FARMER COOPERATIVES IN THE UNITED STATES

COOPERATIVE INFORMATION REPORT 1

SECTION 20

U.S. DEPARTMENT OF AGRICULTl!RE

AGRICULTURAL COOPERATIVE SERVICE
CONTENTS

Building Materials.............................................................................

Types and Farm Expenditures.. .....................................................

Retailing ........................................................................................

Wholesaling and Inter-regional Purchasing ...................................

Milling and Timber Production.....................................................

Prefabricating and Manufacturing ................................................

Examples of Operations................................................................

Benefits .........................................................................................

Challenges Ahead .........................................................................

Containers and Packaging Supplies ..................................................

Types and Farm Expenditures.......................................................

Retailing ........................................................................................

Wholesaling ..................................................................................

Fabricating and Manufacturing.. ...................................................

Benefits .........................................................................................

Challenges Ahead .........................................................................

Farm Machinery ................................................................................

Types and Farm Expenditures.......................................................

Retailing ........................................................................................

Local Services...............................................................................

Wholesaling ..................................................................................

Assembling and Manufacturing.. ..................................................

Benefits.. .......................................................................................

Challenges Ahead .........................................................................

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Farmstead, Home, and Plant Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Types and Farm Expenditures.. ..................................................... 26

Retailing ........................................................................................27

Wholesaling and Interregional Purchasing ................................... 29

Assembling and Manufacturing .................................................... 32

Benefits .........................................................................................33

Challenges Ahead ......................................................................... 34

Food and Related Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Retailing ........................................................................................ 34

Wholesaling and Intermgional Purchasing ................................... 36

Processing ..................................................................................... 37

Benefits .........................................................................................37

Challenges Ahead ......................................................................... 37

Unclassified and Other Farm and Home Supplies

and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Types and Farm Expenditures....................................................... 38

Retailing ........................................................................................ 38

Wholesaling and Interregional Purchasing ................................... 39

Manufacturing.. .............................................................................42

Benefits .........................................................................................43

Challenges Ahead ......................................................................... 43

Cooperative Information Report 1, Section 20 March 1989

. . . III
In the 1940’s farmers tried manufacturing tractors through the

National Farm Machinery Cooperative. The venture is now history.

This Co-op tractor is owned by Tennessee Farmers Cooperative,

LaVergne; on display in the Murfreesboro historic equipment park.
- Cooperative

Supply and

Equipment

Operations

In 1986, about 4,500 farmer cooperatives reported net sales of

about $2.4 billion of general farm and home supplies and equipment,

exclusive of sales of feed, seed, fertilizer, pesticides, and petroleum

products.

Many cooperatives classify their sales of general farm and home

supplies and equipment into the following six types: building materials;

containers; farm machinery; farmstead, home, and plant equipment; food;

and unclassified or other supplies. Some cooperatives, however, include

one or more of these types. under “unclassified or other” sales. This

category also may include hardware, lawn and garden, recreation, and

the like, and it accounts for about one-half the total.

The number reporting sales of these major types and their net volume in 1986 were:

Sales category

Cooperatives

handling

Net sales

Building materials

Containers and packaging supplies

Farm machinery and farmstead

equipment

Food and related services

Unclassified or other supplies

Total

Number Million dollars

1,459.5

4,500 2,426.1

1
Building Materials

Types and Farm Expenditures

Farmers buy many different kinds of building materials, including

builders’ hardware, paint, fencing, grain storage bins, silos, plumbing

supplies, and the like. A major portion is for constructing and repairing

buildings used in farm production; the remainder is for farm homes and

is considered a family living expense.

In 1986, farmers spent about $4.6 billion for building and fencing

materials, labor, and services classified into the following types: new

building construction and remodeling, $3.4 billion; building maintenance

and repairs, $530 million; fencing materials, $366 million; feedlots and

bunk feeders, $296 million; and other improvements, $53 million. (These

data included an undetermined amount of labor and services and landlord

expenses but did not include expenditures for land improvements, farm

water facilities, irrigation improvements, lagoons, and holding ponds.)

Retailing

Many early grain-marketing cooperatives handled fencing and

roofing materials. One was the Rockwell Cooperative Society of Iowa,

which began handling lumber and coal in 1893 and acquired a lumberyard

Table l-Cooperatives reporting net sales of building materials

in specified years

Year

Cooperatives

reported handling

Reported net sales of

building materials’

1951-52 790 40.3

1955-56 1,458 79.1

(1960-61) 1,656 91.4

1965-66 1,987 127.2

1970-7 1 2,202 160.1

1975-76 2,382 326.4

1979 2,243 486.7

1980 2,107 516.6

1983 1,900 408.8

1986 1,746 371.5

Number Million dollars

‘Excludes intercooperative busmess. In addttion, “general or other” unclassified sales contained a considerable

amount of building materials (table 5).

2
about 10 years later. In the 1930’s, a number of farm supply cooperatives

in Indiana and other Midwestern States acquired or built lumberyards.

In 1943, Farmers Union Grain Terminal Association, St. Paul, MN,

acquired a group of local lumberyards with the purchase of a line of

elevators in the North Central States. In the 1950’s and early 1960’s,

cooperatives in several areas added planning and construction services

for farmers.

The number of cooperatives reporting separate building supply sales

increased to 1,160 in 1952-53, with net sales of $21.4 million. The peak

number was 2,382 in 1975-76. In 1986, 1,746 cooperatives reported net

sales of building materials totaling $371.5 million (table 1). This was

about 10 percent of the total all farmers spent for these materials and

labor. However, 3,570 cooperatives reported sales of unclassified and

other supplies totaling about $1.5 billion, which included considerable

amounts of fencing, roofing, and other building supplies.

The States, mostly in the midwest, accounted for nearly two-thirds

of cooperative building supply sales in 1986. These States were Iowa,

Minnesota, North Dakota, Indiana, Tennessee, Nebraska, New York,

Pennsylvania, Illinois, and Kansas.

A number of cooperatives provide planning, designing, and cost

estimating services; send foremen to supervise farmers and others in

construction; or contract to put up a building with their own crews.

Two regional cooperatives have a leasing service and one provides

field specialists to help farmers determine the best type of buildings for

their operations.

Wholesaling and Interregional Purchasing

Wholesaling

Over the years, regional cooperatives have supplied at wholesale

an increasing amount of building materials, but not many have made it

a major activity.

In 1986, 15 regional wholesale cooperatives reported about $119

million of intercooperative sales of building supplies to local retail

cooperatives. This was a smaller proportion of intercooperative volume

than for many other supplies, because three large regional cooperatives

sell much of their building materials through their own retail outlets, one

also sells a considerable amount to building contractors, and another sells

most of its lumber to the building trade.

The leading cooperatives wholesaling building supplies are Great

Plains Supply Division of Harvest States Cooperatives, St. Paul, MN;

3
Fruit Growers Supply Company, (FGS), Van Nuys, CA; Indiana Farm

Bureau Cooperative Association (IFBCA), Indianapolis: Agway Inc.,

Syracuse, NY; Southern States Cooperative, Richmond, VA; and

Farmland Industries, Kansas City, MO.

Interregional Purchasing

About 39 regional cooperatives in the United States and Canada

own Universal Cooperatives, Minneapolis, MN, a national farm supply

purchasing association. Universal supplies about $4 million of building

supplies, including aluminum roofing/siding, paint, and builders’

hardware.

For more than 10 years, beginning in 1951-52, it had a college

conference board of agricultural engineers the staff could consult to

develop complete building plans, including specifications for insulation

and ventilation in various climate zones of the United States.

Milling and Timber Production

Fruit Growers Supply Company (FGS) was organized in 1907 by

members of California Fruit Growers Exchange (now Sunkist Growers,

Inc.) to purchase box shook (lumber parts) requirements for packinghouses in California and Arizona. In 1910, FGS acquired a lumber mill

and some timber properties. In 197 1, FGS bought additional timberlands

in northern California and built a second mill and box factory. In 1944,

the company bought additional timberlands and other sawmill facilities.

As the industry changed to shipping citrus in fiber or corrugated containers, FGS began to sell or shut down its sawmill facilities. The first

mill was sold in 1956, the second in 1963, and the last was shut down

in 1973. FGS has no lumber mills at present, but does own a subsidiary

company that remanufactures wooden pallets for sunkist and other agricultural and industrial users in southern California. FGS also owns about

340,000 acres of timberland in northern California, selling timber or logs

to sawmills in that region.

FGS’s annual timber sales recently have ranged from $100 to 150

million, with $120 million in 1986. Thus, its timber operations have become primarily a log sales operation, rather than a box-shook procurement operation for its members. 1

‘In 1980, North Mississippi Paper Mill, Granada, MS, was formed jointly by

a forest owners cooperative as a means of marketing members’ pulpwood and

by a company of publishers as a means of reducing paper costs.

4
The paper mill in N. Granada, MS, is a wholly owned subsidiary

of Mississippi Chemical and will operate as Newsprint South Inc. It will

be one of the first new paper mills to, use Northern Mississippi pines

to manufacture high quality newsprint for major publishers in the United

States. It will employ 250 people when operations begin in 1989 and will

provide a market for Northern Mississippi pine farmers.

During World War II, two regional supply cooperatives bought

lumber mills and a shingle mill to help supply member locals during

shortages. Later, as supplies became more available to locals, the mills

were sold. Consumers Cooperative Association, (now Farm Land Industries, Inc.), Kansas City, MO, owned a mill in Swisshome, OR, and

Indiana Farm Bureau Cooperative Association, Indianapolis, owned a

shingle mill in Kentucky.

Prefabricating and Manufacturing

Great Plains Supply Division of Harvest States Cooperatives

manufactured modular homes at 40 locations, roof trusses at 8, floor

trusses at 1, and livestock confinement buildings at 6 locations in the

North Central States-until closing the modular home division late in

1986. Agway manufactures building trusses at one of its three fabrication centers in the Northeast.

In 1959, Farmland Industries, Inc. acquired a steel-building plant

in Hutchinson, KS. Farmland now manufactures grain-storage bins, gates,

and other steel products. In 1979, a record 7,255 farm buildings were

sold. Farmland also constructs commercial grain storage facilities. During

1979, about 320 facilities were installed. The steel building plant in Hutchinson, KS, was sold to BEHLEN Manufacturing Co. of Columbus, NE,

in October 1986. Farmland’s sales of buildings and materials in 1986

exceeded $10 million. The cooperative also has operated a paintmanufacturing plant for many years. Universal Cooperatives is the only

other cooperative that manufactures paint.

In 1980, GROWMARK, Inc., Bloomington, IL, a federated

regional cooperative, entered the farm-building manufacturing business,

with purchase of a plant in Washington, IA. It produces all components,

including roof trusses, for GROWMARK wood frame, general purpose,

and livestock confinement buildings. Total sales of building supplies

exceeded $5 million in 1986.

Also in 1980, Land O’Lakes, Inc., Minneapolis, MN, a regional

cooperative reported working with Universal Cooperatives in developing

a revolutionary concept in building design. Preconstructed building panels

8 feet high and up to 50 feet long were made available for on-farm facility

5

Building materials and containers are an important activity for

cooperatives, ranging from fruit and vegetable cans, stock tanks, and

steel buildings. A major supplier is the interregional Universal

Cooperatives, Inc., Minneapolis. At the local or retail level are cooperatives like the Hamilton Farm Bureau Co-op, Hamilton, MI, that

carries a wide range of building materials and even builds truss

rafters for area home builders.

7
construction. Land O’Lakes also introduced its newly modified, openfront building, featuring labor-saving construction and quality panel workmanship, to midwestern pork producers. Total sales of building materials

exceeded $3 million in 1980. Building design and construction was discontinued in 1981 in restructuring operations with Midland Cooperatives.

Examples of Operations

Great Plains Supply Division of Harvest States Cooperative,

St. Paul, MN

In 1943, Farmers Union Grain Terminal Association (GTA)

acquired 38 lumberyards in purchasing a line elevator company serving

several North Central States. These were operated by a separate

centralized cooperative, Great Plains Supply Company, managed by GTA

until it became the regional’s Great Plains Supply (GPS) Division in 1976.

It provides retail sales to both farmers and nonfarmer patrons and

wholesale sales to builders and commercial firms.

In May 1982, Great Plains operated 101 lumberyards-29 in North

Dakota, 26 in Iowa, 22 in Minnesota, 10 each in South Dakota and

Nebraska, 3 in Montana, and 1 in Illinois. By 1986 lumberyards were

reduced to 35 with retail sales of $40 million. Patronage refunds have

ranged from about 0.25 to 2 percent of sales. More than 100,000 patrons

now use its retail stores and construction centers each year. GPS

construction centers provide several services-engineering, design,

manufacturing, and contracting-while selling building and homeremodeling materials.

GPS has been a leader in rural construction of specialized farmstead

buildings and of other buildings ranging from garages and apartments

to commercial offices. Great Plains employs up to 250 carpenters during

the busy season, but also works with self-employed contractors in the

construction of diversified buildings to be sure that equality is maintained,

and that the work is done in an efficient manner to hold down costs. Great

Plains can provide all of the sheltering needs that a farmer has except

for all-steel grain storage buildings and grain handling equipment which

are provided by other cooperative suppliers. Except for the all-steel

buildings, Great Plains provides shelter for farm families, livestock, hay,

machinery and other types of wood frame grain storage.

GPS sold 582 modular homes in 1979, but the number declined

in 1980 and 1981. It operated a modular home-building center in Kensett,

IA, but closed the cneter in 1986.. Also in 1980, GPS built 20 townhouse

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units in the Williston, ND, area.

GPS yards offer a home buyer three construction choices, “stickbuilt” on-site, rebuilt panels completed on site, and a home built at the

construction center and moved to the site. GPS continually examines new

home-building techniques to provide energy-saving, cost-cutting, and

quality-improving features.

In 1980, GPS began a program of special-purpose, farm-building

leasing to serve the farm market further. GPS says this program has two

advantages for young, beginning, or tenant farmers: (1) Some buildings

can be easily moved, from building site to farm site, or from one farm

to another; and (2) owners can avoid costly financing and create a cash

flow for other purposes.

In 198 1, GPS concentrated more on selling and promoting materials

for building additions, repair, and remodeling. As part of its long-range

plan, it trained 12 livestock-confinement specialists to help farmers

determine through a cash-flow analysis the kind of building that would

produce a profit margin. GPS continued constructing multifamily units

in North Dakota and acquired land for additional units there and in

Montana. It also began a certification process in which only approved

lumberyards would specialize in certain types of construction or sales

rather than encourage all yards to be total building and supply centers.

Indiana Farm Bureau Cooperative Association (IFBCA) and

Members

Since organization of countywide cooperatives in Indiana in the

1920’s and the wholesale cooperative in 1927, IFBCA has sold building

supplies. In 198 1, they had 17 local lumberyards.

Working in close cooperation with IFBCA, most yards provide

three types of services to patrons: (1) designing, blueprinting, and cost

estimating for a proposed building; (2) providing a foreman to work with

the owner and neighbors or other local laborers in erecting a building;

and (3) constructing a building to an owner’s specifications with the

cooperative’s own construction crew.

Sales of building supplies in Indiana by local cooperatives in 1979

totaled about $33 million. Wholesale volume by IFBCA was about $13

million. When retail markup and transportation charges are added, this

volume probably represents nearly two-thirds of retail sales.

During World War II, IFBCA found it necessary to manufacture

building material to supply members’ needs. It bought a shingle mill and

lumber mill in Kentucky, which later were sold after supplies became

available from industry sources.

9
Agway Inc., Syracuse, NY

The three regional cooperatives that merged to form Agway in

1964 had sold various types of building supplies since their formation

in 1918, 1920, and 1934.2 During the first 10 years of Agway’s operation,

its building department constructed about 6,000 buildings worth about $75

million. They ranged in size from small utility buildings to large, free-stall dairy

buildings with milking parlors.

During this period, several factors changed the design of farm

buildings in the Northeast. Farmers were substituting capital for labor,

herds and flocks were becoming larger, and farmers sought to improve

production efficiency. New housing concepts for cattle and poultry, new

milking and egg-collecting systems, new feeding and storage devices,

and new manure-handling equipment all helped shape the look of contemporary farm buildings. Milking parlors underwent several changes-from

walk-through and side-opening stall parlors, to the herringbone system.

In the early 1970’s, Agway opened three fabrication centers. They

are stocking and reload centers with one a manufacturing operation where

roof and floor building trusses up to 60 feet long can be assembled.

Agway’s truck fleet, including truss flatbed trailers and special unloading

equipment, deliver materials to farm-building sites.

About 1970, Agway began leasing farm buildings constructed by

its building department. This service is handled by its finance subsidiary,

Telmark.

During 1979, Agway introduced a new timber-column, packagedbuilding program through 125 retail locations. The program provided

blueprints, specifications, planning, and building materials, with farmers

furnishing the labor. During the spring of 1980, Agway added a new

line of farm storage and utility buildings with emphasis on minimum costs.

From 1974 to 1982, Agway constructed 9,432 buildings valued

at $138 million. Annual sales of building supplies and automation equipment ranged from $43 million to $55 million during fiscal years 1979-

8 1. About 80 percent of this volume consisted of building supplies. Distribution is through 120 service store corporations, 235 Agway-owned

stores, and some of its 350 franchised independent dealers.

Cooperative handling of fencing and roofing has provided a

convenient service to many farmers for a long time. Most cooperatives

*Cooperative GLF Exchange, Ithaca, NY; Eastern States Farmers Exchange, W. Springfield, MA; and Pennsylvania Fan Bureau Cooperative Association, Harrisburg.

10
charged market prices and paid patronage refunds on these supplies at

the same rate as for other general farm supplies. Some, however, may

have added only small or modest markups.

Success of cooperative lumberyards has varied, depending on the

same management and competitive factors as those operated by other

firms. Patronage refunds have ranged from 0 to 5 percent of sales.

Challenges Ahead

As cooperatives continue to expand their supply lines, they likely

will handle more building materials and hardware. Development of more

cooperative farm service centers will make cooperatives consider whether

to add a full-fledged building supplies department. Also, when lumberyards in small rural towns cease to operate, marketing/supply cooperatives will have to decide whether to purchase the facilities or expect

members to go elsewhere for lumber and other supplies. Farmers’

sheltering needs are becoming more specialized and many cooperative

leaders believe that they can be best satisfied by farmer-owned businesses

that respond to those needs.

Cooperatives also have the challenge of serving the rural nonfarmer

and suburban market. Many of these residents, especially the do-it-yourself

types and small local builders, are potential patrons of cooperatives with

good building supplies and related services.

The extent local cooperatives handle or expand building supplies

will depend on the services their wholesale cooperatives provide, especially in joint efforts in providing planning, designing, construction, and

field assistance to farmer-members, and in developing construction centers

for prefabricated structures.

If cooperatives are to expand their building supply volume, boards

and general mangers should recognize the need for special management

expertise and departmentalization of operations. Building supply is a much

different type of business than feed, fertilizer, seed, and petroleumoperations in which many cooperatives have been more successful.

Containers and Packaging Supplies

Types and Farm Expenditures

Farmers’ purchases of marketing containers are considered

production expenses. These include wooden boxes, crates, and lugs; sacks;

and bulk bins for packing their products and moving them from fields

to farmsteads and local packinghouses. Farmers buy wraps and ties for

1 1
cotton, baler wire and twine, and other packaging materials. They also

buy packing supplies for storing products in farm freezers and locker

plants, which are classified as family living expenditures. Many growers

buy these containers and supplies through local marketing cooperatives

that in turn procure them from their wholesale cooperatives.

Farmers’ $500 million of purchases of marketing containers and

packaging supplies in 1983 were considered production expenses by

USDA’s Economic Research Service. About half was for fruits and

vegetables. The other half was for nurseries and greenhouses and poultry

and eggs.

Marketing firms, including cooperatives, also buy large quantities

of paperboard; glass, metal, and paper containers; and bags and packaging

supplies in marketing fresh, processed, frozen, and dehydrated farm

products. Specific data on such expenditures are not available.

Retailing

Most early cooperative activity in containers and packaging supplies

occurred in fruit, vegetable, and cotton-ginning associations. Some of

the earlier fruit and vegetable cooperatives were formed in the East in

the 1870’s. Soon after, they began selling containers and packaging

materials to their grower-members. Citrus- and vegetable-marketing

cooperatives were first organized in 1885 in Florida and in 1895 in

California.

Likewise, the earliest cotton gins-formed in the early 1900’s_

deducted the cost of bags and ties from members’ cottonseed or cotton

proceeds. Most of the earlier grain-marketing cooperatives, formed in

the Midwest at the turn of the century, handled binder twine.

By 1962-63, the number of cooperatives handling containers and

packaging supplies had reached a peak of 1,132. The numbers at 5-year

intervals since 195 l-52 are shown in table 2.

In 1986,486 cooperatives reported net sales of containers totaling

$139.2 million (table 2). Fruit- and vegetable-marketing cooperatives were

the principal types selling containers; also, farm supply cooperatives in

the Northeast had a considerable volume. The six States with largest net

sales in 1986 were Florida, California, Texas, Washington, Georgia and

Oregon.

Container and packaging supplies sold to growers consisted mainly

of bulk bins, crates, boxes, and sacks or bags used in harvesting or picking

fruits and vegetables. They also included bagging and ties sold by

cooperative cotton gins and baling wire and binder twine sold by farm

supply cooperatives. However, most of the wire and twine probably were

included in hardware or general farm supply sales.

12
Table l-Cooperatives reporting sales of containers

and packaglng supplies In speclfled years

Cooperatives

Year handling

Number

Net

sales*

Million dollars

1951-52 925 17.8

1955-56 1,126 25.3

1960-61 1,125 26.6

1965-66 1,058 32.7

1970-71 973 121.3

1975-76 670 113.3

1979 687 111.2

1980 658 141.4

1983 520 126.9

1986 486 139.2

1Excludes intercooperative business

Wholesaling

In 1907, local citrus packinghouses and district exchanges in

California and Arizona organized the first regional, federated, wholesalepurchasing cooperative in the country. Fruit Growers Supply Company,

Los Angeles, was formed to purchase box shook for containers and

orchard supplies for its member packinghouses affiliated with California

Fruit Growers Exchange, now Sunkist Growers, Inc.

Three other regional federated cooperatives, one in Washington

and two in Florida, later were formed to purchase or manufacture

containers for local fruit- and vegetable-marketing cooperatives.

In 1986, 19 regional cooperatives sold about $3 10 million of

containers and packaging supplies at wholesale to other cooperatives.

Almost all of this volume went to marketing cooperatives to use in their

own processing and selling operations. For example, fresh fruit- and

vegetable-packing associations used paperboard cartons and trays, plastic

trays, paper bags, wooden boxes, lugs, crates, baskets, tubs, hampers,

cups, pulp trays, burlap and mesh bags, and polyethylene bags. Processing

cooperatives used metal cans, paperboard boxes, and glass containers.

Brief descriptions of two wholesaling cooperatives follow. The

wholesaling/fabricating operations of five others are included in the next

section.

13
Highland Exchange Service Cooperative (HESCO),

Waverly, FL

HESCO was formed in 1972 by a merger of Highland Crate

Cooperative, Jacksonville, FL, and Exchange Supply and Service

Cooperative, Tampa, FL. The former had manufactured wooden

containers from box shook and the latter had provided wholesale container

service for local citrus-marketing cooperatives for many years.

HESCO began as a corrugated container broker but now purchases

containers and other supplies in volume and carries inventories of supplies.

It serves 41 member cooperatives, including some of the larger citrus

packers and processors in Florida plus Gold Kist Inc., Atlanta, GA, and

Michigan Celery Promotion Cooperative, Zealand.

It handles fresh citrus, and poultry cartons; mesh bags; polyethylene bags; can cases; and other packaging supplies totaling about $30

million a year. HESCO also handles citrus processors’ operating materials,

including motors and power transmission items, and recently has

broadened its product mix to include tires, batteries, citrus chemicals,

petroleum fuels, and general supplies with total sales of $70 million in

1986.

.

Northwest Wholesale Incorporated, Wenatchee, WA

Northwest Wholesale Incorporated, Wenatchee, WA, is a federated

marketing/supply cooperative serving 38 apple-marketing cooperatives

and orchards in the Northwest. It was organized in 1937 and for several

years operated a lumber mill to make box shook. Later, to adjust to the

change to paperboard containers, it constructed a building and arranged

for a container company to operate a fiber-box sheet plant in this building.

A fire destroyed this facility in 1967. Northwest Wholesale now purchases

containers and related supplies from six major manufacturers located in

Oregon and Washington for distribution throughout north central

Washington.

In fiscal 1982 (a lo-month period) Northwest’s fiber carton volume

was $9.5 million and its fruit wraps, layer trays, and poly bag liners

volume was $4.7 million. Production supply sales were $8.8 million.

Net margins on combined packaging and production supplies have ranged

from 5 to 6 percent on sales of $35.5 million 1986. These included line

discounts, volume incentive, and yearend net savings.

14
Fabricating and Manufacturing

A few regional federated cooperatives operated box-shook plants

for several years and later carton-fabricating plants when the industry

largely shifted to the use of paperboard containers. For many years, three

small container cooperatives operated plants in Florida. For example,

Highland Crate Cooperative, Jacksonville, FL, formed in 1918,

manufactured wire-bound wood crates and later corrugated paperboard

boxes for local cooperatives marketing citrus, celery, and poultry. In

the 1970’s it merged with Exchange and Supply Company, Tampa, FL,

a container wholesale cooperative, and no longer manufactures containers.

Winter Garden Citrus Products Cooperative, Winter Green, FL,

began operating a small can-manufacturing plant about 1960 and continued

until Citrus Central opened its plant.

In 1982, one federated cooperative operated a carton-fabricating

plant; another manufactured cans, and one joint cooperative venture

manufactured cans for member cooperatives. Another cooperative

operated a potato bag plant, and two cooperatives jointly owned a

packaging material plant. Brief descriptions follow:

Fruit Growers Supply Company (FGS), Sherman Oaks, CA

This organization, formed in 1907, is owned by citrus

packinghouses affiliated with Sunkist Growers, Inc. For many years, it

operated three lumber mills and box-shook factories and owned several

thousand acres of timberland in northern California. All three lumber

mills have been either sold or shut down; however, FGS continues to

cut timber and sell logs to mills in the southern Oregon and northern

California regions. It annually supplies only about $2.0-$2.5 million worth

of pallets and box shook to member packinghouses. All sales of timber

or logs in the northern California operations are to nonmembers. There

is no connection now between the timber operations and the procurement

of box shook for the members.

After the use of fiberboard cartons became standardized, FGS built

a carton-fabricating plant in 1961-62 in Los Angeles to reduce carton

costs and to enable it to negotiate more favorable terms in purchases from

other suppliers.

In 1979, FGS constructed at Ontario, CA., a fully integrated

manufacturing facility, complete with corrugating and carton-forming

capabilities. It contains 214,000 square feet and cost about $9 million.

To provide support for this program, FGS contracted with a major supplier

for assistance in constructing and managing the facility and also for the

15
supply of linerboard. FGS also has a long-term arrangement with another

company to manufacture plastic lemon storage boxes. The principal types

and approximate quantities of items FGS furnishes members in a typical

year are:

Packinghouse Supplies-70 million cartons, 86.4 million diphenyl

sheets, 16.6 million polyethylene bags, 634,000 pounds of carton-sealing

adhesive, 110,000 pairs of packers’ gloves (also used by picker), 474,000

export pallets, and 22,000 feet of belting.

Picking Supplies-252,000 lemon storage boxes, 27,000 bulk

picking bins, 7,000 picking bags, 3 1,000 paris of clippers, 70,000 feet

of rope, and 4,000 orchard ladders.

Grower Supplies-l. 8 million feet of irrigation drag line hose,

495,000 feet of drip irrigation hose, 326,000 tree wraps, 3,600 orchard

thermometers, 15,000 tons of commercial fertilizer, and 15,250 tons of

fertilizer materials.

FGS’s gross sales of containers to members have ranged between

$35 million and $55 million for 44 to 70 million cartons and other

container supplies in recent years. Sales of packinghouse supplies have

been from $1.5 to $3.5 million annually. Patronage refunds on member

business have ranged between 1.5 and 2.5 percent of net sales after sales

price adjustments.

CT Supply Company, Fremont and Modesto, CA

CT Supply Company, formed in 1964, is jointly owned by

California Canners and Growers and Tri-Valley Growers, both

headquartered at San Francisco, for manufacturing cans used in fruit and

vegetable processing. The plants manufacture about 1 billion cans a year

with a commercial value in excess of $150 million in recent years. The

operation has been of much value to the member-owners.

Citrus Central, Inc., Orlando, FL.

Citrus Central, Inc., a federated marketing and supply cooperative

serves citrus-marketing exchanges in Florida. In 1968, it built a canmanufacturing plant at Plymouth, FL., which has been successful.

Sales have ranged from $70 million to $100 million in recent years,

and net income has been from 20 to 25 percent of sales.

In mid-1981, the cooperative purchased the composite canmanufacturing plant of another firm in Orlando, FL.

16
Maine Bag Company, Presque Isle

Maine Bag Company, Presque Isle, a subsidiary of Maine Potato

Growers, Inc. (MPG), manufactures paper bags required for the

cooperative’s marketing operations. A few years ago, however, the

company also began selling bags throughout New England and New York.

Since MPG acquired its plant in 1945, it has been a successful

operation. Sales have increased from about $2 million to more than $3

million in the past 2 years. The number of bags sold has ranged from

25 million to 36 million a year. Net income has ranged from 7 to 9 percent

of sales.

Imperial Packaging Corporation, Des Moines, IA

Imperial Packaging Corporation is owned jointly by MFA,

Incorporated, Columbia, MO., and Land O’Lakes, Inc., Minneapolis,

MN. It was acquired in 1978 to manufacture paper bags and other

packaging material for livestock feed and human food. Sales range from

$6.0 million to $9.0 million a year and net income from 10 to 16 percent

of sales.

No studies have been made of the extent of vertical integration

in cooperative container operations. Apparently, however, substantial

proportions of container sales to growers and of volume used by marketing

cooperatives are supplied by wholesale cooperatives, and a substantial

percentage of the wholesale volume is fabricated or manufactured by

cooperatives. This is especially true for fruit and vegetable containers.

However, practically none of the containers used by dairy, livestock,

poultry/egg, and farm supply cooperatives is purchased or made on a

cooperative basis.

Benefits

Farmers, especially those producing fruits and vegetables, have

realized substantial savings in buying containers and packaging supplies.

Savings of up to 10 percent of sales have been realized from volume

discounts, brokerage allowances, or negotiated prices from consolidated

purchases.

Another benefit of cooperative procurement has been assurance

of a dependable supply of good-quality containers when needed. Also,

the operation of fabricating and manufacturing plants has provided

cooperatives with a yardstick for evaluating costs and prices of specific

types of containers.

17
Challenges Ahead

Apparently more cooperatives, especially those marketing farm

products, could establish a container purchasing or brokerage service

for either a wide variety of containers or for more limited lines of

standardized containers. In some areas, local marketing cooperatives might

interest regional wholesale farm supply cooperative in procuring containers

and packaging supplies for them.

Possibilities for cooperative fabrication or manufacture of

containers likely will be limited to areas where a large volume of a few

types of standard containers are required. However, cooperatives should

maintain a strong financial base and competent management to procure

or manufacture containers successfully.

Farm Machinery

Farm machinery operations of cooperatives include sale of tractors

and other machinery and implements used in farming. It includes both

full lines and short lines of farm machinery companies.

Types and Farm Expenditures

Tractors and tractor-drawn equipment first came into use when

World War I increased the demand for food and resulted in a manpower

shortage on farms. The number of tractors reported on farms was 300,000

in 1920, 1.6 million in 1940, and 4.7 million by 1960 (fig. 1). Little

change has been seen since then, with 4.7 million tractors reported in

1986, but size increased from an average of 60 to 70 horsepower during

1967-86.

Use of farm automobiles and trucks also increased dramatically

during this period. In 1986, farmers had about 2.2 million farm

automobiles and nearly 3.4 million trucks.

Grain combines on farms in 1986 totaled nearly 640,000-down

from a million in 1960. Cornheads, pickers, and sheller numbers have

declined from 800,000 in 1960 to 680,000 in 1986. Pickup balers reached

a peak of 800,000 in 1983 and declined to 798,000 in 1986. These

increases in mechanization occurred while the number of farms declined

from 6.5 million in 1920 to 2.3 million in 1983.

In 1986, farmers bought more than 97,000 farm tractors, 12,000

grain combines, 7,000 cornheads for combines, and 9,000 balers. More

than half the tractors sold had less than 90 horsepower in the recent trend

to smaller farm tractors.

18
Farmers spent about $6.4 billion for new and used tractors and

other farm machinery in 1986-off sharply from the record high $11.75

billion in 1979.

Machinery expenditures consisted of $1.5 billion for new tractors,

$.9 billion for used tractors, $1 .O billion for self-propelled machinery,

and $3.0 billion for other farm machinery.

In addition, farmers spent $1.5 billion for trucks, $0.3 billion for

automobiles and other motor vehicles in farm production, and $4.8 billion

for repair parts and labor.

Retailing

In 1980, about 80 cooperatives were handling a full line of tractors

and farm machinery of major manufacturers. Their sales of this equipment

totaled $105 million, of which $56 million was for new and $44 million

was for used and other equipment and repair parts. Their service income

totaled about $6 million. Cooperative franchise dealers thus handled only

about 2 percent of all heavy machinery farmers bought that year. Nearly

two-thirds of the cooperatives were in Wisconsin, Indiana, Ohio,

Minnesota, North Dakota and Oregon.

The numbers have declined substantially since 1970, when about

100 cooperatives distributed heavy machinery with a sales value of $34

million.

A USDA survey of farmers found they bought the following

percentages through cooperatives in 1978: new farm machinery and

equipment, 4 percent; used tractors and self-propelled equipment, 1

percent; repair and replacement parts for tractors and other machinery

and equipment, 15 percent; and repair and replacement parts for farm

motor vehicles, 5 percent.

.

Local cooperatives began handling farm machinery shortly after

the turn of the century. Many were midwestern farmers’ stock companies

that marketed grain. One of the earlier was Rockwell Cooperative Society

of Iowa. Soon after organizing in 1891, it began selling machinery on

a 2-percent gross margin to members and on a lo-percent margin to

nonmembers. This policy led to so much dissension that it was soon

discontinued. A number of cooperatives in Indiana, Michigan, Minnesota,

and Wisconsin added farm machinery in the late 1920’s.

The first detailed survey of cooperatives, conducted by cooperative

division of Farm Credit Administration, found 363 cooperatives were

handling farm machinery in 1936. In almost all, machinery was a

department of a marketing or general supply cooperative; only a few solely

machinery cooperatives existed. Many cooperatives in the 1940’s added

19
machinery when National Farm Machinery Cooperative was formed to

manufacture CO-OP tractors and related equipment.

By 1950, regional wholesale cooperatives reported about 1,000

local cooperatives were handling machinery, but not all handled a full

line nor operated a complete repair shop. Many were grain cooperatives

organized by Farmers Union in the Midwest and the Grange in the Pacific

Northwest.

Cooperatives’ daily machinery operations are similar to those of

independent dealers. As a group, they operate under franchises with the

six major manufacturers that deliver much of their equipment on

consignment to dealers.

Cooperatives have machinery warehouses and outdoor display

areas, storage bins for parts, and repair shops. They have problems of

trade-ins, discounts, repair, credit, and service common to other dealers.

In addition to supplying heavy farm machinery, manufacturers

floor-plan to dealers for a month to a year, depending on the value of

equipment and when it is sold. During this period, the dealer does not

have to pay the manufacturer. Machinery companies also finance sales

on credit to both dealers and their patrons. Such credit plans may provide

favorable time periods and interest payments to dealers. Terms to farmermembers usually are adapted to seasonal needs and periods of cash

receipts.

Local Services

Repairing

Cooperative dealers are equipped with shop facilities and equipment

to repair and service the machinery they sell and to recondition tradeins. Dealers believe good service is required for customer satisfaction

and for bringing new customers to the cooperative.

On-farm repair service is provided by most cooperative dealerssome more extensively than others. Most provide one mechanic to operate

a service truck and repair light machinery on the farm; a few employ

two or three mechanics for this service.

Renting or Leasing

Most cooperative dealers lend machinery to farmers in an

emergency and when the farmers’ machinery is being repaired. About

half the larger cooperative dealers rent or lease machinery to farmers.

The going community rate is charged-either a per-acre, daily, or hourly

20
Among the few cooperatives around the nation handling farm

machinery are Pendleton Grain Growers Cooperative, Pendleton,

OR, above, and Agmax in Frankfort, IN.
rate. Some cooperative dealers rent both new and used tractors, combines,

and other equipment. Others rent only new machinery to achieve future

sales.

Some production credit associations, supervised by Farm Credit

Administration, have taken the lead in pilot programs to own and lease

farm machinery. With each association covering six or seven counties,

areas are large enough for interchange of heavy equipment to meet

demand. One association may operate from a single center, another from

several centers, and some conduct small operations from local farms.

The diversity of farming operations in different areas requires developing

the most practical and useful methods for each. Production credit

associations (PCA’s) are finding more farmers are interested in leasing

larger, more costly equipment.

Custom Farming

Only a few cooperative dealers provide custom farming services

and practically no trend exists for more. These cooperatives-including

several developing ones-own and operate custom equipment. Scheduling

use of equipment and the necessity to own enough equipment to satisfy

each user seem to be overriding concerns.

Production credit associations recognize that to justify leasing

equipment they must serve large areas so equipment can be shifted between

counties as needed. While most are pilot leasing operations, they could

lead to more custom farming services. Cooperative dealers might join

in these operations with PCA’s by supplying machinery and keeping it

in repair, as a few are now doing. In some areas, cooperative dealers

might share the inventory cost of the machinery with PCA’s, while in

others cooperative dealers may want to own and operate the entire custom

farming service.

Machinery Use or Pooling

Joint ownership and neighbors sharing different types of equipment

has been a tradition among American farmers. But cooperative ownership

of equipment, especially tractors and related crop equipment, by several

farmers has not been common or successful. Such arrangements are called

machinery pools or syndicates in other countries.

Cooperative use of machinery has been encouraged by a few

religious groups and government agencies in the past. Because of farm

machinery shortages and the need for greater food production during

World War II, Farm Security Administration, USDA, encouraged small22
scale and low-resource farmers to form group service associations for

joint ownership and use of farm equipment. By 1943, more than 21,000

such groups were in operation. Later, as members gradually were able

to improve their economic status, they wanted to own equipment

individually and now most of these associations are no longer operating.

Wholesaling

No cooperative wholesaled farm machinery in 1986. Regional farm

supply cooperatives began wholesaling farm machinery in the 1930’s and

1940’s, spurred by their interest in getting into tractor manufacturing.

However, most discontinued wholesaling in the late 1950’s after their

manufacturing cooperative ceased operating in 1953. It sold its plant to

a Canadian firm, which supplied the regional cooperatives for a few years.

In the 1950’s, 15 regionals, mainly in the Midwest and North

Central States, were wholesaling machinery. Indiana Farm Bureau

Cooperative Association, Indianapolis, was the first to provide this service.

In 1930, it signed a distribution contract with Allis Chalmers Co. Soon

after, Indiana and Ohio Farm Bureau regionals obtained machinery from

B.F . Avery Co., until it began serving a large mail-order firm-and canceled

their contracts.

In 1934-35, several regional cooperatives began obtaining

machinery with the CO-OP trademark from National Farm Machinery

Cooperative, Inc. It was their main source for about 18 years. Also, a

few Grange regional cooperatives obtained machinery from Massey Harris

Co. for several years. By 1962, only two regionals were handling a limited

amount of heavy farm machinery-mostly short lines and parts.

Assembling and Manufacturing

No cooperative assembles or manufactures heavy farm machinery.

Universal Cooperatives, Minneapolis, manufactured a small amount of

specialized equipment, -mainly large field-crop sprayers, and some

farmstead equipment.

In 1934, several regional cooperatives led by Farmers Union

Central Exchange, St. Paul, MN, and Indiana Farm Bureau Cooperative

Association, concluded they would have to work together to attain any

success in the machinery field. Lacking sufficient capital for

manufacturing, they contracted with Duplex Machinery Co., Battle Creek,

MI, to have a CO-OP tractor built to specifications. Among their

requirements were high-compression engines and rubber tires.

Unfortunately, the tractor was ahead of its time. After 2 years of

23
disappointing experience, a principal member withdrew. The remaining

cooperatives then formed American Cooperatives, Inc., and signed an

agreement in 1938 to have a CO-OP tractor assembled in a plant provided

by Farm Security Administration at Arthurdale, WI. After encountering

financial difficulties, this cooperative was liquidated in 1940.

The Indiana regional then decided to build its own tractor assembly

plant at Shelbyville. To acquire sufficient volume, it helped organize

National Farm Machinery Cooperative, Inc., which produced several

hundred tractors in 194 1. During the next 2 years, however, it was forced

to switch to producing military hardware for war use.

In 1943, National acquired Corn Belt Manufacturing Co.,

Waterloo, IA, which produced corn pickers, pump jacks, and tank liners.

Later that year, it bought Ohio Cultivator Co., Bellevue, a manufacturer

of corn and cotton planters, grain drills, manure spreaders, lime spreaders,

disk harrows, and garden tractors with a full line of attachments. It moved

its headquarters to Bellevue and soon contracted with Cockshutt

Implements, Brantford, Ont., to manufacture CO-OP tractors.

During the next few years, however, National encountered

numerous difficulties in maintaining adequate volume from member

regionals and their locals, raising adequate capital, and in managing

operations successfully. National ceased operations in 1953 and sold its

plants to the Canadian firm that was making its tractors.

Also during this period, Farmers Union Central Exchange operated

an assembly plant for a large CO-OP tractor until farm machinery better

suited to its trade area readily became available.

Three cooperatives have manufactured specialized equipment in

the past. MFC Services, Madison, MS, made a small volume of liquid

fertilizer equipment and sprayers. Agway Inc., through its Waymark

Department, manufactured bodies for bulk feed trucks, tanks for petroleum

delivery trucks, and lime and fertilizer spreaders. In 1986, Tennessee

Farmers Cooperative, was manufacturing steel gates, truck racks, chutes

and feeders.

Benefits

Although cooperatives as a group have not been successful in

manufacture and distribution of farm machinery, a number of local

retailing cooperatives have had a good record. Both farmer-members and

local cooperatives have realized benefits.

Principal benefits local farm machinery-handling cooperatives have

provided farmers are: (1) dependable places to buy equipment and repair

parts, and to obtain repair services; many cooperatives have provided

24
farm service centers for farmers to buy machinery and other supplies

and, in many cases, to market their products; (2) modest savings

distributed as patronage refunds, permitting members to obtain the

equipment at or near cost; and (3) competitive influence on prices and

service in the community.

Benefits to local cooperative businesses often have been: (1) new

patrons and members; larger farmers not using the cooperative for other

services often became interested in quality machinery services; (2)

increased volume, resulting in a lower general overhead per dollar of

sales in all departments; (3) enhancement of the cooperative’s image in

the community by providing complex services; and (4) influence of

successful local distribution and service on other locals examining the

possibilities for machinery distribution under conditions somewhat

different from those in the past.

Challenges Ahead

Farm machinery is the remaining large production input

cooperatives generally have been unable to handle successfully. Yet,

expenditures for it likely will increase as more food is needed to feed

an increasing population. Purchase, operation, parts, and service of farm

machinery accounted for $24.5 billion in 1986 or 20 percent of total farm

expenditures and 25 percent of total farm operating expenses.

The challenge is to determine ways cooperatives can provide

beneficial services to farmers on a sound financial basis. Evidently, farm

machinery cannot be handled in the same way as bulk supplies such as

feed, fertilizer, and petroleum. It is a complex business, requiring

contacting and selling farmers, making sound trade-ins, servicing and

repairing equipment after it is sold, reconditioning and selling trade-ins,

and financing or providing credit for new and used equipment. It requires

a substantial volume to support needed facilities, financial reserves, and

flexibility to carry the business through cycles of good and bad years.

Another challenge facing cooperatives is how to serve small farmers

and new young farmers who have difficulty obtaining large amounts of

capital required to buy the machinery they need, or to make it pay out

despite inflation, high interest rates, and frequently low prices for farm

products. Can larger local cooperatives provide leasing services? Can

an operator be provided with larger, more costly leased machines? Can

a custom-farming service be provided on a sound basis? Will

marketing/supply cooperatives benefit from the experience of a few PCA’s

or perhaps develop joint or cooperative arrangements with them?

Still another challenge is to develop successful ways to handle farm

25
machinery in marketing/supply cooperatives, or to develop different

organizational structures that are successful. Will cooperative management

be willing to innovate and experiment? For example, they might consider

forming multicounty, specialized farm machinery cooperatives on a pilot

basis, supported by a central facility to handle parts and provide a

reconditioning service for trade-ins, an annual auction of used equipment,

and a trade show for new equipment.

If, instead, the multidepartment structure in existing local

cooperatives is to be used, will regional cooperatives and manufacturers

be willing to help plan a distribution system, provide field personnel,

and select strong locals within a geographic area willing to handle

machinery under an approved plan?

These alternatives pose the challenge of acquiring specialized and

competent managers, mechanics, and other employees. Will

marketing/supply cooperatives be willing to handle machinery as a major

department operated by a competent and experienced department

manager? And will boards of directors and general managers give

sufficient support to the machinery program so it can realize its potential

for benefiting members?

Farmstead, Home, and Plant Equipment

Types and Farm Expenditures

The stationary gasoline engine was one of the earlier types of

farmstead equipment farmers began buying between 1910 and 1920. Since

then, purchases of this type of farmstead equipment have increased each

year due to the greater mechanization of agriculture, availability of

electricity, and scarcity of farm labor.

In 1986, expenditures for such equipment were estimated to be

about $2 billion. They consisted of $508 million for dairy, poultry, and

livestock equipment; $510 million for repair and maintenance of such

equipment; $330 million for power farm shop equipment; and $700 million

for other items, exclusive of hand tools.

More common types of farmstead equipment cooperatives and other

firms handle are:

Dairy, Livestock, and Poultry: Barn stanchions and pens, barn

cleaners, automatic feeders and drinking cups, water heaters, milkers,

milk tanks and coolers, spraying equipment, and poultry feeding and

cleaning equipment.

26
Feed and Grain Equipment: Feed grinders; bulk feed bins and

conveyors: and grain augers, conveyors, and dryers.

General: Shop equipment, electric motors, gasoline and LP gas

engines, electric fence controllers, air compressors, fuel storage tanks

and pumps, irrigation pipe and pumps, petroleum storage tanks and

attachments, hydraulic jacks, and plumbing items.

The more common types of nonfarming equipment sold to farmers

and other rural residents are:

Lawn and garden: Tractors and attachments, lawn mowers,

sprayers and dusters, fertilizer and pesticide spreaders, and garden tools.

Home: Cooking and heating stoves, deep freezers, refrigerators,

ovens, air conditioners, fans, space heaters, water heaters, and lighting

equipment-general home appliances.

Recreational: Fishing and hunting equipment, riding equipment,

snowmobiles, and skiing equipment.

Plant equipment: That local cooperatives buy from wholesale ._

cooperatives includes petroleum bulk tanks; service station equipment;

compressors and motors; and equipment used in processing, canning,

freezing, and dehydrating dairy and other farm products.

Retailing

Over the past 50 years, cooperative sales of farmstead and home

equipment have increased. As cooperatives expanded and modernized

farm supply or hardware stores and added new display areas to offices

and warehouses, they added more kinds of equipment to meet members’

needs.

In 1986, 1,564 cooperatives reported net sales of farm machinery

and farmstead equipment of $342.5 million (table 3). After excluding

$106 million in sales of heavy farm machinery, cooperative sales of

farmstead and home equipment were estimated at $257 million. However, about 3,570 marketing/farm supply cooperatives reported about $1.46

billion sales of unclassified supplies. Unclassified coop supplies included

about $200 million of farmstead and home equipment, making the total

$600 million, or about 23 percent of the farmstead and home equipment

market that year. The number of cooperatives reporting handling farm

machinery and equipment has not changed much in the past 30 years,

but their sales have increased about sixfold.

Most cooperative equipment volume is through local retail

associations, but in the East, four large centralized regional cooperatives

operate a large number of retail branch stores or warehouses also selling

feed, seed, fertilizer, and pesticides. One regional of this type also operated

27
Table 3-Cooperatives reporting net sales of farm machinery

and farmstead equipment in specified years’

Year

Cooperatives Reported net sales

reported of farm machinery

handling and farmsted equipment

1951

1955-56

1960-61

1965-66

1970-712

1975-76

1979

1980*

1983

1986

Number Million dollars

1,874 68.1

1,853 68.7

1,839 75.2

1,526 81.4

1,424 125.8

1,588 266.6

1,940 385.0

1,827 418.2

1,700 363.5

1,564 342.5

‘Net sales excludes intercooperative business.

Y$ecial surveys indicated total sales in 1970-71 included about $36 million of heavy farm machinery sales by 100

cooperatives; and in 1980, total sales included $106 million of farm machinery by 60 cooperatives. The remainder in

these and other years consists of farmstead, home, and plant equipment. In addition, general or unclassified supply

and equlpment sales contamed a considerable amount of farmstead and home equipment (table 5).

for many years in the Pacific Northwest but recently merged with another regional farm supply cooperative.

Agway Inc., one of the eastern group, also has developed a few

centralized locations to make mechanical farm equipment and major home

and farm appliances available directly from manufacturers. As such

equipment becomes more sophisticated, a supply of repair parts available

within a few hours and a specialist to install and service equipment

becomes more important to patrons. Each Agway centralized location

has two to four installation and service persons on call at all times.

Cooperatives retail equipment from a variety of facilities. Many

handle it in a display room that is part of the general farm supply

warehouse or office. Some handle it as part of general hardware. Others

have built separate farm supply stores. Some cooperatives operate repair shops but probably more make arrangements with private shops to

service the equipment.

Cooperatives’ sales, pricing, and credit practices are similar to

those of other equipment dealers. Equipment may be a separate department

in larger cooperatives, but most include it with general farm and home

supplies and declare one patronage refund rate on them.

28
Wholesaling and Interregional Purchasing

Wholesaling

Local cooperatives purchase a substantial part of farmstead and

home equipment from regional wholesale cooperatives who, in turn, buy

from an interregional purchasing association, Universal Cooperatives,

Inc., Minneapolis.

In 1986, about 24 regional cooperatives reported wholesaling

various amounts of farmstead and home equipment. Dollar volume sold

to other cooperatives totaled about $245 million. After allowing for

transportation costs and retail markup, this volume may have been equal

to 50 percent of the total equipment cooperatives retailed that year.

An example of farmstead equipment wholesaled is farm fuel storage tanks by Farmland Industries. In both 1979 and 1980, the cooperative

supplied some 14,000 tanks with a total capacity of 9 million gallons

to local cooperatives to resell or loan to farmers.

A number of regional cooperatives also supply plant equipment

to local cooperatives. Most wholesale cooperatives handling petroleum

sell bulk-plant and service-station tanks and equipment. Some also supply

rolling stock, such as delivery equipment for petroleum fuels and fertilizer.

And, some sell liquid storage tanks for grain dryers.

Several regional dairy-marketing cooperatives supply tanks, piping,

valves, electric compressors and motors, and processing equipment to

local cooperative creameries. Land 0’ Lakes, for example, had an

equipment division that sold several million dollars of equipment annually

for many years. However, it discontinued this division in the early 1970’s,

due to the decline in number of local dairy plants. A few regional fruit

and vegetable cooperatives also supply plant equipment to member local

associations.

HESCO wholesales operating materials and equipment and

containers to member cooperative citrus packers and processors in Florida.

Included are motors, pumps, chains, sprockets, bearings, belts, and other

power transmission items. In 198 1, it acquired an electric motor service

subsidiary that repairs and rewinds all types of electric motors; it now

has 25 employees and sales near $1 million a year.

Regionals warehouse much of their equipment but have some

shipped directly to their member local cooperatives or branch stores. Two

or more locals may pool orders for a truckload or carload of equipment.

29
30
Welders assemble a tubular

gate in Tennessee Farmers

Cooperative’s metal fabrication plant, LaVergne; twine

being manufactured for

Universal Cooperatives,

Minneapolis, MN; plastic

pipe in a Southern States

Cooperative warehouse; and

a suburban store of Madison

County Cooperative, Inc.,

Huntsville, AL.

31
Interregional Purchasing

Universal Cooperatives, Inc., Minneapolis, sells general farm

supplies and equipment to 3 1 member regional cooperatives in the United

States and Canada. Sales of farmstead equipment, such as milking

machines, milk coolers, water coolers, barn stanchions, and the like,

totaled about $40 million in 1983.

Universal was formed in 1972 through a merger of United

Cooperatives Alliance, OH, and National Cooperatives, Inc., Albert Lea,

MN.

United started handling small tools, sprayers, and poultry supplies

in 1936; barn equipment in 1940; refrigeration equipment in 1945; and

farm electrical equipment in 1946. In 1947, United arranged to use, and

soon buy, a testing laboratory at Ithaca, NY, owned by three Eastern

members. In 1951, United set up an informal college conference board

of agricultural engineers to advise and work with its laboratory committee

and equipment staff. By 1960, 11 State colleges were represented.

National Cooperatives was organized by midwestern and western

cooperatives in 1933 at Chicago to purchase CO-OP tires and auto

accessories. In 1938, it added CO-OP electrical appliances, and soon

after, refrigerators and other home equipment. National successfully

handled Universal milking machines and related equipment for many

years, and in 1983, they were still an important part of Universal’s

business.

Assembling and Manufacturing

Cooperatives assemble or manufacture only a small proportion of

the farmstead and home equipment they sell. The principal activity is

Universal Cooperatives’ manufacture of Universal milking equipment,

CO-OP water coolers and heaters, and UNICO barn equipment at the

plant in Goshen, IN. The latter plant, one of the larger of its kind, produces

feeders, waterers, gates, stalls, tanks, and other livestock and poultry

equipment. Also, Universal manufactures grain bins, bulk feed bins, and

large field sprayers.

Since 1959, Farmland Industries, Kansas City, MO, has

manufactured steel grain gins and bulk feed tanks at Hutchinson, KS.

Indiana Farm Bureau Cooperative Association, Indianapolis, has a small

plant for producing hog equipment at Windfall, IN. In 1979, Gold Kist

Inc., Atlanta, acquired a steel fabrication plant in Augusta, GA., that

supplies storage bins and elevator and conveyor systems to Gold Kist

retail outlets, affiliated farm cooperatives and unrelated purchasers. In

32
1986, Gold Kist contracted to franchise power machinery and compact

tractors and equipment attachments for White manufacturing company.

United Cooperatives made the earliest manufacturing effort in 1939,

when it contracted with a firm in Peoria, IL, to manufacture barn

equipment under the UNICO brand. It purchased the plant in 1941 and

began manufacturing milk coolers in the late 1940’s. In 1949, United

began assembling fence controllers in Alliance, OH, and within a few

years, started assembling ventilating fans, egg room coolers, and cattle

water bowls. In 1950, United bought Star Lawn Mower Co. in Plainfield,

IA, but abandoned it in 1953, and its barn equipment plant in 1955. In

the 1970’s, United (now Universal) acquired a dairy equipment plant

from %-Rite and at one time had four plants making livestock and field

equipment. United’s policy was to manufacture only when adequate

outside sources were not available or when pricing structures of outside

sources were unrealistic.

National Cooperatives acquired Universal Milking Machine Co.

and its factory at Waukesha, WI, in 1943. Later, it began manufacturing

CO-OP milk coolers, water heaters, and other dairy equipment. National

also had refrigerators, deep freezers, stoves, radios, and other home

appliances manufactured under its private CO-OP label for many years.

Benefits

Farmer-members have been able to buy equipment through

cooperatives at cost, after taking into account dividends on equity capital

and patronage refunds on purchases. They also have had the benefit of

quality equipment and dependable service.

Farmers have realized the benefit of better daily prices, year end

net margins, or both, through group purchasing through local, regional,

and interregional cooperatives. Stated another way, they have benefited

from margins at retail, wholesale, and manufacturing levels. This system

provided more independence in seasonal buying and more freedom to

cooperatives in distributing or marketing to meet seasonal fluctuations.

Through use of their own private labels, cooperatives have attained

a greater voice in determining specifications of the equipment they wanted

manufactured for farmer-members.

Because of their farmer ownership and basic objectives,

cooperatives have developed much expertise in selecting the type of

equipment to meet the needs of farmers and other rural patrons. They

have done this over the years in a variety of ways-through use of testing

and research laboratories; research farms; college conference boards of

agricultural engineers; committees of regionals’ directors and staff

33
members; and suggestions of local cooperative employees, directors, and

farmer-members.

Challenges Ahead

Farmers probably will continue to buy more and improved types

of farmstead and home equipment. This will present opportunities to

cooperatives to be pasesetters in providing and servicing equipment,

adapted to farmer needs at minimum costs.

Some local cooperative outlets will need to improve distribution

methods and modernize facilities. Some may wish to develop more farm

service centers, while taking care not to overinvest in facilities. Those

handling sprayers and chemicals will need to be cautious to minimize

product liability problems.

Another challenge is to be alert for opportunities to improve sources

of supply and net margins through purchasing activities and manufacturing

if necessary.

Cooperatives will face the challenge of recruiting and keeping

employees who have mechanical aptitudes and a knowledge of farm

management requirements. Management, with support of boards of

directors, will need to do more long- range planning for installation and

after-sales maintenance service for total systems needed in a variety of

farm enterprises.

Food and Related Services

Farmers have applied the principles of cooperative purchasing to

farm family living supplies such as food and related supplies as well as

to farming needs.

Retailing

Early in the century, local grain marketing cooperatives pooled

the orders of members for fresh apples and peaches, cases of canned

goods, sugar, and flour and bought them in railcar lots. The next step

was to either add a grocery store to the existing cooperative or to organize

a separate food store cooperative. Some added cold storage locker services

or separate food locker cooperatives. Most stores also carried some

household supplies, small equipment, and work clothes and shoes. A few

added clothing departments.

Most food stores served small rural communities. For many years,

stores in the Midwest handled eggs and cream produced by small farmers

34
to provide a market outlet and to help them pay cash for groceries.

Many cooperative stores in the North Central States were owed

by both farmers and other members of the community, including mine

workers. Many of the earlier stores were operated by cooperatives under

Grange and Farmers Union sponsorship.

In 195 l-52, 860 farmer cooperatives handled food. The peak

number was 974 in 195556. With development of supermarkets, better

highways, keener competition, narrow margins, and cooperative mergers,

the number selling food has been decreasing.

In 1983, only 430 farmer cooperatives reported sale of food such

as groceries, meats, produce, and household supplies (table 4). Their

net sales totaled $124 million.

The five States with largest volumes in 1986 were Nebraska,

Minnesota, Wisconsin, Kansas, and Washington. Minnesota and

Wisconsin had the largest number of cooperative stores, 139 and 75,

respectively.

Recently, some midwestern and eastern local cooperatives have

been selling CO-OP food products on a full-case, pre-ordered, and prepaid

basis. Their orders are pooled through regional wholesale cooperatives,

which forward them to the grocery department of Universal Cooperatives,

Minneapolis, their interregional association. Merchandise is shipped

directly to participating local cooperatives.

A few of these cooperatives rent frozen food lockers to members

for storing meat, fruit, and vegetables. In the 1940’s, the peak number

of frozen food locker plants cooperatives operated was about 900, but

Table 4-Cooperatives reporting net sales of food and related merchandise

in specified years

Year

Cooperatives

reported handling

Reported net sales of

food and related items’

1951-52 860 38.0

1955-56 974 47.0

1960-61 896 51.9

1965-66 764 57.7

1970-71 667 69.9

1975-76 486 108.1

1979 485 184.3

1980 482 202.0

1983 430 123.7

1986 408 113.4

Number Million dollars

‘Excludes mtercooperative business.

35
most of these ceased operating when home freezers became popular and

cooperatives failed to adapt to this trend. Also, health and safety

regulations became more stringent, forcing many cooperatives to spend

considerable amounts to modernize, sell their facilities, or cease operation.

A few dairy-marketing cooperatives sell dairy products and a

limited line of other foods. One example is Land 0’ Lakes, Inc.,

Minneapolis, which franchises several ice-cream and other dairy-product

parlors or stores. These are handled by its Bridgeman retail division.

High’s and Bridgeman stores provide a way of marketing at retail dairy

products and other foods. They are not cooperative purchasing functions

by member-patrons, as no patronage refunds are distributed on such retail

sales.

Some fruit- and vegetable-marketing cooperatives also operate retail

stands near their facilities or in open markets, but this volume is small.

Wholesaling and Interregional Purchasing

Wholesaling

In 1980, only two regional cooperatives provided wholesale service

in purchasing foods for local cooperatives. Their wholesale sales to other cooperatives totaled about $22 million, perhaps equal to a fifth or sixth

of the volume handled at retail by their member cooperatives.

These regional wholesalers were Producers Grocery Company,

Columbia, MO, with about 50 local member cooperatives, which ceased

operating in 198 1, and Midland Cooperatives, Inc., Minneapolis, which

merged with Land 0’ Lakes in 1981. (In 1963, Central Cooperative

Wholesale, Superior, WI, with a large grocery division serving local

farmer and consumer cooperative stores, and Midland Cooperative

Wholesale had merged to become Midland Cooperatives, Inc.)

In July 1936, Consumers Cooperative Association (now Farmland

Industries), Kansas City, MO, opened a wholesale grocery division to

serve member locals but discontinued it after several years of losses, due

in part to the scattered locations of small local stores and the trend to

supermarkets.

Interregional Purchasing

Universal Cooperatives, Inc., serves both farmers and consumer

regional cooperatives and supplies from its label library several million

CO-OP trademark labels to canneries and other food packers, based on

member regionals’ orders each year. It also arranges for some other

36
merchandise to be packaged under the CO-OP label.

Universal’s grocery department works with member regionals in

supplying group or pooled orders for some of their local cooperatives

in the Midwest and East. Universal’s total sales of food products are nearly

$30 million a year. In 1939, National Cooperatives, Inc., formerly

headquartered at Chicago and later at Albert Lea, MN, started a grocery department to serve five member regionals . It grew into a large supply

association but food volume remained relatively small. In 1972, it merged

with United Cooperatives, Inc., Alliance, OH, to become Universal

Cooperatives, Inc.

Processing

No regional wholesale cooperative processed food for local

cooperative stores in 1983.

Only one farmer/consumer wholesale cooperative-Central

Cooperative Wholesale (later Midland Cooperatives)-has ever engaged

in processing. It operated a coffee-roasting plant and bakery for many

years.

The benefits of cooperative distribution of food to farmers and

other rural residents have been mainly dependable, convenient, and

friendly service extending over many years in small towns and rural

communities and dependable quality. Specifications were developed for

two and sometimes three grades or qualities of CO-OP canned goods.

Members came to rely on these quality and pricing practices to determine

best buys for food needs.

Net margins as a percent of sales have been minimal, typical of

the food industry for many years. However, these net margins have

provided a modest return on invested capital (member equity) in numerous

cases.

Challenges Ahead

Distribution of food and related merchandise through supermarkets

operated by farmer cooperatives is expected to decline further. In many

areas, the industry is dominated by large chains operating on narrow profit

margins, and farmer cooperative stores have to rely on many nonfarm

patrons to obtain sufficient volume to be competitive. With the decline

in agricultural wholesale cooperatives handling food, local or retail

37
cooperatives likely will find it necessary to join retailer-owned

cooperatives for their wholesale food services.

Local-regional farmer cooperative systems, working with Universal

Cooperatives, may find opportunities to expand ordering and distributing

of food products on a caselot preordered and prepaid basis. This system

has successfully eliminated some of the traditional basic distribution costs,

thereby providing farmers/consumers quality graded CO-OP products

at lower net prices.

Unclassified and Other Farm and Home

Supplies and Equipment

Types and Farm Expenditures

Unclassified farm supplies and equipment sales of cooperatives

often include building materials, containers, pesticides, and farmstead

equipment used in farming. They also include an “other” category such

as farm hardware; hand tools; work clothes and shoes; fence controllers;

binder twine; baler wire; plumbing materials; automotive supplies; and

sometimes items related to feed, such as animal health products, oyster

shells, salt, and litter.

Also unclassified sales include items farmers and other rural

residents buy for home, garden, and family living. These include

household supplies; hardware; home appliances; coal; clothing; and lawn

and garden supplies and equipment, including packaged seeds, fertilizer,

and pesticides, sprayers, and dusters. They also include recreation items

such as horse riding equipment and tack; snowmobiles; and fishing,

hunting, and skiing equipment. In many communities, rural residents and

suburban patrons look to co-op farm supply stores as dependable sources

of home, lawn, and garden supplies.

In 1983, U.S. farmers purchased about $1.4 billion of

miscellaneous equipment and hand tools, exclusive of power farm shop

equipment and dairy, poultry, and other livestock equipment, considered farmstead equipment in this report.

Retailing

In 1986, 3,570 cooperatives reported net sales of “unclassified

supplies” totaling about $1.46 billion (table 5). The number of

cooperatives reporting such sales has not changed much in the past 30

years, but net sales have tripled since 1970-71. The five States with largest

38
Table 5-Cooperatives reporting net sales of unclasslfled and other farm

and home supplies and equipment In speclfled years

Year

Cooperatives

reported

handling

Reported net sales of

unclassified farm and home

supplies and equipment

1951-52 4,525 210.4

1955-56 4,482 163.4

1960-61 4,558 196.2

1965-66 4,810 257.0

1970-71 4,663 420.0

1975-76 4,432 733.6

1979 4,577 1,178.2

1980 4,331 1,206.l

1983 3,900 1,351.8

1986 3,570 1,459.5

Number Million dollars

lExcludes intercooperative business. These sales consist of a considerable amount of building supplies; farmstead and

home equipment; containers and packaging supplies;food; hardware; salt; lawn and garden supplies; work clothing,

shoes, and boots; household and recreation supplies and the like.

net sales of these supplies in 1983 were Minnesota, Wisconsin, New York,

Kansas, and North Dakota.

No surveys have been conducted to determine the types and dollar

volumes of supplies in this unclassified category. The degree to which

each cooperative classifies sales into types depends on volume, type of

accounting system, and extent to which the manager wants sales itemized

for control and margin information. In grain-marketing cooperatives, such

unclassified supplies may be called elevator merchandise or general

merchandise. In fruit- and vegetable-marketing cooperatives, they may

be called growers’ supplies or orchard supplies. Other cooperatives may

refer to them as general supplies, hardware, or farm supply store

merchandise.

Wholesaling

Wholesaling

and Interregional Purchasing

Local cooperatives obtain a large part of their general supplies from

regional wholesale cooperatives that, in turn, purchase them from

interregional cooperatives.

In 1983,3 1 federated regional cooperatives sold about $600 million

39
ln many rural cooperatives, the local cooperative is the all-purpose store for farm and home supplies and equipment.

40
41
of unclassified supplies and equipment at wholesale to other cooperatives.

Allowing for transportation and addition of retail markups, this amount

represented a substantial portion, perhaps 50 percent, of the $1.4 billion

of net sales by all cooperatives.

The five regionals with largest volumes in 1983 were Agway Inc.,

Syracuse, N.Y.; Farmers Union Central Exchange, St. Paul, MN;

Farmland Industries, Inc.; Kansas City, MO. ; Southern States

Cooperative, Richmond, VA; and Tennessee Farmers Cooperative,

LaVergne .

Some larger farm supply cooperatives stock several thousand items

that may be classified as general farm and home supplies and equipment.

Agway Inc. reports it carries 13 ,OW items from paint to power equipment.

It sells some at wholesale and some at retail. Agway classifies one group

as “lawn, home, and garden” supplies and equipment, with annual sales

ranging between $89 million and $116 million during the past 3 years.

It classifies another group of items as “hardware and automotive,” with

sales averaging $42 million a year during this period. Some items in these

two groups may fall under other classifications used in this report, such

as building supplies, farmstead equipment, and containers and packaging

supplies.

Farmland Industries warehouses 22,000 items in its Equipment

and Supplies Division, with sales ranging from $94 million to $129 million

during the last 3 years.

Interregional Purchasing

Universal Cooperatives had annual sales of unclassified supplies,

as defined in this report, of nearly $175 million in 1980. It purchases

a wide range of general farm and home supplies for 39 member regional

cooperatives in the United States and Canada.

Universal sells binder twine and baler wire, farm hardware and

hand tools, fence controllers and batteries, animal health products, and

the like. It also sells tires, automotive supplies, paint, farmstead equipment

(mechanical or automation equipment), and some building supplies.

Manufacturing

Regional cooperatives neither manufacture nor contract for

manufacture of most of their general supplies. Exceptions are automotive

batteries manufactured by Farmland Industries at its Kansas City plant

and steel gates, racks, and fencing by Tennessee Farmers Cooperative

at La Vergne, TN.

42
Benefits

Cooperative distribution of general supplies has benefited farmers

and local cooperatives in several ways. Farmers have obtained them at

a saving, taking into account patronage refunds. They have had confidence

in the quality of supplies handled. Farmers and other rural residents have

found it convenient to buy supplies at one location or farm service center.

In local cooperatives, these supplies have absorbed some

administrative and general overhead expenses, enabling other supplies

or departments to show greater net margins. General supplies also have

attracted more patrons and helped build volume in major types of supplies

handled.

Challenges Ahead

As local cooperatives become larger by merging and by adding

branches, and as they become more diversified and complete farm service

centers, sales of general supplies likely will increase. They also may be

asked to provide more on-farm or custom services as farmers become

larger and engage in more commercial operations.

Author I Lloyd C. Biser I agkultural economist, now retired.

43
U.S. Department of Agriculture

Agricultural Cooperative Service

P.O. Box 96576

Washington, D.C. 20090-6576

Agricultural Cooperative Service (ACS) provides research, management, and educational assistance to cooperatives to strengthen the

economic position of farmers and other rural residents. It works

directly with cooperative leaders and Federal and State agencies to

The agency (1 ) helps farmers and other rural residents develop

. . ., .

better prices for products they sell; (2) advises rural residents on

developing existing resources through cooperative action to enhance

rural living; (3) helps cooperatives improve services and operating

efficiency; (4) informs members, directors, employees, and the public

on how cooperatives work and benefit their members and their communities; and (5) encourages international cooperative programs.

ACS publishes research and educational materials and issues

Farmer Cooperatives magazine. All programs and activities are conducted on a nondiscriminatory basis, without regard to race, creed,

. .