grow

wealth.

Project leaders have collected

background data and held 13 regional

meetings throughout southern

Minnesota with stakeholders to identify

the region’s economic potential and

most promising economic

opportunities. The project was kickstarted when it received broad

bipartisan support from major political

leaders across the state at the Future’s

Summit in Mankato, Minn.

The project has identified six sectors

of opportunity for the region.

Core sectors are:

• Agriculture and Food

• Healthcare

• Manufacturing.

Emerging sectors are:

• Bioscience

• Renewable Energy

• High Tech companies.

Monson says that the best

opportunities for job creation and

economic growth are found where

sectors converge. Project leaders are

looking for ways to create synergy

between southern Minnesota’s base

industries of agriculture, manufacturing

and healthcare in order to help them

tap into business opportunities that

arise from the emerging sectors.

What’s next for the project?

Next steps for the project include

creation of a region-wide debt capital

fund to spur business development,

recycle wealth and create more wealth

for southern Minnesota. The debt side

of the regional capital fund is currently

operational.

The fund leverages a developing

regional debt-capital network

comprised of community banks, farm

credit associations, real estate agents

and regional consultants. The

collaborative investments so far total

more than $20 million. It is also

responsible for 290 new jobs and 320

saved jobs.

Monson says using USDA Rural

Development programs are a vital part

of the effort, because its loan guarantees

serve as a key to spreading capital

investment and help lengthen the

lending terms for borrowers.

Project leaders will also be working

to set up a Regional Equity Fund to

attract outside seed and venture capital

Rural Capital Network:

small team, big results

The Rural Capital Network

(RCN), a division of AgStar Financial

Services, serves public and private

for-profit and nonprofit

organizations, primarily through

investing in bonds issued by local

communities, organizations or

businesses. RCN’s area of focus

includes light manufacturing, nonagriculture businesses, multi-family

housing, low- to moderate-income

housing, apartment complexes and

cooperative housing. It also focuses

on hospitals, assisted-living

facilities, dental facilities and other

such health-related facilities.

RCN works closely with all

parties involved to help rural

communities leverage existing,

locally-based resources and skills

to put these programs and facilities

in place. RCN has also worked to

establish a network of community

banks to help finance projects.

Since its inception in 2007, RCN has

established 27 community bank

relationships in Minnesota and

Wisconsin. AgStar boasts 150 such

relationships nationwide, and its

overall rural bond investments

totaled $127 million in the last three

years. It has more than $200 million

in managed assets.

continued on page 36
By Sarah M. Pike

Common Enterprise

Development Corporation

he Arkansas

Rural

Enterprise

Center

(AREC) has

been working with local and

regional poultry producers

for the past five years,

offering training and

technical assistance that is

helping put money back into

farmers’ pockets. While costs

have been lowered — most

significantly through biomass

innovations — AREC is now

tackling the latest hurdle for

the poultry producers: a loss

of poultry-production

facilities in the area.

Cutting costs with

innovation

A combination of rising

feed costs, slowing demand

and over-production is

buffeting poultry processors

and growers nationally. Prices

for corn and soybeans, the

primary sources of chicken

28 March/April 2010 / Rural Cooperatives

Co-op Development Action

AREC strives to help struggling

poultry producers

Energy costs for heat are a major production expense for the 400

members of Poultry Partners Inc., for which AREC is helping to find

lower cost fuel alternatives.
Rural Cooperatives / March/April 2010 29

feed, have reached record highs.

Processors and growers are also paying

more for fuel and electricity.

Consumers are also dining out less

often, especially at casual sit-down

restaurants, where chicken is a menu

staple. Sales to supermarkets and other

retailers have not grown enough to

offset the lost restaurant business,

experts say. That has led to an

oversupply of chicken, keeping prices

low and preventing processors from

raising prices to cover their added costs.

To combat the poultry producers’

hurdles, AREC has assisted Poultry

Partners Inc., a 400-member association

and cooperative network of Arkansas,

Missouri and Oklahoma poultry

producers. AREC is helping members

take an innovative look at how to create

more efficient production methods.

One major initiative is examining

heating costs and identifying lower-cost

alternatives. AREC has put together a

series of training sessions for Poultry

Partners Inc. members on the

economics of converting poultry houses

from using fossil fuels to using biomass

as a fuel source.

“Given the different resources

available to each farmer, AREC did not

focus on one source of biomass but on

several, from corn to wood pellets and

everything in between,” explains Donna

Uptagrafft, program officer with

AREC.

The results of their findings can be

found in the publication: “A Review of

Biomass Furnaces for Heating Poultry

Houses.” A link to the publication on

AREC’s website is www.winrock

programs.org/Arkansas-agriculturaldevelopment/.

Al and Bev Saunders are poultry

producers who benefited from AREC

technical assistance. The Saunders’

chicken farm near the ArkansasOklahoma border takes advantage of

new technology as it becomes available.

The couple is currently testing woodburning stoves to determine their effect

on energy savings for their houses.

AREC was able to assist Poultry

Partners Inc. through previous funding

received from USDA Rural

Development’s Rural Cooperative

Development Grant (RCDG) Program.

The annual RCDG Program provides

critical funding to co-op and rural

developers throughout the country.

Although AREC did not receive

RCDG funding for 2010, the

cooperative development center

continues its work with the poultry

producers and other rural development

projects as much as possible, including

responding to a recent request from

poultry farmers in south Arkansas who

have experienced an even greater

challenge.

Next hurdle

In 2009, Pilgrim’s Pride, the largest

chicken producer in the United States,

idled three facilities, two in Arkansas

and one in Louisiana, stopping

production indefinitely.

One of the three facilities Pilgrim’s

Pride shut down was located in El

Dorado, Ark. The result was that more

than 120 Arkansas poultry farmers lost

their primary buyer. Most producers

did not get contracts with other poultry

companies. As a result, millions of

dollars in farm loans remain with no

income to service the debt.

AREC was invited to assist Arkansas

poultry producers in rebuilding their

businesses. With the El Dorado poultry

processing plant still dormant, AREC is

working with 40 poultry producers and

local entities to examine the feasibility

of creating a processing co-op. The

feasibility study is in the preliminary

stages and will also examine the role of

a cooperative in purchasing inputs.

The poultry producer projects are

just one area of AREC’s work that

establishes economic sustainability in

rural America. AREC is part of

Winrock International, a nonprofit that

works to empower the disadvantaged,

increase economic opportunity and

sustain natural resources.

AREC is also a member of

CooperationWorks! (CW), a service

cooperative consisting of about 50

cooperative developers from across the

United States. These members

represent 17 cooperative development

centers, along with several other

organizations and individuals.

For more information about AREC

and its projects, contact Donna

Uptagrafft at 501-280-3078 or

duptagrafft@winrock.org. For more

information on CW, call 800-600-7682

or e-mail info@ cooperationworks.coop.

■

Al and Beverly Saunders’ granddaughters say hello to some recent

arrivals at their grandparents’ poultry farm. The Saunders are

experimenting with wood-burning stoves for heat. Right: The Ozark

Poultry Growers Symposium was held last April in Fayetteville, Ark.

"AREC did not focus on one source of biomass,

but on several, from corn to wood pellets and

everything in between."
Charles Ling named USDA

Economist of the Year

Agriculture Secretary Tom Vilsack

recently announced that USDA Rural

Development agricultural economist

Charles Ling has received the USDA

Economist Group’s “Economist of the

Year” award, which recognizes his

outstanding work to foster greater

understanding and use of dairy

cooperatives.

“Dr. Ling exemplifies the ways in

which USDA employees work tirelessly

to help businesses and improve the lives

of rural residents,” Vilsack said. “The

technical assistance he has provided to

cooperatives has helped them improve

their economic well-being and service

to their members.”

Ling received the award at a

ceremony at USDA headquarters in

Washington D.C. Ling provides the

only source of comprehensive

information on the marketing

operations of the nation’s dairy

cooperatives, information which has

proven useful in policy and research

analysis. Especially noteworthy is Ling’s

work to calculate the cost of

manufacturing cheese, butter and milk

powder in cooperatively owned plants.

The award citation notes that Ling

“is an unsung hero who has fostered

understanding and use of dairy

cooperatives. His wide-ranging research

and technical assistance has provided

exceptional information to U.S. dairy

cooperatives to better serve their

member-farmers. Producers,

cooperatives, government agencies and

policymakers often seek his advice.”

A database Ling created on dairy

cooperatives, which is updated every

five years, is frequently cited by the

dairy industry. Ling has authored more

than 22 research reports and 30 other

research-related reports and conducted

at least 64 technical assistance projects

for farmer cooperatives during his more

than 30-year tenure with USDA.

“I am just lucky to have the

opportunity of working with the nicest

people — dairy farmers, the staff of

their cooperative organizations and

colleagues in and outside of USDA,”

Ling said.

The Economist of the Year award

honors a current U.S. Department of

Agriculture economist for excellence in

economic research and analysis that

contributes to the USDA mission

regarding food, agriculture, natural

resources and related issues. By

highlighting the contributions of

economic analysis to program and

policy development and

implementation, the USDA Economists

Group encourages continued

integration of economic analysis

throughout USDA. Membership in the

group is not limited to USDA

economists.

LO’L reports record

net earnings

Land O'Lakes Inc. reported record

net earnings in 2009, achieved in what

company officials termed a difficult and

volatile economic environment and

marketplace. Financial 2009 highlights

for the co-op include:

• Record net earnings of $209 million,

up 31 percent from 2008;

• Record-high cash returned to

members of $108 million;

• Net sales of $10.4 billion, the

company’s second-highest revenue

year, but down 14 percent from 2008’s

record $12 billion. The decline was

largely due to lower commodity

prices across nearly all businesses and

the impact of the recessionary

economy on consumer and customer

purchasing.

“Despite a weak economy, Land

O’Lakes delivered solid financial results

— including record-high net earnings

— because we met the needs of a

changing marketplace,” President and

CEO Chris Policinski said. “The

strength of our brands, aggressive and

targeted marketing and adjusting our

product mix to meet customer and

consumer preferences all contributed to

our outstanding results.”

Earnings benefited from $37 million

30 March/April 2010 / Rural Cooperatives

Newsline

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

Co-op developments, coast to coast

Dr. Charles Ling “has provided

exceptional information to farmer

cooperatives – such as production costs

in cooperatively owned dairy plants and

his comprehensive data base of U.S.

dairy cooperatives,” according to the

citation he received as USDA Economist

of the Year. USDA photo by Dan

Campbell
Rural Cooperatives / March/April 2010 31

of unrealized hedging gains at the end of

the year, which compares to $52 million

in unrealized hedging losses at the end

of 2008. Company officials noted that

unrealized hedging is more an indicator

of market conditions at a given time

than of performance. If the impact of

hedging were factored out, 2009’s net

earnings would be second only to 2008.

Policinski also cited:

• A 2-percent volume increase in the

company’s flagship branded butter

business;

• An 11-percent increase in foodservice

(restaurants, schools, institutions)

volume, even though that segment, for

the overall industry, was down for the

year;

• A 4-percent volume increase in the

company’s industry-leading animal

milk replacer product line, despite

financial stress across the dairy

industry;

• A 2-percent increase in lifestyle feed

volume, led by strong gains and

record-high volumes in the companion

animal segment; and

• A 5-percent increase in overall shellegg volume, with a 7-percent volume

increase in the premium-priced

branded/specialty egg segment.

“What’s particularly good to see is that

9 percent of our 2009 dairy foods valueadded volume was generated by the new

products category — which are products

introduced over the past three years,”

Policinski said. “We maintained or

improved key financial measures, and

total debt was down by $250 million, as

compared with year end 2008. We also

achieved nearly $70 million in cost

savings, and we refinanced our publicly

held debt at attractive interest rates.”

CooperationWorks! slates

spring training

The Cooperative Business

Development Training Program

conducted by CooperationWorks! is a

rigorous course to help professionals

United Nations declares 2012 International Year of Cooperatives

The United Nations General Assembly has declared 2012 as the International

Year of Cooperatives, highlighting the contribution of cooperatives to socioeconomic development. In

adopting the resolution in

December, the General

Assembly noted that

cooperatives have a

beneficial impact on poverty

reduction, employment

generation and social

integration.

In a press release

announcing the declaration,

the United Nations notes: “A

cooperative is an

autonomous voluntary association of people who unite to meet common

economic, social and cultural needs and aspirations through a jointly owned

and democratically controlled enterprise. In general, they contribute to socioeconomic development.

“As self-help organizations that meet the needs of their members,

cooperatives assist in generating employment and incomes throughout local

communities. Cooperatives provide opportunities for social inclusion. In the

informal economy, workers have formed shared-service cooperatives and

associations to assist in their self-employment. In rural areas, savings and

credit cooperatives provide access to banking services that are lacking in many

communities and finance the formation of small and micro businesses.

“The cooperative sector worldwide has about 800 million members in over

100 countries and is estimated to account for more than 100 million jobs around

the world. The strength and reach of cooperatives are illustrated in the

following examples:

• Under the umbrella of the World Council of Credit Unions, 49,000 credit unions

serve 177 million members in 96 countries, and 4,200 banks under the

European Association of Cooperative Banks serve 149 million clients;

• Agricultural cooperatives account for: 80 to 99 percent of milk production in

Norway, New Zealand and the United States; 71 percent of fishery production

in the Republic of Korea; and 40 percent of agriculture in Brazil;

• Electric cooperatives play a key role in rural areas. In Bangladesh, rural

electric cooperatives serve 28 million people. In the United States, 900 rural

electric cooperatives serve 37 million people and own almost half of the

electric distribution lines in the country.

“International Years are declared by the United Nations to draw attention to

major issues and encourage action. To commemorate the Year, regional

conferences will raise awareness of cooperatives and seek ways to leverage

their contribution to socio-economic development and foster regulatory

frameworks. A research agenda will be proposed and Member States are to

form national committees that will serve as focal points for the Year’s activities.”

For more information, contact the Department of Economic and Social Affairs

focal point on cooperatives, Felice Llamas, llamas@un.org, or call 1 (212) 9630-

2924.

The United Nations General Assembly (in

session here) sees co-ops as having a huge

potential to promote economic development

worldwide.
develop skills in assisting groups to start

new cooperative enterprises. The

program has been designed to deliver to

new practitioners the best of what has

been learned in the field of cooperative

business development.

The program consists of two

intensive five-day training sessions, and

a third (online) session focusing on coop finance. Session 2 (the courses can

be taken in any order) will be held May

17-21 at the University of Wisconsin

(UW) in Madison. Session leaders will

include Bill Patrie of the Common

Enterprise Development Corporation,

Margaret Bau of USDA Rural

Development and Anne Reynolds of the

UW Center for Co-ops, among others.

This session will examine the unique

aspects of cooperatives and how to

build effective group capacity for the

long-term success of an enterprise.

Break-out case studies will track four

existing cooperative businesses. The

course will also cover: co-op legal

structures and taxation; co-op finance,

equity and capitalization; co-op

management and oversight, among

other topics.

Participation in the program is

limited; registrations will be accepted

on a first-come, first-served basis. For

more information, contact Audrey

Malan at 307-655-9162 or

cw@vcn.com.

USDA helping Dakota co-op

expand broadband service

In rural Burleigh County, N.D., the

BEK Communications Cooperative has

been selected to receive a $2 million

grant and $2 million loan from USDA.

Along with an additional $2 million in

leveraged funds, the money will enable

the co-op to expand its broadband

system to serve more than 540 homes

and anchor institutions that are

currently under-served.

This is just one example of how

USDA is using American Recovery and

Reinvestment Act funds Congress

allocated to it to extend broadband

services to un-served and under-served

parts of rural America. To date, $895.6

million has been provided to support 55

broadband projects in 29 states or

territories.

The BEK co-op’s existing system

provides service to 53 percent of the

population in its service area. Among

the current users, 22 percent derive

household income from the Internet.

This expansion is expected to stimulate

economic growth by bringing on new

users.

BEK, founded in 1952 and

headquartered in Steele, N.D., provides

voice and data services to about 6,000

customers throughout six counties in

south-central North Dakota. In

addition to local and long distance

telephone service, the co-op provides

high-speed Internet access, digital TV,

advanced intelligent network features,

dedicated data circuits and more.

For a complete list of USDA

broadband fund recipients, visit:

www.rurdev.usda.gov/rd/newsroom/new

s.htm.

CoBank reports record

earnings, issues $269 million

in patronage

CoBank, a leading cooperative bank

serving agribusinesses and rural utilities

throughout the United States, set new

records for net interest income and net

earnings for 2009. These gains were

achieved despite lower average loan

volume during the year.

Net income for fiscal 2009 was a

record $565.4 million, up 6 percent

from $533.4 million in 2008. Net

interest income for the bank rose 10

percent, to $946 million, up from

$862.6 million in 2008. Total assets

were $58.2 billion, compared with

$61.2 billion in 2008.

Although loan quality declined as a

result of impacts from the global

recession on the bank’s customer base,

CoBank reports that its overall levels of

capital and liquidity remained strong. In

March, the bank was slated to pay

$268.9 million in total patronage,

including $183.8 million in cash and

$85.1 million in common stock. For

most customers, that represents 100

basis points of average loan volume,

lowering their overall net cost of debt

capital from CoBank.

“The strong patronage payout

authorized by our board for 2009

underscores the strength of the

cooperative model and the compelling

value proposition that CoBank offers its

customer-owners,” said Robert B.

Engel, president and chief executive

officer.

Total provisions for loan losses for

2009 and 2008 were $80 million and

$55 million, respectively. “During a

year that proved enormously difficult

for many of the nation’s financial

institutions, CoBank was successful in

generating record levels of net income

to fund patronage, build capital and

32 March/April 2010 / Rural Cooperatives

New broadband lines are being installed

by the BEK Communications Cooperative

in Burleigh County, N.D. The $6 million

project is being supported with loan and

grant money from USDA. Photo courtesy

BEK Communications
Rural Cooperatives / March/April 2010 33

cushion the bank from the negative

impacts of the recession and credit

crisis. Most importantly, we were able

to stand by our customers and meet

their needs for debt capital as their

financial partner,” said Engel.

Average loan volume during 2009

was $44.5 billion, down 2 percent from

the prior year, primarily due to lower

seasonal financing requirements from

agribusiness customers. Seasonal

agribusiness lending was reduced due to

the substantial drop in prices for grains

and farm inputs from 2008’s exceptionally high levels. Offsetting that decline

was growth in other areas of the

business, including U.S. governmentguaranteed loans that support American

agricultural exports, loans to energy

customers and loans to (and participation with) affiliated associations and

other partners across the Farm Credit

System, the bank reported.

At year-end, 95.8 percent of the

bank’s loan and lease portfolio was

classified in the highest regulatory

category used to grade creditworthiness.

Capital and liquidity levels remain well

in excess of regulatory minimums, with

the bank holding about $12.7 billion in

cash and investments at year end.

USDA, Navy sign

renewable energy agreement

USDA and the U.S. Navy in January

signed a memorandum of

understanding that encourages their

cooperation in the development and use

of advanced biofuels and other

renewable energy systems. “USDA

looks forward to working with the Navy

and other public and private partners to

advance the production of renewable

energy by sharing technical, program

management and financial expertise,”

Agriculture Secretary Tom Vilsack said.

“In order to secure the strategic energy

future of the United States, create a

more nimble and effective fighting

force, and protect our planet from

destabilizing climate changes, I have

committed the Navy and Marine Corps

to meet aggressive energy targets that

go far beyond previous measures,”

Navy Secretary Ray Mabus said. The

objective is to reduce reliance on fossil

fuels from volatile areas of the world.

Mabus announced five energy targets

for the Navy and Marine Corps, with

biofuels being a major component.

These goals include:

• When awarding contracts, consider

energy efficiency and the energy

footprint as additional factors in

acquisition decisions.

• By 2012, demonstrate a Green Strike

Group composed of nuclear vessels

and ships powered by biofuel. By

2016, sail the Strike Group as a Great

Green Fleet composed of nuclear

ships, surface combatants equipped

with hybrid electric alternative power

systems running on biofuel, and

aircraft running on biofuel.

• By 2015, cut in half petroleum use in

the non-tactical commercial fleet by

phasing in hybrid, flex-fuel and

electric vehicles.

• By 2020, produce at least half of

shore-based installations’ energy

requirements from alternative

sources. Also, 50 percent of all shore

installations will be net zero energy

consumers.

• By 2020, half of the Navy’s total

energy consumption for ships,

aircraft, tanks, vehicles and shore

installations will come from

alternative sources.

The agreement complements

existing renewable energy programs and

efforts of USDA, the Navy and Marine

Corps. USDA has a variety of programs

and services that support renewable

energy development. To learn more

about them, visit: www.rurdev.usda.gov.

Michigan Milk leader

Jack Barnes dies

Jack Barnes, who led Michigan Milk

Producers Assoc. (MMPA) for 26 years,

has died at 89. Barnes was remembered

as “the man who helped shape modern

Michigan milk marketing.” Barnes, who

was employed by MMPA for 39 years,

served the dairy farmers of his state

during a time of great transition and

modernization. He was instrumental in

establishing premiums paid to farmers

for their milk and streamlined the milkmarketing system by consolidating

small cooperatives into the statewide

association.

Sailors wait at a refueling station for fuel from a replenishment oiler. USDA and the U.S.

Navy are working together to advance the development and use of biofuels by the Navy.

U.S. Navy photo by Greg Johnson
Barnes guided farmers from a time of

milk cans to bulk tanks on their dairy

farms. He was remembered as a man

who took pride in leading the

cooperative through difficult times with

a positive, results-oriented managerial

style.

“His career was molded by his firm

belief in the concepts of farmer

cooperatives and family farms. He

continued his commitment to dairy

farmers his entire life,” MMPA General

Manager John Dilland said. “He had a

very strong interest in Michigan State

University (MSU) and its educational

foundations, and was one of its most

active recruiters. His involvement, his

enthusiasm and his positive outlook will

be missed.”

Barnes’ leadership in the cooperative

led to involvement in other agricultural

organizations, including the Dairy

Council of Michigan, the Michigan 4-H

Foundation and the Michigan Dairy

Memorial and Scholarship Foundation.

He received numerous awards and

honors, including: MSU’s Distinguished

Service to Agriculture and

Distinguished Alumnus awards;

Michigan 4-H Distinguished Service

and Emerald Clover Society; Future

Farmers of America’s Honorary State

Farmer award; and Michigan Farm

Bureau’s Distinguished Service to

Agriculture award.

In other MMPA news, the co-op

recently announced that more than $1.7

million in cash patronage refunds are

being sent to dairy farmer-members.

This cash allocation represents about 29

percent of the $6 million allocated net

earnings generated by the cooperative

in fiscal year 2009. The cash patronage

returned includes 100 percent of the

farm supply earnings and 25 percent of

the milk marketing earnings.

MMPA — with nearly 2,200 dairy

farmers in Michigan, Indiana, Ohio and

Wisconsin – also made cash payments

in April 2009 to members of more than

$4.6 million through retirement of the

cooperative’s 2000 equities. In October

2009, MMPA members received $1.5

million in cash payments in the form of

a “13th milk check.” With the current

payment of $1.7 million, cash payments

in the last 10 months exceed $7.8

million.

Blue Diamond CEO

to retire at end of ‘10

After serving 10 years as president

and CEO of Blue Diamond Growers,

Doug Youngdahl will retire at the end

of the cooperative’s centennial year in

2010. In a letter to more than half of

California’s almond growers who own

the cooperative, Youngdahl said: “I’m

proud of the results achieved by your

Blue Diamond team during the past

decade. It is a privilege to have had

stewardship over a team that has

demonstrated an ever-increasing talent

and desire to succeed in support of our

growers.”

Youngdahl is credited for his market

leadership that brought confidence and

optimism to an almond industry that

was undervaluing the crop as its size

continued to more than double over the

last decade. His mantra became: “As

almond supply becomes available,

global consumption will readily follow.”

The co-op’s net sales and other

revenue nearly doubled from 2001 to

2009, when sales topped $709 million;

payments and allocations to growers

more than doubled from 2001.

He attributes the co-op’s industryleading returns, in part, to a streamlined

operation with cost reductions and

improved efficiencies throughout. Last

fiscal year, company equity reached a

record high of $126 million, and

retained grower earnings used to

finance the cooperative stood at 3.5

percent, compared to 6 percent in the

prior decade. Payments to growers

have also been accelerated.

According to Board Chairman

Clinton Shick, a grower from

McFarland, Calif., “While Blue

Diamond has excellent internal

candidates, the board will fulfill its

fiduciary responsibility to conduct an

extensive executive search for a new

CEO. An announcement will be made

once the board completes its thorough

search before the November annual

meeting.”

Simmons to lead Oregon

bargaining association

Mark Simmons, former Oregon

Speaker of the House and state director

in Oregon for USDA Rural

Development, has been named

executive director of the Oregon Grass

Seed Bargaining Association. Simmons

succeeds Ralph Fisher, who is retiring

from the position after five years

leading the association.

Simmons, who also has worked as a

lobbyist for the Oregon Association of

Nurseries, started his new position Feb.

1. “Mark brings to the bargaining

association a wealth of knowledge of

association management and the issues

that affect Oregon farmers,” says

association President Ron Quiring. “We

look forward to working with him as we

continue to build, strengthen and see

the bargaining process mature.

Simmons said his immediate goal is

to make sure that as the economy

recovers and prices improve, the

growers’ contribution is appropriately

recognized.

Morris Foundation receives

$10,000 rural leadership grant

The Ralph K. Morris Foundation

has received a $10,000 grant from The

Farm Credit System Foundation’s

Doug Youngdahl

34 March/April 2010 / Rural Cooperatives
Douglas D. Sims Fund for Rural

Leadership. This fund, created in honor

of former CoBank CEO Douglas D.

Sims, supports programs that focus on

rural leadership development, with a

special emphasis on those committed to

making their communities better places

to live.

The grant will be used to provide

opportunities to men and women who

wish to develop and strengthen their

cooperative leadership and development

skills by attending cooperative

educational programs. In 2009, the

Morris Foundation awarded 93

Cooperative Leadership Fund

scholarships totaling more than

$25,000. In addition, the Foundation

awarded a $2,500 scholarship from the

Elroy Webster Cooperative Studies

Fund to a Kansas State University

master’s degree student whose primary

focus is agricultural studies.

NCFC: Workshops focus should

include how co-ops level

playing field for producers

Because farmer-owned co-ops play a

vital role in promoting competition in

agriculture, a prime focus of a series of

workshops on agriculture competition

and regulatory issues should be on the

benefits that co-ops provide to farmers,

rural communities and consumers,

according to the National Council of

Farmer Cooperatives (NCFC), which

issued a statement prior to the first of

five workshops in Ankeny, Iowa, March

12.

Future workshops will be held: May

21 in Normal, Ala.; June 7 in Madison,

Wis.; Aug. 26 in Fort Collins, Colo.,

and December 8 in Washington, D.C.

(For specifics on meeting locations and

other information, visit:

www.usdoj.gov/atr/events.) The

workshops are being jointly sponsored

by the U.S. Department of Justice and

USDA.

“For more than 100 years, America’s

farmer-owned co-ops have worked hand

in hand with their members to ensure

that individual producers can compete

on a more even playing field with the

large, globally integrated companies

that dominate the agricultural sector,”

NCFC President and CEO Chuck

Conner said.

“Farmer co-ops allow individual

producers — whether they grow 40

acres of peaches in California or 4,000

acres of wheat in Kansas — to have a

combined market power much, much

greater than any single farmer or

rancher would have on his own,”

Conner continued. “By doing this, coops help to preserve family farms and

foster competition in the marketplace,

which ensures the fairest price possible

for consumers.”

NCFC staff and several members

were slated to attend the Ankeny

workshop (which was held after the

deadline for this magazine) to monitor

developments and provide information

on the benefits of farmer co-ops.

NCFC has also launched a “Farmer

Co-ops: Providing for America”

campaign to tell the story of how

farmer co-ops benefit producers, rural

communities and consumers to policy

makers and other opinion leaders.

NMPF: USDA decision on

bottlers levels playing field

for dairy farmers

USDA’s decision to limit the pricing

exemption used by large, verticallyintegrated farmer-owned bottling plants

will close a loophole that had been

employed by some of the largest

producer-handler milk bottlers,

according to statement issued by the

National Milk Producers Federation

(NMPF), which has long lobbied on the

issue.

Under the rule changes, “producerhandler” definitions in all federal milkmarketing orders will be amended so

that only farms with bottled milk sales

of 3 million pounds or less per month

remain exempt from the pooling

provisions. Producer-handlers with sales

of more than that will be treated the

same as other bottling operations that

don’t own farms, and they will have to

pay Class I differentials into the sharedproducer revenue pool in their respective federal-order regions.

The new decision also tightens the

requirements in the Arizona and Pacific

Northwest Federal Order markets,

which had allowed producer-handlers

up to 3 million pounds of sales in

separate marketing orders; the new

rules allow up to 3 million pounds in

total marketings. ■

Bob Dylan grants

co-op song use

Bob Dylan has granted

permission to a Canadian co-op to

use his song “Blowin’ in the Wind”

for one of its TV ads. The ad, for the

Cooperative Group of Ontario, uses

the theme: “The co-op: it’s good for

everyone,” according to a report in

“On Co-op,” the newspaper of

Ontario’s provincial co-op

association. “Bob Dylan is one of

the most respected poets and

influential figures of the 20th

century, both musically and

culturally,” the co-op declares on

its website. Mike Smith, managing

director of Columbia Records in the

United Kingdom, said Dylan was

swayed to allow use of his song by

the co-op’s ethical approach to

business.

Rural Cooperatives / March/April 2010 35
felt we could do better.”

So City Market launched the Food

for All Member Program, which offers

a 10-percent discount to any member

who uses food stamps, is enrolled in the

Supplemental Nutrition Program for

Women, Infants and Children (WIC),

or who has a disability. As a result, food

stamps sales have risen from about

$290,000 in 2005 to about $570,000 in

2009 and the co-op has gained over

1,000 new members.

The co-op also makes donations to a

local food pantry to help feed those in

need.

To better serve seniors, the co-op

offers a 5-percent discount to anyone

over the age of 60, and also serves 900

free lunches each month — or 4,000

free meals since 2005 —at the four

senior centers in Burlington.

Nilan says these programs have

helped change seniors from being major

critics of the co-op to being some of its

biggest supporters.

Just how much progress the co-op

has made in changing the attitudes of

seniors since the “red meat vs. granola

fear” days was apparent on a recent trip

to one of Burlington’s senior centers. A

sign had been posted in the lobby

listing what the residents liked best

about living in Burlington. No.1 on the

list: “Lunch with City Market!” ■

The Little Co-op that Could

continued from page 15

only to provide funds, but also to

deliver their products to the

cooperative.

Farmers invested in the plant

because they are getting their feed and

fuel from the cooperative. All of the

corn that is processed is used in some

capacity, whether it’s liquid, wet or dry

feed for livestock, or alcohol for fuel.

There is no waste.

Whichever way you look at it, the

key is to spread the investments widely,

with lots of opportunities to limit risks.

About one-third of the funding for

next generation biofuel will likely need

to come from producers and wellcapitalized investors, with two-thirds of

the funds coming from lenders.

At USDA, we are keenly aware of

today’s business environment and how

sensitive lenders are to risk mitigation.

We are dedicated to addressing these

issues in order to get capital flowing

again. We’ve been meeting with

lenders, establishing new relationships

and building on old ones.

As we continue to invest in, and

develop, advanced biofuels

technologies, many projects will

become eligible for more conventional

forms of financing.

We must continue to develop new

technologies and demonstrate to

lenders the importance of transitioning

to advanced biofuels. There will always

be uncertainties. There will always be

surprises. Neither markets nor

technologies are static.

But Congress clearly defined our

mission in the 2008 Farm Bill, and we

at USDA Rural Development are fully

committed to reaching our goal. Our

job is to implement legislation. Our

responsibility is to support the

entrepreneurs who have the initiative

and the drive to go out there and

compete in the marketplace to build a

new energy future. ■

Commentary

continued from page 2

36 March/April 2010 / Rural Cooperatives

to southern Minnesota. To achieve this,

the group is interviewing multiple

equity fund investors and will develop

the new regional equity fund in a way

that potentially “shadows” and leverages

other venture capital funds — made up

of community funds and investors.

Further plans include development

of a Southern Minnesota Business

Accelerator. Entrepreneurs and

researchers are currently developing

business models which capture synergy

between key sectors of opportunity.

The accelerator will benefit small, rural

business owners by offering expertise in

areas they may lack, such as new

business development and certain

management perspectives. The

accelerator will connect and develop

regional business capacity — leveraging

the region’s best business consultants.

“The farmer-members who own

AgStar understand the interdependence

of agriculture and rural communities,”

says Monson. “The right regional

strategy based on solid analytics,

regional leadership and sustainable

economic investment in emerging

markets allows them to be globally

competitive.”

For more information on the

Southern Minnesota Regional

Competitiveness Project, visit the

project Website at: www.mnsu.edu/

ruralmn/regcomp.html. Information

about the AgStar Rural Capital

Network mission is at: http://rural

capitalnetwork.agstar.com/. ■

Regional Network Boosts Competitiveness

continued from page 27

38 March/April 2010 / Rural Cooperatives

From the March 1960 issue of

News for Farmer Cooperatives

Pendleton Grain: Co-op in Motion

Integrated and diversified services have built this Oregon co-op into

one of the largest local associations serving a single rural

community

A new Skyscraper of the Sagebrush – a pushbutton feed

mill eight stories high — began running full blast out eastern

Oregon way early last March. This new feed mill of

Pendleton (Oregon) Grain Growers Inc., stands alone and

220 feet tall, about two miles out in the sagebrush country

from Hermiston.

It looks out over the long vistas and varied views of

Umatilla County – a county where progressive ranchers have

built a cooperative with the variety and scope to match their

land, and one that’s grown into one of the largest local

operations in the country, with dollar volume last year of $16

million.

Pendleton Grain Growers (PGG) is a cooperative in

motion. It has taken on the frontiersman spirit still present in

our last great frontier, the Pacific Northwest. Its management

has had the verve and the vision to hew out some new and

interesting activities and, at the same time, keep to the

fundamentals of their co-op’s business.

Grain is the farming core for this community, thus the coop is built on a grain marketing foundation. But the

association keeps fluid, and things are made to happen. We’ll

take two recent activities to illustrate this: using more local

grain in the big new feed mill and setting up a demonstration

ranch to encourage the restoration of a livestock and poultry

industry once important here.

The new mill has a completely automatic mixing system

for 160 tons of finished and pelleted feed for each 8-hour

shift. Its eight doors have bins and modern equipment and

facilities to turn out a complete line of feeds. The mill has a

$30,000 corn dryer and molasses mixing equipment. Outside,

it has storage space and sheds to handle large quantities of

hay and forage. In a separate building is the hay wafer

machine.

The second example of this co-op’s ability to “think big” is

the aim to reverse the market-outlet structure for the region.

As part of a larger educational program, the co-op has set up

an irrigated livestock ranch as a subsidiary corporation. The

aim of this demonstration project is to be a catalytic agent to

help build back the feeding and livestock industry of the

region — one that’s gone consistently downhill in the last

two decades.

The ranch has eight full-time employees, with collegetrained men supervising. It uses PGG feeds in its various

livestock and poultry enterprises.

Charles F. Baker, general manager of the Pacific Supply

Cooperative, says of PGG, “Its keynote for success has been

good management. And it shows what can be done with

foresight and vision, and the courage to move into new and

right directions.”

From the March 1980 issue of

Farmer Cooperatives

U.S., Dutch Co-ops Enter World Trade Markets

“They shake hands today,” said George van den Berg, “the

farm in Indiana, and the farm in Holland.” As head of the

Cebeco-Handelsraad of Rotterdam, a Dutch agricultural

cooperative, he spoke recently to Indiana co-op members

about a joint venture which brings together European and

North American partners. Participating co-op sales’ volume

totals $17 billion.

Van den Berg spoke to the Indiana Farm Bureau Inc., and

the Indiana Farm Bureau Cooperative Association Inc.,

during their annual meetings in Indianapolis.

Seven North American cooperatives joined with four

Page from the Past

From the archives of Rural Cooperatives
Rural Cooperatives / March/April 2010 39

European cooperatives last year to purchase a controlling

interest in Alfred C. Toepfer Export Inc., a major

international commodities trading firm headquartered in

Hamburg, West Germany.

The deal puts the two groups of cooperatives directly into

the international commodities trading markets – markets now

dominated by five privately held multinational firms.

Concentration in world markets

Awareness by European and American cooperative leaders

about the concentration of commodities trading on the

international markets has been a key factor. This awareness,

on both sides of the Atlantic, brought on a series of meetings

that led to the acquisition.

A prior feasibility study had concluded: “In order to fortify

and maintain the position of the cooperatives in the domestic

market, it is necessary to have a foothold in the exportimport market.”

The study envisioned an organization that could originate

and distribute products on both ends of the line, and be

multinational with offices in the most important countries

involved in origination and consumption.

Toepfer Export, which is involved in grain and feedstuffs

trading, filled the bill perfectly, said van den Berg. It has a

turnover of 16 to 20 million tons annually — about 10

percent of world trade — and has subsidiaries in 18 countries

around the world.

He said that United States and European cooperatives do

not differ basically, although in Europe they are more

widespread, probably because they originated there. They

also market many different commodities, and their influence

is accordingly strong.

Van den Berg’s own Dutch co-op is one of the four

involved in the new venture. Two others are German and one

is French. Sales volume of the four totals about $10 billion.

The North American co-ops, in addition to the Indiana

Farm Bureau Cooperative, are: Gold Kist Inc.; Land

O’Lakes; Citrus World Inc.; Landmark Inc.; Agway Inc.; and

United Cooperatives of Ontario. The seven have total sales

of about $7 billion.

From the March/April 2000 issue of

Rural Cooperatives

Fingers and Needles

Alaskan co-op turns cashmere-soft musk ox wool into hard cash

Soft yet sturdy. Thin but warm. That’s how Sigrun

Robertson describes the garments marketed by the

Oomingmak Musk Ox Producers’ Cooperative.

“Qiviut is similar to fine cashmere,” explains Robertson.

She has been with the cooperative since it began in 1969 and

now serves as its executive director. “And our members love

working with this beautiful fiber to make beautiful products.

They’re artisans,” she adds.

Mention musk oxen to most people in the lower 48 states,

and their questioning eyebrows belie the fact they know little

about this cousin to sheep and goats. But in the open tundra

and well-vegetated terrain of Alaska, Canada and Greenland,

this short-legged, massively built animal with broad, downcurving horns and an ankle-length outer coat is well known.

Alaskan agriculture has helped the musk ox industry evolve

into a sustainable enterprise.

The domestication of the musk ox and the start-up of the

Oomingmak cooperative are tightly interwoven. By 1969,

enough qiviut had been converted to yarn to put it into

production. The first 25 knitters were all from Mekoryuk,

Alaska, located on Nunivak Island. They were encouraged to

try the fiber and they enlisted as the cooperative’s founding

members. Research

had shown qiviut

was better suited to

knitting than

weaving, and

knitting was a skill

Eskimos had

learned from

missionaries.

The fine needles

required for the

delicate patterns also

meant less equipment and little financial investment,

Robertson says.

The patterns were adopted from traditional village life and

Eskimo culture — from 1,200-year-old artifacts to beadwork

designs. The patterns were converted into graphic

instructions easily understood by the older women, most of

whom were not familiar with the complex written English

instructions used in typical knitting patterns. Workshops

were held so members could learn how to read the patterns

and complete the lace-like stitches. More importantly,

members learned how to handle qiviut.

“It’s spun much finer than what you’re used to with other

yarns,” Robertson explains.

Today, more than 200 knitter-members, ranging in age

from pre-teens to octogenarians, own Oomingmak. Many are

related or are close friends who helped each other get started

knitting and into the cooperative. All are women, though

men have been members in the past, and nearly all the

members are Alaskan Eskimos, who work from home in

villages ranging from 150 to 300 people.

“I’m not sure what tomorrow’s challenges will be,” she

adds. “But I do know they will center around fingers and

needles,” she adds. ■

Musk Ox
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40 March/April 2010 / Rural Cooperatives