USDA / Rural Development January/February 2010

Rural

COOPERATIVES COOPERATIVES

Page 8
By Judy Canales, Administrator

Rural Business & Cooperative Programs

USDA Rural Development

Editor’s note: The following is based on remarks Canales made at

the Farmer Cooperative Conference in Minneapolis in November.

Canales also served previously as Texas State Director for USDA

Rural Development. For other conference highlights, see page 18 of

this issue.

griculture Secretary Tom Vilsack has

challenged USDA Rural Development to

help build rural communities that “can create

wealth, are self-sustaining, repopulating and

thriving economically.” To accomplish this,

seven priority areas have been set: alternative energy;

strategic partnerships; regional collaboration; broadband

development and continuous business creation; capital

markets; community building and regional food systems.

Cooperatives can play a role in all of these efforts. They’re

not only effective tools for conducting business and securing

needed services for their members, they also can play a role

in community building and in all types of rural development

efforts, ranging from the development of local food systems

to broadband access.

Consider rural utility cooperatives, which work closely

with the USDA Rural Utilities Service (part of USDA Rural

Development). Electric co-ops reach more than 45 million

customers. That’s a huge capacity to affect change.

Through our Rural Business-Cooperative Service (RBS),

we support farmer cooperatives, which play a key role in

creating new business opportunities for rural America’s 60

million people. Farm and rural economies are interdependent, and value-added agriculture drives sustainable

development across the board.

While most farmer co-op leaders are well aware of the coop education, research and development work we do through

our RBS Cooperative Programs office, you may not be as

aware of some of our other business programs, which co-ops

are encouraged to participate in. For example, our Rural

Business Enterprise Grants (RBEG), Rural Economic

Development Loans and Grants (REDLG) and the

Intermediary Relending Program (IRP) can play a big part in

reviving rural communities around the

nation.

The RBEG program

provides funds for small

and emerging rural

businesses, distance

learning networks and

employment-related adult education programs. The REDLG

program provides zero-interest loans and grants to our

electric and telephone borrowers for development and job

creation projects. Under the IRP, 30-year loans are provided

at 1 percent interest to local organizations to establish

revolving loan funds.

A great example of these efforts can be seen in South

Dakota and Minnesota, where the IRP and REDLG

programs are supporting 21 electric cooperatives that have

created a special fund to promote economic and community

development. This fund helps provide electricity to co-op

consumer-owners and stimulates economic growth through

business development and expansion. It allows small

cooperatives to share capital, common-credit policies,

materials, processes and personnel to serve eastern South

Dakota and western Minnesota, an area of about 500,000

people.

The fund is governed by a board that sets policy and

serves as the loan-review committee. By pooling more than

$1.9 million from their members, the fund has attracted more

than $25 million in public and private investment loan

capital.

This type of collaboration maximizes the fund’s ability to

leverage resources and expand its regional impact. To date, it

has collaborated with more than 100 banks, 20 development

corporations/loan funds and 15 government programs to

achieve more than $315 million in project investments in the

region. During the past 13 years, it has helped advance 194

projects, created 6,000 jobs and supported community

development initiatives.

This is what rural cooperatives can do for economic

development! Cooperatives are a great way to encourage

community buy-in for development projects.

Farmer cooperatives should also be aware of Rural

2 January/February 2010 / Rural Cooperatives

Commentary

Co-op role in rural development

continued on page 41
Features

Rural Cooperatives / January/February 2010 3

Volume 77, Number 1

January/February 2010

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

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Unless otherwise stated, articles in this

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To file a complaint of discrimination, write

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

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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 p. 12

ON THE COVER:

Agricultural production in Iraq, including important crops such as rice

(seen here) and dates, has been hurt by the years of war. USDA farm

advisors have helped launch new co-ops, such as one near Baghdad

that is providing farmers with technical assistance and farm supplies,

resulting in what some co-op members call “a green miracle.” Photo

courtesy USDA Foreign Agricultural Service

4 A ‘Green Miracle’

Co-op playing key role as Iraq rebuilds farm sector

By Linda C. Habenstreit

12 Flour Power

NW wheat growers find success with eco-marketing strategy

By Stephen Thompson

15 Organic dairy market also hurt by low prices

By George L. Siemon

18 Co-ops can thrive in uncertain times

Farmer Co-op Conference sees opportunity for co-ops that adapt to structural changes

By Lynn Pitman

22 Dairy co-op survey reveals financial performance trends

By Carolyn Liebrand

28 State cooperative councils adapting to help members

in turbulent times

By James Wadsworth

Departments

2 COMMENTARY

8 CO-OP GOVERNANCE

11 LEGAL CORNER

16 CO-OP DEVELOPMENT ACTION

26 UTILITY CO-OP CONNECTION

32 NEWSLINE

42 PAGE FROM THE PAST

p. 22
4 January/February 2010 / Rural Cooperatives

Former USDA Agricultural Advisor Mike Stevens (right) confers with a group of Iraqi farmers and sheikhs.

Advisors such as Stevens work closely with cooperatives and similar producer associations and have

played a major role in helping to reignite the nation’s farm economy. Photos courtesy USDA Foreign

Agricultural Service, except where noted
By Linda C. Habenstreit

Public Affairs Specialist

USDA Foreign Agricultural Service

n Iraqi farmer

cooperative is helping

to revive the war-torn

nation's agricultural

economy by providing

farmers with technical assistance, farm

supplies and credit. In December the

co-op celebrated the grand opening of

its new office and warehouse facilities

and held its first board of directors

meeting. Playing a crucial role in the

launch of the cooperative is a team of

three USDA Provincial Reconstruction

Team (PRT) agricultural advisors, who

offered vital guidance and advice.

The not-for-profit cooperative —

the Green Mada’in Association for

Agricultural Development (GMAAD)

— provides free technical assistance and

training to farmers in four townships in

Mada’in Qada, east of Baghdad in

Baghdad Province. The co-op also

provides access to low-interest lines of

credit to purchase or rent agricultural

equipment and supplies — such as seed

and fertilizer — and to secure needed

farm services. The co-op does all this at

lower costs than the farmers could

otherwise find.

Membership in the cooperative is

growing by 10 percent per month, with

more than 800 members to date.

With the support of 47 agricultural

associations in Mada’in Qada, the Iraq

Co-op playing key role as Iraq rebuilds farm sector

Rural Cooperatives / January/February 2010 5

Fred Woehl, agriculture specialist for the Ninewa

provincial reconstruction team, talks to a Kurdish farmer

before an agricultural association meeting. His team has

helped farmers in Qaraqosh, Nimrud and Qosh acquire

greenhouses, tractors and seedlings. Before coming to

Iraq, Woehl worked in Harrison, Ark., as a loan manager

for the USDA Farm Service Agency. Farmers who receive

greenhouses and training agree to turn over a portion of

their profits to their agriculture associations to fund more

greenhouses for members. Photo by Staff Sgt. Melanie

Trollinger, courtesy U.S. Army
6 January/February 2010 / Rural Cooperatives

Ministry of Agriculture and Iraqi Prime

Minister Nouri al-Maliki, USDA PRT

agricultural advisor Floyd Wood began

guiding efforts to organize the

cooperative in 2008. In 2009, two more

USDA/PRT agricultural advisors —

John Ellerman and Glen Brown —

arrived in Iraq and began working with

Wood, who extended his 1-year

voluntary deployment to a second year

to see the project through to fruition.

This proved to be key for the

cooperative, which has accomplished a

great deal in a short period of time.

Initial funding of $6 million came

from the U.S. State Department to start

the cooperative. Subsequent funding

came from the U.S. Commanders’

Emergency Response Program (CERP)

to pay for reconstruction projects, with

additional contributions made by

members of the cooperative.

Using $2 million of the State

Department funds, the cooperative first

established and trained its board of

directors and staff, constructed facilities

and began operations. The co-op then

began building drip irrigation systems

and greenhouses for its members

throughout the region.

“With the funding we obtained from

the U.S. Department of State, we were

able to systematically take the

cooperative through the steps it needed

to follow to become a sustainable

organization,” says John Ellerman,

USDA PRT agricultural advisor.

The co-op subsequently obtained

more than $4.5 million from CERP to

install nearly 600 additional drip

irrigation systems and more than 400

greenhouses in Mada’in Qada. These

successes convinced farmers in Mada’in

Qada that the cooperative was

sustainable. As a result, more farmers

began joining the cooperative.

With the remaining $4 million from

the State Department, the cooperative

established a revolving credit system

that is primarily being used to provide

farmers with access to short-term

credit. The cooperative is now receiving

and processing credit applications,

making it possible for farmers to

purchase critically needed agricultural

inputs and services. These functions

were especially important to help

farmers prepare for the fall plowing and

planting season.

Future projects, pending funding,

include construction of a poultry feed

mill, cattle chutes and a date-processing

plant.

“Members of the cooperative call it

the Green Miracle in Mada’in Qada,”

says Ellerman. “They never thought

they would get this type of support or

that they would have the opportunity to

get their land back into production.”

Having completed its first year of

operation, the cooperative is

demonstrating to farmers that it is able

to meet their needs. The co-op is

becoming a dynamic force in the

development of modern, sustainable

agricultural practices in Mada’in Qada.

■

A USDA Provincial Reconstruction Team meets with officers of the Green Mada’in Association for Agricultural Development, which is helping farmers in the area east of Baghdad. The co-op recently opened a

new farm supply warehouse and office.
Rural Cooperatives / January/February 2010 7

Iraqi women learn

poultry production

from USDA advisor

David Greaser, USDA Farm Service Agency

county executive director for Huntingdon/Blair

Counties in Huntingdon, Pa., recently returned to the

United States following a 1-year voluntary

assignment, helping to rebuild Iraq’s agricultural

sector. He was part of the Provincial Reconstruction

Team (PRT) in Istiqlaal Qada, 20 miles north of

Baghdad along the Tigris River.

Greaser worked on a variety of projects, including

small poultry ock management and beekeeping

training for Iraqi women, many of whom are widows

and are members o ocal farm organizations, which

would be the equivalent o armer co-ops in the

United States. Recently, a group of 75 women from

the Rafedain Foundation/al-Rashdiyah Branch

completed 20 hours of poultry training.

After completing the course, these women

received 10 hens, one rooster and 110 pounds of

fodder to start their own small poultry farms. A local

veterinarian who taught the course will make followup visits to each woman’s home. One week per

month, the women will allow the eggs to hatch to

ensure a future supply of hens for egg laying.

This training is making a dierence in the lives of

the women, their families and their neighbors, as

evidenced by demand for future training. The branch

manager of the Rafedain Foundation told Greaser he

could not go to his oce for 2 days because of the

number of women stopping by to get into future

classes.

The fact that many of the women were war

widows with little other source o ncome made this

not just an economic development project, but a true

humanitarian eort, says Greaser. “I think we

accomplished a lot. The goal in all these eorts is to

build capacity and sustainability, and I think we

achieved that.

“When I rst arrived, I thought, ‘what have I

gotten myself into,’” Greaser recalls. “But once I got

to know the people and started interacting with

them, it was very rewarding. I can’t say I enjoyed

every day o t, but I did enjoy the overall

experience.”

So far, three poultry sessions have been held with

200 women being trained. The training is continuing,

even though Greaser is now back home. Funding for

this project was obtained from the U.S. Embassy’s

Quick Response Fund.

After they receive training, women

co-op members receive 10 hens and

a rooster to start their own poultry

ocks.

The goal of the

poultry project is to

build production

capacity and

sustainability.
8 January/February 2010 / Rural Cooperatives

Co-op Governance

Cooperative directors should regularly review the benefits that members derive from belonging to the co-op. Here, members of New Zealand’s

cross-sector cooperative association discuss issues facing co-ops in their nation. Photos Courtesy New Zealand Cooperatives Association
By Peter Harris

pharris@paradise.net.nz

Editor’s note: Harris is a former director of

PSIS, a cooperatively owned bank in New

Zealand, and is currently a member of New

Zealand’s Electricity Commission. He is an

economist with an extensive background in

research, analysis and advocacy. This article

is reprinted courtesy “Cooperatives News,”

the member publication of the New Zealand

Cooperatives Association (NZCA). It is

based on a talk he gave at a seminar for coop directors, organized by NZCA. For more

information about co-ops in New Zealand,

visit: www.nz.coop.

istorically, cooperatives

and mutuals have

played a massive part in

the New Zealand

economy. Despite this,

the standard governance texts and best

practice manuals “fudge” the distinction

between different forms of commercial

incorporation.

Specifically, cooperatives form to

correct imbalances that develop when

traditional investor-owned companies

operate in market economies. The goals

are to:

• Protect members from poor quality,

unsafe services and overpriced goods

that result from weak competition;

• Gain access to markets where

infrastructure is weak or expensive

(such as packaging, transportation,

distribution);

• Provide services that are not

profitable to commercial operators

(such as in remote areas);

• Capture a share of value added from

commercial provision;

• Secure economies of scale with

buying or selling power.

Duty of care

Cooperatives pursue mutual interests

as users of services, as opposed to the

investor interests of service providers.

Therefore, they form and persist as an

alternative to the delivery of service

through conventional, investor-owned

enterprises.

Both types of business are owned.

Both are governed. Both must have

regard for commercial disciplines or

else they will go broke. Both need to be

aware of the interests of other

stakeholders in order to retain

patronage and support.

Where they part company is where

the directors focus their attention when

they exercise a necessary “duty of care.”

Commercial company directors do

develop a set of tools that are of benefit

in a cooperative company: audit and

risk oversight, remuneration of senior

managers, investment of treasury type

funds, legal compliance disciplines and

so on.

However, those common

competencies are not sufficient. There

is a need for an almost 180-degree

reorientation of the duty of care in

relation to promotion of the interests of

the owners as users, as opposed to

owners as investors.

In checking whether co-ops are

being governed in a way that is fully

aligned with member interests and

democratic control, I think we can

develop some tests. Here are 10

questions to consider, but this is by no

means an exhaustive list.

1. Do the directors ask whether

there is more value to the owners

from continuing in business and

accumulating assets, or selling up

and distributing them?

If they do, they don’t get it. They are

operating outside the primary area of

responsibility as directors of a

cooperative, elevating the interest of

investors to the cardinal interest. In

fact, most co-op members have very

little “skin” in the game as investors,

but have a lot at stake as users.

By way of example, owners of a

fertilizer co-op do not really care what

the value of their shares is: they care

passionately that the co-op delivers the

right quantity and quality of fertilizer

on time at a good price.

If directors ask whether there is still

a market imbalance that needs to be

addressed, or whether the interests of

co-op members are being met by

conventional enterprises, they are still

focusing on the cardinal interests of the

owners.

2. How often do directors review the

shape and form of the benefit that

their members get from participating

in the co-op?

If the co-op simply matches the

competition in form and price of

service, it is not correcting a market

imbalance: it is perpetuating it. The

competition leads, the co-op follows. It

competes essentially by using the

margin created by its “free capital”

(owners’ equity and accumulated

reserves on which it does not have to

pay a dividend).

Nominally anyway, a “real

cooperative” does pay owners market

rates on capital left in the business: it

just does not give voting rights pro rata

with capital contributed, and it

distributes surpluses (above those

needed to sustain adequate reserves) on

the basis of level of participation in coop activities.

In practice, accumulated reserves are

an undifferentiated wash-up from past

activities, so payment of a market rate

to contributors is not a realistic option.

But this should not detract from the

need to keep member interest top of

mind, or else the co-op is largely

benefiting directors and staff, not

members.

3. Do directors regularly assess the

extent to which their service

configuration and price ensure that

returns to members are pro rata

with their participation in the

trading activities of the co-op?

If they do not, they can easily see the

co-op drift as members who crosssubsidize others react to another form

of market imbalance (administered

imbalance) and walk away.

4. What innovations has the co-op

introduced in recent times?

Market outcomes change in a

modern dynamic economy, so the

member benefits that the co-op can

capture will alter as competition and

technological change both reduce old

Rural Cooperatives / January/February 2010 9
10 January/February 2010 / Rural Cooperatives

imbalances and create opportunities for

new benefits.

Innovations can be quickly imitated,

so an effective co-op is innovating

ahead of the competition. If it simply

imitates market innovations, it loses

that fundamental driver of its reason for

being: to do things divergently.

5. Is there an explicit succession plan

for directors?

Co-ops need to be democratic and

accountable. In a profit-maximizing

company, shareholders who are

dissatisfied with the performance of

directors can simply sell their shares,

extract their capital and walk away.

The threat of a hostile takeover bid

tends to apply incentives to investorowned company directors to maintain

performance (although spectacular

failures are still very frequent).

However, because co-op shares can be

issued with a nominal value and can be

redeemed, capital market disciplines on

directors are virtually nonexistent.

There is nothing wrong with that: it is

just a consequence of the orientation of

a co-op.

Especially in larger co-ops with

diffuse memberships, it is very hard to

articulate an effective member voice.

Hence, democracy, transparency and

accountability have to be worked on

and led.

6. Is there a regular review of

whether the organization has been

captured by a minority or special

interest — be that an activist group

within the membership,

management and staff, or the

incumbent directors themselves?

It is very easy in a large organization,

where owners have very little investor

interest in its asset base, for

complacency to set in, and for directors

and managers to overlook the vested

interest of minority activist groups.

They are the ones that need to be

pacified, so it is easy to build up a

comfort blanket that says that the

activists are the members.

7. Are there formal limits on the

scope and level of trading with nonmembers?

Some form of transaction with nonmembers is inevitable in any co-op.

The question becomes whether nonmember transactions start to dominate

the financial affairs of the cooperative

to the extent that they subordinate the

interests of members.

This is particularly acute when

various covenants are placed on the

terms of loans and when constraints are

placed on the discretion of the

organization as a contractual condition

of some other transaction.

The risk is that there can be a

tipping point, beyond which the nonmembers, by virtue of financial weight,

become de facto cardinal stakeholders,

and the fundamental character of the

co-op is lost.

8. What processes are in place to

ensure capital adequacy to underpin

possible expansions of activity and to

ride through periodic difficult

trading conditions?

There is a delicate balance to be

struck. With relatively few exceptions

(Fonterra being a major one!), members

of co-ops do not have a fundamental

commercial interest in the co-op: it is a

part of their lives, not the center of

them.

Hence, they will pay (sometimes

reluctantly) a joining fee in the form of

a capital contribution but cannot be

expected to regularly subscribe to new

capital issues, especially since the co-op

is not designed to serve their interests

as investors.

There are many options for capital

raising: retained surpluses, joint

ventures, preference shares, subsidiary

investor-oriented companies, capital

notes and the like.

The point here is that it is usually

too late to seek capital to ride out a

crisis, but over-capitalizing “just in

case” runs into demoting the member

service orientation of the company.

A formal recognition of where the

capital adequacy boundary lies, how it is

to be sustained and how capitalization

strategies support the member-interest

focus of the co-op is required: capital

management should not be a default

outcome of governance.

9. Are special steps taken to

reinforce a sense of belonging

among members, to reinforce and

refresh the “common bond”?

A robust cooperative relies partly on

individual members seeing personal

value in the collective benefits that flow

out of their joint activities, but that

attachment can be weak and fickle. The

co-op can be reinforced if there are

routine reviews of what binds members

as opposed to simply what benefits them.

10. Is there a director-approved

program for induction of managers

and staff to reflect the memberbenefit orientation of the

organization?

Organizational values penetrate

management and staff slowly and

unevenly and can be a source of tension

within the staff (especially among

managers) if they are not formally

communicated and supported.

Fundamentally, the question that

directors need to ask is whether the coop is a membership mutual benefit

Co-ops have long played a crucial role in New

Zealand, including one that helps its members

market deer antler velvet.
Rural Cooperatives / January/February 2010 11

organization, an insider’s support

facility or a directors and staff

benevolent society.

Shortcomings

The Institute of Directors has

assembled a framework for the

governance of companies that

brings together values, principles

and practices. On the face of it, they

seem like the sorts of values that

might sit easily with any co-op:

integrity, enterprise, fairness,

transparency, accountability and

efficiency.

What is missing is a clear

specification of what the interests

are of the “shareholder.” There is

not a robust recognition that the

very reason for owning an

enterprise can reflect different and

divergent dimensions of the

personal interests of the

shareholder.

It is covered in the overall “washup” of achieving the mission and

purpose of the organization, and —

to be fair — that can be something

other than maximizing value. My

question, though, is — in practice

— whether co-op directors' natural

orientation leads them, as a matter

of pricipal, to question the

fundamental orientation of the

interests of the owner.

Even if it happens, I really doubt

that it is pervasive, but for co-ops to

be fully on mission, that orientation

needs to be pervasive. If it is, all is

well. If not, the question becomes

how to overhaul cooperative

director induction, training,

assessment and compliance routines

and manuals to achieve it. ■

Legal Corner

Co-ops faced numerous

challenges in 2009

By Stephanie M. Smith,

Senior Legal Advisor

Cooperative Programs

USDA Rural Development

he last decade has

brought a sea change in

how we, as Americans,

do business. We have

been through a severe

economic recession, which, at this

writing, seems to be abating. But our

collective eyes have been opened to new

business realities.

In 2009, in particular, there were

many developments that got us talking

and thinking about how cooperatives

can thrive in this ever-changing

economy. A few examples of issues

affecting the co-op sector in 2009 are

revealed by a quick glance back at some

of the headlines seen in this and other

co-op publications:

• Co-ops Face Challenges of Global SupplyChain Economics;

• Proliferation of Worker Co-ops and

ESOPs;

• Growth of the Organic and Local

Food/Beverage Markets;

• Changes in the Application of the Section

199 Deduction for Subchapter T

Cooperatives;

• The “Greening” of Cooperatives;

• Creation of Urban Farming

Cooperatives;

• Finance and Equity Structure Concerns

of Cooperatives;

• Understanding the Economic Impact of

U.S. Cooperatives on the U.S. Economy;

• Best Practices for Cooperative Training

and Development;

• Implementation of Anti-Trust Workshops

Hosted by the Department of Justice and

the Department of Agriculture.

Clearly, this is just a small sampling

of the types of issues and developments

swirling around co-ops in the past year,

but it gives an idea of the scope and

variety. Each issue provides fodder for

cooperatives to re-evaluate the reason

why they do business the way they do,

outside of the investor-owned corporate

model. From a legal and tax perspective,

these issues often bring us face to face

with those dreaded “what ifs” that we,

as professionals, must constantly ask in

order to ensure cooperatives are in

compliance with state and federal laws.

The year 2010 will surely present just

as many challenges and opportunities as

did 2009. In fact, my goal here is to

encourage you to reflect on those issues

you think are most important to your

co-op members. These issues will likely

be sources of discussion for years to

come and present new challenges on a

variety of levels. Tax and legal problems

that arise relating to these issues

generally shape policy that could

permanently affect cooperative

development.

Hopefully this column will help

support the cooperative community

with knowledge on how to face legal

challenges and provide creative

solutions to help them thrive as

successful businesses for years to come.

Please do not hesitate to contact me if

you have legal and tax issues you would

like to see addressed in this space in the

coming year: stephanieM.smith@

wdc.usda.gov, or (202) 690-1411. ■
12 January/February 2010 / Rural Cooperatives

NW wheat growers find success with eco-marketing strategy

Flour Power
By Stephen Thompson, Assistant Editor

stephenAthompson@wdc.usda.gov

small group of farmers in

the Spokane, Wash., area

has developed a local

niche market for

sustainably grown wheat

products that is adding to their incomes,

helping stabilize their prices and

encouraging environmentally friendly

farming.

The value-added marketing business

they formed, Columbia Plateau Producers

LLC, today has 32 member-farmers and

sells high-quality flour under the

Shepherd’s Grain brand to bakeries from

Seattle to Northern California. It’s a

member of the Food Alliance, which

certifies food producers for sustainable

practices and rang up $4 million in sales

last year.

The venture began in 1999 when

wheat farmers Fred Fleming and Karl

Kupers decided to try growing hard red

spring wheat in an area where soft white

wheat was the norm. Soft white wheat is

generally used for pastry and specialty

flours, while hard red is more suitable for

making bread. Growing hard red wheat

would allow diversification, and they

hoped to develop a differentiated product

that could command a premium price.

Fleming and Kupers figured that a new

strain of red wheat developed at

Washington State University —

combined with improved nutrient

packages and precision farming methods

— might make the grain feasible in an

area formerly considered unsuitable for it.

No-till proponents

Both men are enthusiasts of “no-till”

farming, which eschews plowing, leaving

the soil as undisturbed as possible to

reduce erosion and run-off. As they

became more involved with the no-till

movement, they became aware that their

earth-friendly method of farming could

Rural Cooperatives / January/February 2010 13

Fred Fleming, with wife Vicki on their Washington wheat farm, helped start Columbia Plateau Producers,

which has forged a successful niche market for its Shepherd’s Grain brand flour. Photo by Kristen Dvoracek
14 January/February 2010 / Rural Cooperatives

be used in a marketing strategy in the

environmentally conscious Pacific

Northwest region. “We wanted to

market good food that’s been produced

in an environmentally safe way,” says

Fleming.

For 3 years, they experimented with

different varieties of hard red spring

wheat, working with a nearby bakery to

test the flour produced from their grain.

By 2002, they had worked out most of

the kinks and settled on a hard red

spring wheat variety that did well in the

region and yielded a high-quality flour

that baked into flavorful breads and

other products. Later, a hard red winter

wheat was also adopted.

Together they formed Columbia

Plateau Producers in 2002 to handle the

milling of their product. The LLC

contracts with a facility owned by

Archer Daniels Midland (ADM) to mill

the grain into flour. “They have the size

and ability to mill the quantities of flour

we need,” Fleming says, “And we’ve

developed a good working relationship

with them.” Fleming says that ADM,

which is certified by the Food Alliance,

was eager to work with them because it

wants to promote sustainable farming.

The growers also set up the LLC to

operate as a cooperative — originally

with six members. “We saw a farm

marketing co-op go out and recruit a

bunch of farmers for a venture a while

back,” says Fleming. “But they couldn’t

develop enough of a market to sell

everybody’s product.” Instead, their

organization recruits new members only

when the market has developed enough

to support them.

In 2007, Fleming and Kupers

received a $50,000 Value-Added

Producer Grant (VAPG) from USDA

Rural Development to conduct a

feasibility study and create a business

plan to develop a new line of consumer

packs of flour under the Shepherd's

Grain brand. (For more information

on the VAPG program, visit:

www.rurdev.usda.gov/rbs/coops/vadg.ht

m).

Non-traditional co-op

Columbia Plateau Producers is not a

traditional farm co-op. Each memberfarmer has a share of voting stock and

votes at an annual meeting to elect

board members. The board consists of

four member-farmers and three at-large

members drawn from the baking

industry. “Farmers are pretty sharp

when it comes to business,” says

Fleming. “But they don’t have

experience retailing. We’re trying to

enlarge the brainpool.”

Farmers must practice no-till

farming to be invited to participate.

No-till methods decrease erosion,

encourage moisture retention and

reduce soil compaction and nutrient

loss, but they require new seed drills

and other equipment and can increase

the use of herbicides. It can also take a

few years to become profitable after

switching from conventional methods.

However, Fleming sees no-till farming

as especially appropriate for his area.

“The topography and the soil here

are really conducive to erosion,” he

says. “I remember when I was young, a

heavy rain would leave ditches in your

fields, and lots of topsoil would end up

on the roads and in the water system.”

Every farm is inspected by the Food

Alliance to ensure that it adheres to

sustainable farming principles.

Today, says Fleming, soil on no-till

farms is healthier and thicker. “It’s a

nice healthy compost, and it acts as a

scrubber to clean runoff water.”

Combining no-till with precision

farming techniques, he says, allows

farmers in the area to reduce their

inputs 12 percent and their fuel use by a

whopping 38 percent.

Pricing strategy

Member farmers typically grow

about 15 to 30 percent of their annual

crop for the cooperative, with the rest

grown as typical soft white commodity

wheat — much of which goes for

export.

Shepherd’s Grain offers customers in

the baking industry high-quality

products at stable, pre-agreed prices

calculated to bring a reasonable rate of

return to the farmers. “Our customers

can plan around the agreed price, and

it’s also good for us to know what we’re

going to get for our product,” Fleming

says. “We try to shoot for about an 8-

percent margin every year.” The co-op

also recently signed an agreement to

supply flour to Stone Buhr, a Food

Alliance flour retailer located in San

Francisco.

The cooperative offers four varieties

of flour: a high-gluten, unbleached

flour for bread; an all-purpose flour; a

whole wheat flour with a unique, sweet

flavor; and a soft white flour for

pastries.

Sustainable practices are all well and

good, but success depends on a goodquality product. Kupers says Shepherd’s

Grain flour more than meets the test.

“Recently I was told that our flour has

the most integrity that the baker has

seen in his 30 years of baking.” ■

Bakers at Grand

Central Bakery in

Portland, Ore., not

only use Shepherd's

Grain flour, but they

also wear its logo on

their t-shirts. Photo

by Scott Yates
Rural Cooperatives / January/February 2010 15

By George L. Siemon, CEO

Organic Valley

he economic side of being a dairy farmer is

very frustrating! First and foremost, the pay

price that defines the gross income of the

dairy farmer is not connected to cost of

production. Second, the pay price goes up

and down beyond logic. Imagine, the conventional dairy

farmer does not know what he/she is making until a check

arrives in the mailbox.

Today, the economic crisis has resulted in low global

export sales, hence we have an overproduction of milk. The

pay price of milk to conventional dairy farmers is at a 30-year

low. As many as 20,000 family dairy farmers are expected to

leave the dairy sector during this crisis.

These realities were foundations that the farmer-owners of

CROPP Cooperative, producers of Organic Valley products,

used when developing the organic dairy market. The vision

of CROPP Cooperative in forming the first organic dairy

pool in the United States was that organic must be

sustainable for the land and be economically sustainable for

family farmers. We insisted that the price be fair and stable,

and in our first 20 years we accomplished that goal. The

conversion to organic dairy has been a life line for many

conventional farmers.

Like many businesses, dairy supply and demand fluctuates

depending on the market, the seasons and the weather. In our

20-year history, supply has fluctuated many times between

too much milk and not enough milk to keep up with the

growing market.

About 2004, organic milk was in short supply for an

extended period, and organic dairy production experienced

double-digit growth. During the tight supply situation, many

new competitors entered into the organic dairy marketplace,

hoping to cash in on the growing market. Many of these were

traditional dairy companies with hopes that organic could

help save their farm or company.

These new players procured large quantities of organic

milk at time when it seemed the market would continue its

dramatic growth. This era should be called the “organic dairy

gold rush.” The new competition caused high prices.

Just as the recession set in, the organic dairy supply was overcontinued on page 38

Photo courtesy Organic Valley
16 January/February 2010 / Rural Cooperatives

By Christina Clamp,

Professor, School of Community Economic Development

Southern New Hampshire University

ising unemployment, frozen credit markets

and an epidemic of foreclosed properties

have combined to create a perfect economic

storm for many Americans. These conditions

have resulted in an economic climate that

merits greater exploration of the cooperative business model.

The cooperative movement has long helped average

Americans in many ways, with periods of intense co-op

development often corresponding to periods of difficult

economic conditions. From marketing their crops and

livestock via farmer co-ops to securing crucial financial

services through credit unions and finding safe, affordable

homes through housing co-ops, the solutions to life’s

challenges have often been found in the form of producerand user-owned cooperatives.

Master’s program focuses on co-ops

Universities can play a key role in exposing more people

to the potential of cooperatives. A prime example is the

School of Community Economic Development (SCED) at

Southern New Hampshire University, in Manchester, N.H.,

which offers a Master’s Degree program in community

economic development.

This program integrates co-ops into a “tool bag” of

options for future community developers. Students can earn

an advanced certificate in cooperatives and credit unions,

during which they learn how to create and sustain new coops both in the United States and abroad.

Founded in 1982 and with more than 2,500 graduates

from over 100 countries, SCED is recognized both nationally

and internationally as a leader in advancing the creation of

sustainable communities. A variety of advanced degrees are

offered at the main campus in New Hampshire and satellite

campuses in Los Angeles, Tanzania and the Philippines.

Alumni build affordable housing, run communitydevelopment financial institutions, promote cooperatives and

micro-enterprise programs and develop commercial projects

and small businesses in low-income communities.

All students in the program are required to complete a

project in Community Economic Development. Students

with a focus on cooperative solutions are developing

cooperatives and co-op policies.

Students address real-world needs with co-ops

A sampling of projects that students are engaged in reveals

how adaptable co-ops are to meeting a variety of community

needs. Tanya Gracie, from Canada, is currently working with

the Canadian Cooperative Association and the Ontario

Cooperative Association to assess how to recruit a new

generation of cooperators, both for existing co-ops and for

co-ops that specifically serve youth.

During an introductory course on co-ops, Dick Patterson

asked how one could create meaningful ownership for

members in limited-equity housing co-ops. He then went to

work to supply an answer, developing a financial model that

would pay patronage refunds to members in limited-equity

housing co-ops.

Michael Bowie was employed at a Community Economic

Development Center that was looking for ways to deal with a

surge of empty homes in Worcester, Mass., a city that

suffered more than 2,000 foreclosures during the past year.

He felt that his hometown would benefit from a cooperative

solution, but a prior effort to develop co-op housing there

had failed. So his employer and others were quick to shrug

off yet another proposed co-op.

Bowie felt this attitude made no sense. After all, when

there is a rash of private business failures, few people will say

that America’s system of business is out-dated. So why, Bowie

asked, do people reject co-op solutions just because one coop has failed?

He rolled up his sleeves and went to work, conducting a

survey of young community activists, which revealed strong

interest in developing co-op community housing. He is now

working with a group of young people to acquire property

for a new housing cooperative. He is also working to develop

a small housing cooperative for the Stone Soup Artist Activist

Collective and Community Resource Center.

Lisa Stolarski and Andi Shively, both from Pennsylvania,

are trying to identify new ways to meet community needs

with cooperatives. Shively is interning with SCED’s Center

for Cooperatives and Community Economic Development,

where she is creating a Web-based resource site for

cooperative developers. Stolarski, a consultant with the

Co-op Development Action

University course promotes co-op

development to meet community needs

continued on page 43
Members of Stone

Soup Worcester hold a

block party at the

Community Center in

Worcester, Mass.

Renovations were led

by Mike Bowie to add

a resident cooperative

in the attic, as well as

a commercial kitchen

for all to share. Photo

by Mike Bowie
18 January/February 2010 / Rural Cooperatives

Farmer Co-op Conference sees

opportunity for co-ops that

adapt to structural changes

A member of the audience poses a question to one of the panels at the annual Farmer

Cooperative Conference. Opposite page: Panel members discuss biomass energy

opportunities. From left are: Anne Reynolds (UW Center for Cooperatives), Randy Kyle

(Kyle Consulting), Larry Johnson (Inbicon AS) and Wallace Tyner (Perdue University).

Photos by Richard Orndorf, courtesy UW Center for Cooperatives
Rural Cooperatives / January/February 2010 19

By Lynn Pitman

University of Wisconsin

Center for Cooperatives

lthough these are times of economic

uncertainty, there are still significant

opportunities for agricultural cooperatives.

This was one of the key messages of the 12th

Annual Farmer Cooperatives Conference,

Nov. 9-10 in St. Paul, Minn. Speakers from the cooperative

business community, government and academia provided

perspectives that addressed the conference theme: Thriving

in Uncertain Times.

Terry Barr, CoBank’s senior director of industry research,

kicked off the conference with his outlook for the world

economy, focusing on agriculture. He described how the

economic rebound that has begun will be different than those

of the past, and will necessitate structural changes across the

global economy. Capital markets will not act as a safety valve

for excess leverage, Barr said, predicting a more protracted

recovery period. Some policy proposals that would support

an economic recovery have increased the level of uncertainty

in key economic areas, including finance, energy, tax and

entitlement programs.

Agriculture is not exempt from this risk and uncertainty,

but — in the longer term — the farming sector may emerge

stronger if it can adapt to the structural changes on the

horizon, Barr said.

Future world economic growth will be driven by China

and India, and will be accompanied by the volatility

associated with a “resource-challenged world,” Barr said.

Firms will be more vulnerable as they become more exportdependent and face increasing competition in the global

marketplace. Farmers can expect to see volatility in prices,

both paid and received.

Quoting economist J. M. Keynes, Barr reminded the

audience that “the market can stay irrational longer than you

can stay solvent.” Increased working capital and optimal risk

strategies will be needed to manage more limited capital

market access, policy uncertainties and changes to currency

exchange and interest rates, he said.

More risk means more management

Managing risk is nothing new for cooperatives, said Jim

A
20 January/February 2010 / Rural Cooperatives

Hoyt, vice president of Growmark’s Strategic Planning and

Corporate Services. For many cooperatives, however, the risk

profile has significantly increased, requiring more

management time. Strategic planning must include a stronger

risk management component, he stressed.

Marshall Bohbrink, Growmark’s vice president of risk

management and treasurer, described strategies for

forecasting and mitigating credit and counterparty risks. Risk

analysis must look at both the quantitative and subjective

characteristics of a firm or individual. A cooperative that

proactively analyzes risk factors on a regular basis has the

flexibility to accommodate changing scenarios, such as last

year’s extremely volatile input markets.

In those circumstances, it is especially important to know

the limits of vendors and customers and to understand which

requirements are non-negotiable for the cooperative,

Bohbrink said. Policies that describe these limits and internal

communication requirements support the effective execution

of these strategies.

If a cooperative’s best efforts to manage counterparty risk

fail, what might happen in the event of a counterparty

bankruptcy? Brandy Sargent, an attorney with Stoel Rives,

described how the bankruptcy process may move very quickly

in the initial stages. Early legal notices may include motions

that will affect the cooperative’s ability to protect its interests,

so it is important to monitor the situation closely.

A cooperative can better minimize losses and protect or

enhance its position, Sargent said, if it can quickly gather

information on all counterparty business transactions,

including recent history, current accounts and contracts and

upcoming commitments.

Lenders positive on ag outlook

Given the trends in emerging markets, most lenders and

mid- to long-term investors have positive views about

agriculture, according to Antony Bahr, senior managing

director with the Captial Markets Division of Cobank. As

part of his update on capital and credit markets, Bahr noted

that commodities are seen as a good internal hedge to other

institutional investments. Nonetheless, current trends

affecting business deals include lower leverage and higher

equity levels, tighter covenants, original-issue discounts and

higher fees.

Although credit pressure has emerged in the dairy and

ethanol sectors, the Farm Credit System is in a relatively

strong position, said Bahr. CoBank has been successful in

attracting other banks and investors into customized

financing structures. Strong risk-management policies at a

cooperative make its loans more attractive for syndication.

However, continued economic uncertainty will affect the

credit markets, Bahr stressed. Significant pressure on

commercial and investment banks because of higher

minimum capital requirements is likely to continue well into

2010. Banks will be rethinking their risk management

models, and internally restructuring and deleveraging.

Many agricultural cooperatives are feeling the impact of

the past year’s economic downturn through changes in

market demand. Consumer food-purchasing patterns have

shifted. Consumers are eating more meals at home, while

sales of value-priced products have strengthened, said Frank

Bragg, CEO of MBG Marketing. However, MBG – which

primarily markets fresh and processed blueberries for growers

in the Upper Midwest and the South — is well-positioned to

respond to these shifts in consumer preferences.

To meet the growing consumer focus on health and

wellness, the cooperative has partnered with a South

American firm and growers in California to market fresh

berries year round under the Naturipe Farms brand. Last

year, MBG capitalized on the interest in fresh local foods

with a successful program involving Walmart. It plans to

expand the program during next summer’s peak growing

season. The co-op is also is focusing on “value retailers” by

offering larger packages of frozen berries.

Marketing sustainability

Consumer preferences have also contributed to an

increased focus on sustainability within the business world.

David Darr, vice president of sustainability and public affairs

at Dairy Farmers of America (DFA), described how the co-op

has identified sustainability as a competitive strategy that

helps deliver value to its cooperative members. Sustainability

has moved to a holistic view of a product’s life cycle and

encompasses the “triple bottom line” perspective of impacts

on the environment, the economy and society.

Conducting business through the lens of sustainability will

require more information and a greater degree of

transparency with consumers than in the past, Darr said.

DFA has a large environmental footprint, so being proactive

on sustainability issues is an integral part of the co-op’s

strategic plan.

Michael Cook, an ag economist at the University of

Missouri, presented a conceptual framework that links a

cooperative’s marketing, strategy and governance. These

activities are more integrally connected in cooperatives than

they are in private or investor-owned firms, he observed.

Co-op directors must have the ability to probe and ask

hard questions if their cooperative is to navigate challenging

economic times, Cook continued. Such questions are driven

by a clear concept of the cooperative’s strategy: the

integrated, externally oriented concept of how the

cooperative will accomplish its objectives. Cook discussed the

components of strategy development, including market and

product definitions, structures, timing and the economic

logic and results.

Energy and environmental issues

Agriculture’s link to the energy sector is providing a

significant set of opportunities and challenges for farmer

cooperatives. David Ladd, manager of government affairs at

AgriBank, FCB, provided an assessment of the current
Rural Cooperatives / January/February 2010 21

political considerations affecting ongoing efforts to create

energy policy legislation.

Legislators are grappling with questions about the tradeoffs between cropland and forested acreage for carbon

sequestration, the influence of policy on farmers’ cropping

decisions, and the pass-through costs that could potentially

be incurred by farmers. The election cycle and the focus on

the health care debate are presenting significant challenges to

the passage of an energy bill, Ladd noted.

An “on-the-ground” perspective of environmental credits

and how they can work was presented by David Miller,

director of research at the Iowa Farm Bureau Federation and

chief science officer for AgraGate, an Iowa Farm Bureau

entity that aggregates carbon credits. AgraGate is the first

licensed aggregator on the Chicago Climate Exchange

(CCX), handling about 6 million carbon credits annually.

Miller explained that while 7 percent of U.S. greenhouse

gas emissions are generated by agriculture, agriculture and

forestry account for 11 percent of the nation’s carbon

sequestration. This gives the sector a net 4-percent

sequestration rate that could be used for credits in a cap-andtrade program adopted to manage environmental

performance. U.S. farmers have currently volunteered about

16 million acres in CCX, or only 1.4 percent of the

potentially eligible working lands.

Many issues surround carbon offsets, such as

quantification methodology, verification, permanence and

enforcement. As the carbon market matures, continued

opportunities are likely to emerge for the agriculture and

forestry sectors.

Biofuel opportunities

Biofuel development continues to be part of the mix of

energy-related opportunities for agricultural cooperatives.

Randy Kyle, of Kyle Consulting Group Inc., described his

efforts on behalf of Landmark Services Cooperative,

exploring the market potential of aggregation and processing

of biomass for commercial electricity generation. Landmark

has responded to overtures from the nearby University of

Wisconsin-Madison about providing biomass for a campus

energy plant retrofit. Favorable transportation and storage

options exist, but there is uncertainty around the program’s

ability to offer member returns that would be sufficient to

consistently attract the acreage needed for aggregation. The

interplay of prices for oil, corn and beans, other inputs, the

program’s financial viability without Biomass Crop Assistance

Program (BCAP) payments, and alternate uses for crop

residues are uncertainties that would need to be addressed.

Larry Johnson of Inbicon, a biomass technology

development firm, provided an industry perspective on

biomass potential. He based his comments on experiences

with Inbicon’s wheat-straw biomass refinery operating in

Denmark. Johnson suggested that a separate cooperative

structure that procures feedstock from the farmers and sells

to the end user may be an effective way to deal with the many

harvesting, quality, storage and pricing considerations.

Ethanol production continues to be significantly directed

by federal and state policies. The existing corn ethanol

capacity already exceeds the demand for fuel with a 10-

percent ethanol blend, explained Wally Tyner, an ag

economist at Purdue University. Production costs in the near

future for cellulosic ethanol — refined through either

biochemical or thermochemical conversion processes — are

likely to remain more costly than are those for corn ethanol,

he noted. Market uncertainty will stymie investments in

second-generation biofuel plants unless new government

programs for fixed or variable subsidies, purchase contracts,

or loans and grants are developed, Tyner said.

Adjusting to slow down in organic market

Adapting equity strategies to support cooperative growth

opportunities requires a clear understanding of the interests

of the cooperative members. A central goal of Organic Valley,

the nation’s largest organic foods marketing co-op, is to

provide pricing that supports farmers based on ecological and

economic sustainability, said Jerry McGeorge, the co-op’s

director of cooperative affairs. Maintaining this focus has

been facilitated by sales growth rates of 20-50 percent during

the past 12 years. However, organic sales nationwide leveled

off this past year, and Organic Valley is not optimistic that

double-digit growth rates will return soon (see page 15 of

this issue for Organic Valley CEO George Simeon’s view of

the market).

Organic Valley’s capital base plan requires that members

make equity investments in preferred stock, based on the

Jerry McGeorge of Organic Valley discusses the co-op's new

preferred stock plan. Brent Hueth (seated) is director of the UW

Center for Cooperatives.

continued on page 38
22 January/February 2010 / Rural Cooperatives

By Carolyn Liebrand, Agricultural

Economist

USDA Rural Development/Cooperative

Programs

e-mail: carolyn.liebrand@usda.gov

Editor’s note: This article is based on a

USDA survey that gathered 2007 financial

and marketing data for U.S. dairy

cooperatives. More of the financial results

can be found in Research Report 219,

“Financial Profile of Dairy Cooperatives,

2007”published by USDA and available

online at: www.rurdev .usda.gov/rbs/pub.

For a hardcopy of the full report, call (202)

720-8381, or e-mail: coopinfo@wdc.usda

.gov. The marketing operations information

and some broad financial figures presented

here were also reported in the July/August

2009 issue of Rural Cooperatives (“Dairy

co-ops maintain steady market position.”)

he nation’s major dairy

cooperatives had total

sales of $44.2 billion

with net margins of

$404 million in 2007,

according to a survey of dairy co-op

operations conducted by the

Cooperative Programs of USDA Rural

Development. The survey, conducted

every 5 years, shows that net margins

over the last three surveys (for 2007,

2002 and 1997) varied only slightly on a

per hundredweight (cwt) of member

milk basis. The dairy co-ops also

reported $12 billion in assets, $8.7

billion in liabilities and $3.3 billion in

member equity. [See page 15 for a look

at how one organic dairy co-op has

been impacted by the depressed milk

prices in 2009.]

The 94 co-ops that participated in

the survey accounted for 98.5 percent

of the assets held by dairy cooperatives,

93.6 percent of the milk volume

handled and 60.6 percent of the nation’s

155 dairy cooperatives in 2007.

Assets per cwt swell

Balance sheet items were calculated

on a per cwt of member milk basis to

show the capital used by cooperatives to

market members’ milk (table 1). In

2007, dairy cooperatives had $8.41 in

assets for each cwt of milk members

sold through their dairy cooperatives.

By this measure, total assets held by

dairy cooperatives increased by more

than $2 per cwt between 2002 and

2007. In contrast, 2002 assets per cwt

were less than $1 per cwt above 1997.

Current assets of $5.08 per cwt

represented 60.4 percent of total assets

in 2007. Dairy cooperatives also held

$3.23 in fixed assets (net of investments

in other cooperatives) and just 11 cents

per cwt of member milk in investments

in other cooperatives in 2007.

On the other side of the ledger, total

liabilities were $6.09 per cwt in 2007.

Almost three-fourths (72.3 percent) of

the liabilities were current liabilities

(which may include pending payments

to members for their delivered milk).

Long-term liabilities were $1.69 per

cwt in 2007. Total liabilities per cwt, as

with total assets, increased twice as

much between 2002 and 2007 as

between 1997 and 2002.

Member equity was $2.32 per cwt,

representing 27.6 percent of these

cooperative assets. Member equity per

cwt was only marginally above 2002 and

1997 levels – by 22 and 25 cents,

respectively.

Net margins hold steady

In addition to marketing their

members’ milk, some cooperatives may

also handle milk received from nonmember producers, other cooperatives

and/or other firms. The volume of milk

going through a cooperative’s

operations has an impact on efficiency

and per unit costs, so the operating

statement items are expressed on a per

cwt of total milk handled basis. (About

10 percent of the total milk volume

handled by the 94 dairy cooperatives in

2007 was milk received from another

cooperative.)

Milk and dairy product sales were

$38.8 billion in 2007, or $23.68 per cwt

of total milk handled (table 2). Milk and

dairy product sales in 2007 were nearly

$8 per cwt more than in 2002 and

almost $5 per cwt above 1997. These

differences generally reflect the changes

in the average prices received per cwt

for all milk, which were $19.21 in 2007,

$12.19 in 2002 and $13.36 in 1997.

The 2007 price per cwt stands in

stark contrast to milk prices during the

past year, which averaged $12.79 for

2009.

Other sales and income was nearly

$5.5 billion, resulting in $44.2 billion in

total sales in 2007. This was $27.03 per

cwt — higher than in both 1997 and

2002 by fairly wide margins: $6 and $9

per cwt, respectively. Likewise, total

expenses of $26.78 per cwt were also

about $6 more than in 1997 and $9

more than in 2002.

U.S. dairy cooperatives had net

margins before taxes of $404 million in

Dairy co-op survey reveals

financial performance trends
Rural Cooperatives / January/February 2010 23

2007. In contrast to the wider

fluctuations in sales and expenses per

cwt between survey years, net margins

per cwt varied only slightly between the

three surveys. Net margins before taxes

in 2007 were 25 cents per cwt — just 4

cents per cwt above those in 2002 and 3

cents below 1997. Cooperatives may

pay somewhat higher prices and realize

lower net margins, or alternatively they

may pay relatively lower prices and

show higher net margins, which are

distributed to members.

Diverse marketing methods

Dairy cooperatives each face

marketing situations unique to their

location, membership and philosophy

or organizational culture. As such,

structural and operational differences

between dairy cooperatives arise as they

best position themselves to market their

members’ milk. The alternative

methods cooperatives use to market

milk require different levels of capital

and yield differing returns.

Dairy cooperatives were thus broadly

classified into four groups based on

function: bargaining-only, nichemarketing, fluid-processing and

diversified dairy cooperatives (see

sidebar). Those cooperatives that

operate only at the first handler level

are known as “bargaining-only”

cooperatives. They assist members in

the marketplace by negotiating prices,

facilitating arrangements between milk

buyer and seller, ensuring accurate milk

weights and tests and so forth.

Cooperatives that typically use most

or all of their member’s milk to make

specialty dairy products are, for lack of

a better term, “niche” marketing

cooperatives. Included in this category

are cooperatives that make artisan or

branded cheese and those that market

organic or specialty products on the

basis of how the milk was produced.

Cooperatives that focus operations

on the fluid beverage market are

classified as “fluid-processing”

cooperatives. This category is reserved

for the few cooperatives that aim to

capture value for their members by

processing and packaging fluid milk,

with some of these co-ops also

producing products such as ice cream,

Brown Swiss cows graze on Nate Lemire’s farm near Soldiers Grove, Wis. The nation’s major dairy co-ops reported sales

of $44.2 billion and margins of $404 million in 2007. Photo by Nate Lemire
24 January/February 2010 / Rural Cooperatives

sour cream, cottage cheese, yogurt

and/or butter as well.

The “diversified” cooperatives own

and operate plants to make a variety of

commodity and/or differentiated

products, while also selling a portion as

bulk raw milk. They typically make

some hard products — such as butter,

dried dairy products and/or cheese —

and some also make packaged fluid milk

and soft products, such as sour cream,

dips, yogurt, cottage cheese and ice

cream.

The financial data for the fluidprocessing and diversified dairy

cooperatives were grouped together due

to the small number of fluid-processing

cooperatives. Fluid-processing

cooperatives are more similar to

diversified cooperatives in their

complexities than they are to niche- or

bargaining-only cooperatives.

The specific cooperatives comprising

each group differ for each survey year

because some may not have provided

sufficient data in a given survey year

while others may have changed their

operating focus. All the groups (based

on operating type) had higher milk and

dairy product sales, total income and

total assets per cwt in 2007 compared to

2002 and 1997 (tables 3 and 4). However, the 2007 net margins per cwt for

all operating types were below those of

1997, but higher than in 2002.

Bargaining-only dairy co-ops

Bargaining-only cooperatives operate

at the first-handler level in seeking to

secure the most profitable outlets for

their members’ milk and leave further

processing and sales of dairy products

to other handlers. Therefore, they have

fewer assets than the other operating

types of cooperatives. This type of coop had just $1.74 per cwt of member

milk in assets in 2007, and most (81.5

percent) of their assets were current

assets.

Bargaining-only cooperatives also

had the lowest liabilities and member

equity —$1.31 and 42 cents per cwt of

member milk, respectively — far below

that of the other types of cooperatives.

Current liabilities of $1.25 per cwt

represented 72.1 percent of total assets,

a higher proportion than for the other

types of cooperatives. However, to the

extent that most of the bargaining-only

cooperatives’ current liabilities are

pending producer payments,

bargaining-only members’ claim on

assets may be higher than the equity-toassets ratio of 24.4 percent indicates.

Long-term liabilities came to just 3.6

percent of total assets, the lowest level

of the operating types.

At the same time, bargaining-only

cooperatives generated the lowest milk

and dairy product sales, $18.40 per cwt

of total milk handled. Net margins

before taxes of 5 cents per cwt were

well below those of any of the other

types. Net margins showed very little

change between the years, being 1 cent

per cwt above those in 2002 and 1 cent

below 1997.

Net margins before taxes were just

Bargaining only:

• The largest group of dairy cooperatives (representing 70

percent of the nation’s 155 dairy co-ops);

• Operate at the first-handler level, and (in most cases) do

not own plants;

• Relatively few assets because they (generally) own few, or

no, facilities;

• Few of these co-ops handled 1 billion pounds of milk or

more;

• Handled nearly one-fourth of U.S. cooperative milk volume.

Niche marketing:

• This group represents 12 percent of all U.S. dairy co-ops

and handles just 1 percent of the net volume of co-op milk;

• Most (84.2 percent) handled less than 50 million pounds

each;

• Typically, they process all of their members’ milk in the

cooperative’s plants;

• Manufacture specialty or branded dairy products in their

own plants, or by arrangement with others.

Fluid processing:

• The smallest group, representing 3 percent of U.S. dairy coops and 1 percent of co-op milk volume;

• Typically process all of their members’ milk in their plants,

primarily as bottled fluid milk;

• May also make products such as ice cream, sour cream,

cottage cheese, yogurt and/or butter.

Diversified:

• Perform all, or most, of the functions that other types of

dairy cooperatives perform;

• Manufacture a variety of products in their own large plants

from member milk;

• Some may sell a large portion of their raw milk supply to

other handlers;

• Second largest group (15 percent of all U.S. dairy

cooperatives);

• Handled 75 percent of the net cooperative milk volume;

• Three out of four of these co-ops handled 1 billion or more

pounds of milk; none handled less than 50 million pounds. ■
Rural Cooperatives / January/February 2010 25

0.3 percent of total sales, which is lower

than the other operating types of dairy

cooperatives. But their 12.8 percent net

margins-to-equity ratio was similar to

the 13.8 percent ratio of nichemarketing cooperatives and the 12.1

percent ratio of diversified and fluidprocessing cooperatives.

Niche-marketing dairy co-ops

Niche-marketing cooperatives

typically process most of their

members’ milk into specialty or

branded dairy products for particular

market niches. Most handle relatively

small volumes of member milk relative

to the other types of co-ops. In 2007,

they had assets of $12.54 per cwt of

member milk, the highest of the four

types of dairy cooperatives.

Niche-marketing cooperatives’

member equity of $4.78 per cwt was

the highest among the operating types,

both in absolute terms and as a portion

of total assets (38.1 percent). These

cooperatives’ total liabilities of $7.76

per cwt were about the same as those of

diversified and fluid-processing

cooperatives.

Niche-marketing cooperatives

generated the largest milk and dairy

product sales per cwt — almost twice

that of diversified and fluid-processing

cooperatives. Even though they had

very little in terms of other sales and

income, niche-marketing cooperatives

had the highest total sales per cwt:

$48.30.

Niche-marketing co-ops also had the

largest net margins before tax per cwt:

66 cents. Net margins were 34 cents

higher than in 2002 but 21 cents per

cwt lower than in 1997. The variation

between years was wider than for

bargaining-only or diversified and

fluid-processing cooperatives.

The return-to-total sales ratio (using

net margins before tax) for nichemarketing co-ops was 1.4 percent, the

largest for any of the operating types.

Likewise, return-to-total assets and

return-to-member equity for nichemarketing cooperatives were both the

Table 1—Balance sheet items per cwt of member milk

U.S. dairy cooperatives 2007 2002 1997

Current assets $ 5.08 $ 2.81 $ 2.89

PP&E1/ and other assets 3.23 2.90 1.79

Investments in other cooperatives .11 .51 .57

Total assets 8.41 6.22 5.25

Current liabilities 4.40 2.39 2.26

Long-term liabilities 1.69 1.74 .92

Total liabilities 6.09 4.13 3.18

Equity 2.32 2.10 2.07

Total liabilities and equity 8.41 6.22 5.25

Member milk (million pounds) 142,865 134,451 112,228

Number of cooperatives 94 80 88

Member milk per cooperative (million pounds) 1,520 1,681 1,275

Note: Totals may not add due to rounding.

1/ Property, Plant and Equipment

Table 2—Operating statement items per cwt of milk handled

U.S. dairy cooperatives 2007 2002 1997

Milk and dairy product sales $ 23.68 $ 15.73 $ 18.75

Supply and other sales 3.13 2.19 2.24

Service receipts and other income .20 .31 .19

Patronage refunds received .01 .03 .06

Total sales 27.03 18.27 21.25

Estimated expenses 26.78 18.06 20.96

Net margins before tax .25 .21 .28

Total milk volume handled (million pounds) 163,683 154,806 121,157

Number of cooperatives 94 80 88

Note: Totals may not add due to rounding.

continued on page 39
26 January/February 2010 / Rural Cooperatives

By Anne Mayberry

Rural Utilities Service

USDA Rural Development

anne.mayberry@wdc.usda.gov

hen EJ Water

Cooperative was

incorporated in 1989,

plans were to serve 400

residents. Today, EJ

water has more than 7,500 memberhouseholds and serves a rural

population of 23,000 in seven counties

of south-central Illinois, near the state

capital of Springfield.

“People just kept signing up,” co-op

CEO Bill Teichmiller says, quoting EJ’s

first president, Delbert Mundt, in

explaining the cooperative’s success.

Teichmiller says that a combination of

factors is behind the continued growth

of the utility.

“The biggest drivers in Southern

Illinois are both quality and quantity of

water. Where the glacier stopped, water

is not plentiful,” he says, referring to

the second of two glacial masses that

moved through the region during the

Ice Age, flattening much of the terrain

and depositing rich soil in parts of the

state.

“The second glacier stopped around

Champaign, about in the center of the

state,” says Teichmiller. “Ground water

is readily available north of this line,

but south of the line we didn’t get the

glacial till, which promotes additional

ground water supply.” Those soil

deposits today are the reason

agriculture thrives here and plays a key

role in the state’s economy. But finding

water in this part of the state is difficult,

Utility Co-op Connection

EJ Water Co-op provides vital service in rural Illinois

New water lines are extended to homes that are part of the EJ Water Cooperative in southern Illinois.

Photo courtesy EJ Water Co-op
he says. “In addition, the presence of oil

and gas can cause problems with water

quality.”

The presence of sulfur and saltwater

are often among the issues the utility

must address, Teichmiller explains. Area

residents who are not members of the

water cooperative may get their water

from wells, or — more likely — from

cisterns.

“Some people haul their drinking

water, which is time consuming,

expensive and is problematic in winter

when it freezes,” he adds. “We have

about 700 unserved members, so we

typically have one board member from

an unserved area. That keeps us

focused.” When new households join

the co-op, they pay a $125 membership

fee. They don’t pay a monthly water bill

until a water meter is installed and they

begin receiving service. At that point,

they pay an additional $625 for the

meter.

Benefiting from location

Part of the area EJ Water

Cooperative serves benefits from its

location. Two interstate highways — I57, which links Chicago with the Gulf

Coast, and I-70, which connects the

East and West Coasts — meet in

Effingham, which is among the larger

towns in EJ’s service area. The co-op’s

name is an acronym for both Effingham

and Jasper County, two of the seven

counties the utility serves.

EJ’s growth is also due to an overall

trend of smaller towns getting out of

the water and wastewater business.

Increasing costs and the responsibility

of compliance with clean water

regulations can make it more difficult

for areas with dwindling populations to

deliver quality water at an affordable

price.

The co-op was awarded a $556,000

combination loan and grant in

November with funds from the

American Recovery and Reinvestment

Act of 2009. The funds will be used to

supply unserved areas with water.

“Areas with higher [population]

density and where construction is easy

are usually among the first to connect,

while others take longer,” Teichmiller

says. “We are able to reach areas that

would be difficult or costly to serve

thanks to the help of USDA Rural

Development and HUD [U.S. Department of Housing and Urban

Development] funding, which is

distributed throughout the state,”

Teichmiller says.

Commitment to extend service

EJ’s board remains dedicated to

providing water service to as many

unserved members as possible, and their

work with USDA continues to help the

utility provide service to rural areas.

“We love Rural Development — we are

among the largest borrowers in Illinois

for water programs and we would not

be able to do what we do without

USDA,” Teichmiller says. “This is not

just financial — we also use Rural

Development’s expertise with rules,

rates, regulations and technical

assistance. EJ plays a key role in

economic development, and we do that

with guidance from Rural

Development.”

Teichmiller cites USDA’s Circuit

Rider and Wastewater Tech programs

as being especially useful. These

programs are funded through the

National Rural Water Association, and

offer technical assistance to small

villages and rural communities that can

lack financial resources or technical

expertise.

“It’s hard to find qualified people.

We manage and operate three sewer

systems in our service area, and small

villages often do not have the required

expertise. But with the help of Rural

Development, communities discovered

that working together they can afford to

hire a qualified technician, and we’ve

gone in that direction.” Today, EJ has a

staff of 25 full- and part-time workers.

Utilities in Illinois work closely

together, Teichmiller says, and

increasing rely on each others’ services.

“Broadband and cell service is opening

doors in our ability to use technology.

We use systems for remote monitoring

and, with the help of broadband, our

trucks are e-mailed service orders and

can access water-system controls, maps

and other pertinent information from a

database.”

Why a co-op?

Why a cooperative business model?

The utility connection played a role in

the business structure of the water

cooperative. There are two basic

models for water utilities, and

Teichmiller says that establishing a

public water district — which would

have required the annexation of areas

wanting service — did not provide the

flexibility that the co-op model does.

“In addition, Delbert Mundt was on

the Norris Electric Cooperative Board

and president of the Illinois Association

of Electric Cooperatives. Delbert

understood the cooperative business

model,” Teichmiller explains. Mundt

remains EJ’s board chairman.

EJ was the first rural water utility in

Illinois to be awarded funding to build a

water plant while it was beginning

distribution. Most new water utilities

purchase water from a third party. The

co-op’s water sources are a reservoir and

groundwater. The water utility

currently pumps 1.4 million to 1.8

million gallons of water daily.

EJ broke ground last July for its

Delbert D. Mundt water treatment

plant, which ultimately is expected to

treat an additional 3 million gallons per

day and secure a 30- to 40-year

projected water supply to meet

projected demand.

Although some counties in this area

are declining in population, Effingham

continues to grow, Teichmiller says. EJ’s

continued growth has helped keep costs

affordable for its members. Despite the

growth, the area is still rural,

Teichmiller stresses. “We drive about

2,300 miles per month to read about

7,500 meters.” ■

Rural Cooperatives / January/February 2010 27
By James Wadsworth, Ag Economist

Cooperative Services

USDA Rural Development

e-mail: james.wadsworth@wdc.usda.gov

ust as producer-owned

co-ops greatly magnify

the market clout of

individuals through

joint action, so do

state and regional cooperative councils

amplify the efforts of individual

cooperatives in areas such as legislative

affairs, director education and many

other vital member services. These

councils stand as a prime testament to

the fundamental co-op tenet of

cooperation among co-ops.

Through the years, state

cooperative councils have been

instrumental in keeping their

cooperative members “tuned up” and

ready to meet challenges, which there

never seems to be a lack of.

The first state co-op council was

established in 1919 in California,

followed 2 years later by one in

Oregon. The very early state councils

focused mainly on legislative issues. As

cooperatives and other cooperativerelated associations increased in

numbers, the programs of the councils

expanded to also include co-op

education, member and public

relations, promotional efforts and

collaborating with other organizations

with similar missions. The nation’s

largest co-op council (Cooperative

Network) was even instrumental in

working to form Farmers Health

Cooperative in Wisconsin. It now

helps to administer this health

insurance plan — a very ambitious

undertaking for a co-op council.

State co-op councils today focus on

most of the same activities as they did

in their early years, although the scope

of activity varies a great deal,

depending on the organization’s

structure, program focus and

resources. While activities may vary,

today’s councils provide an impressive

array of services for cooperatives all

across the United States. These efforts

are constantly being adapted to help

members in changing times. This

article explores some of the different

structural aspects of the councils and

their activities.

Council structure has evolved

The number of state co-op councils

expanded until the early 1990s, but has

since declined slightly, due primarily

to cross-state consolidations. There

were 30 state co-op councils in 1948,

37 in 1968 and 38 in 1992; today there

are 32. Table 1 identifies the councils

and provides their website addresses

(where applicable).

These four co-op councils cover

more than one state:

• Cooperative Network, serving

Wisconsin and Minnesota;

• Mid-America Cooperative Council,

serving Indiana, Ohio, Michigan and

Illinois (Illinois also continues to

maintain its own “volunteer”

council);

• Mid-Atlantic Alliance of

Cooperatives, serving Maryland and

Pennsylvania;

• The Northeast Cooperative Council,

serving the New England states and

New York.

All co-op councils are led by an

executive director, either as a full-time,

part-time or volunteer position. Ten of

the 32 councils have a full-time

executive director, 12 employ a parttime executive and the remaining 10

have a volunteer executive. Some of

the councils also have other support

staff, especially councils with greater

resources. However, not all councils

with full-time executives have

additional staff, and a few councils

with a part-time executive have

additional staff. Staffing levels depend

on the available resources, the specific

programs the council provides and the

number of cooperatives served.

Some councils have undergone

significant changes in staffing during

the past 10 years or so as they adjust to

changing cooperative numbers and a

challenging economic environment.

Most of these changes involve staff

reductions or a change in status of the

executive position. In the case of the

Mid-America Cooperative Council,

“The council moved from a part-time

executive and ad hoc board to a fulltime executive in 2004; it added a parttime assistant in 2007 and now has an

elected board of directors,” says Rod

Kelsay, the council’s executive director.

Many of the councils have close

working relationships with other

institutions or organizations. These

may include universities, development

centers, cooperative centers,

consulting firms, law firms, and others.

Some councils formally contract with

these outside organizations for various

administrative, website, education and

lobbying services. In other instances,

the relationship is primarily about

coordinating activities such as studying

a legal issue or performing some type

of cooperative technical assistance,

such as co-op development work or

strategic planning.

Many state/regional councils are

affiliated with a university, either

directly or indirectly, which allows

them to tap into the experience and

knowledge of professors and Extension

personnel. They rely on these experts

for operations planning, to enhance

educational programs and to help

28 January/February 2010 / Rural Cooperatives

State cooperative councils adapting

to help members in turbulent times
Rural Cooperatives / January/February 2010 29

Legislative work is a big part of the mission of most state co-op councils. Here, members of the Cooperative Network prepare to visit

members of the state legislature in St. Paul, Minn., as part of Co-op Day at the Capitol. Photo courtesy Cooperative Network

identify and solve various cooperativerelated issues.

Council funding

Funding comes primarily from the

thousands of U.S. cooperatives that

belong to a state or regional co-op

council. However, it has become

increasingly difficult for agricultural coops to increase, or even maintain, their

membership roles. This is largely due

to the changing structure of the

agricultural cooperative system caused

by co-op consolidations and

dissolutions.

“If you go back the past 30 years,

every decade we lose about 29 to 33

percent of the local cooperatives in the

state, mainly as the result of a

redeployment of cooperative assets [via

mergers],” says Bob Andersen,

president and executive director of the

Nebraska Cooperative Council.

For that reason, some councils are

accepting non-agricultural cooperative

memberships. These may include utility

co-ops, credit unions, food/grocery coops and housing co-ops. The expanded

councils may also accept co-ops serving

the health care/insurance, publishing,

housing, investor-owned marketing and

purchasing sectors. Even though these

cooperatives may serve widely diverse

memberships and fill different

functions, they also have many

overlapping goals and issues (such as

director education, public/member

relations, legal issues, etc.) that can be

more affectively and economically

addressed with a larger membership

that represents a cross-section of the

cooperative community in a state or

region. These combined co-op

organizations can also provide a greater

scope of services to cooperatives.

Many of the councils have associate,

or affiliate, members as well. These may

include engineering and legal firms,

National FFA Organization, 4-H, land

grant universities, state and federal

government, trade associations,

implement dealers, grain elevator

suppliers, crop-input suppliers,

accountants, consultants, information

technology firms, banks, grain dealers,

construction companies, insurance

companies, state agricultural boards,

inspection companies, printing

companies, brokers, cooperative

development centers, software

providers, media and trucking

companies. In some cases, associate

members are active on council boards.

Beyond revenue from members, a

number of councils also count on feebased program income, sponsorships,

grants and consulting fees.

Education and legislative

activities

Most councils conduct cooperative

education programs, which they

consider essential for improving the

performance of cooperatives and for

expanding the benefits of the
30 January/February 2010 / Rural Cooperatives

cooperative form of business.

Councils host a number of co-op

educational forums every year, the

frequency and scope of these

sessions depending on council

resources and demand. These

forums often tap the teaching

expertise and knowledge of landgrant colleges.

Councils also provide co-op

education through workshops,

publications/DVDs, websites and

webinars, etc. Target audiences

include cooperative directors,

members, management, employees,

youth and the general public.

Frequent topics at these

workshops include director duties

and legal responsibilities,

governance, finance and taxes,

leadership training, cooperative

basics, marketing and customer

relations. Programs run from

introductory cooperative concepts to

advanced concepts and cooperative

issue analysis. Some of the councils

provide director certification

programs.

Dealing with legislative and

regulatory issues is another major

activity for many councils. Some

lobby in their states, and a few even

lobby on a national level. Others

merely follow legislation and

regulatory issues that have to do

with cooperatives and report

applicable and significant findings to

their membership. Those that

conduct legislative work see it as a

critical way for cooperatives to be

involved with agricultural and

business policy changes that can

impact their members.

A few councils have political

action committees (PACs) that

members can contribute to for

cooperative-related lobbying or to

help fund candidates. Councils also

take part in national legislative

activity via communications and

memberships with the National

Council of Farmer Cooperatives

(NCFC) and the National

Cooperative Business Association

(NCBA).

Other activities that councils

perform for their members include

technical assistance, issue analyses,

strategic planning, running

foundations (for scholarships,

educational programs, and other

member services) and affiliations

with other organizations for

coordinated activities and synergies.

Many of the councils collaborate

with cooperative development

centers, university professors,

extension personnel, and cooperative

centers, as well as other co-op

councils.

Communications

Councils communicate with their

members through a variety of means:

meetings, news releases, newsletters,

websites, appearances at cooperative

events and other formal or informal

channels. More than half of the

councils publish a newsletter and

more than two-thirds have websites.

Newsletters are in hardcopy, online

or both. The number of issues

produced annually varies from

weekly, monthly, quarterly to

biannual. Websites vary from very

basic sites to very extensive, contentrich sites. Content on these websites

often includes the council history,

program information, online

newsletters, news releases, event

calendars, photo galleries, staff

contact information, cooperative

directories, board of directors

information and member-only

sections.

Councils sometimes network with

other councils to work on program

development and share ideas. Some

of the councils hold formal meetings

just before or after other national

co-op meetings, such as the annual

meeting of the National Council of

Farmer Cooperatives (NCFC).

Every other year they also hold the

National Conference of State

Cooperative Councils meeting,

where co-op issues are discussed and

analyzed. Council members also

share program accomplishments and

challenges and look for synergistic

Table 1—State and regional

cooperative councils in the U.S.

(Web site listed where applicable)

Alabama Council of Cooperatives

Arkansas State Committee on Cooperatives

Agricultural Council of California

http://www.agcouncil.org

Colorado Cooperative Council, Inc.

Florida Council of Cooperatives

http://flcoop.com

Cooperative Network

http://www.cooperativenetwork.coop

Georgia Cooperative Council

http://agecon.uga.edu/~gacoops

Idaho Cooperative Council, Inc.

http://www.idahoco-op.org

Illinois Cooperative Coordinating Committee

Iowa Institute of Cooperatives

http://www.iowainstitute.coop

Kansas Cooperative Council

http://www.kansaco-op.coop

Kentucky Council of Cooperatives

Louisiana Council of Farmer Cooperatives

Mid-America Cooperative Council

http://www.macc.coop

Mid-Atlantic Alliance of Cooperatives

http://www.maacooperatives.org

Mississippi Council of Cooperatives

http://www.mscouncil.coop

Missouri Institute of Cooperatives

http://www.mic.coop

Montana Council of Cooperatives

http://montanacouncil.coop

Nebraska Cooperative Council

http://www.nebr.coop

The Cooperative Marketing Association of New Jersey

Cooperative Council of North Carolina

http://ccnc.coop

North Dakota Coordinating Council for Cooperatives

http://www.ag.ndsu.nodak.edu/qbee/NDCCC/info.htm

Northeast Cooperative Council

http://cooperatives.aem.cornell.edu/partners.htm

Oklahoma Cooperative Council

http://www.okagcoop.org

Agricultural Cooperative Council of Oregon

South Carolina Cooperative Council

http://www.scco-opcouncil.org

South Dakota Association of Cooperatives

http://sdac.coop

Tennessee Council of Cooperatives

http://www.tennesseecouncilofcoops.org

Texas Agricultural Cooperative Council

http://www.texas.coop

Utah Council of Farmer Cooperatives

Virginia Cooperative Council

http://www.vcfc.net

Washington State Council of Farmer Cooperatives

http://www.wscfc.org
Rural Cooperatives / January/February 2010 31

• Cooperation among co-ops: The Northeast Cooperative

Council holds its Cooperative Leaders Forum and Annual

Meeting in conjunction with CoBank’s Northeast Customer

Meeting; the Northwest Regional Co-op Meeting is a joint

effort of the councils in Idaho, Montana, Oregon and

Washington.

• Co-op education: Co-op councils put on more than 60

educational forums each year, including more than 35

cooperative director programs. These include: the National

Institute of Cooperative Education (NICE) Youth Conference,

held each summer (the 2010 conference will be hosted by

the Tennessee Council of Cooperatives with support from

state councils in North Carolina, Kentucky, South Dakota

and Virginia); the 2009 Telecommunications

Director/Manager Training Program, conducted by the

Iowa Institute of Cooperatives; the Co-ops 101 Workshop,

staged by the Mid-America Cooperative Council, which

earned the Association of Cooperative Educators (ACE)

award for excellence in cooperative education at the 2009

ACE Institute.

• Co-op legislation: The Oklahoma Agricultural Cooperative

Council (OACC) acts as a political watchdog to ensure

adequate representation for cooperatives on legislative

issues and that proposed legislation does not place undue

burdens on its members. It fights to protect its members by

educating elected officials and state and federal agencies

about the importance of agriculture cooperatives not only

for their members, but to the state economy. Likewise,

Cooperative Network lobbies and follows legislative and

regulatory matters in Wisconsin and Minnesota and on a

national level on behalf of its member cooperatives. It

works on dairy, environmental and health issues and

conducts work for Wisconsin electric cooperatives.

• Communications: “Cooperation in Nebraska” is published

quarterly by the Nebraska Cooperative Council. The South

Dakota Association of Cooperatives public relations and

education programs include working with youth through

FFA and 4-H, and college students through the National

Institute for Cooperative Education. Special events and

activities, such as October is Co-op Month, the Cooperative

Hall of Fame Induction Banquet, AgFest and Co-op Day at

the Legislature, all help raise public awareness of the

important role cooperatives play in South Dakota’s

economy. In Wisconsin and Minnesota, Cooperative

Network publishes seven newsletters (Contact, Dispatch,

Mutual Interests, Capsule, Dairy Update, Co-op Living and

Focus On) to provide information on issues vital to

members. ■

ways to enhance their programs.

Some councils also coordinate

certain educational and other activities

with regional cooperatives, and some

partner with regional co-ops for annual

meetings and other events. Cooperating

in this way enhances programs and

creates more benefits for members.

Continuing role

Co-op councils and their services

continue to play an important role for

their members. As with any association,

the members benefit in an amount

proportional to their use and support of

the council and its resources.

State cooperative councils operating

today have some significant strengths,

including one or more of the following:

• Well-established operations, resources

and governance necessary to serve

their members;

• Effective cooperative education

programs;

• Robust legislative, regulatory and

policy activities;

• Effective communications and

member relations programs.

The councils are also facing obstacles

such as increasing costs, financial

limitations and greater difficulty

recruiting members. However, most

have strengths that offset weaknesses

and are forging ahead to deliver vital

programs and services.

Cooperative councils play a critically

important role in helping their member

cooperatives stay attuned to issues and

policies that affect them. Their role in

cooperative education is sorely needed.

Cooperatives face significant pressures

in today’s economic environment and

co-op councils can help alleviate those

pressures through their activities, which

are as important today and into the

future as they were in years past.

Working to effectively define and

enhance the character of cooperatives

and to improve their economic

wellbeing are overall goals of today’s

councils. Indeed, that message

resonated among the councils attending

the 2009 bi-annual meeting of the

National Conference of State

Cooperative Councils in Kansas City,

Kan., last September. According to

Tommy Engelke, executive vice

president and director of the Texas

Agricultural Cooperative Council:

“Councils continue to provide

exceptional services on behalf of their

members and have a very positive

influence on the cooperative

environment in the state or region they

work within.” ■
Flint Energies supports

methane gas project

Houston County (Georgia) and Flint

Energies have agreed to turn methane

gas at the Houston County Landfill

into electric power. The co-op says the

project will produce benefits for county

citizens, for Flint’s member-consumers

and for the overall environment. Flint

will buy gas from the county and power

generation from PowerSecure

International Inc., which will install,

own and operate the power generation

plant facilities.

Flint members will gain access to 3.2

megawatts of “green power” and create

a new revenue stream from the landfill.

“Renewable ‘green energy’ is an

important part of the future of power

generation for Flint Energies

members,” says co-op CEO Bob Ray.

“We have been part of Green Power

EMC’s efforts to build renewable

energy generation, including the first

landfill gas in Georgia at the Taylor

County Landfill in Mauk.”

In other environmental news, Flint

Energies, based in Warner Robins, Ga.,

has announced that the Eagle Building

at the Robins Air Force Base Museum

of Aviation is going green. The Air

Force base will now be buying enough

green energy from the co-op each

month to power the Eagle Building at

the museum — one of the largest

aviation museums in the United States.

The green energy is generated at the

Taylor County Landfill, where the

methane generation operation is owned

and operated by Green Power EMC, an

assembly of electric membership

corporations from across the state,

including Flint Energies.

Agri-Mark sends $2 million

to struggling dairy farmers

The Agri-Mark dairy cooperative,

Methuen, Mass., in mid-November

made a second round of early cash

payments of $1 per hundredweight, or

about 9 cents per gallon, to help dairy

farmers struggling during a period of

depressed milk prices. The payment

was for September production. Co-op

officials say the milk marketing

cooperative is having another good

year, and the board and management

recognized the continued need for cash

among its member-farmers.

“Our Cabot and McCadam brands

continue to be profitable, to the point

that we feel comfortable making this

second payout to members,” says Neal

Rea, a dairy farmer from Cambridge,

N.Y., and the co-op’s board chairman.

He noted that profits from farmerowned brands, such as its Cabot and

McCadam cheeses, go back to dairy

farmers.

In May 2009, the co-op sent out a

check for 30 cents per hundredweight

on a month’s production to members to

help them cope with the lowest milk

prices in more than 30 years. Rea says

32 January/February 2010 / Rural Cooperatives

Newsline

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

Co-op developments, coast to coast

The Robins Air Force Base Museum of Aviation in Georgia is working with the Flint

Energies cooperative to “go green.” Photo courtesy Ken Krakow Photography
Rural Cooperatives / January/February 2010 33

Agri-Mark’s second cash payout of $1

per hundredweight in November was

again approved unanimously by the 14-

member board.

“We clearly recognize that our

farmers need immediate help to pay

their bills,” says Paul Johnston, AgriMark’s president and general manager.

“We still continue to work with other

groups throughout the nation to find a

long-term pricing solution we can all

agree on and move forward with as

soon as possible. However, this

payment will help in the short-term.”

The checks for the average AgriMark farm family will be roughly

$1,500 to $2,000, depending on the size

of operation. With the second payment,

the co-op paid out more than $2.6

million to its farmer-members this year

from profits generated from its dairy

products. Chairman Rea says the co-op

will continue to explore every

opportunity to stabilize farm milk prices

at levels above the cost of production

for its farmer-members and to expand

its branded product sales in 2010.

“These early-profit payments show

how important it is for farmers to invest

in and market their own, value-added

products,” says Rea. “Whether it is

from the Cabot cheese we market here

in the U.S. or valuable whey proteins

we market internationally, our goal is to

generate as much income for our

farmers as possible each year.”

Almond shipments

jump 23 percent

More than two dozen innovative

almond products contributed to Blue

Diamond’s 2008 crop return to

cooperative growers, President and

CEO Doug Youngdahl told 1,200

growers at the co-op’s 99th annual

meeting in Modesto, Calif. Despite a

global recession, almond shipments

increased 23 percent. This surge pushed

overall shipments to a record 10.2-

percent increase over the 2007 crop

year for another near-record sales year

of more than $700 million.

While U.S. consumer demand for

almonds grew by 4 percent, the

Sacramento-based co-op’s snack sales in

North America increased 23 percent

from the prior year. Sales of the co-op’s

Almond Breeze (an almond/soy

beverage) jumped 43 percent, while its

Nut Thins snack sales climbed 24

percent. Overall, Blue Diamond’s

consumer-branded sales have grown

600 percent in the past 7 years.

“While industry shipments were

impressive, grower profitability suffered

and declined vs. the prior year,”

cautioned Youngdahl. “Although the

final 2008 crop grower return was the

fifth highest historically (on an average,

revenue-per-acre basis), rising costs for

water and crop inputs severely squeezed

grower profits. Grower cost increases

make it vital that Blue Diamond

continue to develop innovative new

products to improve grower

profitability.”

U.S. export shipments were up

almost 13 percent, with more than 70

percent of California almonds exported

during the past year. Increased

awareness of the nutritional benefits of

eating almonds is expected to drive

demand upward, co-op officials say,

especially in markets such as India (sales

up 19 percent), the Middle East (sales

up 51 percent) and China (up 115

percent). “One of Blue Diamond’s key

strategies to maximize grower returns is

to sell a portfolio of new, high-margin

almond products that consumers value,"

explained Youngdahl.

Blue Diamond is cautiously

optimistic about a continuing trend

toward stronger market price levels.

While the 2009 crop is forecast to

decline by 17 percent, a carryover from

the 2008 crop of 413 million pounds

means the total almond supply is

relatively even with last season.

Improvement in the global economy,

historical almond growth rates and

lower inventory could see a continuing

firming trend in prices, depending on

weather conditions during the 2010

bloom and the possible effects of a

predicted El Nino (the ocean current

linked to some weather patterns).

Youngdahl also reported that Blue

Diamond employees voted by a margin

of more than two to one in favor of the

cooperative in a union representation

election in November 2008. The

election was supervised by the National

Labor Relations Board (NLRB).

Spearman appointed

to FCA board

Kenneth A. Spearman of Winter

Haven, Fla., joined the board of the

Farm Credit Administration (FCA) in

October. He was appointed to the

balance of the term held by Dallas

Tonsager, who is now under secretary of

USDA Rural Development. He was

subsequently reappointed to a full 6-

year term.

“Ken’s many years of experience in

agricultural cooperatives and financial

management will be a great asset to the

FCA Board,” says FCA Chairman

Leland A. Strom. “I look forward to

working with Ken to ensure a safe,

sound and dependable source of credit

to farmers and other rural Americans.”

Spearman recently served as an

appointed director on the board of

AgFirst Farm Credit Bank in Columbia,

S.C. He is a former director of internal

audit for Florida’s Natural Growers,

one of the largest cooperatives of

Big crops mean almond growers need

to develop new products and markets,

such as Blue Diamond’s Almond

Breeze beverage.
Florida citrus growers. From 1980 to

1991, Spearman was controller of the

cooperative Citrus Central, where he

was responsible for financial

management and reporting.

Before entering the citrus industry

almost 30 years ago, Spearman

cofounded a public accounting firm in

Chicago and worked as an accountant

with Arthur Anderson & Co. He also

served as chairman of the board of

trustees for the Lake Wales Medical

Center. He is a member of the Institute

of Internal Auditors and the National

Society of Accountants for

Cooperatives, where he was at one time

national president.

Dairy leader Tom Camerlo dies

Dairy Farmers of America (DFA)

Board Chairman James P. “Tom”

Camerlo Jr., who farmed near Florence,

Colo., died Dec. 3. “Tom, who

committed a lifetime of service to the

global dairy industry and has served as

DFA’s chairman since 2003, passed away

after a courageous battle with cancer,”

the Kansas City-based co-op noted in

press announcement.

“Tom’s commitment to the dairy

industry ran deep, and was second only

to his devotion to his family,” said Rick

Smith, DFA president and CEO. “We

share in grieving the passing of our

colleague, a dear friend and a man

whose lifetime commitment and

leadership made an everlasting

difference in the dairy industry.”

As the former board chairman for

one of DFA’s predecessor cooperatives

— Western Dairymen’s Cooperative

Inc. — Camerlo’s leadership and strong

cooperative convictions were

instrumental in the formation of DFA.

Camerlo provided years of expertise

and leadership to the dairy industry in

the broader arenas of dairy trade, farm

policy, cooperative marketing and dairy

product promotion.

For two decades, he had served as

chairman of the National Milk

Producers Federation and chairman for

the U.S. Dairy Export Council.

Camerlo served on the board of Dairy

Management Inc. (DMI), which

conducts promotion, nutrition

education and research for U.S.-

produced dairy products on behalf of

America’s dairy farmers; the board of

Western Dairy Association, a local

affiliate of DMI; and the Agricultural

Policy Advisory Committee. He also

served on the board council for

Nationwide Insurance.

Carmelo was named World Dairy

Expo’s Dairyman of the Year in 2003,

and received the National Council of

Farmer Cooperative’s National

Cooperative Statesman Award in 1999;

USDA Soil Conservation Service

presented him the Conservationist of

the Year Award in 1996. In 2001 he was

inducted into the Colorado Agriculture

Hall of Fame.

A scholarship to honor Mr.

Camerlo’s legacy has been established at

Colorado State University, his alma

mater, where he served on the CSU

Provost Advisory Committee.

Korten to address

ACE conference

What’s in a name, or a theme? This

year’s ACE (Association of Cooperative

Educators) Institute theme,

“Crossroads: Choosing Cooperation,” is

a choice, a directive and an opportunity.

The ACE Institute, to be held in

Cleveland, Ohio, July 28 – 30, will

feature keynote speaker David Korten,

author of “The Great Turning: From

Empire to Earth Community” and

“Agenda for a New Economy: From

Phantom Wealth to Real Wealth.” As

the title of his latest book suggests,

Korten offers a road map to

community-oriented, collaborative and

shared-ownership businesses, recreating

the economy by putting real wealth

back on main street.

The University Circle area in

Cleveland exemplifies Korten’s message.

The institute will be looking at new

worker cooperatives, such as the

Evergreen Laundry. Through speakers

and tours, Institute participants will

learn how a committed, diverse

partnership is rebuilding the

community and reclaiming wealth

through worker co-ops.

Cooperation is an opportunity.

Speakers from the groundbreaking

collaboration between the United Steel

Workers and Spain’s MONDRAGON

will share how their organizations came

together to form a historic partnership.

The Institute will also feature concepts

for attracting younger generations to

co-ops, how social media can promote

cooperation, best co-op governance

practices and innovative local food

collaborations.

To find out more about the institute

and registration, visit: www.ace.coop, or

contact Sarah Pike at: pike@ace.coop or

(763) 432-2032.

$564 million for advanced

bio-refineries

U.S. Department of Energy

Secretary Steven Chu and Agriculture

Secretary Tom Vilsack in early

December announced the selection of

19 integrated biorefinery projects to

receive up to $564 million from the

American Recovery and Reinvestment

Act (ARRA) to accelerate the

construction and operation of pilot,

demonstration and commercial-scale

facilities. The projects are located in 15

states and should help validate refining

technologies and lay the foundation for

full commercial-scale development of a

Tom Camerlo

34 January/February 2010 / Rural Cooperatives
Rural Cooperatives / January/February 2010 35

U.S. biomass industry, they said.

The projects will produce

advanced biofuels, biopower and

bioproducts using biomass

feedstocks at the pilot,

demonstration and full-commercial

scale. The projects are part of the

ongoing effort to reduce U.S.

dependence on foreign oil, spur the

creation of the domestic bioindustry and provide new jobs in

many rural areas of the country.

Vilsack also noted that USDA

Rural Development has selected San

Diego, Calif.-based Sapphire Energy

to receive a non-ARRA loan

guarantee for up to $54.5 million

through the Biorefinery Assistance

Program to demonstrate an

integrated algal biorefinery process.

The process will cultivate algae in

ponds, and will use de-watering and

oil-extraction technology to produce

an intermediate that will then be

processed into drop-in green fuels

such as jet fuel and diesel. The

actual project will be constructed in

Columbus, N.M.

DotCoop announces Global

Award winners

DotCoop, the sponsor of the

.coop Internet domain name, has

announced the winners of the firstever dotCoop Global Awards for

Cooperative Excellence. The three

winners are:

• Indian Farmers Fertilizer

Cooperative Limited, a fertilizer

production and distribution

cooperative based in India. IFFCO

won in the category for large

cooperatives, those with more than

$50 million in revenue or assets.

• National Cooperative Grocers

Association, a business services

organization for retail food co-ops.

NCGA won in the category of

medium-size cooperatives with $1

million to $50 million in revenue

or assets.

• Pachamama Coffee Cooperative,

this U.S.-based co-op is owned by

150,000 coffee farmers worldwide.

Pachamama won in the category of

The U.S. Department of Justice and USDA have announced the dates and

locations of joint public workshops that will explore competition and regulatory

issues in the agriculture industry. The workshops are the first joint Justice/USDA

workshops ever held to discuss competition and regulatory issues in the agriculture

industry.

The workshops will address the dynamics of competition in agriculture markets,

including buyer power (monopsony) and vertical integration. They will examine legal

doctrines and provide an opportunity for farmers, ranchers, consumer groups,

processors, agribusiness and other interested parties to provide examples of

potentially anti-competitive conduct and to discuss any concerns about the

application of the antitrust laws to the agricultural sectors.

Some of the issues to be examined are: the impact of agriculture concentration

on food costs; the effect of agricultural regulatory statutes or other applicable laws

and programs on competition, and issues relating to patents and intellectual

property affecting agricultural marketing or production. Market practices will also be

examined, including price spreads, forward contracts, packer ownership of livestock

before slaughter, market transparency and increasing retailer concentration

Each workshop will feature keynote speakers, general expert panels and breakout panels that will address more narrowly focused issues. At each workshop, the

public will have an opportunity to ask questions and provide comments. The

workshop discussions will be transcribed and placed on the public record, along

with submissions and written comments received.

Dates and topics for the workshops are:

• March 12, 2010 — Issues of Concern to Farmers; Ankeny, Iowa. This session will

serve as an introduction to the workshops and focus on issues facing crop

farmers, which may include seed technology, vertical integration, market

transparency and buyer power. Location: FFA Enrichment Center, 1055 Southwest

Prairie Trail Parkway.

• May 21, 2010 — Poultry Industry; Normal, Ala. The focus may include production

contracts in the poultry industry, concentration and buyer power. Location:

Alabama A&M University Auditorium, James I. Dawson Cooperative Extension

Building, 4900 Meridian St.

• June 7, 2010 — Dairy Industry; Madison, Wis. The focus may include

concentration, marketplace transparency and vertical integration in the dairy

industry. Location: University of Wisconsin Great Hall, Memorial Union, 800

Langdon St.

• Aug. 26, 2010 — Livestock Industry; Fort Collins, Colo. The focus will be beef, hog

and other animal sectors and may include enforcement of the Packers and

Stockyards Act and industry concentration. Location: Colorado State University.

• Dec. 8, 2010 — Margins; Washington, D.C. This workshop will look at the

discrepancies between the prices received by farmers and the prices paid by

consumers. As a concluding event, discussions from previous workshops will be

incorporated into the analysis of agriculture markets nationally. Location: USDA

headquarters, Jefferson Auditorium, 1400 Independence Ave., S.W.

Attendance and participation by the public is encouraged. Workshops will involve

farmers, ranchers, processors, consumer groups, agribusinesses, government

officials and academics. This collection of stakeholders will create a forum for

discussion and will ensure various industry perspectives.

Additional updates and information, including agendas and speakers, will be

posted on the Antitrust Division's events website: www.usdoj.gov/atr/ events.htm. ■

Justice, USDA set workshop dates
small cooperatives, those with less

than $1 million in revenue or assets.

The dotCoop Global Awards are

given to those cooperatives that

demonstrate a strong commitment to

the cooperative business model.

DotCoop also looked for co-ops with

missions and practices that clearly

demonstrate cooperative values,

especially in their website.

DotCoop awarded honorable

mentions to Cabot Creamery

Cooperative of the United States and

Crédit Coopératif of France in the large

business category; The Phone Co-op of

the United Kingdom and the Wedge

Community Co-op of the United States

in the medium-sized business category;

and CAC Santa Maria Magdalena of

Peru and FESAN (Federacion Nacional

de Cooperativas de Servicios Sanitarios,

Ltda) of Chile in the small business

category.

Judges also awarded a special

recognition award to the Cooperative

Press Limited, which received

recognition for its overall contributions

to the cooperative movement in the

United Kingdom and which publishes

the oldest cooperatively owned

newspaper.

CHS crafts long-term direction

More than 2,500 CHS Inc. memberowners gathered Dec. 3-4 in

Minneapolis for the cooperative’s

annual meeting, where the theme was

“Perspective” and speakers explored

long-term directions for the nation’s

largest member-owned grain and

energy business. CHS leaders said the

producer-owned cooperative has a solid

financial and strategic foundation from

which to craft long-term success.

“We must look far, far ahead and ask

ourselves what CHS needs to be and

where we must go 10, and even 20,

years from now,” CHS President and

CEO John Johnson said. “Our objective

is to create long-term enterprise value

for our owners, customers, employees

and the others stakeholders in a rapidly

evolving global marketplace.”

CHS reported its fourth-best

earnings in its nearly 80 years, with net

income of $381.4 million for fiscal

2009. That compared with a record

$803 million for fiscal 2008, a year

during which the energy, grain, crop

nutrients and food products the

company handles reached record prices.

Revenue for fiscal 2009 was $25.7

billion, down from $32.2 billion the

previous year. During fiscal 2010, based

on fiscal 2009 results, CHS will

distribute an estimated $220 million in

cash to its owners, its fourth-largest

return.

Chief Financial Officer John Schmitz

said the diversity of the CHS business

portfolio allowed the company to

achieve overall strong performance even

as some of its operations grappled with

the weak global economy in 2009. “The

strong CHS financial foundation we've

built in recent years has served us well

and positions this company to take

advantage of new opportunities,”

Schmitz said.

CHS Chairman Michael Toelle, a

Browns Valley, Minn., farmer, told the

delegates and guests that the economic

climate, coupled with public scrutiny of

corporate America, has heightened the

CHS board’s already strong

commitment to its roles in oversight,

governance, strategic planning and

legislative outreach. “It is our

responsibility to our owners to ensure

that effective strategic planning keeps

this company on a long-term path of

success,” Toelle said.

He added that the CHS board will

continue to speak up on key issues, such

as climate change legislation —

including a proposed “cap and trade”

carbon credit program — and

encouraged other cooperative leaders to

become involved.

2009 CHS operations highlights

included:

• Strengthening grain origination

presence in the Black Sea region

through joint ventures in state-of-theart port facilities at Odessa, Ukraine,

and Novorossiysk, Russia.

• Opening a grain office in Buenos

Aires, Argentina.

• Completing two refined fuels

terminals at Missoula and Logan,

Mont., to meet needs of customers in

the region.

• Acquiring a major Mississippi River

terminal, CHS Winona (Minn.) River

and Rail, to boost crop nutrients

distribution efficiencies in the region.

• Forming Wabash Valley Grain, LLC,

with Superior Ag of Huntington, Ind.,

to create the CHS system's first

origination point on the Ohio River.

NCBA theme: Transforming the

Economy with Co-ops

The National Cooperative Business

Association (NCBA) will hold its 2010

annual meeting May 4-6 at the Capitol

Hilton in Washington D.C., where the

theme will be: “Cooperatives

Transforming the Economy.” The

conference will focus on the role

cooperatives have played during the

economic crisis and how co-ops can

create their own economy by leveraging

the 6th co-op principle: Cooperation

Among Cooperatives.

Among the breakout sessions are:

Collaborative Networks: Building

Cooperative Bridges to a Sustainable

Tomorrow; Transformational

Communication that Builds Group

Cohesiveness; and Cleveland’s New

36 January/February 2010 / Rural Cooperatives
Evergreen Employee Cooperatives,

among others.

The NCBA meeting is the only

cross-sector national conference

offering educational breakout sessions

on how all cooperative sectors can work

together to create positive change and

offering networking opportunities to

meet co-op leaders from all over the

United States. This year’s meeting

introduces a new Best Practices session,

during which participants have the

chance to share what works at their coops and to learn from peer successes.

Attendees will also be making trips to

visit their elected officials.

For more information, visit:

www.ncba.coop or contact Pia Duryea

at (202) 383-5440 or pduryea@

ncba.coop.

In other NCBA news, association

President/CEO Paul Hazen has been

re-elected for a second term on the

International Cooperative Alliance’s

board of directors. Hazen is the board’s

only current U.S. representative.

New leadership program

for co-op executives

The University of Wisconsin Center

for Cooperatives, in partnership with

the Center for Advanced Studies in

Business at the Wisconsin School of

Business, is launching a new program

for cooperative executives and senior

management. The Cooperative

Executive Leadership Program will be a

4 1⁄2-day, intensive program focused on

successful cooperative business

leadership. It will be offered June 13-18

at the Fluno Center for Executive

Education on the University of

Wisconsin-Madison campus.

The sessions, led by University of

Wisconsin faculty and industry experts,

will be thought provoking and

pragmatic, sponsors say, and will

involve group discussion, cooperative

case studies and action-learning

components. The program is designed

to challenge participants to examine and

develop successful cooperative business

strategies.

Topic areas include: Cooperative

Governance and Finance; Strategy

Formulation and Execution; Strategic

Leadership; Building a Change

Management Discipline; and Creating

Value Propositions for Member

Owners. Program participants will

include board executives, CEOs and

their leadership teams from all

cooperative sectors across the country.

The Cooperative Executive Leadership

Program will be limited to 30

participants in order to ensure an

intensive high-quality learning

experience.

The program is intended to help

participants increase their ability to

develop and execute complex strategic

plans; discover new ways to lead and

manage change; find ways to engage all

stakeholders in value creation; acquire

insights on using cooperative finance to

achieve results; network with executive

leadership from other cooperatives.

Wisconsin Executive Education is a

global leader in executive education,

making the Financial Times’ list of top

executive education programs for the

fourth consecutive year.

For registration information, visit:

www.exed.wisc.edu/coopleadership, or

contact Anne Reynolds at (608) 263-

4775 or atreynol@wisc.edu.

Riceland sets sales record

Riceland Foods Inc., Jonesboro,

Ark., reported record sales of $1.3

billion for fiscal 2009, 8 percent higher

than the previous record set a year

earlier. Riceland’s farmer-members

received a record $776 million in 2008-

09, up 11 percent from a year earlier.

“During the past 3 years, crop

production has been less than earlier in

the decade, but grain values have been

higher during the past two years,”

Danny Kennedy, president and CEO of

the farmer-owned cooperative, said at

the co-op’s annual meeting in

Jonesboro.

Carl Brothers, senior vice president

for international rice, said prices for

long-grain rice declined during most of

the 2008-crop year, “in contrast to the

euphoria in the spring and early

summer of 2008 when reports of rice

shortages in the world dominated news

media. The tight U.S. medium-grain

rice supply situation, drought

conditions in Australia and the

Egyptian rice export ban kept mediumgrain rice prices extremely attractive all

year, particularly as compared to longgrain prices,” he said.

Riceland and its farmer-members are

continued on page 43

Rural Cooperatives / January/February 2010 37

The annual Race for Cooperative Development in Washington, D.C., was one of many

events held around the nation in October to draw attention to cooperatives during

National Cooperative Month. Photo by Rita Yurow
stimulated and this era came to an end. The recession had an

immediate impact on the organic dairy market, which

dropped from a 25-percent growth rate down to no growth.

Exacerbating the situation, the non-organic conventional

dairy pay price hit a 30- year low and has stayed there for an

extended period. The conventional dairy farmer is losing

money as never before with grain cost being held high due to

the new ethanol market.

This low farm pay price brought the retail price of

conventional milk to an all-time low, resulting in an organic

premium three times that of conventional milk. This wide

gap premium has contributed to the erosion of organic dairy

sales, and it is now estimated that the organic dairy market is,

at minimum, minus 5 percent below last year.

These factors have all caused harm in many ways for the

organic dairy farmers. Many organic dairy processors are

now withdrawing or reducing their supply, both in an ethical

and unethical manner. Many contracts that came to term are

not being renewed, and many of those farmers are being left

stranded without an organic dairy market.

Other organic dairy farmers are being paid on a utilization

basis, which means if half of the processor’s milk is used

conventionally, then the producer will get the conventional

price for half of their milk.

CROPP Cooperative is supplier to its own farmer-owned

brand (Organic Valley), to other organic dairy processors and

to private label (store brand) customers. Our supply-demand

balance is also out of balance.

As a cooperative we are reacting to it from a community

perspective, and our farmer-owners, farmer board and

management are implementing a mandatory supply reduction

of 7 percent from the average of the last 3 years of milk

production.

We have never done this before, but we feel it is critical to

keep all of our family farms on the land farming organically.

We are all cutting back together, so we can maintain our

sustainable pay price and not leave any of our farmers

stranded.

Today, all organic dairy farmers are challenged as we deal

with this “perfect storm.” The farmer-owners of CROPP

Cooperative are being very cooperative in working with the

supply reduction program. It is a learning journey for us, and

we will learn and be better prepared for such dramatic shifts

in the future.

The hardest hit farmers are those outside our cooperative

who are being stranded without a market or being forced to

an unsustainable pay price. Today, cooperation is the most

important value we can hold dear as we face this challenge

together. ■

Organic dairy market also hurt by low prices

continued from page 15

value of annual deliveries. This plan was not supplying

sufficient equity to support Organic Valley’s growth, so a

preferred stock series was marketed to outside investors who

support the goals and values of the cooperative.

The co-op preferred stock offers an annual dividend at a

fixed rate. While stock redemption is made at the board’s

discretion, the board has honored redemption requests and

maintained investor confidence. It has been an extremely

successful equity program for Organic Valley, and now

comprises 45 percent of its equity mix, McGeorge said. This

higher level of non-member equity has been acceptable to

the board because the preferred stockholders do not have

member voting rights.

McGeorge noted that because Organic Valley’s focus is on

serving its current and future professional farmers,

consideration of Organic Valley’s market valuation is

secondary to cooperative business priorities. Much of the

cooperative’s profit has flowed back to its producer members,

and the cooperative will continue to manage its finances with

the goal of maintaining the independence that comes from

farmer control over equity, he said.

Brand is co-op’s ‘umbrella’

Paul Stajduhar, Ocean Spray’s vice president for corporate

strategy and business development, described how the

cooperative has averaged a 6-percent annual sales growth

since 2000, with more than 90 percent of its sales now

coming from branded products. The brand is the cranberry

co-op’s “umbrella,” noted Stajduhar, allowing smaller

growers to thrive and providing members the value they seek

from the cooperative.

To support profitable brand growth in the future, Ocean

Spray recently re-examined its equity options. While its

membership runs the gamut from investment-oriented

landowners to multi-generation farm families, the review

process resulted in nearly all the growers agreeing to invest

larger amounts of equity in the cooperative to maintain 100

percent patron control. Plans to ensure adequate fruit supply

as the cooperative grows were also developed.

Branded and non-branded fruit pools, a non-patronage

fruit reserve and the development of cooperative-owned land

reserves for future production are all approaches that are

expected to provide Ocean Spray with the flexibility to meet

its future growth goals.

Editor’s note: Many of the presentations from the conference are

available on the University of Wisconsin Center for Cooperatives

website: www.uwcc.wisc.edu/farmercoops09/program.html. The

13th annual Farmer Cooperatives Conference will be held in

Denver, Colo., the week of Nov. 8, 2010 (exact dates to be

determined). Visit www.wisc.edu for conference updates.

■

Co-ops can thrive in uncertain times

continued from page 21

38 January/February 2010 / Rural Cooperatives
Table 3—Consolidated balance sheet per cwt of member milk, by type of dairy

cooperative, 2007

Type of cooperative

Item Bargaining Niche Diversified &

only Marketing fluid

processing

Dollars per cwt of member milk

Current assets 1.41 8.84 5.98

Net PP&E 1/ and other assets .22 3.60 3.99

Investments in other co-ops .10 .10 .11

Total assets 1.74 12.54 10.09

Current liabilities 1.25 5.95 5.20

Long-term liabilities 2/ .06 1.80 2.10

Total liabilities 1.31 7.76 7.30

Total equity .42 4.78 2.79

Total liabilities and equity 1.74 12.54 10.09

Member milk (million pounds) 28,902 1,034 112,929

Number of cooperatives 60 9 25

Member milk per cooperative (million pounds) 482 115 4,517

Note: Totals may not add due to rounding.

1/ Property, plant and equipment.

2/ May include liabilities not categorized

Table 4—Consolidated operating statement per cwt of total milk handled, by type

of dairy cooperative, 2007

Type of cooperative

Item Bargaining Niche Diversified &

only Marketing fluid

processing

Dollars per cwt of member milk

Milk and dairy product sales 18.40 48.22 24.71

Supply and other sales .79 .00 3.70

Service receipts and other income .08 .07 .23

Patronage refunds received .01 .00 .00

Total sales 19.27 48.30 28.65

Total expenses 19.22 47.64 28.36

Net margins before tax .05 .66 .29

Milk volume handled (million pounds) 30,507 1,039 132,137

Number of cooperatives 60 9 25

Note: Totals may not add due to rounding.

highest of all operating types in 2007:

5.3 and 13.8 percent, respectively.

Diversified and fluidprocessing co-ops

The system of plants operated by

diversified and fluid-processing

cooperatives and their marketing

operations required the second highest

level of assets per cwt of member milk

in 2007: $10.09. Long-term liabilities

represented 20.8 percent of total assets,

the highest level among the different

operational types. Furthermore, longterm liabilities were 75 percent of the

equity members hold in their

cooperatives. The other two operating

types had ratios that were less than onehalf of that.

Milk and dairy product sales were

$24.71 per cwt of milk handled, which

was about $24 per cwt below those sales

for niche marketing cooperatives.

Supply and other sales made up 12.9

percent of total sales for diversified and

fluid-processing cooperatives, which is

well-above the level of supply and other

sales of bargaining-only cooperatives

where supply and other sales made up

4.1 percent. Niche-marketing

cooperatives did not report any sales

other than milk and dairy products.

Net margins before taxes for diversified

and fluid-processing cooperatives

averaged 29 cents per cwt and

represented 1 percent of total sales in

2007. They varied somewhat between

the survey years: from 2 cents per cwt

lower in 2002 to 5 cents per cwt higher

in 1997. Diversified and fluidprocessing cooperatives’ net margins

were below those of niche-marketing

cooperatives for all 3 survey years. The

net margins-to-total assets ratio was 3.4

percent in 2007, while net margins-tomember equity was 12.1 percent.

Size-based performance

The financial performance of dairy

cooperatives was also calculated

according to size of operations.

Dairy co-op survey

continued from page 25

Rural Cooperatives / January/February 2010 39
40 January/February 2010 / Rural Cooperatives

Table 5—Consolidated balance sheet per cwt member milk, by size of dairy

cooperative, 2007

Size of cooperative

Item Small* Medium* Large*

Dollars per cwt of member milk

Current assets 4.33 4.63 5.11

Net PP&E 1/ and other assets 1.35 2.21 3.30

Investments in other co-ops 1.72 0.19 0.09

Total assets 7.40 7.03 8.51

Current liabilities 3.06 2.89 4.51

Long-term liabilities 2/ 0.36 1.54 1.70

Liabilities not categorized 0.11 0.00 0.00

Total liabilities 3.53 4.43 6.21

Total equity 3.86 2.60 2.30

Total liabilities and equity 7.40 7.03 8.51

Member milk (million pounds) 582 8,661 133,621

Number of cooperatives 30 38 26

Member milk per cooperative (million pounds) 19 228 5,139

Note: Totals may not add due to rounding.

1/ Property, plant and equipment. 2/ May include liabilities not categorized

* Small: less than 50 million lbs.; Medium: 50 million to 1 billion lbs. of milk; Large: over 1 billion lbs.

Table 6—Consolidated operating statement per cwt of total milk handled,by size

of dairy cooperative, 2007

Type of cooperative

Item Small* Medium* Large*

Dollars per cwt of member milk

Milk and dairy product sales 21.08 25.34 23.59

Supply and other sales 7.54 0.68 3.26

Service receipts and other income 0.94 0.25 0.20

Patronage refunds received 0.21 0.03 0.00

Total sales 29.77 26.30 27.06

Total expenses 29.36 25.87 26.82

Net margins before tax 0.42 0.43 0.24

Milk volume handled (million pounds) 587 9,289 153,807

Number of cooperatives 30 38 26

Note: Totals may not add due to rounding.

* Small: less than 50 million lbs.; Medium: 50 million to 1 billion lbs. of milk; Large: over 1 billion lbs.

Cooperatives were divided into three

groups: small (those that handled less

than 50 million pounds of milk per

year); medium (those that handled

between 50 million and 1 billion

pounds of milk annually); and large

(those that handled 1 billion pounds of

milk or more annually).

The variation in financial

performance among the size groups was

smaller than that between the

operating-type groups.

Total assets ranged from $7.03 per

cwt of member milk for the mediumsize cooperatives to $8.51 for the large

co-ops, with small operations having

$7.40 per cwt in total assets (table 5).

The small cooperatives’ investments in

other cooperatives represented a much

greater percentage of total assets (23.3

percent) than for the large and medium

groups (2.7 and 1.1 percent,

respectively).

Total liabilities ranged from $3.53

per cwt for small cooperatives to $6.21

per cwt for the large cooperatives in

2007. Member equity showed the

reverse pattern, ranging from $2.30 per

cwt for the large cooperatives to $3.86

for the small cooperatives. Medium-size

cooperatives were in the middle for

both measures: $4.43 per cwt in total

liabilities and $2.60 per cwt of member

equity.

Milk and dairy product sales varied

by $4.26 per cwt among the three size

groups in 2007 (table 6). Medium

cooperatives had the highest milk and

dairy product sales at $25.34 per cwt;

small cooperatives ranked lowest at

$21.08. Differences in total sales for the

three size groups were even narrower,

ranging from $26.30 per cwt for

medium cooperatives to $29.77 for

small cooperatives.

However, net margins for the large

cooperatives were 24 cents per cwt —

18 cents and 19 cents per cwt below net

margins of the small and medium

groups, respectively.

Consequently, net margins before

taxes came to just 0.9 percent of total

sales for the large cooperatives, but

were 1.4 percent for small cooperatives

and 1.6 percent for the medium group.

Finally, the medium-size cooperatives

showed the highest net margins-toequity ratio, 17.6 percent, and highest

net margins-to-total assets, 6.5 percent.

Small cooperatives had the lowest

return on equity, 10.9 percent, while

large cooperatives had the lowest

return-to-total assets, 3.2 percent. ■
Rural Cooperatives / January/February 2010 41

Development’s Value-Added Producer

Grant (VAPG) and Business & Industry

Guaranteed Loan (B&I) programs.

VAPG is a powerful, highly flexible tool

that helps agricultural commodity

producers to refine or enhance their

products, increasing value to end-users

and increasing the returns to producers

(see page 13 of this issue for an example

of a co-op that was helped with a

VAPG). Since the program’s inception

in 2001, we’ve awarded more than

1,200 VAPGs for planning and working

capital grants. In the current round of

VAPGs, we encouraged applications

that would focus on local foods and

value chains, or food systems.

The B&I program can support

cooperative ventures for locally grown

agricultural products. These loans can

be used for business conversion, repair,

modernization or development. They

can also help with purchasing or

developing land or facilities.

Funds go to equipment, leasehold

improvements, machinery, supplies and

inventory.

To help improve the impact of our

cooperative programs, we are

establishing expert advisory panels with

a cross-section of outside experts.

They’ll explore equity issues and

research needs, provide support for

cooperative board members and co-op

management and identify long-term

issues that need to be addressed.

We’re also creating ad hoc panels to

examine emerging issues, such as capand-trade and local foods.

In keeping with the Secretary’s rural

wealth-building priority, we’re

establishing a discussion forum with the

goal of encouraging all cooperative

trade associations serving rural areas to

come together and explore creative

ways to target services and build

communities.

We want to make our programs work

for you, and in today’s business

environment.

The rural economy is struggling and

lenders are reluctant to continue with

existing credits, much less extend new

credits, but Congress clearly defined

our mission and we are fully committed

to doing all we can to support the

entrepreneurs that have the initiative

and the drive to go out and compete in

the marketplace.

Combining your experiences and

strengths, we can address challenges

facing your communities. Let’s build

rural America through mobilizing local

leaders, capturing transfers of wealth,

encouraging entrepreneurship and

building stronger cooperatives. You are

our leaders in the states, and I challenge

you to consider the role that you can

play. ■

Commentary

continued from page 2
42 January/February 2010 / Rural Cooperatives

From the February 1960 issue of

News for Farmer Cooperatives

How to get attendance at meetings

By D.M. Hall, Associate Professor,

University of Illinois, Urbana, Ill.

A large dairy cooperative’s field man asked me: “How do

you attract a crowd?” He had been conducting meetings

arranged by county agents. He said, “In some counties the

attendance is always good; in others it never is.”

I’d like to emphasize that attendance is behavior. It is

something a person does as the result of a three-step process.

He hears or reads about a meeting; anticipates some reward,

such as solving a problem; and then acts in hope of receiving

the reward.

Three kinds of messages, each useful under specific

conditions, can be sent and received. They are: 1. Noise —

messages carrying no new information; 2. Expressive

messages — those intended to do something to the sender; 3.

Influential messages — those intended to do something to

others.

The noise aspect was discovered to be useful during war.

The enemy had been trained to be noisy because it was found

that noise was a confidence builder. By chatter, each soldier

knew that he was not alone and thus had the support of the

group.

A postal card sent as a reminder is classified as noise, but

isn’t as effective as if it were a phone call from a neighbor.

Effective noise is personal. It says: “Let’s go together.”

Expressive messages are easily identified when you hear

someone pop off and say: “I got that off my chest.” You may

not so easily identify more subtle messages, such as boasting

about “my years of experience” or “my skill.” They usually

are attempts to get recognition and they do the sender good,

even though they do nothing for anyone else.

Influential messages are intended to influence us to

believe, to feel and to act. Three styles of influential messages

can reveal the purposes of the senders: 1. Communications

for immediate action. Senders of such messages use sharp and

startling contrasts. 2. Communications for manipulation.

Manipulators seek to influence people to conform to the

manipulator’s beliefs. 3. Communicators for integration.

Senders of integrative messages have democratic purposes

and hope that their messages will liberate men. They have

respect for individual differences and human worth.

From the February 1980 issue of

Farmer Cooperatives

Vertical integration is key for Moroni Feed

Company

The Utah desert may seem an improbable place to start a

turkey business, but one has been thriving there for several

decades. Moroni Feed Co. of Sanpete County, Utah, is one

of the few fully integrated turkey producing and marketing

cooperatives in the United States. This cooperative maintains

its own turkey-breeding farm; hatchery; feed mill; and

processing, packaging and freezing plant; plus its own

financing, hardware and fertilizer departments. It also

operates a disease diagnostic laboratory.

The turkey growers have maintained the profitable

cooperative over the past 40 years even though, located

between mountains in the desert, they cope with higher

production costs, higher freight rates and lower turkey prices

than competitors in most other parts of the country.

An important reason for success is that from the

beginning, Moroni Feed Co. has moved slowly and carefully

into each operation, co-op officials explain. When the need

for expansion was felt, they first developed the necessary

capital and management know-how. All major elements of

their turkey industry are integrated under one management,

thus offering savings and efficiencies not found in

nonintegrated operations.

Page from the Past

From the archives of Rural Cooperatives
Rural Cooperatives / January/February 2010 43

The foundation of this cooperative’s management

structure includes pooling, “70-30” financing, education and

a revolving fund.

Different types of pooling operations are needed to handle

the wide fluctuations in turkey prices, as well as different

sizes and types of turkeys grown to meet trade specifications.

Pooling is a distinctly cooperative practice. It means

commingling products of several producers, usually on the

basis of established grades, and after deducting average

expenses, paying the average price received for some defined

period. Profits from sales returns, expenses such as service

fees, and even risks are shared.

To help new growers get started, Moroni Feed Co.

developed the “70-30” finance program for sharing profits

with producers. The plan allows the new grower to get into

the turkey business without much initial capital. At no

interest, the cooperative supplies feed, poults, fuel,

medication, and insurance. The new grower supplies the

labor, land, equipment and operating expense.

After the turkeys are processed and sold, the co-op deducts

all charges for everything furnished, and the net profit is

shared: 70 percent to the grower and 30 percent to the co-op.

Operating as a true cooperative, Moroni Feed Co.

performs services for its patrons at cost and pays back as

patronage refunds any savings above the cost of operations.

Savings are distributed according to business done by each

patron or member. This is the revolving fund principle.

From the Jan./Feb. 2000 issue of

Rural Cooperatives

Consolidations, technology, politics to impact

co-op financial institutions

Charles E. Snyder

President & CEO

National Cooperative Bank

As we turn the corner and enter a new century, the U.S.

economy is at an all-time high. As cooperative financial

institutions, we too have been riding the wave of prosperity.

Where do we go from here? Are we prepared to meet the

challenges of the new century?

If the past decade is any indication of what we have to look

forward to, it is going to be a bumpy ride. The recent trends

— industry consolidation, technological advancements and a

shifting legislative agenda — offered a dizzying pace of

change.

Cooperative financial institutions will need to be able to

turn these trends into opportunities in order to compete in

the new millennium. We will need to continually adapt with

customers to meet their needs.

Industry consolidation will continue, especially within the

financial services arena. Recent legislation providing for

banking modernization will allow banking, insurance and

stock brokerage to be sold under one roof. Competition with

large and well-capitalized companies will increase as firms

merge to provide one-stop shopping.

With banks increasingly becoming more like fast-food

outlets, there will be tremendous opportunity. Super banks

will offer a cookie-cutter approach to business. They will tell

customers to fit in their box. Cooperative financial

institutions must react swiftly, listen to customer needs and

offer creative solutions.

Technological advancement

The use of computers and the delivery of products and

services via the World Wide Web will be paramount to our

success. E-commerce allows like-minded people to cooperate

with efficiency never before seen. Cooperatives, by their very

nature, should be able to capture this value if they are able to

manage change at “Internet speed.” Evaluating how members

can use the Web, how we can partner to deliver “added

value” through a virtual world is critical. While still relatively

unknown, cooperative financial institutions are well aware

that the Web will change the face of how we do business.

Keystone Development Center, is interning with the

National Cooperative Business Association, where she is

working to identify resources for supporting urban co-op

development.

The overall goal of the university program is to add to the

community development “tool bag” students should be

familiar with as they pursue careers in business and

community development. Their communities are supplying

the “case material” for their studies and are the beneficiaries

of what they learn.

For more information about the school, visit:

http://www.snhu.edu/ 388.asp. ■

Co-op Development Action

continued from page 16

going through a transition period, Kennedy said. “Growers

now have larger and faster combines and large trucks which

are capable of harvesting and delivering crops faster than

some of our aging facilities can accommodate. As a result,

many members have built on-farm bins, and others are

driving longer distances to reach facilities with shorter dump

lines, which allow them to keep their combines rolling. We

are working to adjust to this storage shift.” ■

Newsline

continued from page 37
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