USDA / Rural Development January / February 2012

R

u

r

a

l COOPERATIVES

Page 4

‘Because we’re

all in this together’
2 January/February 2012 / Rural Cooperatives

Commentary

By Judith Canales, Administrator

Rural Business-Cooperative Programs

USDA Rural Development

egular readers of this publication are

probably well aware of USDA Rural

Development’s commitment to promoting

co-op education, research and statistics via

Rural Cooperatives magazine and the many

other co-op reports we publish (see pages 22-

23 for some examples). But co-op leaders should also be

aware that a number of USDA Rural Development loan and

grant programs can help cooperatives.

Cooperatives are an integral part of rural communities and

economies; their socio-economic contributions have been

documented many times over. Farm supply, marketing and

service co-ops continue to be a part of the day-to-day lives of

many rural producers, while housing, food, worker and utility

co-ops provide needed services to rural communities.

USDA’s portfolio of Rural Business-Cooperative Programs

has had a tremendous impact on rural communities and the

rural economy. Since 2009, these programs have been

responsible for the investment of about $6.9 billion to

support projects throughout rural America. While several of

these programs are specifically targeted toward co-ops,

cooperatives are eligible to participate in all of them.

These programs assist businesses and cooperatives, create

jobs and expand entrepreneurial opportunities in rural areas.

They have advanced business development, local food and

value-added agriculture, and renewable energy development.

While many cooperatives across the country have taken

advantage of these programs to grow their business, many

more co-ops could be participating in them.

Following are brief overviews of some of the USDA

programs that every co-op should be aware of. To learn

more, visit our website at: www.rurdev.usda.gov, or call your

USDA Rural Development state office toll free at 1-800-670-

6553 to talk to a business and co-op program specialist.

 Value-Added Producer Grants (VAPG) — This

program provides competitive grants to farmer or rancher

cooperatives, individual independent agricultural producers,

groups of independent producers, producer-controlled

entities and organizations representing agricultural producers

to create or develop value-added producer-owned businesses.

Agricultural producers include farmers, ranchers, loggers,

agricultural harvesters and fishermen who engage in the

production or harvesting of an agricultural commodity.

These enterprises help increase farm income, create new

jobs, contribute to community and rural economic

development, and enhance food choices for consumers.

Examples of funded projects include:

• In 2009, the American Prawn Cooperative Inc., in North

Carolina, received a $197,250 working-capital grant to

market value-added, freshwater prawns.

• The North American Bison Cooperative, based in North

Dakota, received a $50,000 VAPG to support economic

planning and research to identify new and existing

markets for bison products.

• Also in 2009, Six Rivers Producers Cooperative in

Wisconsin received a $149,740 grant for working capital

to facilitate a producer-to-restaurant infrastructure to

support the marketing and sales of locally grown, valueadded produce, dairy and meat products.

• Oregon Woodland Cooperative was awarded a $150,000

VAPG in 2009 to process members’ non-timber forest

products (tree needles, bark, moss, etc.) into essential

oils, dried chips and other projects.

 Business & Industry (B&I) Guaranteed Loans — This

program helps to improve, develop or finance business,

industry and employment in rural communities. It bolsters

existing private credit by guaranteeing quality loans that show

promise of creating lasting community benefits. The program

typically guarantees losses of up to 80 percent on loans of up

to $25 million, or up to $40 million for value-added ag

processing plants in rural areas. “Rural” for this program is

defined as communities (and their contiguous, adjacent areas)

of less than 50,000 people. There is an exemption to this

population limit for loans of up to $25 million when a co-op

is engaged in value-added ag processing and all members’

farms or ranches are within 80 miles of the processing facility.

Inability to obtain other credit is not a requirement to

participate.

Co-ops: Don’t Overlook Rural Development

Financial Programs

R

continued on page 45
Features

Rural Cooperatives / January/February 2012 3

Volume 79, Number1

January/February 2012

Rural Cooperatives (1088-8845) is

published bimonthly by USDA Rural

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The Secretary of Agriculture has

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Unless otherwise stated, articles in this

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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.9

4 ‘Because we’re all in this together’ Sandhills Farm to Table Co-op’s goal: ‘Meeting local food needs with local food’

By James Matson and Jeremiah Thayer

10 Learning from co-op closure

Dissolution of Producers & Buyers Co-op holds lessons for others pursuing institutional market

By Margaret M. Bau

16 Changing course

Milk producers tackle dairy policy, other key issues at annual meeting

By Carolyn Liebrand

20 Organic federation seen as a strategy for family farm survival, regional competitiveness

By Thomas W. Gray

25 Study raises important questions about co-op education efforts

James Wadsworth

27 Keeping the ‘open’ sign on

Canadian conference promotes employee ownership as alternative to business closures

By Bruce Reynolds

32 The Nature of Cooperatives

Roles in economizing transaction cost is a new dimension for understanding value of co-ops

By K. Charles Ling

Departments

02 COMMENTARY

09 CO-OPS & COMMUNITY

15 LEGAL CORNER

19 IN THE SPOTLIGHT

30 FOCUS ON

36 UTILITY CONNECTION

38 NEWSLINE

p. 16 p. 30

ON THE COVER: The North Carolina-based Sandhills Farm to Table Cooperative is a prime example of a multi-stakeholder co-op. It has member classes that

include farmers, consumers and restaurant and food store owners. Here, strawberries are harvested on a producer-member’s farm. Story on page 4. Photo

courtesy Sandhills Farm to Table Co-op
By James Matson and Jeremiah Thayer

Editor’s note: The authors are both business consultants with

Matson Consulting, a co-op business development firm based in

Aiken, S.C. Matson is a former co-op development specialist with

USDA Rural Development.

ince its inception two years ago, Sandhills

Farm to Table Cooperative (Sandhills) — a

multi-stakeholder enterprise — has made a

huge impact in the rural community

surrounding Moore County, N.C. Sandhills

is providing fresh local food to more than

1,600 co-op members, while donating more than $30,000 to

local schools and nonprofit organizations. In addition, it has

had a tremendous impact on 35 producer-members, paying

them more than 70 percent of the retail food dollars their coop collects. Their multi-stakeholder model is providing

inspiration for several other rural cooperatives being

developed in North Carolina that are seeking locally based

solutions to local food needs.

Expanding the co-op model

From its inception, Sandhills Farm to Table Cooperative

has redefined the traditional cooperative model. Typically, a

co-op is focused on benefiting one class of stakeholder, be it a

producer-owned, worker-owned or consumer-owned

cooperative. However, many cooperatives are unable to

operate successfully within the traditional “single

stakeholder” business model. But when there are multiple

types of members represented by one co-op, addressing more

diverse concerns is a challenge — which Sandhills has been

4 January/February 2012 / Rural Cooperatives

S

Cliff Pilson packs Sandhills strawberries at his family's CV Pilson Farms in Cameron, N.C. The fruit will be marketed through the Sandhills Farm to

Table Cooperative. Photos courtesy Sandhills Farm to Table Co-op

Sandhills Farm to Table Co-op’s goal: ‘Meeting local food needs with local food’

‘Because we’re all in this together’
designed to accomplish.

By including three different stakeholder groups (producerfarmers, consumer-customers and employees) in the decisionmaking structure of its operations, Sandhills has been able to

expand the scope of benefits. It is one of the first local food

cooperatives in the country in which the farmers, consumers

and staff are all equal owners.

“People are less concerned about price, and the farmers

are working to provide the best possible produce to their

neighbors,” says Jan Leitschuh, director of marketing and

farmer relations for the co-op. “We’re trying to be a

cooperative in the truest sense of the word.” While co-op

leaders determined that the multi-stakeholder business

structure was the best way to address the concerns of each

party involved, the process is still evolving. They say the

flexibility of the cooperative structure is the key to sustaining

growth.

Ultimately, Sandhills would tweak the multi-stakeholder

format through the use of the “one member, one vote”

concept, partnered with a board of seven directors. Two

board members are elected directly by each of the three

stakeholder classes. These six directors then appoint one

additional, unaffiliated board member to provide balance and

objectivity.

Reaching consensus

The decision-making process posed an interesting

challenge. The ideal of a “consensus” was never really

considered. A simple majority vote of board members would

allow any two interest groups to override the interest of the

third, which is inconsistent with Sandhills’ guiding principle:

“We’re all in this together.”

A creative alternative emerged. Decisions are made by a

simple majority vote, with the provision that at least one

representative of each interest group must agree. The format

of the cooperative serves as a watershed, expanding the

benefit base beyond the stakeholders and into the community

in which the cooperative resides.

Linking producers with consumers

Sandhills Farm to Table Cooperative is an outgrowth of a

wave of Community Supported Agriculture (CSA) co-ops

that began springing up across the nation in the 1990s. At its

core, Sandhills is a multi-farm CSA cooperative. This multifarm format allows the co-op to expand on the benefits of

traditional CSAs. In a typical CSA, consumer-members

financially support local producers and, in turn, they are

supplied with regular “shares” in the form of produce

distributed throughout the season.

In Sandhills’ case, once customers become members, they

are able to sign up for a subscription to receive “produce

boxes,” which are distributed on a regular schedule at various

“gathering sites” located throughout the area. The multifarm CSA format employed by Sandhills ensures that the coop can offer a greater variety of produce as well as provide

joint marketing and sales logistics. Similarly, the consumermembers receive the benefit of receiving their produce at

gathering sites on a regular basis, instead of just when certain

crops are in season.

While serving as a conduit for local food demand (which

influences producers’ planting decisions), Sandhills also

serves to bring producers and consumers closer together.

“The co-op has been very successful in building a positive

relationship between the farmers and community,” says John

Blue, a Sandhills farmer-member. “It has stimulated interest

in using local products that we, as farmers, could have never

accomplished as individuals.”

This “consumer connection” is especially important for

“transitioning farmers,” those who are too large to make a

living by selling at farmers markets, but not big enough to

access large-scale producer markets. Or, these farmers may be

transitioning from producing one crop type to another. By

participating in the cooperative, many of these producers

have been able to succeed.

“A full-time farmer transitioning from commodity crops,

like tobacco, into direct-to-consumer sales finds it difficult to

adjust his production and marketing practices to meet the

demand for locally grown, fresh fruits and vegetables,” says

Taylor Williams, an agent with North Carolina Cooperative

Extension. “Sandhills Farm to Table helps the farmer expand

and diversify production and marketing practices to meet the

demand for locally grown, fresh fruits and vegetables. It is no

exaggeration to say that two dozen farmers in our county

have been able to survive and succeed because of their

participation in this cooperative.”

Sandhills returns local dollars to the community, primarily

through payment to farmers for their produce. In 2011 alone,

35 farmer producers were paid at least 70 percent of the retail

food dollars from the co-op’s produce sales.

Community impacts

While Sandhills includes the functions of a traditional

CSA, it has become much more than that to the local

community. The co-op’s goals have always included

Rural Cooperatives / January/February 2012 5

“...Two dozen farmers in our county have been able to survive and succeed

because of their participation in this cooperative.”
community building. An example of this can be seen in the

use of “gathering sites,” rather than simple “pick-up

locations.” Jan Leitschuh says that the idea was to make the

gathering sites a place where people could get to know their

neighbors, swap recipes and generally have a more pleasant

experience than is experienced at a typical “get your box and

go”-type pick-up site. She sees the gathering sites as one of

the key benefits of Sandhills Farm to Table, compared to

other cooperative models.

While community building is accomplished through the

strengthening of producer-consumer ties, it is also

accomplished by fostering volunteerism. People begin to

understand that “we’re all in this together.” In 2010,

Sandhills was the recipient of more than 2,500 hours of

volunteer services from members and others. Most of this

donated time was used to operate the weekly gathering sites

at churches and elementary schools.

Working together to meet the personal needs of the

cooperative members also helps meet the needs of people and

organizations outside the cooperative. Through donations to

gathering site hosts in 2011, more than $30,000 was given to

three public elementary schools, three churches and several

other local, nonprofit organizations. That amount is up from

about $10,000 in 2010.

In addition to its role as a CSA, the co-op is also on the

cutting edge of the emerging “food hub” trend, in which the

Internet becomes a marketing vehicle for local producers and

a shopping platform for consumers. Through the use of

6 January/February 2012 / Rural Cooperatives

The road to the development and ultimate start-up of

Sandhills Farm to Table Cooperative (Sandhills, or SF2T))

required long, hard work by a few dedicated leaders. The

multi-stakeholder business structure was not broadly

embraced when the concept was first floated, as public

interest and awareness in local food sheds was in an

embryonic stage at that time in North Carolina.

Fenton Wilkinson — a local sustainable-community

development planner/activist who first envisioned the co-op

— found that his initial attempts to “shop around” the

concept stirred little community reaction. Wilkinson had

experience in this field from previous projects and thus

knew how important it would be to lay the groundwork for

the co-op properly.

“I started an enterprise similar to SF2T in Washington

state in 1997, as a for-profit worker cooperative,” Wilkinson

recalls. “After 18 months of operations, the business closed

— even though it was about at the point of liftoff — because

the vast bulk of the energy fueling it was mine. I burned out.

“Several years later, I moved to Moore County and felt

that a similar local food distribution company would work

locally. While the earlier attempt proved the concept's

feasibility, I decided that I would only undertake it as a

community development enterprise, rather than a personal,

for-profit business. It seemed to me that the likelihood of

success and longevity was much higher if the project was a

community endeavor — that is, if it came out of a

groundswell of support from a broad cross-section of

community interests.”

He tried to get various community leaders interested in

the concept in 2003, 2005 and 2007, looking for broad

community support. “While the idea was generally well

received, no one was interested in becoming directly

involved,” he says.

“In 2009 when the idea was once again floated, Tim

Emmert, a Moore County Community Development Planner,

jumped on board and the ember started glowing. Together,

we slowly built a coalition of public agencies, NGO

organizations and citizens. The ensuing ‘blaze’ resulted in

SF2T.”

Reaching 3.5 percent of the county population as

subscribers in just the co-op’s second year “speaks volumes

as to the efficacy of using the community endeavor

approach,” Wilkinson says. A key move occurred when

Wilkinson (who would become the co-op’s general manager)

enlisted the help of Jan Leitschuh (who became the co-op’s

marketing director). With her involvement, community

support began building in earnest.

Small grants from RAFI (the Rural Advancement

Foundation International/USA) — which supports small

farms and co-ops that use sustainable agricultural practices

— and from an individual gave the fledgling co-op an early

boost.

Outside assistance was sought from many sources. Key

to Sandhills’ ultimate success was its ability to form strong

partnerships in the agricultural community and receiving

strong support from USDA Rural Development staff and

programs. Bruce Pleasant, business/cooperative programs

specialist with USDA Rural Development’s state office for

North Carolina, met with the leaders to help move the co-op

development process into the next phase.

Co-op organizers met with the North Carolina

MarketReady office and its development partner, Matson

Consulting. These groups provided critical technical

assistance for the community leaders through funding

provided under in a USDA Rural Cooperative Development

Laying groundwork key to successful launch
Rural Cooperatives / January/February 2012 7

Grant (RCDG), at no cost to the cooperative.

NC MarketReady helped the organizational committee

through several months of planning and meetings. The many

hours of technical assistance provided through the RCDG

from USDA proved invaluable for getting Sandhills Farm to

Table Cooperative off the ground.

The organizing process was overwhelming at times. The

cooperative had to resolve many internal issues to be fair for

each class of stakeholders. There were few exact patterns

to follow. So, with the help of many others, Sandhills took

“pieces” from many other organizations that seemed to best

fit its goals.

Looking back at the effort, Leitschuh says: “There were

some intense ‘birth pains’ during the start-up, primarily

because so many structures had to be invented from scratch

— and each decision affected all the others. At that time,

there were only two of us doing the heavy lifting, although

Fenton took pains to engage opinion from all segments of the

potential membership. We drew heavily upon Co-op

Extension and NC University resources, including the NC

MarketReady Center. It was a process that consumed two

full years of two lives and left us exhausted.”

Leitschuh’s key advice for others following a similar

course of action: “Enlist more ‘heavy lifters’ from the

community at the start.” Also, borrow from other existing coop business models.

Wilkinson says one of the major barriers to starting a

local food hub is figuring out how to get both consumers and

farmers to make commitments based on the “raw concept.”

The co-op adopted an approach of “leveraging incremental

steps. We started with a no-commitment, online consumer

survey which garnered well over 600 responses, with 85-plus

percent saying they were very interested in the idea.”

That enabled the co-op organizers to get the attention of

key local farmers and engage them in a dialogue. While

there was farmer interest, when it came time for them to

make a real commitment to plant and sign a delivery

agreement, there was resistance, because the consumers

had not done anything to indicate they really meant it,

Wilkinson explains.

“We went to the consumers, explained that the farmers

were at the point of having to make a real investment

months before they had anything to sell, and they wanted

some indication that the consumers really meant it. We

couldn’t sell subscriptions because no details of what that

meant were known, much less the fact that we had no

produce supply in hand.”

Instead, consumers were invited to become charter

members, paying $25 to join and support the co-op, but

without any commitment to subscribe. “More than 450

households joined as charter members in one month. This

community support surprised the farmers and was sufficient

inducement for them to make growing commitments to SF2T.

With farmer commitments in hand, we were then able to

structure the produce box subscription details and begin

accepting subscriptions in February. The rest is history.” n

Sandhills’ website, the co-op offers services much like a “preorder” farmers market. Orders are placed via the website,

then a “market day” is scheduled on which food and nonfood items are picked up and a final bill is determined.

The use of market days allows producers to include food

items that probably would not “survive” in the produce

boxes, as well as to include more highly processed items, such

as cured meats, jams, jellies and baked goods. Because they

provide a source of guaranteed sales, market days have also

allowed producers to include more difficult-to-store items,

such as grass-fed beef, pork, and lamb; sausages; breads; and

jams.

While the website format allows producers to find a sure

market, it also opens the door for new business ventures in

the community.

A recent survey identified several areas where there was a

potential market, but uncertainty existed about local

producers to meet the demand. One result of this is the Olde

Time Bakery. Business owner Leslie Covington says she was

willing to start the bakery due largely to Sandhills Farm to

Table Cooperative. “I broke even my first month, primarily

selling directly to Sandhills members on a limited basis,”

Covington says. “I can’t wait to be able to offer

subscriptions.”

Working with low-income households

Sandhills’ service region includes several USDAdesignated “food deserts,” which are defined as “a lowSharing the workload will help prevent burn out by a co-op's "heavy lifters," according to leaders of the Sandhills Co-op (below).
8 January/February 2012 / Rural Cooperatives

income census tract where a substantial number of residents

have limited access to a supermarket or large grocery store.”

Even in many areas not designated as a food desert, a

significant percent of the population may lack access to

healthy foods.

Sandhills takes its commitment to address food insecurity

in the community seriously. In 2010, the co-op donated more

than three tons of produce — which farmers were paid for —

to needy residents of Moore County. The food donations

were made through a local food bank and food pantries, a

friend-to-friend program, and directly to families in need.

To ensure that community members have access to fresh

healthy, locally produced foods, Sandhills has partnered with

West Southern Pines Citizens for Change (WSP) to enact

the “Affordable, Healthy Local Food Access Initiative.” This

grassroots, self-empowerment initiative in a low-income,

minority neighborhood aims to increase access to healthy

local food. WSP’s 1,600 low-income residents currently have

no access to healthy – much less, local – food. Many of them

also lack transportation to get to better food sources. Both

children and adults there are experiencing severe diet-related

health issues.

“The West Southern Pines initiative will add the crucial

piece of making healthy food more accessible in an

economically depressed area while supporting local farmers,

the local economy and our at-risk school children,” says

Kathy Byron, director of the Communities In Schools (CIS)

FirstSchool Garden Program, a project partner.

Community enrichment

A CSA’s activities tend to slump in winter, when most of

the farmer-members are not growing crops. Sandhills has

seized this opportunity to start the “SF2T University”

(“SF2T” is often used as an acronym for the co-op). The

informal “teach what you know” format allows people to

teach community-based classes based on experience or

expertise.

Part of the resurgence of demand for local foods

corresponds to an increased interest in cooking at home.

However, many of Sandhills’ subscribers did not know how

to properly prepare the produce they were getting from the

co-op. Recognizing this need, Sandhills not only began

offering regular cooking classes that work with foods

included in that week’s produce box from the CSA, but it also

began offering canning and food preservation classes to

capitalize on the abundance of some foods during harvest.

Sandhills’ weekly newsletter, produced by Leitschuh,

features recipes that use food from the co-op’s CSA produce

boxes in ways that help broaden consumers’ palates while

encouraging the “exploration” of new foods. A recent

member survey found that 73 percent of respondents were

increasing their frequency of cooking meals “from scratch” at

home after becoming a co-op member. Cooking, canning and

recipe use are all areas Sandhills is focusing on in an attempt

to teach “lost skills” to a new a generation.

Looking to the future

Sandhills has big plans for the future. After being awarded

a Farmers Market Promotion Grant in November 2011 from

USDA, the cooperative’s goals include expanding current

offerings to include a number of value-added foods, including

meats, breads and locally prepared soups. The grant will

enable the co-op to expand its influence even farther in the

community.

By purchasing new transportation equipment and

electronic payment system point-of-sale devices, Sandhills

will be able to offer foods to community members it has not

reached to date, especially those in low-income communities

where access to supermarkets is limited. The co-op intends to

continue the formation of community-learning classes, as

well as adding new members and subscriptions in the coming

year.

Influence spreads

Sandhills is inspiring communities beyond its own.

Because of the co-op’s pioneering work in the multistakeholder arena, its business model is being adopted by

others and its influence is spreading. Sandhills’ members

believe that sharing knowledge and know-how in order to

promote community on a larger scale is a foundation of

cooperative philosophy.

“I am indebted to this group for their willingness and

proactive efforts to expand their own project to become a

regional initiative, and for their unselfish sharing of not only

their success but their knowledge and experience,” says Mark

Tucker, North Carolina Cooperative Extension director for

Forsyth County. “This dissemination of information has

allowed for others to replicate similar efforts in additional

areas of our state.”

The success of Sandhills Farm to Table is attributable both

to its unique, multi-stakeholder structure and to Sandhills’

actions to benefit many community groups beyond its own

members. Multi-stakeholder cooperatives are proving that

the best way to solve community issues is often with a

community solution. While still evolving, these co-ops can

help offer local solutions to local issues, following the spirit

of the cooperative through information sharing and

propagation, mutually benefiting every level of stakeholder.

These co-ops exemplify the best aspects of cooperatives by

helping to identify an issue, take initiative and form a

community of interest to solve it.

“Sandhills Farm to Table Cooperative’s intent and actions

are a reflection of a new-values system of commerce,” says its

founder, Fenton Wilkinson. “It is not a business, but a

community endeavor with the mission of meeting local food

needs with local food,” he continues, saying this reflects the

co-op’s belief that: We’re all in this together.

“When asked: ‘Is SF2T for-profit?’ I have to say yes, but

not in the usual sense,” Wilkinson adds. “With all parties to

the transaction being equal owners, we all profit from our

relationship to our community and with each other.” n
By Karen Jones, GROWMARK

Editor’s note: With this article, Rural

Cooperatives is launching a new

department, Co-ops & Community, in

which we will feature co-op employees and

members who exemplify the co-op principle

of service to community. This article is

reprinted from Spirit, courtesy

GROWMARK, where Jones is a

publications and news specialist. To submit

an article about volunteer efforts by a

member or employee of your co-op (reprints

are accepted), please contact:

dan.campbell@wdc.usda.gov.

hen a tornado ripped

through the city of

Joplin, Mo., on May 22,

2011, emergency

responders from across

the country joined in the rescue and

cleanup efforts. Putting the cooperative

principle of concern for community

into practice, several Iowa FS

employees were among those who spent

time helping in the recovery efforts.

Steve Gerard, New Century FS

environmental safety and regulatory

director, is no stranger to disaster relief

efforts. As the chief of the New Sharon,

Iowa, volunteer fire department, he has

worked both locally and nationally,

using his training to respond to

emergency situations.

“I was in Biloxi, Miss., after Katrina

and on the scene at Parkersburg (Iowa,

site of another tornado), but I have

never seen such a widespread area with

so much destruction,” he said. After

making a phone call to a Joplin

battalion chief, Gerard was given the

green light to take a crew of fellow

firefighters to Missouri to assist with

rescue and recovery. He mustered a

group of nine, including Jacoby

Tremmel, New Century custom

applicator and new recruit to the New

Sharon Fire Department.

Upon arrival, the group was split

into three teams. Each team served as

support to a canine unit. When the

trained search dogs found something, it

was up to the support team to dig until

they found whatever the dog detected.

“When we started our time in Joplin,

most of the homes had already been

checked, but we were conducting a

second sweep with the dogs to be sure

nothing was missed,” Gerard said.

“There were times we had to crawl on

our hands and knees to get into places

where the dogs had identified

something.”

Part-time AGRILAND FS Inc.

employee Dan Davis also volunteered,

working three days to help clear trees

and other debris.

“I met an elderly woman who had

lost everything,” he said. “She loved to

garden, and when I found her garden

hose and returned it to her, it brought a

smile to her face.”

All three men returned from the

experience glad they could help in some

small way. Tremmel is training his dog

to serve as a search-and-rescue dog for

future disaster relief efforts. Davis

returned home with just the clothes on

his back, leaving behind the rest of what

he took for people who needed the

clothing more than he did.

“You find out real quickly that

material possessions mean nothing,”

Gerard said. “I’m just grateful we were

able to help.” n

Rural Cooperatives / January/February 2012 9

W

Jacoby Tremmel (below, with scent hound) and Steve Gerard, employees at New Century FS

in Iowa, were part of the search and rescue effort after a tornado devastated Joplin, Mo.

(above), last year.

Co-ops & Community

Co-op safety director offers aid

in tornado-ravaged communities
Producer-members of Producers & Buyers Cooperative hold a caucus in 2010 to elect a farmer-director to the

board of their multi-stakeholder cooperative. Despite initial successes selling to institutional food buyer-members,

the co-op has ceased operations. Producer-members hope their experiences will help others avoid the pitfalls they

encountered. Photos courtesy Producers & Buyers Cooperative

10 January/February 2012 / Rural Cooperatives

Learning fromco-op closure

Dissolution of Producers & Buyers Co-op holds

lessons for others pursuing institutional market
By Margaret M. Bau, Co-op Development Specialist,

USDA Rural Development, Wisconsin

e-mail: margaret.bau@wi.usda.gov

nterest in local foods is continuing to build

with every passing month. Households in

many regions now enjoy multiple options for

direct access to locally grown food via

farmers markets, roadside stands, pick- or

fish-your-own businesses and through community supported

agriculture (CSA) subscriptions. Independently owned

restaurants and specialty grocers have long forged direct

relationships with local growers, but even more of them are

now looking to source local foods.

For decades, consumer co-ops have been at the forefront

of offering natural and regionally grown food options in

retail stores. But fewer inroads for local foods have been

made with schools, universities, hospitals and nursing homes

(also known as the “institutional food” market).

The Producers & Buyers Co-op in northwestern

Wisconsin was a highly visible attempt to bridge that gap. It

was a multi-stakeholder cooperative in which members

represented all aspects of the local food system: producers,

local processors, transport providers and regional institutions.

For three years, the co-op coordinated the processing and

delivery of locally grown chicken, beef, cheese, pork,

produce, fish, eggs, bison and lamb to area hospitals.

On July 20, 2011, members of the Producers & Buyers

Co-op voted to dissolve their cooperative. As with any

business failure, a number of factors contributed to the

downfall of the co-op. For the benefit of future groups

engaged in rebuilding a system that connects local food to

area institutions, this article attempts to identify lessons

learned.

Lesson 1:

Multiple members are needed in each

membership class; don’t become identified

as one member’s project

Rebuilding a local food system needs to encompass the

perspective of each piece of the puzzle — be it producer,

processor, transport provider or buyer. To fully understand

the needs of each perspective, multiple members are needed

in each membership class. If multiple members are not

brought into the co-op, the co-op can be unduly subject to

the internal dynamics of a single member (which may not be

representative of what is happening among all buyers or all

processors).

The Producers & Buyers Co-op started at the initiative of

a single, medium-sized hospital. A much smaller rural

hospital (a sister hospital to the founding buyer) joined the

co-op soon after the co-op’s incorporation. Learning initially

occurred between the multiple producers (representing a

wide array of products) and the two hospitals.

The producers and processors had hoped that the clout of

the founding hospital would help convince other regional

hospitals, nursing homes, universities and school districts to

join the co-op. After all, who better than an institutional

buyer could convince its peers that local foods are worth the

additional cost and effort?

As the hospital stepped into the state and national media

spotlight for its role in supporting local foods, the co-op

became identified as that institution’s project. Initial interest

expressed in joining the co-op by regional universities and

other hospitals then waned, possibly because the co-op was so

closely identified with another institution.

When personnel and policy changes occurred at its largest

I

Rural Cooperatives / January/February 2012 11
12 January/February 2012 / Rural Cooperatives

buyer-member, the co-op lacked sufficient additional buyers

to offset the loss. It never recovered.

Lesson 2:

Raise sufficient capital before launching; hire an experienced manager

This is as true for cooperatives as it is for any other type

of business. The Producers & Buyers Co-op incorporated in

Wisconsin with the ability to offer preferred stock as a means

to raise equity from both members and the local community.

The co-op board and supporters should have taken the time

to write a thoughtful stock prospectus as well as educational

materials.

With a prospectus in hand, ordinary citizens and

community-minded investors could have been approached for

their financial support. A solid base of equity would have

allowed the co-op to hire experienced staff, including a

“problem solver” knowledgeable about coordinating food

logistics, but who was still willing to think outside the status

quo.

Equity would have provided a cushion to ride through

inevitable problems that arise in any new venture. If sufficient

capital could not be raised within a reasonable time window

(say six to nine months), this would have been a powerful

signal to leaders that wider community support did not exist

for the local food system concept.

But, as is so often the case, several buyer representatives

and producers were in a rush to “just do something.” With

limited funds, the co-op launched prematurely and tried to

get by “on the cheap.” A young and relatively inexperienced

operations coordinator was hired part-time.

With limited staff and so much to do, board members

stepped forward to fill operational and managerial functions.

Over time, the board found itself in a reactive mode, rather

than playing a proactive role in setting policy. The co-op

went through three part-time staff members within a year

(and dealing with all the ensuing personnel issues that go

with rapid staffing changes).

As months turned into years, board members started to

“burn-out.” Valiant individuals tried to balance the demands

of their business and personal obligations with the needs of

the co-op. If the Producers & Buyers Co-op had sufficient

start-up funds, it could have hired an experienced, full-time

manager to establish and grow operations. This would have

freed the board to concentrate its limited time on governance

and policy setting.

An experienced manager could also have helped bridge the

business-culture differences between the hierarchal way

institutions operate and the realities of the way small-scale

farming and processing work.

Lesson 3:

Require contracts between parties

Small-scale farmers and processors are often willing to

work based on verbal agreements; sometimes just their word

and the word of a buyer over the phone or a handshake is all

that is required to seal a deal. This is not always the case with

institutions, where turnover is frequent in both staffing and

policies.

For example, a producer may have a verbal commitment

with a buyer at a hospital or university. Depending on the

item, it can take anywhere from three months to two years to

raise the product to maturity. As the date for processing

nears, the food buyer for the institution with whom the

farmer made that verbal commitment may be long gone. To

avoid this scenario, contracts should be signed.

In the current food system, institutions are accustomed to

placing and cancelling orders with large food service

providers. Large national distributors can absorb order

changes by re-directing a product to someone else. This is

not the case with small-scale producers and farmers. Farmers

take on risk to raise a product to institutional standards

(which can often differ from general consumer preferences).

Even one cancelation of a large order can severely hurt a

farmer’s business.

To protect producers and processors from “institutional

churn” and the risk of order cancellation, co-ops should use

Alan and Alaine Sonnenberg (far right) were dairy-farmer members of the co-op. Herby Radmann (below), who

operates Bullfrog Fish Farm, is another ex-member of the co-op. He has long been involved in seeking ways to

make small-scale farming sustainable and in helping to prepare future farmers to take over existing farms.
Rural Cooperatives / January/February 2012 13

contracts when accepting orders. As with a CSA subscription,

the contract could require the institution to place 100 percent

money down when the order is placed (effectively shifting the

risk from the producer to the institution).

A more equitable way of sharing risk would be a system

that is widely used in the small business community. These

contracts require a 50-percent downpayment when an order

is placed, with the other 50 percent paid upon delivery. Such

contracts would be in everyone’s best interests and

protection. Farmers could invest with confidence for inputs

and equipment. Cooks at institutions could have pre-season

input to order items such as heirloom vegetables or other

special varieties, locking in hard-to-source product at an

agreed-upon price.

The Producers & Buyers Co-op did not require contracts

between buyers and producers or processors. In organizing

the co-op, more than a year was spent in discussions among

all parties, resulting in strong mutual feelings of trust. With

much fanfare, founding buyer-members publically pledged to

buy 10 percent of their food locally. After one year, that

pledge was increased to 15 percent. The co-op calculates that

the institutions purchased about 7 percent of their food from

Producers and Buyers.

Order cancellations by kitchen staff

— often just days before animals were

scheduled for slaughter — was another big

problem, farmers say. Several producers —

along with their small-scale supplier

relationships — were severely affected by

sudden cancellations.

To remedy the situation, the co-op’s

product committee suggested that buyermembers sign contracts with producermembers. But the buyer-member

representative on the board would not

agree. Trust began breaking down.

Producers and processors grew

reluctant to do business through the coop, and its cash-flow situation

deteriorated. Shortly thereafter, the

founding buyer-members announced that

their health system owner had entered into

a contract with a multinational corporation

to manage dining services for all hospitals

within the system.

While the co-op theoretically could

have continued selling to the institutions

through the new dining management

contractor, it would have had to substantially increase its

business liability insurance coverage and incur extra

administrative costs. These costs made continuing business

with the institutions economically infeasible, based on the

rate at which the institutions were participating in the co-op.

Lesson 4:

Educate and train members at all levels

Co-op principle No. 5 — which urges co-ops to provide

education, training and information to members — is critical

to rebuilding a local food system. Quality local foods may

initially cost more than conventional food products. But

there are numerous rewards for buying locally; these rewards

must be continually identified and communicated to

members.

Within institutions, “buy-in” is necessary at every level,

including kitchen staff, purchasing directors, employees,

patients and senior administrators. Understanding and

valuing local food requires a cultural shift if institutions are

to make long-term buying commitments to a co-op, despite

shifts in personnel, policies and the economy.
14 January/February 2012 / Rural Cooperatives

Producer and processor

members also need continual

education to understand the

differences in wholesale and

retail pricing. The Producers &

Buyers Co-op stressed to

producer-members and potential

applicants that this co-op should

not serve as the only outlet for a

farmer’s product.

Savvy producers need

multiple marketing strategies, of

which selling to institutions is

but one channel. For example,

while institutions tend to use large amounts of ground beef,

they use relatively few cuts of prime beef. Beef, pork, lamb

and bison producers were all encouraged to develop or

maintain their existing retail and restaurant relationships for

selling prime meat cuts.

The Producers & Buyers Co-op was structured as a multistakeholder co-op so that all players in the local food system

would have access to each other for cross-learning purposes.

There were numerous instances in which processor members

made suggestions regarding product use and marketing,

which helped build bridges of understanding between smallscale farm production and institutional needs.

But producers felt hampered by their inability to gain

access to, and information from, key players at some

institutions. For example, producers say they needed greater

access to kitchen staff to work more closely with menu

planners and cooks on new ways to prepare fish and lamb.

Farmers and processors also wanted more feedback from the

cooks about how to package product for the institutional

environment. The lack of connection between producers and

kitchen staff severely hampered relations.

What worked? Co-op as coordinator

The role of the co-op as coordinator among producers,

processors, transport providers and buyers worked well.

Institutional buyers have limited resources and interest in

identifying individual producers of local food. They are

usually not aware of what constitutes safe and sustainable

growing practices at the farm level. Nor are institutions

interested in setting up individual orders and following

through on each product all the way through production,

processing and delivery.

When done well, co-ops can ensure an agreed-upon level

of quality, aggregate product and assure follow through in

delivery and invoicing.

The Producers & Buyers

Co-op operations were financed

through a 5-percent fee assessed

upon every transaction. The

producer, processor and

transportation company each

paid 5 percent to the co-op on

each item handled by the co-op.

The buyers also paid 5 percent

to the co-op for each item

purchased.

This system worked, thanks

to the efforts of a talented board

treasurer (an accountant by training) who set up the co-op’s

spreadsheets. Future groups may wish to simplify the billing

process and charge a single price to cover overhead.

The Producers & Buyers Co-op’s financial design of

managing purchases directly from institution to producer

worked well on paper and in practice. This foresight helped

ensure that all producers and processors were paid in full in a

timely manner, despite the co-op’s financial troubles and

dissolution.

Avoiding pitfalls

Several of the lessons learned from the Producers &

Buyers Co-op experience could apply to any cooperative:

raise sufficient capital before launching operations, hire an

experienced manager, provide ongoing training and don’t let

the co-op become identified as one member’s project.

One lesson that is more specifically applicable to local

food system co-ops is the cautionary tale about the differing

ways that hierarchal institutions operate and the way that

local producers and processors tend to do business. Be aware

of how each stakeholder is accustomed to operating —

everyone involved should be protected by the co-op insisting

upon signed contracts and money down when orders are

placed.

Sometimes the most important lessons are learned

through failure. It would have been easy for the multistakeholder co-op pioneers of the Producers & Buyers Co-op

to have quietly let their efforts fade from memory. But this

group truly was committed to rebuilding a sustainable, local

food system. The hard lessons they learned are offered here

in the hopes that other groups may apply these insights to

develop mutually satisfying, genuinely sustainable systems for

connecting local food to hospitals and schools. n

Co-op members Vic and Mary Price on their Wisconsin farm. One of the functions Producers & Buyers Co-op

did best was work as a coordinator among producers, processors, transporters and buyers.
Rural Cooperatives / January/February 2012 15

Legal Corner

Legislative, regulatory, court actions

in 2012 impact cooperatives

By Stephanie M. Smith, Esq.

Senior Legal Adviser, Cooperative

Programs, USDA Rural Development

stephanie.smith@wdc.usda.gov

ver-changing economic

and financial environments during the past

decade created major

challenges for many

cooperatives as they worked to

successfully maintain their business

operations. In response to these

changes, Congress sought to implement

various legislative measures to help

prevent the recurrence of some of the

conditions that contributed to the

economic downturn that rocked the

business world in recent years.

Legislation (particularly changes in

tax law) that may adversely impact the

profit margins of a traditional business

may represent a triple threat to

cooperatives and their members’

businesses.

It is imperative for cooperatives to

have a good grasp of decisions made in

2011 that may set a precedent for

future decisions. Listed below are some

highlights of legislative and regulatory

actions taken by Congress this past

year, as well as legal decisions made by

various U.S. courts, which either directly, or indirectly, impact cooperatives.

• February — The Senate passed

legislation to repeal expanded

reporting requirements which would

have made cooperatives submit a

Form 1099 to the U.S. Internal

Revenue Service (IRS) for non-credit

card transactions of $600 or more

with any vendor in a given year. The

House Ways and Means Committee

approved two bills that support the

repeal, and in April President Obama

signed H.R. 4 into law, repealing the

expansion of the Form 1099 reporting

requirements.

• March — Dean Foods Co. and the

U.S. Department of Justice (DOJ)

reached a settlement under which the

larger of two processing plants it

acquired from Foremost Farms USA

(a cooperative) in Wisconsin must be

divested because of the large share of

the fluid milk market it gave the

company. In the future, it must give

advance notice to DOJ of any plans to

acquire milk processing plants valued

at more than $3 million. While this

settlement did not directly impact

Foremost Farms or any other dairy

cooperative, the case was nonetheless

carefully monitored by co-ops and

others in the dairy industry.

• May — IRS Code Section 3402(t) was

put in place by the Tax Increase

Prevention and Reconciliation Act of

2005 to require, in part, federal, state

and local governments to withhold 3

percent when making payments for

property or services in amounts of

$10,000 or more.

• July — The IRS issued a new draft

Form 1120-C, U.S. Income Tax

Return for Cooperative Associations

and requested public comments.

Cooperatives should pay close

attention to this issuance since it may

include, in part, changes to how

patronage dividends and special deductions are treated for IRS purposes.

• August — The Commodity Futures

Trading Commission stepped up

regulatory efforts to implement Title

VII of the Dodd-Frank Act, which

regulates the over-the-counter (OTC)

derivatives’ market. Some farmerowned cooperatives use OTC

derivatives, also known as commodity

swaps, to hedge the commercial risk

of their own operations and to

provide customized risk management

tools to farmers and ranchers.

• September — The American Jobs Act

was proposed by President Obama to

spur hiring and economic growth

through various tax incentives for

employers. Also in September, the

Eastern Mushroom Marketing

Cooperative filed a petition for its

case to be reheard in the Third

Circuit Court (Court), which held

that defendant mushroom growers

were “not a proper agricultural

cooperative under the CapperVolstead Act because one of its

members was not technically a grower

of agricultural produce.” To date, the

court has not provided a decision on

this rehearing petition.

• October — The House approved H.R.

674, which would repeal the 3-percent withholding requirement for

payments to government contractors

(formerly proposed in May 2011).

• November — H.R. 674 passed in the

House and was sent to the Senate,

which added amendments that

include two new tax credits for

employers that hire military veterans.

• December — In the Fresh and Process

Potatoes Antitrust Litigation case, a

U.S. District Court judge concluded

that Capper-Volstead Act protections

do not apply to pre-production supply

control activities, such as acreage

reduction and production restrictions,

and ruled that a fact-specific inquiry

must be made as to whether

integrated growers qualify for

Capper-Volstead protections. n

E
By Carolyn Liebrand, Ag Economist

Cooperative Programs

USDA Rural Development

uccess in dairy policy

reform [means] working

together to get

something better than

before,” Randy

Mooney, chairman of the National Milk

Producers Federation (NMPF), said at

the organization’s annual meeting in

San Diego in November. One of

NMPF’s main goals this year was to

explain to its members and guests how

features of its Foundation for the

Future (FFTF) program — which calls

for major changes in the nation’s dairy

program — became included in the

proposed Dairy Security Act of 2011

(HR 3062).

Jerry Kozak, CEO and president of

NMPF, said he and the senior staff

spent part of the summer of 2011

touring the country and speaking

directly to farmers about dairy policy

reform, the FFTF program and why it

was developed by NMPF. The tour also

allowed NMPF staff to listen to

producers, hearing directly from the

people on the farm about where the

program might be improved, Kozak

told attendees at the meeting, which

NMPF holds jointly along with the

National Dairy Promotion and

Research Board and United Dairy

Industry Association.

“Best solution to

what isn’t working”

Congressmen Collin Peterson of

Minnesota and Mike Simpson of Idaho

were praised by Mooney for their

leadership in co-sponsoring the

legislation. Representative Peterson said

via a video presentation that he believes

the proposed Act is the “best solution

to what isn’t working.”

The bill before the subcommittee on

Livestock, Dairy, and Poultry gives

individual producers the option to

participate in the dairy producer

margin-protection plan, along with the

dairy market stabilization program. (In

NMPF’s original plan, dairy producer

participation was mandatory). The

proposed legislation also requires

USDA to hold a national hearing on

the method of setting Class III milk

price competitively, with a new feature

of reverting to the existing order terms,

rather than terminating the order

completely, in cases where producers do

not adopt the proposed changes to the

order.

This legislation, if approved by

Congress, would replace the current

dairy programs: the Milk Income Loss

Contract Program (MILC) and the

16 January/February 2012 / Rural Cooperatives

“S

Milk producers tackle dairy policy, other key issues at annual meeting

CHANGING

COURSE
Rural Cooperatives / January/February 2012 17

Dairy Product Price Support Program

(DPPSP).

Producing for the market

Responding to questions from the

floor, NMPF staff explained that

eliminating the DPPSP may help dairy

processors become more attuned to

producing products the market desires.

Other questions regarded how effective

the FFTF program will be if participation is not mandatory. NMPF staff

responded that analysis by the Food and

Agricultural Policy Research Institute

(FAPRI) indicated that if even 50

percent of the nation’s milk volume is

enrolled, there would be positive

results. The Congressional Budget

Office (CBO) has projected that

producers accounting for 60 percent of

the milk supply will participate in the

program.

NMPF also reported on its work on

other issues that impact dairy

producers, including somatic cell count

standards, drug residues in dairy beef,

immigration policy and tax issues.

While NMPF pushed for a gradual

reduction in the maximum threshold of

allowable somatic cell counts from the

current 750,000 to 400,000, the

National Conference of Interstate Milk

Shipments (NCIMS) failed by one vote

to approve such a measure.

However, Mooney noted that the

European Union has been pushing the

United States to certify that its dairy

exports meet a 400,000 cell-count limit

on individual farms — implying that

U.S. producers may be compelled to

meet that somatic cell standard eventually, regardless of the NCIMS vote.

“An ounce of prevention...”

Kozak highlighted the efforts of

NMPF in addressing the issue of drug

residues in the tissues of culled dairy

cows. NMPF provides education to

dairy producers on the best practices for

using antibiotics and other cattle drugs,

including a free manual, intended to

help producers avoid drug residues and

other problems.

However, the U.S. Food and Drug

Administration (FDA), noticing that a

significant portion of residue violations

are being found in culled dairy animals,

is developing a residue-screening

program aimed at the dairy industry.

Mooney outlined NMPF’s concerns

with FDA’s proposed screening

program, including the legality of

taking samples from testing labs and the

potential lack of anonymity for

producers.

Mooney and Kozak reported that

NMPF also worked last year to ensure

that milk producers can obtain needed

agricultural labor. Other U.S. policies

Producers listen intently (facing page) during the “town hall” meeting, always one of the highlights of the

annual meeting of the National Milk Producers Federation (NMPF). Above: A panel of NMPF officials field

questions during the town hall session. From left are: Jaime Castaneda, staff senior vice president, strategic

initiatives and trade policy; Dana Brooks, senior vice president, government relations; Jerry Kozak, president

and CEO; Jim Tillison, senior vice president, marketing and economic research/COO of Cooperatives Working

Together; and Randy Mooney, board chairman. Photos courtesy NMPF
that NMPF tackled on behalf of its

members included:

• Overturning a new tax reporting

requirement, known as Internal

Revenue Service (IRS) form 1099,

which would have increased farmers’

paperwork burden;

• Minimizing the impact of the estate

tax on the farming community; and

• Obtaining an exemption from the

U.S. Environmental Protection

Agency’s (EPA) Spill Prevention,

Control, and Countermeasure

(SPCC) rules for farmers’ bulk milk

storage equipment.

Efforts by NMPF in the area of

long-term trade policies sought by dairy

producers came to fruition with: the

passage of three Free Trade Agreements

(with Columbia, Panama and South

Korea); allowing greater flexibility in

truck traffic flow between the United

States and Mexico (the existing rules

were causing a negative impact on U.S.

cheese exports to Mexico); and the

application of the national dairy checkoff program for imported products,

under which importers of dairy

products will be assessed 7.5 cents per

hundredweight (or the equivalent) to

help fund promotion and research, as

specified in the 2008 Farm Bill.

Officer election

Several new officers were elected,

while many were re-elected to their

current or new positions. Mooney, from

Rogersville, Mo. (representing Dairy

Farmers of America), was re-elected as

NMPF chairman, a position he has held

since 2008. Ken Nobis, from St. John,

Mich. (representing Michigan Milk

Producers Association), was elected first

vice chairman. Nobis had been serving

as NMPF treasurer. Cornell Kasbergen,

from Tulare, Calif. (representing Land

O’ Lakes Inc.), was re-elected as second

vice chairman. Mike McCloskey, from

Fair Oaks, Ind. (representing Select

Milk Producers Inc.), was elected as

third vice chairman; he had been

serving as assistant treasurer. Dave

Fuhrmann, from Baraboo, Wis.

(representing Foremost Farms USA)

was re-elected as board secretary.

Newly elected officers include:

Treasurer Pete Kappelman, from Two

Rivers, Wis. (representing Land O’

Lakes Inc.); Assistant Treasurer Adrian

Boer, from Jerome, Idaho (representing

the Northwest Dairy Association); and

Assistant Secretary Doug Nuttelman,

from Stromsburg, Neb. (representing

DFA).

Top awards

Long-time NMPF board member

and First Vice Chairman Clyde E.

Rutherford was inducted into the

NMPF Leadership Hall of Fame.

Rutherford was instrumental in helping

to create the Cooperatives Working

Together (CWT) program, which

continues to operate through 2013 with

70 percent of the nation’s milk supply

committed to it. Rutherford has served

on the boards of a number of co-ops

and dairy organizations, including

Dairylea Cooperative Inc., where he has

been president since 1978, and DFA,

among many others.

Foremost Farms USA’s extra sharp

cheddar cheese was awarded the Grand

Champion Cheese award at the 2011

NMPF cheese competition. The

cheese, made in Marshfield, Wis.,

received a score of 99.8 from the

judges. The Foremost Farms Cheddar

was selected from among 149 entries to

this year’s contest.

The 2011 NMPF Communicator of

the Year award was presented to

Frances Lechner of United Dairymen

of Arizona (UDA), in Tempe, Ariz. In

addition to directing UDA’s

communications, Lechner also serves as

the cooperative’s member relations

manager, oversees its Young Cooperator

program and serves on NMPF's

scholarship committee. n

18 January/February 2012 / Rural Cooperatives

An ice cream break in the exhibit hall provided “cool refreshments” between meeting

sessions. Below: Producers ask questions during the town hall meeting.
ichard L. Cotta, who

recently retired as

president and CEO of

California Dairies Inc.

(CDI), has been a

major force in the California dairy

industry for more than four decades.

During a career of service to the dairy

industry, Cotta has been involved in

virtually all aspects of the business,

from dairy genetics to dairy processing

and “dairy politics.”

Acknowledging his broad expertise,

Cotta has been called to testify on key

industry issues before the U.S.

Congress and the California legislature

on behalf of the dairy industry. At the

request of the U.S. Secretary of

Agriculture, he has participated in

world trade missions to open more

overseas dairy markets for U.S.

producers.

In 1980, Cotta was named to his first

real leadership role: CEO of United

Dairymen of California, a producer

trade organization. Previously, he had

worked as a sire analyst for American

Breeders Service, a classifier for the

Holstein Association and for several

years was a dairy consultant on feeding,

breeding and management systems.

When United Dairymen merged to

form Western United Dairymen

(California’s largest producer trade

organization) in 1984, Cotta was the

choice for CEO. He held that position

until 1993, when he became general

manager of San Joaquin Valley

Dairymen, a dairy processing and

marketing co-op.

In 1999, San Joaquin Valley

Dairymen merged with Danish

Creamery and California Milk

Producers to form CDI. Cotta was

named the co-op’s senior vice president

of producer affairs and government

relations, a role he held until he was

selected as CEO in 2007. Under his

leadership as CEO, the co-op’s profits

have reached record levels.

Cotta graduated, with honors, from

California State Polytechnic UniversitySan Luis Obispo with a degree in dairy

husbandry. He currently sits on the

boards of the University of CaliforniaDavis Dean’s Advisory Council,

California State University Chancellors

Ag Advisory Council, Sacred Heart

School Foundation and the Innovation

Center for U.S. Dairy. In addition, he

sits on the Globalization Operating

Committee for U.S. Dairy Export

Council.

Although retiring from the dairy

industry, Cotta will remain active in

agriculture as owner/operator of Cotta

Farms and as a partner in Terra Bella

Farms. Both are almond farming

operations.

Cotta shares some of the insights he

gained during his career in the

following Q&A.

Question: What is the most important

thing you learned about building a

strong working relationship with a coop board?

Cotta: “The key to building a strong

relationship with any board is trust,

transparency and full disclosure. All

companies face the good, bad and the

ugly at some point. Being open and

straight forward with the board about

how we got there and how we will solve

the problem is the key and helps build

trust and confidence.”

Q. What is the most important thing

you learned about meeting the needs

and expectations of co-op members?

Cotta: “Probably the biggest hurdle to

overcome is unrealistic expectations by

cooperative members. A co-op is no

different in its daily operations than any

other company. We compete at every

segment of the industry. How one

measures and evaluates expectations,

and how that is presented to members,

is critical. Return on investment is but

one of the measures to reasonable

expectations.”

Q. What was the co-op’s greatest

accomplishment during your tenure —

the one you are proudest of?

Cotta: “It is difficult to limit this to one

item because the end results overlap

each other. The movement away from a

commodity-driven business to one of

ever-increasing “value-added” products

was a major accomplishment. Our

value-added gains have increased by

several million dollars per year.

“Our return on investment has been

a great story. Over the past three to

four years, CDI has consistently

Rural Cooperatives / January/February 2012 19

In the Spotlight

Richard Cotta: a life devoted to dairy and co-ops

R

continued on page 47

Richard Cotta
20 January/February 2012 / Rural Cooperatives

By Thomas W. Gray, Ph.D.

Rural Sociologist

USDA Rural Development

Cooperative Programs

Editor’s note: The author welcomes

feedback from readers on this article. Their

thoughts may be used in future articles and

can be e-mailed to:Thomas.Gray@usda.gov.

Supportive research is referenced by author’s

name and university affiliation. This article

draws heavily upon “Is Relationship

Marketing an Alternative to the

Corporatization of Organics? A Case

Study of OFARM,” by Amy Guptill and

Richard Welsh.

uring the past several

decades, the number of

U.S. farms has declined

while the size of

remaining farms

(measured by acreage and volume of

output) has increased, although there

has been an increase in number of the

very smallest farms. A similar trend has

occurred in the U.S. industrial sector,

with small- to mid-size firms declining

in numbers while much larger, often

global, firms have grown in influence

and in proportion of total market share.

This is particularly the case in the

agribusiness sector, where — through a

process of vertical and horizontal

integration and the formation of joint

ventures and strategic alliances — large

agribusiness firms have come to

dominate the sourcing, processing,

distribution and selling of many

agricultural products. Such market

positions afford these very large firms

tremendous market power relative to

mid-size, often family-run, farms.

Mid-size farms are caught in a

market structure (i.e., few large and

many small actors) that results in their

purchasing of high cost, industrially

provided inputs — feed, seed, and

fertilizer — while selling their

production at less-than-sustainable

prices. This is generally referred to as

the cost-price squeeze.

Individual farmers lack power

Individual farmers essentially end up

with little or no power in this context.

One of the most precious values U.S.

farmers have held historically is

autonomy. Little autonomy exists

within such market structures for

owners of family-sized farms. Survival is

precarious, and many people leave

farming because of the low or negative

margins.

These processes have led to the often

repeated question of how to sustain a

family-sized scale of production when

farmers are confronted with pressures

from large, global agribusiness firms. If

no response is found, it means more

farms will be lost, with associated,

negative impacts on rural development.

Research studies have shown repeatedly

that “family-sized agriculture,” with a

mixture of larger farms, has the greatest

benefit (including multiplier effects) on

agriculturally dependent counties (Rich

Welsh, Clarkson University).

The late Tom Lyson of Cornell

University suggested that in order to

escape the “cost-price squeeze” that

most small- to mid-size farmers face, it

may be necessary to build alternative

forms of production and marketing that

D

Organic federation seen as a

for family farm survival, regional competitiveness

strategy
Rural Cooperatives / January/February 2012 21

are beyond the influence of

conglomerate agribusiness firms.

Alternatives in production

Organic foods have shown promise

for smaller producers. The qualities of

organics are not as easily conventionalized into commodities (i.e., mass

produced, homogenous products).

Costs can be contained with less, or

even no, reliance on purchased inputs

with a high “carbon footprint.”

Demand for organic foods has been

climbing steadily, resulting in relatively

high prices for organically produced

farm products. These price premiums

are often sufficient to help sustain

family-sized production units.

However, organics alone cannot be

the whole story for protecting family

farm structures. Julie Guthman

(University of California-Santa Cruz)

suggests that traditional agribusinesses

are getting involved in “high-value,

high-turnover” organics, including

postharvest processing, distribution and

retailing. Amy Guptill (State University

of New York-Brockport) and Rick

Welsh (Clarkson University) argue that

these firms often work to compromise

organic standards (e.g., not rotating

crops, limiting free range and grass

grazing). The result is that organic

production is actually being re-fitted to

conventional commodity systems. In

this process, organic farmers often lose

control of their product (and its value)

as they are reduced to lesser

participants in the market. To protect

family-sized farms, not only alternative

production, but alternative business

organizations may be necessary.

OFARM offers survival

strategy for farms and regions

In their classic work: The Second

Industrial Divide: Possibilities for

Prosperity, Michael Piore and Charles

Sabel identify small manufacturing

firms that have survived in the context

of large global corporations. They have

succeeded by creating products that are

high in quality, craft oriented, smallbatch produced and customized for

particular consumer interests.

Such products have emerged in

furniture, luxury shoes, motorbikes,

textiles, specialty steel and precision

machines tools, to name a few. These

products are often produced in

networks of subcontracting and

specialized information sharing.

Competition is built around product

quality more than price.

Cooperatives have had a long history

of being able to respond to farmers’

needs to gain higher prices and more

favorable terms of trade and power in

the market place. Farmers marketing

together are often able to realize better

prices and terms of trade through

cooperative organization.

Guptill and Welsh suggest that

OFARM (Organic Farmers’ Agency for

Relationship Marketing) addresses some

of these traditional strengths of

cooperatives. OFARM also fits Piore

and Sabel’s profile of a survivable firm

(e.g., subcontracting and specialized

information sharing) in a context of

powerful global conglomerates.

Formed in 2001, OFARM is a

federation of six member cooperatives

and one nonprofit firm. Members are:

Charlie Johnson (left), owner of Johnson Farms in Madison, S.D., discusses his harvesting plans with Tim Ennis, a marketer with NFOrganics. “If

Michael Jordon has an agent, I should be able to have one too when it comes to marketing,” says Johnson. NFOrganics is a nonprofit that works

with five cooperatives that formed OFARM as a federated co-op. It has members in 18 states and Canada. Photos courtesy OFARM


24 January/February 2012 / Rural Cooperatives

Buckwheat Growers Association of

Minnesota, Kansas Organic Producers

Association, Midwest Organic Farmers

Co-op, Montana Organic Producers

Co-op, Organic Bean, Wisconsin

Organic Marketing Alliance, and

NFOrganics (the nonprofit).

According to Guptill and Welsh,

OFARM is the largest single organized

block of producers growing organic

field crops in North America, covering

18 states and the province of Ontario.

Like the Piore and Sable firms, it is

specialized in facilitating the

production, not of motorbikes and

luxury shoes, but in specialty food

products.

Founding members say OFARM was

formed to prevent conventionalization

of organics and the falling prices and

loss of control that typically occur when

multinationals enter a new market

segment. Among its several missions,

the federation seeks to provide a forum

for: (1) the exchange of pricing and

marketing information; (2) the

education of policymakers; (3)

facilitation of a bargaining function for

member products; (4) assistance to

farmers in the adoption of new crops

and agronomic practices, particularly in

reference to crop rotations.

As small- to mid-size enterprises

(SMEs), OFARM and its seven member

firms fit Piore and Sabel’s conception of

SMEs. They are “information dense”

organizations that pool resources for

research and development and

information sharing while exercising

influence on the market. In their

processes of operation, Piore and Sabel

maintain, these kinds of firms support

innovation and enhance firm and

regional competitiveness.

OFARM’s strength

The information services that

OFARM provides — for market prices,

weather data and supply and quality of

product across the country — help

facilitate a much stronger market

position for sellers. “Through OFARM,

we actually do a supply-and-demand

situation,” with suppliers using OFARM

market intelligence and technical

assistance in the writing of contracts (as

cited by Guptill and Welsh).

In addition to comprehensive

marketing services, OFARM provides

such ancillary services as legal counsel,

office support and conference calling

help as well. As a result of this market

rationalization, shipping generally

occurs to closer locations in a manner

that favors higher prices for farmers.

Gift and a challenge

The booming demand for organic

products has been both a gift and a

challenge to OFARM and its members.

It facilitates trust and collaboration

among members by setting a floor price

that is generally profitable. The solidity

of the price facilitates mentorship,

mutual support and joint promotion.

However, the seemingly

inexhaustible demand for organics also

means farmers have many choices,

including selling to large corporations.

OFARM membership involves a

marketing charge for its services. Deeppocketed corporations can at times

compete by paying a higher price

without having to make a marketingdeduction charge. They simply take

possession of the product by purchasing

it. This can put the federation and its

member organizations at a competitive

disadvantage.

However, multinational firms’ prices

often come with production contract

agreements that place the greatest risks

on farmers and that minimize farmer

control and influence on their own

production. Farmer loyalty (and farm

survival) can be a challenge, if members

accept these short-term prices.

Conclusion

OFARM was organized to help

maintain family-farm-scale production

in the face of large corporate market

concentration. Large corporations may

at times offer better prices to break a

cooperative advantage. Once an

advantaged market position is attained,

these prices typically are dropped to the

lowest point possible, further pushing

farm consolidation.

What large corporations cannot offer

is member control and democratic

governance. OFARM helps empower its

member organizations and member

farmers by facilitating scale, assembly,

marketing and purchasing functions in

order to improve the viability of small

local entrepreneurs.

Cooperatives, as do few other

businesses, build institutions up from

local relationships and maintain them in

their local communities. Ultimately,

OFARM provides a democratization

function by providing an offset to

multinational market concentration

while seeking to keep family farmers in

business. As an information-dense SME

that pools resources for research and

development, it is also the kind of firm

that supports local innovation and

regional competitiveness. n

This Buckwheat Growers Association of Minnesota mill in Wadena, Minn., not only performs

grinding, it also cleans and de-hulls buckwheat and other grain crops. The co-op has rail-side

access.
Rural Cooperatives / January/February 2012 25

James Wadsworth, Ag Economist

USDA Cooperative Programs

James.wadsworth@wdc.usda.gov

USDA study found

that 85 percent of

farmer cooperatives

provide co-op

education to their

members, directors, managers,

employees or the general public. The

type of education efforts vary, ranging

from publications and websites for

members to workshops and training

sessions for directors. The primary

audiences for these efforts are directors,

employees and management.

Not surprising, larger cooperatives

tend to conduct more co-op education

than do smaller cooperatives. Education

efforts of large co-ops most often target

their directors, more so than with

smaller co-ops.

The co-ops surveyed indicated that

that the audiences with the biggest need

for co-op education (in order) are: the

general public, members, employees,

directors and management. However,

while the general public is most lacking

in co-op knowledge, most co-ops see

education for directors, employees and

members as the most critical need.

Cooperative education efforts are

most often conducted by co-op staff

members, followed by education

programs of cooperative councils or

other co-op organizations that offer

workshops.

Looking at farmer co-ops by type,

more than 80 percent of grain and

oilseed, farm supply, service and cotton

and cotton gin cooperatives provide coop education. More than 70 percent of

dairy, fruit, vegetable and nut cooperatives provide education.

Cooperative educational materials

and programs used by co-ops most

often come from USDA, cooperative

councils and other cooperatives. About

76 percent of co-ops said that there are

sufficient educational resources

available, while 17 percent did not feel

there are enough and 8 percent said

they “didn’t know.”

Co-op finance is the No. 1 education

topic for directors, followed by tax and

legal issues, leadership, governance,

board meeting functions and “cooperative basics.”

The full study (available from

USDA) contains more information on

farmer co-op educational activities and

shows breakouts by co-op type, size and

location.

Key questions

The general public and members are

the two audiences deemed by

cooperatives to need co-op education

the most, according to the survey, but

they are not the primary audiences

being focused on by co-ops. Why not,

and what can be done to motivate coops to focus more effort on general

public and member education? What

educational initiatives or materials

should cooperatives use to reach these

audiences?

While co-op education is being

broadly conducted, are these

educational activities adequate to

properly educate the target audiences?

Are the educational delivery methods

being used sufficient to reach all

audiences?

Are cooperatives using internal staff

to develop educational materials, or

using existing educational resources?

Why aren’t some types of cooperatives

using cooperative council education

programs more?

While a majority of cooperatives feel

that there are enough educational

resources available, are they meeting all

education needs, and are some

cooperatives unaware of their

availability from USDA and others?

What other kinds of educational

resources need to be developed?

Do cooperatives feel that educating

the general public is “beyond their

means or ability,” and therefore expect

others to take on that responsibility?

What role do they feel they can play?

Are director education efforts

sufficient? Are cooperatives regularly

A

Study raises important questions

about co-op education efforts

USDA graphic by Stephen Thompson
26 January/February 2012 / Rural Cooperatives

evaluating their director educational

needs?

These are questions that co-ops and

organizations that support co-ops need

to weigh carefully and to develop plans

for addressing.

Recommendations

from the study

More co-ops should become

involved in cooperative education. They

need to ensure that their efforts address

pertinent topics for directors (and other

audiences). Cooperatives need to better

educate members by providing more

materials and programs or by holding

special events. They need to actively

search for good education materials and

programs.

Co-ops need to reach out to

educators when they feel gaps exist in

materials and programs, and to work

with educators to fill those gaps. At the

same time, educators need to effectively

promote their materials and programs

to ensure that cooperatives are aware of

and have access to them.

Finally, further research should be

conducted to gain a better

understanding of the content of

cooperatives’ education programs in

order to develop better targeted

education materials and programs. n

New publication looks at

education needs

Education Initiatives of

Farmer Cooperatives

(Research Report 223)

examines how farmer

cooperatives promote co-op

education for members,

directors, management,

employees and the general

public. It addresses whether

co-ops provide education,

the audiences they reach,

the delivery methods they

use, the topics covered,

where they get their

educational resources,

whether they feel there are

enough resources available,

and what topics are most

important for educating

directors.

The data used for the

study came directly from

farmer cooperatives. Of the

2,389 cooperatives surveyed, 31 percent, or 751 coops, responded. To order a

copy of the report, please

send an e-mail to:

coopinfo@wdc. usda.gov, or

call (202) 720-8381.

Co-ops providing education 84.7%

Percent of cooperatives educating different

audiences / audiences perceived to need

education the most

Directors 82.2% / 2.9 rating (1 = least important, 5 = most)

Employees 70.0% / 3.0

Management 66.3% / 2.6

Members 34.9% / 3.3

General Public 14.8% / 3.4

Delivery methods

Internally with co-op staff 64.3%

Externally through a co-op council or

organization putting on a Workshop 59.8%

Internally through use of publications & materials 38.5%

Attendance at a state or national conference

where education is provided 34.4%

Internally using a consultant 30.2%

Joint educational meeting with another co-op 15.4%

Internally through an online course 7.6%

Externally through an online course 6.3%

Enough educational resources 75.6% yes, 16.8% no, 7.6% don’t know

Topics Directors Most Need

Finance 3.4 rating (1 = least, 5 = most)

Tax and legal issues 3.2

Leadership 3.1

Governance 3.0

Board meeting functions 2.9

Co-op basics (what they are, principles,

roles, practices, etc.) 2.8

Financial

Average total sales $86.7 million (co-ops with education programs);

$31.5 million (co-ops without education

programs).

Return on equity 17.3% (co-ops with education programs);

14.4 % (co-ops without education programs).

*Full report contains more data (with breakouts by type, size, and location).

Select Education Initiative Statistics*
Rural Cooperatives / January/February 2012 27

By Bruce Reynolds, Ag Economist

USDA Rural Development

Cooperative Programs

e-mail: Bruce.Reynolds@wdc.usda.gov

he retirement of the

baby-boom generation

will have major

economic effects in the

United States, Canada

and many other nations. Among these

effects will be high turnover rates in

ownership — or closure — of many

small businesses.

When the present owners wish to

retire, the most readily available buyers

are often local or regional competitors.

Yet, many businesses acquired by

competitors will be closed once they

change hands. A new owner may buy a

business simply to prevent a competitor

from operating it. This closure outcome

can often be avoided with succession

planning that includes employees or

others potential owners. The challenge

of sustaining small, mostly familyowned businesses is confronting many

countries.

Canadian cooperative organizations

hosted a conference on business

succession and employee ownership in

Quebec City last October. (see conference highlights at: www.cooperation

2011.coop). The conference proved to

be an extraordinary event, both in its

international scope and in the expertise

that speakers and audience brought to

the discussion of issues surrounding the

ways to transition business ownership to

employees.

Quebec City was an appropriate

location for such a conference. The

province of Quebec has an exemplary

track record for cooperative

development, as noted in the

March/April 2001 issue of Rural

Cooperatives. Quebec is home to more

than 2,700 cooperatives and has

pioneered the development of the

multi-stakeholder co-op model.

Desjardins, a credit union, has 5.8

million members and is a leading

financier of cooperative development

projects in the province. Canada has

about 615 worker cooperatives, of

which 394 are in Quebec.

Canadian research findings

Quebec’s Ministry of Economic

Development, Innovation and

Exporting has done a survey on

ownership succession of small

businesses in the province. It is

T

Keeping the sign on

USDA graphic by Stephen Thompson

Canadian conference promotes employee

ownership as alternative to business closures
28 January/February 2012 / Rural Cooperatives

projected that about 55,000 Quebec

business owners will retire from 2010 to

2018, 50 percent of whom have an

inadequate or non-existent plan for the

succession of their businesses. The age

of employees is an important factor in

successful business transfers, researchers

have found. Successful transfers

frequently have a core group of

employees between the ages of 40 and

55. When the bulk of employees are

over 55, there is an insufficient time

horizon to finance ownership transfers.

Transfer of ownership when a large

percentage of employees are in the 25-

35 age range can also be difficult, due

to the lack of commitment and limited

work experience often found in that age

group. However, people in their 20s are

very active in start-ups of worker

cooperatives, especially in businesses

that appeal to a younger demographic

group, such as bicycle shops.

The Canadian Worker Co-operative

Federation, a co-host of the conference,

is actively involved in the development

of cooperatives and is also focusing on

saving businesses through succession

planning (for more information on this

federation, visit: www.canadian

worker.coop). Conference speakers

cited a study in Canada that reports an

estimated 200,000 small businesses (not

self-employed entities) will be for sale

by 2020. Several Canadian government

and trade association officials voiced

their concern over the impending

decline of many rural communities

from closures of small businesses.

Farms and ranches have a similar

process of succession planning,

although in contrast to small businesses,

they more often stay in production

either with new owners or in rental

contracts. Nevertheless, retirements of

both business owners and farmers are

depopulating many rural communities.

The negative impacts on local

economies from business and

population decline are a problem that

both Canada and the United States

must confront.

International perspectives

Speakers from the United States,

Italy, France and Argentina also made

presentations at the conference. Worker

ownership in the United States is

frequently organized as an employee

stock ownership plan (ESOP), which is

a distinct business model in the

international context. Don Jamison of

the Vermont Employee Ownership

Center gave a presentation about

ESOPs, during which he noted that the

tax advantages for ESOPs have

contributed to more than 11,000 U.S.

businesses operating with employee

owners.

By Melissa Hoover, Executive Director

U.S. Federation of Worker Cooperatives

e-mail: melissa@usworker.coop

Although a relatively small slice of the cooperative world,

worker co-ops in the United States and Canada (and their coop “umbrella” organizations and federations) have been

growing steadily in recent years. Now they’ve organized on a

continental scale with the formation of a North American

regional organization of worker cooperatives.

CICOPA (the International Organization of Industrial,

Artisanal, Worker Cooperatives) North America was formed in

Quebec this past October during a nearly week-long series of

conferences, jointly organized by U.S. and Canadian worker

cooperative organizations. The conferences, attended by

several hundred worker cooperators (including some from

around the world), were designed to address a broad range of

worker co-op development issues.

The Quebec City location of the conferences helped to

attract attendance by members of all of the Quebec-based

worker co-op federations. The event marked the forging of a

closer relationship between English and French Canadian

worker cooperative groups — an important development for

Canadian cooperative movement-building. For the first time, Le

Réseau de la Coopération du Travail du Québec (the general

worker cooperative network for Quebec), La Fédération

Québécoise des Coopératives Forestières (a forestry worker

cooperative federation), and Fédération des Coopératives des

Paramédics du Québec (a paramedic/ambulance worker

cooperative federation) joined the Canadian Worker

Cooperative Federation (CWCF).

Attendees from the United States included the board

members and staff of the United States Federation of Worker

Cooperatives (USFWC), staff from Ohio and Vermont employeeownership centers, and both longtime and new worker

cooperative developers and supporters. Conference planners

included USFWC and the North American Students of

Cooperation (NASCO) from the United States, and Canadian

Worker Cooperative Federation and Le Reseau from Canada.

International Support

International co-op leaders in attendance included: José

Orbaiceta, president of the Federation of Worker Co-ops of

Argentina (FECOOTRA); Alberto Zevi, president of the

Continental movement: worker co-ops join forces in Quebec
Rural Cooperatives / January/February 2012 29

The application of the worker

cooperative model for ownership

succession in the United States was

described in a case study by Roy

Messing, director of a Rural Cooperative Development Center that is

affiliated with the Ohio Employee

Ownership Center. He also gave a

presentation on organizational steps and

resources for transitioning closely held

businesses to employee ownership,

pointing out the key roles for business

owners’ trusted advisors in making such

transitions feasible.

According to Messing, the target

audience for how to plan business

successions to workers should not only

be retiring owners but ought to include

the accountants and lawyers who serve

as trusted advisors to small businesses.

By informing such advisors about the

process of transitioning businesses to

employee ownership and the benefits to

the community of sustaining the

operations of companies after their

primary owners have retired, more

transitions will be facilitated.

Worker co-ops popular in Italy

There are about 20,000 worker

cooperatives with a combined

membership of about 700,000 workerowners in Italy, with the Emilia

Romagna region being a major center

for these co-ops. Most of the worker

cooperatives were organized as start-up

businesses, whereas the U.S. experience

with employee ownership has largely

served as a strategy to keep businesses

in operation. Alberto Zevi, president of

the Legacoop Education Center, gave a

couple of presentations about worker

cooperatives, including a case study of

succession of a family business to

employee ownership.

Zevi emphasized the lack of

succession planning as a major cause of

closures of small businesses in Italy. He

advocates for the adoption of

“employee-share ownership plans,”

which are similar to employee stock

purchase plans in the United States.

Such plans are the start of a gradual

process of ownership transfer, reducing

the burden of financing a buy-out all at

once.

France promoting

worker co-ops

The perspective from France was

presented by Patrick Lenancker,

president of the Confederation

Generale des Societies Cooperatives et

Participatives. Similar to the case study

presented by Roy Messing, he discussed

examples of forming worker

cooperatives in France that include the

soon-to-retire business owners as co-op

members for at least a few years while

Legacoop Education Center, Italy; Patrick Lenancker, president

of the National Confederation of Worker Co-ops (CG Scop),

France; Mikel Lezamiz, director of Co-operative Dissemination,

Mondragon, Spain; Bruno Roelants, secretary general of the

International Organization of Industrial, Artisanal and Service

Producers’ Cooperatives (CICOPA) in Belgium; and Félice

Scalvini, co-president of Cooperatives Europe and vicepresident of International Co-operative Alliance (ICA), Italy.

The international guests shared their enthusiasm for the

work of the North American worker cooperatives, as well as

stories and lessons from cooperative organizing in their

countries.

U.S. Federation Board President Rebecca Kemble of Union

Cab Cooperative of Madison, Wis., was elected president of

CICOPA North America. The organization’s first governing body

was also selected, which drafted bylaws for the fledgling

entity. Kemble, representing USFWC, Alain Bridault of the

Canadian Worker Cooperative Federation, and the presidents

of the three Quebec worker cooperative federations, jointly

signed the “Quebec Declaration,” pledging their commitment

to work together.

The declaration notes that worker cooperatives are

“enterprises that are owned and controlled by their workers.

Their purpose is to provide their member-owners with a work

environment which facilitates their professional and human

development, and provides the best wages and benefits

possible within the capacity of their businesses. Worker coops are run democratically on the principle of one person, one

vote.” The full text of document is posted online at:

www.canadianworker.coop/news.

South American counterpart formed

A parallel conference was held about the same time in

South America, resulting in the formation on Oct. 20 of CICOPA

Mercosur, a sub-regional organization of CICOPA. José

Orbaiceta, president of the Worker Cooperative Federation of

Argentina (FECOOTRA), was elected as its president. Mercosur

is an economic and political agreement among Argentina,

Brazil, Paraguay and Uruguay to pursue trade.

The North and South American sub-regional organizations

integrated to form CICOPA-Americas on Nov. 15 in Cancun,

Mexico. Through the two sub-regional entities, it is hoped that

more effective collaboration will occur throughout the

Americas to spread the development of worker co-ops. n

continued on page 46
Focus on: Sevier Farmers Co-op

By Chris Villines

Editor’s note: this article is slightly

condensed from the December 2011 issue of

Tennessee Cooperator, the member

publication of Tennessee Farmers

Cooperative. Villines is a communications

specialist with the co-op.

s the gateway to the

Great Smoky

Mountains, Sevier

County is known for its

variety of attractions

for out-of-towners and locals alike.

Judging by the overwhelming

turnout for the grand “reopening” of

Sevier Farmers Cooperative’s

beautifully renovated campus on

Saturday, Oct. 8, the co-op is another

must-see destination to add to the list.

More than 3,000 people took advantage

of comfortable, picture-perfect fall

weather to visit the co-op’s $3 million

redesign and expansion at its 17-acre

property.

“It’s been a great day,” said Sevier

Farmers Co-op General Manager

Anthony Hastings as he shook hands

with a group of attendees. “The

response of the community has just

been excellent, and the feedback we’ve

been receiving has been very positive.”

Current co-op director James

Gibson, surveying the activities from a

comfortable rocking chair near the

store’s entrance, said the new structure

— designed by Michael Brady Inc. and

built by Merit Construction, both based

in Knoxville — represents a marked

improvement for the farmer-owned

business, especially in visibility.

“You can see it from one end of

Sevierville to the other when you come

across the hill,” said Gibson, a member

of the co-op for 34 years. “Before, there

were people who didn’t even know

where the co-op was, and some of them

had been living here for a while. We

spent a year and a half coming up with

ideas on what to do here, and we’re

very happy with the results. It was a big

decision.”

Customer Patty Hanson of Wears

Valley and her sister, Debra Kelly of

Sevierville, gave the co-op high marks

as they admired its updated look.

“I love the stonework,” said Hanson,

who also brought along her husband,

Sven. “They picked a beautiful color to

paint the building, too. It just adds to

the charm of the entire area. It’s going

to be a lot of fun shopping here.”

Grand opening festivities included a

mix of product demonstrations, live

bluegrass music, antique tractor

displays, free food and soft drinks, kids’

activities, and door prizes. Visitors

enjoyed some 1,000 hot dogs, 62

pounds of beef, 40 pounds of popcorn,

and 30 gallons of ice cream served

during the event.

But the main attraction for attendees

was waiting inside — the co-op’s

sparkling new showroom, which

debuted with expanded business hours:

from 7:30 a.m. to 7:30 p.m., Monday

through Saturday.

“I’m at the co-op once, sometimes

twice, a week, and I couldn’t always get

there by the time they closed, so I

appreciate them staying open later,”

said part-time farmer Jeff Matthews of

Sevierville, who attended the event with

his wife, Karen. “And this place is just

wonderful now. They’ve done a great

job of modernizing everything and

offering more products. Today, you

have to stay up with the times to spark

people’s interests and keep them

coming through the doors or you will

lose business.”

Along with the co-op’s core farm

supply products, the showroom also

features expanded sections for equine

products, pet care, wild birds, outdoor

power equipment, apparel, gift items,

and a separate Lawn and Garden

Center that is connected to the main

building by a walkway under the

towering new entrance to the co-op’s

automotive center. Outdoors, lawn and

farm equipment and a complete line of

EZ-Go all-terrain and golf carts are

displayed, and an expanded fuel center

30 January/February 2012 / Rural Cooperatives

Renovated Tennessee supply co-op attracts

3,000 to ‘reopening’ event

A
offers both traditional and diesel fuels.

The exterior of the fertilizerblending facility has been redesigned to

include signage for the co-op’s seasonal

farmers market, which operates

Wednesdays and Saturdays from June

through October.

All told, the co-op now has 15,000

square feet of retail space, doubling its

previous size.

“We’ve added a lot of new products

that we haven’t been able to display

before,” said another Sevier Farmers

director, David Sarten. “It takes a lot of

work by a lot of people to make a

project like this come together. You can

see that the results were worth the wait.

We’re real pleased.”

Amelia Smith of South Knoxville,

who filled a shopping cart with

products for her sheep and chickens,

said she was “blown away” by the

upgraded store.

“They’ve got everything in here,”

said Smith, who was joined by daughter

Valerie and son Alex. “It’s like a

shopping mall. And outside, it has more

curb appeal with all of the flowers and

the nice-looking building.”

Since incorporating in March 1948,

the 2,750-member co-op has been a

constant source of products and services

for the area’s farmers. But with few fulltime farmers left in Sevier County,

Hastings said it was imperative that the

co-op adapt to the changing

demographic of its customers.

“Our goal is always going to be to

serve farmers, but to remain serving

them you have to offer other products

and services that are profitable,” he

explained. “Pet care is such a big

customer base, and the wild bird market

is an area of opportunity because it is

not really serviced in this community.

When you’re talking about feeding and

growing, no matter what the animal,

the co-op should be the expert.”

Foresight of strong leaders and

continuing support of people in

Sevierville and the surrounding

communities have allowed the co-op to

effectively serve a new generation of

farmers, homeowners, and everyday

consumers, said Hastings. And with its

fresh new look, expanded range of

products, and increased business hours,

he is hopeful that even more new

customers will be drawn to the co-op.

“More and more people are getting

back to their roots and embracing the

rural lifestyle,” he noted. “These are

people who work a full-time job, then

grow a garden or raise animals on a

part-time basis. And because of where

we’re located, we have a large market to

pull from — more than 100,000 people

stay in Sevier County each night. You

have to go beyond traditional co-op

hours to serve these customers. That’s

just reality. We’re starting a whole new

era for Sevier Farmers Co-op.” n

Rural Cooperatives / January/February 2012 31

Photo by Neil Crosby/Neil Studios
32 January/February 2012 / Rural Cooperatives

his series of articles has attempted to clarify the nature of the

cooperative business model in our free-market economy by explaining

the cooperative’s unique economic structure as an aggregate of

independent economic units (member-farms). Co-ops are organized

to achieve a common goal(s) using organization, governance, equity

financing, operations and economics that are unique to cooperatives. Cooperatives

have been shown to be pro-market, helping farmers gain market access and exercise

countervailing market power, and serving as a competitive yardstick for their industry.

This final article attempts to show how cooperatives relate to other market

participants through their roles in transaction governance, or “in aligning incentives

and crafting governance structures that are better attuned to their exchange needs”

(Williamson, 2002, p. 172).

As it has been in some of the previous articles, the dairy industry will again be used

as an example to demonstrate the role of the co-op. In marketing milk and milk

products, farmers and their cooperatives may engage in the following transaction

scenarios.

T

The Nature

of Cooperatives

By K. Charles Ling, Ag Economist

USDA Rural Development

Cooperative Programs

Editor’s note: This completes a

series of five articles that examine

the characteristics that make

agricultural cooperative businesses

unique and valuable in our economy.

The previous articles in the series

were: “What Cooperatives Are (and

Aren’t)” (November/December

2009 issue); “What Cooperatives

Do” (March/April 2010); “Dairy

Co-ops: What They Are and What

They Do” (March/April 2011); and

“How Co-ops Do It: Dairy Co-ops

Are a Prime Example of the

Economics of Co-op Marketing,”

(November/December 2011). Past

issues of Rural Cooperatives are

posted on the USDA Rural

Development website:

www.rurdev.usda.gov. Hard copies

can be obtained by e-mailing

requests to: coopinfo@wdc.usda.gov,

or by calling (202) 720-8381.

Roles in economizing transaction cost is a new

dimension for understanding value of co-ops

A worker prepares to pull milk samples

from co-op tankers. The samples are

checked before a tanker is cleared for

unloading. USDA photo by Lance Cheung
Rural Cooperatives / January/February 2012 33

Scenario I. — In a subsistence agricultural economy, farm

production in excess of family consumption may be sold off

farm. For example, a farm family may have one or two cows

for producing milk to satisfy the family’s food needs. If there

is surplus milk, it may be sold to neighbors (food safety

regulations permitting). The transactions are incidental to

subsistence farming, do not require specific assets, and are

primarily operations of a bygone era in the United States.

Scenario II. — Commercial milk production requires

substantial capital investment in specialized assets: milk cows;

barns, milking parlors and other buildings; machinery and

equipment; skilled labor and management, etc. Most of these

assets are specifically for producing milk and cannot be easily

employed for alternative uses. Furthermore, milk is a “flow”

product and is highly perishable. Its market is inherently

volatile due to daily, as well as seasonal, variations of milk

production and fluid milk demand. Supply and demand

variations are not coordinated.

Asset specificity, high product perishability and market

volatility make dairy farmers vulnerable when dealing with

milk buyers (usually dairy food processors). There are many

dairy farmers, but a small number of milk processors.

Processors also must deal with “asset specificity” — they own

dairy plants that are capital- and technology-intensive and

require large size to take advantage of the economies of scale.

But they are in a dominant bargaining position vis-a-vis

individual dairy farmers.

Farmers organize cooperatives to gain bargaining and

countervailing power. However, asset specificity still causes

uncertainty and poses hazards to the investment of the dairy

farmers and the processors if there is no credible contractual

safeguard. Contracts that spell out the terms of trade as legal

rules may be formulated in an effort to relieve the hazard.

But it is impossible to foresee and encompass all

contingencies in a contract, due to human limitations.

Relying on courts for relief is time-consuming and costly.

This is a scenario of transaction without credible contracting,

and the transaction does not have safeguards to relieve the

investment hazard and protect the investment.

Scenario III. — For a highly perishable commodity such

as milk, it is vitally important for both producers and

processors to work together to make sure milk flow is smooth

and without interruption. Producers need to have an assured

outlet for the milk once it is produced, while processors

require a steady supply of fresh milk to manufacture highquality dairy products and efficiently utilize plant capacity.

The dairy industry has evolved in such a way that many

dairy cooperatives and processors have developed a high

degree of bilateral dependency. Because dairy cooperatives

are organizations of farmers, they have the comparative

advantages of working closely with members for assembling

milk, providing field services and performing farm-related

functions (84 percent of U.S. dairy farmers marketed milk

through cooperatives in 2007, the year of USDA’s latest dairy

cooperatives survey).

Many processors rely on dairy cooperatives for milk

supplies that are tailored to their requirements for volume,

quality, composition and/or delivery schedule, so they can

focus their attention on processing and packaging dairy

products. Under such an arrangement, the transactions

between cooperatives and processors are assisted with what is

called credible contracting and supported by inter-firm

contractual safeguards. Instead of a set of legal rules with

court enforcement, the contract here is a framework or a set

of guidelines for interactions between the firms.

Discrepancies in performance are resolved through

amicable consultation or negotiations or by arbitration. The

court is only used as a last resort remedy.

Scenario IV. — Besides selling members’ milk to buyers

(processors), it may be necessary for a dairy cooperative to

forward-integrate into processing some or all of its members’

milk into various dairy products. Being marketers of

members’ milk, many cooperatives have to maintain plant

capacity to balance milk supply and manufacture reserve and

surplus milk into storable products. Otherwise, the surplus

milk will be at the mercy of the market and lead to depressed

milk prices. In order to generate higher margins from the

market for members’ milk, some cooperatives also may

choose to integrate into processing fluid products or specialty

dairy products, or further processing hard products. These

processing enterprises are under the cooperative’s hierarchical

administrative control.

Transaction governance structures

The roles of a cooperative in the above scenarios fit with

the analysis of the roles of a firm in transaction governance

that constitute the core of transaction-cost economics

(Williamson, 2010, 2007, 2005, and 2002).

In Scenario I, transactions between numerous suppliers

and buyers are for an undifferentiated product. The product

is made with a general purpose technology and does not

require assets that are specific for its production (asset

specificity is zero). Transaction governance is accomplished

through market competition. The transaction governance

mode is unassisted market.

When the product uses special purpose technology that

requires specific assets for its production, as described in

Scenario II, asset specificity is greater than zero. Asset

specificity causes uncertainty and poses hazards to the

investments of the suppliers and the buyers. Contracts that

are formulated as legal rules may provide no safeguards to

protect against investment hazards. Here, transaction

governance is still the market, and the transaction governance

mode is unrelieved contractual hazard.

In Scenario III, firms seek out reputable, trustworthy

counterparts to reduce investment hazards. Such transactions

give rise to bilateral dependencies, and the parties have
34 January/February 2012 / Rural Cooperatives

incentives to promote a continuous, long-term relationship,

thus safeguarding specific investments. Transactions are

supported by inter-firm contractual safeguards; the contract

here is a set of guidelines for mutual adaptations. The

transaction governance mode is credible contracting, a hybrid

mode between (unrelieved hazard) market and full

integration.

Successive, technologically separable stages are brought

under unified ownership and vertically integrated and

controlled in Scenario IV. In this scenario, the transaction

governance mode is hierarchical administrative control. This

mode occurs when a higher degree of asset specificity and

added uncertainty pose greater needs for cooperation in

mutual adaptations between successive stages.

The transaction governance modes are summarized in

table 1. Each mode in the table represents a generic mode of

governance, and each generic mode of governance embodies

its own internally consistent attributes of incentive intensity

(reward for effort), administrative control, and contract law

regime – and, therefore, has its own strengths and

weaknesses.

The governance structure Mode A is the unassisted

market. The governance structure Mode B is the market

where asset specificity exposes transacting parties to

uncertainties and, without safeguards, to unrelieved

contractual hazards to their investments. Mode C is where

the market is assisted with credible contracting. All successive

production stages are integrated under hierarchical control in

transaction governance Mode D.

The attributes of a market mode are high incentive

intensity, little administrative control, and a legal rules

contract regime. On the other hand, attributes of hierarchy

are low incentive intensity (where pricing for the successive

stages is cost-plus), considerable administrative control (by

fiat), and forbearance is the implicit contract law of internal

organization (the parties must resolve their differences

internally).

Transaction governance in practice

Dairy cooperatives may be classified into one of four

categories, based on the main marketing function(s) they

perform (table 2). Their transaction governance roles

depend on their lines of business.

All four categories of dairy cooperatives may have joint

ventures with other cooperatives or firms to process and

market certain dairy products. The cooperative supplies dairy

inputs and the partner(s) provide technical or marketing

know-how to the joint venture.

This is one way of bringing product processing under the

cooperative’s partial control. In this case, transaction

governance mode may be viewed to fall somewhere between

Mode C and Mode D.

Conclusions

Cooperatives are transaction governance structures, as are

non-cooperative firms. Depending on the lines of business of

a cooperative or other type of a firm, transactions can occur

under all possible governance modes. Cooperatives adapt to

various governance modes for economizing on the

transaction cost, just as other firms do.

For entering into credible contractual relationships with

buyers (processors), the cooperative’s functions of providing

market access and exercising countervailing power put its

members, collectively through the cooperative, on a relatively

more equal footing with buyers. This should make credible

contractual relationships between sellers and buyers more

attainable and stable.

Furthermore, as its members’ collective marketing agency,

A: Unassisted market 0 0 High Little Competitive norm

B: Unrelieved hazard >0 < > Legal rules contract regime

C: Hybrid (Credible contracting) >> < > Credible contracting

D: Hierarchy (Administrative) > > Low (Pricing Considerable Internal implicit contract law

for successive (by fiat) (Forbearance)

stages is

cost-plus)

Source: Adopted from Williamson, 2005, Figure 1: Simple Contractual Schema.

Note: ">" indicates a mode having a higher intensity of the particular attribute than the mode above it.

"<" indicates a mode having a lower intensity of the particular attribute than the mode above it.

Asset

specificity

Transaction

governance mode

Investment

hazard

safeguard

Table 1―Transaction governance modes and attributes

Incentive

intensity

Admin.

control

Contract

law regime
Rural Cooperatives / January/February 2012 35

the cooperative serves as a single transaction entity for

credible contracting with buyers. It also introduces order and

eliminates conflicts among members who would otherwise be

competing individually for customers. As a result, transaction

costs should be reduced.

A cooperative does not own the assets for producing the

milk (for example) that the cooperative markets for its

members; the assets and the investment hazard associated

with asset specificity belong to member-farms. By pooling

members’ milk in its marketing efforts, the cooperative, in

essence, also pools the investment hazard. As a result, each

member’s share of the hazard conceivably is less than if they

individually market their products. The fact that asset

specificity and the associated investment hazard belong to

individual members reaffirms the cooperative’s unique

economic structure of being an aggregate of its memberfarms.

These analyses show how cooperatives relate to other

market participants through their roles in transaction

governance and will hopefully broaden understanding of the

cooperative’s place in the market economy. Together with the

earlier work on cooperative basics, they should clarify the

nature of the cooperative.

References

• Ling, K. Charles. The Nature of the Cooperative: A Dairy Cooperative Case

Study, USDA Rural Development, Research Report 224. (Forthcoming)

• Williamson, Oliver E. “The Theory of the Firm as Governance Structure:

From Choice to Contract,” Journal of Economic Perspectives, Volume 16,

number 3, summer 2002, pp. 171-195.

• Williamson, Oliver E. “The Economics of Governance,” American

Economic Review, 95 (May 2005), 1-18.

• Williamson, Oliver E. “Transaction Cost Economics: An Introduction,”

Economic Discussion Papers, Discussion Paper No. 2007-3, March 1, 2007.

http://www.economics-ejournal.org/economics/discussionpapers/2007-3.

• Williamson, Oliver E. “Transaction Cost Economics: The Natural

Progression,” American Economic Review, 100 (June 2010): 673-690. (Prize

Lecture, the Sveriges Riksbank Prize in Economic Sciences in Memory of

Alfred Nobel 2009, Stockholm University, Sweden, December 8, 2009). n

Table 2―Category of dairy cooperatives by marketing function(s) and their transaction governance roles

Category of cooperatives

Bargaining

Niche marketing

Fluid processing

Diversified

Main function

Negotiate with milk buyers for

milk prices and terms of trade; a

few may operate milk handling

facilities but not milk plants.

Own or retain plant capacity to

process members’ milk into

specialty/niche products.

Own or retain plant capacity to

process members’ milk into fluid

products. May also process soft

and cultured products.

Perform bargaining and all or

most other marketing functions.

As a group, sold 53 percent of

milk to other handlers

(bargaining), while

manufactured the remaining 47

percent into various products.

Dimension

108 cooperatives (out of 155

U.S. total, or 70 percent).

Together handled 23 percent of

the 155.8 billion pounds U.S.

cooperative milk volume, but

few handled more than 1 billion

pounds of milk each.

19 cooperatives. Most handled

less than 50 million pounds of

milk each. Together handled

less than 1 percent of U.S.

cooperative milk volume.

Four cooperatives. Milk volume

processed was moderate.

Together handled less than 1

percent of U.S. cooperative milk

volume.

24 cooperatives. Three out of

four cooperatives in this group

handled 1 billion or more

pounds of milk and none

handled less than 50 million

pounds. Together handled 75

percent of the U.S. cooperative

milk volume.

Transaction governance mode

Regular milk sale is usually

Mode C (hybrid); may be Mode B

(unrelieved hazard) for spot milk

sales.

Product processing stages are

Mode D (hierarchy); wholesale

distribution of products is

usually Mode C and may be

Mode B; and retail sales are

usually Mode B.

Product processing stages are

Mode D; wholesale distribution

of products is usually Mode C.

Bargaining function is usually

Mode C; product manufacturing

and further processing stages

are Mode D; wholesale

distribution of products is

usually Mode C and may be

Mode B; and spot milk sales may

be Mode B.

Table source: All dairy cooperative statistics cited are 2007 data, the year of USDA Cooperative Programs’ most recent dairy survey.
By Anne Mayberry

Rural Utility Programs

USDA Rural Development

amayberry@wdc.usda.gov

e have a saying in

Montana: ‘There’s a lot

of dirt between light

bulbs,’” says Bonnie

Lorang, general

manager of Montana Independent

Telecommunications Systems. What

that means, she continues, “is that there

are not many people in rural Montana;

but through collaboration, we can

deliver services that otherwise would

not be available.” The advantages of

combining broadband with the

cooperative business model is delivering

high-speed Internet service crucial to

the advancement of rural areas

throughout the state, she says.

Broadband and collaboration have

provided residents with tools to

establish small businesses and deliver

services to Montana’s rural

communities.

For USDA Rural Development

Under Secretary Dallas Tonsager, the

ability of broadband projects to deliver

economic opportunities to rural

communities across the country is why

funding rural broadband projects is so

important. “Broadband takes local

markets and makes them global,”

Tonsager says. “It has the capacity to

open business opportunities in

unparalleled ways. With broadband,

rural consumers have better access to

health care. Increasingly, rural schools

for the first time have access to

advanced placement and foreign

language classes. Broadband expands

services and increases business

opportunities, which means jobs.”

Broadband projects help rural areas

overcome the barriers of time and

distance. “This is about our overall

competitiveness,” Tonsager says.

“Broadband in rural areas gives

businesses the ability to compete

globally. For kids, it opens the door to

the world. Without broadband, we

cannot fully compete in the world’s

economy.”

Funding for rural electric and

telephone cooperatives nationwide was

originally authorized under the U.S.

Rural Electrification Administration

(REA) to deliver electric and

telecommunications services to rural

areas. In Montana, these cooperatives

collaborate to offer high quality,

scalable services that otherwise would

not be available to their rural

consumers. “Cooperatives’ commitment

to their communities is among their

principles and part of the cooperative

business model,” Tonsager noted.

Triangle Telephone Cooperative

provides broadband services for rural

Montana communities that have created

and expanded business operations,

improved rural economies and helped

create jobs. Among the businesses and

services that have resulted from

broadband efforts are medical centers

that can offer technologically advanced

services for rural residents.

With broadband service, a rural

cookware manufacturer can market

products worldwide. Women thousands

of miles away can purchase work pants,

made in Montana, from Red Ants

Pants. Web hosting, design and search

services around the globe depend on a

36 January/February 2012 / Rural Cooperatives

Utility Co-op Connection

Telephone co-ops build broadband, create rural jobs

“W

Sarah Calhoun is founder and owner of Red Ants Pants, a women’s work-clothing business that

operates out of rural Montana, thanks to broadband service. She designs the products, manages

production, finance, marketing and sales. Photo courtesy Red Ants Pants
Rural Cooperatives / January/February 2012 37

growing Montana company. Communities benefit not only from broadband

services but also from the jobs that they

create when companies expand their

markets.

“It makes complete sense to use the

cooperative business model in rural

areas, especially in areas with smaller

populations,” says Gail Rainey, assistant

general manager for Hill Country

Electric Cooperative and Triangle

Telephone Cooperative. Both the

electric and telephone cooperatives are

aware of the need for robust economic

development programs.

“We elected to focus on business and

youth. We want to keep people in the

community because that’s how we

succeed,” Rainey says. Because co-ops

are member owned and rely on

feedback from members, members value

what co-ops offer.

“We work with schools and

nonprofits to provide help financially,

offer business guidance and provide

services,” Rainey adds. The growth of

the Internet and broadband service

contributed to these efforts, Rainey

notes. “Broadband opens up the whole

world to everybody.”

Rural telecommunication

cooperatives nationwide work together,

and, with their investor-owned

counterparts, they combine resources

and leverage their abilities to deliver a

range of services that their communities

might otherwise not be able to access.

Montana telecom providers, for

example, joined forces to establish

Vision Net, an information technology

services provider that employs more

than 100 people and offers a full range

of advanced networking services to

Montana’s schools, businesses and other

institutions. Vision Net deploys its

services using over 4,000 miles of fiber

network. In addition to serving

Montana, Vision Net has clients

nationwide, from Alaska to Maine and

is staffed to provide technical support

round the clock.

Vision Net CEO Rob Ferris explains

that Vision Net was formed in 1995 to

provide distance learning via interactive

video conferencing to small, rural

schools. The growth of the Internet led

to a change in its business model.

Broadband technology, Ferris notes, has

made it possible for rural students to

benefit from advanced calculus classes

and for soldiers stationed in Iraq and

Afghanistan to see and talk to their

families here at home.

Because the video learning

experience is so popular, Vision Net has

hired an employee to assist the schools

with class scheduling and to promote

unique virtual learning opportunities.

“Two of the more popular classes were

with the National Aeronautics and

Space Administration (NASA) and the

Montana State Forensics Labs,” Ferris

says. “With NASA, students were able

to talk to former astronauts. For the

forensic class, we connected a high

school crime scene investigation class

with a crime lab where a scientist

walked students through an

investigation on ballistics.”

Thousands of miles from Montana,

Trevor Bonnstetter, CEO of Telecom

Management Services, manages

telephone companies in West Kentucky

and Tennessee that deliver a range of

technology services, including

“megasites” designed to attract large

business. One such site serves the

Tennessee Valley Authority.

“We have a global economy. Rural

telephone cooperatives can help their

communities compete by providing

Internet services that can be used to

recruit employees in areas with high

unemployment and draw business to

such areas.” Bonnstetter says.

“Technology allows business to

provide jobs, products and services in

areas where in the past, it was not

feasible.” Bonnstetter points to Ag

Connections, a Kentucky company that

develops crop management software to

help farmers more efficiently manage

production, control inventory, develop

financial reports, map fields and make

marketing decisions using technological

tools. In Tennessee, broadband has

helped a public power utility offer smart

grid applications that increase the

utility’s efficiency through automated

meter reading and can help manage

electric load. “These types of services

can’t happen if there is no broadband

buildout,” Bonnstetter says.

A 2009 USDA Economic Research

Service study found that employment

growth is higher and non-farm private

earnings greater in counties with a

longer history of broadband availability.

Yet, Tonsager notes that while

broadband has triggered one of the

biggest technological transformations

ever seen in this country, we still do not

deliver affordable and reliable service to

rural areas that could benefit from

Internet access.

“USDA will continue to support the

efforts of rural telephone and electric

cooperatives, which have played a

significant role in bringing broadband

to rural communities.”

USDA funding has delivered

broadband service to more than 2

million rural residents in the past three

years. In additional to traditional

infrastructure program for rural

telecommunications cooperatives,

USDA’s Farm Bill broadband program

is an important tool that can finance

broadband service in rural areas. USDA

Rural Utility Programs has general field

representatives in most states to provide

assistance in applying for broadband

funding and ensuring that the proposed

system will provide sustainable service

for rural residents.

For more information, visit:

www.rurdev.usda.gov. n

“Broadband takes local markets

and makes them global.”

—Dallas Tonsager
38 January/February 2012 / Rural Cooperatives

Newsline

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

Co-op developments, coast to coast

Mikhalevsky to lead

California Dairies

California Dairies Inc. (CDI), the

nation’s second largest dairy processing

cooperative, has named Andrei

Mikhalevsky as president and chief

executive officer. He succeeded Richard

L. Cotta, who retired Dec. 31, 2011

(see page 19 for more on Cotta).

Mikhalevsky brings more than 35 years

of leadership experience to CDI.

For the past five years, he has served

as the managing director of global

ingredients and foodservices at Fonterra

Cooperative Group Ltd., the world’s

largest dairy exporter. In this role,

Mikhalevsky was responsible for

developing and building many of

Fonterra’s global customer partnerships.

In addition, he oversaw Fonterra’s

research and innovation division and its

branded business in Latin America.

Previously, Mikhalevsky held

executive positions at Campbell Soup

Co., Georgia Pacific Corp. and Symrise

Inc. Mikhalevsky is a graduate of

Stetson University with a BA in

business administration in finance. In

addition, he has attended the Food

Executive Program at the University of

Southern California.

“As we considered candidates,

Andrei’s breadth of experience and

strategic vision identified him as the

clear choice to lead our cooperative,”

says CDI Chairman Brian Pacheco.

“We are confident his ability to

implement visionary strategies will lead

CDI into the future as a dairy

processing cooperative committed to

developing and delivering the dairy

products the world demands.”

Pacheco also saluted Cotta for his

many years of service. “As CEO the last

five years, Richard has led the company

to experience unprecedented growth

and profits. His knowledge, expertise

and leadership have been fundamental

in CDI’s expanded product offerings

and entrance into new markets. He

leaves CDI in a strong position poised

for future growth.”

“As the largest dairy processing

cooperative in California and the

second largest in the nation, CDI is

uniquely positioned to capture growth

opportunities in the U.S. and in the

global market,” Mikhalevsky says. “I

look forward to leading CDI in its

continued success.”

CDI is co-owned by more than 450

dairy producers, who ship more than 17

billion pounds of milk annually. The

co-op is a manufacturer of quality

butter (including the Challenge and

Danish Creamery brands), fluid milk

products and milk powders. Its dairy

products are available in all 50 states

and in more than 50 foreign countries.

CHS posts record

earnings, revenue

CHS Inc., the nation’s largest farmer

cooperative, reported earnings of

$961.4 million for fiscal 2011, the

highest in the farmer-owned energy,

grain and food company’s 80-year

history. Earnings for fiscal 2011 (Sept.

1, 2010 – Aug. 31, 2011) increased 91

percent over the $502.2 million for

fiscal 2010. The co-op’s previous record

earnings were $803 million in fiscal

2008.

“While we celebrate record results

for fiscal 2011, our greatest achievement this past year continued to be

adding value for our producer and

member cooperative owners, who count

on CHS as a source of energy and crop

production inputs, a connection to

domestic and global grain markets, and

access to risk management tools,” says

Carl Casale, CHS president and chief

executive officer.

Revenue for fiscal 2011 reached

$36.9 billion, compared with $25.3

billion for fiscal 2010, reflecting

continued higher values for the energy,

grain and crop nutrients products that

comprise the majority of CHS business.

The previous revenue record, also set in

fiscal 2008, was $32.2 billion.

CHS provided a strong financial

return to its owners in 2011 — based

on fiscal 2010 results — in the form of

$227.3 million in cash patronage, equity

redemptions and preferred stock

dividends. In fiscal 2012, based on 2011

earnings, the company expects to return

a record $421 million to its owners.

CHS’ energy operations — including

Andrei Mikhalevsky
Rural Cooperatives / January/February 2012 39

The latest NCB Co-op 100 report shows that the

nation’s top 100 revenue-earning cooperative businesses

posted total revenue of about $193.8 billion in 2010. The

report (issued in October) marks the 20th anniversary of

the NCB Co-op 100, published annually by National

Cooperative Bank (which has shortened its name to

NCB).

“The boom of cooperative organizations and the key

role they play in both our national and global economy is

clearly evidenced in the growth and expansion

highlighted in this year’s report,” says Charles E. Snyder,

president and CEO of NCB. “As a cooperative business

ourselves, we are proud to support these efforts and

participate in the United Nations General Assembly

declaration of 2012 as the International Year of the

Cooperative, to educate the public on the benefits of

cooperatives. Our report is just one of the many ways we

work to inform the public on the advantages of

cooperatives in all fields of enterprise.”

The top two revenue producers in each primary

business sector in 2010 for the NCB Co-op 100 are:

Agriculture co-ops:

• CHS Inc., Saint Paul, Minn.; $25.3 billion in revenue in

2010, maintaining its first place position in both the ag

sector and on the overall NCB Co-op 100 list.

• Land O’Lakes Inc., Saint Paul, Minn; $11.1 billion in

revenue, earning the number two ranking again this

year in both the ag sector and on the overall list.

Grocery co-ops:

• TOPCO Associates LLC, Skokie, Ill.; $10.4 billion in

revenue, also holds the number three spot overall on

the Top 100.

• Wakefern, Elizabeth, N.J.; $9.5 billion in revenue (fifth

overall).

Hardware & Lumber co-ops:

• ACE Hardware, Oakbrook, Ill.; $3.5 billion in revenue

(11th overall).

• Do It Best Corp., Fort Wayne, Ind.; $2.3 billion in revenue

(18th place overall).

Finance co-ops:

• Agribank FSB, Saint Paul, Minn.; $4 billion in revenue

(eighth overall);

• Navy Federal Credit Union, Merrifield, Va.; $3.1 billion in

revenue (14th place overall).

Healthcare co-ops:

• HealthPartners Inc., South Bloomington, Minn.; $3.6

billion in revenue (10th place overall).

• Group Health Cooperative, Seattle, Wash.; $3.2 billion in

revenue (13th place overall).

Energy & Communications co-ops:

• National Cable Television Cooperative Inc., Lenexa,

Kan.; $2.1 billion in revenue (19th place overall).

• Basin Electric Power Cooperative, Bismarck, N.D.; $1.5

billion in revenue (29th place overall).

To see the entire list, visit the publications section at:

www.NCB.coop.

Released annually in October during National Co-op

Month, the bank says that the NCB Co-op 100 is just one

way it strives to educate and promote the importance of

the co-op sector. This year it is also supporting the 2012

International Year of Cooperatives initiative. The global

campaign led by the United Nations, with the official

slogan “Cooperative Enterprises Build a Better World,” is

focused on educating and informing the public of the

contributions cooperatives make to socio-economic

development. n

NCB Co-op 100 shows revenue near $194 billion

refined fuels, propane, renewable fuels

marketing and lubricants — led all units

for earnings. This was due primarily to

improved margins from the refined

fuels manufactured at the CHS

Refinery at Laurel, Mont., and the

National Cooperative Refinery

Association (NCRA) of McPherson,

Kan., in which CHS owned nearly 75

percent.

On Dec. 1, it was announced that

CHS was buying the shares of the two

minority owners of NRCA:

GROWMARK Inc. and MFA Oil Co.

The purchase will be made in four

transactions, culminating Sept. 1, 2015.

NCRA’s 650 employees will then

become CHS employees.

CHS renewable fuels marketing and

distribution business also generated

record earnings. The company’s

lubricants and propane businesses,

while profitable, were down from fiscal

2010 performance.

CHS Country Operations — its

locally controlled retail locations —

generated record earnings within the
40 January/February 2012 / Rural Cooperatives

co-op’s Ag Business segment, due to

higher grain volume and increased

margins. The Ag Business grain

marketing, crop nutrients and oilseed

processing operations also contributed

income that exceeded 2010 levels. Ag

Business earnings also reflect a pre-tax

gain of $119.7 million on the sale of

CHS’ investment in Multigrain AG, a

Brazil-based joint venture.

CHS-owned insurance, risk

management and financing businesses

reported increased earnings for 2011,

much of which was due to increased

market volatility. The company

recorded strong contributions from its

50-percent ownership of Ventura Foods

LLC, a vegetable oil-based food

manufacturing business. The 24-percent CHS share of Horizon Milling

LLC, the nation's leading wheat miller,

generated record returns, primarily due

to improved margins.

Wisconsin co-ops to merge

with United Co-op subsidiaries

Members of Mid-County

Cooperative, Shawano, Wis., and

Pulaski Chase Cooperative, Pulaski,

Wis., have voted in favor of mergers

with wholly-owned subsidiaries of

Beaver Dam, Wis.-based United

Cooperative. Both mergers become

final on Feb. 1, 2012.

“We look forward to serving patron

members from both cooperatives with

the assets obtained through the

mergers, in addition to future

equipment and facility investments,”

says David Cramer, United Cooperative

president and CEO. The merger should

result in better products and services for

member-patrons in northeastern

Wisconsin and upper Michigan, he

adds.

With its feed, grain, automotive and

energy departments, Mid-County

Cooperative revenue topped $23

million in fiscal 2011. Pulaski Chase

Cooperative has feed, grain, agronomy,

and energy departments, as well as a

hardware store and an automotive and

machinery parts business. It had $22

million in sales during fiscal 2011.

USDA grant to help create

Great Lakes Co-op Center

The University of Wisconsin Center

for Cooperatives and Cooperative

Network were recently awarded

$225,000 through USDA Rural

Development’s Rural Cooperative

Development Grant program to help

create the Great Lakes Cooperative

Center. This new co-op development

center in Madison, Wis., will provide

technical assistance and counsel to

existing cooperatives, as well as groups

interested in forming cooperative

businesses in the Upper Midwest.

In the coming year, the UW Center

for Cooperatives will focus its efforts on

developing cooperative businesses

ventures within regional food systems.

These ventures will provide agricultural

producers and rural communities with

increased opportunities for meeting the

growing demand for local products

from retailers and institutions such as

hospitals and schools. Cooperative

Network will work with cooperatives in

the fields of health care, energy

efficiency and senior housing.

Under USDA’s Rural Cooperative

Development Grant program, grants of

up to $225,000 may be awarded to

colleges, universities and nonprofit

groups to create and operate centers

that help individuals or groups

establish, expand or operate rural

businesses, especially cooperatives and

mutually owned businesses. Grants may

be used to conduct feasibility studies,

create and implement business plans,

and help businesses develop new

markets for their products and services.

For more information on this and other

USDA Rural Development programs,

visit: www.rurdev.usda.gov.

Snokist files for bankruptcy

Snokist Growers, Yakima, Wash.,

filed for bankruptcy in December,

according to a report in the Yakima

Herald-Republic, which said that the

108-year-old co-op cited causes that

included the business lost in the wake of

a critical federal Food and Drug

Administration (FDA) report and

difficulties securing operating loans.

Snokist employs more than 600 mostly

seasonal workers in its

food processing plant

in Terrace Heights and

several warehouses

across the Yakima

Valley. The

cooperative is owned

by more than 150

growers who ship their

apples, pears, cherries

and plums to the coop to be canned or

turned into fruit cups,

purees and juices.

The HeraldRepublic reported that the co-op has

debts of nearly $73.4 million owed to

more than 2,000 creditors, vs. total

assets of $69.6 million, according to

bankruptcy documents filed in U.S.

Bankruptcy Court. Last spring, Snokist

voluntarily recalled 3,300 cases of

gallon-size cans of applesauce, with six

cans in each case, after the food was

United Cooperative’s South Beaver Dam (Wisconsin) facility is one of its largest grain

locations. Two other Wisconsin co-ops recently voted to merge with United.
Rural Cooperatives / January/February 2012 41

Editor’s note: this item is reprinted from, and courtesy of,

Today’s Farmer, the member publication of MFA Inc. It

was written by Chuck Lay, the co-op’s communications

director.

Standing at the lectern during the kickoff meeting in

1997 just months before he retired, B.L. Frew told those

assembled that honesty and integrity are the keystones of

MFA Incorporated. “I don’t want this organization to ever

lose that,” he said. “Remember who owns you,” he

boomed into the

microphone to the

assembled group for the

final time as president

and CEO.

“It’s been a real ride,”

he said. “But I’ve gotten

more from the

organization than it’s

gotten from me. The

quality of the employees,

the quality of the

managers, the support,

dedication and the hard

work. Never in my whole

time have I asked anything that you haven’t done and

done well.

“Always remember,” he said, “what’s good for the

company, not what’s good for me, for my division, for my

area. It’s what’s good for the company. I’ve always tried

to search out what is right, to do what is right and try to

make a difference. If you’ll continue to do that, the

organization will continue to shine.”

He died Sept. 25 at age 77. B.L. (always known as Bud)

Frew was president and CEO of MFA Incorporated from

1985 to Jan. 31, 1998. He leaves behind his wife, Kit, and

children, Scott Frew and Suzette Marsch in addition to his

grandchildren.

Current MFA President and CEO Bill Streeter said Bud

Frew’s contribution to MFA is a legacy of a professionally

managed business organization focused on serving

farmers and ranchers. “He was the force behind

employee training at all levels. He constantly sought

improvement. He wanted updated, modern locations, an

informed and well-trained workforce, and professionalism

at all levels. Bud Frew instilled pride and financial

responsibility. People wanted to live up to his standards.

People wanted to be associated with him and his efforts.

He made you believe.”

Frew began his career at MFA in 1970 when he was

hired as director of exchange operations. Within a year,

he was selected to manage the Exchange Division (later

called Retail Distribution). He came to MFA from FS

Services Inc. (now

Growmark), where he

had worked since 1960

after having graduated

from Bradley University

with an engineering

degree.

By 1981, he had

become MFA’s chief

operating officer. Within

four years, MFA

Incorporated’s board of

directors hired Frew as

president and CEO. He

proceeded to

strengthen the financial position of MFA by instituting a

series of financial measurements with specific emphasis

on strategic planning as well as streamlining the

cooperative by closing non-profitable locations and

investing money into profitable locations and ventures.

He retired after having presided over 12 straight years of

profitability.

Frew focused first and foremost on the people and

company’s image, from managers at locations to people

throughout the organization. Before retiring he listed as

his three most important accomplishments at MFA: 1) the

people who do their jobs and do them well; 2) the culture

of the organization that is built around mission, strategy,

honesty and integrity; and 3) a focus on business

decisions that advance the mission and profitability of the

cooperative.

His legacy is one of accomplishment. n

Former MFA President Bud Frew dies

B.L. “Bud” Frew
42 January/February 2012 / Rural Cooperatives

linked by FDA to temporary upset

stomachs among nine schoolchildren in

North Carolina, the paper said.

Record sales for Blue Diamond

Blue Diamond Growers, which

achieved record sales of $825 million in

2011, is heading into 2012 powered by

growth in all business segments, new

product launches and a manufacturing

expansion plan that will support its

global business, President and CEO

Mark Jansen told the cooperative’s

grower-owners at their 101st annual

meeting. Based on current growth

trends, the co-op is slated to be a

billion-dollar business within the next

two to three years.

Jansen said Blue Diamond led the

California almond industry with grower

returns (crop payments) on the 2010

crop. With farming costs increasing for

fuel, fertilizer and chemicals, almond

revenues must increase on a per acre

basis to ensure grower profitability.

Blue Diamond projects the 2011 crop

should achieve a new record in returns

per acre.

The record sales year was driven by a

34-percent increase in the global use of

almonds as an ingredient in other foods,

by double-digit growth in every U.S.-

branded consumer product line and by

a new plan to expand distribution of

snack almonds in the United Kingdom,

Jansen reported. Major new product

introductions last year included Nut

Chips and a new Almond Breeze

almond-coconut milk blend.

To support the co-op’s drive to add

value to all business segments globally

and to meet consumer demand for

healthy products, Blue Diamond

recently purchased 88 acres of land in

Turlock, Calif., (near Modesto) as the

site for its newest manufacturing

facility. The first phase of the facility

will open in May of 2013. Plant

upgrades are also planned for the coop’s almond plants in Sacramento and

Salida.

“This is an expansion plan, not a

relocation plan,” Board Chairman

Clinton Shick said during the meeting,

according to the Modesto Bee. “Our

business is booming, and we need more

room to grow.”

RFA: report shows ethanol not

leading to cropland expansion

An in-depth analysis of U.S. land-use

patterns released Dec. 21 by the U.S.

Department of Agriculture shows total

cropland decreased by 34 million acres

from 2002 to 2007, reaching the lowest

level since USDA began collecting this

data 1945. The USDA report also

shows that significant increases in

forestland, grassland and rangeland

occurred during the five-year period.

The Renewable Fuels Association

(RFA) says the new report adds to a

mounting body of evidence that proves

increased ethanol production has not

resulted in expansion of total U.S.

cropland or a decline in grassland and

forest.

“Using real data from the real world,

this report from USDA shows yet again

that U.S. cropland is not expanding in

response to increased ethanol demand,”

says RFA President Bob Dinneen. “The

report also shows that forest and

grassland increased dramatically during

a period when ethanol production more

than tripled.”

Meanwhile, the report shows that

land dedicated to urban areas and

special-use areas (roads, industrial areas,

rural residences, etc.) increased

dramatically. “It is ironic that the land

use debate has fixated on biofuels, when

the actual culprit of land conversion has

clearly been urban and suburban

sprawl,” Dinneen says.

According to the report authors,

urban land acreage quadrupled from

1945 to 2007, increasing at about twice

the rate of population growth over this

period. Land in urban areas was

estimated at 61 million acres in 2007,

up almost 2 percent since 2002 and 17

percent since 1990 (after adjusting the

1990 estimate for the new criteria used

in the 2000 Census).

The estimated acreage of grassland

pasture and range increased by 27

million acres (almost 5 percent)

between 2002 and 2007, while forestuse land increased 20 million acres (3

percent) from 2002 to 2007,

“continuing a trend that became evident

in 2002 and reversing an almost 50-year

A biofuels trade group says a recent acreage report shows that ethanol production has

not resulted in losses of grasslands, forests or rangeland. USDA photo by Dan

Campbell
Rural Cooperatives / January/February 2012 43

downward trend.”

CoBank closes merger

with U.S. AgBank

CoBank announced Jan. 3 that it had

successfully completed its merger with

Wichita-based U.S. AgBank. The

merger, which formally closed on Jan.

1, creates an $85 billion financial

services institution that serves as a

leading source of credit to the U.S.

rural economy. The combined bank’s

customer base includes agricultural

cooperatives and rural power, water and

communications service providers in all

50 states. The bank also offers

wholesale financing to 29 Farm Credit

associations that provide loans and

financial services to more than 70,000

farmers, ranchers and other rural

borrowers.

The combined bank continues to do

business under the CoBank name and

remains headquartered outside Denver,

Colo., with Robert B. Engel in the role

of president and chief executive officer.

The bank retains its cooperative

structure, with qualified borrowers

earning cash and equity patronage in

proportion to the amount of business

they do with the organization.

For the first year following the

merger, the bank will be governed by a

32-member board of directors

consisting of the entire former CoBank

and U.S. AgBank boards. On Jan. 1,

2013, the size of the board will be

reduced to 24 directors elected by

customer-owners in six geographic

voting regions. There will also be at

least two, and as many as five,

appointed directors.

CDF cites achievements in 2011

Among its accomplishments in 2011,

the Cooperative Development

Foundation (CDF) reports that it:

• Awarded $144,000 in grants

scholarships to support the growth,

development and recovery from

natural disasters of cooperative

business enterprises;

• Raised $206,500 for co-op recovery

from devastating natural disasters in

the United States and Japan;

• Through administration of United

Co-op Appeal (a workplace giving

program), it raised more than $65,000

to support other cooperative

development organizations;

• Received foundation and federal

government grant awards of $225,000

to support its cooperative

development efforts;

• Raised more than $250,000 through

special events and contributions to

support its operations.

“But dollar amounts are only one

measure of what’s been accomplished.

Equally important are the new

partnerships we’ve launched, the new

visibility we’ve given to the cooperative

business model, and the tangible

outcomes achieved over a longer period

of time,” CDF Executive Director Liz

Bailey said in a letter to supporters.

(Bailey was recently named interim

president of the National Cooperative

Business Association; see news item,

below.)

Bailey also cited progress in

developing co-ops for direct home care

workers. “The home care co-op is not

only a solution for the growing number

of seniors and individuals with

disabilities who simply need help with

daily living, but it’s a solution for home

care providers who now have benefits

and a living wage, access to training,

increased self-esteem, and a stake in

running/governing their own co-op

businesses.”

Liz Bailey named interim CEO

at NCBA; search firm hired

Liz Bailey has been named interim

president and CEO of the National

Cooperative Business Association

(NCBA), effective Feb. 1, when Paul

Hazen is stepping down. Bailey had

been serving as NCBA vice president

for Policy and Domestic Development

and executive director of the Cooperative Development Foundation. She

will continue with her responsibilities

for both of those jobs during her time

as interim president and CEO.

NCBA has formed an executive

search committee, headed by Martin

Lowery, immediate past chair of the

NCBA board, to look for the

organization’s next leader. The

committee has retained the firm of

Kincannon and Reed to assist in the

search, which it says may not be

complete until mid-year 2012.

Supporting Bailey in the interim will be

other members of the NCBA senior

leadership team: John Gillespie, interim

chief operation officer/chief financial

officer, and Amy Coughenour, vice

president for the CLUSA International

program. The positions of vice

president of domestic cooperative

development and vice president of

public affairs and member services have

been eliminated as part of organizational changes.

Hazen, meanwhile, has accepted the

position of executive director of the

Overseas Cooperative Development

Council, also effective Feb 1. He will

continue in his role as a delegate to the

International Co-operative Alliance,

where he currently serves on the

organization’s board of directors.

A recent letter to members and

supporters said NCBA was making

organizational changes to help meet the

strategic vision set by the board to

achieve three primary objectives:

1. Forge a cohesive and mutually

supportive partnership between

NCBA’s CLUSA International and

Domestic divisions in order to

leverage the strengths of these

divisions to achieve our global vision.

2. Increase public awareness of cooperative enterprise and of NCBA.

NCBA has a great story to tell, and

we want to start telling it better.

3. Upgrade operations infrastructure by

investing in new systems to better

support the International, Domestic

and Marketing and Communication

teams.

USDA REAP funds create jobs

while reducing energy costs

USDA in December announced

loans and grants for agricultural

producers and rural small businesses

across the country to help implement

renewable energy and energy efficiency

measures in their operations. The
funding is provided through USDA

Rural Development’s Rural Energy for

America Program (REAP). Under

Secretary for Rural Development Dallas

Tonsager made the announcement on

behalf of Agriculture Secretary Tom

Vilsack during a conference in New

Orleans that focused on energy

efficiency.

It was noted that stable energy costs

create an environment for job growth in

rural America. Collectively, the REAPfunded projects announced in

December, and those announced earlier

by USDA, are expected to lower energy

use by 2 billion kilowatts and prevent

nearly 2 million metric tons of

emissions from being released into the

environment. REAP, authorized

through the 2008 Farm Bill, provides

loans and grants for farmers, ranchers

and rural small business owners to

purchase and install renewable energy

systems and make energy-efficiency

improvements. These federal dollars are

leveraged with other funding sources

for the projects.

Tonsager said that in fiscal 2011,

USDA Rural Development’s REAP

program provided $23.2 million for

energy efficiency projects, $20.9 million

for biodigesters, $20.3 million for solar

energy projects, $8.2 million for

hydroelectric systems, $7 million for

biomass energy projects, $4.28 million

for flexible fuel pump projects, $3.9

million for wind energy projects, $1.4

million for geothermal installations.

USDA Rural Development funded

more than 280 projects last year to help

reduce energy costs. Overall, USDA

funded more than 1,100 energy

efficiency projects in fiscal 2011,

including improvements in aquaculture,

poultry lighting and ventilation,

irrigation system upgrades, maple syrup

production efficiency, small business

heating and cooling, rural grocery

cooler replacement and others.

Cooperative Network elects

two new directors

Cooperative Network, the trade

association for Minnesota and

Wisconsin cooperative businesses,

elected two new directors at its annual

meeting Nov. 15 in Rochester, Minn.

The new directors are: Elaine

Eckendorf, Central Wisconsin Electric

Cooperative, Custer, Wis., who

represents electric cooperatives and

replaces retiring director Lynn

Peterson, and Mark Clark, Land

O’Lakes Inc., Rollingstone, Minn., who

represents Minnesota dairy cooperatives

and replaces director Steve Schlangen.

Jim Hathaway, Dunn Energy

Cooperative, joins the executive

committee as the new treasurer.

Proposed rule extends

minimum wage to home

care workers

A proposed rule announced Dec. 15

by President Obama and U.S. Secretary

of Labor Hilda Solis would extend

minimum wage and

overtime protections to

home care workers

under the federal Fair

Labor Standards Act.

Home care workers are

currently excluded from

minimum wage and

overtime protections

because they are

considered

“companions,” a ruling

that “fails to account for

the health and personal

care services they

provide to elders and

people with disabilities,”

according to the Direct

Care Alliance.

“Extending

minimum wage and

overtime protections to

home care workers has

been the Direct Care Alliance’s flagship

issue since the Supreme Court ruled

against Evelyn Coke,” says Leonila

Vega, executive director of the Direct

Care Alliance (DCA). Coke was a home

care worker who challenged the

companionship exemption in court. Her

case went to the U.S. Supreme Court,

which ruled in 2007 that the U.S.

Department of Labor was acting within

its authority in upholding the

exemption.

“The nearly 2 million in-home care

workers across the country should not

have to wait a moment longer for a fair

wage. They work hard and play by the

rules and they should see that work and

responsibility rewarded,” President

Obama said in a White House press

release.

The rule was announced at a Dec. 15

event at the White House, which

attracted advocates for home care

workers from across the country,

including home care worker and DCA

Board Chair Tracy Dudzinski. “I was

thrilled to be part of this special

occasion,” says Dudzinski. “My state,

Wisconsin, happens to have minimum

wage and overtime laws that cover

home care workers, but hundreds of

thousands of my peers in other states

don't have the same

protections. That’s just

not right.”

Dudzinski is also

board president of

Cooperative Care in

Wautoma, Wis., a home

care workers co-op

organized in 1998 that

has received extensive

co-op development

technical assistance

from USDA Rural

Development’s

Wisconsin state office.

Cooperative Care was

named a semi-finalist in

the prestigious 2002

Innovations in

American Government

Award from Harvard

University and the 2003

Top Rural Initiative by

Wisconsin Rural Partners.

Written comments on the proposed

rule can be submitted on or before Feb.

27, 2012. Comments may be submitted

via Direct Care’s website,

www.directcarealliance.org. Just click

the appropriate link in the “Action

Alert” portion of the home page. Or

visit: www.regulations.gov, and indicate

“proposed rule” and “RIN 1235-AA05”

in the appropriate boxes. n

44 January/February 2012 / Rural Cooperatives

President Obama

announces a proposed

rule change that would

give basic labor

protections to home care

workers. Among the home

care worker leaders

attending the ceremony

was Tracy Dudzinski (far

right), board president of

Cooperative Care.
 Rural Cooperative Development Grants (RCDG) —

This program provides funds to cooperatives and

development centers to assist individuals and business owners

in rural communities who require startup, expansion and

operational improvement assistance. The grant program also

helps rural communities improve their economic conditions,

create and retain jobs and develop new rural cooperatives and

value-added processing. In fiscal 2011, 26 states and the

District of Columbia received 36 RCDGs worth more than

$7.9 million from Rural Development.

Examples of funded projects include:

• The Mississippi Association of Cooperatives used an

RCDG to provide small and minority farmers with

development assistance. The Center focuses the vast

majority of its efforts on the most distressed rural areas

of the state. The group also helps minority farmers

establish financially sound businesses.

• The California Center for Cooperative Development

helps develop new cooperatives, promote communitysupported agriculture, strengthens the marketing of

small farm production and develops systems to link

growers with regional consumers. The Center also helps

local farmers form cooperative corporations to enhance

their marketplace position.

 Small Socially Disadvantaged Producer Grants

(SSDPG) — This program awards grants to eligible

cooperatives and associations of cooperatives that provide

technical assistance to small, socially disadvantaged

agricultural producers in rural communities. In fiscal 2011,

USDA Rural Development awarded 19

SSDPG grants totaling more than $2.9

million to African-American-, Hispanic-,

Native-American-, and women-owned

cooperatives that will use the grants to

assist 1,469 businesses. Examples of grant

awardees include:

• The Louisiana Association of

Cooperatives will use a $200,000 SSDPG

to provide technical assistance to small

producers in 41 rural parishes throughout

the state, including areas affected by

Hurricane Gustav.

• In South Carolina, the 31-member

Piedmont Farmers Marketing

Cooperative used a $43,600 SSDPG to

complete seminars and workshops on

animal husbandry, vaccination

requirements and breeding and rearing

techniques. The SSDPG will also allow

co-op members to visit a facility that

converts livestock waste into renewable

energy. The energy produced will help

reduce the facility’s operating costs.

 Rural Business Enterprise Grants

(RBEG) — The RBEG program provides

grants for rural projects that finance and facilitate

development of small and emerging rural businesses and

helps fund distance learning networks and employmentrelated adult education programs. To assist with business

development, RBEGs may fund a broad array of activities. An

example is the Island Grown Farmers Cooperative (IGFC) in

Bow, Wash., which operates a mobile processing unit that

was the first USDA-inspected mobile slaughter facility for

red meat in the nation. A $55,000 RBEG grant was used to

provide technical assistance to develop the USDA-certified

mobile meat processing facility to serve remote rural island

farmers.

The cooperative business model is a time-tested tool for

rural producers and communities to use in filling a void in

the marketplace and keeping resources in the community.

Cooperatives can use USDA Rural Development programs to

offer increased opportunities for long-term, sustainable

economic gains for their member and for rural America. n

Commentary

continued from page 2

Rural Cooperatives / January/February 2012 45

The grand opening of the Placerville Natural Foods Co-op, which was assisted by the

California Center for Cooperative Development and USDA.
workers gain management skills. Although these are onemember/one-vote cooperatives, there are covenants that

protect original owner’s rights until they receive total

payment for their ownership shares and then retire.

Lenancker emphasized the differing mentalities between

business owners and their employees. In addition to the legal

and financial steps required for transfer, there is a critical

process for all participants to reorient themselves to new

roles and responsibilities.

His organization has developed programs for mentoring

workers and helping the original owners adjust to a new role

of teaching the new owners how to operate these businesses

successfully.

Rapid conversions in Argentina

The South American nation of Argentina provides a

special case of rapid and widespread conversion of businesses

to worker ownership that occurred after the country

defaulted on its international debt in 2001. When Jose

Orbaiceta, president of the Federation of Worker Co-ops of

Argentina, opened his address by thanking the host country

for providing him with political asylum 27 years ago, the

audience could anticipate that his presentation would cover

some dramatic events.

As credit dried up in Argentina, most of its manufacturing

industries closed with no indications of when they might

reopen. Out of desperation, workers from many of these

factories eventually returned to “recuperate” these businesses,

which involved more than just doing their previous jobs but

also everything from procuring inputs to selling products.

Worker cooperatives became the model for “recuperating”

many of the businesses that closed in 2001.

The legal and policy issues that ensued from

“recuperation” are too lengthy to describe in this article, but

Orbaiceta discussed some of the conflicts that ensued when

owners of these factories initiated lockouts. In some cases,

factory owners had equipment moved out during the night

for sale to competing companies in neighboring countries,

such as Chile.

In response to these conditions, the government modified

its bankruptcy laws to give workers legal standing. Workers

who lost their employment would have to be indemnified,

and — under some circumstances — the government oversaw

legal and financial transfers of ownership to worker

cooperatives.

Currently, there are about 6,000 worker cooperatives in

Argentina that provide about 300,000 jobs and produce about

10 percent of the nation’s gross domestic product (GDP).

Although the developments in Argentina are unique, its

experience with worker ownership highlights a point that is

applicable to all countries. Workers either re-occupying or

buying closed businesses is not a new phenomena. There is a

long history in many countries of transferring ownership of

businesses to the workers when the equipment and facilities

are worn-out or obsolete. The Argentine experience involved

many factories in good condition, which is the basis for the

sustained success of its worker co-ops.

Conference ‘takeaways’

A conference of this type offers more “takeaways” than can

be succinctly described in this article. Furthermore, many of

the workshops were concurrent, but some of the key

conference presentations can be viewed at this website:

www.coopzone.coop/en/node/3771.

There are many key points to understand about making a

transfer of business ownership to employees, but a selected

few are presented here:

• Small business owners can improve their opportunities and

options for transferring ownership in the future if they get

an early start on succession planning. ESOPs provide a way

for employees to gradually buy portions of a business prior

to the event of the initial owner’s retirement. In other cases,

owners may convert from a sole proprietorship to

alternative forms so that employees may purchase shares of

a business with small deductions from wages, which eases

the financial burden as compared to a one-time complete

transfer to a worker cooperative. The key is to get an early

start on planning.

• The relationship of an owner with employees needs to be

sufficiently congenial so that adjustments in attitudes and

orientations of both parties can be made to form a

cooperative that can complete a transfer of ownership

shares, responsibilities and know-how in a timely manner.

• Businesses should have a core group of employees with

several years of experience, typically in the age group of 40-

55 years old.

• Businesses that are suitable for ownership transfers need to

be examined in terms of their future prospects. At a

minimum, such businesses must have an established market

of repeat customers and be positioned with physical capital

that is in good running order and not in need of immediate

replacement.

• A target audience for conveying information on succession

planning for employee ownership is the trusted advisors or

estate planners. They are typically local accountants and

lawyers. Over time, each such advisor is likely to help

numerous owners plan their retirements and the sale of

their businesses.

The above points do not cover the many steps and actions

that have to be taken to transfer businesses to employees.

These points are a sampling of insights that international

experts shared with their audience at the Business Succession

and Employee Ownership Conference in Quebec City last

October. n

Keeping the ‘open’ sign on

continued from page 29

46 January/February 2012 / Rural Cooperatives
returned 35 to 40 percent on our

members’ investment in the co-op.”

Q. What one thing would you liked to

have done differently?

Cotta: “Even though the dairy industry

has gone through some very tough

economic times, I would have pushed

harder for a greater financial

commitment to continue to invest in,

and accelerate, CDI’s move toward

more value-added lines. We should

have done more because, in the end,

this serves the members well.”

Q. On the marketing front, do you see

the export market being more

important to the future of the co-op, or

the U.S. dairy industry in general?

Where are the greatest export

opportunities?

Cotta: “Exports offer a unique

opportunity for U.S. dairy producers

and processors. The domestic market is

a mature market. Any substantial

growth will come from exports and/or

new products. The greatest

opportunities will be in China and

Southeast Asia.

“The Middle East and North Africa

also are growing markets. With the

passing of time, even though India is

currently the largest dairy-producing

country in the world, I believe reality

will set in and current barriers to

exporting into India will come down,

creating new market opportunities.”

Q. What are the other best

opportunities you see for the dairy

industry, focusing on the domestic

front?

Cotta: “The dairy industry needs to get

on the ‘health and wellness’ bandwagon

as quickly and as vigorously as possible.

We compete with all other beverages

and food companies for the consumer’s

dollars. PepsiCo, Coca-Cola and most

recently Starbucks, with its acquisition

of Evolution Fresh to cater to

consumers’ desire for ‘better for you’

foods, make it imperative that dairy

becomes a bigger player in this game.

All snack food companies will try to

capitalize on the ‘better for you’ trend.

After all, dairy is the original, natural

health and wellness food.” n

In the spotlight: Richard Cotta

continued from page 19

Rural Cooperatives / January/February 2012 47
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