Rural

COOPERA COOPERATIVES

USDA / Rural Development July/August 2006

Country Natural Beef

Sustaining family ranches

page 4
Summertime, and the grilling is easy. Barbecue

season usually boosts both beef sales nationally and

spirits in cattle country. As such, it is fitting that our

cover story this month is on the Country Natural

Beef cooperative, which has grown steadily from

small roots in Oregon to become a rising force in the

natural beef market. Its success is a good reminder

that adding value to members’ livestock or crops

does not necessarily mean having to build a processing plant. 

There are three basic approaches to launching an

agricultural marketing cooperative:

1. Organize producers to invest in a plant to process their

crops or livestock into a value-added food or other product. Examples of this approach are the producer-owned

biofuels plants being formed all across the nation. 

2. A new or existing co-op can buy an investor-owned

company and convert it to producer ownership.

Examples of this approach include the Iowa Turkey

Cooperative/West Liberty Foods and American Crystal

Sugar Co. 

3. A producer group can contract with a third party to custom process its product on a cost-plus basis. The co-op

then markets the product under its own brand (as

Organic Valley has done so successfully) or in the private label or generic markets. 

This third approach can be prudent where only razor-thin

margins can be derived from processing, and where there are

processors with extra capacity looking to maximize their plant

operations. Such an arrangement can allow the co-op to concentrate on marketing and building its brand. And, of course,

in some cases, these co-ops may eventually choose to build or

purchase their own plant. 

Twenty years ago, with ranchers all over Oregon staring

bankruptcy in the face, 14 families decided to pursue the

third way, forming a co-op without bricks and mortar to pursue a niche market for lean, natural beef. It started with just a

few thousand head per year, but the co-op now markets more

than 40,000 head annually. Sales are growing an average of

16 percent annually and the co-op is expanding east of the

Rocky Mountains. 

CNB doesn’t own a feedyard, processing plant or even a

business office. But it does own an ever-increasing slice of the

natural beef market.

Equally impressive is CNB’s commitment to promoting

land stewardship and its determination to play a vital part in

helping keep more family ranches in operation. Indeed, talking to Brothers, Ore., rancher Connie Hatfield, you get the

impression that there is nothing she is prouder of than the

fact that the co-op has helped bring a number of young families back to ranching who — were it not for the stable pricing

and marketing of the co-op — probably would have left

ranching behind. 

Renewable energy conference slated

Those with an interest in renewable energy should mark

their calendar for Oct. 10-12, when USDA and the U.S.

Department of Energy will be sponsoring a major conference

on that topic in St. Louis. The nation’s leading experts on

biomass, wind and solar energy will be there to share ideas

that will help direct the future growth of these rapidly evolving industries. See page 26 for more details. 

Renewable energy is also the focus of Co-op Development

Action (page 18), a new magazine department that will provide highlights of activities being supported by the nation’s

network of Cooperative Development Centers. The Centers

receive funding through the Rural Cooperative Development

Grant program, administered by USDA Rural Development

to help keep the wheels of business innovation turning in

rural America.

— Dan Campbell, editor ■

2 July/August 2006 / Rural Cooperatives

COMMENTARY

The Third Way
Rural Cooperatives / May/June 2006 3

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USDA Rural Development, 

Jack Gleason, Acting Administrator, 

Rural Business-Cooperative Programs

Dan Campbell, Editor

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Rural COOPERA COOPERATIVES

July/August 2006 Volume 73 Number 4

p. 4

p. 10

p. 14

p. 20

FEATURES 

4 The Natural

“Brickless” marketing co-op helps 

ranchers tap market for natural beef

By Dan Campbell

10 Summit focuses on common 

challenges facing all co-op sectors

14 Carving a Niche

Arctic co-ops serve as midwife to birth of Inuit art

By Kathy M’Closkey

20 USDA/co-op partnership aids 

producer quest for market power

By James Baarda

24 On & Off the Top 100

25 years of tracking the largest ag co-ops

By Bruce Reynolds, David Chesnick

DEPARTMENTS

2 COMMENTARY

13 LEGAL CORNER

18 CO-OP DEVELOPMENT ACTION

26 NEWSLINE

33 PAGE FROM THE PAST

35 INSIDE RURAL DEVELOPMENT

36 NEW CO-OP PUBLICATIONS 

On the Cover:

Mary Forman, a CPA who is equally adept at balancing books or rounding up cattle on her family’s Oregon ranch, relaxes after a cattle drive.

The Formans are founder-members of Country Natural Beef, dedicated

to sustaining healthy rangeland and family ranches. See story, page 4.

USDA Photo by Dan Campbell 
By Dan Campbell, editor 

eering out from under the

brim of his straw cowboy

hat, Lowell Forman looks

as if he would be right at

home belly up to the bar of the Long

Branch Saloon, shooting the breeze

with Matt Dillon and Miss Kitty. 

But the Antelope, Ore., rancher is

serving, not drinking, as he hits the

switch to start the pump that fills a

1,500-gallon water trough in the hilly

rangeland of north-central Oregon.

The sound of the pump and running

water soon attracts a file of thirsty

red angus-mix heifers, part of a herd

of 450 cattle that graze a 20,000-acre

ranch he and his wife, Mary, operate

about three hours east of Portland.

4 July/August 2006 / Rural Cooperatives

The Natural 

“Brickless” marketing co-op helps ranchers

tap growing market for lean, natural beef 

P
Rural Cooperatives / July/August 2006 5

The range grass is still green in midJune, but it won’t be for long. “Within

a couple of weeks, it will all fade to dry

brown,” says Forman as he scans the

horizon of the ranch that four generations of his family (sons Spencer and

Floyde, currently away at college, will

be the fifth generation if they choose to

ranch) have worked through hot, arid

summers and frigid winters. When the

range dries out, the cattle will have to

roam over ever-greater areas of the

ranch to get the forage they need —

typically 50 acres per head. 

“This was all sheep and horse country until after World War II,” Forman

says, as he aims his pickup truck for

home. A large coyote

eyes him warily before

darting into the brush as

the truck crests a hill. 

Early the next morning, Mary and Lowell

saddle up their quarter

horses and form a quick

game plan for driving 120

pairs into the corrals

around their barn. The

Formans obviously know

the cowboy trade, making

short work of it as they

deftly zigzag their horses

in and around the cattle,

working them ever forward. Mary veers off onto one of the

flanks to bring in some strays as Lowell

continues to drive the main herd down

into a small creek gully, then up a slope

and into the corrals. 

And so ranch life goes as the

Formans move cattle from one part of

the ranch to another to keep them fed

and watered. In winter, when the range

alone can no longer support the herd,

supplemental hay will be provided. In

July and August, 18-month-old steers

will be rounded up one final time and

trucked to the feedlot for finishing.

The process is repeated on tens of

thousands of ranches all over the western United States every year. But from

this point forward, the process will take

a decidedly different twist, due to the

Formans’ membership in the Country

Natural Beef cooperative. 

Co-op without bricks or mortar 

Most ranchers sell their cattle upon

arrival at the feedlot or just after finishing, but co-op members retain ownership through the feedlot and processing

(technically, they sell their cattle to the

processor, then buy the boxed beef

back). They maintain ownership until

their beef is sold to retailers. 

The Formans are among the 76

ranch families (93 counting transitional

members awaiting full membership status) in eight western

states and Hawaii who

have banded together

under the umbrella of the

Country Natural Beef

(CNB) cooperative. The

co-op formerly did business as Oregon Country

Beef prior to its expansion

into other states. CNB

has grown slowly, but

steadily, in the 20 years

since it was founded by 14

family ranches and as the

reputation of its natural

beef has attracted a cadre

of loyal customers.

CNB is a cooperative

without bricks or mortar.

“We own zero net assets and have zero

net liabilities,” Lowell says. It is strictly

a marketing a cooperative, without

employees. The functions of production, feeding, marketing and finance are

performed by teams headed up by individual CNB ranchers. These “internal

partners” have their own employees and

are responsible for their area of expertise. In the beginning, everyone volunteered their time and talent, but these

ranchers are now compensated for their

efforts. Mary, a CPA, heads the finance

office from a house on the ranch near

Antelope. The co-op’s sales now top

$40 million annually, and are growing

about 16 percent each year. Last year,

the co-op shipped more than 40,000

head to market. 

Lowell Forman (facing page) says that the traceability of CNB beef is another factor that

has gained customers for the co-op. Lowell and Mary Forman (above) discuss the day’s

plan of action, then mount up and drive home a herd of about 120 cattle pairs (top). 

USDA photos by Dan Campbell
There is no mystery as to what conditions sparked the creation of the Country Natural Beef cooperative. “We were all

going broke in 1986 selling beef into the commodity market!”

recalls Connie Hatfield, who along with her

husband, Doc, runs a herd of 400 mother

cows on 28,000 acres. (Like most co-op

members, their ranch includes both land

they own and lease from the Bureau of

Land Management). The nearest town is

the tiny hamlet of Brothers, Ore. — “one of

those ‘blink and you missed it towns,’” says

Connie. 

Here as elsewhere, the mid-1980s were

the worst period for agriculture since the

Great Depression of the1930s, she says.

Over-production, plummeting land values

and soaring interest rates took a heavy toll

on farms and ranches all across Oregon. 

To make matters worse, beef in the

1980s was a whipping boy for dieticians

and food faddists. “All you heard in the

media at that time was ‘don’t eat red meat,’

and that ranchers and farmers were raping

the land,” Hatfield says.

She got the co-op ball rolling after a visit

to a health and fitness club in Bend, Ore.

“At that time, it was the only health club in

town; now there are about eight,” she says.

She asked the fitness trainer his opinion on eating red meat.

“He said he recommend all his clients eat beef at least three

times a week.” This was music to Connie’s ears, but she

crashed back to earth a minute later when he added, “But we

have so darn much trouble getting beef from Argentina here

in Bend.”

When pressed as to why he preferred Argentine beef, he

said it was because they raised beef without antibiotics or

growth hormones and it was “short

fed,” meaning it spent less time on

the feedlot, making for leaner meat.

“He had no idea we were raising

beef that way just 50 miles away

from his club,” Hatfield says. “It

was our own fault. We had a great

product, but we didn’t market it. We

just sold our calves to buyers when

they came around, and then we

whined about the prices they paid

us.” 

Soon thereafter, the Hatfields

organized a meeting with about 34

other Oregon ranchers and invited

the health club director over to talk

about beef. After that, 14 of the

ranch families agreed to form CNB

to pursue the lean-beef market. 

One of the first tasks of the new

co-op was to draft an organizational

goal, which reads in part: “Marketing is consumer driven. Our goal is

to provide a sustainable means

through a group to profitably market quality beef ...while

retaining every possible bit of independence.” It goes on to

say that the co-op will be producer controlled and contain

administrative costs to a bare minimum, while costs of operation come from a percentage of producer’s revenue. It concludes: “Country Natural Beef is an idea that needs to be

constantly examined, not an entity that can be bought and

sold.” ■

The co-op is currently expanding

east into Colorado, Texas and New

Mexico, due in part to the urging of its

largest customer, Whole Foods, a growing, up-scale grocery chain that attracts

a demanding, health-conscious clientele. 

Lowell tips his Stetson to Doc and

Connie Hatfield of Brothers, Ore., for

having the foresight and energy to initialize the formation of the co-op in the

mid-1980s (see sidebar, below). At that

time, yearling calves were fetching only

a bankruptcy-inducing 65 cents a pound.

One major goal of the co-op was to help

level out the beef-market rollercoaster

— which sees prices soar one year, only

to plunge the next — by pricing their

beef at an amount that covers a member’s cost of operation, a return on

investment and a reasonable profit. 

In 1986, the co-op picked three

ranches to use as a baseline to determine average cost of production. That

baseline is updated every year to reflect

current market conditions. This practice also provides stable pricing for

CNB customers. Unlike most beef marketers, CNB does not sell based on

weekly price sheets. 

Members are paid in five installments, which begin to flow back to

them from time cattle arrive at the

feedlot. At the finishing feedyard, each

program animal gets a pre-numbered,

CNB ear tag which identifies it through

the packing house. This provides a

record that enables the co-op to trace

beef back to its source. 

6 July/August 2006 / Rural Cooperatives

Co-op member Doc Hatfield prepares samples

of CNB beef during an in-store promotion.

These events help ranchers learn what customers and retailers want. Photo courtesy CNB

Meeting the Argentine challenge “Country Natural Beef is an idea that

needs to be constantly examined, not an

entity that can be bought and sold.”
Ranchers meet consumers

during in-store promos

All members of the Country Natural

Beef cooperative do at least one in-store

promotion each year, where they meet

and greet their buying public. Members

usually cook beef, hand out samples and

recipes while answering questions. The

in-store promo days allow co-op members to hear firsthand what consumers

are looking for in beef. 

The “in-stores” also help ranchers

see the market through the retailers’

eyes.

Connie Hatfield says in-store promo

days provide members with a tremendous boost in morale. “The in-stores

have helped to give us back the pride

we had lost back in the 1980s when the

cattle and beef industry was under constant attack. When we meet the customers, we always make a point of

thanking them for buying our beef and

telling them they are helping to keep

family-owned ranches in business. 

“Many times the customers will give

you a hug and thank you right back,

saying how much they appreciate the

beef products we are producing.

Sometimes they can get emotional,

relating their memories of their grandparents’ farm or ranch and how they

miss it. You are never the same when

you go home after those kinds of

exchanges.” 

“Natural” not for all ranchers 

The “natural” label has been misused

and abused by many, Lowell notes.

USDA stipulates that a product that

contains no artificial ingredient or added

color and is only minimally processed —

in a way that does not fundamentally

alter the raw product — may be labeled

“natural.” 

For CNB, “natural” also means

strictly following a low-input method of

production and adopting a philosophy

of careful land stewardship. All members sign affidavits promising to raise

cattle without the use of antibiotics,

growth hormone implants or feed additives that promote forage conversion.

They also must adhere to the co-op’s

land ethic, which means never overgrazing and managing limited water

resources to maintain grass and plant

diversity and healthy streams. “We basically strive to leave the land in better

shape than we found it,” says Lowell. 

To ensure enforcement of these standards, CNB contracts with the Food

Alliance to do third-party verification.

“This approach to ranching does not

appeal to everyone,” Lowell notes.

“That’s fine; we don’t want to commodify our product. There are plenty of

ranchers who are interested in raising

cattle the way we require and belonging

to a co-op that requires members be

active participants in it.” 

When asked if the co-op has considered going organic, Mary Forman

responds that it just wouldn’t be practical for operations that often cover

20,000 acres or more, such as hers.

“Organic means that every bite of feed

an animal ever consumes should be

classified as organic. Can you imagine

qualifying a million acres of range? If

we can’t guarantee it, we don’t even

suggest it,” she says. 

The only way for CNB members to

guarantee that all feed source is organic

would be to confine animals and feed

them only forage or grain from certified

organic sources. “We are striving for

sustainable range land, families and

communities and we cannot reach our

goal by being organic,” Mary says. 

Sponsorship required for membership 

New members have to be sponsored

by an existing member, and then go

through a two-year trial membership

before they become full members of the

co-op. 

Member ranches range in size from a

Wyoming ranch with 12,000 cows to

Rural Cooperatives / July/August 2006 7

Lowell Forman rounds up some

stragglers. Managing limited

water resources to maintain plant

diversity and healthy streams is

part of the co-op’s land ethic. 
one long-time member with only 60

cows. Marketing “slots” are allocated to

members, determining the dates when

they must ship their cattle to the feedlot. Once a member has slots assigned,

they cannot be bumped out of them. 

Jim and Maria McNamee, who manage 550 mother cows near Maupin,

Ore., became full members in

December 2005. They can’t be accused

of making a snap decision to join. Jim,

Mary Forman’s brother, has been

watching the co-op grow and prosper

for 20 years and Maria has worked in

the CNB finance office for 12 of those

years. They were invited to join in the

spring of 2003 when the need for cattle

was growing. 

“We joined in a year of what turned

out to be record-high prices for generic

beef,” Jim says with a laugh. Still, he

has no doubt that he’ll do better most

years by being a member of the co-op.

“I like the idea that we will have more

control over our own destiny by marketing through the co-op,” Jim says.

“The biggest change means that now

if we treat an animal with antibiotics, it

cannot be marketed with our co-op cattle,” Jim says. But it can still be raised

and sold outside of the co-op for generic beef. 

Every member a director

Every member of the co-op is also a

board member. Participation in a weekly conference call every Wednesday

morning is encouraged. Attendance at

their two annual membership meetings

each year is required, as is participation

in an event involving customers or consumers. 

During the conference calls, members hear reports on which ranches

shipped cattle for processing the prior

week. They also get updates on sales

and promotions, freight and feedlot

costs, etc. Team leaders for the marketing, finance, environmental and production committees also hold weekly conference calls. 

Will this policy of having every coop member also serve as a director still

be feasible as the co-op passes the 100-

member mark? “We frequently have

that discussion: are we getting too big

to operate this way?” says Hatfield.

“We’ve decided to keep doing business

this way until it becomes impractical; so

far, it is working just fine.” Indeed, it is

a strength of the co-op, she says, adding

that “we’ll know when it’s time to

change.”

Shorter time on feed

All CNB cattle are processed at AB

Foods in Toppenish, Wash. However,

with the co-op expanding membership

to the east side of the Rocky Mountains, use of a second feedlot and processing plant (probably in Colorado or

Texas) is being considered to cut down

on trucking costs to the Northwest.

All CNB cattle are fed at Beef

Northwest Feeders in Boardman, Ore.,

where feedlot owner John Wilson is

also a member of a CNB family ranch.

The working partnership with Beef

Northwest is important, because not

only does it have to provide space for

12,000-15,000 head at any one time, it

also must segregate the co-op cattle and

provide a special feed truck and other

special care. 

“We constantly collaborate with the

ranchers on animal handling, health and

nutrition,” says Wilson. “Beef Northwest Feeders essentially acts as a partner in a vertically integrated extension

for CNB.”

Because CNB customers want lean

beef and smaller cuts, its cattle stay on

feed an average of only 92-94 days, as

opposed to the industry average of 120-

140 days. CNB carcasses typically are

about 600 to 700 pounds in an industry

where 1,000-pound carcasses are the

norm. 

“Ideally, we feed to produce a carcass

that will yield 40 percent Choice and 60

percent Select beef,” Lowell says. Since

Select beef is leaner, it is a bit more

challenging to cook properly. But for

health-conscious consumers looking for

smaller, leaner cuts of beef, that’s a small

price to pay. Indeed, a primary reason

the co-op was launched was to recapture

consumers who had stopped eating beef

on a regular basis (see sidebar). 

“Working with Whole Foods, we are

creating a strong, consistent market for

our shorter-fed beef,” Lowell says.

Whole Foods currently buys about 60

percent of the co-op’s beef. 

From its formation, CNB has used

these principles as its guiding light: 

• Providing humane care for our

livestock, native plants and

wildlife is a first priority;

• Healthy land is biologically

diverse;

• Land management decisions

are based on long-term health

rather than short-term gain;

• We never use growth-stimulating hormones, feed additive

antibiotics, genetically modified

grains or animal byproduct

feeds;

• By grazing thoughtfully, we

benefit not only the land and its

ranching families, but society

as well. ■

Country Natural

Beef’s principles:

8 July/August 2006 / Rural Cooperatives

Jim and Maria McNamme, with daughters

Lisa and Kate, recently completed their

two-year trial membership and are now

full co-op members. 
“We believe their high-quality feed,

less stress and better living conditions

lead to a more tender cut of meat and a

better flavor,” says Jim Thomas, meat

associate coordinator for Whole Food

Market’s Northern Pacific Region. 

Other major buyers include more

than 100 restaurants, New Seasons 

natural food stores in Portland, Bon

Apatite (which supplies colleges and

hospitals), and Burgerville, a Northwest

burger chain that prepares burgers only

with fresh beef. 

A community of shared values

Marge McClaran, an 80-year-old

CNB member from Joseph, Ore., says

that rural America is changing in such a

way that she often feels as if “we are

losing our community of place.” She

cites the closure of her community’s

local school and livestock auction yard

as examples of this trend. But when she

gets together with the rest of the co-op

members for CNB annual meetings, she

feels as if this community of place has

been replaced by something even better: “a community of shared values.”

As further evidence of the favorable

impact the co-op is having, young people

who once had little or no intention of

returning to their family ranch after college are now coming back home to continue the family tradition as cattle producers. Hatfield says the co-op has been

credited for helping to attract 11 young

families back to ranches. Her own

daughter, Becky, married into the Hyde

family, CNB ranchers who own the

Yamsi Ranch near Chiloquin, Ore.

“At our last co-op meeting, we had

more than 200 in attendance, and there

were 25 children under the age of five,”

Hatfield notes. The co-op arranges for

babysitters at these meetings so that

parents can fully participate in the business sessions. Connie has insisted on

offering this service, recalling that when

she was a young mother, how frustrating it was for her to have to miss business sessions so that she could care for

her young children. “I always swore

that if I ever got in a position to do

something about it, I would work to

arrange things so the wives could fully

participate.”

“We hope our business model

spreads,” she continues. “We’re helping

to sustain family ranches and doing it

by producing a product that is bringing

more people back to beef. I’m sure it

can be replicated by others. We would

give our right arm if sharing information about what we’ve done can help

others do something similar. It is our

hope that 100 years from now, families

will still be raising cattle on these

ranches.” ■

Rural Cooperatives / July/August 2006 9

“It is our hope that

100 years from now,

families will still be

raising cattle on

these ranches.” 
here is Teddy Roosevelt

when America needs

him? Glenn English,

CEO of the National

Rural Electric

Cooperative Association (NRECA),

raised this question during an address

that was one of the highlights of the first

National Cooperative Summit, held May

3 in Washington, D.C. 

Roosevelt — the nation’s monopolybusting president — would doubtless

be sorely aggrieved if he returned now

to see how business power has been

concentrated into fewer and fewer corporate hands. This makes the role of

cooperatives more important than ever,

English noted. Three decades of corporate mergers and deregulation have

resulted in the rise of a new class of

robber barons in some industries, he

said. 

In the 1970s, there were more than

60 railroads competing with each other.

Then deregulation began, and today

there are but four national railroads,

English said. This has impacted rural

utilities by contributing to soaring

prices for coal. 

“What would Teddy Roosevelt have

to say? This nation needs a good dose

of Teddy Roosevelt!” said English,

adding that NRECA has engaged in a

nine-year struggle on energy legislation

needed to help address some marketplace imbalances. NRECA’s 900-plus

member co-ops provide electricity to 39

million people and are growing at twice

the rate of investor-owned utilities,

English said. 

“Some say co-ops

should evolve into

hybrid businesses,

combining elements of

co-ops and investorowned businesses.

Others urge members

to cash-in [selling or

converting their coops], sacrificing the

good of the membership for personal gain,”

he continued, sounding

highly skeptical of

such moves. Instead,

co-ops need to

recruit managers who

are “true believers in

co-op principles,”

English said. 

“Co-ops represent the ultimate in

self-reliance; they let people do for

themselves,” he said. But new tools

must be developed to carry co-op ideas

and principles to millions more people

in America and around the world. Coops are different from other businesses

because they have “heart and soul,”

English continued, and they are committed to the concept of providing service to their communities (the seventh

co-op principle). 

English saluted the National

Cooperative Business Association

(NCBA) for hosting the Co-op Summit,

calling NCBA “the keeper of the flame

for the co-op movement.”

Summit’s cross-sector focus

The Co-op Summit brought together 300 national cooperative leaders for a

day-long series of seminars on topics

ranging from strategies for fighting coop conversions to ways of improving

cooperative identification with consumers. 

Some saw the summit as a first step

toward developing a cross-sector co-op

agenda to address common needs and

to begin flexing more co-op political

muscle, which has never been commensurate with the impact co-ops have on

the national economy.

The Summit also had an international flavor. More than 20 representatives

of the International Cooperative

Association attended the Summit, and

Dame Pauline Green, CEO of Cooperatives UK, the United Kingdom’s

largest consumer cooperative, was a featured plenary session speaker. She discussed efforts to develop a common coSummit focuses on common

challenges, opportunities facing

all co-op sectors

W

10 July/August 2006 / Rural Cooperatives

Identification badge ribbons await pickup at the conference

registration desk. The Co-op Summit attracted 300 co-op leaders from around the world. Photos courtesy NCBA
op “master brand” for the

cooperative, which includes

various types of businesses,

including food and drug

stores. 

Green explained that the

pilot program in the U.K. was

aimed at creating a consistent

co-op identity around a common logo and slogan. Overall,

she said, the pilot projects

have been successful, boosting

sales and customers and

increasing the profile of the

co-op stores. It is now up to

U.K. co-ops to decide

whether to adopt the brand

permanently. 

Subsequent events have

proven that food, pharmacy

and travel stores all outperformed control groups and

brand standards improved

across the board. As a result,

The Co-operative Group has

decided to roll out the new

identity campaign across more

than 3,400 outlets across the United

Kingdom. Many other U.K. cooperatives

are also adopting the common brand. 

Other featured speakers included

Wisconsin Sen. Herb Kohl and Deputy

Agriculture Secretary Charles F.

“Chuck” Conner. Kohl hailed cooperatives as “the good news in American

business” while Conner said without

co-ops “rural America would not be

what it is today.” 

Conner: co-op identity 

runs deep in rural America 

Pinch hitting for Agriculture

Secretary Mike Johanns, who was called

away to crucial trade talks in Geneva,

Switzerland, at the last minute, Conner

noted that the Summit coincided with

an important anniversary. “USDA and

rural cooperatives are celebrating the

80th anniversary of a great partnership:

the Co-op Marketing Act, which

became law in 1926 and mandates that

USDA operate a co-op program.”

Conner noted that some have suggested

the Act be updated to expand the mission to include all types of co-ops — an

idea that was popular with many of the

non-ag co-ops at the summit. 

“Those of us who grew up in farm

country learned early on the value of

co-ops,” Conner said. “We got our

electricity from the REC, our phone

service from a rural telco, and did our

farm business down at the co-op. The

identification of co-ops with rural

America runs deep,” even extending to

the White House, he said. 

“President Bush himself gets his

electricity down at the ranch from a

rural electric co-op,” Conner said. “He

also gets his water from a USDA Rural

Development-financed rural utility. You

can talk co-op in the Oval Office to this

President and be understood. That

hasn’t always been the case in the past.”

Of course, the cooperative movement as a whole is much broader than

just rural America and agriculture,

Conner said, acknowledging and welcoming the non-farm and non-rural cooperatives present. 

The mission of USDA Rural

Development, which administers

USDA’s rural business and cooperative

programs, is to increase economic

opportunity and improve the quality of

life in rural America. “You don’t need to

be a farmer, an REC or a telecom to do

business with us,” Conner said. “If you

are doing any kind of business in rural

America — whether it’s elder or farm

worker housing, or health care, or

schools or child care, or worker cooperatives in any field, or making use of

our housing, community facilities and

business programs — we can provide

resources you can draw upon. We are

eager to work with you.

“We know we can’t stand still, and

neither can you. Rural America is

incredibly diverse. The rural economy

is highly diversified. The world is

changing. Your businesses — and our

mission — change with it.” 

A better business model 

NCBA President Paul Hazen kicked

off the Summit by proclaiming that U.S.

co-ops “aren’t simply an alternative

business model; they are a better business model.” He offered reasons why:

• Cooperatives distribute capital widely

among average Americans, while

stock companies make the rich richer. 

Rural Cooperatives / July/August 2006 11

The summit ended with a panel discussion that included (from left): Sheldon Petersen, CEO, National

Rural Utilities Co-op Finance Corporation; Stephen Caruso, CEO, Florida’s Natural Growers Co-op; Paul

Hazen, NCBA president; Alfred Plamann, CEO, Unified Western Grocers; Charles Snyder, president,

National Co-op Bank. 
• Cooperatives keep capital in the

community, while stock companies

export it elsewhere. 

• Cooperatives exemplify the “ownership society,” while stock companies

concentrate ownership among the

investor class. 

• Cooperative governance is open and

democratic, while stock company

governance is closed and easily

manipulated. 

• Cooperatives have both economic

and social goals, while stock companies are motivated solely to make

money for shareholders. 

Cooperatives largely police themselves while government must provide

extensive oversight and control over

stock companies, Hazen said. “As long

as the newspapers are full of scandals

involving investor-owned companies, as

long as a greedy few seek to convert coops for personal gain and as long as

economic forces keep widening the gap

between rich and poor, I’ll keep saying

it. Co-ops are a better business model.” 

Co-op program deserves support 

Sen. Kohl, the ranking minority

member on the U.S. Senate Agriculture

Appropriations Subcommittee, said

cooperatives deserve greater attention

from the federal government for all

they do to foster economic development. He noted that co-ops serve nearly 40 percent of Americans and pump at

least $200 billion into our economy

each year. 

“Cooperatives are vital to our economy, and they do it with a conscience

— a conscience that is centered on the

notion that we get more done by

working together,” Kohl said. “Yet,

while investor-owned businesses can

turn to the Commerce Department,

and small business has the Small

Business Administration, cooperatives

have just one office at the Department

of Agriculture, which makes it their

sole business to advocate for co-ops.”

He urged that a leader with strong coop credentials be appointed to reinvigorate USDA’s Cooperative Programs

office.

Kohl helped secure $4.5 million in

federal funding to establish a farmer

health care cooperative pilot project in

Wisconsin to increase access to affordable health benefit plans. The funding

is being used to develop health care

purchasing alliances for Wisconsin

farmers and small businesses in the

state’s rural communities. 

“If this program works in Wisconsin,

I see no reason why it can’t work in

other parts of the country,” Kohl said.

“It’s a textbook example of cooperatives

offering an innovative solution to a vexing national problem.” 

He also authored a bill that will result

in the expenditure of $500,000 to collect

data and research on the contributions

cooperatives make across our economy.

That program is being overseen by

USDA’s Cooperative Programs office. 

The Summit concluded with a

roundtable of co-op CEOs moderated

by Hazen. The CEOs discussed the top

issues facing U.S. co-ops today, including capital and equity needs, as well as

ideas for better co-op marketing. ■

12 July/August 2006 / Rural Cooperatives

The continuing debate over the wisdom and need

for states to enact legislation authorizing the creation

of “cooperatives” with many characteristics of limited

liability companies was the focus of one Summit breakout session. Donald Frederick, USDA Cooperative Programs specialist in law and policy matters, reported

that four states (Wyoming, Minnesota, Iowa and Tennessee) now have such laws and a fifth (Wisconsin)

was close to adopting one [it since has].

Thomas Geu, professor at the University of South

Dakota School of Law, discussed the project of the

National Conference of Commissioners on Uniform

State Laws (NCCUSL) to draft a model statute in this

area. He explained that NCCUSL is a nonprofit association of lawyers, appointed by the states, that researches, drafts and promotes enactment of uniform state

laws in areas where it believes uniformity is desirable

and practical.

In the summer of 2003, NCCUSL created a drafting

committee to write a uniform cooperative associations

law in response to the Wyoming and Minnesota laws

that were already on the books at that time. Professor

Geu, who serves as the reporter (chief draftsperson)

for the committee, said that the committee has met

each fall and spring since then. In 2005, the original

scope of the project, agricultural cooperatives, was

broadened to include most lines of business. NCCUSL

plans to complete work on its uniform statute in the

summer of 2007 and submit it to the legislatures of the

states for possible enactment in their 2008 legislative

sessions.

The panel concluded with a discussion of key provisions of the various pieces of legislation. Frederick

explained provisions of the existing state “LLC/Cooperative” laws and questioned calling entities created

under these laws “cooperatives” when a substantial

portion of the ownership, control and financial rewards

can be bestowed on non-patron investor-owners. Professor Geu responded by explaining how the NCCUSL

draft attempts to protect patron-member interests

while still creating flexibility and incentives for outsiders to provide equity capital to cooperatives. ■

Model co-op law examined
By Donald A. Frederick

Program Leader for Law,

Policy & Governance;

USDA Rural Development

donald.frederick@wdc.usda.gov

or over 150 years, a cooperative has been defined

as a business with two

unique characteristics:

first, it is owned and controlled by the people who use its services, and second, earnings are returned to

users (patrons) on the basis of use

(patronage).

Since 2001, five states — Wyoming,

Minnesota, Tennessee, Iowa and most

recently Wisconsin — have enacted laws

authorizing entities called “cooperatives” that permit substantial non-patron

ownership, control and benefit. Each of

these laws permits two classes of voting

members: patron-user members and

non-patron investor members. The first

four state laws were major deviations

from traditional cooperative principles:

• Up to 85 percent of the voting control can be allocated to non-patron

investors, and

• Only 15 percent, or even less, of the

earnings need be allocated to patrons

on the basis of patronage.

Wisconsin has moved somewhat

closer to traditional cooperative norms.

Patron members must have at least 51

percent voting control of the association. And the minimum threshold for

earnings allocated to patron members

on the basis of patronage is 30 percent.

LLC characteristics

While traditional cooperatives have

been corporations, entities formed

under these new laws are more like limited liability companies (LLCs). This

gives the organizers considerable flexibility in determining the ownership and

financial interests of the members,

while still providing them with protection from personal liability on a par

with that given to owners of corporations, including cooperative corporations.

Because these associations are not

corporations, they also have additional

flexibility in handling their federal

income tax obligation. They can

choose to be taxed either as a partnership under Subchapter K of the Internal

Revenue Code or as a corporation with

the additional tax deductions provided

for cooperatives under Subchapter T.

NCCUSL’s role

The National Conference of

Commissioners on Uniform State laws

(NCCUSL) is an association of 300

representatives (all of them attorneys)

from all states, dedicated to promoting

uniformity among various state laws.

NCCUSL drafts model state laws and

promotes their adoption by their

respective state legislatures.

After the first cooperative association

laws were adopted in Wyoming and

Minnesota, NCCUSL named a

Drafting Committee to prepare a

Uniform Cooperative Association Act.

While the original application of the

law was limited to agricultural cooperatives, in 2005 the scope of the law was

expanded to include all business activity.

NCCUSL is currently considering one

or more specific exceptions to the scope

of its law. The new Wisconsin statute is

specifically not available to groups

organizing a cooperative to supply “natural gas, heat, light, power or water to

its members.”

The Drafting Committee expects to

present its finished product to the full

NCCUSL membership for approval at

the group’s annual meeting in the summer of 2007. If the model law is

approved, the NCCUSL Commissioners will begin working to have it enacted by their states beginning with the

2008 legislative session. So this may

well be a political issue in the coming

years in many states that have not considered it up to now.

Implications for existing co-ops

The new laws are an alternative to,

not a replacement for, existing state

cooperative incorporation laws. So, if

your state enacts such a law, it will have

no impact on the structure or legal

rights and responsibilities of existing

cooperatives at the state or local level.

Also, changes in state law do not

usually alter federal rights and obligations. For example, if an agricultural

marketing association decides to permit

non-patron memberships, it will simply

not qualify for the limited antitrust

protection provided producer associations under the Capper-Volstead Act.

Nor will it be covered by statutory and

administrative exemptions from the

registration and prospectus requirements of the Securities Act of 1933.

But will less reliance on Subchapter

T by “cooperatives” weaken support on

Capitol Hill? Will clouding the picture

of what is a “cooperative” weaken support for Capper-Volstead and other

favorable laws? Only time will tell. ■

Rural Cooperatives / July/August 2006 13

LEGAL CORNER

Unincorporated co-op laws proliferate

F
By Kathy M’Closkey, PhD

Department of Sociology and Anthropology

University of Windsor, Canada

e-mail: mcloskey@uwindsor.ca

ne of the great “cultural miracles” of the 20th

century occurred when the world discovered

the beauty of art produced by the native Inuit

people of Canada’s Arctic

regions. This process,

which began in the 1950s, was

chronicled by Nelson Graburn,

an anthropologist at the

University of California at

Berkeley, in a series of articles

published during a 40-year

period (1967-2004), in which

he described the spectacular

rise of Inuit art and its reception internationally. 

This article draws on

Graburn’s writings as it examines how the cooperative business structure helped Inuit

communities that were spread

across the broad expanse of northern

Canada to combine forces and tap

international art markets, generating

desperately needed revenue for their

people. A half century later, these artisan-owned businesses remain a vital cog

of the region’s economy. 

Fur market collapse 

necessitates change 

The shift to trapping animals such as

white fox, which occurred at the end of

the 19th century, was a short-lived

financial success for many Inuit. After

the collapse of the fur market in the late 1940s — due to

competition from Russia, fur farms and synthetics — the

Canadian government expanded its presence in the North to

affirm its sovereignty and administer welfare. Until World

War II, the typical Inuit winter settlement consisted of a

Hudson Bay Company (HBC) store, a Royal Canadian

Mounted Police (RCMP) post, Anglican and Roman

Catholic churches and a few Inuit households whose members were employed by the non-Inuit institutions. 

Dozens of small satellite camps near favorable hunting,

fishing or trapping sites were spread out over a vast region.

Inuit only congregated near the permanent settlements during the summer to trade, socialize or to find temporary

employment unloading supply ships. The Inuit population

hovered around 11,000, with 500 non-Inuit. About 60 per14 July/August 2006 / Rural Cooperatives

O

Carving a Niche 

Arctic cooperatives serve as 

midwife to birth of Inuit art
cent of Inuit livelihood was derived

from government subsidy. 

Small carvings of bone, ivory or

stone had played a peripheral role in

trading activity with both whaling crews

and the HBC. The government encouraged production of souvenirs to alleviate welfare payments and provided the

HBC with credit to buy crafts. 

After World War II, the federal government moved into the north on a

massive scale. The Cold War prompted development of the Distant Early

Warning (DEW) line. National and

international political events forced the

Canadian federal government to take

more direct responsibility for its

northernmost residents. Day schools

and nursing stations were built alongside housing for southerners. 

In 1948, painter James Houston

journeyed north and serendipitously

discovered the souvenirs carved by

Port Harrison (now Inujjuaq) Inuit.

Captivated by their charm, he brought

them to the Canadian Handicraft

Guild upon his return to Montreal.

When Houston returned north in

1949, he purchased 300 carvings for $5

each. These sold quickly at a Guildsponsored event. 

Houston returned to the Arctic,

backed with $8,000 provided by the

Northwest Territories Council.

Although 20,000 carvings

sold within three years,

such rapid success nearly capsized the project.

By Christmas 1952, the

shipment was far too

large for the Guild to

handle. 

Houston contacted

Eugene Power, a

long-time friend

and successful

businessman from

Ann Arbor, Mich. Power purchased the

entire output for $15,000 and formed

Eskimo Art Inc., a nonprofit corporation that garnered exclusive importing

rights into the United States. He then

sold many of the sculptures through his

influential connections. Throughout

the 1950s, the HBC also purchased

carvings, but when inventories failed to

move, it stopped buying. 

The birth of Inuit art

Although off to a rocky start, within a

decade of Houston’s inaugural trek

north, Inuit carving was transformed

into a multi-million-dollar enterprise.

How did this miracle happen? Small

producer/consumer co-ops subsidized

by the federal government were

organized during the 1960s. The first

Arctic co-op was incorporated in

George River in spring 1959. Within

four years, there were 52 co-ops,

including 11 in Arctic Quebec.

Quebec marketed Inuit art

through La Fédération des

Coopératives du Nouveau

Québec (FCNQ), run

by Inuit managers,

whereas the government of the

Northwest Territories (NWT) formed

Canadian Arctic Producers (CAP) in

1965 with non-Inuit management. By

the mid-1970s, CAP wholesaled sculptures, fine arts and crafts to over 700

dealers in 11 countries. Building on the

Canadian Guild of Crafts, CAP set and

maintained standards including cultivating an elite clientele. 

In 1961, the Inuit Art Section, a division of Northern Affairs, sponsored the

Canadian Eskimo Arts Council (CEAC)

as an advisory board of professional

artists and museum personnel to oversee development and promotion of

Inuit printmaking, first introduced by

Houston at Cape Dorset in 1959. The

board’s most controversial responsibility

involved acting as gatekeeper related to

the rejection of prints created in workshop co-ops. Regional styles were cultivated or sustained by outside professional advisors. 

Due to controlled marketing and

intensive promotional efforts, Inuit art

drew high prices. Full-page ads published by the NWT Economic

Development and Tourism in Inuit Art

Rural Cooperatives / July/August 2006 15

Counter clockwise from bear carving: “Sitting Bear” by Jacob Irkok; 

“Mother & Child” by Josephine Angma; [both photos courtesy ABoriginArt

Galleries, www.inuit.net; all other photos courtesy Kathy M’Closkey]. Salea

Nakashuk at her loom, 1981. “Bird” by Takealook; an oil tanker brings winter 

supplies to Pangnirtung in 1981 in what was the Northwest Territories, now called Nunavut.
Quarterly featured a large sculpture

adjacent to the phrase: “Helping Inuit

artists to help themselves.” Copy adjacent to the igloo logo reads: “this tag is

your certification from the government

of Canada that carvings bearing this

label are genuine and can be imported

duty-free anywhere in the world.” Inuit

artists also enjoy protection from copyright infringement and additional

income can be generated through the

sale of reproduction rights for calendars, stamps, illustrations, etc. 

By 1975, carving had become the primary occupation of many of the 9,000

adult Inuit, providing money for expensive items such as guns and snowmobiles. Cash income per family averaged a

six-fold increase in less than 25 years. By

1978, 52 co-ops sold $24 million worth

of goods and generated $6.5 million in

income as the single largest employer in

the north. Eighty percent of the adult

Inuit population belonged to co-ops.

During the 1970s, Inuit artworks

also achieved widespread recognition

through international touring exhibitions, catalogues and conferences. For

example, Sculpture Inuit: Masterworks of

the Canadian Arctic, was organized by

CEAC, funded by the Department of

Indian and Northern Affairs [DINA],

supported by National Museum of Man

and the Department of External Affairs,

and circulated internationally. The

exhibit heightened demand for Inuit

art. Carving and printmaking became

symbols of Canadian identity globally

and simultaneously the largest source of

income in the North. 

During 1980, the wealthiest co-ops

in Quebec purchased more than $1 million in carvings. A decline in demand

occurred shortly thereafter, when

FCNQ’s inventory reached $2 million

and CAP held inventory valued at more

than $1.5 million. Co-op members

sought ways to bypass costs associated

with marketing through CAP by selling

directly to dealers. 

Eric Mitchell, general manager of

CAP, cautioned against such a move,

noting the low returns to Alaskan native

artists who lacked a marketing system.

By 1980, with the Inuit population hovering around 25,000, additional craft

projects featuring jewelry, pottery or

hand-sewn articles were organized in

several NWT Inuit communities. But

budget constraints ensued, prompting

the territorial government to attempt

privatization. 

These efforts eventually failed. Coops took over many of the original

shops, and, a decade later, the

Department of Culture and Communication injected more money into the

arts and craft sector, managing most

facets, including acquisition of materials, production, promotion, exhibiting

and marketing.

When the new Canadian Museum of

Civilization (formerly the National

Museum of Man) opened in Hull,

Quebec, in 1989, the inaugural exhibit

16 July/August 2006 / Rural Cooperatives

These Inuit villages scattered across Canada have used a cooperative business to market their artwork worldwide. Map courtesy Our Co-op

Network.
featured 20th Century Native Art. Of

9,000 works held in their collection,

about 7,000 were created by Inuit

artists. The Inuit Art Section of DINA

publishes a Catalogue of Services and

Collections. The IAC maintains biographies on hundreds of artists, has catalogued more than 100,000

slides, organized exhibits and

maintains a large library. The

nonprofit, Inuit-owned Inuit

Art Foundation publishes Inuit

Art Quarterly.

In 1977, anthropologist

Hugh Brody wrote: “Eskimo

[Inuit] carving, as it is now

internationally known, is a

consequence of southern domination of Eskimo economic

life.” Yet the 33 co-ops currently in operation are independently owned and controlled Native businesses which

operate retail facilities, hotels,

outfitting, arts and crafts and

property rentals, with combined revenues of nearly $100

million in 2004. Since 1986,

the Arctic Co-op Development

Fund has provided more than

$300 million in financing.

Arctic Co-ops Limited markets

Inuit art to over 50 Canadian

galleries and 24 in the United

States and Europe. The organization also owns five retail outlets

called “Northern Images.”

Women artists in spotlight

Inuit women artists have achieved

widespread acclaim relative to women

artists in other native societies.

Between 1965 and 1990, four Inuit

artists — all of them women — have

received the Order of Canada. The

appliquéd wall hangings from Baker

Lake have achieved national fame.

These immense works of art are on display at the National Arts Centre in

Ottawa and Legislative Assembly in

Yellowknife. While working on my

Master’s thesis in the early 1980s, I visited Frobisher Bay (now Iqualuit) and

Pangnirtung, home of the Pangnirtung

Tapestry Studio. The photographs that

accompany this article were taken at the

weave shop and the “Misuvik” or

sewing center at that time. 

Since its inception, Canadian Inuit

have been promoted as artists to a

degree that no other ethnic group in the

world ever has. Between 1971 and 1994,

more than 1 million carvings were produced! The better-known artists earn

very high incomes. But this “cultural

miracle” would not have happened without government-subsidized cooperatives. Today, more than 55,000 Inuit live

in 53 communities across the North.

In 1999, the Canadian government

settled a land claims agreement by

dividing the Northwest Territories into

two parts. Nunavut, which means “our

land” in Inuktitut, is now controlled by

Inuit. A 10 x 22-foot tapestry woven by

seven artists of the Pangnirtung

Tapestry Studio was recently installed in

Nunavut’s Legislative Assembly.

Co-ops bolster Arctic economy 

Although the financial importance of

art production has declined relative to

an increase in other means of livelihood, the co-ops continue to serve as

the financial backbone of most arctic

communities. Given their outstanding

success over the past five decades, it’s

unlikely that other forms of financing

will usurp their crucial role in sustaining a broad range of Inuit-owned

businesses across the North. Vive

les co-ops! 

The following websites contain

additional information regarding

the cooperative system in Arctic

Canada:

• http://www.arcticco-op.com/

co-op_location.html — Map of

region; 

• http://www.ainc-inac.gc.ca/

pr/info/info114_e.html — Inuit

Information sheet from Indian

and Northern Affairs Canada.

Other components of this website

contain a wealth of information

including Arctic Co-ops Limited,

case studies of particular co-ops,

and an essay by Dr. Ian

MacPherson, director of the

British Columbia Institute for

Co-operative Studies. Dr.

MacPherson notes how the Inuit

success story is one of the most

extraordinary examples of aboriginal entrepreneurship in the world. 

• http://www.nacaarts.org/ — contains information on organizations

that provide grants, support business development, education, etc. 

• http://www.usaskstudies.coop/ngc/ —

University of Saskatchewan website

for the Centre for Study of Co-ops.

References 

This article draws upon source material

written by the following authors (for

complete citations of source material,

please e-mail the author at:

mcloskey@uwindsor.ca): Jean Blodgertt

(1980); Hugh Brody (1979); Helga

Goetz (1993); Nelson Graburn (1967-

2002); Diamond Jenness (1964); Kathy

M’Closkey (1996); Marybelle Myers

(1984); J.K Stager (1982); Virginia Watt

(1987). Photo scanning by Abby

Radouski and Steve Richter. 

■

Rural Cooperatives / July/August 2006 17

An Inuit girl with a hand-woven doll in Pangnirtung in 1981.
Editor’s Note: This column has been compiled by CooperationWorks! to provide highlights of cooperative development activities

funded under USDA Rural Development’s

Rural Cooperative Development Grants

(RCDG) program. This article focuses on

sustainable-energy technologies and facilities. CooperationWorks! is a network of

cooperative developers who share knowledge,

develop skills and use the cooperative business model to create social and economic

benefits. For more information, visit:

www.cooperationworks.coop. 

New England goes solar

In largely rural western Massachusetts,

demand for solar energy is on the rise

and Pioneer Valley Photovoltaics —

also known as (PV)2 — is growing to

meet it. The worker-owned cooperative

designs and installs solar electricity and

hot water systems in Massachusetts and

Connecticut. To date, it has installed

almost 100 residential, commercial and

municipal photovoltaic systems. 

In the past three years, the co-op

has more than doubled annual revenue

and has added eight new

employees who are on track for

ownership stakes in the cooperative. As one worker-owner

explains, “People are really concerned about energy these days,

both how much it costs and

where that energy comes from.

They like that we’re workerowned — it helps them feel

comfortable that we’ll be there

to help them with energy for

the long haul. And we like it

that our successes have a positive impact on the environment

and allow us to serve as a role

model for other businesses.” 

The Cooperative Development

Institute (CDI), headquartered in

South Deerfield, Mass., and serving

New England and New York, has partnered with (PV)2 since its earliest days.

CDI assisted with the initial planning

and launch of the co-op as well as its

sales and marketing efforts, and helped

them to secure $350,000 in incentives

for photovoltaic installations from the

Massachusetts Technology

Collaborative. 

Hoosiers focus on forest fuel

Indiana is home to diverse agricultural

based resources available for sustainable

renewable energy development. In addition to the state’s emphasis on expanding

the production and use of bio-based fuels

such as ethanol and biodiesel, opportunities are also being explored to process

wood waste from Indiana’s expansive

hardwoods industry into a marketable

wood fuel pellet. The Indiana

Cooperative Development Center

(CDC), with offices in Indianapolis, is

bringing together primary and secondary

wood businesses with economic development partners to explore the potential of

cooperative and other collaborative business models to expand an emerging biomass industry within the state. 

An exploratory meeting in early 2006

with wood product business owners led

to a feasibility study, now being conducted. This comprehensive study,

which will investigate the demand for

wood fuel pellets in the home heating

and industrial-scale markets, the com18 July/August 2006 / Rural Cooperatives

Renewable energy sparks 

surge of new co-ops 

CO-OP DEVELOPMENT ACTION

This Minnesota wind farm is generating $2.5 million in annual energy sales. Photos courtesy

CooperationWorks!

(PV)2, a worker-owned co-op in western Massachusetts, designs and installs solar electricity

systems.
parative nature of fuel pellets with existing energy resources in Indiana, the

appropriate scale with cost of production at various levels, marketing strategies for the finished product, and the

potential for diversifying a production

facility to utilize other emerging biomass residues. 

Midwest powers up

In the nation’s heartland, where

corn, soybeans and other potential fuel

crops dominate much of the landscape,

renewable energy is on everyone’s mind

— and cooperative development practitioners are no exception. Cooperative

Development Services (CDS) with

offices in Madison, Wis., and St. Paul,

Minn., has been actively expanding into

the area of renewable energy in Wisconsin, Minnesota and Iowa.

During the past two years, CDS has

completed feasibility studies and business plans on community-owned wind

Editor’s note: CooperationWorks! conducted a national

conference call in June on “Current Trends in Cooperative

Incorporation Models,” with guest speaker James R.

Baarda, agricultural economist with USDA Cooperative

Programs. In April, he prepared a comprehensive, 200-

page discussion paper on “Current Issues in Cooperative

Finance and Governance.” For an electronic copy, e-mail

him at: james.baarda@wdc.usda.gov. 

New category: ‘investor member’

Recently enacted statutes in Wisconsin, Wyoming,

Tennessee, Minnesota and Iowa have created a new category of cooperative: “investor members.” These members

invest capital for an expected profit and typically do not

use the co-op in other ways. But some of the new statutes

afford these investor-members as much as 85 percent of

the profits of the business and as much as 85 percent of

the vote in its governance. 

This is a dramatic departure from traditional cooperatives, which give no voting rights to “preferred shareholders” who invest in the co-op hoping to make money on

their investment, but not demanding any control over the

business in return.

The new statutes are apt to make it possible for some

farmer co-ops to expand where they otherwise could not

have. But these statutes also are causing concern — even

opposition — from those who seek to protect the essence

of cooperatives as user owned and controlled enterprises

operated for the benefit of their members. A national commission is examining this issue and is expected to make a

recommendation in the near future regarding creation of a

uniform, national cooperative law, Baarda noted. (For more

information on this topic, visit the website of the National

Conference of Commissioners on Uniform State Laws

(NCCUSL): http://www.nccusl.org/Update/.)

Look closely at co-op principles

During the conference, Baarda stressed that contention

over this issue is unnecessary. Instead, he said, what is

needed is a lot more information. “We need to know what

works and what doesn’t,” he said. Cooperatives — not just

agricultural, but all co-ops — need to define their bedrock

principles and build their businesses around them. He cited

several versions of cooperative principles that are widely

used today, giving some historical context to explain differing emphases.

Although he recognized that no co-op business model is

perfect, “this is what we have to work with.” New economic and social forces — including some never faced before

— raise critical questions: Are there inherent limitations in

what a co-op is? Or are limitations simply a result of how

cooperatives work now, but need not work in the future? 

“If you have one strong principle, can you reduce the

importance of other principles?” Baarda asked. “Is there a

balance? Or is each and every one of these principles —

however we state them — a mandate, without which we

don’t have a cooperative?

“We don’t have enough answers yet. We have a lack of

experience with the new statutes. The increased focus on

investment of capital is quite opposite to what traditional

co-op members thought about.” A corporation’s objective

is to maximize return for investors. “The cooperative’s

objective is to maximize value for user-patrons. These may

or may not be the same thing.” The issue, he said, is how

does the co-op protect the members?

Keep communications flowing

In this brave new world of cooperative finance and governance, new statutes will be passed and lessons will continue to be learned, Baarda said, emphasizing that the most

important thing is that — in the cooperative tradition —

those who are testing the waters should share what they

learn with the rest of the cooperative world. Sharing lessons

learned and insights gleaned from both successes and failures will be the key to effective cooperative development.

“I don’t know what the mechanism is to do that,”

Baarda concluded. “That’s a little outside our resources at

the moment. Maybe CooperationWorks! is the organization

to do that.” After all, as he noted, “that’s what this group

already does.” ■

Terrain is still unclear for new co-op legal landscape 

Rural Cooperatives / July/August 2006 19

continued on page 30
By James Baarda, Ag Economist

Cooperative Programs

USDA Rural Development

james.baarda@wdc.usda.gov

ighty years ago, farmer

cooperatives were, as they

are now, vital parts of

American agriculture and

rural communities. They

were growing in size, number and

sophistication. Cooperatives had

received protection under the CapperVolstead Act of 1922 against unanticipated antitrust challenges, had been

recognized as unique organizations for

federal income taxation from the very

beginning of income taxation, and certain types of farmer cooperatives had

been favorably treated in the Clayton

Act of 1914. Almost all states had enacted special statutes under which cooperatives could be incorporated.

Cooperatives had also learned some

hard lessons. Inadequate attention to

principles of cooperation, failed

attempts to force price increases

through monopoly-type behavior and

expansions beyond member control led

to concerns about the role of cooperatives in agriculture and in their ability

to consistently enhance farmers’ economic wellbeing.

Despite cooperatives’ early growth

and importance, farmers who formed

and used them needed support to fully

capture the benefits of well-run, financially sound and strong cooperative

businesses. USDA then stepped in. In

1925, after noting the dramatic growth

of cooperatives, Secretary of

Agricultural William M. Jardine said,

“A movement of this magnitude, with

its tremendous economic and social significance, must be analyzed and guided

so that its highest possibilities may be

realized.” With “analysis and guidance”

as an objective, Congress acted quickly,

and on July 2, 1926, President Calvin

Coolidge signed into law the

Cooperative Marketing Act of 1926.

Ever since then, USDA has been an

active supporter of farmers who take

upon themselves responsibility to collectively market their products, to purchase their supplies, to add value to

commodities produced, to improve conditions of the market place, to engage

in a great variety of activities to

enhance individual farming operations,

and to create new opportunities for

20 July/August 2006 / Rural Cooperatives

USDA/co-op partnership aids

producer quest for market power

E

Illustration treatment: Stephen Thompson
farmers’ economic strength and for

rural development.

Cooperative Marketing Act of 1926

The Act established an extensive set of

tools USDA can use to analyze and

understand cooperatives. The Act

directs five ways of providing assistance

to cooperatives. USDA is authorized to:

1. Collect and analyze economic, statistical and historical information

about cooperatives, including their

progress, organization and business

methods.

2. Conduct research on economic, legal,

financial, social and other characteristics of cooperatives. This is to

include organization, operation,

financial and marketing problems.

3. Provide technical assistance to individual cooperatives upon request.

4. Assist those who are considering

cooperative formation.

5. Conduct educational activities to

enhance the general understanding of

the cooperative method of conducting business.

The Act specified that the division

charged with the mission was to be located in USDA. Over the 80 years of the

mission, the organizational structure used

to achieve the mandates has changed significantly. The original organization was

transferred to the newly created Federal

Farm Board in 1929. The work of the

cooperative division was subsequently

transferred in 1933 to the Farm Credit

Administration (which at that time was

an independent agency within USDA),

where cooperative work continued until

1953. When the Farm Credit

Administration became independent of

USDA in 1953, USDA created the

Farmer Cooperative Service to continue

its partnership with cooperatives. 

Farmer Cooperative Service existed

for nearly 25 years as an independent

agency. In 1977, the cooperative program became part of the Economics,

Statistics and Cooperatives Service.

Independent agency status was restored

in 1980 with the creation of the

Agricultural Cooperative Service. In

1994, the cooperative unit, now known

as Cooperative Programs, was absorbed

into the then newly created USDA

Rural Development mission area.

Cooperative contributions

How have cooperatives contributed

to American agricultural and rural

America? It is not possible here to

chronicle the trends and events that

show the enormous contributions that

cooperatives have made to agriculture

and rural America in the past 80 years.

A few general observations, however,

will suggest the extent of cooperative

influence.

Standard business performance criteria can be used in assessing the impact

of cooperatives. These include job creation and skill development in their

local employment base, additions to

local and national income and the multiplier effects of the dollars they generate on the communities and region in

which they operate. Benefits of a cooperative are realized by the members, so

cooperative businesses tend to have a

greater direct impact on the areas in

which they operate.

There is no substitute for a vibrant

economic system. However, cooperative

businesses go a step beyond “business as

usual.” They are unique organizations

owned and controlled by farmers and

operated solely for their benefit as users

of the cooperative. The history of cooperatives in the past 80 years and earlier

demonstrates unique contributions by

cooperatives. Following are examples

that focus on such special attributes of

cooperation in the economy.

Changing under-performing market

structures — Sellers, buyers, processors,

retailers, consumers and producers are

just some of the groups that make up a

market in a particular commodity or

group of commodities. Individual farmers who sell to buyers independently

must take the price offered in the

absence of an alternative buyer. In

almost every commodity produced, the

growth of cooperatives has resulted in a

market structure in which the power of

a limited number of buyers is reduced. 

The pricing system — now including

the cooperative acting as either an

intermediary or as a complete substitute

for a limited number of buyers —

becomes more efficient. The final market price is conveyed to farmers more

directly through their own cooperative,

enhancing production responses to the

changing demands of a market.

Improving market performance —

When farmers form cooperatives, they

usually improve the market’s performance even where non-cooperative competitors continue to thrive and serve

farmers who are not cooperative members. This impact was described many

years ago as cooperatives’ “competitive

yardstick” role. If a non-cooperative

buyer pays a low price to farmers and

makes excessive profit from the practice, farmers may form a cooperative

through which they market their product. The price paid to farmer members

plus the patronage refund they receive

establishes a market price. If the competitor refuses to pay better prices to

farmers, the farmers will join the cooperative. 

Therefore, the competitor must pay

higher prices to obtain the commodity.

The prices paid to farmers increases.

Even those farmers who do not market

through the cooperative benefit from

the cooperative’s presence. Market competitiveness is measured against the

cooperative, creating the competitive

yardstick.

Rural Cooperatives / July/August 2006 21

A cooperative 

business is oriented

exclusively to serve

local areas, because

margins flow to

users rather than

absentee investors.
Increased farmer participation —

As members and patrons, farmers participate in the market to the same

extent as their cooperative does. To a

greater or lesser degree, they integrate

horizontally and vertically in the market

system. Consequences of this participation include farmers’ exertion of a

degree of control over the pricing system, over the quality of products purchased and over strategic marketing

decisions that affect immediate and

future returns.

Adding value to the commodity —

Cooperatives effectively capture profits

from other segments of the market.

Examples include cooperative processing of farmers’ lower-value commodities

into a value-added product, then marketing high-value products. The profits from

adding value and marketing a product are realized

by the cooperative and

allocated to member producers. Absent a cooperative, the farmers would

receive only a commodity

price. Others would

receive the profits from

adding value. With the

cooperative, the farmers

receive all of the benefits

of greater participation in

the market.

Innovation —

Agriculture has a history

of innovation and productivity unmatched by any other

industry on an extended basis. This

spirit of innovation certainly holds true

for cooperatives. On the supply side,

cooperatives have shown remarkable

creativity and focus in providing members with quality material, seeds and

supplies when and where they are needed. 

Marketing innovations are among

the most visible of cooperative contributions in consumer awareness through

branding. New product development,

new methods of marketing and distribution and development of international

markets are only a few examples of the

many ways cooperatives bring creativity

to products, markets and ultimately to

consumers. 

Business innovation — Farmers

have, over a long period of time, created business forms that are ideally suited

to their peculiar occupation and the

unique markets in which they purchase

and sell. Democratic voting, effective

member directorships, the patronage

refund systems and patronage-based

financing systems are unique to cooperative businesses. Examples of workable

cooperative solutions to business challenges are distributed, then copied and

modified for other farmers in additional

regions and commodity systems. 

Principles, practices and structures

have been suggested, tried, modified,

discarded, adapted and adopted as needed. Cooperatives have become part of

the fabric of rural America through the

creativity, foresight and determination

of individuals with common goals and

compatible objectives. These innovations are in and of themselves contributions that cooperatives have made during the 80-year existence of the

Cooperative Marketing Act.

Rural economic development —

Cooperatives, by their nature, tend to

enhance local economic development in

unique ways. There are several reasons

for this. A cooperative business is oriented exclusively to serve local areas,

because margins flow to users rather

than absentee investors. Their objective

is, in fact, to increase income for

patrons. When benefits are distributed,

they go not to those who have excess

investment funds but to farmers who

can then use the income for personal or

farming operations. This keeps families

in farming, families whose existence is

the basis for vibrant rural communities.

Farmer cooperatives are only one

type of cooperative enhancing rural and

community economic development.

Among many other examples are rural

electric and telephone cooperatives that

enhance the quality of rural life. These

cooperatives also have a partner in the

Rural Utilities Program of USDA Rural

Development, which provides them

with financial and technical assistance.

The nation’s Farm Credit System, a

producer-owned cooperative

system, offers vital credit

that would otherwise not be

available for many farmers

and other rural residents. 

USDA’s role

During the 80 years since

the Cooperative Marketing

Act was passed, cooperatives

have flourished and made

enormous contributions to

farming and rural America.

USDA has been an active

participant in their growth.

The Act’s “analysis and

guidance” mission has

placed USDA in a position

to have a real impact on

individuals and their cooperatives. It is

not possible to chronicle everything this

relatively small office has done for

cooperatives. A few highlights include: 

Cooperative principles — The

unique business organization of cooperatives is also their strength. This idea

has been the source of analysis and

guidance throughout the history of the

Cooperative Marketing Act of 1926. It

has also been one of the important contributions of USDA to cooperatives.

From early expressions of cooperative

“principles” in England in 1844,

through a formulation of principles by

the Patrons of Husbandry in the United

States in 1876 as a result of cooperative

22 July/August 2006 / Rural Cooperatives

President Eisenhower signs the act in 1953 which created the Farm Credit

Administration as an independent agency and the Farmer Cooperative Service

as a USDA agency. To his left is Ag Secretary Ezra Taft Benson, who had also

served as executive director of the National Council of Farmer Cooperatives. 
failures due to poor organizational

structures, through failures in the 1920s

because of misconceived ideas about

what cooperatives can and cannot do,

cooperatives have constantly sought

guiding principles. 

Prior to the 1926 Act, principles

were included in state cooperative

incorporation statutes, federal income

tax pronouncements and the CapperVolstead Act of 1922. USDA continued

its analysis and guidance mission on

cooperative principles to assure farmers

gain the benefits of properly formed

cooperatives. Numerous cooperative

definitions and principles developed

over the years. 

In 1937, for example, a study of

European cooperatives provided information about successful cooperatives

there. In 1987, USDA formulated three

fundamental principles that are “standards” in the industry. Principles are

not mere theory. They are guiding

lights for successful business operated

on a cooperative basis. Because of this,

USDA’s contribution to cooperatives

through its dedication to principles has

been real and lasting.

Good business structures — In the

80 years of its partnership with cooperatives, USDA has observed cooperatives

cannot succeed — regardless of dedication and good intentions — without

appropriate business structures. Many

studies of co-op successes and failures,

analyses of operations from all perspectives, and accumulation of great

amounts of data and experience have

been applied to give guidance to those

forming or already operating cooperatives. These studies have also been used

by cooperatives looking to make significant changes in their own structure or

their relationship with other organizations with strategic alliances and joint

ventures. 

Mergers and consolidations have

been prevalent in cooperatives as numbers decrease and efficient size increases. USDA has guided many such efficiency-generating changes and has

learned many lessons that are passed to

others, all under the authority of the

Cooperative Marketing Act.

Promoting financial strength—

Farmer equity financing, debt capital

and unique methods used by farmers

for financing their cooperative through

patronage are key to understanding

cooperatives. Financing is often the

most difficult task in forming or developing cooperatives. At the same time,

measuring cooperative financial health

is required, just as it is for any business.

USDA has always employed widely recognized cooperative finance experts

who understood cooperative finance

and who shared their expertise with

cooperatives, their accountants and

advisors. 

Special studies, including some that

focus on patronage-based financing and

equity redemption, have highlighted the

partnership between USDA and cooperatives.

Directors, management and operations — Running a cooperative successfully is not an easy task. No outside

assistance can substitute for good directors, good management and smooth

operations. Assistance can, however, be

offered through information and the

experience of others. 

Director training, management assistance and dissemination of best practices

have been developed and applied during

all of the 80 years of the Act’s mandates.

From technical assistance to director

training sessions and publications to

encouragement of strong co-op member-relations programs, many aspects of

cooperative governance and operations

have been the subject of USDA’s expertise and assistance.

Industry studies — Until relatively

recently, USDA’s partnership with

cooperatives included substantial industry studies. For both marketing and

supply cooperatives, the industries and

markets in which they operate define

the need for cooperatives as well as the

methods cooperative could use to

improve the market. Specialists in farm

supplies, grains and oilseeds, livestock,

fruits and vegetables, specialty crops

and dairy worked with farmers and

cooperatives to improve the farmers’

positions in each industry through their

cooperatives. 

While USDA’s Cooperative Program

retains dairy experts, few other staff

now specialize in particular commodities or industries. 

Legal and policy issues — As a central focus for national issues, a major

thrust of USDA’s efforts has been to

educate the cooperative community and

policy makers about the special character of cooperatives and what that means

Rural Cooperatives / July/August 2006 23

continued on page 31

The staff of USDA's Division of Co-op Marketing in 1926, just after President Calvin Coolidge

signed the Cooperative Marketing Act into law. USDA Photo 
By Bruce J. Reynolds 

David S. Chesnick

USDA Rural Development 

Ag Economists

bruce.reynolds@wdc.usda.gov, 

david.chesnick@wdc.usda.gov

he January/February 2006

issue of this magazine

reported average financial

results for the Top 100

cooperatives for 2004,

which marked the 25th anniversary of

this important research program. The

annual ranking of businesses by size of

sales has been a popular performance

benchmark, beginning with publication

of the Fortune 500 list of America’s

largest firms in 1955.

In contrast to the Fortune 500 ranking, USDA Cooperative Programs does

not release the names of the Top 100

agricultural cooperatives. The data are

summarized to show performance of

the leading cooperatives as an aggregate

and are grouped by major commodity

and service sectors in the agricultural

economy. 

However, since 1991 the National

Cooperative Bank (NCB) has published

an annual ranking of the Top 100 cooperatives from all economic sectors

(farm, food, hardware, housing, etc.) In

NCB’s 2004 ranking, the top three were

all agricultural cooperatives: CHS Inc.,

Dairy Farmers of America and Land

O’Lakes Inc. In all, 42 agricultural

cooperatives were in the NCB Top 100

(www.co-op100.coop). 

During the 25-year period the list

has been maintained, there has been

significant movement on and off

USDA’s Top 100 agricultural

cooperatives list. Of these, 29

cooperatives have consistently

reported data, while several

other large cooperatives have

been inconsistently included

on the list because of intermittent reporting of their data. A

few of these submitted data for

only a very brief period, about

2-5 years, and then became

classified as non-reporting. 

Other cooperatives that

reported in 1980 no longer

exist as either a cooperative or

as a business of any kind. The

three major causes for cooperatives being permanently

removed from USDA’s Top

100 list are: business failure,

conversion to a non-cooperative entity and merger or consolidation. A review of some

general financial measures for

those on-and-off the Top 100

offers some history of how large cooperatives have fared since 1980. 

Failed businesses

Cooperatives are a stable form of business, generally not inclined toward highrisk ventures. Nevertheless, since the

inception of the list, 16 Top100 cooperatives have gone out of business. Three of

these cooperatives had closed by 1985,

while seven did not go out of business

until after 1998. An additional five federations that were reported in the Top 100

in 1980 subsequently dissolved. However,

in most cases their members stayed in

business.

The solvency ratios of these co-ops

during the last three or four years of

operation gave strong indication of

their impending closure. Seven of these

cooperatives provided data right up to,

or within 12 months of their last complete year of operation. The three-year

average debt-to-equity ratio for the coops was 0.75 while return on equity was

minus 0.21. 

Merging to stay in business

A major strategy for maintaining

farmer ownership of services and valueadded business has been to consolidate

or merge two or more cooperatives.

Merging helps carry overhead costs with

more operating revenue and other

advantages to increase per unit earnings.

Twenty-four cooperatives exited the Top

100 through consolidations or mergers. 

24 July/August 2006 / Rural Cooperatives

On & Off the Top 100

25 years of tracking the largest ag co-ops

T

Mergers — such as the creation of Dairy Farmers of

America — have been the single biggest factor for

changes in the ranks of the Top 100 Ag Co-ops since

1980. Above, Chris, Sarah and Benjy Heins of

Higginsville, Mo., replace their farm’s Mid-Am sign 

following the merger in 1998. Photo by Raymond Crouch,

courtesy DFA.
Data for solvency ratios were collected up to the time of consolidation or

merger for 21 cooperatives. The threeyear average debt-to-equity ratio for

these co-ops was 0.66 while return on

equity was 0.11. As would be expected,

the financial condition of these merged

businesses was generally stronger than

for cooperatives that went out of business. Some were in a weak financial

condition, but their status was not

extreme because members of a surviving

cooperative will usually reject merger

proposals from a business that is on the

verge of failure. 

Conversions

Cooperatives are sometimes acquired

by non-cooperative businesses or decide

to convert into investor-owned entities.

Of former Top 100 cooperatives, ten

converted to investor-owned status

either through acquisition or by a membership vote to convert. While some

acquisitions were made of cooperatives

in weak financial condition, those that

converted into investor-owned entities

obviously had been experiencing good

returns. As expected, the acquisition

and conversion group of five that consistantly reported had relatively low

average debt-to-assets of 0.49 and

decent return on equity of 0.23. 

Staying on top

The cooperatives that have stayed in

the Top 100 over the 25-year period

include many that have been operating

for more than 60 years. Large cooperatives still in business today have successfully operated through periods of economic recession and high energy costs.

There are 29 cooperatives that have

remained on the list in all 25 years due

to maintaining sound operations (and

because they faithfully completed

USDA’s annual survey each year). 

Financial ratios for indicating solvency have remained relatively sound for

these 29 cooperatives over the 25-year

period. They individually maintained a

debt-to-asset ratio below the three-year

average of the failed cooperatives over

both the 25-year period and for any

three-year period. Individually, with

only one exception, they also had a

higher return on equity in every threeyear period than any of the seven cooperatives that went out of business in the

last three years they reported. 

A consistently high return on equity

is not a sufficient measure of a successful cooperative. In fact, it may indicate

that a cooperative is not adequately

generating higher returns to members

in payments for delivered products or in

costs of supplies. The return on equity

for each of the five cooperatives that

reported up until their conversion to

investor-owned status was much higher

than the average for the 29 surviving

cooperatives (as a group). 

Intermittent reporting

The Top 100 agricultural cooperatives data base is determined by direct

collection and analysis of surveys and

annual reports, which is the primary

reason that the ranking of the organizations is not published. Most publicized

rankings are collected from secondary

sources, where only the annual revenue

is needed. The cooperation of the business entities in these cases is not needed. 

As an analytical data base, USDA’s

Top 100 agricultural cooperatives list is

dependent upon annual reporting by

the cooperatives, which is not easily

accomplished. As an indication of this,

16 of the cooperatives that were on the

1980 list have subsequently reported

only intermittently. 

Where they stand

The Top 100 reports provide large

agricultural cooperatives with benchmarks and reference points to help

them navigate their way in a highly

competitive and often volatile economy.

Cooperatives face unique business challenges. Member benefits are not only

contained in a dividend check, but by

significantly helping many independent

farm enterprises control their costs or

to improve their product sales. 

Working to sustain the independence of farmers is the core objective

that adds to the complexity of business

decisionmaking for cooperatives. For

this reason, they cannot rely on any

single set of performance measures or

simply compare their businesses with

non-cooperative corporations. USDA’s

Top 100 list and the accompanying

analysis has filled a nitch in business

performance information for 25 years

and counting. ■

Rural Cooperatives / July/August 2006 25

Intermittent reporting

16

Closed 

federations 

5

Remained 

on list

29

Conversions

10 

Mergers

24

Out-of-business

16

Factors contributing to changes in Top 100 Ag Co-ops since1980
26 July/August 2006 / Rural Cooperatives

NEWSLINE

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

USDA, DOE to host

renewable energy

conference 

Agriculture Secretary Mike Johanns and U.S.

Department of Energy (DOE) Secretary Samuel

Bodman have announced that the two agencies will cohost a national renewable energy conference to help create partnerships and strategies necessary to accelerate

commercialization of renewable energy industries and

distribution systems, the crux of President Bush’s

Advanced Energy Initiative (AEI). The conference,

Advancing Renewable Energy: An American Rural

Renaissance, is scheduled for Oct. 10-12, 2006, in St.

Louis, Mo. 

“Keeping America competitive calls upon us to work

together to expand sustainable, market-driven, domestic

energy sources,” Johanns said. “The October conference

will build upon the President’s vision for overcoming our

energy challenges and help create new wealth opportunities in rural communities.” 

“Never has reducing our dependence on foreign oil

been such a pressing issue,” Bodman said. “We have the

will and the means to replace significant quantities of

foreign oil with homegrown fuel. We are hopeful this

conference will identify major impediments and critical

pathways to get more domestically grown, renewable

energy sources out of the laboratory and into consumers’

hands as soon as possible.” 

The conference will focus on biomass, wind and solar

research and commercialization. It will seek to identify

major impediments, review challenges and make recommendations to help accelerate renewable energy technology development; examine key incentives that would

help promote certainty and reduce risk for investors and

developers in the marketplace; review challenges of

developing new distribution systems and raise public

awareness. The conference should be relevant for those

from diverse sectors, including agriculture, energy, transportation, financial and investment, federal and state

government and elected officials. 

Information and on-line registration for the October

conference will be available on the Internet at:

www.advancingruralenergy.com ■

Calcot eyes acquisition of SWIG 

The possible combination of Calcot

and Southwestern Irrigated Cotton

Growers (SWIG), two of the nation’s

oldest cotton marketing cooperatives, is

two steps closer to becoming reality.

Calcot’s board of directors, voting

unanimously via conference call on June

27, agreed in principle to acquire

SWIG’s three warehouse facilities (two

in New Mexico, located in Las Cruces

and Artesia, and one in Fabens, Texas)

and to take over the marketing of

SWIG members’ cotton for the 2006

season.

That action follows a June 21 membership vote in Las Cruces, where

SWIG cotton grower-members overwhelmingly gave their assent to cease

operations and liquidate the company.

Over 95 percent of the voting membership was in favor of the proposal. The

two cooperatives have been discussing

the possibility of combining operations

for several months. 

Financial details have not been made

public, but if the merger comes to

fruition, growers in New Mexico and

around the El Paso, Texas, area, will see

their cotton marketed by the 79-yearold cotton co-op based in Bakersfield,

Calif. Currently, Calcot markets only

cotton produced in California, Arizona

and South Texas.

“Assuming all details can be worked

out to mutual satisfaction,” Calcot

President Robert W. Norris said, “we

will own and operate what are currently

SWIG facilities. We look forward to

meeting all of our new members, working with them in the months ahead and

providing the excellent service and

financial returns that Far Western cotton growers have come to expect from

Calcot.”

Calcot owns and operates 145 warehouses in California and Arizona.

SWIG has 21 warehouses. Currently,

the two co-ops’ combined market totals

about a million bales of cotton each

year, with similar cotton qualities and

varieties. The vast majority of sales by

both co-ops are to overseas markets.

Calcot, formed in 1927, has about

1,200 grower-members and SWIG,

formed in 1926, has about 200 growermembers. 
Garfield purrs for Swiss Valley 

As his 263 million readers worldwide

well know, Garfield the cat never met a

lasagna he didn’t like. But it turns out

Garfield is also pretty fond of chocolate

milk. In addition to being the most

widely syndicated cartoon character in

the world (Garfield appears in 2,600

newspapers) the moody feline is also

now appearing on milk cartons, including Swiss Valley Farms chocolate milk. 

The release of the co-op’s Garfield

milk cartons in June was timed to coincide with the release of the second

Garfield movie: “Garfield: A Tail of

Two Kitties.” The cooperative is using

Garfield in its advertising and promotion throughout the summer.

Garfield has already appeared on

Swiss Valley skim chocolate and 1 percent chocolate milk in schools, which

the co-op reports have been popular

with students. One school foodservice

manager wrote to Swiss Valley, saying:

“I just wanted to tell you what a great

idea it was to put Garfield on the milk

cartons. All of the children from K-12

noticed and wanted to get their milk.

Terrific!”

Swiss Valley Farms is a four-state

cooperative owned and controlled by

1,100 dairy producers, with headquarters

in Davenport, Iowa. It has 700 employees and annual sales of $425 million.

Energy & environment focus

of Farmer Co-op Conference

The 9th annual Farmer Cooperatives

Conference will be held Nov. 1–2 at the

Sheraton Bloomington Hotel, Minneapolis South, Minn. This year’s theme

will be “Opportunities for Cooperatives: Renewable Energy and Environmental Management.” Renewable energy topics will focus on:

• the future growth of renewable energy sources;

• involvement of regional and local

cooperatives in the sourcing of corn

and soybeans for ethanol and biodiesel fuels; 

• marketing of these fuels and by-products;

• business structures to finance renewable energy plants. 

New cooperative member service

opportunities in environmental management sessions will include:

• enhancing woodlot and forest management;

• nutrient management;

• managing green house gas emissions.

Updates on the conference and registration information will be posted on

the University of Wisconsin Center for

Cooperatives website at:

www.wisc.edu/uwcc/fc/fc.html

Faulkner deputy under secretary

for USDA Rural Development 

Agriculture Secretary Mike Johanns

has appointed of Douglas L. Faulkner

to serve as deputy under secretary for

rural development. “Renewable fuels

are a vital component of America’s

energy independence and an important

financial opportunity for our nation’s

farmers,” said Johanns. “Doug Faulkner

brings an impressive background in the

energy field to USDA and will help us

achieve our goal of advancing the development of renewable fuels technology.” 

Faulkner most recently served as

principal deputy assistant secretary for

energy efficiency and renewable energy

at the U.S. Department of Energy and

has had a long association with USDA,

working closely with the department to

promote energy development in the

areas of biomass, solar, hydrogen and

efficiencies. He has served as a senior

policy advisor to two secretaries of

energy and earlier this year received the

secretary of energy’s award for excellence. His first job in Washington,

D.C., was as an aide to the late Edward

Madigan, a former Illinois congressman

and secretary of agriculture. 

Faulkner will work closely with

Under Secretary for Rural Development Thomas Dorr to coordinate the

activities of the USDA Energy Council

that Johanns announced last December. 

Thatcher to manage CHS Foundation 

The CHS Foundation has named

Jennifer Thatcher as the new manager

of the CHS Foundation, an independent, private foundation affiliated with

CHS Inc. that actively supports the

future of rural America, agriculture and

cooperative business through education

and leadership development. “Jennifer

brings a strong financial management

background, as well as a strong interest

in community development,” said

William Nelson, CHS Foundation

president. “She will be a great addition

to the staff that works with the CHS

Foundation.”

In this role, Thatcher will work

closely with Nelson to manage the business operations for the CHS

Foundation, with responsibility for

financial management, as well as

involvement with program development. Thatcher will also play similar

roles with the corporate giving area for

CHS Inc. and for The Cooperative

Foundation, a private foundation managed by CHS staff through a lease

agreement.

Edelweiss Graziers Co-op formed 

Edelweiss Graziers Cooperative has

been formed by a small group

Rural Cooperatives / July/August 2006 27

Emily Prichard, Long

Grove, Iowa, sips Swiss

Valley Farms chocolate

milk. Photo courtesy Swiss

Valley 
28 July/August 2006 / Rural Cooperatives

Wisconsin dairy farmers to create specialty, grass-based cheese from the milk

of their rotationally grazed dairy herds.

The Wisconsin Ag Connection reports

that the co-op aims to combine the

craftsmanship of master cheesemaker

Bruce Workman at Edelweiss Creamery

and the milk of grass-fed cows from

three Wisconsin dairy farms. 

Dairy Business Innovation Center

Founder and Chairman Dan Carter said

the new grass-based cooperative is an

outstanding example of Wisconsin dairy

farmers continuing to find innovative

methods in responding to industry

demands. “Consumers are seeking more

signature cheeses with bolder flavors,

and grass-based cheeses are next on the

horizon to help meet that demand,” he

told the newspaper. The co-op hoped

to have cheese ready for sale in July. 

Wisconsin’s Black Creek 

Cheddar goes nationwide

Alto Dairy Cooperative is partnering

with Winona Food Inc. to market

newly branded Black Creek Classic

Cheddar nationwide. The co-op reports

that this naturally aged, hand-selected

cheese has passed the rigorous standards imposed by the Wisconsin master

cheesemakers at Alto Dairy

Cooperative. These artisans represent

generations of cheesemakers who have

CCA honors Jordan, Bryant

as top communicators

Saluted for her “commitment to success” and as 

“a mentor and a model of doing things right,” the

Cooperative Communicators Association (CCA) presented Lani Jordan, director of communications for CHS

Inc., with the H.E. Klinefelter award, its

highest honor, during its annual meeting

in Portland, Ore., in June. The award is

bestowed to individuals who have made

significant contributions to the art of

co-op communications. 

Jordan “provides the best of the best

in co-op communications,” said award

presenter Janet Schoniger of CoBank,

winner of the award in 2005. “She is

driven by a love for writing and a passion for telling a story.” 

Katrice “K.D.” Bryant, from Jackson

Electric Cooperative in Georgia, was

the recipient of the Michael Graznak

Award, presented to a young communicator under the

age of 36, in recognition of her “sustained excellence,

creativity, insight and performance.”

“Katrice brings an enthusiasm and commitment to

every communications task she undertakes,” says Randall

Pugh, president and CEO of Jackson EMC. 

Jordan develops the annual communication strategy for

CHS, is chief media spokesperson for the organization, is

speech writer for the board and senior management and is

responsible for the co-op’s annual meeting. She also produces the annual report and handles a wide range of other

communications responsibilities. She joined the cooperative in 1985 after a 10-year career as a journalist.

A three-time CCA Writer of the Year, Jordan is also a

past Graznak award winner. She served six years on the

CCA board and was president of the organization in

2000-01. 

Bryant is responsible for development and production

of marketing communications vehicles, including customer and business-to-business publications, website

content, trade show graphics, billboard advertising and

radio and television content for Jackson

EMC. She also serves as editor-in-chief

for customer, employee and business-tobusiness publications and is responsible

for managing a $1.2 million project

budget. 

Top award winners in CCA’s annual

Communications Competition included: 

— Publication of the Year: Sarah

Dorman of West Central Cooperative,

Iowa, for the co-op’s annual report; 

— Photographer of the Year: David

Lundquist, CHS Inc./Land O’Lakes, for

a portfolio of work; 

—Writer of the Year: Lani Jordan, CHS

Inc., and Patty Miller, Land O’Lakes (tie);

— Special Projects, Best of Class: Sarah Bratnober,

Organic Valley Family of Farms, for a co-op calendar. 

USDA’s Rural Cooperatives magazine won five awards

in the competition, including: first place for news writing,

won by assistant editor Stephen Thompson for his coverage of the 2005 Farmer Cooperative Conference; third

place for best use of photos in a magazine; third place for

best magazine cover; honorable mention for writer of the

year, won by editor Dan Campbell; and honorable mention for portrait photography, won by Stephen Thompson.

For a complete list of contest winners and more information about CCA, visit: www.communicators.coop. ■

Lani Jordan, left, 

and Katrice Bryant 

Black Creek Classic Cheddar.

Photo courtesy Alto Dairy
turned the quality milk from

Wisconsin’s family dairy farms into

delicious premium cheeses. 

“My dad taught me how to make

cheese,” master cheesemaker Gregg

Palubicki said. Carrying on the family

tradition, Palubicki inspects each batch

of Black Creek Cheddar to assure it

meets the highest standards.

Alto and Winona were recently honored by the International Dairy Foods

Association for creating a new look for

Black Creek Cheddar cheeses. The

unique, wedge shape, black wrapping and

attractive label took Black Creek to the

top spot in the Best Package Redesign for

Cheese category, earning one of IDFA’s

2006 Achieving Excellence Awards.

National Beef acquires Brawley Beef 

National Beef Packing Co. LLC and

its majority owner, U.S. Premium Beef

LLC (USPB), have completed acquisition of Brawley, Calif.-based Brawley

Beef LLC. Brawley is contributing its

assets in exchange for an ownership

interest in U.S. Premium Beef.

For National Beef, the acquisition of

Brawley Beef creates a new relationship

with its owner/producers in Arizona

and California. Moreover, Brawley

Beef’s location 100 miles east of San

Diego and its extensive retail, food service and further-processing customers

along the West Coast will enable

National Beef to grow its presence to

serve the western United States with

high-quality beef products. 

As part of the acquisition, National

Beef will own and operate the Brawley

Beef processing facility located in

Brawley. This state-of-the-art beef processing plant, constructed in 2001, has

capacity to process over 400,000 cattle

annually. 

Kansas City-based National Beef is

the nation’s fourth largest beef processor.

Its majority owner, U.S. Premium Beef,

makes National Beef the only major beef

processing company in the United States

with a majority of its ownership held by

beef producers. With sales exceeding $4

billion annually and a 12 percent market

share, it is owned by more than 2,000

cattle producers from 37 states. ■

Rural Cooperatives / July/August 2006 29
30 July/August 2006 / Rural Cooperatives

power enterprises, cooperatively owned

manure digesters and biodiesel facilities. It has also has provided board

training to three ethanol development

groups. One project now in operation,

Central Bi-Products of Redwood Falls,

Minn., is owned by a farmer co-op of

more than 5,000 Midwestern producers. The project created an initial total

investment of $4 million and 10 fulltime jobs, as well as $2 million in sales

last year. 

Another co-op with a business plan

CDS helped develop is HarvestLand

Co-op in Morgan, Minn., which is a

partner in a 5.6-megawatt wind farm

that went online last August. In its first

year of operation, it will produce more

than 52 megawatts and generate $2.5

million in sales under a power-purchase

agreement. Another wind farm is being

developed under a second phase of this

project. The co-op will again be the

primary owner/operator. 

Iowa catalyst for 

ethanol development

In the heart of the Corn Belt, farmers have been looking at ethanol for

some time. The Value

Added Agriculture

Program of Iowa State

University Extension

has been a supporter of

the industry as it has

“grown up” in Iowa. It

has developed tools to

help farmers, such as a

resource manual and a

feasibility calculator,

which are posted on the

Ag Marketing Resource

Center website

(www.AgMRC.org). It

has also conducted half a

dozen feasibility studies

for potential new ventures in the past few

years. 

More than 250 people attended indepth training sessions on biodiesel,

which the Center co-sponsored this

spring with USDA Rural Development

and other partners. Currently, the

Center is assisting the development of

four biodiesel facilities with a combined

production topping 175 million gallons

a year. 

Will this ethanol boom bring the

cattle-feed industry back to the Corn

Belt? To explore this topic, the Center

partnered with others to sponsor a conference in June titled: “Growing Iowa’s

Cattle Industry: Ethanol, Opportunities

and Economic Development.” Interest

in the conference drew more than 200

participants, including lenders, corn

growers, economic development officials and bankers. 

The Rockies rally to renewables 

The Rocky Mountain Farmers

Union’s (RFMU) Cooperative

Development Center, Greenwood

Village, Colo., knows how important

biodiesel is to its farmer-members and

their urban neighbors in Colorado,

Wyoming and New Mexico. The

Center hosted a well-attended regional

seminar this spring focusing on oilseed

crops and producer options, such as

growing the right oilseed crop for the

region, efficiently processing the seed

into oil and meal co-products, and how

to market in ways that will generate

more profits for farmers. It examined

models for both large-scale commercial

facilities and for smaller, communityscale projects where co-products are

used as inputs for farm operations. 

Participants at the RMFU Center’s

seminar also examined the opportunities biodiesel development might present as part of a larger effort to create

more renewable energy businesses in

rural communities. For example, the

Center helped develop a feasibility

study and business plan with a group 

of farmers in Freemont County, Wyo.,

to use an existing grain elevator. The

650,000-bushel facility may be used 

to store oil seeds for processing into

biodiesel, creating about eight new jobs

and adding more than $1 million to the

local tax base. 

Local focus energizes the Northwest

In the environmentally conscious

south Puget Sound area, demand for

biodiesel is booming. In response, the

Northwest Cooperative Development Center, Olympia, Wash., is leading the Olympia Biofuels Cooperative

through feasibility research, capacitybuilding and education. The Center

plans to use this project as a pilot that

can be replicated to assist

other co-ops emerging

throughout the Pacific

Northwest. The Center

serves not only

Washington, Oregon and

Idaho, but Alaska and

Hawaii as well.

The Olympia co-op

intends to locally produce

and distribute renewable

fuels using sustainable

production methods and

innovative technologies.

Originally, the co-op’s

plan called for using waste

vegetable oil from commercial and institutional

cooking facilities. But in

an industry as rapidly changing as this

one, other feedstocks are also being

considered. USDA is providing part of

the funding for this cooperative business development assistance. ■

Renewable energy sparks surge of new co-ops continued from page 19

Western Iowa Energy ‘s new biofuel plant. 
Rural Cooperatives / July/August 2006 31

for their legal status — and the need for

policies that recognize those differences. Federal income tax studies during the Act’s early years were examples

of such education and support.

Challenges to practical income tax practices in the late 1970s resulted in discussion between USDA and the U.S.

Treasury Department that helped all

parties. Antitrust issues were also

addressed through USDA-Federal

Trade Commission-Department of

Justice joint task forces and inter-personal discussions. 

One of the earliest scholarly legal

treatises on cooperative law was the

Legal Phases of Farmer Cooperatives

that went through numerous editions

until 1974. It was the handbook for

cooperatives, lawyers and policy makers

during much of the past 80 years.

Extensive studies of incorporation

statutes, securities laws and other matters of legal and policy importance have

been contributed by USDA under the

auspices of the Act. 

Changing co-ops, 

changing partnership

Challenges and resulting opportunities come with change. Few things have

remained unchanged in the past 80

years. Some ideas and principles have

kept their fundamental importance: the

vital role farmer cooperatives play in

agriculture and rural economies; the

importance of good directors and managers; adequate financing and solid

financial controls and the requirement

that cooperatives operate as successful

businesses. But even these statements

must be understood and applied in the

context of many changes. 

One constant, however, is clear.

Cooperatives continue to make contributions as they have for 80 years.

Similarly, the contributions of the

analysis and guidance envisioned in the

Cooperative Marketing Act continue,

although these, too, are changing.

During the past 20 years, the pace of

change has accelerated for cooperatives,

especially during the past decade. The

critical question is: Are cooperatives

continuing to make significant contributions to agriculture and rural

America? If so, how can it be assured

that this impact will continue?

As with the long history of cooperatives and the Cooperative Marketing

Act, it is not possible to detail all current changes and trends. However, a

few observations may be informative.

Right sizing — Some cooperatives

have grown much larger in response to

market and industry changes. This permits them to purchase and sell in quantity in response to market concentration

and internationalization of markets and

industries. Others have intentionally

remained small to serve a specialized

group of producers in niche markets. 

Small size may be dictated by the size of

the product or the size of the market. In

any case, one response to change is

establishing a size appropriate for a coop’s purpose.

Integration — Participating in

“upstream” and “downstream” markets

is nothing new for cooperatives. It is, in

fact, one of their hallmarks, although

integration varies widely among commodities. Increased food processing,

more complicated market chains from

commodity to retail, and internationalization of markets have led farmers to

observe that their share of the final

price received for their commodity —

as modified and distributed for final sale

— is shrinking. They have formed

cooperatives or changed existing cooperatives to integrate into other segments of the market. The search for

ways to capture the greatest advantage

for members continues, perhaps at an

increasing rate.

Adding value to commodities —

Farmers are more adept, willing and

committed to capture more value for

the commodity they produce by cooperatively adding value. Typically, this is

accomplished by processing the commodity into a new product in a form

closer to that demanded by the final

consumer. A higher price can be

obtained for the new product. Rather

than simply sell the commodity, farmers

are able to add value and capture that

value as a return from their cooperative. 

This, too, is not a new endeavor for

cooperatives generally. Recently, however, many farmers have become more

imaginative and aggressive about adding

value themselves through a cooperative.

Adding value is found throughout the

food industry. The major trend at present is in the production of renewable

fuels. A great number of ethanol production facilities have been built in the

past few years by farmer organizations

as well as others. This burgeoning

industry has gained national attention

and will continue to do so in the foreseeable future. One of the major questions is the extent and kind of farmer

participation in this new industry.

New types of cooperative organizations — Farmers continue to innovate

when it comes to their cooperatives.

One example of this is the formation of

cooperatives that operate with a mix of

principles that respond to new market

and industry needs. So-called “new-generation cooperatives” use a combination

of financial requirements, commodity

delivery requirements and delivery

rights based on up-front investment to

coordinate product delivery and efficient

plant operation. These organizations are

usually found in situations where a considerable farmer investment is required

to build a processing facility to add

value to commodities. Most of the operating methods are similar to those found

in more traditional cooperatives, but are

combined in a new manner.

Financial innovations — Several

ways cooperatives benefit farmers, such

as by processing commodities or market

development, require substantial capital.

In some cases, capital needs may be

beyond the capabilities of farmer members to make sufficient investments.

Some cooperatives have considered the

use of equity investments from those

who are neither members nor patrons

of the cooperative. The motivation of

such investors is to obtain a return on

investment, not a return based on use of

USDA/co-op partnership aids producer quest for market power continued from page 23
32 July/August 2006 / Rural Cooperatives

the cooperative. The use of this kind of

equity has drawn concern from some

who question whether it will detract

from cooperatives’ ability to focus on

benefiting their farmer-patrons as their

primary reason for existing. These and

other financial innovations can be

expected as demands for capital face

pro-active individuals who want to own

and control a cooperative serving their

specific needs.

Statutory changes — One of the

most interesting and possibly the most

significant change regarding cooperatives has come in the form of new cooperative incorporation statutes. The

statutes, presently enacted in a few

states, reflect one kind of response to

the need for cooperatives to participate

in capital-intensive business. These new

statutes generally provide for substantial

investment in a cooperative by investors

who do not use the cooperative. 

In addition, the statutes give such

“outside” investors voting power in the

cooperative, along with those who use

the cooperative. It is expected that some

version of these statutes will be considered by more states in the next several

years. Debate continues regarding the

wisdom of such laws and the possible

impact on cooperatives, particularly on

ownership, control and benefit for

farmer members.

New choices of business forms —

Farmers and others who want to collaborate in business have many choices of

the business form they wish to use.

They no longer need choose only

between a traditional corporation and a

cooperative. Corporations can be modified considerably to achieve selected

business goals. 

In addition, the limited liability company (LLC) has become an extremely

popular business form because of its

combination of tax and liability protection attributes. The LLC is also a flexible business model and can be organized to give most of the benefits of a

cooperative. As a consequence, individuals who would have otherwise chosen a

cooperative or a combination of a cooperative and non-cooperative firm are

increasingly turning to LLCs. This

concerns those who see this trend as a

loss of cooperative businesses, while

others view the trend as a means to

have the best of two worlds.

Pace of innovation — Cooperatives

and similar farmer-owned organizations

continue to innovate in every aspect of

the industry. Innovation itself has

become something of a “commodity.”

As such, it takes on a value.

Cooperatives have responded accordingly and become much more willing to

innovate to find new and better ways to

serve farmer members. This trend will

certainly continue.

From defense to offense — In many

circumstances in the past, cooperatives

were created to alleviate poor market

conditions or challenge the power of

others in the market. While this certainly was not the case for all cooperatives, it was a perception that influenced

the way cooperatives were viewed.

Cooperatives are quite clearly now

becoming more positively oriented, creative and proactive as they are used to

participate in markets. 

Co-ops are taking active roles in

adding value to commodities, in developing new markets and brands to position themselves for profitable operations and in moving toward responding

to markets rather than attempting to

sell commodities already produced.

With this comes new needs for capital,

for expertise and for appropriate business forms.

Future of partnership

It is quite clear that cooperatives will

change in the future in ways not now

anticipated. It is also clear that those

who would have in the past adopted a

traditional form of cooperative structure will choose to form and design a

business that suits their needs but may

have only some cooperative characteristics. This leads to two important questions about the USDA-cooperative

partnership as envisioned in the

Cooperative Marketing Act. 

Will farmers and others have a need

for the “analysis and guidance” identified in the five functions described in

the Act? On the other hand, will

USDA be able to respond to changing

needs and trends with services that continue to prove the value of the Act?

A positive answer can be made to

both questions. Those who form and

use cooperatives or other collaborative

business forms will need analysis and

guidance in added measure simply

because these are new, untested waters.

What works and what doesn’t work?

What are the pitfalls as well as the

potentials for innovations in structure,

operations and objectives? What are

best practices leading to likelihood of

success? These are the types of questions that need answers — answers that

must be studied and lessons learned disseminated to those to whom the benefit

is greatest. The more cooperatives

change and respond, the greater is the

value of information.

Cooperative analysis and guidance at

USDA is continually changing to meet

new demands and opportunities. More

focus in needed on the broader issues of

rural economic development and the

role of cooperatives in such development, objective investigations of the

impacts of new financing and business

forms and in-depth analysis of farmers’

roles in new industries, such as ethanol. 

More assistance is needed for those

considering various methods of collaborative action, as is application of evolving business practices for farmer organizations. These are just a few examples

of continued response to new needs.

The addition of the Value-Added

Producer Grant program to provide

direct financial assistance to those who

use innovation will add value to commodities is another example of recent

changes to the USDA-cooperative partnership.

Review of the 80 years of contributions by cooperatives and by the

Cooperative Marketing Act, further

review of recent dramatic changes in

cooperatives and the anticipation of

continued innovation and change in

nearly every aspect of cooperative and

farmer-owned business all suggest a

clear need for a continuation of the

“partnership” established by the

Cooperative Marketing Act of 1926. ■
50 Years Ago...

From the July and August, 1956 issues of News for Farmer

Cooperatives

Making merchandise move 

“To do a better job of merchandising for farmers, co-ops

must know something about people and their reactions. A

business should carry articles people need and then handle

these articles in a way to please the users,” explains F. Byron

B. Cory, president of Henry County Supply Co-op Company

in Mt. Pleasant, Iowa. Many of the basic principles of good

merchandising that businesses have found essential also apply

to cooperatives. Some important principles include where a

building is located, the type of building, modern fixtures,

delivery equipment, trademarks and general business set-up,

such as hiring staff with good personalities. People are more

likely to come back for more if a store is clean and uncluttered and products are displayed attractively.

Fish fare fine on rice farms 

The Arkansas Fish Farmers Cooperative of Lonoke, Ark.,

began in January of 1956 to raise fish in the same fields as

rice. By rotating fish with rice, members of the co-op are

making more money and improving the land. Some good

results that have been reported include: (1) the organization

gave publicity to fish farming and created new interest in it

and respect for it; (2) fish buyers increased the price they paid

for fish; (3) inquiries were received from canning plants; (4)

inquiries were received from governmental agencies for game

fish for use in stocking streams; (5) since the organization of

the cooperative, commercial fishermen have reduced their

usual charge of 50 percent of the fish harvested to 25 percent;

and (6) this cooperative is representing and defending the

interests of fish farmers.

Co-ops process and market cottonseed 

Cottonseed, processed and marketed by cooperative mills,

has found its way into several diverse products, such as food

shortening, cattle feed, mops, surgical dressings, paints, meat

casings, soap, printing inks, twine and explosives. Fourteen

co-op cottonseed oil mills process about 10 percent of the

cottonseed crushed, bringing members an average of $21.66 a

ton more than other cotton growers received over a sevenyear period. The primary functions of a co-op cottonseed oil

Rural Cooperatives / July/August 2006 33

P A GE FROM THE PAST

From the archives of Rural Cooperatives

and its predecessor magazines

mill are to crush seed for its members, market the products,

and return net sales proceeds on a patronage basis. In addition to crushing seed, some mills perform additional services,

such as feed mixing, handling bagging and ties, and cotton

planting seed. Almost all cottonseed processed in co-op mills

comes from grower members and member gins.

30 Years Ago...

From the July and August, 1976 issues of Farmer Cooperatives

Cooperative Marketing Act 50th Anniversary 

On July 2, 1976, the Cooperative Marketing Act celebrated

its 50th anniversary. When the Act was approved in 1926,

“helping farmers to help themselves” became national policy.

The Act enlarged, strengthened and made permanent the

Department of Agriculture’s formal assistance to cooperatives

that had begun shortly after passage of the Capper-Volstead

Act in 1922. The Farmer Cooperative Service marked the

50th anniversary with a special birthday observance on the

patio of USDA’s administration building June 30. Special

guests included representatives of national cooperative organizations, congressmen and cooperative leaders and officials of

USDA, including Secretary of Agriculture Earl L. Butz.

Texas cooperative making denim 

Since at least 1953, the Southwest cooperative cotton

industry has been trying to develop a marketing system that

would reward producers and distribute their product as economically as possible. To do so, the American Cotton

Growers (ACG) is constructing a $30 million denim manufacturing facility in Littlefield, Texas. The plant is using the

open-end spinning concept in the annual production of 20

million yards of finished, heavyweight, indigo-dyed denim.

Begun a year ago, the denim plant is on schedule and is

expected to be in full operation by December. Although ACG

began construction of its denim plant in 1975, the enterprise

July 1956 issue
started in 1973. Since then, the organization has completed

three ginning seasons and remains confident about its

advanced concept of off-farm services — transportation of

cotton from field to gin, centralized ginning, compressing

and pool marketing.

Russian farm specialists visit Mid-America 

“A team of Russian agricultural specialists visited MidAmerica Dairymen’s headquarters in Springfield, Mo., this

spring to study research and accounting facilities and to discuss milk marketing. In summing up their experiences on

their tour of this country, V. N. Pustozerov, spokesman for

the five-man team, said, “We have studied your experience in

productivity, and have corrected our previous conclusions

about the U.S. It is better to see it [American agriculture]

once than to hear about it 100 times.” Pustozerov is deputy

minister of agriculture in Russia. Others in the team included

A. Goriashin, head of Leningrad Oblast Administration of

Agriculture and E. G. Knoplev, assistant agriculture counselor of Russia’s embassy in the United States.”

10 Years Ago...

From the July/August, 1996 issue of Rural Cooperatives

Memory quilt honors Land O’Lakes 75th Anniversary 

“A 90- by 110-inch memory quilt that features the cooperative’s family history in fabric has been created by members, employees and their families to honor the 75th

anniversary of Land O’Lakes Inc. (LOL), at Minneapolis.

Rita Page Reuss, LOL’s vice president for public affairs, said

the quilt was “a natural fit with our rural heritage, commitment to people and dedication to quality and craftsmanship.” About 350 members of the LOL family submitted

individual 10- by 10-inch quilt squares depicting some

aspect of LOL’s history, heritage and values. The project

took one year to complete, including the call for entries,

judging, quilting layout and assembly. Those squares not

chosen for the quilt will be made into charity quilts.”

Minority producer co-ops face 

marketing and financing challenges

Only a handful of minority-owned farm and handicraft

cooperatives are presently included in USDA’s cooperative

database. This is in part a reflection of the small number of

minority-owned farms in the United States. In 1919, there

were 1 million black farmers in the United States, but that

number today has declined to less than 20,000. Results from

USDA’s latest minority co-op survey point to the difficulties

facing minority cooperatives. The relative lack of numbers

and seemingly low success rate for those minority co-ops that

are formed underscore the need for both a stronger national

effort at cooperative education and technical assistance outreach to the nation’s minority farm and handicraft producers.

It is possible that a more energetic cooperative development

effort could help preserve or expand the presence of minorities in an ownership role in our nation’s agricultural system.

Navajo co-op weaves self-reliance 

“The Ramah Navajo Weavers Association is a grassroots

cooperative group made up of more than 40 traditional

weavers who live on the Ramah Navajo Reservation in the

pinion-pine country of west-central New Mexico. Founded

by 17 women in 1984, the association is working towards two

broad goals: (1) to increase family self-reliance by using

indigenous resources (land and water) and native skills (traditional Navajo weaving, sheep

raising, land use and management); and (2) to strengthen

important and distinctive landbased traditions, values and

spirituality for future generations of Ramah Navajos. The

association has a holistic philosophy and is working in four

areas: weaving improvement,

sheep and wool improvement;

land restoration and protection; and cultural and education development.” ■

34 July/August 2006 / Rural Cooperatives

July 1976 issue

July–August 1996 issue
By Jack Gleason,

Acting Administrator

USDA Rural Development 

Business-Cooperative Programs 

SDA Rural Development

offices across the nation

are working with cooperatives, individuals, partnerships and corporations

to help promote the development of the

nation’s rapidly emerging bio-fuel economy. This is without doubt the most

exciting and promising economic development for rural America since the

arrival of electricity on the farm. 

We are also working with nonprofit organizations to promote

renewable energy, a prime example being Winrock International.

Winrock works with people in the

United States and around the

world to increase economic opportunity, sustain natural resources and protect

the environment. It matches innovative

approaches in agriculture, natural

resources management, clean energy

and leadership development with the

unique needs of its partners. 

Its U.S. programs bring global

expertise home to benefit Arkansas, the

Mid-South and the United States. 

In 2004, through a grant from

USDA Rural Development under our

Rural Business Opportunities Grant

program, Winrock conducted a feasibility study for establishing biodiesel production in Arkansas. Since the study

was completed, one biodiesel production facility has been constructed and is

operational. A second facility is under

construction and plans are under way to

build more.

In cooperation with the Arkansas

Energy Office and the University of

Arkansas at Monticello, Winrock is currently helping the Potlatch Corporation

evaluate the technical viability and economic feasibility of a commercial-scale

biorefinery, to be located in the

Mississippi Delta, using cellulosic biomass materials.

Winrock recently hosted a tour of

facilities in Eastern Arkansas for staff

members from USDA Rural Development’s state office for Arkansas and

myself that was very enlightening. The

tour included a presentation from the

Eastman Chemical facility in Batesville

and site visits to England Dryer, a soybean oil extrusion facility; Patriot Fuels,

a small biorefinery in Stuttgart; and the

Potlatch pulp mill in Cypress Bend.

These value-added activities have been

made possible in part by strategic

investments from USDA Rural

Development. 

Opportunity to prosper

The emerging bioenergy industry

offers a unique opportunity for

Arkansas. The potential for large-scale

production of biofuels and bioenergy

from cellulosic residues and dedicated

energy crops is enormous, particularly

in the Delta region. Achieving this

potential would enhance the sustainability of the state’s agricultural sector,

create thousands of new processing jobs

and result in numerous environmental

benefits while helping to reduce our

nation’s reliance on imported energy.

Arkansas’ potential for producing

biofuels and bioenergy from cellulosic

materials is substantial. In addition to

forestry and agricultural residues,

Arkansas has the potential to redirect

more than 2 million acres of farmland

into production of dedicated energy

crops, making Arkansas a world leader

in renewable energy.

Dedicated energy crops have

the potential to transform the Delta

region. Farm profits could be higher

than from traditional crops and

long-term biomass supply contracts

could reduce market risks for local

farmers. Renewable energy production

from dedicated cellulosic biomass has

numerous environmental benefits. For

every pound of carbon dioxide generated

during production and consumption of

biofuels or bioenergy products, an equal

amount is removed from the atmosphere

during the plant’s growth cycle. 

Equally important, production of

perennial cellulosic energy crops would

use topsoil-conserving, no-till agricultural practices. 

Winrock’s goals are to facilitate private sector production of and public

sector support for bioenergy and to

help Arkansas become a world leader in

bioenergy production. USDA Rural

Development is proud to provide its

support for this effort. ■

Rural Cooperatives / July/August 2006 35

USDA working with nonprofit

to boost bioenergy in Arkansas

INSIDE RURAL DEVELOPMENT

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36 July/August 2006 / Rural Cooperatives

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