Rural

COOPERATIVES COOPERATIVES

USDA / Rural Development September/October 2000 USDA / Rural Development September/October 2000

Pork America:

Hog producers look to new 

co-op to gain market access

Pork America:

Hog producers look to new 

co-op to gain market access
2 September/October 2000 / Rural Cooperatives

America observed National Cooperative Month during October, a time

when we pause to consider the impact

of user-owned and controlled businesses on virtually every city, town and village across the nation. There are about

48,000 cooperatives in the United

States generating more than $500 billion in annual economic activity. 

Whether it’s a credit union providing consumer loans to members, a daycare cooperative providing affordable

child care, a farmers’ co-op that sells

supplies or processes and markets its

members’ crops, or a rural utility co-op

that meets the energy and telecommunications needs of rural communities,

cooperatives are getting the job done.

The U.S. Department of Agriculture has been assisting rural Americans

in forming and improving the operations of cooperatives for 74 years, and

we continue in that role today under

the banner of USDA Rural Development. In addition to USDA’s traditional

role supporting co-ops with technical

assistance, research and educational

materials, a major thrust of the past

five years has been to expand USDA’s

rural business programs to help launch

new cooperatives and to expand the

operations of existing cooperatives.

A major emphasis of this effort has

been to help finance farmer co-ops that

process their members’ crops and livestock, thus keeping more of the valueadded profits at home in rural America.

In 2000 alone, USDA provided nearly

$100 million in financing for agricultural cooperatives. That’s up from $29

million in 1998. 

Farmers who transition from being

producers of a commodity to being

owners of a co-op that processes crops

into value-added products stand a better chance of surviving the cyclical

downturns in the farm economy that

have mercilessly reduced the ranks of

the nation’s family-owned farms.

Last May, Congress enacted the

Agricultural Risk Protection Act, which

includes provisions for a new grant

program to provide assistance to producers in marketing value-added agricultural commodities. This legislation

compliments USDA’s efforts to bolster

farmer-owned cooperatives. The Act

also provides for a pilot project to

develop a resource center to coordinate

research, data, business, legal, financial

and logistical operations involved in

developing markets for new products.

The latter is similar to the incubator

concept that is being used widely in

providing the foundation for new high

technology business ventures.

In enacting this provision, Congress

recognizes that American producers

are without parallel in the production

of agricultural commodities, but frequently lack the experience and knowledge needed to successfully market

their products. This is particularly true

when developing new markets for new

value-added products. 

A strong rural infrastructure is also

critical to the nation’s future. USDA

Rural Development provided about $2

billion last year to help finance the

expansion and maintenance of the

nation’s rural electric systems, most of

which operate as consumer-owned

cooperatives. It provided about $1.5

billion to build rural water/wastewater

and telecommunications systems. The

later program now includes efforts to

spread the Information Superhighway

and Distance Learning and Telemedicine services throughout rural America. 

We are currently working with other

lending institutions to provide more

funds to speed the construction of combustion turbine generators to help meet

peak energy demands in many parts of

the nation. Rolling gray-outs and blackouts and sharp peaks in energy prices

that impacted some areas last summer

underscore the need for this effort.

USDA is also working to finance more

renewable energy sources — including

wind turbines and solar power — to

lessen the nation’s dependence of

expensive foreign oil.

If you want to learn more how USDA

can help your co-op, or help you form a

co-op, call our national cooperative office

at (202) 720-7558, or call (202) 720-

4323, then press “1” to be connected to

your USDA Rural Development state

office. You can also visit our website at:

www.rurdev.usda.gov, which includes

more than 100 cooperative publications

and past issues of “Rural Cooperatives”

on-line.

Jill Long Thompson, 

Under Secretary USDA Rural Development

COMMENTARY

Cooperatives: Getting the Job Done
Rural Cooperatives / September/October 2000 3

RURAL COOPERATIVES (1088-8845) is published

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prohibits discrimination in all its programs and 

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

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Building, 14th and Independence Avenue, SW,

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

(voice or TDD). USDA is an equal opportunity

provider and employer.

Dan Glickman, Secretary of Agriculture

Jill Long Thompson, Under Secretary,

Rural Development

Wilbur Peer, Administrator,

Rural Business–Cooperative Service

Gladys Rodriguez, Director of Public Affairs

Dan Campbell, Managing Editor

Vision 2000/Kota, Design

Have a cooperative-related question?

Call (202) 720-6483, or

Fax (202) 720-4641, Information Director,

This publication was printed with vegetable oil-based ink.

United States Department of Agriculture

Rural

COOPERATIVES COOPERATIVES

September/October 2000 Volume 67 Number 5

On the Cover:

Gary Ledger is a hog farmer in Williamsburg, Iowa, and a board member of

the new Pork America cooperative. He and many other like-minded producers say that without a strong, national marketing cooperative, producers’

ranks will continue to be decimated by market downturns. Story on page 6.

Photo for USDA by Mark Tade, Cedar Rapids Gazette FPO

FEATURES

4 Lower commodity prices cause drop 

in co-op sales

6 Last train leaving?

Some say Pork America represents best, and possibly last, chance

for hog farmers to gain significant market access.

By James Matson and Brad C. Gehrke

18 Trade takes a tumble

Cooperative trade plunges 41 percent as Asian markets cool.

By Tracy Kennedy

20 New Directions: 

Co-ops help tobacco farmers transition to new crops

By Pamela J. Karg

DEPARTMENTS

2 COMMENTARY

12 IN THE SPOTLIGHT

16 MANAGEMENT TIP

25 NEWSLINE
4 September/October 2000 / Rural Cooperatives

Editor’s note: Information for this article

was compiled by the statistics staff of the

Rural Business-Cooperative Service, a

division of USDA Rural Development:

Charles A. Kraenzle, Celestine C. Adams,

Katherine C. DeVille, Jacqueline E. Penn

and Ralph M. Richardson. 

he nation’s farmer-owned

cooperatives experienced

a drop in both sales and

income in 1999, reflecting a general, 9-percent

downturn in farm commodity values.

However, cooperatives’ combined total

assets reached a record-high $47.7 billion, 2.4 percent ($1.1 billion) more

than in 1998.

The 3,469 farmer cooperatives surveyed by USDA account for nearly

one-third of U.S. farm output and farm

supply sales.

Total cooperative business — which

includes receipts from the sale of crops,

livestock, farm supplies and services —

was $100.1 billion in 1999, down 4.4

percent from $104.7 billion in 1998

(table 1).

A 19.2-percent (or $4.1 billion)

decline in the value of grains and

oilseeds marketed and sharp drops in

feed and fertilizer prices were among

the major causes for the decrease. 

Cooperative-provided services

(such as cotton ginning, livestock

breeding, trucking, etc.) and miscellaneous income was a bright spot in the

sales picture, rising an impressive 12.1

percent, to nearly $3.9 billion. Dairy

co-ops also bucked the downtrend,

with a 3.8-percent gain in sales to $26.3

Lower commodity prices cause

drop in co-op sales 

Farmer-owned co-op assets hit record $47.7 billion

T

Table 1 — Farmer Co-ops’ Net Business,1 1999 and 1998

Commodity or function 1999 1998

Products marketed: Million dollars

Cotton 2,083 2,961

Dairy 26,287 25,329

Fruits and vegetables 9,707 9,391

Grains and oilseeds2 17,196 21,291

Livestock and poultry 9,530 9,555

Rice 912 932

Sugar 2,514 2,445

Other products3 4,420 4,737

Total 72,650 76,642

Supplies sold:

Crop protectants 3,082 3,166

Feed 4,639 5,405

Fertilizer 4,834 5,170

Petroleum 6,388 6,616

Seed 781 732

Other supplies 4 3,795 3,462

Total farm supplies 23,518 24,551

Related-services5 and

other income: 3,894 3,473

Total 100,062 104,667

Note: Preliminary. Totals may not add due to rounding.

1 Excludes inter-cooperative business. Volume includes value of products associated with

cooperatives that operate on a commission basis or bargain for members’ products.

2 Excludes cottonseed.

3 Includes dry edible beans and peas, fish, nuts, tobacco, wool and other 

miscellaneous products.

4 Includes building materials, containers, hardware, tires-batteries-accessories (TBA), farm

machinery and equipment, food and other supplies.

5 Includes trucking, ginning, storage, artificial insemination, rice drying and other.
Rural Cooperatives / September/October 2000 5

billion in 1999. Also posting an

increase were fruit and vegetable coops, up 3.4 percent to $9.7 billion.

Co-ops realized $72.7 billion from

marketing farm commodities (selling,

bargaining for and/or processing members’ crops and livestock) and $23.5 billion from the sale of farm supplies

(including fertilizer, crop protectants,

seed, feed, etc.). 

Total net income of $1.4 billion for

farmer cooperatives in 1999 was down

19.8 percent from $1.7 billion in 1998

(table 2) — the lowest level since 1993

and well under the record of $2.36 billion set in 1995, according to data

compiled by the Rural Business-Cooperative Service of USDA Rural Development.Cooperatives earned $940.6

million in net income from marketing

farm commodities and value-added

goods in 1999, a decline of 7.6 percent; they earned $350.5 million from

farm supply sales, 39.4 percent less

than in 1998. 

The number of U.S. farmer-owned

cooperatives dropped to 3,469, down

from 3,651 in 1998, reflecting the

ongoing trend of mergers, consolidations, acquisitions and dissolutions. 

Memberships in farmer cooperatives

totaled 3.19 million in 1999, down 4.8

percent from 1998. The number of

memberships is larger than the number

of farms (about 2 million) because

many farmers belong to more than one

cooperative. 

Agricultural cooperatives are major

sources of jobs in both rural and urban

areas, employing 172,814 full-time

workers in 1999. ■

Table 2 — Farmer cooperatives’ net income,1 1999 and 1998

Cooperative type 1999 1998

Marketing: Million dollars

Cotton 69.9 64.0

Dairy 303.9 447.2

Fruit and vegetable 99.7 76.9

Grain and oilseed 323.7 441.4

Livestock and poultry 62.1 -71.2

Rice 6.1 7.3

Sugar -19.3 -12.1

Other marketing2 94.5 64.0

Total 940.6 1,017.5

Farm supply 350.5 578.8

Related-service3 105.7 146.0

Total 1,396.7 1,742.3

Note: Preliminary. Totals may not add due to rounding. 

1 Net income less losses and before income taxes.

2 Includes dry edible bean and pea, nut, tobacco, wool, fish and miscellaneous marketing

cooperatives.

3 Includes trucking, ginning, storage, artificial insemination, rice drying and other.

The 3,469 farmer cooperatives surveyed by USDA account for nearly one-third

of U.S. farm output and farm supply sales.
6 September/October 2000 / Rural Cooperatives

By James Matson and 

Brad C. Gehrke, Ag Economists

USDA Rural Development 

Editor’s note: The authors have served

as USDA Rural Development’s technical

assistance team advising Pork America

leaders on cooperative development issues. 

n December 1998, an

over-supply of marketready hogs collided with

the nation’s limited

slaughter capacity, causing pork prices to collapse to the lowest

level in nearly 50 years. The average

producer’s portion of retail pork value

plunged to 12 percent, down from 39

percent in 1997. The situation has left

pork producers grappling for ways to

secure a larger stake in the pork marketing chain. Their goal: to share in

the returns from the other 88 percent

of retail value of the $36 billion pork

industry. Many are looking to cooperatives — including the new Pork America cooperative — as the best way to

ensure market access for independent

producers and share in returns generated beyond the farmgate.

Crisis for pork producers

“Producers lost between $4 billion

and $5 billion of equity in the last

go-round,” said Linden Olson, secretary-treasurer of Pork America, a

producer-owned cooperative which

seeks to help producers gain a stake

in marketing their products. “The

factors that brought about the price

collapse of 1998 and 1999 have not

changed,” he continued. “In fact,

those forces may have consolidated

and strengthened. The possibilities

of

it

happening

again are

still there.”

Independent producers suspect that the 1998-99 market

crisis has accelerated the trend toward

fully integrated production, as occurred

in the U.S. chicken industry in the

1960s. Independent operations are

often as technically sophisticated and

efficient as integrated production units.

In addition, they are predominantly

family owned and operated. However,

many of these producers question their

ability to remain in the industry under

these market conditions. These fears

may not be unfounded.

The number of pork producers has

fallen from nearly 3 million in 1950 to

less than 100,000 in 1999. In 1997, 40

percent of hogs were farrowed and 44

percent were finished through some

form of production contracting. 

Estimates show that 74 percent of

hogs were marketed by means other

than spot markets in January 2000.

This number rose from 59 percent in

just two years. Independent production

sold into spot markets is not the wave

of the future.

Pork supply chains — vertically

coordinated systems extending from

the genetic base of a herd to retail sales

— have emerged as the industry model. 

Supply

chains build

innovative alliances

among vertical units in the market

channel with the objective of delivering

greater consistency, quality, specificity

and reliability to meet or exceed the

end user demands.

Despite the expansion of supply

chains by investor-owned firms, opportunities still exist for independent pork

producers to thrive and prosper.

Growth of global markets offers

tremendous potential for the U.S. pork

industry. The Meat Export Federation

estimates that worldwide pork trade

will increase 36 percent during the next

10 years. The U.S. pork industry, with

the world’s lowest cost of production, is

positioned to capture a significant part

of this expansion.

Nonetheless, independent producers cannot simply manage input costs

and expect to remain competitive in

the supply chain model. Racing to the

bottom of the long-run average cost

curve is not the answer for these producers. The economic crisis presents

an opportunity for independent producers to band together and form producer-owned supply chains that will

increase their competitiveness.

Olson believes “control is not going

Last train leaving?

Some say Pork America represents best, and possibly last, chance for hog farmers to gain

significant market access 

I
Rural Cooperatives / September/October 2000 7

to come through the ability to negotiate individual contracts with packers.

It’s going to be joining with other producers and having leverage in the marketplace.” Marvin Hayenga, Iowa State

University economist, and others echo

these producer concerns: “Access to

markets for independent producers is

limited, especially outside the Midwest. They face the decision of becoming linked with packers either individually or via cooperative processing or

marketing initiatives, or of becoming

residual suppliers inherently bearing

more risk.”

Producers and analysts both feel that

independent pork producers must move

up the value chain to capture a greater

share of the consumer’s pork dollar.

Potential for co-op formation

Increased pork consumption is partially the result of efforts by those independent producers who now are residual suppliers. Producer-funded

programs, including the National Pork

Producers Council’s “other white

meat” campaign, were designed to

increase demand. Independent producers, however, have not been able to

take advantage of the market opportunities these programs created.

Historically, livestock producers,

especially pork producers, have participated in cooperative marketing efforts

to a lesser degree than other agricultural producers. Evolving industry structure and recent market conditions

might change this. In the past 12

months, independent producers have

officially incorporated several organizations and many more are considering

the formation of cooperatively owned

pork marketing businesses.

The cooperative concept can directly

address many of the challenges facing

today’s independent pork producers.

“Valued-added cooperatives can provide

producers with the tools required to

capitalize on increasing world demand

for U.S. pork,” said Earl Dotson, vice

president of research, environment and

production research for the National

Pork Producers Council (NPPC). He

feels that “cooperatives can help restore

the profitability of independent producers and keep them in pork production

into the 21st century.”

Agricultural economists at Purdue

University, including Don Paarlberg

and Michael Boehlje, support the need

for livestock marketing cooperatives.

“Cooperation and pooled production

and marketing appear to be key to offsetting the impacts of consolidation

and integration in today’s pork industry.” They recognized, however, that

“the livestock producing community

has little experience and expertise in

using these alternatives and will likely

need public policies and assistance to

get them functioning.”

The primary objective of cooperative pork marketing is to increase market access for independent hog producers, and allow them to participate in

additional levels of the marketing chain

to increase their net returns. Despite

increased interest in cooperative initiatives, the economic inefficiency of

many separate, uncoordinated efforts

may still leave independent producers

at a disadvantage compared with larger

investor-owned firms. 

Task force studies potential 

The NPPC’s board of directors recognized this and decided to explore the

potential of a national cooperative. Al

Tank, NPPC chief executive officer,

says, “Doing nothing is not an option.

Producers cannot stand a repeat of this

crisis....” In the spring of 1999, the

NPPC formed a 15-member Cooperative Task Force to study the viability of

a national cooperative. Jack Rundquist,

a producer who was instrumental in the

formation of the Hog Inc., a regional

pork producer cooperative, headed this

effort. The task force requested technical assistance from USDA Rural Development, which assigned two economists to work with them.

The closest available models on

which to base a national cooperative

were found in the U.S. dairy and the

Danish pork industries, but both of

these groups had achieved their national

scope through more than 100 years of

evolution. The NPPC staff and USDA

advisors worked with the task force to

The number of pork producers in the United States has fallen from about 3 million in 1950 to

fewer than 100,000 today. USDA Photos (pages 6, 7 & 8)

“The factors that brought

about the price collapse of

1998 and 1999 have not

changed.”–Linden Olson 
explore both governance and operational

structures that would allow a national

pork marketing cooperative to

function successfully; incorporate local, state and

regional groups as

members; and be

responsive to the

rapidly restructuring pork

industry.

Last November, the task

force presented

its findings to a

gathering of more

than 50 producers and

producer groups that

represented nearly 20 million market hogs. The producers

supported the task force’s efforts and

unanimously voted to form a steering committee that would lay the groundwork for

a national pork cooperative.

Pork America emerges 

Pork America was

officially incorporated less than a

month later, on

December 29,

1999, as a

stock company under

Minnesota’s

favorable

cooperative

law. John Adams,

a task force and

founding member

from Snow Hill, N.C.,

says “we needed to move

fast, we couldn’t survive $8 hogs

again.” The founding board consisted of

In the midst of the nation’s largest hog producing region,

not all producers are thinking big. Forced by the disastrously

low prices of 1998, many pork producers began a desperate

search for ways to retain more pork-generated dollars in

their pockets. In Iowa and Nebraska, this has meant that

many family farm pork producers are finding ways in which

they can skip the middleman and sell pork directly to the

consumers. Many are forming cooperatives or quasi-cooperative businesses. Here are some examples of what producers in Iowa and Nebraska are doing. 

Eden Farms — Kelly and Nina Biensen are selling highquality Berkshire pork produced in Iowa. Pork is sold

directly to white-tablecloth restaurants in Des Moines,

Chicago and Dallas. Eden Farms pork has been featured in

articles in the New York Post and Wall Street Journal.

Eden Farms uses a USDA-inspected plant to slaughter its

hogs. The pork is then delivered to various processors for

further processing. Eden Farms currently has more than

20 different products. The Biensens have developed a

long list of fine restaurants in the Des Moines area serving Eden Farms pork. 

Delaware County Meats — This group of family farm

pork producers grew out of the Delaware County Economic

Development Value-Added Agriculture Committee. Delaware

County Meats has developed nine ready-to-eat products and

two types of bratwurst. Recipes for their products were

developed with the assistance of Terry Kerns of the Edgewood Locker. Product is currently being marketed through

Nash Finch Co. food stores and at local food institutions. 

Tabor Family Meats — Is a family-owned business that is

selling top-quality pork directly to consumers. The hogs are

raised in open lots, and are given no growth hormones or

antibiotics in the finishing stages of production. Pork is sold

either in individual packages or in 12-45 lb. bundles.

Audubon County Family Farms — Is a group of five small

family farmers in Audubon County, Iowa, eager to share their

heritage and production from their family farms. Pork is

processed locally in a state-inspected locker facility and

sold directly to consumers in individual packages or bundles. Audubon County Family Farmers also sells chicken,

honey and beeswax candles. 

Northstar Neighbors — Is a group of small farm producers,

Small co-ops and marketing groups formed in wake of hog crisis 

By Jeff Jobe, Director, Cooperative Services

USDA Rural Development, Iowa 

8 September/October 2000 / Rural Cooperatives
located around the former town of Northstar, Neb. Northstar

Neighbors sells farm-fresh meats directly to consumers or

through farmers markets in Lincoln, Grand Island and Omaha. Products can also be shipped by mail. Newsletters are

mailed to customers, asking them to place orders, and then

designating a time and place to pick up their purchases. 

Nebraska Farmers Choice —This cooperative is being

formed to market and process members’ pork for a greater

profit. It has completed a feasibility study and is developing a

business plan to begin operations. 

Iowa Premium Pork Co. — This cooperative was

formed as a result of a task force initiated in December

1998 by the Iowa Pork Producers Association. The task

force was charged with determining whether independent

Iowa pork producers could increase their profitability

through cooperative marketing of their products. Iowa

Premium’s initial focus will be on developing joint ventures

with existing packers or processors. In the first phase of

operation, the cooperative will provide marketing services

to its members, and will also begin gathering carcass

information on members’ hogs to assist the cooperative in

targeting marketing opportunities. Iowa Premium Pork Co.

currently has more than 1,400 members.

Family Quality Pork Processors — Was formed as a result

of a task force formed in January 1999 by the Nebraska Pork

Producers Association to determine whether independent

Nebraska pork producers could increase their profitability

through cooperative marketing of their products. The group is

studying the feasibility of building and operating a small pork

processing plant for marketing under its own label. Family

Quality Pork Processors . . . currently has 105 members. 

• • •

USDA Rural Development is often contacted by producer

groups that indicate they want to sell 30,000 hogs per year

directly to consumers. However, they have no idea as to the

size of market they must have to sell 30,000 hogs. 

USDA makes rough calculations to determine the number of

consumers required to support such an enterprise, which tends

to bring producer groups back to the reality that it may take

years of hard work to develop the type of market they desire. 

As a result of these many inquiries, USDA Rural Development and Iowa State University Extension’s Value-Added

office contracted with the Center for Industrial Research

and Services (CIRAS) to develop a value-added pork manual. The manual is available to the public over the web at:

iowaagopportunity.org. Call (515) 294-5008 if you need a hard

copy. The manual provides producer groups with the tools

necessary to determine if niche-marketing their own pork is

feasible for them. It also outlines the steps necessary for

producers to develop their own value-added business. ■

eight members from six states with Jack

Rundquist, of Butler, Ill., as chairman.

The board asked USDA to continue

providing technical assistance and guidance during the cooperatives start-up

operations.

Jim Lewis, Pork America’s vice

chairman and a hog producer from

Welcome, Minn., described the cooperative as “a national umbrella organization that will facilitate and coordinate

among local and regional groups, as

well as individual producers. The cooperative will act as a resource center for

activities related to production, delivery, and marketing of hogs.” Lewis said

that in this capacity, Pork America will

address future research and development needed to assure that the cooperative provides quality products precisely targeted to the needs and wants of

consumers and end users.

One of Pork America’s first decisions was to conduct an in-depth

strategic study. This market plan

was partially financed through a

cooperative agreement with USDA.

Don Senechal, of Senechal, Jorgenson, Hale and Company (SJH),

which was hired to conduct the

study, said, “This has more upside

potential that any other plan SJH

has worked on.”

The study identified two keys for

success:

• First, the organization must be

market driven — Pork America

must develop innovative, dynamic models to meet market

demand, and penetrate the market with solid deal making,

through-the-chain alignment and

carefully structured producer-toconsumer coordination; 

• Second, Pork America must be a significant national player — this

depends on the ability to control,

participate in, drive and create

pork-based food activities on a

very significant scale, by participating in the top tier of the industry.

Nonetheless, the scope of the project may have slowed membership

recruitment efforts. “We didn’t quite

realize how difficult it was going to

be, to get everything done on a legal

basis,” Olson says. “A national cooperative had never been done like this

before. Most of the other national

cooperatives had come together as a

result of mergers of regional cooperatives. We’re starting something

really new.”

Pork America’s initial activities

included its Foundation Membership

Rural Cooperatives / September/October 2000 9
drive, which closed June 30. These members receive

priority to participate in all future Pork America projects. Foundation members are from 17 states, and

include individual producers and 30 regional and local

pork producer groups. 

About 10 million hogs, approximately 10 percent of the

U.S. total, are produced by Pork America’s members. Pork

America is accepting members from states where it is registered, and continuing to pursue Securities Exchange

Commission (SEC) registration in other states.

“The model we are building — the virtual, vertical

food company — is somewhat unique,” said John

McNutt, hired as director of development for Pork

America after completing his term as NPPC president.

“It will primarily operate by undertaking activities

through partnerships, alliances, contractual production,

brokerage programs and other arrangements.”

Jim Lewis feels that “success in these types of ventures generally comes from good management, a thorough understanding of the industry and significant

control of at least one vital segment of the industry.

Our ultimate goal as a vertical food company is to

participate in every segment of the business. Sharing

in the risks and rewards of our cooperative valueadded enterprise.”

Pork America recognizes that it may require some

innovative financing. If producers had considered a cooperative option prior to the economic crisis, Olson says

“...the lost equity could have bought all the processing

facilities in the United States; we could have controlled

the whole thing.” 

Board members believe that the equity needed to

enter the industry on the scale advocated by the SJH

study may exceed the liquid capital pork producer

members can generate. However, they feel that Pork

America’s leveragable asset is hog production — and

the control of that production through the market

chain. “We have $4 invested in production facilities for

every dollar they have in processing; we need to use

that leverage,” Olson says.

If these financing hurdles can be overcome, Pork

America and its independent pork producers believe it

will be able to operate successfully — generating sustainable income for producers and retaining those producers

and their operations as viable rural businesses.

Pork America has identified five strategies to achieve

these goals:

• Increase efficiency by improving producer-to-consumer information flow;

• Coordinate production, processing and marketing

through real-time internet-based information management systems;

• Develop systems and partnerships to sell as close to

retail consumers as possible, including development

of an independent producer brand;

• Avoid head-to-head competition with existing

By Bill Brockhouse, Agricultural Economist

USDA Rural Development

The Central Kentucky Hog Marketing Association

(CKHMA) got off the ground in 1991. USDA Rural

Development provided the group with technical

assistance to help in its formation. 

The hog producers who formed the cooperative

began shipping truckloads of hogs to a local packer.

This was less expensive than shipping individually

and the 25 members were also able to negotiate a

better base price with the packer. 

Even though some members have retired, the

cooperative is marketing more hogs now than when

it was formed. This year the cooperative will sell

more than $2 million worth of hogs and continues to

expand the services that it offers to its members.

In 1991, producers didn’t realize how the cooperative would help them in other ways. For example, in

December of 1998, when the hog-price collapse

was at its worst, CKHMA hog shipments were never

turned away by their packer, as were shipments

from some other small-scale producers. 

The cooperative’s leadership was instrumental in

starting Pork America. Two of CKHMA’s members

are founding members of the board of directors for

Pork America.

The members perceive supply chain management and industry integration as potential threats to

future viability as independent producers. To combat this, the producers are receiving technical

assistance from USDA Rural Development to study

the feasibility of further value-added activities for

the cooperative. Their experience in developing

their own cooperative is invaluable as they move on

to a bigger project. ■

Kentucky hog co-op to

explore value-added 

alternatives 

10 September/October 2000 / Rural Cooperatives
large players by identifying and supplying 

underserved segments and niches; and

• Support new and existing producer groups and return

profits to the local level by developing and supporting

pork merchandising opportunities.

Not everyone in the pork industry feels that Pork

America can succeed. In the June 18 Des Moines Register,

Jerry Perkins recounted his interview with Smithfield

Foods chief executive Joseph Luter III. Smithfield Foods

is the largest pork processor in the world and is an

investor-owned firm. Luter predicted that farmer-owned

pork marketing organizations will fail. Luter declared,

“They’ll have their head handed to them... The idea that a

bunch of farmers are going to get together and build a

plant and make money is laughable.”

Thousands of independent producers from other agricultural sectors, though, have clearly shown that “a bunch of

farmers” can succeed in creating and operating viable businesses to participate in value added beyond the farmgate.

Charles Kraenzle, director of the Cooperative Services Statistics Division at USDA Rural Development, reports that

nearly one-third of all U.S. farm commodities and products

were marketed through cooperatives in 1998. Leading the

way were dairy cooperatives, marketing 86 percent of U.S.

milk and milk products.

Whether the efforts of Pork America or other recently

organized pork cooperatives prove Luter right or wrong

remains to be seen. Still, despite the high level of risk, independent pork producers are motivated by the stories of 

new-generation cooperatives such as the Dakota Growers

Pasta cooperative. The prospect that producers can form a

cooperative, build a plant, and develop a producer-owned

business that is among the three largest pasta manufacturers

in the United States is tempting when the only other palatable alternative is exiting the industry. 

As John McNutt said, “Pork America may be the last train

leaving the station for independent pork producers.” ■

By Joe Folsom, Program Director

Community and Cooperative Development

USDA Rural Development, Minnesota 

‘

The small group of Minnesota hog producers who

formed Prairie Farmers Cooperative has developed a

strategy to take advantage of a segment of the pork market not being served by the larger meat processors. 

The cooperative is committed to delivering a highquality pork product through a new, 72,000- head-peryear slaughtering/processing facility with:

• a shorter time interval from slaughter to delivery;

• a pricing mechanism that reflects the quality of primal cuts from each producer’s hogs;

• information transfer on production and genetics that

enhances product quality and service;

• flexibility in providing a value-added product mix

of fresh and processed products, including

meeting requests for specialized products and 

packaging.

Pork cut, wrapped, labeled and ready for the grocer

case is an example of a fresh product designed to

meet the needs of a retail store without a meat cutter.

High-quality, custom pork products such as barbecued

pork, sausages and precooked products using proprietary recipes will be high-margin activities for the

cooperative. 

“The flexibility gained from small-scale plant operations provides an opportunity for the cooperative to

serve niche market areas rejected by the larger processors,” says Kevin Edberg, marketing director for the

Minnesota Department of Agriculture. 

Marketing channel attention will focus on direct store

deliveries, distributors and food service companies.

Small local retail chains that market to more upscale

consumers, wanting a fresher product not containing

moisture enhancements or pumped additives, will be

targeted. Products will be targeted for local and regional

distributors and food service companies. 

Entry into this mature and competitive environment

will be challenging. “We firmly believe opportunities are

present without going head-to-head with the large

processors and that we will be able to return added value to our producer members,” said Dennis Timmerman,

chairman of Prairie Farmers Cooperative. ■

Finding new ways to market ‘this little piggy’

Rural Cooperatives / September/October 2000 11
12 September/October 2000 / Rural Cooperatives

Patrick Duffey, 

USDA Rural Development

Editor’s Note: In late September, John

Malcheski departed for Siberia on his 14th

mission for ACDI/VOCA and the eighth

country he has traveled to for that organization, which uses American co-op volunteers to help improve the food-production

systems of other nations. In this interview,

Malcheski relates some of his extensive

experiences with cooperatives at home and

abroad. 

Malcheski came from a family background with strong cooperative roots, which

became his springboard into a career as a

prominent Wisconsin dairyman and cooperative leader in both national and international arenas. Today, at 68, Malcheski

still operates a 500-acre dairy farm near

his hometown of Pulaski, near Green Bay. 

Rural Cooperatives: Where did

you gain your strong commitment to

cooperatives?

Malcheski: My father, Edward,

lived and breathed cooperatives. It was

a big part of our home life. He was an

active leader in Wisconsin agriculture

and in 1927 opened a small cheesemaking cooperative that served 12 area

farmers. This was in addition to his

dairy farm operation. After all, he had a

wife and nine kids to feed! The cheese

factory continued operating until 1947,

when big changes began in the dairy

processing business. He helped form

and was a director of three area cooperatives: Pulaski Chase for farm supplies;

the Brown County Production Credit

Association and Federal Land Bank,

which provided post-Depression credit

for farmers; and a Pulaski livestock

shipping association to give farmers

Life in the cooperative lane

John Malcheski, Wisconsin’s roving co-op ambassador, 

spreads cooperative skills and knowledge worldwide 

“Those cooperatives that don’t

see the changes coming won’t

last,” says Wisconsin dairyman

John Malcheski, at home on his

500-acre farm near Green Bay.

USDA photos by Patrick Duffey

IN THE SPOTLIGHT
Rural Cooperatives / September/October 2000 13

access to better prices at the Milwaukee

terminal market.

The idea of foreign service also

stemmed from my father. Poland, the

former breadbasket of Europe, was

demolished in World War II. People

needed food, so the United States

introduced the Marshall Plan for

rebuilding Europe. It was administered

by the United Nations (U.N.). My

father headed its farm machinery distribution program in Poland. While he

was gone, my mother and the family

operated the farm. My sister, Helen,

took over the cheese factory and

became the first woman to be a

licensed cheesemaker in the state.

RC: When did you first become

active with cooperatives? 

Malcheski: I was a delegate to Badger Breeders (now Genex) and Consolidated Badger dairy marketing cooperative and later was elected to the boards

of Pulaski Chase and Consolidated

Badger. During my 20 years on the

dairy cooperative board, six of them as

chairman, we changed its corporate

name to match its popular brand name,

Morning Glory. It was the third largest

dairy marketing cooperative in the state

in 1988 when we merged with Associated Milk Producers, Inc. (AMPI).

When AMPI was realigned in the early

1990s, Foremost Farms dairy cooperative, based at Baraboo, purchased the

assets of Morning Glory. During my 25

years on the Pulaski Chase board, its

sales grew from $3 million to $20 million. In 1978, I joined the Land

O’Lakes (LOL) board, served for 15

years and witnessed a lot of changes

and growth. 

Our Wisconsin Federation of Cooperatives (WFC) is one of the finest

trade organizations in the country. I’m

currently in my last term on its board.

With an annual operating budget of $3

million, it brings together cooperatives

from varied interests under one

umbrella. Members range from farm

supply and marketing cooperatives to

those representing insurance, housing.

health, rural electrics, town and home

mutuals and credit unions. 

WFC also monitors proposed legislation related to our broad membership, much of it with a rural base. In

our alliance with Minnesota Association of Cooperatives, we discuss ways

to make our programs more efficient,

with emphasis on improving cooperative education. The future of young

members lies in educating new generations about how cooperatives work and

why they need to support them. We

also want to reinforce the knowledge of

those who are already involved with

cooperatives. Our state organizations

also cooperate with the Iowa Institute

for Cooperatives in a common cooperative development program. 

RC: Wisconsin is served by a number farm supply cooperatives. Is there

any pending consolidation activity?

Malcheski: Our cooperatives are

moving in that direction, trying to keep

pace with shrinking numbers but larger

size of remaining farms. Fewer cooperatives in the future will cover larger territories and provide more technical services to create more efficiencies for their

members. Local cooperatives will either

volunteer or be forced to merge with

their neighbors. Cooperatives need to

tap more of the profits from moving

farm products to consumer markets.

Feed and agronomy centers already are

creating more efficiencies for farmers.

And since labor is a critical part of farm

operations, cooperatives such as ours

must provide technical services with a

highly trained staff. 

Although our cooperative’s farm supply business is larger, we also buy and sell

farmers’ grain. In time, we’ll offer services members want if the cooperative

can make a profit at it. Those cooperatives that don’t see the change coming

won’t last. 

RC: How have the Malcheskis survived when so many dairy farmers have

been forced to quit in recent years? 

Malcheski: As evidence of how

dairy farm numbers have shrunk on

just our country road, at one time 14

dairy farmers flourished compared

with only five today. We brought in

the second generation and have farmed

in partnership with my sons John and

Scott since 1996. We developed a

rent/purchase agreement with my sons

so the cattle, farm and equipment will

eventually flow to them. The milk production average for our 200-cow herd

is 25,000 pounds per cow per year. My

son Steve operates an adjoining farm

of nearly 100 acres and milks 60 cows.

We market our milk supply to Land

O’Lakes, Inc. (LOL).

RC: How has your cooperative benefited from the joint agronomy venture

between CENEX and LOL?

Malcheski: It made our fertilizer system more efficient and lowered members’ nutrient costs that were passed on

in patronage returns. We also built our

cooperative’s service base with improved

facilities, delivery equipment, and a

trained staff. Some further centralizing

of local services may be in the offing.

RC: Does your cooperative encourage young farmers to participate on the

board of directors?

Malcheski:. We meet twice a year

with local young farmers to provide

crop and livestock production information and also educate them about

This shrine near the Malcheski farm was

built by Polish Catholic farmers who settled

in large numbers around Pulaski, Wis. The

town is home to the largest rural church in

the world. 
14 September/October 2000 / Rural Cooperatives

cooperatives. We also participate in

education programs of regionals and

the WFC. Producers need continuous

education about how to use and

patronize cooperatives and how they

are structured and controlled. The

University of Wisconsin Center for

Cooperatives in Madison also has programs for young farmers that encourage them to get involved with their

cooperatives and serving other members. Those leadership skills often

pour over into local communities. By

contrast, non-cooperatives offer no

such leadership opportunities. 

RC: How did you become involved

in international development work?

Malcheski: When communism in

Eastern Europe collapsed along with

its centralized food production system

in 1989, it left a void. Food costs were

running 60-80 percent of people’s

income. Congress expanded the

farmer-to-farmer program to include

U.S. support to the former Soviet

states to address food production, marketing and finance needs. Dr. Vern

Freeh, LOL’s vice-president of international development while I was on its

board, was also a director of

ACDI/VOCA, which was affiliated

with the National Council of Farmer

Cooperatives. He invited me to participate in its program. I was one of the

first seven to enter the program in

Poland in 1990. I had seen the failure

of communism there firsthand during

private visits in 1983 and 1985.

When the Soviet empire collapsed

and ACDI/VOCA wanted volunteers, I

was eager to share my farming and cooperative experiences with people who were

being introduced to capitalism and free

enterprise. We tried to show the Polish

farmers that our U.S. cooperatives were

examples of building better agricultural

enterprises and markets. The idea was

challenged in Eastern Europe because

producers likened our cooperatives to the

old communist system. It took time to

reeducate them as to the real goal of

cooperatives: to strengthen the hand of

producers, not the state.

RC: How does the ACDI/VOCA

program work?

Malcheski: We plant “seeds” by

encouraging producers to look at the

U.S. cooperative system as a way to

provide supplies and market produce

and livestock. We sought people with a

burning in their bellies to move forward. When the old state collective

farms were split, land was returned to

original owners or their relatives.

Parcels were small according to the old

European system and often scattered.

Former office workers, cooks and truck

drivers were becoming new farmers.

We encouraged them to swap parcels

to gain more contiguous acres. We also

worked with government agricultural

ministries to help farmers expand this

private sector. 

ACDI/VOCA established offices in

various countries and developed contracts with groups or individuals who

had ideas on helping agricultural organizations. Usually, ACDI/VOCA

recruited volunteers and provided money for food and lodging. The host

recipients provided transportation and

translators. It was always nice to find

aggressive persons or groups who wanted to change or improve their system.

We found the right person in

Poland and in three short weeks put

together Agro-Wisconsin, a farm supply and grain marketing cooperative

complete with bylaws, elections and a

manager. The cooperative purchased

grain from local farmers. I worked

with Norval Dvorak, a retired executive from Packerland Packing Company at Green Bay. We each invested

$100 to give Agro some start-up cash

flow. The cooperative lasted for a

time, but later fell apart due to bickering on the board. That led to its

financial ruin. In subsequent visits to

Poland by other volunteers, including

Dvorak, Agro was consolidated with

another cooperative, so our efforts

weren’t entirely wasted. 

Former Agro leader Alex Bohenski

is now the sweet corn king of Poland.

He slowly began planting sweet corn

and selling it on the streets of major

Polish cities and to a government processing plant. He now owns the plant,

contracts with farmers to grow sweet

corn, sells it to Burger King and also

markets it under the trade name of

Zolty Ameriky, which translated means

‘Gold of America.’ Thanks to another

volunteer, a retired executive with

Dean Foods at Green Bay, surplus processing equipment was purchased from

the company and installed to update

the plant in Poland. 

RC: What was your most memorable experience with ACDI/VOCA?

Malcheski: All my trips were memorable, but Egypt stands out because of

its early recorded history, the pyramids

and their culture. I was impressed with

the Egyptians’ ability to produce food

by irrigation. Canals laid out during the

days of the pharaohs 4,000 to 5,000

years ago are still in use and are helping

the Egyptians turn the desert green.

Four of my 14 volunteer trips were

to Egypt. I kept getting involved and

going back on a new project. Egypt was

the most eye opening because of the

tremendous amount of hand labor

required to produce food. The kids

start working at age 6 and 7. Many

can’t read or write. It’s very sad to see.

So, we need to tie in some basic level of

education in future programs. But, the

people we met were very happy and

hard working. Poverty was prevalent by

our standards, but they don’t see poverty as such. Something as common as a

three-tine pitchfork from an American

farm would be an innovation in some

countries. If I go again, I’d like to take

one along just to show what can be

accomplished with a simple pitchfork.

Egypt’s long-standing, two-class system is gradually changing with the rise

of a middle class. But it will take another 50-100 years to raise the living standards for a lot of people. My work in

Egypt was always with different dairy

farmers, large and small. We tried to

offer technical advice to fit particular

situations we encountered such as cattle comfort, milking procedures, nutrition, feed storage, genetics and raising

calves and heifers. To help Egypt

become more self-sufficient, in 1997

ACDI/VOCA instituted a five-year

AgLink program. A cooperative will be

in place when the project is completed
Rural Cooperatives / September/October 2000 15

so they can help themselves in any area

needed. They have a tremendous

knowledge about dairying in Egypt,

but individual farmers don’t share their

experiences with others. The AgLink

program will change that. The return

on investment will be a lot more agricultural trade with Egypt. 

RC: What obstacles did you encounter in other countries you visited?

Malcheski: In Macedonia, about

one-third the size of Wisconsin, they

had many languages and customs to

penetrate. Armenia was the toughest

assignment. During my visit, most people had no electricity for a number of

hours each day due to a fuel shortage

brought on by a war with neighboring

Azerbaijan. Farming equipment from

the old collective farm system was in

short supply, so we encouraged the formation of cooperatives that could rent

tilling and harvesting equipment to

farmers.

Latvia showed the need for more

open borders between small countries

to allow freer movement of supplies

and produce. The farmers had a

labyrinth to penetrate to accomplish

what to us was the simplest of tasks. If a

farmer was running short on hay for

his cattle, his herd might be half

starved by the time he could get in an

emergency supply. By contrast, if my

farm’s hay supply is running low, I can

call a source in Kansas and have a

truckload delivered overnight. 

In Lithuania, I worked with Chuck

Steen from Growmark helping newly

privatized farmers with cattle management, improving milk quality and

building design. We’d team up for

night meetings to discuss marketing,

food packaging, appearance and customer satisfaction — things they didn’t

have to deal with under communism. 

RC: What other problems do volunteers encounter in host countries?

Malcheski: One of the primary

impediments is inadequate legal

statutes to assist cooperative development. Others are inflation and high

interest costs, unwillingness to invest

in agriculture, political instability, lack

of marketing information and transportation, government price setting

and poor transfer of research from

universities to farmers. Worse yet,

there’s nothing comparable to the agricultural education provided by our

Extension Service and

other USDA agencies.

Some people in this country, with a mouthful of

food, criticize these programs. Yet, those programs created our system

that produces ample food

supplies. 

RC: What connection

did you see between food

production costs and

national stability?

Malcheski: These programs help build the agricultural sector of host

countries, but are a small

part of U.S. foreign aid,

which accounts for fourtenths of 1 percent of the

total federal budget. We’re

getting a good return on

our investment. In just

dairying, for instance, as we help others

improve that sector, we open the door

to expanding our agricultural export

markets. Because of our extensive experience, we can help them avoid some of

the pitfalls we faced years ago.

In every country I visited, I tried

to find out what percent of an average worker’s income was spent on

buying food. It was shocking — from

40 percent in Egypt to 80 percent in

Armenia and Russia. You cannot have

national peace and stability with

these conditions. I think the developed countries such as the United

States and Western Europe should

devote more foreign aid money

toward improving food production in

these developing countries.

RC: Would you encourage others to

participate in ACDI/VOCA?

Malcheski: Participation brings

you great experiences and personal

enrichment. We encountered wonderful people in all of our visits. You’ll

learn more than you think and you’ll

like sharing ideas. It will enrich your

soul and you’ll come back really

appreciating the USA. ■

Malcheski explains changes needed in a dairy operation in Egypt during one of this many overseas trips as an

ACDI/VOCA volunteer. Photo courtesy ACDI/VOCA 
16 September/October 2000 / Rural Cooperatives

By David Cummins, 

Agricultural Economist

USDA Rural Development 

et savings averages were

generally lower in 1999

than in 1998 for local

grain cooperatives in the

Corn Belt and Pacific

Northwest, particularly for large grain

co-ops in the Corn Belt. This was primarily because of continuing declines

in grain prices and higher operating

expenses. 

Lower net savings in 1999 was reported by 64 percent and 62 percent of the

large and medium-sized grain co-ops,

respectively, in the Corn Belt. Comparable percentages for the Pacific Northwest

were 70 percent and 25 percent.

For medium-sized local grain cooperatives in the Pacific Northwest, the

plunge in average net savings that

occurred in 1998 was reversed in 1999,

largely because of poorly performing

co-ops going out of business. 

Positive factors on the grain

income side were increased grain

volumes marketed and improved

grain margins and margin rates.

Net savings dipped in 1999 for most

corn-soybean and wheat-barley co-ops

N

MANAGEMENT TIP

Table 1 - Compare your corn-soybean cooperative with

averages for similar cooperative operations

Total sales group (million dollars)

Group/Item Unit 5-14.9 15 or more 5-14.9 15 or more Your

(1998 Data) (1998 Data) (1999 Data) (1999 Data) Cooperative

Storage capacity Million Bu. 1.288 5.471 1.597 6.477 _____________

Grain marketed Million Bu. 2.013 9.079 2.665 10.793 _____________

Turnover rate Times 1.56 1.66 1.67 1.67 _____________

Proportion grain Percent 75.9 71.0 76.2 69.3 _____________

Total assets Million $ 3.448 16.086 3.839 18.530 _____________

Long-term debt1/ Percent 6.7 12.5 9.4 13.8 _____________

Member equity1/ Percent 60.1 47.3 58.5 47.0 _____________

Total sales Million $ 9.712 44.633 9.899 42.736 _____________

Margins on sales Million $ .573 3.206 .640 3.634 _____________

Total expenses Million $ .859 4.364 .994 5.096 _____________

Net savings (losses) Million $ .174 .909 .168 .816 _____________

Labor of total expenses Percent 44.7 46.2 45.7 46.6 _____________

Net savings paid in cash2/ Percent 34.5 33.7 37.2 35.3 _____________

Current ratio Number 1.48 1.24 1.42 1.21 _____________

Debt/assets Ratio .15 .20 .19 .27 _____________

Net savings(loss)/tot. sales Percent 1.8 2.0 1.7 1.9 _____________

Gross margins/total sales Percent 5.9 7.2 6.5 8.5 _____________

1/ Of total liabilities and member equity. 2/ Of total patronage allocation.
Rural Cooperatives / September/October 2000 17

Farm supply sales and farm supply

margins and margin rates were higher

in 1999. Except for the slight increase

for the medium-sized grain co-ops in

the Corn Belt (where corn-soybean

co-ops predominate), total sales averages were lower there and in the

Pacific Northwest, where wheat-barley co-ops are most common. 

The most damaging negative factor

was the sharp drop in commodity prices

in 1999. The weighted averages of prices

received by large and medium-sized

local grain co-ops in the Corn Belt were

21 percent and 23 percent, respectively,

lower than in 1998. Corn, oats, wheat

and soybean prices ranged from 19 percent to 26 percent lower. Comparable

lower weighted averages for grain co-ops

in the Pacific Northwest were 15 percent and 13 percent. In fact, weighted

average prices received by local grain coops in both areas in 1999 were the lowest since the mid-1980s.

Loss rates for the medium-sized

co-ops in 1999 were about the same

(about 12 percent) as in 1998 in the

Corn Belt and sharply lower in the

Pacific Northwest (29 percent to 12.5

percent). In contrast, no losses were

reported in both years by the large

co-ops in the Pacific Northwest and

the rate rose only slightly (from less

than 3 percent to over 4.5 percent) in

the Corn Belt.

Total assets and member equity

averages were higher in the Corn Belt.

For wheat-barley co-ops in the Pacific

Northwest, total assets and member

equity averages were higher for medium-sized co-ops, but lower for large

co-ops. Total debt averaged higher

across the board in 1999, and represented a significantly higher proportion

of total assets for corn-soybean co-ops

than for wheat-barley co-ops.

Benchmarking your co-op

Benchmarks are common in business management to measure how well

your cooperative is performing. However, such figures don’t reveal how your

cooperative compares with others. 

If your cooperative is primarily a

first-handler of wheat and barley or

of corn and soybeans, comparative

data for 1999 are available below.

Tables 1 and 2 contain average financial and structural data compiled

from a survey of Pacific Northwest

and Corn Belt cooperatives marketing wheat and barley and corn and

soybeans, respectively. ■

Table 2 - Compare your wheat-barley cooperative with

averages for similar cooperative operations

Total sales group (million dollars)

Group/Item Unit 5-14.9 15 or more 5-14.9 15 or more Your

(1998 Data) (1998 Data) (1999 Data) (1999 Data) Cooperative

Storage capacity Million Bu. 4.344 8.932 4.324 9.807 _______________

Grain marketed Million Bu. 3.036 9.945 2.937 10.766 _______________

Turnover rate Times .70 1.11 .68 1.10 _______________

Proportion grain Percent 93.0 81.9 80.5 87.6 _______________

Total assets Million $ 2.702 12.732 3.736 11.080 _______________

Long-term debt1/ Percent 1.1 6.2 4.0 8.4 _______________

Member equity1/ Percent 89.6 58.7 73.0 63.8 _______________

Total sales Million $ 10.381 40.813 10.051 35.281 _______________

Margins on sales Million $ .226 1.972 .579 1.767 _______________

Total expenses Million $ .784 3.994 1.060 3.169 _______________

Net savings (losses) Million $ .022 .849 .171 .825 _______________

Labor of total expenses Percent 45.9 44.6 40.7 46.0 _______________

Net savings paid in cash2/ Percent —- 40.3 33.0 41.7 _______________

Current ratio Number 4.46 1.42 2.34 1.67 _______________

Debt/assets Ratio .04 .16 .18 .23 _______________

Net savings(loss)/tot. sales Percent 0.2 2.1 1.7 2.3 _______________

Gross margins/total sales Percent 2.2 4.8 5.8 5.0 _______________

1/ Of total liabilities and member equity. 2/ Of total patronage allocation. 
18 September/October 2000 / Rural Cooperatives

Tracey L. Kennedy, 

Agricultural Economist 

USDA Rural Development

Editor’s note: The Rural Business-Cooperative Service of USDA

Rural Development began an annual survey of cooperative involvement in international markets in 1997. Prior to 1997, cooperative

exports and imports had been measured at five-year intervals. An

overview of survey findings for 1998, with comparisons to 1997, is

presented here. A follow-up article in a future issue will provide

further detail.

gricultural exports by U.S. cooperatives were

down more than 41 percent in 1998, reflecting

declining demand and the subsequent fall in

commodity prices in Asian markets, as well as

the economic pressures related to currency

devaluations and other policy changes in other regions. 

Cooperative exports had climbed to a record $7.8 billion

in 1997 before falling off to $4.59 billion in the wake of

worldwide economic woes (figure 1).

Participation in exporting has remained relatively steady

with 96 cooperatives reporting exports for 1998. Magnitude

of export sales ranged from less than $100,000 to more than

$1 billion. 

Exports continued to be heavily concentrated among a few

cooperatives, with the top five exporters accounting for 60

percent of all cooperative exports. However, this compares to

a 76 percent concentration among the five largest cooperatives exporting in 1997. 

Cooperative exports were down from 1997 in all major

product groupings: bulk commodities, intermediate products

and consumer-oriented products (figure 2). Demand for bulk

commodities in particular showed the effects of the Asian

downturn, falling 54 percent to $2.5 billion. 

Exports of intermediate products — partially processed or

ingredient products — fell 24 percent to $308 million, while

consumer products, including fresh and processed fruits and

vegetables, meats and other food products, turned in the

smallest decrease, falling by just 10.8 percent to $1.78 billion. 

U.S. cooperatives also reported exports of nonagricultural

products — mainly farm inputs — valued at $83.5 million,

for a total of $4.68 billion.

Bulk commodities continue to account for the largest

— albeit a shrinking —portion of all cooperative exports,

accounting for 53.7 percent in 1998 compared with 69.6

percent in 1997. Intermediate and consumer-oriented

products gained in importance in 1998, rising from 5.2 to

6.7 percent and 25.3 percent to 39.6 percent, respectively,

of all cooperative exports.

After establishing a record 13.8 percent share in 1997, the

cooperative share of U.S. agricultural exports fell back to 8.8

percent in 1998. Cooperatives accounted for 12.8 percent of

all U.S. exports of bulk commodities, down from 23.3 percent in 1997. 

Cooperatives’ consumer product share dropped to 8.8

Trade Takes a Tumble

Cooperative trade plunges 41% as Asian markets cool 

A

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1980 85 90 95 97 98

Billions

0

1000

2000

3000

4000

5000

6000

Millions

Bulk Intermediate Consumer

1997

1998 Figure 1 Agricultural Exports by 

U.S. Cooperatives, 1980-98

Figure 2 Agricultural Exports by Cooperatives, 1997-98
Rural Cooperatives / September/October 2000 19

percent from 9.5 percent in 1997, while their share of

intermediate product exports fell from 3.2 percent to less

than 1 percent.

Where the markets were

Trade patterns and flows for cooperative exports showed

significant change in 1998. Although Asia continued to be

the most important destination for cooperative exports,

markets in this region accounted for only 31 percent of all

cooperative exports, compared to almost 50 percent in

1997. Significantly, the second largest regional market for

cooperatives was Latin America, accounting for about 20.5

percent of cooperative exports, vs. 10 percent in 1997.

European markets increased marginally in importance from

17.7 percent to 20.2 percent. 

Canada fell from almost 9 percent to about 6 percent,

while Africa became a more significant player, increasing

from 5 percent to 8 percent of cooperative exports.

The impact of much of the global economic situation is

clearly reflected in changes in trade flows to most major regions

from 1997 to 1998, with the only gains in Latin American,

Middle Eastern and African markets (figure 3). As expected,

exports to Asia experienced the most significant drop, down 63

percent from $3.9 billion in 1997 to $1.4 billion in 1998. 

Exports to Canada fell almost 60 percent, from $684 million to $275 million, while sales to Australia and New

Zealand (Oceania) fell almost 54 percent, from $57 million to

$26 million. On the other hand, export sales to Latin American markets increased 20 percent, from $796 million to $957

million. Sales to Middle Eastern markets increased 7.5 percent from $236 million to $254 million.

Imports by cooperatives

Cooperatives import a variety of products, mainly nonagricultural and consumer-oriented products. In 1998, cooperatives imported products valued at $203 million, down

from $252 million in 1997. Non-agricultural products —

mainly fertilizer and petroleum products, along with farm

supplies, equipment, and machinery — accounted for 67 percent of cooperatives’ imports. 

Consumer-product imports — primarily of fresh and

processed fruits and vegetables — accounted for almost 30

percent of the total, while intermediate product imports (primarily sweeteners and frozen bovine semen) accounted for a

little over 2 percent (figure 4). A negligible amount (less than

1 percent) of grain imports accounted for all bulk agricultural

commodity imports. 

The majority of consumer products — mostly horticultural products — originated in Latin American countries (46

percent), while Canada was the largest originator of nonagricultural products (42 percent).

It remains to be seen whether 1998, the height of the

world economic instability, has had a long-lasting impact

on cooperatives’ activities in international markets. A follow-up article in a future issue of this publication will take

a more detailed look at 1998’s results and look ahead to

1999 and 2000. ■

Millions

Africa

1997

1998

0

500

1000

1500

2000

2500

3000

3500

4000

Asia

Canada

Europe

Latin America

Middle East

Oceania

Unidentified

0

50

100

150

200

250

300

350

400

1997

1998

Millions

Consumer

Intermedieate

Bulk

Non-ag

Figure 3 Cooperative Exports by Destination, 1997-98

Figure 4 Imports by U.S. Cooperatives, 1997-98
20 September/October 2000 / Rural Cooperatives

By Pamela J. Karg

Field Editor

obacco quotas have been

cut by more than 60

percent during the past

two years, leaving Kentucky with 110,000 acres

of quality farmland that’s “basically up

for sale as farmers try to figure out

what they’re going to do next,” says

Jim Mansfield, horticulture/aquaculture program director for the Kentucky Department of Agriculture.

While some Americans have

applauded recent court settlements

levied against the tobacco industry, it’s

the small farmers across 20 states —

stretching from Minnesota to Florida —

who are paying the ultimate price. The

1997 USDA Agriculture Census counted 89,706 tobacco farmers in the United

States and approximately 286,500 farms

with assigned tobacco quotas. This

year’s quotas, announced at the beginning of 2000, dropped throughout the

tobacco industry. So did prices. 

In 1999, Congress appropriated

$328 million under broad farm disaster legislation to help compensate

farmers for cuts made in tobacco

quotas. USDA, under the Tobacco

Loss Assistance Program, administers

this one-time-only compensation

fund. In late June and early July,

farmers also received checks from

their state governments through the

$5.15 billion Tobacco Growers Trust,

established by tobacco companies to

help cushion the fall for farmers. The

checks can be spent any way a farmer

sees fit, but many officials hope farmers will use the money to find an

alternative to tobacco. 

A huge challenge

“Tobacco is a crop that is non-perishable, fairly easy to grow and harvest,

you know the value per acre and you

know what you’re going to get paid for

it before you even plant it. To replace

that is going to be a big challenge,”

Mansfield says.

But he believes some farmers do

New Directions:

Co-ops help tobacco farmers transition to new crops

T

Karen Calhoun (above) is making the switch to

aquaculture to offset a two-thirds reduction in her tobacco quota. Photo courtesy of Kentucky State

University. Opposite page: University of Kentucky horticulture specialist Jim Mansfield (center) discusses the fine points of growing eggplant, one of the vegetable crops seen as an alternative to

tobacco. Photo courtesy of Kentucky Dept. of Agriculture. 

A migrant laborer from Mexico harvests tobacco in Virginia. USDA photo by Ken Hammond. 
Rural Cooperatives / September/October 2000 21

have options. They just need to be

willing to consider new crops, change

how they are farming and work with

neighbors to market these new agricultural products. That’s a tall order,

but one that was not lost on Karen

Calhoun.

The Harrison County, Ky., tobacco

and beef cattle farmer had her burley

quota cut by more than two-thirds during the past three years. She could raise

more beef cattle, but that requires more

land, and good farmland is something

that doesn’t come cheap. And she also

has limited access to labor. 

Calhoun found her niche, with assistance from the Kentucky Department

of Agriculture and Kentucky State University. “I’m trying new things. I am

now in the farm-raised shrimp business,

and it looks to have some real potential,” says Calhoun.

To help spur the business, the state

provided a $149,528 grant to the university to help build a shrimp hatchery

at its Frankfort research facilities. This

infusion of money into the state’s agricultural infrastructure enables Kentucky farmers to buy seed stock from a

nearby source rather than shipping it in

from Texas and running the risk of

high mortality.

Within an hour-and-a-half of harvesting her first shrimp crop, Calhoun

had sold out her entire crop directly to

local consumers. Because she’s the first

in her area to begin an aquaculture

enterprise, the shrimp harvest generated a large amount of publicity, attracting consumers eager to buy Kentuckybred “seafood.” The high demand for

her shrimp surprised Calhoun, who

plans to lease the remaining tobacco

portion of her farm this year so she can

concentrate on beef cattle and shrimp,

and some vegetables and pumpkins.

Writing on the wall 

Mansfield says shrimp production is

just one example of aquaculture

endeavors open to Kentucky tobacco

farmers. The state also has projects and

financial programs that support trout,

catfish, paddlefish, minnows and bass

production farms.

“We have a progressive group of

farmers. They see the writing on the

wall that they’re going to have to be

changing their business because they

can’t just hang their hats on tobacco

any more,” Mansfield says.

Cooperatives and quasi-cooperative

organizations are playing a large role in

helping farmers make the transition to

new crops. Working with the Kentucky

Agriculture Department are groups

such as the Commodity Growers

Cooperative Association; the Kentucky

Center for Cooperatives; Kentucky

Network for Sustainable Agriculture;

the Kentucky Farm Bureau and state

Resource, Conservation and Development councils (RC&Ds).

In fact, the Jackson Purchase RC&D

Foundation received a state valueadded grant for $194,650 to pay for

two efforts: construction of a catfish

processing plant, to be owned and

operated by the newly formed Purchase Area Aquaculture Cooperative

Inc. (PAAC), and establishment of a

revolving loan fund for aquaculture

infrastructure development. 

The PAAC has a goal of producing

1 million pounds of fish within two

years. The plant will create approximately 20 new jobs and is expected to

need production from more than 100

farmers who will convert low-production soil into fishponds to meet PAAC’s

Where tobacco plants once grew, Jill Streck helps harvest shrimp, a new crop her

aunt hopes will replace lost tobacco income. Photo courtesy of Kentucky State University.
need for 2,000 acres of water.

“This alternative to tobacco should

aid many local farmers and will also

help our grain farmers, as there will be

a need of 750,000 bushels of grain each

year for feed,” said Robert B. Johnson

of the Jackson Purchase RC&D. 

Other alternatives have potential 

In addition to aquaculture, Kentucky tobacco farmers are switching to

greenhouse and nursery crops, willow

trees, meat goats, beekeeping, grapes

and wine production, Christmas trees

and other fruits and vegetables. Still

others are switching to more traditional

farming endeavors, says Mansfield,

including beef and

hog production, raising dairy heifers for

export (especially for

the Mexico market),

and grain production.

But in southeastern Kentucky, grain

production is limited

due to a lack of suitable land and storage

facilities. Most of the

corn grown in the

area is fed to local

cattle.

Research conducted at the University

22 September/October 2000 / Rural Cooperatives

Grower co-ops to coordinate marketing

USDA photo

Faced with a cut of more than 50 percent in their

tobacco quota, farmers of the Owensboro, Ky., area

responded by forming the West Kentucky Growers

Cooperative (WKGC) to help them produce and market

sweet corn and other vegetables. 

“These farmers have taken action to ensure the

strength of agriculture in their region as well as the continuation of their own agriculture-based economy with

the founding of this cooperative,” Kentucky Agricultural

Commissioner Billy Ray Smith said at the opening of a

new farm market facility this spring.

The Kentucky Department of Agriculture approved a

grant for $100,000 to assist the West Kentucky Growers

Cooperative (WKGC). It now joins cooperatives already

established in Georgetown, Horse Cave and Monticello/Russell Springs, Ky.

“We think there is a major opportunity for Kentucky in

the produce industry,” says Jim Mansfield, director of

Kentucky’s Division of Value-Added Horticulture/ Aquaculture. “Now is the opportune time to establish a network of facilities with coordinated sales and valueadded processing.”

The WKGC leases a large facility originally built by

the J.C. Ellis family in Stanley, Ky. The plant has ample

cold storage space, hydro-coolers, icemakers and a

slush-ice injection unit suitable for produce grading,

packing and cooling.

But the enterprise doesn’t stop there. WKGC is

extending outside its borders to cooperate with another

growers’ cooperative. Owensboro farmers, together with

representatives from the state agriculture department

and the University of Kentucky, traveled to Florida and

entered into an agreement with the Pioneer Grower

Cooperative of Belle Glade. 

“Pioneer Growers Cooperative has corn growing

in Florida and Georgia, and wants to become yearround marketers of sweet corn,” Mansfield said.

“There is a 10-week period through July and August,

however, when they are unable to produce sweet

corn. This is where the West Kentucky Growers

Cooperative comes in.”

The Kentucky cooperative will grow 1,000 acres of

sweet corn that will be marketed by the Florida cooperative. A third of the corn will be tray-packed in Kentucky

and sold as value-added corn. Two-thirds will be sold to

retailers.

Patrick Rupinen of the Commodity Growers Cooperative in Lexington, Ky., says that more and more tobacco

growers are learning about the cooperative way of doing

business. Some are realizing that by pooling their

resources and their bounty, they are able to tap into

more retail markets.

“And if farmers can sell directly through some of

these retail channels, that will mean better prices for

them,” Rupinen said. In addition to corn, the Kentucky

co-op is selling 150 acres of mixed vegetables grown by

the Owensboro farmers, although a different distributor

will market it. ■
of Montana suggests that echinacea — an herb which proponents claim has medicinal properties — could be an alternative

crop for tobacco farmers. Other

research is focusing on the

industrial hemp market.

“We want to diversify and

stabilize the number of farm

enterprises that generate

income for our farm families,”

explains Jim Lacy of the Kentucky

River RC&D Council. “So more and

more of our farmers are looking to

grow vegetables to supplement their

income from the lost tobacco

poundage.”

A farmers’ market was established

in Campton, Ky., to allow producers

to sell their crops at a central location. The state Farm Bureau has

assisted in the formation of new farmers’ markets through its Certified

Roadside Farm Markets program.

Interest high in vegetable co-ops 

In Lewis County, Ky., the Vegetable

Growers Association was formed in

November and had 18 farms sign on

for the season. They received a grant

for just over $7,000 for vegetable production demonstration equipment used

in connection with the farmers’ market.

By Isaac J. Bailey

The Sun News

Myrtle Beach, S.C.

For more than 30 years, Robert Boyd, a tobacco market sales supervisor, has heard the rumors. For more than

30 years, the anticipated demise of the auction-style

tobacco sale has been exaggerated. But time may finally

be catching up to the event that has for decades been a

celebration of bountiful harvests for farm families. 

Warehouses, such as Twin City Farmers Cooperative

Inc., where Boyd is supervisor, may become storing houses, he said. Tobacco companies are signing more farmers

to contracts, with which a given company pays farmers a

determined amount, rendering useless the time-honored

tobacco auctions. 

Companies want to better control the quality of crops

and the harvesting process, Boyd said, and better farm

equipment has caused some of the changes.

``The number of farmers is decreasing every year,’’ he

said. ``And companies want to get more mileage out of

their tobacco.’’

Next year, or maybe the one after, could be the last of

the auctions, but maybe the end will never come, Boyd

said.

``For the entire 35 years I’ve been in this business, I

heard that every day,’’ Boyd said Tuesday, sitting on an

800-pound stack of baled tobacco during the opening of

markets in Loris. ``It may continue indefinitely. But it

appears now it is closer than it’s ever been.’’

The scene of families gathering in the warehouses,

maybe eating hot dogs and drinking lemonade, on opening day has been replaced by lone farmers checking

prices marked on small pieces of paper on the tops of

tobacco piles. 

Some visit on days when they aren’t selling to get a

glimpse of the price they can expect when they do. The

strong scent of tobacco — sweet to some noses, overwhelming to others — permeates the entire place. Signs

imploring farmers to keep their tobacco clean decorate

warehouses.

``Whole families used to do it, so this was a big day,’’

said Sarah Strickland, who was in Loris Tuesday to sell

her aunt’s harvest. ``You had snow cones and saw everybody you knew. Now, they just sell and go.’’

The farmers sell when they feel a fair price has been

offered, and many sold tobacco in mid-August at the two

warehouses in Loris. 

At Brick Tobacco Warehouse, 157,421 pounds of

tobacco were sold for $249,743.90, an average of $158.65

per 100 pounds. At Twin City Farmers Cooperative Inc.,

251,505 pounds of tobacco were sold for $400,986.30, an

average of $159.43 per 100 pounds. The total figures for

Loris tobacco markets by Aug. 15 were: 408,926 pounds

of tobacco sold for $650,730.20, an average of $159.13 per

100 pounds.

Representatives of Dimon, Export Leaf, Standard Commercial and J.P. Taylor tobacco companies walked up

and down rows of tobacco bidding on baled and looseleaf crop, sometimes pushing prices more than 20 cents

above the minimum listed. They followed Steve Ivey, who

has been an auctioneer for 25 years.

``Dollar bill, dollar bill, dollar bill,’’ Ivey uttered in a

voice distinguishable only to the trained ear. A bale here

sold $170 per 100 pounds, a pile there sold for $160 per

100 pounds, another for $155 per 100 pounds.

Loris farmer Marcus Gerald has seen a lot in the 25

years he’s grown tobacco. While farming has been good

to him, Gerald said, all the change has made him feel

uncertain.

``You don’t know whether to keep investing in farming

or not,’’ he said. ■

End nears for tobacco warehouse co-ops

Rural Cooperatives / September/October 2000 23
“Commercial vegetable farming is a

new challenge to our producers. A high

level of management is required,” says

Lacy, of the Kentucky River RC&D.

With a grant from the Wolfe County

Conservation District and the state

agriculture department, the RC&D

council received money to purchase

mulching equipment so farmers could

begin converting to commercial vegetable farming. 

However, if every tobacco farmer

sells fresh produce, there’s the possibility of a glut in the marketplace

that would drive down prices. Or

production could fail to adequately

target what consumers want to buy.

That’s why more grower associations

are being formed, and these groups

are coordinating their production

and marketing with other cooperatives — even some outside their

region, says Mansfield. (See related

story, on page 22)

“We have really been asking ourselves how we can form more marketing alliances and partnerships to have

better coordination of our value-added

products,” Mansfield adds. 

The Commodity Growers Cooperative (CGC) in Lexington

addresses both the dependence of

Kentucky’s farm families on tobacco and the need for a local, sustainable food system by providing market development assistance to

farmers who are trying to diversify

their crops. The CGC has already

developed markets for family farm

products — primarily in the horticultural area — by building a base

for locally grown products. These

efforts, due to the support of many

partners, have greatly increased

Kentucky’s commitment to diversification initiatives, says Patrick

Rupinen, CGC administrative

manager.

“Kentucky is the No. 1 one burley

tobacco producer, and we have 40,000

farm families out there producing it.

We don’t want 40,000 burley tobacco

growers to suddenly disappear. So there

are a lot of us trying to help farmers

find alternatives,” Rupinen says.

Now the CGC is collaborating with

the Kentucky Center for Cooperative

Development to award $80,000 in

grants to conduct market feasibility

studies by groups interested in forming cooperatives. The deadline is September 2001.

“We have a lot of interest by some

people — people who are willing to

take a chance on something new,”

Rupinen says. “You have to understand

that tobacco farmers didn’t really have

to work together with other tobacco

farmers. Now that they’re looking at

other crops, cooperatives are slowly

forming. It’s a new idea for them that

will come about as they realize that

they can share equipment or facilities,

and do more coordination to get the

job done.” ■

24 September/October 2000 / Rural Cooperatives

The Burley Tobacco Cooperative Association Inc., in Lexington, Ky., is participating in a pilot program with Star Scientific Inc. to experiment with lownitrosamine burley tobacco. One hundred farmers in central Kentucky and the

Owensboro area have entered into an agreement with Star to produce the

low-nitrosamine tobacco.

Nitrosamines are thought to be one of the major carcinogens in tobacco.

Farmers will have to prime the burley tobacco and cure it in special curing

structures. If the experiment is successful, Star plans to expand its efforts and

include more farmers next season.

Farmers also have the option of converting from chemically intensive

tobacco production to organic production. Willing buyers exist, such as the

Santa Fe Natural Tobacco Co. in New Mexico, but with a three-year resting

period before soils can be certified as pesticide-free, few growers have

explored that possibility. 

A versatile crop, tobacco leaves can be used to create ethanol or biomethane, alternative energy fuels. Biomass tobacco, a minimal-nicotine crop

that is converted to fuel, not smoked, can thrive in poor soil and a wide range

of environments, is not labor-intensive and also requires minimal chemical

treatment. Tobacco can also become animal feed. ■

Pursuing other uses for tobacco 

USDA photo
Florida’s Natural breaks

sales record — again! 

Record sales for the

10th consecutive year

have been announced

by Florida’s Natural

Growers fruit cooperative, based at Lake

Wales. Sales for fiscal 2000 were up 10

percent from 1999.

The record $605 million sales

included an average of 1 million cases of juice, or about 3 million

gallons boxed and shipped per week,

and 23 million cases of citrus processed

during the year. 

The cooperative exports to 40 countries, primarily in Europe, Japan and the

Caribbean. The booming sales are related to growing popularity of not-fromconcentrate (NFC) juice, said Steve

Caruso, chief executive officer. In June,

Florida’s Natural completed a $7.2 million purchase of Sun Pac Foods’ citrus

processing plant in Barrow. It can

process 5.5 million boxes of juice annually into frozen concentrate. However, the

cooperative will gradually convert it to

process NFC juice. The cooperative’s 12

grower organizations represent 1,100

grower-owners with more than 60,000

acres of citrus.

Neb. court backs co-ops on hedgeto-arrive contracts

The Nebraska Supreme Court has

decided unanimously that eight

Nebraska farmers who reneged on

hedge-to-arrive grain marketing contracts in 1996 will have to pay a total of

$2.3 million in damages to two cooperative grain elevators. When grain prices

soared in 1996, the farmers sought to

void the 1995 contracts they signed

with Tri-Valley Cooperative and Great

Plains Cooperative. The farmers

alleged that the contracts outlined no

definitive delivery date and that they

had the right to defer delivery. 

The court disagreed, ruling that the

farmers had knowingly entered into the

contracts that were clear and unambiguous. The court noted the contract

contained no provision for indefinitely

deferring delivery. Great Plains,

because of financial trouble, was forced

to merge with Aurora Co-op Elevator.

The settlement money will be used to

pay off any outstanding debts of Great

Plains. Any remaining funds will be

divided among former customers. 

A similar case involving 10 farmers

who reneged on their contracts in 1996

with North Central FS, in Hampton,

Iowa, is being appealed to the Iowa

Supreme Court. The Franklin County

District Court awarded the cooperative

$3.18 million in damages. Both parties

agreed to the amount so it could form

the base of the appeal case. Claims

against another farmer were dismissed

after he and North Central reached a

settlement.

Co-ops Blend Feed Lines

In a further consolidation of their

farm supply businesses, Land O’Lakes

and Farmland Industries have formed

a joint venture, called Land O’Lakes

Farmland Feed LLC, to consolidate

all aspects of their feed businesses.

Annual feed production will be about

9 million tons and, based on 1999

sales, will have initial sales of about

$1.6 billion. The venture will be governed by a management committee

having an equal number of representatives from each cooperative. It will be

managed under contract by Bob

DeGregorio, vice president of the

LOL feed division. The venture will

create North America’s largest livestock feed company. Products sold will

carry current trademarks and brand

names used by each cooperative.

USDA fruit buys help TVG 

California’s Tri Valley Growers

(TVG), currently operating under

Chapter 11 bankruptcy protection, got

a boost in the form of $9.1 million in

canned fruit purchases by the U.S.

Department of Agriculture. The cans

of mixed fruit and peaches were earmarked for USDA’s domestic food

Rural Cooperatives / September/October 2000 25

NEWSLINE

Photo courtesy Florida’s Natural Growers
26 September/October 2000 / Rural Cooperatives

assistance programs. The cooperative

is buying only 70 percent of its members pear crop, 85 percent of their

peaches and 33 percent of their tomatoes due to an unexpected reduction in

its operating loan. 

USDA also has committed to buy

tomatoes from TVG to ease the financial strain on the cooperative’s 500

grower-owners. TVG’s three tomato

canneries remain shut under the bankruptcy protection program.

In a related development, California

Canning Peach Association’s treepulling program has removed 1,000

acres of peach trees from production.

Members were paid $160 per ton for

their average production, with payments capped at $3,500 per acre. The

aim was to prevent a glut of peaches on

the market, particularly when TVG,

the intended fruit recipient, has cut

production.

The Federal Land Bank Association

of Yosemite is providing $8 million in

low-interest loans to its borrowers who

also are TVG members and to other

TVG members who qualify for a loan. 

TVG will use its $270 million

finance package to cover part of the

$400 million it owes to more than 1,000

creditors, with the rest used to process

fruits and vegetables this season.

Glickman named ‘Honored

Cooperator’

National Cooperative Business

Association

has awarded

U.S. Agriculture Secretary

Dan Glickman its honored cooperator award.

Participating

sponsors were

CoBank,

Land

O’Lakes,

Kansas Cooperative Council, Federation of

Southern Cooperatives, National Rural

Electric Cooperative Association and

Nationwide Insurance. Glickman was

cited for his work in promoting and

securing resources for cooperative

development. Under his leadership, the

U.S. Department of Agriculture has

increased funding for the Rural Cooperative Development Grants program,

thus providing critical help to groups to

promote and support new and existing

cooperatives.

Southern States expands aquaculture 

business with NMFS fisheries loan

With an eye toward a greater presence in the food industry, Southern

States Cooperative (SSC) at Richmond,

Va., has received a $10 million loan to

expand its presence in the aquaculture

business. The loan came from the

National Marine Fisheries Service

(NMFS), an agency of the U.S.

Department of Commerce’s National

Oceanic and Atmospheric Administration. Program Director Brian Squyars

said SSC “will use most of the money

to help farmers finance state-of-the-art

closed systems for tilapia production

that we have been developing for several years. Construction of a fingerling

nursery and a processing plant will

account for the rest.” 

Tilapia, also known as St. Peter’s

fish, is a popular, high-protein, low-fat

fish known for its mild, white-meat fillets. NMFS Director Penny Dalton said

the SSC program was a way to encourage environmentally sound aquaculture.

“About 30 percent of the seafood the

world currently consumes is produced

through aquaculture. We are looking

for ways to encourage U.S. production

that expands sources of healthy seafood

and also could help ease the strain on

wild stocks.” 

The world fish catch in oceans and

inland waters has increased more than

five-fold since 1950 and reached 93

million tons by the mid-1990s. That

demand will rise to an estimated 115

million tons annually by 2010. However, only a small increase in the wild harvest is predicted because many of the

world’s major fishing grounds are

stressed and stocks of fish are overharvested. Aquaculture — the controlled

cultivation of finfish, shellfish and

aquatic plants — will have to take on an

expanded role if demand is going to be

met in the next decade. 

SSC currently has 28 independent

tilapia grow-out facilities in operation,

under construction or on the drawing

board in southeast Virginia, northeast

North Carolina and southern Georgia.

SSC’s goal is to expand the program’s

availability beyond the initial locations as

business conditions permit. Though its

Farmer’s Catch Division, SSC completed

the development work Aquaculture can

help protect farm income through crop

diversification and can supplement

incomes threatened by low commodity

prices, plummeting demand for tobacco

and weather-devastated crop yields. 

Participating farmers will purchase a

6,000-square-foot production facility

that is constructed on a five-acre farm

plot. Producers supply labor (about two

hours per day) and utilities and are paid

part of the wholesale farm-gate price,

based on individual contract terms. SSC

provides the fingerlings, feed, technical

expertise, training, grow-out facilities,

insurance and financing plus transportation, harvesting and marketing.

N.Y. grape co-op enters marketing pact

Westfield Maid Grape Cooperative

at Portland, N.Y., has signed a 25-year

marketing agreement with Cliffstar

Corporation. All Concord grapes contracted with Westfield will be delivered

to Cliffstar, which dominates the private-brand segment of the market. Its

sales have almost doubled in the past

Agriculture Secretary

Dan Glickman, with

Under Secretary for

Rural Development Jill

Long Thompson looking

on, receives the Honored

Cooperator award. Photo

courtesy NCBA
five years. The president of the 60-yearold cooperative said the corporation’s

“willingness to commit to both the 25-

year contract and to annual price negotiations will be important in stabilizing

the Concord grape market.” The Westfield cooperative is one of the oldest in

the Lake Erie grape belt. 

Select Sire Power formed 

Higher member returns brought on

by reduced duplication and improved

markets are expected from the merger

of a pair of artificial insemination (AI)

cooperatives. Sire Power Inc.,

Tunkhannock, Pa.., has merged with

Virginia-North Carolina Select Sires to

become Select Sire Power, part of the

Select Sires federation based at Plaines,

Ohio. The merged cooperative serves

producers from New England and New

York and along the east coast to Florida. Merger talks began five years ago.

“With the fiscal efficiencies we gain,

Select Sires will be the most price-competitive A.I. organization,” said David

Thorgan, Select Sires general manager.

“We will be able to lower our collective

costs and, in turn, increase returns to

our member patrons.” The Select Sires

federation will offer a 40-percent

expansion in sampling capacity, using

360 bulls per year, believed to be the

pool largest in the United States.

Lamb co-op conducts equity drive

Having completed a business plan

and identified markets for premium

and natural lamb, Dakota Lamb Growers Cooperative embarked on an equity

drive in three states in September. The

cooperative will hire a chief executive

officer and begin selling lamb products

in niche markets. The cooperative

attracted 126 grower-members from

North and South Dakota, Minnesota

and Montana when it formed in April

of 1999. Each initially invested $100 to

become members. North Dakota’s

Agricultural Products Utilization Commission, area banks and other organizations also have made contributions.

NorthStar expands services

NorthStar (dairy herd improvement) Cooperative Inc., at Lansing,

Mich., will expand services to new Wisconsin members following a favorable

merger vote by the Fox Valley DHI

Co-op, Appleton, Wis. Mike Bills,

NorthStar general manager, said the

majority vote “showed their strong

support in these organizations becoming more value-driven. We feel this

continues to build on our long-term

strategic vision of being a total service

provider to our owners.” 

Fox Valley had about 300 members

and operated a milk analysis lab which

will now serve NorthStar customers. Fox

Valley customers will be issued one share

of voting common stock or 20 shares of

non-voting preferred stock. To be eligible

for either stock offering, a Fox Valley

member must use the association’s services, including DHI testing, for another

year. Those qualifying will be issued stock

on June 1, 2001. Meanwhile, BioStar

Research, a subsidiary of NorthStar, is

working to develop a complete animal

health testing program. 

Rural Cooperatives / September/October 2000 27

“Wags and Whiskers” is a new publication of Tennessee Farmers’ Cooperative,

which will provide consumers with information on pet-care products, from flea

control to pet food. About 25,000 copies are being printed annually to be used as

an in-store sales tool, and for sales staff to leave with farmers when making house

calls. The inaugural issue, above, is 31 pages, but next year’s edition should be

considerably larger.
28 September/October 2000 / Rural Cooperatives

NorthStar is one of 10 regional

cooperative members of the Select

Sires federation. In another development, North Star has been approved by

the American Embryo Transfer Association to export embryos internationally,

with no restrictions.

Frozen dough co-op boosts

production 

An industrial line of equipment

installed at Value-Added Products,

lva, Okla., has increased its production capacity from 3,000 pizza crusts

per day to 4,400 per hour. Plans are

being made to add a third shift by the

end of the year and to increase

employment to 70 people. The

agribusiness is owned by 750 wheat

producers and investors and uses

wheat for the pizza crusts.

Pasta plant lender named

Farm Credit Services (FCS) of

North Dakota has been named as lead

lender for Semolina Specialties, a cooperative planning to buy a pasta plant at

Crosby, N.D. The cooperative will

make specialty shaped and flavored pasta. FCS will disseminate information,

prepare papers and maintain open lines

of communication between the company and lending agency. FCS has been a

lender for other value-added cooperatives throughout its operating territory.

Half of the needed funds will come

from member stock purchases and the

rest from local lenders, with help from

state and federal government agencies.

USDA Rural Development is providing

an 80-percent loan guarantee.

Caspers named interim leader at

Minn-Dak 

Minn-Dak Farmers Cooperative has

appointed Steve Caspers as interim president following the retirement of Larry

Steward, the cooperative’s president and

chief executive officer since 1990.

Caspers has been executive vice president and chief financial officer since

1985. He joined Minn-Dak in 1974 as an

accounting supervisor. He is also president of Minn-Dak Yeast Co. and serves

on the boards of United Sugars Corporation and Midwest Agri-Cooperatives.

The two marketing cooperatives are

owned by Minn-Dak and other cooperatives. Krabbenhoft has appointed a committee of directors to search for permanent president candidates.

Diamond buys Berner nut

Diamond of California, the Stockton-based walnut marketing cooperative, has purchased Berner Nut Co. of

Illinois. The purchase is expected to

add $50 million to the cooperative’s

fiscal 2001 sales. The pact makes Diamond the nation’s leader for in-shell

nut sales to consumers. Meanwhile,

plenty of Diamond’s walnuts were

present at the summer Olympic

games in Australia, just as there will

be at future Olympic games through

2004. A spokesman for the Salt Lake

Olympics Committee, hosting the

2002 winter Olympic games, said Diamond products would figure prominently in the recipes five dozen chefs

will use in preparing meals for the

athletes, sponsors and spectators.

Kelley succeeds

Webb as

Growmark

president 

Glenn Webb,

chairman of the

board and president of Growmark

Inc., Bloomington,

Ill., and a strong

advocate of cooperative education,

has retired, ending

his nearly 20-year

tenure as a Growmark officer. He

will continue to

remain active on

the boards of

CoBank and

Archer Daniels

Midland. In April,

Webb was inducted into the Cooperative Hall of

Fame.

Dan Kelley, a

grain farmer from

Normal, Ill., was

elected to succeed

Webb as chairman

and president for a

one-year term.

Kelly has been on

the board since 1995 and was one of

two vice chairmen for the past two

years. He earlier served as a director of

Evergreen FS Inc., a Growmark member company, and as a director at First

Farm Credit Services of Bloomington,

and as chairman of Agribank FCB at St.

Paul, Minn. He has also been active in

the Ag Guild of Illinois, a group of

farmers seeking ways to capture added

value from the commodities they produce. Kelley farms 2,080 acres. 

Growmark showed a dramatic business turnaround during fiscal 2000. It

Diamond of California walnut products were a popular item on the

athletes’ menu at the Sydney Olympics and will also be featured in

foods served at the upcoming winter games in Salt Lake City. 

Glenn Webb (left) receives Cooperative Hall of Fame Award from

Growmark CEO Bill Davisson at the National Press Club in

Washington, D.C. Photo curtesy of NCBA
Rural Cooperatives / September/October 2000 29

will pay $10 million in cash and stock

patronage to its member co-ops. Estimated after-tax earnings were $10 million, a major improvement on the 1999

loss of $9.9 million, caused by the

depressed farm economy and the lowest commodity prices in 20 to 30 years.

The change was attributed to cutting

overhead costs by $13.8 million since

1998, as well as to operating improvements and increased sales of $180 million to reach $1.3 billion. 

The cooperative’s business strategy is

to increase sales $500 million over the

next five years. Toward that goal, Growmark has expanded with agronomy and

energy sales beyond its traditional territory of Illinois, Iowa, Wisconsin and

Ontario into Nebraska, Kansas, Indiana,

Ohio and Michigan. Grain division volume was up 5.6 per cent, focusing on

specialty programs aimed as both processing and export markets. For the 14th

consecutive year, MID-CO Commodities, a hedging and market advisory service for member companies, will pay

$625,000 in patronage refunds based on

increased earnings of $974,000.

Riceland completes trade with Iraq 

Riceland Foods Inc., at Stuttgaart,

Ark., sold 1 million bushels of rice valued at $5 million to Iraq in a food-forcrude exchange. It was the first American rice sent to Iraq since international

sanctions were imposed a decade ago.

The cooperative recently shipped 20

tons of rice to Guantanamo, Cuba, to

help residents suffering from a

drought. Dick Bell, Riceland’s president and chief executive officer, said

that in addition to helping people with

a food shortage, the shipment will help

the cooperative if trade restrictions

against Cuba are lifted.

In other Riceland news, K. Daniel

Kennedy has been named the new executive vice president and chief operating

officer. He will focus on the day-to-day

operations of the cooperative. Most

recently he was vice president of North

American markets at Monsanto Co.

LOL, DFA join Dairy.Com

Two major dairy marketing cooperatives, Dairy Farmers of America and

Land O’Lakes Inc., are among initial

investors in the new Internet

website called Dairy.com, to be

used for trading milk within

the dairy industry. The

business-to-business

exchange is expected to

lower costs by bringing

widespread buyers and

sellers together and reducing paperwork. The exchange is slated to open

April 1, 2001, with live trading of milk,

cream and other commodities. Although

the founding members are financing the

startup, the exchange will be open to

any producer or dairy industry company.

The group is looking for a chief executive officer for the business. A headquarters site has yet to be selected. 

Calif. co-op/community parley slated

The University of California’s Center for Cooperatives will sponsor its

annual cooperative and communities

conference Nov. 17-18 at Preservation

Park in Oakland. 

The program is aimed at both

experienced and new cooperators

who will share cooperative success

stories. Conference topics will cover

director education, accredited legal

courses and innovations in cooperative development. For further information, check the center’s web site:

http://cooperatives.ucdavis.edu.

DFA returns $20 million in equity

A $20 million equity-retirement

package — including $10 million to

fully retire the equities of 9,300 inactive members of predecessor cooperatives — has been announced by Dairy

Farmers of America (DFA), the nation’s

largest dairy cooperative. Those equities covered marketings with the cooperatives before 1991. DFA — created

by the consolidation of four regional

dairy marketing cooperatives — began

operating on Jan. 1, 1998. 

Charles Beckendorf, chairman of the

DFA finance committee and a dairyman

from Tomball, Texas, said the new cooperative wanted to return equity of former

members in a timely manner so that present equity is supplied by active members. The board’s modified equity plan

calls for all inactive accounts to be paid

in the 10th year following last activity in

the account. Those who last shipped

milk in 1991 can expect full payment of

equity accounts by next August. Those

with accounts less than 10 years old may

Blue Anchor closing operations

One of California’s oldest fresh fruit cooperatives, Blue Anchor

Inc. at Sacramento, is closing its operations. It cited a declining

grower base, dwindling fruit volume and continued consolidation

pressure on the retail and supply side of the produce industry. 

Blue Anchor, which will shut down within a few months, was formed

in 1901 as the California Fruit Exchange by several Sacramento tree fruit

growers. The closure will not affect Mayflower TCLA, of Exeter, Calif.,

a fruit marketing cooperative that had an alliance with Blue Anchor. 
30 September/October 2000 / Rural Cooperatives

apply for early redemption at a discounted rate. Last year, DFA’s 24,000 dairy

farmer-members in 45 states marketed

43 billion pounds of milk which generated sales totaling $7.5 billion.

Ocean Spray gets boost from USDA

In an effort to bolster a cranberry

industry sagging under crop surpluses

and falling prices, the U.S. Department

of Agriculture has purchased 5.5 million pounds of cranberry sauce from

Ocean Spray Cranberries cooperative

at a cost of $2 million. The cranberry

sauce will be distributed to the nation’s

schools, food banks and other programs that feed the poor. 

In the face of over-production,

USDA has ordered growers to cut production or dump 15 percent of the crop

this fall to stabilize prices. A spokesman

for the 804-member Ocean Spray

cooperative said the real pressure will

be on the cooperative to increase

demand through its own efforts. Prices

paid to growers have plummeted to $11

per barrel from $60 two years ago.

Sunkist sells Argentine lemons

Sunkist Growers has agreed to market about 400,000 cartons of Argentine

lemons in the United States this year.

The fruit is coming from two principal

growers who have given Sunkist exclusive marketing rights in the United

States, said Sunkist President Victor

Lupinacci. Al Williams, chairman of

the 6,500-member cooperative, said the

purchase was essential for Sunkist to

continue meeting challenges and

opportunities in the global market. The

California-Arizona citrus industry will

produce an estimated 20 million cartons of lemons in the U.S. this year.

Allied Seed buys Agribiotech

Future supplies of legumes, forages

and turfgrasses for cooperative members of Southern States, Tennessee

Farmers and Agway Inc., have been

assured by the purchase of certain

assets of a bankrupt Nevada firm. The

cooperatives and a group of former

employees of Allied Seed Cooperative

recently formed Allied Seed LLC. It

purchased seed processing facilities in

Idaho and Wyoming owned by

Agribiotech Inc. of Henderson, Nev. 

These facilities can handle about

230 million pounds of product annually. Allied Seed President Dave

McWilliams says research is constantly

developing new varieties of forages and

turf seeds. Although new equipment

will be installed in the Idaho plant,

Allied Seed is already operating.

Potato growers OK dividend

The board of directors of Maine

Potato Growers (MPG) Inc., has

approved a patronage dividend payment

of $200,000 to its members. They will

receive a dividend equal to 1.4 percent

of their purchases from MPG during

fiscal 2000. The dividend will be made

in a combination of cash and Class A

A Creed for Cooperative Members

Editor’s note: This set of guidelines outlines how members should react to their

cooperatives. It was popularized by the late Dr. Joseph Knapp in 1963 while

administrator of USDA’s Farmer Cooperative Service. It is appropriate to review

them again during this year’s National Co-op Month observance. Consider sharing

this creed with members in your cooperative’s publication:

• I will keep myself informed on the affairs, problems, and methods of

my cooperative so as to be an intelligent and constructive member.

• I will exert my influence to see that my cooperative has the best possible directors and officers in terms of general competence and integrity.

• I will faithfully support my cooperative with my patronage and encourage my friends to use it, because in volume there is strength.

• I will help build and maintain my cooperative by contributing my share

of essential capital.

• I will insist that full information be provided me on the operations and

financial condition of my cooperative, based on accurate accounting

and proper auditing.

• I will not expect miracles from my cooperative, but I will insist on

receiving from it honest values and efficient services.

• I will refrain from asking my cooperative to give me favors in the form

of credit or other special services.

• I will take pride in my cooperative and use my influence to see that it

assumes a fair share of community responsibilities.

• I will stand by my cooperative in its days of adversity and help protect

it from weaknesses which come from prosperity.

• I will always remember that my cooperative is ME, and others like

ME, and that its behavior is as reflection of MY behavior.
Rural Cooperatives / September/October 2000 31

stock. Dividend payments of $300,000

will be paid to shareholders and growermembers. Formed in 1932, the cooperative serves the needs of Maine potato

and blueberry growers.

Catfish processors merge

Two catfish processors looking for

more market power have merged to

form Fresh Aquaculture LLC, to be

headquartered in Hollandale, Miss.

Farm Fresh Catfish Inc. merged with

Farmland Catfish Processing Inc. John

Gentry, Farm Fresh chief executive,

will be president of the new company.

The company may also consider raising

other species of farm-raised fish or

shrimp. The Farmland Catfish cooperative servers catfish growers in the Mississippi Delta. The joint venture will

operate out of a Farmland Catfish plant

at Hollandale. Farm Fresh has four

other plants in the Delta. 

Consolidated Beef forming

Feedlots and individual producers

from Texas, Oklahoma and New Mexico have agreed to join the new Consolidated Beef Producers, a marketing

cooperative based at 

Amarillo, Texas. Chairman Paul

Hitch, Guymmon, Okla., said the

group seeks to match the market clout

of the four major meatpackers by securing rights to market about one-fourth

of the fed cattle sold in Texas each year. 

Facing an Oct. 1 deadline, the cooperative planned to have 1.5 million head of

cattle enrolled and to begin marketing

soon thereafter. Organizers recently discussed their marketing plans to gain higher prices with the Nebraska Cattlemen’s

Feedlot Council. Traditional cattle sales

have only generated average prices, Hitch

said, even for quality beef cattle. He said

the cooperative seeks to enroll members

to improve their bargaining power by

selling more cattle instead of smaller lots.

He said the cooperative wanted to get the

best price by matching cattle to specifications meatpackers prefer. ■

Correction:

The article on the 65th anniversary of the Rural Electrification Administration in the July/August issue said that the REA

was initially part of USDA. Actually, the executive order, signed on May 11, 1935, created REA as an independent agency.

When the permanent legislation was passed into law May 23, 1936, it continued the REA as an independent agency of the

federal government. REA was placed under USDA in 1939 as a result of the Government Reorganization Act of 1939. With

the advent of World War II, REA headquarters was moved to St. Louis in 1942. 

AGP ad wins plaudits: This advertisement developed by Ag Processing Inc, an Omaha- based soybean processing cooperative, won

first place honors from the Cooperative Communicators Association for the powerful, succinct message it relates regarding the “cooperative difference” of member-owned businesses. 
Rural

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