Page 4

USDA / Rural Development July/August 2011

R

u

r

a

l COOPERATIVES

Forging

links between

growers and

buyers

Features

Rural Cooperatives / July/August 2011 3

Volume 78, Number 4

July/August 2011

Rural Cooperatives (1088-8845) is

published bimonthly by USDA Rural

Development, 1400 Independence Ave.

SW, Stop 0705, Washington, DC. 20250-

0705.

The Secretary of Agriculture has

determined that publication of this

periodical is necessary in the transaction

of public business required by law of the

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offices. Copies may be obtained from the

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Government Printing Office, Washington,

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

send address change to: Rural

Cooperatives, USDA/RBS, Stop 3255,

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Mention in Rural Cooperatives of

company and brand names does not

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Unless otherwise stated, articles in this

publication are not copyrighted and may

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

necessarily reflect those of USDA or its

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(USDA) prohibits discrimination in all its

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

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1400 Independence Avenue, S.W.,

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

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

USDA is an equal opportunity provider

and employer.

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,

USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or email:

coopinfo@wdc.usda.gov

This publication was printed with vegetable oil-based ink.

p.4

04 Taking the plunge

American Prawn Co-op helping aquaculture take root in tobacco country

By Anne Todd

08 Pilot Mountain Pride forges links between growers and buyers

By Anne Todd

11 Hogs on the range

Carolina growers form co-op to supply local pasture-based pork market

By Bill Brockhouse

16 Market edge for the Wedge

Food co-op’s warehouse/distribution division a key cog in developing regional food system

By Adam Diamond

20 Finding a way

USDA husband/wife team helps form soybean farmers’ associations in Afghanistan

By Eva Nell Mull Wike

26 Banking on butanol

Missouri’s Show Me Energy Co-op pursuing $55 million plant

By Stephen Thompson

30 Split decision

Virginia electric co-ops join forces to purchase investor-owned assets, then split service territory

By Robert A. Ellis

Departments

02 COMMENTARY

14 UTILITY CONNECTION

35 NEWSLINE

p. 20 p. 30

ON THE COVER: : Packing pecks of peppers in Pilot Mountain, N.C.,

is Joshua Cave. Pilot Mountain Pride was created to help small- to

medium-sized producers gain access to retail and food service

markets in the Winston-Salem, N.C., area. USDA photo by Bob Nichols

p. 8
By Anne Todd, Contributing Editor

Editor’s note: portions of this article were

adapted from a co-op history written by

Charlene Jacobs.

emand for cigarettes in

the United States has

been falling for

decades. As a result of

this trend and other

market forces, North Carolina’s tobacco

industry has been declining for many

years. The result has posed serious

challenges for the state’s overall

economy. But the problems have been

especially acute for tobacco farmers

who have been forced to look for other

crops or endeavors.

In response, the North Carolina

agriculture industry has established a

number of programs to encourage

producers to diversify by moving into

other types of farming. One result of

this diversification effort is the

American Prawn Cooperative (APC), a

marketing co-op in Walstonburg, N.C.,

that provides processing, freezing and

marketing services for the region’s

freshwater prawn producers.

In April 2010, the North Carolina

Tobacco Trust Fund Commission —

which administers a fund to support

innovation in communities impacted by

the downturn in the tobacco industry

— awarded APC a $200,000 grant to

help the co-op purchase a flash-freeze

unit for its processing facility.

APC has acquired the unit and it is

being installed this summer. It will be

used to flash-freeze prawns, which can

then be shipped long distances, mostly

along the East Coast. This will allow

the cooperative to tap into new,

lucrative markets for its product.

Demand for prawns is strong in the

Northeast, where they can bring more

than $18 a pound, vs. $8 to $10 per

pound when sold at the co-op’s pond

sites during harvest.

“We have an all-natural, chemical-,

antibiotic- and hormone-free product,”

says APC President Charlene Jacobs.

“It is low in fat and sodium, high in

protein and makes a healthy alternative

seafood choice for health-conscious

consumers. But APC freshwater prawns

are considered a ‘niche’ product, rather

than a commodity, so it is extremely

important that the APC find niche

buyers who are willing to pay a niche

price.”

The Tobacco Trust Fund

Commission grant is helping the

cooperative fulfill its goal of

establishing a complete processing and

storage facility in Walstonburg.

In 2002, Gene Wiseman and Doug

and Johnny Barbee, former tobacco

growers, started the DJ&W King

Prawn Farm in Kenly, N.C., where they

constructed a two-acre pond and

stocked it with baby prawns acquired

from Mississippi. The pond yielded 750

pounds of prawns the first year, only

4 July/August 2011 / Rural Cooperatives

D

Taking

the plunge

American Prawn Co-op helping

aquaculture take root in tobacco country
about half of what they had expected.

However, they sold their entire “crop”

right after harvest. So they were

encouraged.

Over the next four years, DJ&W

King Prawn constructed two more

ponds, expanding the operation to six

acres of ponds. The average yield soon

rose to 1,500 to 1,600 pounds per pond,

a big improvement over the first year.

Again, they sold every pound harvested

to local customers “at pond side” and to

a local food supply company.

More farmers dive in

As news of this new aquaculture

industry spread, interest grew. DJ&W

King Prawn set up a nursery to raise

juvenile prawns as stock for themselves

and other freshwater prawn producers.

The nursery became the first, and only,

supplier of juvenile prawns in North

Carolina.

Two other farmers, John Relyea of

Walstonburg and Don Ipock of

Vanceboro, contacted Wiseman to learn

more about this new aquaculture

industry. Wiseman shared some of his

expertise and referred them to Mike

Frinsko, the Aquaculture Extension

Specialist at North Carolina State

University.

In 2006, with the help of Frinsko,

Relyea and his wife, Natalie,

constructed a pair of two-acre ponds in

Greene County and launched Relyea’s

Crazy Claws Freshwater Prawn Farm.

Ipock and his wife, Kim, constructed a

two-acre pond in Craven County and

started Carolina’s Best Freshwater

Prawn Farm.

It was about this time that these

farmers began to consider establishing a

cooperative for prawn growers. But

they felt they would need more

members for a viable co-op. So, in

2006, they approached Frinsko again,

this time seeking assistance in reaching

out to other farmers who might be

interested in growing freshwater prawns

and forming a cooperative.

Freshwater prawn school

Frinsko enlisted the aid of Lou

D’Brahmo of Mississippi State

University, and together they began to

educate North Carolinians about

aquaculture and freshwater prawns.

Meetings were held in various locales

where farmers learned more about this

growing industry.

As a result of these outreach and

education efforts between 2006 and

2008, three new farms joined the

original three operations in freshwater

prawn production. Tom and Ann

Hollowell started Hollowell’s Family

Prawn Farm in Seaboard

(Northhampton County); Charlene,

Gene and Chad Jacobs started Harvest

of the Great Spirit Prawn Farm in

Clinton (Sampson County), and Merlin

and Edith Nichols started Swift Prawn

Farm in Ayden (Pitt County).

In 2008, with support from USDA

Rural Cooperatives / July/August 2011 5

Ponds such as this at Crazy Claws

Prawn Farm in Walstonburg, N.C.

(facing page), have been

developed by members of the

American Prawn Cooperative

(APC), many of whom are former

tobacco growers. USDA photo by

Bob Nichols. At left: Farmers work

beside hired employees during the

harvest. “We farmers are very

‘hands on’ with our product,” says

APC President Charlene Jacobs

(center, facing camera). To her

right is Mike Frinsko, N.C. State

University extension agent and

aquaculture specialist. Photo

courtesy APC
6 July/August 2011 / Rural Cooperatives

and the North Carolina Department of

Agriculture and North Carolina State

University Cooperative Extension,

Frinsko helped the producers officially

launch the American Prawn

Cooperative. Bruce Pleasant, BusinessCooperative Programs Director with

USDA Rural Development in North

Carolina, and Bill Brockhouse, an ag

economist and co-op development

specialist with USDA Rural

Development’s Cooperative Programs

in Washington, D.C., met with the

group several times. They conducted an

exploratory meeting and helped identify

resources that could help the new coop. They also reviewed the co-op’s

organizational documents and otherwise

helped with planning.

“The amount of enthusiasm and

pride the members share in their

cooperative is tremendous,” says

Pleasant. “From the beginning, the

group recognized the value in

marketing cooperatively and were

already pooling labor with their prawn

harvests and sharing production and

marketing information. The members

deserve credit for tapping the resources

of Mike Frinsko and Bob Usry with

N.C. State University and others who

have worked closely with the

cooperative, and for keeping focused on

their mission.”

The co-op was incorporated in May

2008.

Expanding operations

In 2009, APC established a website,

www.americanprawncooperative.com,

to market its product online, to inform

customers about trade shows APC

members would be attending and to

provide other news about the co-op and

freshwater prawns.

That same year, APC also received a

$50,000 grant from North Carolina’s

Golden Leaf Foundation, which was

issued to Greene County to study the

live-hauling of freshwater prawns —

information that is critical to APC’s

future success.

In February 2010, APC received a

$30,000 grant from Rural Advancement

Foundation International (RAFI) to

purchase live-haul tanks and trailers to

transport prawns from the farms to the

processing facility in Walstonburg.

In June 2010, APC members, along

with Greene County officials, held a

ribbon-cutting ceremony to celebrate

the opening of the APC processing

facility. More than 150 stakeholders,

officials and local supporters attended

the event. The co-op acquired the

processing facility with help from an

Innovation Grant from Greene County

and the North Carolina Rural

Development Center.

Greene County recently voted to

convey the facility to the co-op,

provided that APC remains in business

as the American Prawn Cooperative for

the next seven years.

In September 2010, American Prawn

received a $197,000 Value-Added

Producer Grant from USDA Rural

Development to market and package

APC’s freshwater prawn. Shortly

afterward, the co-op signed a contract

with a marketing broker for assistance

in establishing markets.

Harvest and beyond

American Prawn Cooperative

members participated in the Boston

Seafood Festival in March 2010, where

their freshwater prawns won a “Best

Choice” designation by the Monterey

Bay (Calif.) Aquarium, as part of its

“Seafood Watch” program. Seafood

Watch is an internationally respected

program that recognizes “the best of

the best” in sustainability and helps

consumers make smart seafood choices.

APC’s prawns have also been given a

“green” ranking in all five sustainability

criteria established under the Seafood

Watch program. This is the first time

freshwater prawn has been classified as

a “green” product since Seafood Watch

began assessing seafood in 1999.

Harvesting of APC freshwater

prawns usually occurs from midSeptember through early October.

American Prawn Cooperative members

used the hauling tanks and trailers

purchased through the RAFI grant for

the 2010 harvest, making transportation

easier and safer. Although the 2010

harvest dipped from 2009 levels at each

farm, the quality and size of the prawns

exceeded the previous years. The ValueAdded Producer Grant funding allowed

the co-op to grade its product in 2010

for the first time.

Sales were better in 2010 than in

Clockwise (from upper right on facing page):

Gene Jacobs (on pier) oversees the last stage

of draining a pond at Great Spirit Prawn Farm

in Clinton, N.C., while other family members

search for prawns that may be stuck in the

mud. Middle photo: Prawns are taken out of a

catch basin and loaded into purging tanks at

Carolina’s Best Freshwater Prawn Farm in

Vanceboro, N.C. Cooked prawns ready to

serve. A worker in a catch basin carefully nets

prawns as they flow into the basin from a pond

at Carolina’s Best Freshwater Prawn Farm. A

fresh prawn. All photos courtesy APC
Rural Cooperatives / July/August 2011 7

2009 and are expected to be even better

in 2011. Co-op members credit the

USDA Value Added Producer Grant

for helping them improve their

marketing efforts and hire a marketing

representative.

Eye to the future

APC’s leadership has set short- and

long-range goals for the cooperative.

The one- to two-year goals are to

expand the APC membership base by

bringing on new producers and to hire

at least two permanent employees (in

addition to the 60-75 temporary

employees that will be needed to handle

the expansion). The two- to three-year

goals are to lease the individual quickfreeze equipment during the months it

is not being used by APC, to expand

members’ ponds, and to hire additional

employees. The three- to five-year

goals are to expand the APC facility and

to enhance product distribution by

purchasing a cooler/freezer truck and

hiring a driver.

“Being a young cooperative that

celebrated its third year in May 2011,

and given the state of the economy

from APC’s birth until the present, we

feel very fortunate to have progressed

to our present state,” says Jacobs. “Our

goals and expectations for the APC are

unlimited...The APC will make its

mark as a North Carolina producer and

distributor of the best all-natural

freshwater prawn in the United States.

“Even though times are hard and we

are struggling, just as other farmers are,

we stay encouraged that tomorrow just

might be our big breakthrough day —

the day we find the niche market that

wants all of our product and more,” she

continues. “It will happen.”

To learn more about the American

Prawn Cooperative and its latest

activities, visit its website at:

www.americanprawncooperative.com,

or send e-mail to: prawns@prawn

coop.com. ■
8 July/August 2011 / Rural Cooperatives

By Anne Todd, Contributing Editor

e-mail: anne.todd@wdc.usda.gov

ilot Mountain Pride (PMP), in Pilot

Mountain, N.C., was launched in the

summer of 2010 to help small- to

medium-sized family produce farmers

gain access to retail, service and

institutional markets in the Winston-Salem area.

Many of the farmers involved with the co-op

(organized as a producer-run limited liability

company, or LLC) are former tobacco farmers who

have suffered economically from the decline in the

tobacco industry. PMP is helping them to transition

from tobacco into other crops and meet the

burgeoning demand for more local foods.

Poor infrastructure for local distribution of highvalue specialty crops, including vegetables and fruit,

has long created marketing challenges for farmers in

Surry County and the surrounding area. For many

years, Surry County officials worked with producers

to develop local “tailgate markets,” small-scale farmers

markets where there are no middlemen and the

farmer sells his or her own produce. While these

efforts met with some success, the unknown number

of buyers at any given sale made this a less-thanP

PIL O T MO U N TA I N PRI D E

F O R G ES LI N K S BETWEE N

G R OWERS A N D B U Y ERS
Rural Cooperatives / July/August 2011 9

optimal business practice, especially for more

commercial, medium-sized producers.

Today, the Pilot Mountain Pride network is

connecting producers to a wide variety of end users in

the region, including hospitals, restaurants and

supermarkets. These buyers are benefiting from

consistent delivery, better prices and certified safe

handling while producers realize improved income.

Pilot Mountain’s roots

Pilot Mountain Pride is a limited liability company

owned by Surry County’s nonprofit Economic

Development Foundation. It was designed to play a

role in the local foods movement in the WinstonSalem region by linking local producers with end

consumers by providing them with an aggregation

center to ready their produce for market.

In 2006, North Carolina’s Small Towns Economic

Prosperity Program identified a need for a community

agriculture center in the area to help producers. The

idea for an ag center eventually grew into the Pilot

Mountain Pride business model.

Surry County subsequently secured a location —

the old Amos and Smith Hosiery Mill building at 612

East Main Street. Funding was received through a

variety of state and county programs to help with the

This former North Carolina hosiery factory has been converted into the Pilot Mountain Agricultural Center. Initial sales have been

much better than expected, but finding a market for slightly off-grade produce has been a challenge for Pilot Mountain Pride. USDA

photo by Bob Nichols
10 July/August 2011 / Rural Cooperatives

Rural Cooperatives interviewed Chris Knopf, Surry

County Assistant Manager for Economic Development

and Tourism, to learn more about Pilot Mountain Pride.

Knopf, along with Surry County Cooperative Extension

Director Bryan Cave, worked to get the Pilot Mountain

Pride business up and running. Knopf developed the

grant proposals that helped provide seed funding for the

project.

Q. What has been the biggest challenge facing PMP?

Biggest obstacle overcome?

A. Keeping the cost of operating PMP within the 20

percent it retains for operations. Packaging has been the

biggest obstacle to overcome. Costs last year were 250

percent higher than estimated.

Q. What do you consider to be the greatest strength and

weakness of the PMP business model?

A. The biggest strength is providing an outlet for family

farms to sell local produce where they are not burdened

with marketing their products or acquiring the necessary

infrastructure to wash and grade their produce. Also,

PMP has provided its farmers with GAP (Good

Agricultural Practices) training. Its biggest weakness has

been finding markets for “seconds” — produce that is

slightly irregular in shape or appearance but will be

rejected by grocery outlets purely on physical

characteristics.

Q. Has your marketing strategy evolved or changed? Any

major additions or changes at the plant?

A. Marketing last year revolved around brand awareness

utilizing print media, radio, Internet and television. This

year it is focusing on advertising at locations where the

product is being sold or consumed.

Q. What do your members want and expect from PMP?

A. They expect PMP to find markets for their produce.

However, they understand that they also need to develop

other markets as well to protect themselves.

Q. Is the recession affecting PMP growers? If so, is it

able to make any special efforts to help in such tough

times?

A. Not especially, other than that growers have not been

able to develop their secondary markets as well as first

hoped, due to the economy.

Q. Do you have any long-term plans to expand into new

markets?

A. PMP desires to access more of the institutional

markets, such as universities and hospitals.

Q. How many fulltime employees do you have?

A. One full-time, three part-time.

Q. What are your plans for the future for the company?

A. To have sustainable growth in markets, growers and

produce volume.

Q. Tell us about the commitment the PMP has made to

the community. How much overall impact does the PMP

have on the area’s economy?

A. PMP has brought enormous attention to both the town

and the county. More attention to the concept of buying

local has emerged due to PMP’s existence, which

benefits small businesses across the board in our area.

Q. Has PMP produce won any awards and, if so, do

these awards help influence sales?

A. No awards, but it has received a great deal of positive

press over the past 13 months. PMP has been the

recipient of grants from eight different business

organizations or local, state and federal governments. ■

purchase, building renovations and needed equipment. The

6,000-square-foot facility is now known as the Pilot

Agricultural Center. USDA Rural Development was one of

the agencies supporting the project, providing Pilot

Mountain Pride with a 2010 Rural Business Enterprise Grant

for a refrigerated truck to deliver the produce throughout the

region.

PMP’s goals are to:

• Increase sales and economic opportunity for area growers

of specialty crops;

• Provide farmers with crucial training and education in postharvest handling of their crops, including grading,

packaging and distribution while increasing the long-term

viability of their family farms, and

• Raise awareness of local foods in the greater community

Market for ‘seconds’ proves elusive to date

continued on page 42

The Animal Welfare Approved Program (AWAP), part of

the Animal Welfare Institute, works with pork producers in

North Carolina to promote “pasture-raised” production

methods. AWAP staff member Tim Holmes estimates that

there are more than 526 sows on 33 farms in the state

producing pasture-based pork.

Two main groups are engaged in “natural/pasture-raised

pork” marketing cooperatively within the state, Holmes says.

The average producer marketing cooperatively has 23 sows,

compared to eight sows for producers marketing on their

own.

“Producers choose to market through groups due to

transportation costs and their distance from major population

centers, like the Raleigh/Durham area,” Holmes says. Many

producers marketing independently are located closer to

population centers and sell at local farmers markets or

directly to consumers (sometimes through Community

Supported Agriculture, or CSA, plans) restaurants and other

retail food markets.

Cooperative beginnings

The North Carolina Agricultural and Technical

Cooperative Extension Program (NC A&T-CEP) began

working with hog growers in the southeastern part of the

state, using funds from USDA’s Outreach and Assistance for

Socially Disadvantaged Farmers and Ranchers Program.

Faculty worked with these growers to help improve outdoor

hog production, land and financial management,

recordkeeping and marketing.

Niman Ranch, a California-based specialty

meats company, entered the North Carolina

market in 2002 and contracted with some

growers for pasture-based hogs. “The growers

were looking for an alternative to raising

tobacco; many of them raised hogs in the past

but abandoned it when they couldn’t turn a

profit,” says NC A&T-CEP’s Michelle Eley,

who works out of Greensboro. “We had to

show them that they were capable of

producing a product that appeals to an upscale

market. For a time, farmers made a profit by

following strict animal husbandry guidelines

and selling their product to Niman Ranch.”

NC A&T-CEP also provided advice on

necessary farm equipment and infrastructure,

hog genetics and meeting specifications.

Heifer International was also involved through its “Passing

the Gift” program, which provides hogs to socially

disadvantaged farmers who in turn give some of the offspring

to other limited-resource farmers.

There were other indications that niche hog marketing,

including pasture-based pork, was a viable alternative,

including research conducted by Michigan State University’s

David Conner. Unfortunately, Niman withdrew from North

Carolina in 2007, leaving growers with no place to sell their

hogs. But the growers wanted to continue their pasture-based

hog operations since returns were very good and they

believed in this method of production.

“Just trying to survive”

After their market disappeared, growers in south-central

North Carolina held meetings to explore ways to work

together to stay in business. They focused on creating a

formal business structure to market their pork. “We were just

trying to survive,” says Jeremiah Jones, NCNHGA president.

NC A&T-CEP and Heifer International assistance was

instrumental during this stage of the cooperative’s

development, helping growers secure markets and create a

formal business structure to market their pork.

A steering committee was formed, involving Jones and 10

other farmers. Several meetings were held to devise a plan to

save their operations. Some buyers encouraged them to form

a cooperative. One major buyer, Whole Foods — which has a

track record of working well with cooperatives — indicated

that it would be easier and more efficient to deal with a

grower cooperative than with individual growers.

With this in mind, growers began working to develop a

cooperative. Meetings were held with NC A&T-CEP and

USDA Rural Development staff members, who helped the

producers understand cooperative principles and practices;

they also helped producers draft articles of incorporation and

bylaws for the cooperative.

A survey of producers showed that a significant number of

growers would be interested in being cooperative members,

would sign a marketing agreement, would contribute start-up

capital to the cooperative and would collectively market

around 2,000 hogs per year through the cooperative.

Growers then decided to form the North Carolina Natural

Hog Growers Association, a nonprofit grower cooperative, in

2007.

The cooperative marketed around 2,600 hogs in the first

year, increasing to 6,000 hogs in 2010-2011. The number of

members grew from five to 30 during this period. Grower

12 July/August 2011 / Rural Cooperatives
operations are primarily located in Pender, Duplin, Sampson,

Johnson, Orange and Warren counties. Most members are in

the 50-70 age range, and many are former tobacco farmers.

Growers benefit from co-op

NCNHG performs several important functions for

members. These include:

• Coordinating between growers, the slaughter plant and

buyers;

• Handling payments from buyers to growers;

• Negotiating with buyers;

• Helping growers meet production standards and buyers’

specifications; and

• Locating the right breeding stock.

Some growers remain skeptical of the cooperative, even

after they become members. But they usually soon see the

benefits of joining the cooperative.

In response to the need to meet strong demand in the

niche market for pasture-based pork, buyers have agreed to

pay higher prices to the co-op, due to higher grain costs in

recent years. “All our markets are coming to us,” says Jones,

indicating that there is unmet demand for the cooperative

members’ pork. Prices have increased the past few years from

about 93 cents to $1.20 per pound. Co-op sales now exceed

$1 million annually.

Forces behind demand

There are several

explanations for the rising

demand that has helped

expand the niche market for

pasture-based pork. Holmes

cites the desire to “buy local”

as probably the most popular

reason consumers give. The

nutritional aspects, animal

welfare and taste attributes are

also factors.

Buyers also seek hogs in a

fairly narrow weight range.

Premiums are paid if the hogs

are within the desired weight

range; producer prices are

docked the further out of the

desired weight range their

hogs are. The cooperative has

worked with buyers to develop

a system that helps members

meet their needs.

In addition to Whole

Foods, other major buyers

include The Pit Restaurant in

Raleigh, Farmhand Foods, Old

Havana Sandwich Shop in

Durham and Sam’s BBQ and

Chop House in Chapel Hill. The cooperative seeks buyers

who will be steady customers “for the long haul.” There are

generally no signed contracts, just verbal agreements, except

with Whole Foods, which is by far the co-op’s largest

customer.

Pork from the cooperative’s hogs is marketed locally,

although the definition of “local” can be problematic,

according to Jones. One market was lost when “local” was

defined as being within 35 miles of the buyer’s site.

Meeting standards

The cooperative’s pork must meet strict standards.

Members must receive certification from the Animal Welfare

Institute, which audits and inspects members’ farms each year

to ensure compliance. The program has strict requirements

and best management practices that must be followed if a

grower is to receive the “Animal Welfare Approved”

endorsement, which allows their products to carry that label.

Each member of the association must receive that

endorsement to market through the cooperative.

Whole Foods’ requirements are even stricter, as it does

not allow any animal byproducts, such as bone and blood

Rural Cooperatives / July/August 2011 13

Co-op members attend a meeting where they learn about the requirements for having their

operations pass the farm audits that ensure their hogs are grown according to natural,

pasture-raised standards.

continued on page 42
By Anne Mayberry

USDA Rural Development

Rural Utilities Service

e-mail: anne.mayberry@wdc.usda.gov

ixty years ago, a new

coal-fired electric

generation plant was

brought online by

Dairyland Power

Cooperative, based in LaCrosse, Wis.,

in an effort to meet rapidly growing

electric power needs. Today, that same

coal-fired plant has a new life. But

instead of coal, it is using wood waste

for fuel to meet Dairyland consumers’

growing demand for electricity.

The E. J. Stoneman Station biomass

power plant, now owned and operated

by DTE Energy Services, sells its entire

40 megawatt output to Dairyland. “We

have been expanding our renewable

energy portfolio as part of Dairyland’s

long-term power supply planning,

explains Katie Thomson, Dairyland’s

senior communications specialist. The

plant can power 28,000 homes and

addresses member interest in increasing

use of renewable power, she adds.

Other advantages include diversification

of Dairyland’s energy portfolio and

meeting regulatory requirements.

Dairyland brought the coal-fired

plant into service in 1951, just 15 years

after the Rural Electrification Act of

1936 was signed into law. May 20, 2011

marked the 75th anniversary of the Act,

which codified establishment of the

Rural Electrification Administration

(REA), created by President Franklin

D. Roosevelt as part of his long-term

economic recovery program in 1935 by

delivering electricity to rural areas. The

REA was later reorganized into what is

now the U.S. Department of

Agriculture’s Rural Utilities Service

(RUS), a Rural Development agency.

Wisconsin was among those states

that used the REA to make rapid

progress in bringing electricity to farms

and rural residents. According to a

study published by the University of

Wisconsin in 1961, Wisconsin REA —

The Struggle to Extend Electricity to Rural

Wisconsin, 1935-1955 — “Wisconsin

ranked eighth in total REA allotments

received...and first in generation and

transmission capacity.”

Farm demand fueled

co-op’s growth

Dairyland, organized in 1938, grew

to a $40 million generation and

transmission system with the help of

REA financing. It supplied 87,000 rural

consumers in Wisconsin, Illinois and

Iowa with 162,000 kilowatts of power

by 1954, a few years after the Stoneman

plant came online. According to the

Wisconsin study, the growth of rural

electric cooperatives in Wisconsin was

fueled by farmers discovering how

electricity could increase efficiency in

farm operations.

Dairyland sold the coal-fired plant

during the 1990s. DTE Energy Services

purchased the plant in 2008, planning

to convert it to biomass fuel. “The

majority of the fuel we use is urban

wood, which is from construction and

demolition,” says John Austerberry,

spokesman for DTE Energy. “We also

use green wood — which is derived

from forest activities. Railroad ties are

another source of fuel.”

A key advantage of biomass,

according to an April 2011 study just

released by USDA’s Office of the Chief

Economist and Office of Energy Policy

and New Uses, is that it can be

converted to electrical power using preexisting infrastructure, such as

Dairyland’s 1951-vintage coal-fired

plant. Biomass produces biopower —

the process of converting biomass into

electric energy.

Biopower, according to the USDA

study, is readily scalable and can provide

power for a single farm or a larger load,

such as a small city. Biopower

14 July/August 2011 / Rural Cooperatives

S

Utility Connection

Wisconsin coal-burning plant

converts to biomass
generation reduces the amount of

methane released into the atmosphere

by using the methane directly, or — as

in the case of the Stoneman Station

plant — by burning it before it

decomposes. Thomson says Dairyland

liked the biomass aspect, in part because

“Using waste for energy is a win-win

project.”

The plant uses 1,000 tons of biomass

daily, or about 50 truckloads. “Provisions in our contracts spell out how

clean the biomass material needs to be.

This comes to us as fuel, not refuse,”

Austerberry says.

Co-ops are engines

of rural economies

The 1961 Wisconsin study pointed

to the role of the REA in developing

programs to improve rural living

conditions through investment, which

in turn increased employment in rural

areas as the demand for electricity

triggered growth in other markets. Half

a century later, rural electric

cooperatives continue to make

investments that trigger economic

growth.

For example, Austerberry says that

during the conversion, DTE’s

Stoneman plant employed as many as

100 contractors. “Currently, there are

32 full-time employees at the plant.

The plant also contributes to the local

economy through DTE’s relationships

with other local businesses. “We have

about 20 different biomass providers

within a 200-mile radius,” Austerberry

notes.

The USDA report says renewable

resources are most abundant and

practical for development in rural areas

and present a good investment

opportunity for rural electric utilities.

The Upper Midwest is rich in biomass

resources, according to the report,

which makes states such as Wisconsin

well suited for biopower. However, it

stresses, much of that potential is not

realized.

Thomson reflects on the irony that

the biomass power plant was a

Dairyland owned and operated coal

plant 60 years ago. “We’ve come full

circle.” ■

Rural Cooperatives / July/August 2011 15

This Dairyland Power Cooperative (DPC) plant, which formerly burned coal, now runs on 1,000 tons of biomass daily. Photo courtesy DPC

Rural Cooperatives / July/August 2011 17

providing co-op members access to a greater variety of

products than would be the case if the Wedge’s retail

operation had to physically store its entire product inventory.

As CPW developed and more warehouse staff was hired,

the Wedge leased two refrigerated trucks and started making

deliveries to other cooperative groceries in the area.

However, even after four years of operation, 80 percent of

the warehouse’s sales were being made to the Wedge; overall

sales were fairly stagnant.

Starting in 2005, a combination of key personnel changes,

favorable market conditions and new infrastructure

investments contributed to rapid sales growth, helping CPW

become a significant catalyst for the development of a

regional food system. A key turning point was the purchase,

in July 2005, of a worker-owned organic distributor in

Minneapolis that had been the primary source of organic

produce for food stores in the area by a large (noncooperative) national organic food distributor.

In the wake of that co-op buyout, many customers

switched to CPW for their organic produce. CPW also

picked up some skilled staff members who left the co-op after

the buyout. This influx of experienced personnel helped

professionalize what had been a fairly informal operation at

CPW. These new employees drew on their skills and industry

relationships to bring new business to the firm.

In the next three months, business at CPW increased by

60 percent. This meteoric sales growth meant that more

warehouse space would be needed before long.

CPW management discussed different options with its

landlord and with Wedge management. It was decided in late

2005 to triple warehouse space to 45,000 square feet. While

the 30,000 additional square feet was more space than needed

to handle CPW’s immediate needs, the rental rates were low

enough to make it affordable. It made sense to secure this

additional space to allow for future growth.

Expanding the warehouse allowed CPW to vastly increase

its ability to serve farmers in the region and to increase its

customer base far beyond the Wedge. Sales were $2 million

in 2003, with the Wedge accounting for 80 percent of the

total. In 2010, annual sales had climbed to $17 million, with

the Wedge’s share being only 23 percent. Sales growth was

particularly rapid from the period just prior to expansion and

in the next few years afterward, increasing 300 percent from

2004 to 2007, to $13 million.

Business structure

CPW is a wholly owned subsidiary of the Wedge

Cooperative, which, as a retail food cooperative, is owned by

its consumer members. Consumer cooperatives, like all

cooperatives, are controlled by their members and are

obligated to serve them. The Wedge’s mission statement says

the co-op will:

“...provide a diverse selection of highest quality,

fairly-priced products and a deepening understanding of

their importance to our members, employees, and

community. To achieve this, we will: 1) Earn the loyalty

of our member-owners through an ongoing commitment

to service; 2) Forge a deepening bond between sustainable

local producers and the co-op community; and 3) Build

upon cooperative principles and values.”

This organizational mission directly supports the

development of CPW as a vehicle for providing the kind of

food members want and for supporting local agricultural

producers and sustainable agriculture. The warehouse

manager at CPW reports directly to the Wedge’s general

manager, and all the other employees of CPW report to the

warehouse manager.

CPW has 32 employees, including: 7 drivers, 10 order

fillers, 3 buyers, 9 sales associates, 1 bookkeeper, 1 qualitycontrol manager and 1 manager. Profits earned by the

cooperative, including the store and the warehouse, range

from 1 to 4 percent. Profits are allocated in three ways: one

portion is reinvested in the business for maintenance and

expansion; another portion is returned as patronage dividends

to the 14,000 members of the cooperative; the third portion

is distributed to the Wedge’s 262 employees as part of a

profit-sharing plan that can add as much as $2 per hour

worked during the previous quarter.

The warehouse is self-supporting with operating revenue

covering its expenses. It has been able to draw on the Wedge

for capital infusions both when it initially started and when it

has needed to purchase equipment.

In addition to its retail food store (facing page), the Wedge Community

Cooperative also operates Co-op Partners Warehouse, a wholly

owned subsidiary that supplies the Wedge and dozens of other retail

outlets in the Upper Midwest. All photos courtesy The Wedge
18 July/August 2011 / Rural Cooperatives

Business operations

The vast majority of CPW’s sales come from distributing

produce to retail cooperatives. The firm distributes weekly

price books to customers, takes orders, makes deliveries and

bills customers. It charges customers 16-25 percent above

farmgate prices, depending on the perishability of the

commodity.

To satisfy year-round customer demand for fresh produce,

“in season” the firm buys locally and regionally grown

produce from more than 30 farmers in Minnesota, Wisconsin

and other parts of the Upper Midwest (when available), but

relies on California producers for the bulk of its fresh

produce supplies.

Retail grocery cooperatives account for 88 percent of

CPW’s sales. The remaining 12 percent of sales is accounted

for by restaurants, independent natural food retailers, buying

clubs, community supported agriculture (CSA) co-ops or

associations, and food manufacturers.

Additionally, CPW operates an unusual drop-ship

program for farmers and other value-added food producers in

Minnesota and Wisconsin. This service allows smaller

producers to take advantage of CPW’s superior logistical

capabilities on a fee-for-service basis. This program preserves

producer identity and visibility in supply chains by allowing

farmers to handle the sales and marketing aspects of their

business transactions, but entrusting CPW to handle the

logistics portion of each transaction for a flat delivery fee.

Farmers drop off their products at CPW’s St. Paul facility,

including a packing list showing what each customer is

supposed to receive. CPW then delivers the farmers’ product

to area stores. Producers pay CPW $20 for each dropshipment and invoice the buyers directly.

About 24 producers or value-added food producer

companies are currently using the drop-ship program. This

program is also helpful for co-op stores that want to buy

product from local producers but would rather not have a

dozen different trucks coming with small deliveries.

Overall sales for this program are not tracked, because

CPW only collects the flat $20 delivery fee per shipment,

and because product volume is only a small fraction of the

Warehouse’s sales to cooperatives and other retail outlets

through traditional distribution operations. Nonetheless, this

program demonstrates CPW’s commitment to helping local

farmers find profitable outlets for their product.

Fair dealing with farmers

CPW is committed to building strong relationships with

its producers and ensuring they receive a fair price for their

products. As Wedge General Manager Lindy Bannister

recently wrote in the store’s newsletter:

Dean [the Wedge’s produce buyer] and Rick [the

buyer for Co-op Partners Warehouse] sign contracts to

ensure our farmers receive a fair price for their product

and that we have a reliable supply of vegetables and fruit

to adorn your tables. Dean and Rick visit the farms,

watch the production methods and get to know the

families. As we like to say, “we have smelled the dirt.”

In general, CPW aims to set prices that enable farmers to

cover their costs and are fairly predictable, with minimal

variation throughout the season. Lori Zuidema, CPW’s

director of business development, clearly articulates how

values of fairness to farmers are embedded in CPW’s price

negotiations with farmers:

“...a lot of people think it’s the California market

that influences it [prices], but it’s more production-cost

related....They [farmers] figure out how much it’s going

to cost them.... and you know we want their product. We

want to be able to present it to our customers. We want

them to be in business. We don’t want...them to sell to us

so cheap that they can’t make a living and then they have

to fold in two years...So that’s our incentive for paying

them a fair price.”

Fair pricing becomes not only a point of principle, but also

a pragmatic strategy for ensuring a stable supply of highquality organic produce for CPW and its customers. Dean

Schladweiler, the Wedge’s produce manager, has made a

point of working with small and new organic farmers to help

them price competitively and realistically. Sometimes he has

actually had to negotiate prices up with farmers because he

knew they were underpricing themselves and that they could

charge a higher price.

Farmers would tell Schladweiler that they were basing

their prices on the California organic price. He would

respond that they were not in California, and that they had to

consider their own individual production costs and price their

merchandise accordingly. His general point of view is that

farmers need to be savvy about their market and stand firm

on their pricing, otherwise they will not be able to stay in

business.

Marketing: serving customers needs

In marketing to retail grocery cooperatives other than the

Wedge, CPW emphasizes that it is also a cooperative and

that one of the foundational principles of the cooperative

movement is “cooperatives helping cooperatives.” This

emphasis on organizational solidarity with its retail

cooperative customers is meant to demonstrate that CPW is

committed to its customers’ success not only to serve its

particular business interests, but also as a means for

furthering the cooperative movement in general.

However, recent feedback from customers indicates that

cooperative solidarity alone will not determine sourcing

decisions for most retail grocery cooperatives. A customer

survey conducted by CPW about three years ago showed that

product quality was the No. 1 criterion for picking a

distributor; price ranked second while product availability

ranked third in importance. Purchasing from a locally owned

business or a cooperative did not make the list of top five
criteria, even though retail grocery cooperatives

constitute CPW’s largest group of customers.

With a competitive organic and natural foods

sector in the Twin Cities, Co-op Partners

Warehouse has worked hard to differentiate

itself from its competitors by offering

exceptionally strong customer service, reaching

above and beyond what other organic and

natural food distributors are willing to provide.

This has included offering a Sunday delivery

service and a “short delivery call” service for intown customers, whereby orders received by 10 a.m. can be

delivered that day for no extra charge.

The same-day delivery service was instituted because

trucks often arrive late in the day after the price list has

already been distributed. Customers can call the next

morning, find out which products just came in (including

those that weren’t on the previous afternoon’s supply list),

place an order by 10 a.m., and have it delivered by 4 p.m.

Lessons learned:

Service is paramount; co-op solidarity won’t keep you

in business —For a time, Co-op Partners Warehouse

(CPW) management thought just being a cooperative would

go a long way towards building customer loyalty. Realizing

this was not the case was a tough, but important, lesson.

Food cooperatives need to be business savvy and conscious of

costs as they compete with specialty food chains and

supermarket chains that increasingly stock items such as

organic produce and milk, soy milk and tofu that were once

the stock-in-trade of food co-ops. Meeting customer needs

for good service, competitive prices and high-quality produce

has made for a winning combination.

Be pragmatic with local procurement—CPW is

strongly committed to supporting small local growers and

goes to considerable effort to buy as much produce as

possible from small and/or local growers. However, this is

often not possible, given the high demand for produce

throughout the year. Tom Rodmyre, the warehouse manager,

explains:

“Our mission has always been to support small local

growers...but because we are pretty much a full-service

organic produce warehouse, we have to supplement —

there just isn’t enough local product to fill the needs of

what we are doing.... And then the local farmers

themselves....want the direct connection with the people

they are selling to; they’ll be trying to sell their product to

the same accounts that we’re going to.”

Co-op Partners has to be pragmatic in

pursuing its mission of supplying co-ops and

other customers with high-quality organic

produce, with an emphasis on local

procurement. If CPW insisted on only

selling local produce, it simply would not be

able to stay in business. Overhead is too high

to run a full-service produce distribution

operation seasonally, to say nothing about the

high level of direct-to-consumer marketing to food

cooperatives during the growing season in the upper Midwest

that makes it hard for CPW to procure enough local produce

for its customers even in season.

Even cooperatives are not going to buy from a cooperative

distributor without being assured they are getting good value

for their money. Absorbing this lesson and building the

business with competitive pricing, unique services (such as

Sunday delivery and short-delivery calls), along with a very

strong commitment to organic and local food, has made for a

winning formula.

CPW has demonstrated its continued commitment to

local growers not only by buying their products and

distributing them through its sales network, but also

providing an extra level of service in the form of its drop-ship

program. While not a significant revenue earner for CPW, it

earns the organization good will with farmers, saves them the

hassle of shipping products to stores, and smoothes relations

with its retail store customers, who are relieved from having

to deal with multiple trucks clogging up their loading docks.

This is a good example of how small business ventures can

reap rewards far beyond their immediate impact on company

sales.

Bibliography:

• Lindsey Day-Farnsworth, Brent McCown, Michelle Miller,

Anne Pfeiffer (2009) “Scaling Up: Meeting the Demand for

Local Food,” University of Wisconsin-Madison Center for

Integrated Agricultural Systems, December.

• Lindy Bannister, “What Makes Us Different?” The Wedge

Natural Foods Co-Op Newsletter, June/July 2007.

Some information was also used from the following

websites: www.wedge.coop/ and www.lakewinds.com/store/ AboutCO-OPS-W18C0.aspx ■

Rural Cooperatives / July/August 2011 19

“Fair pricing becomes not only a point of principle, but also

a pragmatic strategy for ensuring a stable supply of high-quality

organic produce for CPW and its customers.”

CPW has 32 employees.
20 July/August 2011 / Rural Cooperatives

By Eva Nell Mull Wike, Ph.D.

Editor’s note: the author is a physics

educator based in Oak Ridge, Tenn. She is

the sister of David Mull.

hen David and Donna

Mull arrived in

Afghanistan in 2010 on

a one-year mission to

help expand the wartorn nation’s fledgling soybean industry,

most farmers were threshing their

soybeans by laying the crop on rocks

and beating it with sticks, then

transporting it 30 miles or more by

donkey. Today, farmers in the two

provinces where the Mulls worked have

formed their own associations that help

growers harvest, process and market

their crop using more modern

techniques.

As a result of the Mull’s work and

the many others they teamed with, production has increased, jobs have been

created and lives have been improved.

Unique skills set aids mission

The Mulls were the first husbandwife team on active duty with USDA

ever to be deployed together to

Afghanistan, where they worked side by

side with farmers and others. The

challenges of their one-year tour of

W

Finding a way

USDA husband/wife team helps form soybean

farmers’ associations in Afghanistan

Lieutenant-Commander Robert Hamm (third

from left) and Donna and David Mull (toward

rear, fifth and seventh from left) tour a

soybean farm in Parwan Province. With them

are members of the Korean Parwan Provincial

Reconstruction Team and employees of

Parwan Baston Seed Co. (PBSC). Facing page:

Against the backdrop of an armored

personnel carrier, USDA Rural Development

employees Randy Frescol (left) and Donna and

David Mull meet some Afghan children in

Parwan Province. All photos courtesy Donna

and David Mull.
Rural Cooperatives / July/August 2011 21

duty with the USDA Foreign Agricultural Service (FAS) in Afghanistan

were many. However, their wide array

of skills gave them the confidence and

commitment necessary for the mission.

Donna Mull, a human resource

specialist with USDA Rural

Development in Georgia, was able to

draw upon her expertise and “people

skills” during the assignment. From the

start, she was cognizant of the many

challenges facing her and drew on her

earlier farming experiences. “I felt like

my previous experiences were

invaluable. They enabled me to

contribute to meeting some of the vast

needs of the Afghan people, while at the

same time serving my country.”

David Mull, a retired command

sergeant major with the U.S. Army and

a Vietnam War veteran, is a business

program specialist with USDA Rural

Development in Georgia. His military

and business experience, as well as the

couple’s past experience owning and

operating small farms in three states,

gave them a wide array of skills and

knowledge that served their mission

well in Afghanistan. In a CBS News

interview before departure, he

explained his position: “I look upon this

endeavor as an opportunity to serve my

country and at the same time to help

the Afghan people.”

After a few weeks of training, the

Mulls arrived in Afghanistan on March

3, 2010. “We arrived in Kabul late at

night and, to our surprise, it was

raining. We thought it was going to be

dry and hot,” he said.

“I had not had such an ‘uphill’

experience since my arrival in Vietnam

for a second tour of duty there! It was a

little disconcerting, and my first

thought was ‘What have I gotten myself

and my wife into now?’ It took a few

days for the shock to diminish.”

Soon they were “embedded” with

the Kentucky National Guard

Agribusiness Development Team

(ADT). Their service area included four
22 July/August 2011 / Rural Cooperatives

provinces in northeastern Afghanistan,

north of Kabul.

Enhancing production

The Mulls quickly focused their

attention on finding a way to enhance

the productivity of the farmers of the

region. Opportunity soon knocked

when Col. Mike Farley,

commander of the Kentucky ADT,

requested that David Mull “find a

way” to build a soybean processing

mill in Parwan Province. At the

time, the nearest soybean mill in

Afghanistan was 30 miles away, in

Kabul, where farmers delivered

their soybeans by donkey.

Drawing on his USDA

experience, David Mull formed a

plan to establish a soybean-flour

processing facility in Parwan

Province. He contacted Nutrition

Education International (NEI), a

California-based nonprofit that was

instrumental in introducing

soybeans as a crop for Afghan

farmers. NEI soon joined the effort

to establish a new soybeanprocessing facility.

NEI had conducted research on

six different varieties of soybeans

over a three-year period. By 2005,

NEI was helping to produce

soybeans in 12 Afghan provinces.

The NEI soybean initiative was

soon adopted as a national

program by the Afghan

government. NEI also researched

the preferences of the Afghan people to

identify ways to incorporate soybeans

into their diets.

By 2006, the nation’s soybean

industry had a production capacity of

1,000 metric tons produced by 2,400

farmers. By 2010, farmers in 31 of the

nation’s 34 provinces were growing

soybeans. The total yield had climbed

to 4,000 metric tons produced by

16,000 farmers.

Mill plan developed

After lengthy meetings, NEI made a

commitment to help establish the first

soybean mill for Parwan Province.

Steven Kwon, NEI president, agreed

that his organization would purchase

the needed machinery and lease it to

Parwan Bastan Seed Co. (PBSC), a

successful “for-profit” business and a

leader in agriculture production and

marketing, which would also operate

the facility. Col. Farley arranged the

initial meeting with PBSC, based on its

reputation as a successful business.

It was also agreed that PBSC would

construct a facility to house the

operation. As a result, 19 jobs were

created and the mill created a local

market for Parwan Province soybean

farmers.

Throughout the process, the Mulls

consulted with Kwon, explaining how

USDA Rural Development’s

Cooperative Services program provides

assistance to the rural residents and

farmers in the United States. Through

these talks, the need became clear to

establish soybean growers’ associations

in both Kapisa and Parwan Provinces.

The Mulls assisted NEI and the

Kentucky ADT, providing guidance and

advice to help establish the soybean

farmers associations. NEI helped

organize the soybean farmers and to

oversee the establishment of their two

associations, which were formed in the

fall of 2010 — the nation’s first soybean

associations.

The farmers associations

provide advice and assistance to

their members in growing and

marketing soybeans. This includes

harvesting the crop and processing

it into soy flour.

The usual “pre-processing”

method at the time was to lay the

soybeans on a rock and beat them

with a stick, resulting in a huge

loss of beans and picking up debris

that was mixed with the soybeans.

If not removed, this debris could

damage the milling facility, thus

increasing the time needed for

cleaning the beans before

grinding. The result was a huge,

negative impact on the

marketability of the beans.

Thrashers purchased

To address the present

methodology and resulting losses,

Donna Mull recommended the

acquisition of three small soybean

thrashers. Again, NEI agreed to

purchase the thrashers and lease

them to the associations to help

their members become more

efficient and to deliver cleaner

beans to the mill. The results have been

impressive.

The projects the Mulls helped

implement are now assisting 900

soybean farmers in Parwan Province

and 550 soybean farmers in Kapisa

Province. The combined soybean

production for the 2010 crop-year was

about 1,000 metric tons, making them

two of the largest soybean production

provinces in Afghanistan.

A five-year contract with the World

Food Program to purchase the soy flour

has been negotiated by Kwon, thus

creating an international market for the

farmers of Parwan and Kapisa

Provinces — all thanks to the teamwork

Haji Abdul Robate Qahir, owner of PBSC, inspects the

grinder portion of the soybean mill.
Rural Cooperatives / July/August 2011 23

of the Mulls, NEI, PBSC and

Kentucky ADT.

Shortly before the Mulls ended their

assignment in Afghanistan, Randy

Frescoln, director of USDA Rural

Development’s Business and

Cooperative Programs in Iowa, arrived

at Bagram Airfield in Afghanistan on

his second assignment as an agriculture

advisor. Within a short time of meeting

Frescoln, the Mulls knew they were

passing their projects on to a soybean

expert with broad rural business

experience.

“Randy has had many years of

experience [working with the soybean

industry] and he comes from the top

soybean producing state in the nation,”

David Mull notes.

For his part, Frescoln says: “I can

think of no other organization in the

world where I could have helped serve

so many people — not only in the

United States but all over the world!”

His knowledge and leadership will

ensure the continued work of USDA

Rural Development employees in

helping the people of Afghanistan.

Parting thoughts

“I think our work has helped to

strengthen the understanding that

soybeans are indeed a sustainable crop

in this region of the world,” David

Mull wrote in a report on the

Afghanistan project. “Soybeans are

helping to improve nutrition in the diet

of the Afghan people. More jobs are

being created for the farmers, leading

to increased economic development in

the two provinces.”

The Mulls say there are also many

intangible results of their work that

cannot easily be quantified — the type

of results that occur when people from

two different cultures, located a world

apart, cooperate, working together for

the benefit of all and making

desperately needed improvements in

people’s lives. It is the Mull’s hope that

all of the desperately needed

improvements will occur in the lives of

the people they leave behind.■

On any given day, roughly 50 American agricultural experts apply

modern technologies to help grow stronger, more abundant crops and

ensure the health and proper care of livestock. What sets these men and

women apart from the millions of other Americans who live and work in

the agricultural sector every day is that they apply their knowledge and

skills in rural Afghanistan.

Since 2003, the U.S. Department of Agriculture’s Foreign Agricultural

Service has sent more than 100 agricultural experts from a wide range of

backgrounds — including farmers, veterinarians, agricultural economists,

extension agents, educators and more — on assignment to Afghanistan.

Their purpose is to help Afghanistan revitalize its agricultural sector

through a variety of activities. The ultimate goal is to strengthen the

capacity of the Afghan government, rebuild agricultural markets and

improve the management of natural resources.

USDA representatives have performed a wide range of missions,

including helping install windmills to pump water for irrigation, training

Afghan veterinarians, establishing nurseries in reforested areas,

rehabilitating degraded orchards, mentoring Afghan agricultural

extension workers, providing key technical education to help control

animal disease and much more.

USDA’s efforts in Afghanistan are making a difference.

Results of a USDA survey from April-December 2010, for example,

show that USDA-assisted activities helped created 107,000 temporary and

14,000 permanent jobs, trained 800 Ministry of Agriculture, Irrigation and

Livestock (MAIL) officials who, in turn, trained 60,000 Afghan farmers.

Nearly 34,000 Afghan farmers have used improved techniques

demonstrated by U.S-Afghan extension teams.

Despite these successes, there is still a need for ongoing USDA

assistance for the reconstruction of the agricultural sector in

Afghanistan. The Afghan countryside and farmland have been devastated

by 30 years of ongoing conflict, yet 80 percent of the population is still

involved in farming or herding. Most of their equipment, technology and

educational resources are scarce or outdated, which stifles the growth

and expansion of the agricultural sector.

USDA currently has about 50 slots for agricultural experts in

Afghanistan and is looking for men and women with diverse agricultural

backgrounds who are willing to commit to medium- and long-term

assignments, which can range from six months to more than a year.

USDA representatives can help further the development of the capacity

of MAIL staff, who can, in turn, help their own Afghan farmers.

For more information about opportunities with USDA in Afghanistan,

visit http://www.fas.usda.gov/country/ Afghanistan/us-afghanistan.asp. ■

USDA ag experts bring knowledge,skills to Afghanistan

By Karoline Newell, Public Affairs Specialist

USDA Foreign Agricultural Service


26 July/August 2011 / Rural Cooperatives

By Stephen Thompson, Assistant Editor

e-mail: stephena.thompson@wdc.usda.gov

s butanol a better biofuel for

America? One Missouri farmers’ coop is banking on it.

Show Me Energy Cooperative,

based in Centerview, Mo., has raised

the funds to build a facility that will produce 2

million gallons of butanol annually, a fuel that is

chemically similar to ethanol, but offers some

important advantages.

Show Me was founded in 2008 when a group of

seven farmers saw a chance to compete in the local

market for heating fuel by using grasses as

feedstock. Now 612 farmer-members strong, the

cooperative produces fuel pellets that can be sold

more cheaply than comparable pellets made from

wood waste. Show Me serves not only a strong

home-heating fuel market, but a number of local

poultry growers who heat their poultry houses with

the co-op’s pellets instead of more expensive

propane.

“Propane costs were driving the poultry farmers

out of business,” says Steve Flick, president of the

co-op board of directors. “We’re supplying them

heat for less than half the cost.” Each ton of pellets

is equivalent to 190 gallons of propane gas. The

cooperative buys the grass feedstock for between $45

and $60 per ton.

Show Me is also exploring other markets. In trial

tests with Kansas City Power and Light, the co-op

provided biomass pellets for an experimental cofiring pilot program at a coal-fueled power plant in

nearby Sibley, Mo., in 2008. The 2,000-ton burn was

deemed a success, but did not result in a supply

contract. However, the co-op is selling pellets to

other power utilities across the United States, Flick

says.

The cooperative has developed an EPA-approved

oil-cleanup powder from switchgrass that it says will

absorb 800 gallons of oil per ton of pellets. The oilladen product can then be processed into fuel or

reused after the oil is squeezed out.

Watching “the big boys”

When the cooperative looked to expand, it

considered producing ethanol from its grass stocks,

but decided that butanol held more potential. “We

watch what the big boys do,” says Flick. “And

they’re bypassing ethanol.”

I

Missouri’s

Show Me Energy

Co-op pursuing

$55 million plant

BANKING

ON BUTANOL
Rural Cooperatives / July/August 2011 27

Ethanol used as a gasoline additive has some drawbacks,

among them a tendency to dissolve the epoxy matrix of the

fiberglass fuel tanks used in some boats and older

motorcycles. It can also corrode fuel system parts in vehicles

not designed to handle it. Its affinity for water can lead to

fuel soaking up moisture from the air, resulting in

deterioration of gasoline left in inactive vehicles for more

than a few weeks.

Perhaps the biggest drawback for ethanol is that it can’t

be transported in the nation’s network of petroleum pipelines

because its solvent properties strip contaminants from the

pipeline walls. It also has less lubricity than gasoline and only

about two thirds of its energy content, which hurts fuel

mileage.

Butanol has none of these disadvantages. While it can be

produced by a fermentation process much like those used for

ethanol, its energy content is closer to that of gasoline, so it

gives better mileage. It can be safely shipped via pipelines, it

has good lubricating qualities and it has little affinity for

water. Proponents claim that it is safe for older vehicles and

that it can be used without blending in gasoline engines.

Most importantly, butanol appears not to be subject to the

gasoline-blending limit faced by ethanol, known as the

“blend wall,” which has limited ethanol expansion. The

Environmental Protection Agency currently certifies butanol

as a gasoline additive at concentrations up to 11 percent.

One of butanol’s key advantages “closed the deal” for

Show Me: it can be added to diesel fuel. As a diesel additive,

butanol has a comparatively high cetane rating and improves

flow in cold weather. Proponents say that it reduces

particulate emissions in diesel exhaust when added to fuel

and prevents fuel deterioration in storage.

BP and DuPont have joined in a partnership to develop

the fuel while other firms are exploring its commercial

Facing page: Agriculture

Secretary Tom Vilsack

tours the Show Me

Energy plant last year, as

Steve Flick, the co-op

board president, explains

the operations. Above: the

co-op’s plant currently

turns biomass into fuel

pellets, but the co-op is

also pursuing plans to

build a plant that would

produce butanol. Photos

courtesy Show Me

Energy

One of butanol’s key advantages

“closed the deal” for Show Me: it

can be added to diesel fuel.
28 July/August 2011 / Rural Cooperatives

potential. However, butanol is not quite

ready for the mass market: the technology for producing it in commercial

quantities is unproven. Some ventures

are exploring production using

fermentation; others are looking at

pyrolysis — a process that uses heat to

decompose organic compounds in the

absence of oxygen. One firm in Oregon

is planning to use pyrolysis to produce

butanol from dairy manure.

Improved fermentation process

Flick says that Show Me’s

fermentation process is being developed

in cooperation with a technology

partner and several universities. The

co-op’s 2-million-gallon-per-year

facility is in the design stage, with a

goal of being up and running in two

years.

The cooperative looked at numerous

liquid fuel production methods with the

help of outside consultants before

finalizing its process. “Most of the

processes we tested didn’t work,” says

Flick. “They were ‘beauty science,’

publicized to raise capital.”

The feedstock for the new plant will

be the same locally harvested grasses

used for the co-op’s fuel pellets.

According to Flick, the sugar content of

such grasses available for fermentation

can be as high as 70 percent (although

grasses harvested in the late fall, as they

are in Missouri, are somewhat lower in

sugar content, Flick notes).

After the fermentable sugars are

extracted from the grass, the leftovers

— mostly cellulose and lignin — will be

gasified and burned to generate

electricity onsite. “We’re going to be

getting three squeals from the pig,” is

how Flick puts it.

The co-op expects to produce 10

megawatts from co-generation, of

which four megawatts will be used to

run the plant and six will be sold. Flick

is careful to point out that, while six

megawatts isn’t a great deal of energy, it

will be continuously generated, making

it a baseline power source, unlike solar

and wind energy. The leftover ash will

be used for fertilizer.

Qualifies for USDA’s

BCAP program

The cooperative scored a major coup

when its proposal for participation in

the USDA Farm Service Agency’s

Biomass Crop Assistance Program

(BCAP) was the first to be approved

nationwide. The program allows

farmers and bioenergy producers to

team up to apply to establish a BCAP

project area. Inside the boundaries of a

project area, eligible farmers can apply

for reimbursement of 75 percent of the

cost of establishing a perennial biomass

crop, for up to five years in the case of

grasses and other non-woody crops. In

addition, up to $45 per ton in matching

payments is available for up to two

years for harvesting, storage, and

transportation costs.

BCAP has allocated $15 million for

the project area, which covers 39

counties in western Missouri and

eastern Kansas. Initially the program

will subsidize up to 20,000 acres of

grasses planted for biofuel, with plans

to expand to 50,000 acres in coming

years.

While BCAP doesn’t limit its

program to marginal land, Show Me’s

proposal specified that only land

unsuitable for grain crops will be used.

Flick says that this is an example of the

cooperative’s commitment to the local

community.

“We have very intense agriculture in

this area,” he says. “Most of our

members have less than 200 acres, and

they concentrate mostly on livestock

and minimal row crops. This is a way to

expand productive acreage and promote

conservation, too.”

Grass crops are promoted as highly

desirable conservation measures,

because they offer flood control and

runoff filtration benefits. Grass

plantings can decrease sedimentation

and absorb chemical pollution from

other crops before it reaches waterways.

Much of the grass crop will be planted

on flood-prone land. The cooperative

has developed two grass seed mixtures,

one suitable for lowland, wet conditions

and the other for drier, well-drained

land.

While the BCAP approval has been

helpful, Flick says that obtaining the

capital for the expansion has been

difficult. His comments echo those of

other co-op leaders. “The capital

situation right now is just a nightmare,”

he says. “Banks don’t want to do

business with new technologies and the

economy is dragging. We would really

endorse new co-op laws that make it

easier to raise outside capital and

simplify the distribution of patronage

dividends. The laws now just make a lot

of work for CPAs. Things have changed

a lot since Capper-Volstead was

passed.”

The projected cost of $55 million

will be financed by debt and equity.

“This is the biggest chunk we’ve ever

chewed off in our lives,” Flick says.

“We’re going to groom a new

generation for the next step.”

In keeping with the cooperative’s

emphasis on the local community, the

butanol it produces will be sold onsite,

in a 10-percent blend with diesel oil,

and stored in above-ground tanks.

“This will be a local product for local

consumption,” says Flick. “We’re just

going to sell fuel. There won’t be a

convenience store. We’re not selling

potato chips.”

Flick says he thinks the butanol

project could eventually involve 1,000

local farmers, depending on how many

sign up for the BCAP subsidies. Co-op

membership will not be required to sell

feedstock to the new plant. As for

future co-op growth, Flick says, “We’ll

probably have more membership with

BCAP, but 612 members is pretty big

for a new business.” ■
Rural Cooperatives / July/August 2011 29

MFA Oil Biomass receives

USDA BCAP funding

MFA Oil Biomass LLC, a subsidiary of MFA Oil Co., has been approved to

receive $14.6 million under USDA’s Biomass Crop Assistance Program

(BCAP), which will help growers plant a special grass — miscanthus

giganteus — that will be processed into biofuel pellets. MFA Oil

cooperative leaders say the program will lead to job creation, stimulate

economic growth, improve the environment and help reduce the nation’s

dependence on foreign oil (for more on the project, see the cover story of

the March-April 2011 Rural Cooperatives, available online at:

www.rurdev.usda.gov/rbs/pub/openmag.htm).

The BCAP funding was a critical factor that MFA Oil Biomass needed to

achieve its goal of producing a next-generation, renewable energy crop,

according to its parent co-op. MFA Oil Biomass, a partnership between

Aloterra Energy and Columbia, Mo.-based MFA Oil, was created to form a

vertically integrated energy supply company. The energy grass will be

grown on marginal land and thus will not compete with row crops, the coop stresses.

MFA Oil Biomass projects an estimated $150 million annual economic

impact from growing the new energy crop, while creating 2,700 new jobs.

The co-op says the new energy crop, which it expects will be grown by

nearly 1,700 farming families, will replace fossil fuels now used for

agricultural heating and power plants.

“What we are talking about here is displacing foreign oil, two-thirds of

which is imported and accounts for half of the nation’s trade deficit,” says

MFA Oil President Jerry Taylor. “Renewable energy programs, like BCAP,

are part of the solution because all of the dollars generated stay local, help

create jobs, strengthen our economy and improve the environment.”

Under current guidelines, BCAP will reimburse farmers up to 75 percent

of planting costs and pay an annual rent payment while farmers wait for

their crops to mature. Once the crops mature, farmers will be eligible to

receive two years of matching payments for their tonnage, up to $45 per

ton beyond the selling price.

Miscanthus giganteus is a warm season perennial grass that is noninvasive, drought and pest resistant and needs less fertilizer than food

crops. It is well adapted for growing on marginal land. The grass is also

extremely efficient in sequestering carbon from the air — an added benefit

if the carbon market develops. Miscanthus giganteus has been used as a

source of heat and electricity in Europe for more than 10 years.

The three BCAP project areas approved for MFA Oil Biomass are

located in central Missouri, southwest Missouri and northeast Arkansas.

Each project area has a projected four-year goal of growing 50,000 acres of

the miscanthus biomass crop. Funding has been approved for the first

year’s planting of 13,838 acres towards the company’s goal. ■

Gigantus miscanthus. Photo courtesy University of Illinois
30 July/August 2011 / Rural Cooperatives

Virginia

electric co-ops

join forces

to purchase

investor-owned

assets, then

split service

territory

Rappahannock Electric Cooperative

(REC) workers now have an

additional 50,000 member-customers

to serve, following the co-op’s joint

acquisition — along with

Shenandoah Valley Electric

Cooperative (SVEC) — of Allegheny

Energy’s assets in Virginia. SVEC

gained an additional 50,000 meters in

the deal. All photos courtesy REC

SPLIT

DECISION
Rural Cooperatives / July/August 2011 31

By Robert A. Ellis

Editor’s note: the author is vice president for business development

at Rappahannock Electric Cooperative.

wo rural Virginia electric cooperatives

provide dramatic evidence that cooperation

among cooperatives — one of the founding

principles of the cooperative movement —

can accomplish something that would have

been difficult, or even impossible, had they not worked

together. By working as a team, Rappahannock Electric

Cooperative (REC), in Fredericksburg, Va., and Shenandoah

Valley Electric Cooperative (SVEC), in Mt. Crawford, Va.,

were able to acquire Allegheny Energy’s (an investor-owned

firm) electrical distribution assets in Virginia.

As a result, the two co-ops have expanded their service

areas from a combined 140,000 electric meters to nearly

240,000 meters. (REC jumped from 99,580 meters to

149,160, while SVEC more than doubled its distribution,

from 39,500 to 90,000 meters.) Co-op leaders credit the

successful results to teamwork, old-fashioned hard work and

careful planning.

The acquisition process began in March 2009, when

Allegheny Energy (AE) informed the cooperatives that it

would like to shed its Virginia distribution assets. It invited

both Rappahannock Electric Cooperative (REC) and

Shenandoah Valley Electric Cooperative (SVEC) to submit

bids, which were due just one month later. Much occurred

during that one month, leading to a joint bid submitted by

REC and SVEC. The bid was accepted by AE within one

week of submission. On May 4, 2009, an asset purchase

agreement was signed by AE and the cooperatives.

The combined purchase price was about $314 million for

102,000 meters and the electric system that served them. The

sale closed June 1, 2010. After one year of consolidated

operations, REC leaders say the acquisition is exceeding all

expectations and financial projections.

Co-op background

REC is a member-owned distribution utility formed in

1980 through the merger of Virginia Electric Cooperative, in

Bowling Green, and Northern Piedmont Electric Cooperative, in Culpeper, both of which were formed in the late

1930s. Prior to the acquisition of AE, the co-op provided

electrical service in 16 Virginia counties, a territory which has

now been expanded to 22 counties and more than 16,000

miles of power lines. Its service area ranges from the Blue

Ridge Mountains to the Chesapeake Bay.

REC has 407 employees and $414 million in annual

revenues. It serves a variety of residential, commercial and

industrial accounts.

SVEC was the first electric co-op chartered in Virginia (in

1936) and serves member-owners in eight Virginia counties.

It just celebrated its 75th anniversary in June. It, too, has a

broad range of accounts, including residential, independent

farms and large industrial members.

Including the AE acquisition, SVEC now maintains more

than 7,600 miles of power lines and employs 204 people. Its

annual revenue is expected to exceed $224 million from the

sale of 2.4 billion kilowatt hours of electrical power.

A perfect fit

Allegheny Energy’s geographic service area in Virginia

matched up almost perfectly with the service territories of

REC and SVEC, so the acquisition was considered a natural

extension for the two cooperatives. AE’s Virginia assets were

located in 12 counties in Virginia’s northwestern corner.

These included: 102,000 electric customers, 5,739 miles of

distribution lines, 315 miles of sub-transmission lines, 43

substations, 3 service centers, 103 employees, and numerous

trucks and other pieces of equipment.

The AE service density in Virginia was 16.85 meters per

mile of line. Retail revenues were 50.5 percent residential,

23.9 percent commercial, 25.1 percent industrial and 0.5

percent street lighting. Winter and summer peak demands

were about 680 megawatts.

Shortly after AE made the initial contact about a possible

sale, REC management and its board decided it wanted to

bid for the AE service area. It soon became obvious that

SVEC (an adjacent cooperative that bordered the AE

territory) also decided it was interested in bidding for the

assets.

Rather than bid competitively, the two cooperatives agreed

to work together to submit a joint bid to AE for the assets. In

the joint bid, the cooperatives proposed to split the assets as

equally as possible, based on meters, revenue, density and

potential growth. AE was agreeable to the joint bid proposal.

In the one month they had to prepare their bid, the

cooperatives had to evaluate AE’s Virginia assets, determine a

bid price and develop the bid proposal in accordance with the

requirements of the request for proposal. This had to be

done confidentially so that the AE Virginia work force would

not be adversely affected.

Co-ops see numerous benefits

For both REC and SVEC, the perceived benefits of the

acquisition included increased service density, significant

commercial and industrial load and the ability to spread fixed

costs over more meters. Other benefits included the ability to

leverage their existing information technology (IT) systems

without significant upgrades or changes, a system that

matched primary distribution voltages (12.5 and 34.5

kilovolts), a territory that fit “hand-in-glove” with the

existing territories and improved service and accessibility for

the newly acquired members.

All of these factors would result in reduced cost of service

for both the existing membership and the newly acquired

members.

The cooperatives decided that if they were going to spend

T
32 July/August 2011 / Rural Cooperatives

the funds to develop a bid, they wanted

it to be successful. This required that

the co-ops secure the assistance of

highly qualified consultants, advisors

and lawyers during a “sprint” to

prepare a valid proposal. In Virginia,

all utilities come under the purview of

the Virginia State Corporation

Commission (VSCC), which would

ultimately need to review and approve

the deal.

The cooperatives secured the

assistance of a firm called Power

Services Inc. to perform the system

evaluation and assist with the plan to

split the territory. JDG Consulting

LLC was brought on board to evaluate

the power costs and retail rate issues. The law firm of

McGuire Woods LLP was hired to prepare and present the

case to the VSCC, while the law firm of Orrick, Herrington

and Sutcliffe LLP performed the tasks related to all the

various acquisition documents, of which there were many

more than was initially anticipated. Corporate lawyers for all

parties were also heavily involved.

Old Dominion G&T co-op assists

Securing an adequate power supply for the proposed

acquisition territory was a major concern. Both cooperatives

have an “all requirements power supply contract” with Old

Dominion Electric Cooperative (ODEC), a generation and

transmission (G&T) cooperative that serves 11 cooperatives

in Virginia, Maryland and Delaware. ODEC provided

important assistance in reviewing the three power-supply

contracts that came with the acquisition. Additional

consultants were secured to provide financial advice,

procedural advice, environmental analysis and labor law

advice.

The cooperatives, along with the consultants and advisors,

began an extremely intense, three-week effort to evaluate the

system, determine a fair price for the assets and to prepare

the proposal, based on a multiple of the net-book value of the

assets. The proposal included how the two cooperatives

would split AE’s assets, making the bid much more

complicated for the seller.

Still, AE needed only a week before accepting the bid.

The co-ops were then asked to meet with AE immediately to

begin negotiating the asset purchase agreement (APA). Over

the next week, all three parties met frequently to hammer out

the APA, which all further actions and agreements were based

upon. On May 4, 2009, the document was finalized and

signed.

Unique features of agreement

One of the many unique aspects of the purchase

agreement was that it required each cooperative to have the

financial ability to purchase AE’s total Virginia distribution

assets if the other cooperative was unable to complete its half

of the purchase. That required each co-op to secure funding

guarantees for the entire purchase amount of about $350

million.

The timing of the acquisition coincided with the 2009

economic recession, so the ability of the co-ops to secure

financing was initially a concern for AE. However, both

cooperatives were financially sound with good management

and solid revenue, margins and balance sheets. Their regular

sources for funding (CoBank and the Cooperative Finance

Corporation) were eager to participate in the acquisition,

quickly offering loan-guarantee letters. The Rural Utilities

Service of USDA Rural Development (which provides major

funding for the electric cooperatives) also provided support

for the proposed acquisition. Thanks to their solid credit

records, funding turned out to be one of the easiest issues to

resolve for the co-ops, even during the recession.

The sale closing was dependent upon a number of

important “milestones.” These included:

• Conducting a detailed environmental audit and review;

• Performing due diligence on the system and its operations

and maintenance;

• The two cooperatives agreeing on the actual split of the

system and its assets;

• The migration of all the IT (information technology)

systems data (not just to one cooperative, but to two

cooperatives using different software and hardware);

• The development of operational budgets, along with rates

and tariffs;

• A legal review of all real estate and utility easements in

anticipation of re-recordation in each county and city;

• A case study and legal documents required by the VSCC,

and

• Review and approval by the VSCC (without which the sale

could not be completed).

‘E-room’ and team leaders facilitate effort

Early in the process, AE established an extensive “e-
room,” with restricted access via the Internet, in which were

placed all relevant documents, maps, engineering analysis and

other reports, financial information and other requested

information. This e-room — which was accessible by the

cooperatives, the consultants and advisors — allowed for

quick, efficient access to critical information.

Beginning with the bid preparations, each of the three

entities designated a key primary contact person responsible

for the overall coordination of all activities. These three

individuals were critical in keeping the acquisition process on

track and on time.

Team leaders and teams within each organization were

established for each of the numerous migration activities.

Team leaders reported to their respective primary contact

person. Teams dealt with environmental review, system

review, operations review, outage management, system

mapping, work management and substation review. They also

focused on equipment maintenance management, vehicle

review and transition, financial review, system

automation/supervisory control and data acquisition

(SCADA), consumer/member information and billing

transition, as well as all of the IT systems that support each

of these activities.

A project timeline of 12 to 18 months was developed,

based on the amount of work required to transition the IT

systems and secure VSCC approval.

The agreement allowed the cooperatives 60 days to

perform an environmental audit of the system and properties.

If environmental problems were discovered, AE would be

responsible for correcting or cleaning up any problems that

exceeded $1 million in costs. Should AE refuse to correct any

such problem, then the cooperatives could void the purchase

offer. The environmental audit revealed no significant issues

or concerns.

Territory split evenly

Work also began immediately to divide the territory

evenly between REC and SVEC. The cooperatives worked

with the consultants and AE over a period of three months to

establish the division of the territory. Geographic, political,

circuit and substation boundaries — as well as the concern

for overall system safety — were used to establish the

territory boundaries. Density and estimated revenues were

also taken into account in the evaluation.

Numerous scenarios were analyzed before the cooperatives

finally agreed on the division plan. The plan resulted in the

sharing of some substations and several 34.5 kilovolt subtransmission lines that interconnected other substations in

each territory. Plans were developed and agreements were

written defining the operations and maintenance

responsibilities of each cooperative regarding these shared

facilities.

Along a parallel path, the legal firms, in cooperation with

the primary contact person from each cooperative, were

developing the numerous agreements necessitated by the

purchase. These included agreements for borderline

customers, pole attachments, transmission line easements,

shared facilities, transition services, interim services, load and

frequency control services, and mutual aid.

The agreements required an extensive amount of time to

develop, review and agree upon. Several were not finalized

until the last week prior to the closing of the sale. Co-op

leaders advise that any other co-ops beginning a similar

acquisition process should be aware that this may be an area

of unanticipated, time-consuming effort.

Soon after the APA was signed, it became obvious that the

IT migration effort would be both extensive and expensive.

There were 15 or more IT systems that required migration

or modifications. With only a few exceptions, each of the

three parties used different software and platforms for the

various IT systems. Even with a 12- to 18-month timeline,

data mapping and migration became the major concern. The

IT migration effort would run right up to the final hours

before the closing.

Concurrently, one of the law firms — along with the

financial consultants and advisors — began working to

prepare the documentation required by the VSCC. This

effort included responding to numerous inquiries from

VSCC staff and the consultants that the VSCC hired to

review the case for them.

Employee meetings, public relations efforts

Once the cooperatives became fairly confident that an

approval would be obtained from the VSCC, they met with

the existing AE employees (who would be changing

employers to REC or SVEC) to review the cooperative

policies, wages, salaries and benefits. Some AE employees

were unionized, while REC is not, so it carefully explained

how it deals with all its employees and stressed its

commitment to open communication in all employee

dealings.

A public relations campaign was also begun to educate the

future consumers/members and businesses about the

cooperative model and benefits. These future

consumer/members had always been served by an investorowned utility, so they knew very little about electric

cooperatives.

The major concern by the future consumer/members was

the fear that they would be paying higher rates under

cooperative ownership. This was also a major concern of the

VSCC. AE’s rates in Virginia were artificially low as a result

of its agreement to a rate cap in the early 2000s, during

Virginia’s electric deregulation efforts.

With market-based rates, AE’s actual costs for energy to

serve its Virginia customers were higher than the dollar

amount recovered by the capped rates. The capped-rate

requirement was scheduled to expire in July 2011, at which

time AE’s energy rates were forecast to be even higher, due to

the anticipated market-based rates for the Virginia area.

The cooperatives, with ODEC’s assistance, determined

Rural Cooperatives / July/August 2011 33
34 July/August 2011 / Rural Cooperatives

that the ODEC blended energy rates would be equal to, or

lower, than the anticipated market rates to which AE would

be subjected. Therefore, it was believed that the cost of

power for the new territory should not be an issue.

VSCC finally agreed to a transition period that minimized

the rate increases to the new territory and spread the rate

changes over a period of four years. During the transition

period after the close of the sale, the consumer/members in

the new territory would see different (lower) rates than those

rates used with the legacy members of the cooperatives. Both

ODEC and AE contributed toward these reduced rates.

New service center needed

As a result of the territory split, REC needed to secure a

site and building for a new service center that would support

35,000 of the 50,000 future members. An existing district

service center would serve 15,000 of the new members. A

12.5-acre site with a recently constructed 50,000-square-foot

warehouse was located within the future service territory.

Design, approvals and construction were all expedited to

produce a complete district service center in six months.

About 25,000 square feet of offices were constructed

within the warehouse shell and the entire site was graded,

fenced and made ready for operations.

The VSCC set a March 2010 date for the public hearing.

All were surprised when the pleadings and testimony at the

hearing continued for five days. There was significant

testimony from both the VSCC consultant and then

responses and testimony from all three of the utilities

involved. About two months later, the VSCC approved the

sale, with conditions. The three parties agreed to the final

conditions, and a June 1, 2010, closing date was set.

The finishing touches were put on the remaining work.

AE employees were made job offers, in accordance with the

APA. Staffing decisions were finalized for the new district

office. IT systems migration was finalized using the actual

data files from AE.

Warehouses were stocked, arrangements were made to

transfer all of the vehicles and equipment titles as well as all

of the easements and real estate; spare parts and apparatus

were set up and funding was finalized in anticipation of

electronic transfer of the full purchase price to AE the

morning of the closing.

Consumer/member education and information, aided by

public relations consultants, continued to be a major focus.

Plans were finalized for the day of the takeover.

Closing the sale and the transitions within the new

territory went very smoothly. Now, one year after the closing,

things continue to go smoothly.

The need for significant capital improvements was

foreseen by both cooperatives and are underway as of this

writing. REC is replacing all meters in the new territory with

an Advanced Metering Infrastructure (AMI) using Aclara

technology and equipment. REC has used the Aclara AMI

system throughout its existing territory for more than nine

years.

All the AE substations are being upgraded with

supervisory control and data acquisition automation, which

provide the REC operations center immediate information

about the substations and control of them. Tie-lines between

the two cooperatives have been automated. For REC, three

large 12- to 14-person contract crews have begun the

extensive work of clearing some neglected rights of way on

REC’s newly acquired 3,000-plus miles of electrical lines.

This work alone has yielded significant reliability and power

quality improvements for the new members.

Lessons learned

As with any large project, there were some things that, if

the process were starting again, REC co-op leaders say they

would do differently or give more consideration. These

include:

• The very short bid response time did not allow sufficient

time to thoroughly review and inspect the physical system

and the right of way conditions. Additional inspection time

might have influenced the bid price strategy.

• The joint bid process required detailed negotiations

between the cooperatives. There were differing ideas in

some cases; therefore, compromises were required.

• Even though both cooperatives were USDA Rural Utilities

Service (RUS) borrowers and, as such, used RUS line

design standards, there were still significant differences in

opinion over how to operate the AE system, divide the

territory and upgrade the system.

• The real estate and easement review process was a lengthy,

significant and complicated task.

• The submittal to the VSCC was a three-party joint

submittal by REC, SVEC and AE. During the VSCC

testimony and hearings, this became awkward, because

there were times when the cooperatives and AE were not in

agreement regarding either a response or the possible

solution. This required negotiations between the joint

submitters and also with the VSCC and its staff.

This significant acquisition has been successful because of:

• Solid planning and preparation, using qualified professional

leadership and advisors,

• Teamwork;

• Hard work and careful attention to detail by each team and

team member;

• Clear and regular communication, listening to and then

working out differences in opinions;

• Listening to existing and future consumer/members’

concerns and responding promptly;

• Having a strong financial position from which to begin, and

• Being flexible enough to respond to unanticipated issues as

they arose.

The efforts of everyone involved made this purchase a

success for both cooperatives and all their consumer/

members. Both co-ops hope that their experience can serve as

a road map for other co-ops considering a similar move. ■
Dairy Month campaign

delivers 100,000 meals

Nearly 100,000 meals for the

hungry were made possible during June

Dairy Month, thanks to a nationwide

effort by Dairy Farmers of America Inc.

(DFA). Throughout the month, DFA

members and staff worked to deliver on

the cooperative’s core value of support

for community by helping fight hunger

across the United States.

The cooperative initially set out to

provide 50,000 meals to those in need

through a series of fundraisers,

volunteer events and local food drives,

the majority of which benefitted

affiliates of Feeding America, the

nation’s largest network of food banks.

Ultimately, DFA members and staff

doubled that goal, giving nearly 700

hours of volunteer time, donating more

than 7,700 pounds of food, sorting and

packaging another 65,000 pounds of

food during volunteer events, and

contributing more than $5,000 in cash

and grocery gift cards.

The campaign was part of a larger

DFA hunger and nutrition effort, which

encompasses policy advocacy and

legislative outreach, as well as

collaboration with federal and local

hunger and nutritional programs.

“Hunger is a serious problem

affecting a growing number of

Americans,” says Jackie Klippenstein,

DFA vice president of legislative and

industry affairs. “We believe that dairy

products can play an important role in

reversing the trend, and this national

campaign reflects DFA’s commitment to

the issue.”

As an example of the national effort,

DFA members and staff in DFA’s

Mountain Area organized Dairy Cares

Day, an event held simultaneously in

three cities: Broomfield, Colo., Twin

Falls, Idaho, and Salt Lake City, Utah.

Volunteers in each city spent the

morning sorting and packaging food, as

well as delivering meals to needy

people.

DFA members also filled reusable

grocery bags with nonperishable food

items, which their milk haulers assisted

Rural Cooperatives / July/August 2011 35

Newsline

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

Co-op developments, coast to coast

Dairy Farmers of America (DFA) Young Cooperator delegates Brian and Jilean Ercanbrack and their family deliver meals to the elderly on

behalf of the Utah Food Bank in Salt Lake City, Utah, as part of DFA’s Mountain Area Dairy Cares Day in June. Photo courtesy DFA
in collecting. Thanks in part to a

contribution by Western Dairy

Association, more than 7,000 pounds of

food items and dairy products were

donated.

Fund established for victims

of spring storms

Citing the need to help the longterm recovery of individuals and

cooperative businesses, the Cooperative

Development Foundation (CDF) has

launched the Spring Storms of 2011

Cooperative Recovery Fund.

“Regions throughout the continental

United States have been hit by a

devastating series of storms, tornadoes,

floods and wildfires,” says CDF

Executive Director Liz Bailey. “We’ve

all been horrified by the scenes from

Tuscaloosa and Joplin, and we’ve

watched in disbelief as massive flooding

has inundated both urban and rural

areas throughout the Mississippi River

Basin. The death and destruction that

has occurred is beyond belief and the

Cooperative Development Foundation

(CDF) applauds the resiliency of the

people affected and the extraordinary

work being done by government

response teams and disaster relief

agencies.”

Cooperatives have been an important

building block in bringing economic

development to many parts of this

multi-state area. Bailey says

cooperatives have raised incomes and

provided affordable services, providing

agricultural production infrastructure,

housing, access to credit and rural

utility services and access to markets for

crops. In many areas, much of this

infrastructure has been damaged or

destroyed, leaving cooperatives and

their members with few tools to rebuild

and help themselves recover from these

disasters.

“The establishment of this fund is all

about co-ops helping co-ops,” Bailey

says. “Our focus is on what will be

necessary for recovery once disaster

relief has met most immediate needs.”

Donations will be used to rebuild

cooperative businesses and new

cooperative development as part of the

long-term recovery. “We want to help

more people experience the benefits

that cooperatives can bring to their

lives.”

CDF will charge no administrative

fee for funds raised, ensuring that 100

percent of the funds donated reach the

people and organizations that need

help. A prime point of contact for CDF

in the South will be the Federation of

Southern Cooperatives/Land Assistance

Fund, which will help to identify the

needs of farmers and farm cooperatives

and help CDF coordinate this effort

with the wider cooperative community

in that area.

For more information, visit:

http://www.cdf.coop/the-spring-stormsof-2011-co-op-recovery-fund/, call:

(703) 302-8094, or write: Cooperative

Development Foundation at 2011

Crystal Drive, Suite 800, Arlington, VA

36 July/August 2011 / Rural Cooperatives

Members of the North Dakota Air National Guard build a sandbag wall to protect a home

along the Missouri River near Bismarck, N.D., in June. More than 1,300 North Dakota

National Guardsmen worked in the Bismarck-Mandan area to help hold back flood

waters. Below: Streets in many towns in North Dakota and Iowa were turned into streams

by the flood. Air Force Photos by Tech. Sgt. Oscar Sanchez
Rural Cooperatives / July/August 2011 37

22202. CDF also continues to accept

donations for its Tsunami Cooperative

Recovery Fund. Information on that

effort is also posted on the above

website.

CHS aiding disaster victims

CHS Inc. is contributing $1 million

to help North Dakota communities

impacted by recent severe flooding. In

addition, the CHS Foundation, an

independent, private foundation

supported by CHS Inc., is contributing

$50,000 to the American Red Cross to

aid in flood relief efforts. The company

is making an additional $50,000

corporate contribution for direct

support to the nearly two dozen CHS

employees whose homes have been

damaged by severe flooding in the

Minot, N.D., area.

“We recognize the significant

challenges faced by so many individuals

and communities impacted by the

recent flooding,” says Carl Casale, CHS

president and CEO. “We hope these

contributions will help those affected by

this disaster as they begin to recover

and restore their homes, farms and

businesses.”

CHS Foundation and CHS Inc.

employees have also contributed

$84,000 to help victims of the

earthquake and tsunami in Japan

through their donations to the

Cooperative Development Foundation

(see above news item) and the American

Red Cross. CHS has also made

donations to help victims of the

tornadoes that hit Alabama and

surrounding states in the spring, as have

many other cooperatives.

CoBank-U.S. AgBank merger

gets preliminary approval

The Farm Credit Administration

(FCA) has voted to grant preliminary

approval of the proposed plan of

merger between CoBank and U.S.

AgBank. FCA serves as the independent

regulator for both banks and the rest of

the Farm Credit System. The agency’s

three-member board voted

unanimously to grant preliminary

approval for the transaction, subject to

certain conditions.

The preliminary approval will enable

CoBank and U.S. AgBank to submit the

merger proposal to their stockholders

for a vote later this summer. “This is a

critical milestone in the merger

approval process,” says John Eisenhut,

chairman of the U.S. AgBank board of

directors.

Under statute and applicable

regulations, the FCA reviews merger

proposals involving Farm Credit

entities to ensure they don’t present

safety and soundness issues and also to

ensure that disclosure materials

prepared for stockholders adequately

communicate key aspects of the merger.

The FCA conditions for the merger

constitute post-merger requirements in

a number of areas, including

governance and reporting. The entire

body of conditions will be provided in

disclosure materials that will be sent to

stockholders in connection with the vote.

“[This] action by our regulator

reaffirms our belief that the merger will

create a stronger, more durable bank

that is better able to fulfill its mission

and serve its customers for generations

to come,” said Everett Dobrinski,

chairman of the CoBank board. “We

believe the conditions articulated by the

FCA can be accommodated by the

combined bank without significant

financial or operational impacts.”

If approved, the merged bank will

continue to do business under the

CoBank name and be headquartered in

Colorado. It will maintain U.S.

AgBank's existing presence and

operations in Wichita, Kan., and

Sacramento, Calif.

The combined bank would continue

to be organized and operate as a

cooperative, with eligible borrowers

earning cash and equity patronage

based on the amount of business they

do with the organization. Robert B.

Engel, CoBank’s president and CEO,

will remain as the chief executive of the

combined entity. Darryl Rhodes,

president and CEO of U.S. AgBank,

has announced he plans to retire

following the merger.

The banks planned to distribute

disclosure and voting materials to

stockholders in the first half of July,

with completed merger ballots due to

be returned by September 7.

West Virginia co-op marketing

natural Angus beef

Mountain State Natural Beef is a

new producers’ co-op in Doddridge

County, W.Va., which is marketing allnatural Angus beef nationally via its

website. The co-op was organized by

the Doddridge County Economic

Development Authority (DCEDA), in

cooperation with West Virginia

University Extension Service, the West

Virginia Department of Agriculture and

the U.S. Department of Agriculture.

The co-op says all participating

farmers must follow strict production

guidelines “in order to ensure 100

percent natural beef. The farms are

inspected and visited repeatedly for

quality assurance purposes.”

Ten Doddridge County farmers are

participating in the pilot project, which

will result in more than 16,000 pounds

of beef delivered for marketing in

August, according to the Parkersburg

News and Sentinel.

“The cows are primarily grass fed,

resulting in lean, healthy beef,” Melissa

Hinterer, DECDA director, told the

News and Sentinel. “Because we aren’t

feeding them as much corn, the beef is

higher in antioxidants,” she added. “We

pulled together local farmers who

would accept guidelines on how to raise

source-verified, all-natural Angus beef.

That means no antibiotics, no growth

hormones and no additives.” She says

the co-op has the potential to have a

favorable impact on both the local and

state economies.

“Because our farmers are working

together cooperatively, we don’t have a

‘meat shop’ or a frozen grocery store

that your beef would be shipped from,”

the co-op says on its website:

http://mountainstatenatural.com.

“Instead, we are shipping beef directly

from the processing facility to your

home.” The co-op is selling bundled

assortments of various beef cuts in

different weights.
38 July/August 2011 / Rural Cooperatives

Co-ops join forces to promote

healthy school lunches

Organic Valley, the nation’s oldest

organic farmer-owned cooperative, and

the National Cooperative Grocers

Association (NCGA), a business services

cooperative serving 120 consumerowned food co-ops nationwide, are

joining forces to help improve school

lunches. They will launch a national

promotion this fall to support the

National Farm to School Network, a

nonprofit connecting schools and local

farms to help serve healthier meals in

school cafeterias, improve student

nutrition and to support local and

regional farmers.

The national promotion, which takes

place Sept. 1 through Sept. 30, will

trigger a $1 donation to the National

Farm to School Network with every

purchase of any Organic Valley cheese,

among other promotional efforts.

“Today more than ever, our children

need better school lunches,” says

Anupama Joshi, director of the National

Farm to School Network. “We believe

the most nutritious and delicious food

comes straight from local and regional

farmers. We appreciate the cooperative

thinking of two leaders, Organic Valley

and NCGA, in supporting our

mission.”

GROWMARK finalizes Select

Seed acquisition

Regional cooperative GROWMARK

Inc. has finalized the acquisition of the

assets of Select Seed, Camden, Ind.

Purchase terms were not disclosed.

Select Seed will continue to operate

as an independent brand within the

GROWMARK family, and Kevin

Eggerling will continue to manage the

company’s operations. Select Seed

serves more than 450 growers in

Indiana, Ohio, Illinois, Michigan and

Kentucky through direct sales and a

network of more than 100 farmer

dealers.

“Becoming part of the

GROWMARK family of brands will

enable Select Seed to continue to offer

growers high-performing seed corn

along with access to an even broader

range of agricultural products and

services to improve farm profitability,”

says Eggerling.

“Select Seed and GROWMARK

share a similar history of focusing on

providing progressive growers

exceptional products to increase their

productivity and profitability,” Ron

Milby, GROWMARK Seed Division

manager, says.

GROWMARK Inc. provides

agriculture-related products and

services and grain marketing in 31

states and in Ontario, Canada. The coop owns the FS trademark, which is

used by affiliated member cooperatives.

Binder new CEO at FCCServices

FCCServices, a Denver-based

provider of business consulting services

for the Farm Credit System and other

clients, has named Scott Binder as its

president and CEO, effective Sept. 1.

Binder most recently served as senior

vice president for the Mile High Region

of Comcast.

“Scott brings a wealth of experience,

ingenuity and work ethic to

FCCServices,” says Chairman Loyd

Rutherford. “FCCServices helps its

clients achieve greater success by

providing services focused on leadership

and operational excellence — both areas

where Scott has a proven track record

and can help continue a legacy of

profitable growth.”

Prior to leading Colorado and New

Mexico operations for Comcast, Binder

served in leadership roles in Kentucky,

California and Wisconsin with an

emphasis in marketing, finance, human

resources, learning and leadership

development, customer care and

technical operations. Binder currently

serves as board chairman of the Mile

High United Way, is a board member

of the Denver Public Schools

Foundation and recently served on the

boards of the Metro Denver Sports

Commission and Denver Metro

Chamber of Commerce.

Retiring president and CEO Roger

Shaffer has been with the Farm Credit

System for 28 years and served in his

current capacity for the past eight years.

Under his leadership, the company saw

unprecedented revenue growth and an

expanded suite of management

consulting service offerings.

Grainland Co-op members

approve joining CHS

Members of Grainland Cooperative,

Holyoke, Colo., have voted to approve

a merger with CHS Inc. The proposal

passed with 67 percent approval. Once

finalized, management will begin

planning for enhanced grain shuttleloading capabilities.

“We are confident this decision will

allow us to accomplish things for our

patrons and members that we might not

be able to do otherwise,” says Rick

Unrein, Grainland Cooperative general

manager. “We need to keep up with our

customers’ growing needs and

expectations.”

“The combination is a good match

for both companies,” says John

McEnroe, senior vice president of

CHS. “And it aligns with the CHS core

commitment to always return value to

its member-owners.”

The Colorado co-op, which has

seven locations, will continue to operate

under the Grainland name. It provides

agronomy, feed, grain and energy

products and services.

In other CHS news, the co-op has

sold its shares in Multigrain S.A., a

Brazilian joint venture company it has

owned with PMG Trading and Mitsui

& Co. Ltd., to Mitsui & Co. Ltd.,

Japan.

Hazen addresses

White House Councils

NCBA President and CEO Paul

Hazen participated in a round table

discussion on economic development

and the economy with President

Obama’s top business and economic

councils on June 2. Hazen was one of

only a few presenters to address

representatives from the President's

Council on Jobs and Competitiveness,

the Council of Economic Advisors, the

National Economic Council, the White

House Business Council, the Office of

Public Engagement and the Office of
Rural Cooperatives / July/August 2011 39

Science and Technology Policy, as well

as representatives from the U.S. Departments of Labor and the Treasury.

In his remarks, Hazen stressed the

important role that cooperatives play in

the U.S. economy as businesses that pay

taxes, hire workers, provide benefits and

create wealth in the communities where

they operate. “Cooperatives are focused

on the triple bottom line: economic

success, social progress, and

environmental stewardship. As

businesses, they have business needs. In

these economic times, now more than

ever, cooperatives need access to capital

to grow and to create jobs,” Hazen said

The American Sustainable Business

Council hosted the meeting to

emphasize innovative business

strategies. Hazen was one of three

presenters who discussed cooperative

enterprise. Other organizations

presenting on cooperative business

included the Democracy Collaborative

and Local Government Federal Credit

Union. More than 25 business and

economic development organizations

attended the meeting.

In other news, at the recent

Consumer Cooperative Management

Association conference in San Diego,

Calif., NCBA Vice President of Public

Affairs and Member Services Adam

Schwartz helped lead a workshop on

ways that food cooperatives can market

their “cooperative difference” during

the International Year of Cooperatives

(IYC).

NCBA is creating a communications

toolkit for cooperatives to help promote

the IYC and their own cooperatives.

The goal is to create content for use at

the local level that amplifies messages in

use at the national and global levels.

NCBA is planning to deliver the toolkit

in August. Cooperatives that would like

NCBA to deliver a workshop on

planning for the International Year of

Cooperatives can contact IYC

Coordinator Eric DeLuca at:

edeluca@ncba.coop.

Accelerated Genetics honored

for export success

Accelerated Genetics, Baraboo, Wis.,

is a recipient of the 2011 Governor’s

Export Achievement Award. Governor

Scott Walker presented the annual

Export Achievement Awards in May to

recognize firms and organizations that

have achieved extraordinary results in

international sales or have contributed

to Wisconsin’s increased ability to

compete in a global market. Walker

says the companies selected serve as

excellent examples of how to succeed in

international markets and proved they

could prosper despite the ups and

downs of the global economy.

Accelerated Genetics — which does

half of its business outside the United

States — was recognized for being a top

2011 inductees into the Cooperative Hall of Fame are (from left): Gloria and Stanley Kuehn, who spent 25 years working internationally with

small farmers to grow non-traditional and organic crops; Shirley Sherrod, a veteran of the civil rights movement who found ways to achieve

economic justice and rural land ownership for small and lower-income farmers through collective farming and cooperative development;

Noel Estenson, who, as CEO of Cenex, joined forces with Harvest States Cooperative, creating CHS Inc., the nation’s largest cooperative;

Daniel A. Mica, who served for 14 years as president and CEO of the Credit Union National Association (CUNA), a period of significant

accomplishment for the credit union movement. Photo Courtesy Cooperative Development Foundation
40 July/August 2011 / Rural Cooperatives

agricultural exporter. Award criteria

include degree of export-related

growth, innovative techniques and

approaches that resulted in the

company's success, and demonstration

of extra effort in capturing worldwide

markets.

The co-op, which began international sales in 1957, constructed a 24-

stall European Union Qualified Sire

Isolation facility in 2008 and has added

staff members who are native to various

countries it operates in to help “cross

the bridge into the global community.”

During the past few years, Accelerated

Genetics says it has initiated cuttingedge marketing techniques to promote

the co-op’s sires.

“Our tremendous growth in

international sales is a result of many

things, including our international sales

teams’ efforts, the respect that

international dairy and beef producers

have for our genetics program and the

great superiority of the American beef

and dairy genetics, which enhance our

efforts to meet the needs of many

diverse and evolving markets around

the world," says Gary Fassett, the coop’s vice president of sales and

communication. The co-op is

celebrating its 70th anniversary this

year with the theme: “Celebrating 70

Years of Innovation.’”

“International sales have enabled

Accelerated Genetics to better serve our

membership, including their needs for

competitive prices, superior genetics, a

complete line of animal health

products, and providing reproduction

management programs along with other

services,” Fassett adds.

Dairy co-op CEO

sentenced for fraud

Richard Ghilarducci, former CEO of

Humboldt Creamery in Northern

California, was sentenced in May to 30

months in prison and ordered to pay $7

million in restitution for loan fraud in a

case that led to the bankruptcy and

eventual sale of the co-op. Ghilarducci

had previously pled guilty to the

charges, which were filed following a

year-long investigation by the FBI.

U.S. Attorney Melinda Haag

announced that under a plea agreement,

Ghilarducci admitted that he falsified

numbers in the co-op’s yearly financial

statements from 2005 to 2008 to

prevent lenders from learning the true

financial condition of the creamery.

Specifically, he inflated the value of the

creamery’s accounts receivable and

inventory in various financial statements

prepared for and submitted to CoBank.

Ultimately, Humboldt Creamery

defaulted on its loan, causing a loss of

between $7 million to $20 million,

Haag said in a press release issued by

the U.S. District Court for Northern

California.

Humboldt Creamery, near Ferndale,

Calif., was formed in 1929. It had

converted to a producer-owned LLC by

the time of the sale, although 75

percent was owned by the cooperative

of local dairy farmers. Many people

from the local community worked for,

invested in, or were affiliated with the

creamery.

Ghilarducci had worked for the

creamery for more than 20 years,

serving as its Chief Financial Officer

and then CEO. Shortly after

Ghilarducci’s fraud was discovered, the

creamery declared bankruptcy.

“The unraveling of the creamery has

had a profound impact on the

community,” Haag said. “This

prosecution holds Mr. Ghilarducci

accountable for defrauding the bank

and the damage his actions caused.”

U.S. District Court Judge Charles R.

Breyer also sentenced the defendant to

a three-year period of supervised

release. Ghilarducci began serving his

sentence on May 20. The creamery was

purchased by Foster Farms, Modesto,

Calif., one of the state’s largest privately

held dairy food companies.

USDA accepting

VAPG applications

Deputy Agriculture Secretary

Kathleen Merrigan has announced that

applications are being accepted for

grants to provide economic assistance

to independent producers, farmer and

rancher cooperatives and agricultural

producer groups through the ValueAdded Producer Grant Program

(VAPG).

“By creating value-added products,

farmers and ranchers can expand

economic opportunities, create jobs and

keep wealth in rural communities,”

Merrigan says. “These funding

opportunities will promote business

expansion and entrepreneurship by

helping local businesses gain access to

capital, technical assistance and new

markets for their products and

services.”

VAPGs may be used for feasibility

studies or business plans, working

capital for marketing value-added

agricultural products and for farmbased renewable energy projects.

Eligible applicants include independent

producers, farmer and rancher

cooperatives and other agricultural

producer groups. Value-added products

are created when a producer increases

the consumer value of an agricultural

commodity in the production or

processing stage.

For example, in Caroline County,

Md., Richard and Wenfei Uva, owners

of Seaberry Farm, received a VAPG to

expand their processing capacity to

produce beach plum jams and jellies,

juice and puree for retail and wholesale

markets. The Beach plum is a native

fruiting shrub that grows in coastal sand

dunes from southern Maine to

Maryland. Seaberry Farm planted three

acres of Beach plum in 2006 and will

double the acreage in 2011.

San Miguel Produce, in Oxnard,

Calif., is owned by Roy Nishimori and

Jan Berk, independent producers of

organic and conventional cooking

greens. In 2009, they received a VAPG

for socially disadvantaged farmers and

ranchers. The grant enabled San

Miguel Produce to expand markets for

their “Cut ‘n Clean Green” products

and increase revenues.

The application deadline is August

29, 2011. For further details about

eligibility rules and application

procedures, see the June 28, 2011,

Federal Register. ■

meal, in its pork. From birth, hogs must

never receive antibiotics, a stricter

standard than pork labeled “natural,”

which permits no antibiotics 30 days

prior to slaughter. Hogs must have

continuous outdoor access, wallows,

shaded areas and corn stalks for

bedding.

Other rules pertain to how hogs are

unloaded at the packing plant, which

can be problematic when dealing with

hogs that have never seen a concrete

floor. Experienced cooperative

members share information on

standards and how to meet them,

especially with new members with less

experience in pasture-based hog

production.

Manager coordinates efforts

The cooperative’s management is

carried out by Jones, NC NHGA’s

president, who acts as coordinator

between growers, the packing plant and

buyers. It can be a monumental task

pulling together enough hogs from

among the membership that meet the

weight ranges demanded by buyers.

Smaller growers, for example, may have

only a few hogs in the weight range

ready for slaughter in a given week.

Jones contacts other board members

occasionally if problems arise. His wife,

Jessica, does the billing for growers and

is paid for her time. There are no other

paid employees. At this time, there are

no plans to hire a part-time manager,

although the topic has been discussed.

The current fee of $1 per head, plus

$250 per member per year, may not be

sufficient to cover the cost of employing

a manager. If the day comes when a

part-time manager is hired, Jones says

the co-op will need someone who

knows the industry to help ensure the

cooperative’s continued viability.

Since the membership is scattered

over six counties, holding member

meetings can be difficult. Even so, until

recently there have been monthly

meetings held in conjunction with the

Niche Pork Grower School session held

at Duplin County Extension office.

Members vote on accepting new buyers

and other cooperative issues. Some have

been turned away because they appear

more likely to be short-term buyers.

The co-op’s future

Jones foresees an expanding market

for the cooperative’s pork, with little

effort needed from the cooperative to

obtain new buyers. He thinks the

additional hogs needed to meet

increasing demand will come from

existing members who will increase

their operations, as opposed to adding

new members to the cooperative.

Only five new members have been

added to the co-op during the past two

years. New members will always be

welcome, Jones says, if they are willing

to work hard to meet the demanding

standards of pasture-based hog

production.

Author’s note: The author wishes to

thank Bruce Pleasant, director of Business

and Cooperative Programs, USDA Rural

Development/North Carolina, and Michelle

Eley, Ph.D., North Carolina Agricultural

and Technical Cooperative Extension

Program for their input to this article. ■

and increase market share of locally grown goods in the

region.

The program is open to farms in the greater WinstonSalem area. Pilot Mountain Pride gives 80 percent of its

revenue back to farmers. The other 20 percent goes to

supplies, labor and other costs.

GAP training required

An important part of the PMP project is that, to

participate, all growers must receive Good Agricultural

Practices (GAP) training on food safety handling and

harvesting techniques. This training gives growers logical

guidance in implementing best management practices that

will help to reduce the risks of microbial contamination of

fruits and vegetables.

GAP training includes worker hygiene and health, proper

use of manure and protecting water quality throughout the

production and harvesting process. Growers, packers and

shippers are urged to take a proactive role in minimizing

food safety hazards potentially associated with fresh produce.

Being aware of, and addressing, the common risk factors

outlined in the GAP training results in a more effective,

cohesive response to emerging concerns about the microbial

safety of fresh fruits and vegetables. Furthermore, PMP

growers also encourage the adoption of safe practices by their

partners along the farm-to-table food chain. This includes

distributors, exporters, importers, retailers, producer

transporters, food service operators and consumers.

Early returns encouraging

PMP managers initially expected sales last year of around

$30,000 to $50,000, but sales dramatically exceeded

expectations after PMP partnered with Lowes to sell

members’ local produce. That deal resulted in gross sales of

about $250,000 in 2010. Sales for this season are ongoing,

but the “buy local food” movement seems to be going strong

in the greater Winston-Salem area, thanks in big part to Pilot

Mountain Pride.

“This is a new beginning,” Pilot Mountain Mayor Earl

Sheppard said of PMP. “I’m excited because I’m a farmer.

This is going to be a new beginning for our young farmers.”

To learn more about Pilot Mountain Pride, visit:

http://pilotmountainpride.com, call (336) 444-8000 or e-mail

sales@pilotmountainpride.com. ■

Pilot Mountain Pride

continued from page 10

Hogs on the Range

continued from page 13

42 July/August 2011 / Rural Cooperatives

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