A$chemical

and Seed

Operations

FARMER COOPERATIVES IN THE UNITED STATES

COOPERATIVE INFORMATION REPORT 1

SECTION 22

U.S. DEPARTMENT OF AGRICULTURE

AGRICULTURAL COOPERATIVE SERVICE
CONTENTS

Fertilizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Early Cooperative Developments...................................... 2

Current Status ................................................................... 4

Operating Practices ........................................................... 6

Wholesaling ............................................................................ 7

Early Cooperative Developments...................................... 7

Current Status ................................................................... .

Operating Practice .......................................................... 12

Mixing and Manufacturing ................................................... 14

Early Cooperative Developments.................................... 14

Interregional Cooperation ............................................... 18

Current Status ................................................................. 19

Operating Practices ......................................................... 21

Limestone Distribution and Quarrying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Vertical Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Benefits.. .............................................................................. .25

Savings ..........................................................................

.25

Services .......................................................................... 27

Challenges Ahead ................................................................. 29

Developing Size Advantages .......................................... 29

Expanding Service .......................................................... 29

Selling Competitively .................................................... .29

Sources of Fertilizer........................................................ 30

Price Leadership ............................................................. 30

Distribution Systems.. .................................................... .30

Developing New Markets ............................................... 31

i
Farm Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

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

Early Developments........................................................ 34

Current Status ................................................................. 34

Operating Practices.. ....................................................... 35

Integrated Pest Management Service ............................. .36

Wholesaling

Early Developments....................................................... .38

Current Status ................................................................. 38

Operating Practices ......................................................... 39

Formulating .........................................................................

.42

Early Developments........................................................ 42

Later Developments ....................................................... .43

Current Status .................................................................4 3

Vertical Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Challenges Ahead ................................................................. 45

Increasing Patron Savings ............................................... 45

Pooling Market Power .................................................... 46

Manufacturing Basic Chemicals ..................................... 46

Achieving and Maintaining Adequate Volume.. ............ ..4 7

Providing Narrower Lines of Chemicals .........................4 7

Continuing High-Quality Services .................................. 48

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Seed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Farmers * Expenditures for Seed.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SO

Retailing ............................................................................... 50

Early Cooperative Development ....................................

.5O

Current Position .............................................................. 53

Wholesale Procurement and Distribution .............................. 55

Early Developments....................................................... .55

Current Position .............................................................. 57

NC+ Hybrids.. ................................................................. 60

Research or Plant Breeding .................................................. .60

Research by an Inter-regional Cooperative ..................... .62

Benefits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Challenges Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Cooperative Information Report 1, Section 22 April 1990

. . .

111
To provide themselves with agrichemicals, farmers have

integrated operations through cooperatives backward from custom

application with expensive equipment, such as on the cover, to

manufacturing. Below is the Green Bay fertilizer complex near

Bartow, FL, owned by Farmland Industries, Inc., Kansas City, MO.
Cooperalive

Agrichemical

and Seed

Operations

Through cooperatives, farmers control significant portions

of the manufacturing and marketing of fertilizer, agrichemicals,

and seed. Control began with small purchasing groups and grew

through the organization of large wholesale and manufacturing

cooperatives. Through their cooperatives, farmers have obtained a

broad variety of products and services efficiently and economically and gained significant benefits.

FERTILIZER

Farmers’ accomplishments can be understood better by

showing the size of the cooperative fertilizer industry.

In 1987, farmers spent $5.4 billion for fertilizer and lime,

nearly 5 percent of their total production costs. At $5.4 billion

farmer expenditure on fertilizer and limestone was down 39 percent from an all-time high in 1980. During the mid-1980’s. farmers experienced the worst depression since the 1930’s. Their experience reverberated through the fertilizer industry. For example,

40 percent of the 90 ammonia plants operating in 1980 were either

closed or idled and a third of the remainder changing ownership.

Cooperatives experienced the trauma of this period as well as noncooperatives.

With $5.4 billion, farmers bought 43,239,OOO tons of fertilizers. Of these, 24,379,OOO tons were primary materials,

17,270,OOO tons were mixed products, and 1,590,OOO tons contained minor elements. These fertilizers represented 19,214,OOO

1
tons of nutrients-10,349,OOO tons of nitrogen, 4,852,OOO tons of

potassium, and 4,013,OOO tons of phosphate.

The top 10 States in applying fertilizers (primary nutrients)

were:

Illinois

Iowa

Indiana

Minnesota

Texas

Nebraska

Ohio

California

Wisconsin

Missouri

1,000 tons

1,833

1,581

1,183

1,124

1,066

937

860

762

742

707

California, in eighth place and not among the top 10 in

1986, replaced Kansas which was tenth that year.

Retailing

Cooperative fertilizer activities began on a small scale at

the local retail level and have expanded over the years to include a

wide variety of supplies and services.

Early Cooperative Developments

In December 1863, farmers around Riverhead, NY, formed

a club and incorporated in 1866 as the Riverhead Farm

Agricultural Society. Their agent bought Peruvian guano and

chartered a vessel to bring it from New York to the Jonestown

wharf.

As the cooperative idea grew, farmers in the Northeast continued to form purchasing clubs, local and county exchanges, and

Grange cooperative stores to purchase feed, fertilizer, containers,

pesticides, and coal. Farmers often pooled orders through these

organizations, with local representatives (farmers and later, local

dealers) overseeing “car door” operations, notifying farmers when

railcars arrived, and collecting payments for the fertilizer.

Two regional supply cooperatives eventually were formed.

The Eastern States Farmers Exchange (Eastern States), West

2
Springfield, MA, was organized in 1918, and provided wholesale

services to local cooperatives and local representatives. In 1926, it

introduced double strength fertilizer on an open formula basis. By

1932, Eastern States had 374 local representatives and a fertilizer

volume exceeding 14,000 tons. Soon the cooperative began operating area retail warehouses and became a centralized association

serving farmers directly.

The Cooperative GLF Exchange (GLF), Ithaca, NY,

formed in 1920, was the other regional supply cooperative that

grew similarly. It soon began using a pooling plan with farmer

representatives but also organized local cooperatives. To increase

volume, GLF enlisted local supply dealers (called agent-buyers) to

handle fertilizer and other supplies as franchise operations. By

1931, GLF had 74 cooperative service stores and more than 300

agent-buyers. In 1940, it reached a peak of 520 agent-buyers.

During this period, many farmers in the East believed they

were paying exorbitant prices for fertilizer and other production

supplies because of monopolistic practices by large corporations.

Two large firms had achieved a high degree of control over the

manufacture and distribution of fertilizer. In 1916, the Federal

Trade Commission found that seven companies were selling 58

percent of the fertilizer used domestically; by 1921, their share had

increased to 65 percent.

In Indiana, local farmer buying groups and grain marketing

cooperatives began handling fertilizer and other supplies in bulk

between 1915 and 1920. County farm bureaus sponsored car door

purchasing groups and agents that handled fertilizer and other supplies. In the late 1920’s and early 1930’s, they began organizing

countywide supply cooperatives.

In the South during World War I, county agricultural agents

helped farmers pool orders for carloads of fertilizer from manufacturers. In 1920, representatives of Mississippi farmers visited E.I.

duPont to negotiate lower prices and to purchase duPont’s Chilean

nitrate. As a result, Mississippi farmers pooled a 50,000-ton order,

which they received through Gulfport, MS. Between 1919 and

1928, county farm bureaus took over this activity and by 1930, 63

had become incorporated purchasing associations.

The Virginia Seed Service, Richmond, VA, now Southern

States Cooperative (SS), began handling fertilizer in 1926 through

managed local service stores and independent dealer-agents. It

employed the open formula principle of publishing the ingredients

3
of mixed fertilizers. Staple Cotton Growers Association,

Greenwood, MS, ordered carloads of nitrate of soda for its members until supplies were curtailed in World War II. Cotton

Producers Association (CPA), Atlanta, GA, now Gold Kist Inc.,

began distributing fertilizer in 1941.

Fertilizer use, especially nitrogen, increased in the

Midwest during and after World War II. For example, Iowa consumption averaged 49,297 tons during 1940-44, then jumped to

520,130 tons during 1950-54. Local grain marketing and supply

cooperatives began handling fertilizer, and their volume increased

rapidly after Consumers Cooperative Association (CCA), Kansas

City, MO, now Farmland Industries, Inc. (Farmland), began providing wholesale fertilizer services in 1946 and manufacturing in

1948.

Current Status

In 1987, 3,015 cooperatives reported net fertilizer sales of

$2.7 billion (table 1). Probably representing little change, twentyfour regional and interregional cooperatives retailed nearly 20 percent of the cooperative total in 1986. Agway, MFA, and SS handled two-fifths of the 20 percent, retailing more fertilizer than they

wholesaled. CF, Farmland, and MCC, basic fertilizer manufactures, retailed nearly a quarter of the 20 percent. Eight centralized

regionals, principally Gold Kist, retailed most of the remainder,

selling all of their fertilizer through branch stores.* Ten regionals,

such as Countrymark and MFC, retailed less fertilizer than they

wholesaled.

Fertilizer accounted for about a fifth of cooperatives’ total

supply volume, only slightly above feed and 65 percent of

petroleum. This $2.7 billion was a hefty increase over 1950-51,

the first year data were available, when 3,357 cooperatives had fertilizer sales of $156 million. Cooperatives’ share of the farm market increased from 15 percent to 51 percent during this period.

The five States with the largest cooperative net sales in

1987 were: Iowa, $327 million; Illinois, $255 million; Minnesota,

$236 million; Nebraska, $13 1 million; and Indiana, $13 1 million.

Indiana nugged Kansas out of fifth place in 1985, Kansas dropping

*The. full names of cooperatives not identified earlier are: Agway (Agway Inc., Syracuse, NY),

MFA (MFA, Inc.. Columbia. MO), CF (CF Industries, Inc., Long Grove. IL), MCC (Mississippi

Chemical Corporation. Yazoo City, MS), and MFC (MFC Services, AAL, Madison, MS).

4
to seventh place in 1987. Among these States, statistics indicate a

large cooperative share of market ranging from 95 percent to 40

percent, as shown below:

Iowa

Minnesota

Illinois

Nebraska

Indiana

Percent*

95

92

55

52

40

During the past quarter century, major changes have

occurred in the cooperative distribution of fertilizer. One was the

dramatic increase in the amount of nitrogen fertilizer sold, espe-

* Market shares for States with low percentages may suffer from statistical inconsistancy. For

example, Nebraska’s share was 68 percent in 1985. Shares are not reported for farm chemicals and seed.

Table l-Cooperatives handling fertilizer and lime and their net sales

and share of the farm market in specified years.

Year l/

Cooperatives Cooperatives’ Farmers’

selling net sales of expenditures

fertilizer fertilizer for fertilizer

and lime and lime 2J and lime 3/

Cooperatives’

market

share

Number _ _ _ _ _ _ _ Million Dollars -------- Percent

1950-51 3,357 156.2 1,019s 15

1955-56 4,018 261.4 1,175s 22

1960-61 4,276 361.6 1.390.5 26

1965-66 4,363 561.7 2JO6.5 27

1970-71 4,134 762.1 2.544.5 30

1975-76 3,949 2.284.0 6,564.0 35

1981 3,789 3,676.3 9.409.0 39

1983 3,442 2,837.2 7.066.0 40

1984 3,323 3,434.7 7,429.0 44

1985 3,237 3,341.6 7,258.0 46

1986 3,134 2,915.4 5,787.0 50

1987 3,015 2,731.g 5.610.0 43

1988 41 2,899 2,976.g 6,400.O 40

I/ Business years ending June 30, except in 1981-88 when calendar years are used.

2/ Excludes business among cooperatives but includes sales not for farm use.

3/ Average of 2 calendar years for 1950-51 through 1975-76. See &onomic Ind.&W&

1987, p. 31.

4/ Preliminary.

5
cially as anhydrous ammonia and nitrogen solutions. As a result,

cooperatives own many ammonia and nitrogen solution stations,

nurse tanks, and liquid applicator rigs.

Cooperatives encouraged the use of high-analysis fertilizers, furnished custom bulk spreading to save time and labor for

farmers, provided bulk blending of materials based on soil tests of

individual fields, offered other services such as agronomic advice

and recordkeeping, and supplied fertilizer through farm service

centers to share overhead costs with other supplies and products

marketed.

Cooperatives gradually integrated operations through drymixing and ammoniating services, initiated joint purchasing,

acquired storage and transportation facilities, and began manufacturing basic materials to ensure seasonal supplies and provide

additional savings for farmer-members.

Another change was the shift from dry mixtures to straight

materials applied in bulk. This led to bulk blending of materials

for direct application by farmers or custom operators.

Consequently, local cooperatives own numerous bulk blending

plants, some owned jointly with regionals, while regionals own

some plants themselves. Cooperatives outlets also operate many

dry spreaders and dry feeder tenders.

Operating Practices

Cooperatives have much the same facilities and equipment

for distributing fertilizer to farmers as other firms. These include

warehouses, storage tanks, bulk trucks, spreader trucks, pullspreaders, nurse tanks, liquid applicators, and the like.

Application equipment is usually available for loan, rent, and custom application, a service that has grown in popularity.

Likewise, many cooperative operating practices resemble

those of other firms. For example, cooperatives sell fertilizer on

credit with terms varying from 30 days to a seasonal basis extending over several months. Some offer cash discounts, some charge

for accounts receivable that run for more than 30 days, and some

do both. But cooperatives have also done some things differently

from other firms, such as stressing higher analysis fertilizers,

direct application (DA) materials, and the economics of bulk

blends in combination with anhydrous ammonia.

However, cooperatives historically lagged in supplying liquid mixtures and nitrogen solutions. These fertilizers often appeal

6
to farmers because of their safety, labor savings, and convenience

(they can be combined with pesticide applications).

Cooperatives historically have had at least three operational advantages. Many have tended to be more diversified and

larger and, at the same time, serve more highly concentrated fertilizer markets than noncooperatives. Greater diversification and

size attract farmers, while larger businesses and more concentrated

markets can increase operational efficiencies. l* In Nebraska, for

example, cooperatives’ major advantages over other types of fertilizer firms have been:

1. Diversification (proportion of total annual sales per outlet from nonfertilizer sources). Cooperatives averaged 84 percent,

noncooperatives, 57 percent. 2

2. Size. Cooperatives averaged 3,746 tons annually, noncooperatives 2,497 tons. 3

3. Density. Cooperatives sold $26,824 per 10 square miles

of territory, noncooperatives, $11,366. 4

In addition, many local cooperatives have their ability to

market fertilizers enhanced by their activities in grain marketing.

Like noncooperatives, most cooperatives take fertilizer

orders in the fall and offer early-order discounts that decrease as

spring approaches. They also offer quantity and annual volume

discounts. But cooperatives historically have often avoided price

leadership and priced “at the market.”

This practice seems less prevalent today, however. For

example, nationwide cooperative fertilizer prices averaged 8 percent below competition in 1975. Later studies found that cooperative outlets priced ammonia, 28-o-0, TSP, and potash lower than

noncooperatives in Iowa and Nebraska during 1979, where a $4.45

per ton advantage on ammonia was registered. 5

Wholesaling

Having succeeded in retailing fertilizer, local buying

groups and co-ops turned their attention to wholesale operations.

Early Cooperative Developments

The first known wholesale supply purchasing cooperative,

Fruit Growers Supply Co., Los Angeles, added fertilizer to its con-

* Footnotes arc grouped at tie end of the text.

7
tainer business around 1911. It obtained orders from citrus marketing exchanges for 166,000 tons, reducing dealers’ gross margins from $6 to $3 per ton. It also introduced the practice of selling fertilizer on the basis of plant food units to help members make

more intelligent and economical use of this supply.

Eastern States was the first eastern regional cooperative to

provide wholesale fertilizer service to local farmer organizations.

Eastern States sold 1,699 tons on a brokerage basis in 1919, and in

the 1930’s, became the foremost advocate of using high analysis

fertilizers based on individual soil samples that could be tested in

its own laboratory.

About the same time, statewide farm bureaus helped begin

cooperative purchasing of fertilizer and other supplies in the. central part of the country. For example, in 1920 the Indiana Farm

Bureau joined with the Indiana Grain Dealers Association and the

Indiana State Grange to form the Federated Marketing Service, a

brokerage agency for local buying groups and cooperative elevators that assembled orders for bulk supplies.

In 1923, the Indiana Farm Bureau established its own purchasing department, but it was soon boycotted by the established

fertilizer manufacturers. Fortunately, the Tennessee Copper and

Chemical Corp., had a supply of sulfuric acid that could best be

used in manufacturing fertilizer, so it contracted with the Farm

Bureau to take the output of a future fertilizer plant. In 1927, the

Farm Bureau purchasing department was reorganized as the The

Indiana Farm Bureau Cooperative Association (IFBCA),

Indianapolis, IN, designed to serve county farm bureau cooperatives that were to be organized in the next 5 years. In 1938, the

State association began its own manufacturing.

In 1926, Virginia Seed Service initiated contracts with companies in the Norfolk area to manufacture mixed fertilizers. Its contracts called for specified ingredients manufactured according to an

“open formula” recommended by the State Agricultural College in

Virginia. In 1928, it began buying some fertilizer from GLF.

In 1930, the Mississippi Farm Bureau Federation (AAL)

was formed to purchase fertilizer and other supplies for members’

countywide associations. This function passed to MFC in 1935.

The State Farm Bureau of Mississippi began buying nitrate of soda

and acid phosphate for members of county units in 1922.

The Alabama Farmers Cooperative (AFC), Decatur, AL;

the Tennessee Farmers Cooperative (TFC), La Vergne, TN; and

8
CPA began wholesale fertilizer services in the late 1930’s or early

1940’s.

As local cooperatives in the Midwest began to handle fertilizer on a larger scale after World War II, their regional wholesale

cooperatives began to acquire supplies for them. CCA started handling fertilizer on a commission basis in 1946. The Illinois Farm

Supply Co., (later named GROWMARK) and MFA had begun providing fertilizer a few years earlier. Land O’Lakes (LOL),

Minneapolis; Farmers Union Central Exchange (Cenex), St. Paul;

and Midland Cooperatives, Minneapolis, were other regionals

expanding their wholesale services.

Current Status

Cooperatives probably provided wholesale services for little more than 75 percent of the fertilizer retailed by all cooperatives. These services come mainly from 32 regionals interregionals having over $1 million worth of business. Similar services on

the remaining twenty-five percent of the fertilizer purchased by

retail cooperative come from noncooperatives.

The 32 regionals did $1.8 billion of wholesale business

1986, with two-thirds of this total generated by 18 regionals which

conducted most of their fertilizer business at the wholesale level.

Details are as follows:

Type of cooperative

Number of Wholesale

cooperatives volume

Wholesaling regionals a

Entirely wholesale

Both wholesale & retail

Total

Retailing regionals b

Both retail & wholesale

Entirely retail

Total

Manufacturing cooperatives

Grand Total

8 486

10 762

18 1,248

3 325

8 118

11 443

3 115

32 1,806

Million dollars

a More than 50 percent of each cooperative’s sales generated at wholesale level.

b Mom than 50 percent of sales generated at retail level.

9
Fertilizer application equipment has progressed from addon and pull-type applicators to . . .
. . . massive customized machinery employing computers to

analyze soil deficiencies and prescribe corrective fertilizer materials.
In 1987, the number of regionals that were strictly wholesalers of fertilizer declined by one. Cenex and LOL embarked on

a unique joint venture entitled Cenex/Land O’Lakes Ag Services

(Cenex/LOL) to produce and/or market fertilizer, petroleum products, feed, and agricultural chemicals.

Operating Practices

Four operating practices have exemplified cooperative

wholesalers in the fertilizer market: fair prices, timely deliveries,

technical support, and interregional cooperation.

To date, cooperative wholesalers generally have followed

the leadership of noncooperatives and priced at the market, continuing a traditional cooperative practice. But practices may be

changing, for during the fertilizer shortage of 1973/1975, cooperative manufacturers and regional members slowed the rise in their

prices and priced below competition. This action probably showed

up in some relatively lower prices charged by cooperative outlets,

noted earlier. Specific examples of this action were MCC’s pricing ammonia at under $200 per ton compared to more than $300

per ton by competitors, and more dramatically, FS Services (now

GROWMARK) losing $14 million on some of its fertilizer purchases because it sold them for lower prices than it paid.

Regionals showed some price leadership again in 1978 and

1979, but whether it continued from 1974/75 or reappeared is

unknown. Regardless, in Nebraska and Iowa, local cooperatives

paid less for liquid nitrogen, TSP, potash, and ammonia than noncooperatives. For example, one of the greatest differences

occurred for ammonia in Iowa where average cooperative and noncooperative prices were $128 and $146 per ton, respectively. 6

Such occurrences support a belief within the cooperative community that cooperatives help keep fertilizer costs low.

Regional cooperatives have always stressed timeliness in

delivering fertilizers. They must be positioned properly (on intransit railroad cars, if nowhere else) when spring demand surges.

Therefore, cooperatives have set up well-developed and efficient

distribution systems. For example, during the early 1980’s,

Farmland constructed new storage facilities at Enid, OK; Fort

Dodge, IA; and Hutchinson, KS, all capable of rapidly loading

huge amounts of fertilizer. During 1984, on the other hand, economic adversity caused FCX to begin closing some of its 95 outlets. FCX was liquidated in 1986.

12
Regional cooperatives support fertilizer sales, pricing, and

distribution efforts with hundreds of technical service people.

They advise on all phases of fertilizer handling and application and

are often employed as crop management specialists. These specialists are discussed more fully under farm chemicals.

Many cooperative technical service representatives are

authorities on fertilization practices from their own experience and

study. Most are supported by field trials and research by regionals’ staffs. For example, Agway staffs its Farm Research Center at

Tully, NY, while LOL does similarly at its “Answer Farm” at Ft.

Dodge, IA. Technical service people operate under programs such

as: “Integrated Crop Management,” at Agway; “Croplan,” at

Cenex/LOL; “Total Crop Planning,” at Countrymark; “Crop

Management Service,” at Farmland; and “Grow Master Crop

Service,” at SS.

Technical service representatives are on the forefront of

new technology in helping their patrons. For example, GROWMARK claims that in 1981 it was the first farm supplies cooperative to use a simplified computer technology to help farmers make

sound decisions about crop production. In 1986, GROWMARK

helped several of its member companies extend this service from

their stores to their patrons using portable computers. About the

same time, Cenex and LOL were providing similar service.

These regionals were going further than GROWMARK,

however. They were laying a basis for their AgriSource program.

Introduced by Cenex/LOL, in late 1987, this program is an agronomic management and information system. It uses telecommunications and computers to help member locals speedily provide

their patrons with soil-test results, precisely-blended fertilizers,

pesticide recommendations, and valuable up-to-date informtion.

AgriSource is an expanding, multisource system that may grow to

include information from suppliers and government agencies.

Later, it may include catalogs from which farmers can order supplies from their farm offices.

About the same time, Cenex/LOL was helping a partially

owned subsidaiary develop the SOILECTION system. Using digital maps, radar and an on-board computer and fertilizer blender, a

SOILECTION spreader adjusts plant food and chemical rates of

application in accordance to soil need as it passes over fields.

Jntroduced in 1985, 20 Cenex/LOL locals reportedly had invested

in these spreaders by early 1989.

13
Interregional cooperation came about as regional cooperatives learned to increase their effectiveness much like individual

farmers once learned to use cooperatives to maximize their buying

power. This action was stimulated by World War II and by the

Tennessee Valley Authority (TVA). In 1941, Fertilizer

Cooperatives of North America was organized to coordinate

increased fertilizer production for the war effort. After the war,

the Tennessee Valley Authority (TVA) encouraged interregionals

by using them to market TVA’s fertilizers, and between 1943 and

1946, three were organized. They were Associated Cooperatives,

Northwest Fertilizer Cooperatives, and Central Farmers, now CF

Industries.

CF remained a wholesaler for only a decade or so, then it

entered into manufacturing fertilizers where the most important

interregional activities developed.

Mixing and Manufacturing

Early Cooperative Developments

Cooperatives wholesaling fertilizer soon found it advisable

to undertake their own mixing operations, then to manufacture

superphosphate, and finally to produce basic materials to assure a

dependable supply and realize additional savings. The first known

cooperative mixing plant was built at Caribou, ME, in 1920.

In 1924, GLF acquired a minority interest in a company

that manufactured acid phosphate and mixed fertilizers. In 1927,

GLF bought a mixing plant at Phelps, NY, and two more by 1930.

Fertilizer sales more than doubled from fiscal year 1927 to 1930.

In the late 1930’s, GLF and the Farm Bureau Cooperative

Association, Columbus, OH, jointly acquired a fertilizer plant in

Baltimore, MD. In 1931, Eastern States acquired a mixing plant in

Boston, then a second in Wilmington, DE.

In 1938, MFC began mixing fertilizer with a concrete mixer

at Laurel, MS. In 1942, it acquired a small mixing plant at Canton,

MS, and in 1943, it installed modem mixing machinery in a plant at

Corinth, MS. In 1948, MFC helped organize the Coastal Chemical

Corp., to manufacture mixed fertilizers and in 1950 it began manufacturing superphosphate at a new acidulating plant at Canton.

Two cooperatives in Alabama and one in Virginia were

formed in the 1930’s to dry mix fertilizers. In 1941, CPA acquired

14
A major transition in fertilizer use was from pre-determined and bagged mixtures of nitrogen, phosphorus, and potash to

dry bulk-blended mixtures tailored to soil test recommendations.
a plant and began mixing fertilizer at Carrollton, GA. Soon fertilizer operations followed at Savannah, Cordele, and Sylvester, GA.

Super-phosphate was later manufactured at two plants.

In 1934, SSC leased a mixing plant at Norfolk, VA,

because its supplier’s prices were high, and in December 1936, it

acquired a large plant in Baltimore. The following year, SSC

made arrangements to supply the statewide cooperative in

Pennsylvania from this plant and the Farmers Cooperative

Exchange, Raleigh, NC, from a new plant in Norfolk.

In 1939, IFBCA, after buying fertilizer from a noncooperative company for 8 years, constructed two plants of its own; a third

was built in 1940. IFBCA needed to decentralize the program to

reduce trucking costs, and manufacture cheaper fertilizer.

Fourteen cooperative mixing plants were built from 1940

to 1948, six with acidulating equipment. Besides mixtures, they

also produced normal superphosphate.

In the early 1950’s, cooperatives began to add equipment

to produce granules rather than powdered products that often

caked or became lumpy. This process aided the increase in bulk

spreading by farmers.

As already mentioned, increased food production during

World War II led to the development of a new and integrated cooperative fertilizer industry using basic products and their derivatives-nitrogen and phosphate fertilizers in the 1950’s and potash

in the late 1960’s. Specifically, the reasons for these undertakings

were:

1. Cooperatives had experienced difficulty in obtaining

materials to meet their members’ highly seasonal fertilizer needs.

This was especially true during a shortage of nitrogen fertilizer

after World War II. Suppliers took care of their own needs first.

2. Cooperatives found their own basic production and primary distribution helped support their marketing operations logistically and economically. Making products available to members

as needed was of paramount importance.

3. Cooperatives soon discovered their wholesale margins

were limited and they usually could return substantially greater

savings to members by producing basic materials.

4. Cooperatives found they could develop new products,

control quality, and effect new methods of application and other

services by controlling a substantial amount of basic production.

16
The first cooperative anhydrous ammonia plant was built

by MCC in 1951 at Yazoo City, MS. It came into being as a result

of curtailed.imports from Chile of nitrate of soda, a principal fertilizer used by Delta cotton farmers. Encouraged by the State Farm

Bureau, MFC, AFC, MFA, other regionals, and local cooperatives,

10,000 farmers bought $4.25 million of capital stock, cooperatives

bought $250,000, and a county industrial revenue bond issue

raised $750,000 to build a $7.5 million nitrogen plant. It could

produce anhydrous ammonia, ammonium nitrate, and nitric acid.

It was highly successful and was expanded in later years. CCA

built its first mixing plant at Eagle Grove, IA, in 1948. In the following year, it acquired a mixing and acidulation plant at St.

Joseph, MO, and built a similar plant at Muskogee, OK.

From 1951 to 1954, CCA helped finance and build a $14

million nitrogen plant at Lawrence, KS. It was operated by a subsidiary-cooperative Farm Chemicals Association (CFCA); CCA

owned 75 percent and Central Farmers Fertilizer Co. (now CF)

owned 25 percent. This plant opened in 1955 and has since

expanded. CF later sold its share to MFA who sold it to Farmland

in 1985.

CGA/Farmland later expanded and integrated operations

making it competitive with CF as the largest cooperative fertilizer

manufacturer and distributor of some fertilizers. In 1959, CCA

enlarged the Lawrence plant and acquired a 75-percent interest in

an ammonium phosphate plant in Joplin, MO; in 1962, it opened an

ammonia plant at Hastings, NE, and completed a third nitrogen

plant at Fort Dodge, IA, both under contract to CFCA. In 1966,

CCA completed a phosphate plant at Bartow, FL, purchased undeveloped phosphate land nearby, raised its investment in fertilizer

facilities to $106 million, and increased its capacity to 1.4 million

tons. In 1968, CCA built its third nitrogen plant at Dodge City, KS.

Expansions begun by CCA continued under the Farmland

name. Farmland put one ammonia line on-stream in Enid, OK in

1974, followed by a second in 1977. These additions raised farmland’s capacity to 1.1 million tons.

In 1959, Valley Nitrogen Producers, Inc. (VNP) of Helms,

CA, began operating its first nitrogen plant. Agway built its first

and only nitrogen plant at Olean, NY, in 1966.

17
Interregional Cooperation

Cooperation among regional cooperatives manufacturing

fertilizer began on a small scale in the 1930’s when GLF and FB

Co-op formed the Fertilizer Manufacturing Cooperative and

became joint owners of a plant in Baltimore. In 1939-40, the Farm

Bureau cooperatives in Indiana and Ohio built a plant at

Cincinnati.

CF first became an interregional manufacturer of basic fertilizers with the opening of CFCA’s nitrogen plant at Lawrence in

1955, then steadily broadened its base. In 1967, it leased a nitrogen plant built during 1965, in Fremont, NE, by Fel-Tex, Inc.,

another cooperative. In 1971, CF purchased this plant. Then, it

opened a plant at Terre Haute, IN, under a joint venture called

Central Nitrogen, Inc. CF later acquired this plant and continued

to add and to improve other facilities.

CF’s last two investments in nitrogen production were the

largest. As a major partner in Canadian Fertilizer, Ltd. (CFL),

Calgary, Canada, CF began operating a world-scale plant in 1976.

Finally, it completed another world-scale ammonia plant at

Donaldsonville, LA, in 1977.

During the last decade of this period, CF used its experience to manage nitrogen plants at Olean, NY, owned by Agway,

and at Tyner, TN, and Ahoskie, NC, owned by the Farmers

Chemical Association (FCA) of Tyner, TN. CF began managing

FCA’s plants in 1973 under a lease-purchase agreement and purchased the Ahoskie plant in 1982.

In 1959, CF began to mine and process phosphate rock

near Montpelier, ID. It operated this mine through 1963, when the

mine closed because of adverse economics. In 1965, CF took its

second major step toward basic phosphate production by buying a

wet rock plant at Plant City, FL. In 1969, it took its third step by

acquiring a plant at Bonnie from International Minerals and

Chemical Corp.

These facilities were expanded and modernized. But in

1974-75 CF took its fourth major step by agreeing to purchase

phosphate reserves of about 100 million tons of recoverable rock

in Hardee County, FL. In 1978, CF started to process this rock; in

1984, it expected to put its second mine into operation and raise

total annual rock output to 3 million tons. By 1984, CF’s phosphate operations and a similar undertaking by Farmland were jeop18
ardized by adverse business conditions. In 1988, both CF and

Farmland still retained their phosphate reserves , but CF found it

economical to purchase much of its rock from a noncooperative

source.

CF’s first attempt at basic potash production was to buy a

49-percent interest in the Central Canada Potash Co. (CCPC) in

1969. Noranda Mines of Toronto owned the remaining share and

operated the mine at Coloney, Saskatchewan, while CF marketed

most of its output. Ten years later, at least partially because of

regulations by the Province of Saskatchewan, CF divested itself of

CCPC. Immediately, it entered into a long-term contract with its

former partner for much of its own future potash requirements.

Farmland later withdrew from CF and soon stopped procuring its

potash from CF.

Mississippi Chemical Corp. developed into an interregional

when MFC, AFC, MFA, and others became members at the time

Mississippi Chemical obtained its first plants in 1948. Later, it

acquired the mixing plants of regionals serving Mississippi and

Arkansas and continued to manufacture mixed goods for them. As

noted earlier, MCC built a nitrogen complex followed by the

world’s first l,OOO-ton ammonia plant being brought on stream in

1966. In 1970, MCC helped set up a nitrogen complex at

Donaldsonville, LA. This was through Triad, a company owned

equally with First Mississippi.

Other interregional manufacturing cooperatives formed

over the years include the Farmers Chemical Company (Joplin,

MO) owned by CCA and MFA; Central Nitrogen, Inc., (Terre

Haute, IN) owned by Central Farmers, and statewide cooperatives

in Indiana, Illinois, and Ohio (its plant was originally built for

CFCA in 1963); and FCA owned by Tennessee Farmers, Gold

Kist, FCX, and SSC.

Current Status

In 1984, Farmland and two interregional cooperatives manufactured fertilizers with an estimated value of just under $2 billion. Farmland probably manufactured about third of the total,

MCC about a fifth, and CF the balance. Altogether these three

cooperatives supplied about three-quarters of fertilizer purchased

by cooperative wholesalers and up to 60 percent of the total

retailed by all cooperatives.

19
By 1984, CF’s primary products were nitrogen and phosphates. It had an interest in three anhydrous ammonia complexes,

including one in Canada, with annual capacity totaling 2,450,OOO

tons. It also owned two phosphoric acid plants with an annual

capacity of 1,340,OOO tons.

During 1979-87, CF sold from 6.8 to 9.7 million tons of

fertilizer a year, the high being in 1979; net sales varied from $766

million to $1.2 billion a year; and income before patronage refunds

and income taxes ranged from a minus $98.5 million to $215.5

million.

By the end of 1987, CF had $856 million in assets and

$477 million of stockholder equity, while CF’s number or employees was still down several hundred from the all-time high. CF was

smaller and more streamlined, having survived a severe industrywide recession. It was owned by 13 regional cooperatives, including two in Canada.

In 1987, MCC was owned by about 20,000 farmers, about

90 locals, and several regional cooperatives. It still operated at

least one mixed fertilizer facility and ammonia complexes in

Pascagoula and Yazoo City. It had an annual production capacity

of well over 500,000 tons of ammonia, including half of Triad’s

capacity. Also, MCC still had the capacity to produce 240,000

tons of K20 annually and held huge potash rock reserves at

Carlsbad, NM.

MCC’s revenues ranged from $171 million to $395 million

per year between 1979 and 1987. MCC’s net margins ranged from

a minus $26.1 million to $61.0 million a year, with 1987 the year

of greatest loss. At the end of 1987, MCC had assets of $230.3

million, down 35 percent from 1984. Net investment in plant and

equipment was $154.3 million in 1987, while members’ equity was

$121.4 million. MCC’s number of employees was 640, down

1,035 from 1982.

In 1988, MCC sold its Pascaqoula plant and reopened its

Carlsbad mine. Meanwhile, Farmland purchased a nitrogen facility at Beatrice, NE. In 1988, MCC sold about 1.6 million tons of

fertilizer, compared to Farmland’s 4.9 million and CF’s 7.3 million. Like Farmland and CF, MCC had weathered the agricultural

recession.

20
Operating Practices

Five operating practices have been particularly important

in helping cooperative fertilizer manufacturers achieve success.

They are fair prices, economical plants, maximized savings, basic

manufacturing, and extensive distribution systems.

Cooperative manufacturers have priced fertilizer fairly by

following the market; they have tended to follow the prices established by noncooperatives.

Cooperative fertilizer manufacturers have historically supported their ability to price competitively by operating economical

plants. For example, CF has claimed exceptionally long betweenmaintenance runs on its nitrogen plants. Similar actions enabled

cooperatives to operate their ammonia plants 10 to 20 percent

more efficiently than noncooperatives between 1972 and 1977.

However, most cooperative ammonia plants were also newer and

larger. 7

Cooperative fertilizer manufacturers seek maximum savings, recognizing their importance to the economic well-being of

member regionals and locals. Unfortunately, savings, as measured

by patronage refunds, varies greatly over time.

Much cooperative effort has gone into securing the most

economical sources of basic fertilizers. Such was the driving force

behind cooperative investments in potash mines, phosphate

resources and facilities, and world-scale ammonia plants.

Cooperatives have exercised prudence and flexibility, however, as political and economic conditions have changed. For

example, CF shut down phosphate production in Idaho and sold its

interest in its Canadian potash mine. Meanwhile, in 1983, MCC

and others began importing potash from Israel, even though MCC

still had a closed mine and potash reserves in New Mexico.

Furthermore, during 1982 and early 1983, CF permanently

closed nitrogen complexes at Ahoskie, NC, and Fremont, NE. It

also temporarily shut down two ammonia lines at Donaldsonville,

LA, its nitrogen complex at Tunis, TN, and its phosphate complex

at Bartow, FL. Similarly, Agway halved its ammoniated fertilizer

plants from 11 to 6. These drastic actions followed drastic

changes in demand, international supplies, and production costs.

To have the needed quantities of fertilizer positioned properly for the fertilizer season, cooperative manufacturers have built

extensive distribution systems. Through 1983, CF steadily

21
Farmers have united through local and regional cooperatives to own the interregional cooperative, CF Industries, known

as the world’s largest fertilizer manufacturer. Above, a dragline

scoops up phosphate rock destined for CFs Plant City complex,

below, in Florida.
expanded distribution storage until it peaked at 2.3 million tons

and its requirements began to decline.

In 1988, CF provided 2.1 million tons of storage capacity

in its distribution system. It owned 21 liquid terminals and 7 dry

storage warehouses. It leased 26 liquid terminals and 7 dry storeage warehouses. Thirteen of the terminals were in Illinois and

Indiana. CF also had a fleet of railroad cars, access to pipelines,

and a one-third share in a barge line.

CF negotiated its first contract to pipe anhydrous ammonia

from the Gulf Coast to its midwestern terminals in 1969. In 1974,

CF and several grain marketing cooperatives organized the barge

line, Agri-Trans Corporation, St. Louis, MO. CF paid Agri-Trans

$9.3 million in shipping charges in 1984, down from $17.5 million

in 1982. CF operated Agri-Trans until 1986.

Limestone Distribution and Quarrying

U.S. farmers spent about $300 million for limestone in

1987, down from an all-time high of $442 million in 1981. Two

earlier periods when expenditures were relatively high were 1963

to 1966, when they ranged from $112 million to $121 million, and

1945 to 1952, when they were between $97 million and $115 million.

Fine agricultural limestone is a byproduct of crushing stone

for other purposes. Only a few local cooperatives ever owned or

operated limestone quarries. An example was a quarry at

Frederick, MD.

Few regional cooperatives have sold or spread limestone,

except centralized organizations along the East Coast. In 1919, the

Grange Exchange, one of Agway’s and GLF’s predecessors, quoted prices for ground limestone recommended by Cornell

University in bulk and in paper sacks, but farmers preferred burned

and hydrated lime produced by a firm in Ohio.

By 1929-30, GLF’s lime volume was only 10,260 tons.

Margins were low, but several long-term sources of supply were

obtained, and by 1935-36, volume was 60,700 tons. Then volume

expanded greatly as a result of several factors: the Agricultural

Adjustment Administration’s program of giving away lime or paying farmers cash to use it, the development of custom lime spreading, the increased practice of soil testing, and the large expansion

of alfalfa acreage. By 1959-60, GLF’s limestone volume reached

23
603,344 tons. Thirty-one suppliers were operating at 40 locations

in 6 States.

As far back as 1933, GLF began searching for lime-spreading equipment to pull behind wagons and trucks. Later it spent a

great deal of time and money developing lime-spreading trucks.

Some 175 trucks with GLF equipment were operating by

1960-some owned by GLF stores, agent-buyers, and contract

operators.

Today, Agway, Gold Kist, and SS are the principal cooperative regionals that handle limestone. Agway, for example, has

long-term contracts with lime production firms in its area to ensure

a stable source of supply, and some of its outlets have a number of

spreader truck drivers, while others arrange with local individuals

for custom lime-spreading services. Agway’s limestone sales have

been as high as a million tons per year, but totaled only 631,000

tons in 1988, down at least some from farming’s economic adversity. During the same year, Gold Kist handled 306,000 tons.

In addition to large tonnage of agricultural limestone, SS

also sold a sizable tonnage of pelleted limestone to nonfarm users.

Pelleted limestone was made at two of SS’s plants where it also

acidulates mixed fertilizers.

Vertical Integration

Farmer cooperatives have made significant progress in

integrating fertilizer operations, especially during the past 30

years. This has helped in the following ways:

l Local cooperatives deliver a large volume in their own

bulk trucks and custom spread a considerable tonnage

l Wholesale cooperatives handle about 75 percent of the

total cooperative retail volume.

l National or area manufacturing/purchasing cooperatives

originate up to 60 percent of the net cooperative tonnage.

l Cooperatives mix or produce 90 to 95 percent of their

mixtures and nearly all of the dry bulk blends they sell.

l They manufacture about 80 percent of the nitrogen fertilizers and 70 percent of the phosphate distributed by cooperative

wholesalers. They could also mine about 10 percent of their

potash needs.

Cooperatives manufacture a significant portion of the basic

ingredients used in manufacturing fertilizer derivatives. These

24
include most of the nitric acid used in manufacturing solid nitrogen fertilizers and most of the phosphoric acid used in manufacturing phosphate fertilizer. In addition, cooperatives have several

byproduct plants to recover uranium, hydrofluosilicic acid, fluorine, carbon dioxide, and argon gas.

Cooperatives have integrated their operations to a limited

extent to produce basic ingredients, defined here as the mining of

potash and phosphate rock, the drilling and production of natural

gas, and the exploration and acquisition of land containing

reserves of these ingredients. Only one cooperative now has a

potash mine, one mines phosphate in Florida, and three have phosphate reserves in Florida.

Finally, cooperatives own extensive storage facilities at

each major level of integrated operation. They have more than

100 liquid storage terminals and many dry warehouses at primary

distribution points, plus dry and liquid storage facilities at chemical mixing and bulk blending plants, plus thousands of ammonia

tanks and warehouses operated by local cooperatives, branch

stores, warehouses, and dealer-agents.

The wholesaling/manufacturing cooperatives have some

rail tank cars, highway transports for fertilizers, and numerous

barges jointly owned with and by their interregional cooperative.

Data are not available on the proportion of cooperatives’ total fertilizer tonnage stored and transported in their own facilities and

equipment.

Benefits

Cooperatives manufacturing, purchasing, and distributing

fertilizer and lime operate to maximize member benefits.

Although patron benefits originate throughout the cooperative system, the following discussion focuses mainly on benefits that

cooperative fertilizer outlets finally transmit to their patrons.

These are the only benefits meaningful to most farmers and they

have been significant in savings and services.

Savings

Net savings generated by cooperative systems have substantially reduced the cost of fertilizer to farmer-patrons. In early

days, savings were often 10 percent or more. In 1966, MCC

refunded 40 percent of patrons’ original investment and began to

25
operate the world’s first l,OOO-ton-a-day centrifugal ammonia

plant, itself a tremendous first for cooperatives.

Savings on cooperative fertilizers fluctuate periodically.

For example, cash patronage refunds by cooperative fertilizer outlets across Nebraska and Iowa during 1979 ranged from 0.5 to 4.5

percent of the average prices quoted on six principal fertilizers.

More specifically, cash refunds averaged 1.5 percent or $4.45 per

ton of anhydrous ammonia across Nebraska and Iowa, while total

refunds averaged 4.0 percent of the quoted price or $6.92 per ton.

Besides variations in the savings generated by cooperative

manufacturers and wholesalers, the savings locals distribute to

patrons vary by fertilizer, location, competitor pricing policies, the

locals’ financial strength, and their refund policies. For example,

refund policies affect the proportion paid in cash, the basis used

(tons or dollar purchases), and whether they are fertilizer-specific

or uniform across all farm supplies.

Patron refunds on fertilizers simply magnify price savings

that sometimes occur because of cooperative pricing practices or a

cooperative presence in a market. For example, in 1957 potential

competitors dropped the price of anhydrous ammonia 25 percent

when Valley Nitrogen Producers, Helm, CA, announced its plan to

build an ammonia plant. Valley Nitrogen met this price for the

next 3 years and all farmers and cooperative patrons benefited.

Nationwide, fertilizer prices, as measured by index figures,

have risen slower than prices of petroleum products and farm

machinery. The cooperatives’ market share of nonfertilizer products has been lower than for fertilizer. That all farmers benefit

from this is also reflected in data maintained by IFBCA. Figures

show that between 1931 to 1940 the prices of all fertilizer in

Indiana averaged from 3 to 15 percent (or from $1 to $5 a ton on

fertilizers selling for $30 to $35 a ton) lower than in Kentucky and

Illinois, where few cooperatives were handling fertilizer.

Similarly, in 1940, prices of 2-12-6 fertilizers in Michigan and

Ohio, where cooperatives existed, averaged from 12 to 18 percent

lower than in Kentucky and Illinois. On 0-20-O fertilizers, the difference ranged from 2 to 14 percent less. Nationwide, a quarter of

the decline in the real price of fertilizer between 1930 and 1960

came from increased competition among cooperatives and other

manufacturers. *

Perhaps the best measure of the cooperative influence was

taken in 1975-76. It showed that in States where the cooperative

26
share of the fertilizer market was 10 percentage points higher than

the national average (37 percent), fertilizer prices paid by farmers

were $6.40 per ton lower than the national average price ($120 per

ton). 9

Earlier sections on cooperative manufacturing and distribution alluded to cooperative efforts to provide patrons with adequate

quantities of fertilizer. As important as these aspects of cooperative service are, none exemplifies the cooperative drive to benefit

farmers more than their handling of fertilizer exports.

Exports-Although they have received more emphasis

lately, fertilizer exports historically have been only a secondary

business for a few cooperative manufacturers; most have not

exported. Exporting was usually a way to dispose of surplus product. Because demand for most fertilizers has exceeded cooperative

capacity, until recently, cooperative exports have been small-in

1969/70, only 455,000 tons, and probably considerably less than

750,000 tons in 1984.

Even during the period of high world prices and fertilizer

shortages of 1973-75, cooperatives exported little and did not contribute to the U.S. fertilizer shortage. In fact, cooperatives

decreased their exports to probably no more than 125,000 tons

annually. Only Valley Nitrogen and Mississippi Chemical exported during these years, with some of the latter’s exports going to

members in Hawaii, El Salvador, and Mexico.

Nutrient Content-Cooperatives stress the quality of fertilizers. Early in their history, major cooperatives emphasized higher

analysis products and substituted limestone for sand as fillers in

mixed goods. Eastern States (now Agway) is a case in point. In

1929, it sold mixed fertilizers averaging 26 percent plant food, a

very high percent for that time. But Eastern States was not satisfied and raised its average to 34 percent by 1939. Agway continued this tradition by raising its all-fertilizer average to 50 percent

in 1974; this average was influenced by high-analysis fertilizers

like anhydrous ammonia. Other cooperatives followed the Eastern

States/Agway example while MFC’s 1948 plant was built specifically for high-analysis mixtures.

Bulk Blends-The cooperative emphasis on high analysis

fertilizers led naturally to their marketing bulk blends and anhy27
drous ammonia in combination. Cooperatives were already

encouraging direct application of basic fertilizer with high plant

food levels such as anhydrous ammonia (82 percent), potash (60

percent), and triple superphosphate (45 percent).

Cooperatives based their bulk-blending activities on soil

tests, prescription applications, and adequate inventories of equipment to deliver and apply these fertilizers. These they loaned,

rented, or used for custom applications. Cooperatives continued to

support strongly these activities and services through the

1980’s_so strongly, in fact, that some overlooked opportunities

with liquid mixtures.

Other Product-Oriented Benefits-Of less, yet meaningful,

importance are benefits from other product-oriented innovations

begun by cooperatives. Early in their history, cooperatives advocated using “open formula” fertilizers based on recommendations

of State experiment stations. They also advocated mixtures with

fewer formulas as a means of saving money for patrons. Indiana

cooperatives working with Purdue University reduced the number

of formulas to about a dozen, far less than the number they previously manufactured and sold.

In 1934, one cooperative became the first company in the

fertilizer industry to abandon problem-ladened burlap for paper to

bag fertilizers. Its switch to paper was 95 percent complete by

1940. But it had no comer on cooperative innovations, which continued into the 1980’s. In 1980, Agway introduced dry blends

impregnated with pesticides and a year later expanded this service

to 30 locations. In 1982, MCC developed a suspension grade

potash. In about 1985 and in 1987, as previously noted,

Cenex/LOL introduced SOILECTION and AgriSource.

Business Development-Business development, as practiced by CENEX and other regionals, is a service that benefits

farmers not served by cooperatives. CENEX and others identify

localities not served by cooperatives and proceed to build fertilizer

outlets managed by the regionals’ personnel.

At this stage, such outlets are operated much the same as

outlets of any company. But the difference comes when a sufficient number of farmers become patrons of these outlets. At this

point, patrons of federated cooperatives are given the opportunity

to buy these outlets and the regionals recover their investments.

28
Challenges Ahead

Cooperative managers responsible for fertilizers will face

many challenges during the next decade. Changes in economic

conditions, the volatility of natural gas prices, shifts in demand,

and the threat of foreign competition will be common to cooperatives and noncooperatives alike. Meeting patron needs, hiring and

retaining effective personnel, and handling nonfarm business will

be shared by several divisions within cooperatives.

Developing Size Advantages

Many local cooperatives handle more fertilizer and have

greater total sales than noncooperatives. They must achieve the

economics and generate the per-unit savings associated with large

volume, increase the number and the quality of fertilizer-related

services, and hire the quality of management befitting their size.

Smaller locals are urged to generate more sales and services either

by internal growth or consolidation. Cenex/LOL has demonstrated

the economics of consolidation by regionals. Through AgriSource,

it is also demonstrating how a pooling of resources can multiply

and enhance services.

Expanding Service

Cooperative locals handling only farm supplies should

realize that many farmers buy fertilizer from a company that also

markets grain or other farm produce. Consequently, many farm

supply locals should consider adding marketing functions to their

operations. Thus, consolidations of locals may well include a

grain elevator as well as two or more farm supply outlets.

Selling Competitively

Cooperative fertilizer outlets should be able to supply their

patrons at less cost than noncooperatives. To meet this challenge,

cooperative outlets should (1) take steps to reduce operating costs,

(2) adjust their margins, (3) modify their refund policies, particularly those related to the level of cash refunds, (4) modify price

adjustments in relation to service charges and discounts, and (5)

pay less for their fertilizers.

Both regional and local managements must address the

question of pricing to high-volume users. They must devise plans

29
and member education programs to treat both high- and low-volume users on an equitable basis.

Sources of Fertilizer

Cooperative manufacturers will continue to be challenged

to maintain whatever economic advantage they have in supplying

fertilizers. The challenge will possibly be felt mostly in the production of anhydrous ammonia. Cooperative manufacturers experienced cost increases when they renegotiated natural gas prices

during the last half of the 1980’s. Meanwhile, at least some pricing pressure will continue from foreign producers.

Cooperatives must meet these challenges by running their

most economic and most efficient facilities to the maximum;

procuring inputs from the most economical sources; securing more

of their own resources either in or outside the United States; trading phosphate for other foreign fertilizers; possibly producing fertilizers overseas; purchasing offshore fertilizers, if economical;

and examining methods for intercooperative pooling of raw material reserves. Also, wholesale and manufacturing cooperatives

should continue to devise means of obtaining a larger share of the

fertilizer purchased by cooperative retailers and wholesalers.

Price Leadership

Regional and interregional suppliers of fertilizer have

sometimes acted as price leaders, but their strength in the market

may now indicate that they should take this role more consistently.

In general, cooperative suppliers should more often lead

rather than follow the competition, modulate price fluctuation

more than in the past, and determine when farmer patrons are best

served by raising and lowering fertilizer prices. They should pursue such price leadership after carefully considering margin objectives, shortrun and longrun competitiveness of their members,

actions of their competitors, their own business objectives, their

longrun need to lead in fertilizer improvements, and their need to

improve both fertilizer distribution and services.

Distribution Systems

Cooperatives must maintain and improve their distribution

systems. While they can ensure the timely and economic delivery

of fertilizers, these systems must remain economical by elimina30
tion of duplication and underutilization. Full utilization can be

achieved by increasing volume both from the owner-cooperative

and competing cooperatives and from providing facilities and services to noncooperatives. Recent consolidations of cooperatives

has helped.

Developing New Markets

Regional cooperatives can strengthen their position in the

fertilizer market by organizing locals in undeveloped areas, both

within and on the periphery of their territories. By so doing, they

can spread their overhead costs, increase their volume advantages,

and bring added financial benefits to old and new patrons.

Regionals such as Cenex and Farmland, which already

have programs for developing additional markets, should continue

to use and improve their programs. Regionals that do not have

such programs may wish to emulate the CENEX and Farmland

approaches. Such programs directed at other cooperatives are discouraged.
32
FARM CHEMICALS

Farm chemicals, sometimes called agrichemicals, include

insecticides, fungicides, herbicides, rodenticides, and

repellents-in both dry and liquid forms. They also may include

fumigants, defoliants, seed innoculants, soil treatments, and wood

preservatives.

Farmers spent about $4.6 billion for agricultural chemicals

in 1987 compared with about $1 billion in 1970-71 (table 2). The

$4.6 billion subdivided into the following approximate percentages:

Pesticide Percent

Herbicides 62

Insecticides 22

Fungicides 10

Other 6

Total 100

Table 2-Cooperatives handling farm chemicals (pesticides) and

their net sales and share of the farm market in specified years. l/

Year

Cooperatives Cooperatives’ Farmers

selling net sales expenditures

farm of farm for farm

chemicals chemicals 21 chemicals 3/

Number _______ Million dollars ________

Cooperatives’

market

share

Percent

1950-51 1,111 24.7 192.5 13

1955-56 2,145 35.6 234.5 15

1960-61 3,014 56.4 310.0 18

1965-66 3,330 89.1 518.0 17

1970-7 1 3,556 199.7 1,051.5 19

1975-76 3,597 627.8 1,945.5 32

1981 3,684 1,275.O 4,201 .O 30

1983 3,407 1,250.2 4.154.0 30

1984 3,289 1,460.3 4,767.0 29

1985 3,204 1.450.8 4994.0 29

1986 3,102 1.358.3 4.484.0 31

1987 3.005 1,291.2 4.588.0 28

1988 41 2,907 1,339.2 4,716.0 28

I/ Business years ending June 30, except in 1981-88 when calendar years are used.

2/ Excludes business among cooperatives but includes sales not for farm use.

3/ Average of 2 calendar years for 1950-51 through 1975-76.

4/ Preliminary.

33
Retailing

Early Developments

Among the earliest cooperative efforts was the handling of

fumigants by local citrus marketing cooperatives in California

around 1910-l 1. They supplied members with potassium cyanide

and later sodium cyanide to fumigate their orchards.

Local Grange cooperative stores and farmer buying groups

in the Northeast began handling farm chemicals along with feed,

seed, and fertilizer from 1915 to 1920. Stores and dealer agents

affiliated with Eastern States Farmers Exchange (Springfield, MA)

and Cooperative GLF Exchange (Ithaca, NY) began to offer the

same service in the early 1920’s. Most handled only a few items

such as copper sulfate and calcium arsenate for potatoes; lead arsenate, nicotine sulfate, and lime sulfur solution for apples; and

Bordeaux mixtures made from copper sulfate and hydrated lime.

In the South, many cotton gins and marketing and supply

cooperatives began selling pesticides for cotton. Dairy cooperatives throughout the country handled flysprays and cleansing powders or disinfectants, and livestock marketing and farm supply

cooperatives in the central areas began selling livestock sprays and

disinfectants and grain fumigants.

The farm chemical business increased in the 1950’s

because of a growing interest in insect and disease control and the

development of chemical weed sprays and other new materials.

By that time, cooperatives were handling a wide variety of complex pesticides-often as many as 100 to 200, a trend that has continued.

Cooperative exchanges in the South first distributed liquid

chemicals for treating crops in the mid-1960’s.

Current Status

In 1987, 3,005 cooperatives reported net sales of farm

chemicals totaling $1.3 billion (table 2). This compares with

3,556 associations that sold only $200 million in 1970-71. An

undetermined amount of cooperative sales falls under “general

farm supply sales.” Leading States in net sales of farm chemicals

by cooperatives in 1987 were Iowa with $172 million; Illinois,

$133 million; Minnesota, $113 million; Nebraska, $66 million; and

Indiana with $65 million.

34
Two of these States were among the five Combelt States

where farmers use herbicides heavily and purchased 40 percent of

their pesticides through cooperatives in 1985, compared with a 25-

percent share in the remaining States. In the United States as a

whole, the cooperative share of pesticide sales rested at 30 percent

in 1983, up from 19 percent in 1971. It stabilized at 28 percent to

3 1 percent through 1987.

Operating Practices

Cooperatives retail farm chemicals much the same as other

firms, storing them in warehouses and selling them from displays.

On the other hand, since the mid-1970’s, a growing proportion of

the pesticides have been handled in bulk. Tanker trucks deliver

liquids to local storage; from there, they are delivered directly to

the farm. By 1976, local cooperatives, like those buying through

Land O’Lakes (LOL), had begun to handle bulk chemicals. The

following year, Southern States (SS) outlets were handling bulk

chemicals.

Most cooperatives’ bulk chemicals are custom applied in

combination with liquid fertilizers. Custom application preceded

bulk handling and so in 1976, more than 200 Land O’Lakes locals

provided this service. In 1982, Landmark (now Countrymark)

locals custom applied an estimated 1 million acres of crops. By

1988, about 900 Cenex/LOL locals engaged in this activity.

Some 200 Cenex/LOL locals also rely on AgriSource for

chemical recommendations, while some of them, plus many other

cooperatives apply chemicals with flotation sprayers. At the same

time, some locals, including about 50 Cenex/LOL locals, retain

aerial applicators. About a half dozen Cenex/LOL locals even

lease and operate planes. Despite this sophistication of application, most locals still rely on ground rigs, with some locals owning

a couple dozen. Many fruit and vegetable marketing cooperatives

also provide custom application.

Cooperatives usually price chemicals at the going market

levels and offer volume discounts. From net savings, patronage

refunds are declared annually with at least 20 percent paid in cash.

The remainder may be retained and evidenced by book credits or

revolving capital certificates. Total refunds, which may be up to

10 percent of sales, vary widely among cooperatives. Some

declare separate rates on total farm chemicals, but many use the

same rate on all farm supply sales.

35
Integrated Pest Management Service

As with other agricultural businesses, cooperatives did little with integrated pest management (IPM) until the 1960’s, a

decade with several key developments. During the early 1960’s,

even before IPM became a popular concept, Farmers’ Supply

Cooperative, Greenwood, MS, began to hire young people to scout

its members’ cotton fields. In 1968, the Safford Valley Cotton

Growers Cooperative, a ginning operation in Safford, AZ, initiated

a full IPM program. lo

During the 1970’s, Extension Service programs encouraged

several California cotton gins to sponsor IPM, and soon other local

cooperatives either began IPM programs or organized to deliver

the service. These included Agro-Serv, Inc., Imperial, NE;

Farmers Pest Management Services Cooperatives, Inc., Edenton,

NC; Gold Kist locals at Camilla, GA; Courtland, AL; and Little

Rock, SC; Lake Shore Crop Management Cooperative, North East,

PA; Northern Growmark, a branch of GROWMARK, Hampshire,

IL; Rainbow Industries, Inc., Buckeye, AZ; and Trimont

Cooperative Association, Trimont, MN.

In 1988, farmer-owned cooperatives delivered IPM services to well over 2.5 million acres of U.S. cropland. Servi-Tech,

Inc., of Dodge City, KS, a regional, and CENTROL, a series of

federations supported by Cenex/LOL, dominated cooperative IPM

activities. The IPM programs of other regionals’ were small or

non-existant, including Farmland’s Crop Management Service and

Agway’s Integrated Crop Management sales program. For example, some of Agway’s Crop specialist scout fields regularly, but

only those of the cooperative’s very best customers.

Servi-Tech-The managers of three local cooperatives

organized Servi-Tech in 1975 with no official help from a regional

cooperative and without geographic constraints. Servi-Tech was

intended to go beyond IPM and provide a full set of crop management services for a fee.

In 1988, 120 local cooperatives and about 6,000 farmers

used Servi-Tech’s crop management services, covering nearly 1.3

million acres across at least portions of Colorado, Kansas,

Nebraska, New Mexico, Oklahoma, and Texas, and Wyoming.

Other related services included about 30,000 soil, and water analyses. By 1988, Servi-Tech had built two soil- and tissue-testing laboratories, launched a livestock management service, organized a

36
research program that included two research farms, and inaugrated

a farm management service.

CENTROL-CENTROL started 4 years after Servi-Tech as

a 22,000-acre pilot program in Morris, MN. Cenex locals owned

this newly organized regional cooperative. Cenex encouraged the

federation and committed financial and technical resources to help

it and later CENTROL units succeed. As with Servi-Tech, services are supplied for a fee.

While the first CENTROL unit was confined to the trade

territories of its 12 locals, the CENTROL concept had few geographic limitations. By 1988, it had expanded into 13 units serving 140 local cooperatives across Iowa, Minnesota, Montana,

Nebraska, North Dakota, South Dakota, and Wisconsin. CENTROL units contracted to supply their services to 1.2 million

acres.

Like Servi-Tech, Cenex/LOL considers CENTROL a full

crop management service that focuses on IPM, but goes beyond it.

Cenex/LOL continues to support one CENTROL unit that provides

a package of farm management services. It provides soil analyses

through a laboratory owned jointly with a noncooperative firm.

CENTROL also conducts seminars to help farms increase profits

through improved marketing.

Crop Management Service (CM.S)-This Farmland service

has two parts: that done by a crop management specialist (CMS)

and that by a crop management retailer specialist (CMRS). Under

each, Farmland trains participants for positions in sales and management, but CMS’s are employed by Farmland while CMRS’s are

employed by Farmland locals. Farmland subsidizes the cost of

both groups, neither of which charge for their services. While

most of CMS’s and CMRS’s use elements of IPM in their services,

Farmland’s CMS program is included because a few CMS’s supervise employees to scout fileds.

Employing 20 CMS’s in 1979, its first full year, the

Farmland system fielded 56 CMS’s for 59 locals in 1988. The

number of CMRS’s peaked at 61 in 1983 and declined to about

one-third this number in 1988.

Other Cooperative Developments-California cooperatives

first used nonchemical elements of the IPM system. Fruit growers

organized the Fillmore Citrus Protective District, (Fillmore) in

1922, the Associates Insectory, (Santa Paula) in 1928, and the

37
Oxnard Pest Control Association (Oxnard) in 1938. They still

emphase the rearing and distributing of predator insects and mites

to control citrus pests.

Wholesaling

Early Developments

The Fruit Growers Supply Co., Los Angeles, began supplying fumigants in addition to containers to its local citrus marketing

exchanges around 1911. Following an attempt to reduce the 28.5

cents a pound price of potassium cyanide, it boycotted American

producers and contracted for a supply of sodium cyanide from an

English fii. The following year, domestic companies agreed to

supply this product at 23 cents a pound, a direct savings of

$50,000 a year on members’ requirements of 1 million pounds.

In the Northeast, Eastern States began handling farm chemicals for its affiliated retail cooperatives and buying clubs in 1918.

GLF began supplying its outlets in 1920. Soon other wholesale

supply cooperatives in the East and South undertook this service.

Midwest cooperatives began handling large volumes of farm

chemicals after World War II.

Some wholesale cooperative distributors had difficulty getting old line companies to supply them because they were cooperatives. Others had to agree to sell chemicals to retailers at prices set

by the suppliers.

United Cooperatives, Alliance, OH, an interregional association, established a farm chemical department in 1938.

Meanwhile, GLF, which had merged into Agway, joined the

Agricultural Insecticide and Fungicide Association, greatly reducing the long-time friction between pesticide manufacturers and

farmer cooperatives.

Current Status

In 1986, 27 regional cooperatives provided wholesale services for $1,056 million worth of farm chemicals. Nineteen federated regionals wholesaled $838 million of product to local cooperatives while retailing $163 million of product through their own

outlets. Eight centalized regionals provided wholesaling functions

on $55 million of farm chemicals entirely retailed through their

outlets.

38
Cenex/LOL, Farmland, and GROWMARK, sold the largest

volumes of farm chemicals. In 1988, Cenex/LOL wholesaled well

over $250 million of chemicals, with Farmland probably a close

second and GROWMARK selling well over $100 million.

Operating Practices

Some regional cooperatives such as Agway, IFBCA and

MFC separate their lawn and garden chemical sales from their agricultural chemical sales. In 1979, Agway began handling a new

group of insecticides called synthetic pyrethroids and impregnating

herbicides on dry fertilizer to eliminate separate herbicide applications. By 1988, most regionals had adopted the latter practice.

A continuous flow of new products tends to cause an

inventory management problem for regional cooperatives. For

example, Tennessee Farmers (TFC) recently found that four products accounted for nearly 40 percent of its pesticide sales and eight

for 50 percent.

Regional wholesalers strive for high-quality pesticides,

using rigorous quality controls to ensure top performance from

products bearing their labels. They also strive to have pesticides

readily available for their outlets and believe this is an important

key to their sales record. For example, in 1988, Cenex used 27

strategically situated depots at permanent locations. In addition, it

leased another dozen or so to supplement heavy in-season

demands. On the other hand, GROWMARK uses only one distribution point, relying heavily on its excellent delivery service.

Besides their warehouses, MFC consigns major chemicals

to local member cooperatives under an inventory protection plan.

Other regionals also encourage substantial preseason ordering and

stocking under various plans.

Regional cooperatives distribute farm chemicals for very

low gross margins; therefore, they have welcomed the direct shipment of bulk products. Sometimes manufacturers ship chemicals

to strategically located distribution points and sometimes directly

to the cooperative’s local outlets. In 1988, for example,

Cenex/LOL shipped an estimated one-third of its pesticide sales

directly to its locals, while GROWMARK and Agway did similarly with at least half of their sales.

In foregoing ways, regionals seek to maintain their role as

indispensable participants in the marketing chain for farm chemi39
40
As the pictures at left illustrate, farm chemical application

has changed over time. Both economic and environmental concerns have led to increasingly scientific approaches. An example

is the Soilection unit, lower left, used by Farmers Union Oil

Company at Montevideo, MN, equipped with a computer microprocessor to apply fertilizer impregnated with a liquid herbicide.

A computer crop management service is offered by

CenexlLand O’Lakes Ag Services called AgriSource. The system

contains chemical label information from major chemical companies. Seconds after crop and pest information is entered, every

product that controls the problem can be evaluated for best solution. Other reference data is available on fertilizer recommendations and blending based on soil tests, a catalog of safety data

sheets, and overnight communication of technical information.

41
cals. Other ways include AgriSource by Cenex/LOL (see references in fertilizer section). In addition to its other services,

AgriSource provides standardized pesticide recommendations of

principal manufacturers, instantaneously available on computer

screens. Being tied into manufacture information systems,

AgriSource provides farmers with the most up-to-date advice

available anywhere.

Formulating

Early Developments

As with fertilizer, wholesale cooperatives concluded that it

was advantageous for them to formulate the dry chemicals bought

in large volumes. GLF began formulating four mixtures of dusts at

Batavia, NY, in 1929, grinding rotenone powder or dust at South

Keamey, NJ, in 1939, and formulating a 25-percent DDT emulsifiable dust there in 1946. Eastern States began making dusts in the

1920’s and 1930’s. and Magee Cooperative Gin, Magee, MS,

began manufacturing chemicals for cotton about 1953.

Two interregional cooperatives began formulating farm

chemicals on a small scale: National Cooperatives at Chicago, IL,

in 1943, and United Cooperatives at Alliance, OH, in 1949. Later,

United Cooperatives acquired two more plants. These interregionals were founded in the 1930’s to combine the purchasing of several regional cooperatives.

Cooperatives began making liquid insecticides a little later,

mostly in the South. In 1955, the Valley Chemical Company,

Greenville, MS, was organized specifically to formulate liquid

pesticides. In 1962, the Valley Cooperative Oil Mill, Harlingen,

TX, began making liquids for spraying cotton and some vegetables. And in 1965, CPA (now Gold Kist) built a plant to make

chemicals for cotton, tobacco, and peanuts. Its capacity was 3,500

gallons of liquid and 20 tons of dust per &hour shift.

By the mid-1950’s 25 cooperatives owned 32 dust-blending plants. Nearly all purchased basic materials from the country’s

major suppliers.

During the 1960’s, two significant developments occurred

in the cooperative sector of the agrichemical industry. In 1960, the

Iowa Farm Bureau purchased Imperial, Inc., Shenandoah, IA, from

investors. Shortly thereafter, FS Services (now GROWMARK)

42
assumed ownership until 1966, when it sold Imperial to Felco

(now LOL) and MFA Oil Co. By this time, Farmland began to

emphasize serving the production needs of commercial farmers.

For several years, it had purchased large quantities of chemicals

from a company in St. Joseph, MO, from which it bought a formulation plant in 1969.

Later Developments

At least four recent developments have occurred. In 1972,

National Cooperatives and United Cooperatives merged to become

Universal Cooperatives, Inc., which eventually located in

Minneapolis, MN. In 1988, Universal procured and formulated

farm chemicals for 38 regional cooperatives including four

Canadian operations.

In 1974, Imperial purchased a second plant at Albert Lea,

MN, and Farmland moved toward becoming the first cooperative

to produce basic pesticides. For an additional $1.5 million, it

became the full owner of the St. Joseph facilities where more than

200 Farmland products were being formulated. It then began

building a plant to manufacture atrazine and other pesticides of the

triazine family. About 10 million pounds of annual capacity by

late 1976 helped increase Farmland’s sales of farm chemicals from

$37 million in 1971 to $196 million in 1981. Then, declining

prices made the plant unprofitable, and Farmland converted it to

other uses in 1983.

In 1977, MFC purchased a variety of facilities from the

Riverside Chemical Co., at Clarksdale, including three chemical

formulating plants at Clarksdale, Belden, and Canton, MS. In

1979, this company became the Red Panther Chemical Co., of

Clarksdale, formed by MFC (majority owner), Alabama Farmers

Association, and TFC to produce and wholesale farm chemicals.

In 1987, the creation of Cenex/LOL made Cenex a partner in

Imperial.

Current Status

Data are not available on the number, type, and capacities

of cooperative farm chemical plants but they have almost certainly

declined in number and increased in size. For example, Gold Kist

closed its last formulating plant in 1984, while Agway continued

to consolidate its production to Spring Garden, PA, opened in

43
1974. Agway ceased to formulate farm chemicals here in 1988,

where it once had the capacity to produce at least 15 million

pounds of dusts and granules, plus at least 1 million gallons of liquid pesticides. Farmland’s only plant at St. Joseph, MO, is reportedly one of the best in the U.S. and probably cooperatives’ largest

pesticide plant.

In 1988, three chemical formulators operated like interregional cooperatives, being owned by and formulating for two or

more regional cooperatives. Universal was the only true interregional, however, because Imperial and Red Panther each had at

least one dominant stockholder. Universal had the largest volume

of chemical business in 1986 with $169 million in sales, including

sales of animal health products. Universal also had close working

relationships with Red Panther and Farmland, using their plants to

formulate much of its needs.

Vertical Integration

A number of local cooperatives and branch outlets provide

their farmer-members custom application services and some offer

advisory services on the proper use of farm chemicals. Local

cooperatives obtain a high percent of their farm chemicals from

their regional wholesale cooperatives. On the other hand, the

regionals obtain only a small percent of their chemicals (perhaps

25 percent) from interregional cooperatives. Regional and interregional wholesaling cooperatives formulate a substantial portion of

their sales volume in their own plants. None presently manufactures any basic materials or ingredients used in its formulating

operations.

Benefits

Farmer-members’ benefits from cooperative procurement

of farm chemicals have been similar to those from buying other

production supplies. Cooperatives are dependable sources for a

wide variety of high-quality pesticides and other chemicals. They

try to inventory the proper amounts of product in a timely manner

at strategic locations. Cooperatives offer high quality, because

cooperative specialists study and screen the best chemicals for

their patrons. Moreover, cooperatives exercise rigid quality control in their formulating operations.
In addition, farmers receive all the services associated with

agricultural chemicals. Many cooperatives make custom application service available and supply technically sound crop management services, broadening them into complete farm management

services. Cooperatives also provide information about pesticide

safety and regulations through meetings, correspondence, and field

tours.

Cooperative members profit from possibly the strongest

distribution systems in the farm chemical industry. The fact that

cooperatives hold a 30-percent share of the market says something

about both the performance and the potential of that system.

Cooperative members realized substantial savings from

retailing, wholesaling, and formulating farm chemicals. Where

cooperatives have had large volumes and efficient operations, their

costs per unit have sometimes been low and net margins high.

Some cooperatives declare separate patronage refund rates on farm

chemicals, but many pay the same rate on them as on all farm production supplies. Two of the earliest cooperatives to formulate

and distribute liquid pesticides realized 6 to 18 percent of their

sales on the combined operations.

The competitive effect of cooperatives on market prices

also has benefited members and nonmembers. But their impact is

less visible after the first year or two of their entry into the market.

Challenges Ahead

Cooperative managers responsible for farm chemicals will

face many challenges during the next decade, but only those

relating directly to chemicals will be discussed.

Increasing Patron Savings

Cooperative regional distributors must enlarge their share

of the gross margin on patented pesticides-the margin between

farmer price and manufacturer cost. The opportunity exists

because the margins on many patented chemicals have transferred

large amounts of income from the farm to nonfarm businesses, a

transfer that cooperatives have had little success in tapping.

Possibly adding value to the distributor function is the

most practical and promising means of enlarging the cooperative

share of the gross margin on patented pesticides. For example,

45
some farmers may be willing to pay for exceptional services, and

some manufacturers may be willing to pay for exceptional salesmanship. It may also be possible to reduce manufacturer prices,

which introduces a second challenge to cooperatives in agricultural

chemicals.

Pooling Market Power

Cooperative distributors across the Nation need to pool and

concentrate the full weight of their market power on the prices

they pay for farm chemicals, especially for patented pesticides.

Regional and local cooperatives must decide to pool orders and

bargain with chemical suppliers.

Universal, with 36 member cooperatives, represents one

beginning-but one that has yet to bring much of the cooperatives’

total power to the bargaining table, a power represented by a 30-

percent share of the market. Operations like Universal’s need to

find ways of capturing more of their members’ farm chemical

business.

Manufacturing Basic Chemicals

Pooling market power leads naturally to pooling other

resources and to considering the manufacture of patented pesticides. This challenge stimulates the imagination because of the

great and positive potential impact on cooperative gross margins

and patron savings. Considering their recent financial reverses and

limited successes in coordinating activities, however, it is unlikely

that regional cooperatives will arise to this challenge before the

next century. Nevertheless, they ought to be ready to take advantage of a favorable acquisition or other opportunity.

Cooperative managers need little reminder that any venture

in patented chemicals must proceed with caution. Such projects

mean an intensive research and development effort, require a huge

capital outlay, face competitors with advantages from being in

industrial chemicals, incur considerable financial risk, and will frequently yield products with short market lives. Over the next few

years, however, this challenge should further stimulate cooperative

managers as noncooperatives assume the risk, bring increasingly

expensive chemicals to market, and, profit from their efforts.

If cooperatives cannot produce patented chemicals, they

may be able to become basic through chemicals with expired

46
patents. While Farmland’s success with atrazine may have fallen

somewhat short of anticipations, the venture is a prototype for

future endeavors. To be successful, they need to be undertaken as

close to patent expiration as possible, while a strong demand still

exists, and respectable margins are attainable. Success is further

assured if payback periods are minimized, future competition is

carefully assessed, and the market strategies of the prime producer,

which has an inherent advantage with its depreciated facilities and

production expertise, are correctly anticipated.

Achieving and Maintaining Adequate Volume

Maintenance of adequate volume is vital for any regional

or group of regionals involved in manufacturing basic chemicals,

but the volume will depend on the type of activity. If a cooperative is to manufacture products with recent patent expirations, at

least one and perhaps more regionals already have sufficient volumes. If it is to manufacture products with new patents, volume

must be much larger. Therefore, the venture may require a pooling

of markets.

Maintaining an adequate volume of sales is a challenge for

some federated regionals, because some of their locals have sufficient purchasing power to buy chemicals directly from manufacturers. Unfortunately, most regional cooperatives cannot lower

their prices and have great difficulty replacing such sales losses.

They have to stress loyalty, buttressed with an emphasis on quality

chemical services and reasonable costs for other products and services.

Providing Narrower Lines of Chemicals

Providing narrower lines of necessary farm chemicals presents a fifth challenge to cooperatives. Cooperatives can often

increase patron savings by minimizing their lines while handling

the high-demand and most effective products.

This challenge is more important to farm chemicals than

other farm supplies because chemical distributors face a continuing flow of new products. These include traditional chemicals as

well as nontraditional products, such as photosynthesis enhancers

and sprays to increase plant resistance to pests. Even now, nontraditional items based on genetic engineering are beginning to be

marketed.

47
Continuing High-Quality Services

Finally, cooperatives are challenged to continue offering

exceptionally high-quality services. This challenge is best seen in

consulting services. These will increase with the number and complexity of agricultural chemicals and other products, as govemmental regulations become stricter, and farmers realize how consulting services can save time, prevent problems, and enhance

income.

Even the most reluctant regionals will be forcefully challenged by the movement from crop management services to complete farm advisories, the need to draw information and recommendations from multistate and multisource telecommunication

networks, and the management of huge and ever-expanding data

bases containing increasingly sophisticated information.

Over the next few years, regionals will no longer have to

decide whether to provide advisory services; this decision has

already been made. Very likely most regional suppliers of farm

chemicals soon will offer their patrons all-farm advisory services.

The question is how regional cooperatives will provide

these services. Some will retain an independent organization (not

necessarily a cooperative) to provide them, while others will create

their own services. If they decide to create their own, regionals

must then choose between doing it internally, in a traditional manner like Farmland or going through an independent cooperative

patterned after Servi-Tech or CENTROL. Bases for advisory services are already well established in such cooperative programs as

SS’s Grow Master Crop Service, Landmark’s Total Crop Planning

Program, and Agway’s Integrated Crop Management approach.

With its AgriSource program, Cenex/LOL seems to have been the

first regional to begin building multisource telecommunication

network.

48

SEED

Procuring seed for sale to farmers involves several stages

of operation by agribusinesses: research or plant breeding; contract

or in-house production of breeder, foundation, registered, and certified seed; processing; storing and wholesaling; and retailing.

These forward vertical integration components starting with plant

breeding and ending with the sale of seed to farmers have been traditional for cooperatives.

Over the years, however, cooperatives have begun seed

operations in the reverse order. They have integrated backward

from retailing to becoming basic in research and plant breeding.

Their seed operations, therefore, are discussed in this order.

Farmers’ Expenditures for Seed

Farmers spent $3.0 billion on seed in 1987. Most of this

expenditure is believed to have gone for seed of field crops and

small grains, about twice the amount spent on the seed of legume,

grass, and forage crops. Seed expenditures represent about 4.5

percent of farm supply expenses and other intermediate expenses,

and 2.5 percent of farmers’ total production expenses.

Expenditures rested at the lowest point in seven years, still almost

triple their level in 1972. Much of the increase was attributable to

rising prices.

Some of the increase in seed prices may be explained by

the 1970 Plant Variety Protection Act that permits seed research

and development companies to receive 18-year patents. Under this

protection, the trend is generally away from public varieties to

higher cost proprietary ones. Hybrid varieties of corn and

sorghum have long been proprietary and self-fertilizing varieties

such as soybeans, wheat, cotton, barley, oats, and grasses are now

also following this trend.

Retailing

Early Cooperative Development

Seed was one of the first production supplies that cooperatives began to handle. It was a basic item in farm supply cooperatives in the Eastern, Central, and Southern States, in grain marketing cooperatives in the Midwest, and in cotton marketing cooperatives in the South.

5 0
In the East, two factors caused farmers to look to their

cooperatives for planting seed. Seed available from other sources

often had low germination and purity and was not adapted to their

climatic conditions. Much of the legume seed available from the

trade came from France, Italy, Africa, and Argentina.

The need for better seed was one of the reasons for organizing two of the most successful cooperatives in the Northeast

and Central Atlantic. These were GLF, now Agway, and VSS,

now Southern States (SS). Before these cooperatives were organized, county and State Extension agronomists in New York and

Virginia helped farmers obtain better seed through pooling activities. These State agronomists also helped organize the cooperatives and some became their general managers.

Another event leading to the organization of GLF was the

assistance of county Farm Bureau associations in New York in

helping farmers pool orders for better quality seed. These activities soon resulted in complaints from commercial seed firms and

the formation in 1918 of the State Grange Exchange as a statewide

purchasing agency for local cooperatives. “Seeds That Grow” was

one of its slogans.

In 1920, the State Grange Exchange and two other regional

cooperatives combined their farm supply purchasing operations to

form GLF. l1 GLF soon developed a reputation for selling seed of

high quality and used these slogans: “Known-Origin Seed” and

“Know What You Sow.” Early in its history, GLF posted a

$25,000 bond with the New York State Grange to back up its guarantees on alfalfa and clover seed. In 1925, it began working on

corn and feed grain seed, and by 1926 some 35,000 farmers were

using GLF seeds.

In 1927, GLF made a special effort to switch distribution

of its seed from farmers and other seed poolers to its local retail

service cooperatives and private buyer-agents. By 1930 its seed

sales exceeded $1 million.

SS, starting in 1923, developed and produced superior

strains of seed adapted to Virginia conditions and certified as to

origin. These factors were not recognized by the seed trade at that

time, forcing the producers to organize their own marketing activity. Farmers wanted to know the origin and adaptability of seed,

but could not tell from its appearance. So they formed their own

cooperative to ensure that the seed they bought would flourish on

their Virginia farms.

51
Southern States Cooperative, Inc., Richmond, VA, began in

1923 as Virginia Seed Service, and continues to be a major distributor of seeds. The regional shares ownership with eight other

cooperatives in the seed research interregional, FFR Cooperative.
This need was supported by the Virginia Experiment

Station, which had shown that farmers had difficulty establishing

and maintaining good stands of clover and alfalfa because seeds

imported from other regions were not adapted to Virginia conditions and were susceptible to diseases.

Carefully selected seed sold at premium prices. It took

time to convince farmers that they could get dependable seed

through their cooperative and that the seed would more than repay

the premium price.

An early practice that helped make VSS successful was its

pooling system. More than 300 farmer-poolers assembled orders

from their neighbors and then delivered the seed to them when it

arrived.

Early in the century, in the South, one-variety cotton

improvement associations emphasized the use of pure seed. Thus,

cotton ginning and marketing associations began to sell cotton

planting seed. Later, many farm supply cooperatives were formed

with seed as one of their major supplies. In Illinois, 14 seed corn

improvement associations existed by 1911. In other Central

States, many local farm supply cooperatives organized in the

1920’s and early 1930’s handled seed, but very few specialized

seed purchasing associations were organized.

By 1950-51, about 3,600 cooperatives were selling seed to

farmers. Their net sales of seed totaled about $530 million.

Current Position

In 1987, nearly 3,000 cooperatives reported $577 million

of net sales of seed to farmers and other patrons (table 3). This

volume represents about 19 percent of all farmers’ seed expenditures, a share that is comparable to that of the early 1960’s and

above a low of 15 percent in 1985.

The five States with largest cooperative net sales of seed in

1987 were: Minnesota, $34.3 million; Iowa, $34.0 million; Illinois,

$32.8 million; Ohio, $27.3 million; and Texas, $21.8 million.

Farm supply or purchasing cooperatives employ the usual

industry practices in selling, pricing, and merchandising seed at

the retail level with one exception. Except for a few local supply

cooperatives, they usually do not employ farmer dealers to sell

hybrid seed corn. On the other hand, a few seed marketing cooperatives use such dealers.

53
Such farmer-dealers are the major source of retail sales for

noncooperative firms in the Midwest and have apparently hindered

the growth of cooperative seed corn sales. Exceptions to the rule

include NC+ Hybrids, Lincoln, NE, Gold Kist, Cenex/LOL, and

Agway. NC+ markets seed directly through about 1,200 farmerdealers. Gold Kist and Cenex/LOL use significant numbers of

such dealers indirectly through subsidiaries. Agway depends on

upward to 500 farmer-dealers, using two-thirds of them directly as

Dekalb-Pfizer dealers and fielding the rest through Feedway, Inc.,

one of Agway’s wholly-owned subsidaries. Cenex/LOL fields a

few farmer/dealers to fill voids in their market coverage, while

some of their locals also commission such dealers. GROWMARK

uses farmer-dealers similarly, but is encouraging more of its locals

to use their own salespersons.

Retailing seed is one of the more difficult aspects of seed

distribution. The cooperative first must market superior seed varieties, but it must also inform the farmer of their attributes.

Demand for seed is seasonal, with sales often tied to those of ferTable 3-Cooperatives handling seed and their net sales and share of

farm market in specified years l/

Year

Cooperatives Cooperative Farmer

selling net sales expenditures

seed of seed 21 for seed

Cooperatives’

market

share

Nwnber ------Million dollars ------- Percenl

1950-51 3,638 90.5 534.5 17

1955-56 3,686 97.3 542.5 18

1960-61 3,912 100.3 532.0 19

196566 3,942 119.2 740.0 16

1970-71 3.871 158.3 1,OOO.o 16

197576 3,526 358.3 2.252.0 16

1981 3,607 574.8 3,428.0 17

1983 3,318 483.1 2,993.0 16

1984 3.203 586.9 3,448.O 17

1985 3,120 510.3 3,350.o 15

1986 3,020 513.9 2,984.O 17

1987 2,964 576.6 3,009.o 19

1988 41 2,907 540.0 3,138.0 17

I/ Business years ending June 30. except in 1981-88 when calendar years are used.

21 Excludes business among cooperatives but includes sales not for farm use.

3/ Average of 2 calendar years for 19.50-S through 1975-76.

4/ Preliminary.

54
tilizer and chemicals. Most varieties must be sold within the first

year after production. This creates significant inventory risks

when sales projections differ from actual volume.

Seed, especially hybrid varieties, generally competes on a

nonprice basis. The performance of the variety is often stressed in

terms of yield, disease and drought resistance, and standability.

With performance stressed, advertising is necessary to promote and differentiate new and existing varieties. Cooperatives

use their own publications for this purpose and can also use

national farm magazines that have regional editions. Strip tests or

plots are often used where a competitor’s variety is planted beside

several of the cooperative’s varieties to compare performance.

Many of the local retailing cooperatives operate simple

seed cleaning plants and a few of the larger ones operate more

complete seed conditioning plants.

Wholesale Procurement and Distribution

These phases of the business involve purchasing seed and

contracting with growers to produce seed, operating conditioning

or processing plants, warehousing, transportation, and selling.

Early Developments

Local cooperatives soon began to look to their federated

farm supply cooperatives for quality seed, even as some farmers

looked to their centralized regionals. Regional cooperatives began

procuring, wholesaling, and retailing all kinds of seed, from corn

to potato. Fruit Growers Supply, Los Angeles, undertook this

function along with fertilizer selling in 19 11; GLF, in 19 18; Farm

Bureau Service, in 1919; Eastern States and MFC in 1922; and

LOL in the early 1930’s. In 1933, Eastern States became the sales

agent for 15 Maine producers of seed potatoes.

In 1945, two more rgionals began to handle seed, Pacific

Supply Cooperative, Portland, OR and Washington Co-operative

Farmers Association, Seattle, WA. The last regional became the

Western Farmers Association in 1960 and a part of Cenex in 1982,

as did Pacific Supply in 1977.

About the same time as farm supply cooperatives were

organizing seed activities, a few cooperatives were organizing

solely to produce and market seed. In 1937, Illinois farmers organized Producers Seed in Ford County, encouraged by the Farm

55
Bureau. Producers Seed was followed by two California cooperatives, Caladina, in 1938, and Calapproved, in 1947. In 1958, 50 to

60 certified seed growers organized NC+ with the help of a leader

in the Nebraska Crop Improvement Association.

Fruit Growers Supply began its seed operation by importing vetch seed from Germany. Volume was 300 to 500 tons the

first 2 years, bought at prices far below the prevailing local rate.

Seed cooperatives were formed in a few States to handle

foundation seed stocks. For example, Pennsylvania Foundation

Seed Cooperative, Jersey Shore, received all new varieties of

hybrid corn and small grains produced by a university research

program. This association operated a modem seed cleaning and

storage plant, as well as a nursery for multiplying lines and crosses

for certified hybrid seed corn. It contracted with farmers to produce foundation seed stock and distributed it to growers’ seed

houses and cooperatives to produce registered and certified planting seed.

Initially, GLF attempted to procure good field-grown seed

under contract with reliable growers in the Northeast, but found

that growing conditions there were not favorable. So it took seed

stocks to Illinois for contract production.

GLF soon found that most of the ideal seed-producing

areas for legume and grass seed were in the far Northwest. It

therefore contracted with farmers there to produce seed that was

shipped rough to its seed cleaning plant in Buffalo, NY. In 1950,

GLF pulled its western seed operations together under Allied Seed

Cooperative, Inc., a wholly-owned subsidiary, now of Nampa, ID.

About this time, Allied built a seed cleaning plant and warehouse

at Caldwell, ID, and in 1954 established a seed warehouse in the

San Joaquin Valley of California.

By 1945, at least 26 regional cooperative associations were

procuring seed for farmer members. During that year, at least 27

regionals were marketing farmer produced seed, with four also acting as seed procuring agents. During the same year, cooperatives

attained a 15-percent share of the seed corn business in Northeast

and Middle Atlantic States but less then 2 percent in the North

Central States.

In 1946-47, GLF sold its seed plant in Fort Wayne, IN, to

Select Seeds, Inc., an interregional cooperative originally owned

by it and six other regionals. GLF continued to manage it and the

contract operations for producing legume seed.

56
In 1960, GLF, SS, and the Pennsylvania Farm Bureau

Cooperative Association, Harrisburg, began to jointly procure

hybrid seed corn in Illinois. Agway later began contracting for

vegetable seed in Pennsylvania.

During the mid-1960’s, GROWMARK acquired Producers

Seed, at the same time acquiring its farmer/dealers and its research

capabilities. In 1969, Cal/West Seeds of Woodland, CA, was

formed through the consolidation of Caladino and Calapproved.

Cal/West wholesaled at least $30 million worth of seed in 1988,

mostly alfalfa. Most of this cooperative’s seed was produced by

more than 650 member farmers. About a third of it was exported.

In 1973, approximately 1,300 farmers in Minnesota and

North Dakota gained control over a sugarbeet seed development

and marketing operation. They did so by reorganizing the

American Crystal Sugar Company of Moorhead, MN, into a cooperative.

In 1976, the cooperative moved its seed development program to a new 211-acre research center at Moorhead. American

Crystal had come a long way, from 1936, when it employed the

first commercial sugarbeet plant breeder in te United States, and

from the mid-1960’s, when its research freed sugarbeets in the Red

River Valley from Cercospora leafspot.

During the mid-1980’s, Agway, GLF’s successor cooperative, and Landmark, Agway’s only surviving partner, closed the

Fort Wayne operation, completing Agway’s shift away from eastem legume seeds, one started by GLF 30 years previously.

Current Position

Most local retail cooperatives now are members of regional

wholesale cooperatives and obtain some of their seed from them.

A major exception is Farmland, one of largest farm supply regionals. Never having achieved a volume comparable to other leading

regionals, Farmland quit wholesaling seed in 1980.

In 1986, cooperatives generated about $189 million of

intercooperative or wholesale seed sales. Wholesale cooperatives,

primarily regionals, may pay royalties to the firms (cooperative or

noncooperative) that developed the seed.

Locals have recently wholesaled a small part of their seed

sales to an increasing number of large farms whose seed purchases

are of significant volumes. These farmers have approached both

regional and local cooperatives for wholesale prices.

57
Countrymark’s South Charleston Seed plant annually conditions more than 105,000 bushels of seed corn of 11 different

hybrids plus 300,000 bushels of soybeans and 60,000 bushels of

seed wheat. Below, quality supervisor Tom Rutshcilling inspects

results of germination tests.
Since 1987, Cenex and LOL have marketed seed through

their joint venture, Cenex/LOL. It sold at least $50 million of

farm seeds in 1988, more than any other regional and twice that of

Agway. Both Cenex/LOL and Agway supplement foregoing sales

with large volumes of turf seeds. Both compete for the forage seed

business of other regionals. Both market seeds through subsidiaries. Cenex/LOL uses marketing associates to distribute seeds

outside its traditional marketing territory. Agway uses Seedway

within its traditional marketing territory.

Gold Kist also wholesales seed corn outside its traditional

territory, marketing in the Midwest out of an Indiana plant. All of

Gold Kist’s proprietary seed is marketed by AgraTech Seeds, Inc.,

a wholly-owned subsidiary organized in 1982.

Except as noted, cooperative regionals generally merchandise and distribute seeds about the same as other seed companies.

Several cooperatives operate seed processing or conditioning plants that dry, sort to size or quality, clean, bag, warehouse,

and ship the seed. In 1988, Cenex/LOL operated 7 seed processing plants, one being owned jointly with Cal/West, since 1989,

through Proprietary Seeds. Agway used 6 facilities, down from 10

in 1983. Meanwhile, Gold Kist operated two seed mills, having

acquired its Indiana plant in 1986. Cal/West processed upwards to

90 percent of its seed through its own 5 plants.

SS, TFC and Countrymark own Cooperative Seeds, Inc.,

Lebanon, IN, an interregional formed in 1979. It has a seed corn

processing plant and contracts for corn acreage each year.

Cooperative Seeds operates at cost, with members sharing costs

according to their portions of equity and use.

In 1988, American Crystal marketed enough seed to establish at least 275,000 acres of sugarbeets, with about a third of this

total planted by growers other than those affiliated with American

Crystal. All of this seed is produced in Oregon by the West Coast

Beet Seed Company, a subsidiary jointly owned by American

Crystal and other beet sugar refiners. During 1988, Agway continued to serve decendents of many of the original 15 seed potato producers who originally worked with Eastern States. Agway marketed

enough seed to plant about 35,000 acres of potatoes. It also managed a newly-modernized facility for storing seed potatoes.

Several regional cooperatives operate seed testing laboratories; others arrange for testing by State or other laboratories.

59
NC+ Hybrids

Organized to give its seed-growing members the advantage

of larger-scale marketing, NC+ Hybrids reportedly is one of the 15

largest seed businesses in the U.S. It focuses on the production

and marketing of hybrid seed corn, with most of its members using

their own drying facilities. Seed is delivered to NC+ facilities to

be graded, packaged, labeled, and marketed by the cooperative’s

staff. NC+ contracts with another dozen farmers, or so, for seed

corn and with other seed companies, such as with Cal/West for

alfalfa seeds.

NC+ has 18 farmer members and markets hybrid corn,

sorghum, soybean, and alfalfa seed to farmers in many States, but

mostly to those in the Plains and Western Combelt. Farmer-dealers sell for NC+ within this area, while distributors market elsewhere. NC+ ranks with Agway and GROWMARK in the sales of

farm seeds. NC+ carries on plant breeding research at two locations, one at Hastings, NE, the location of its principal seed processing plant, and a second at Colwich, KS. In addition to

Hastings, the cooperative processes seed at Grand Junction, IA and

Lincoln, NE.

Research or Plant Breeding

For many years, cooperatives relied on State and Federal

experiment stations and major seed companies to conduct plant

breeding to improve seed. But as the trend to proprietary brands

developed, a few of the larger regionals undertook seed research,

mostly in corn. And several organized interregionals to do plant

breeding in alfalfa and other forages, corn, and soybeans.

Cal/West claims it was one of the first U.S. agricultural

seed companies to invest in private research, but several regionals

followed later. They include Agway, Gold Kist, GROWMARK,

LOL, and NC+. Agway has backed off, however, and now relies

on other seed companies such as Dekalb-Pfizer, for the development of farm seeds. Growers Seed Association, Lubbock, TX, was

quite involved in seed research before it went out of business in

1982.

Most regional cooperative research efforts on field seeds

involve a single plant breeder. In 1988, however, Gold Kist and

GROWMARK employed at least two plant breeders with Ph.D

60
degrees. Since 1988, Vista, owned by Cal/West, Cenex/LOL, and

Research Seeds, one of Cenex/LOL’s associate companies, has

employed six plant breeders at four locations.

In 1989, American Crystal employed three plant breeders

having just opened a plant breeding station in Idaho. Thus,

American Crystal employed about 15 percent of the nation’s plant

breeders working with sugarbeets. Since 1910, plant breeders with

American Crystal have been developing propietary varities

amounting to about 25 to 30 percent of the seed currently marketed

by this cooperative. It also tests sugarbeets for the State of

Minnesota.

Agway has never employed plant breeders to work with

potatoes. They once tested potato varieties but recently relinquished this responsibility to the State of Maine.

Significant requirements bar entry into plant varietal development. A cooperative needs to invest in research and test facilities, employ one or more plant breeders, contract with seed growers, and have processing facilities.

Seed developed by this type of operation and submitted to

a certifying agency (usually State controlled) is one of four types:

breeder, foundation, registered, and certified. Certified seed is the

end product of seed research and what farmers purchase. This

seed is analyzed by a certifying agency for germination rates and

contamination levels of both weed and other seeds.

A cooperative can enter at this stage with a smaller outlay

by not entirely developing its own seed lines. With smaller

amounts of research, seed lines developed by State experiment stations and universities can be combined with seed lines from the

cooperative to develop new varieties. A significant percent of

both self-fertilizing and hybrid varieties introduced by cooperatives and noncooperatives contain some public lineage.

Where ever the initial developmental work is undertaken,

plant varietal development is a slow procedure. It often requires

10 years’ work before a new variety can be marketed; this is a significant barrier to entry.

A few regionals test seeds. Agway has for years operated

an extensive test farm to find the actual value-in-use of various

varieties and strains under conditions existing in its territory. It

advises members as to weak and strong points of recommended

varieties and refuses to sell those not worthy of.recommendation.

61
Research by an lnterreglonal Cooperative

Farmers Forage Research Cooperative was organized in

1961 by nine cooperatives feeling the need to be involved in seed

research. Initially involved in breeding alfalfa, the cooperative

quickly moved into breeding of other forages, corn, and soybeans.

In 1976, the name was changed to the present FFR Cooperative to

reflect its broader research effort.

FFR is governed by a board of directors consisting of one

representative from each of its members. In 1988, FFR had five

member cooperatives, including four diversified U.S. regional

cooperatives, and one Canadian cooperative. Funding for FFR

research is generated through royalty payments on FFR-developed

varieties, membership fees, and assessments.

The mission of FFR is to provide seed of improved crop

varieties for member cooperatives. FFR has breeding programs to

develop varieties of hybrid field corn, soybeans, alfalfa, red clover,

orchard grass, tall fescue, timothy, sorghum x Sudan, and sudangrass. FFR has breeding stations at its headquarters near

Lafayette, IN; Salem, OR; Jackson, TN; and Providence Forge,

VA. Besides developing seed at the four stations, FFR does extensive testing and evaluation at other locations across several States.

FFR employs more than 30 full-time people, including six with

Ph.D.s in plant breeding.

The varieties and hybrids coming from FFR’s testing program are sold through one of the following means: (1) member

cooperatives produce the variety and market it, either under their

own or the FFR name; (2) nonmember seed cooperatives or other

companies may obtain a license to produce and market a variety

under their own or the FFR name; or (3) nonmember organization

may be granted right to produce and market a variety, again under

their own or the FFR name. The wholesale value of FFR-based

seed sales by FFR member cooperatives probably approximates

the sales of NC+.

Highlights of FFR’s breeding program include:

Forage Program-Extensive screening programs are in

place to select high-yielding alfalfa varieties with resistance to a

wide range of diseases and insect pests. Red clover varieties are

selected for both seed and forage yield, longevity of stand, and

pest resistance. Cool-season grasses, orchardgrass, tall fescue, and

timothy are selected for forage and seed yield, leafiness, vigor,

62
persistence, pest resistance, and ability to grow in pure or mixed

variety stands. The sorghum x Sudan hybrids are selected for forage yield and broad adaptability. FFR’s forage program has over

the years produced many outstanding products, some of which

serve as industry standards for comparison.

Soybean Program-FFR’s soybean research program has

developed a broad range of commercial varieties and continues to

provide improved new soybean varieties. FFR breeds soybeans for

a range of maturity groups, breeding and testing them in different

States to better meet the requirements for varieties used in differing farming areas. Soybean varieties are selected on the basis of

yield, lodging resistance, seed quality, and pest resistance.

Corn Program-FFR began its corn research program in

1970, in a consolidation of the programs of two members,

Landmark and Southern States, with the program of the

Agricultural Alumni Seed Improvement Association. The program, led by two world renowned corn breeders, quickly established itself as a leader in breeding superior corn hybrids. The

FFR corn breeding effort rests heavily on selection for yield and

pest resistance, though other important factors include standability,

moisture at harvest, seedling vigor, and test weight. The corn program has been especially strong in the eastern and southern Corn

Belt, and provides hybrids to meet most growing conditions.

Benefits

For many years, cooperatives procuring and distributing

planting seed have provided substantial benefits to farmers. While

seed sales were only 3 percent of total supply sales of cooperatives

in 1986, their benefits have been much greater. Seed has been one

of the cornerstones in the success of several regional cooperatives,

their local outlets, and member cooperatives.

One of the major benefits has been their improvement of

seed quality. They have supplied better adapted seed and seed

with higher germination and purity. Their objective has been to

handle seed that will give better yields to farmers rather than better

income to the cooperative.

A third benefit has been the development of better varieties

through the cooperatives’ research or plant breeding programs,

especially in alfalfa, orchard grass, and sorghum-Sudan seed.

Millions of pounds of cooperative alfalfa varieties are now market63
ed annually. FFR’s Hallmark, Able, and Ranch0 varieties account

for a significant portion of the orchard grass market in the United

States.

FFR’s corn program has enabled several members to distribute corn under their own label for the first time and strengthened their offerings with long-term breeding programs. The use of

its new inbred lines form the base of more than half of some members’ offerings. These genetically different hybrids protect farmers * production.

Challenges Ahead

Seed is one of the basic farm production supplies that

greatly affects farmers’ annual yields and income. Cooperatives

face the challenge of continuing to be effective seed procurement

agencies for their members; they also face the problem of raising

their standards of performance.

Since 1960, cooperatives’ share of the farm planting seed

market has declined from the 17-to 19-percent range to a 15-to 17-

percent range. Regional cooperatives, both purchasing and marketing, must sponsor studies to determine reasons for this decline

and steps that can be taken to reverse the trend. At the retail and

wholesale levels, the following problems, among others, should be

analyzed:

1. There is a trend to fewer and larger farms. Larger farms

are demanding quantity discounts. For some large farms, additional services may have to be provided or cooperatives may risk losing their business. Others, however, may want few services and

prefer to buy directly from wholesale cooperatives. These farms

are also quicker to accept innovations and varieties and will pay

more for seed that returns more. Cooperatives must stay at the

forefront of developments in seed and inform their local cooperatives and farmers to ensure their continued business.

2. Sales methods have not significantly changed over the

past decade but cooperatives have not always matched the competition. The most common method of seed sales in the Northern

Plains, Lake States, and Corn Belt is farmer dealers, yet few cooperatives use farmer dealers enough. Attracting the volume of different groups of patrons requires a variety of sales strategies.

Cooperatives must examine all available strategies to determine

the best mix of sales tools to compete in their markets.

64
3. A few cooperatives are now providing special services

in seed sales by using crop specialists. Usually knowledgeable in

chemicals, fertilizers, and seed, crop specialists’ sales efforts in

several products are combined. There may be a charge for the

crop specialist’s service unless the farmer purchases a specific

amount of supplies from the cooperative. The crop specialist may

also monitor the crop’s progress throughout the growing season.

4. There has been considerable work to develop hybrid

varieties of both wheat and soybeans the past two decades.

Genetic engineering has received considerable attention. Some of

the items under research are recombinant DNA, nitrogen fixation,

photosynthesis improvement, and hydroponics. New seed products are also on the horizon.

5. The developing role of public seed research also raises

concerns. These include: (a) Difficulty of State experiment stations in maintaining their plant breeding programs and the trend to

more private varieties, and (b) the experiment stations’ use of

exclusive distribution contracts with individual firms for university-developed varieties.

These situations and trends question how cooperatives can

best develop effective seed research programs and how many

resources they should channel into research. And because marketing cooperatives have a stake in the volume and type of products

that will be grown and marketed, they may also have a stake in

assisting supply cooperatives in conducting research or plant

breeding. This may help explain the joint ventures between

Cal/West and Cenex/LOL.

6. The seed industry has become more complex in recent

years, especially with the inception of genetic engineering.

Several multinational companies have entered this field through

mergers and acquisitions. This has led to some concern over the

direction of both seed research and seed marketing. There is a

special concern over whether or not research is leading toward

sales systems which tie seed and chemicals together more firmly

than cooperatives have hitherto done. Multinational firms now

involved in seed research will have more overall market power

than their predecessors.

These observations lead to at least three questions. Will

cooperatives be forced out of the seed business, or will they only

distribute seed for powerful seed companies? What effect could

this have on cooperatives’ efforts to keep some plant breeding

65
under the ownership and decisionmaking of farmers who use the

seed? Is Agway’s partnership with Dekalb-Pfizer Genetics a

harbinger of the future?

Authors I Donald L. Vogelsang (fertilizer, lime, farm chemicals, seed), agricultural economist I E. Eldon Eversull (seed),

agricultural economist1 J. Warren Mather (fertilizer, lime, farm

chemicals, seed), agricultural economist, now deceased.

Footnotes

l Gensch, Dennis H. Iowa Cooperative Fertilizer Retail

Outlets - Farmers’ Attitude and Perceptions. ACS Res. Rpt. No.

29. U.S. Dept. of Agr., Agr. Co-op. Serv., Aug. 1983, pp. 7 and

12.

* O’Brien Daniel M. The Impact of Cooperative on the

Performance of Retail Fertilizer Markets in Nebraska. M.S.

Thesis. U. of Nebr., Nov. 1980, p. 111.

3 Ibid., p. 82.

4 Ibid., pp. 111 and 118.

5 Vogelsang, Donald L. “Nebraska, Iowa Co-ops Save

Patrons $5.2 Million on Ammonia,” Farmer Cooperatives U.S.

Dept., of Agr., Agr. Co-op. Serv., June, 1982, pp. 13-15.

6 Ginder, Roger C. Report to ESCS on Western Cornbelt

Fertilizer Market Structure Research Contract. Unpublished

report. Iowa State U., May 8, 1981, pp. 130 and 160.

7 Walsh, Richard G. and Richard K. Rudel. Competition

and Efficiency of Cooperative Manufacturers of Nitrogen

Fertilizer. Un-numbered rpt. from Dept. of Econ., Colo. State U.,

Nov. 1981, pp. 50,57, 61, and 69.

8 Ibid., p. 5.

9 Ibid, p. 33.

lo Vogelsang, Donald L. Local Cooperatives in Integrated

Pest Management. FCS Res. Rpt. No. 37. U.S. Dept. of Agr.,

Farmer Co-op. Serv., Feb. 1977, pp. 2 and 3.

l1 Knapp, Joseph G. Seeds That Grew. Anderson House,

1960, p. 33.

66
U.S. Department of Agriculture

Agricultural Cooperative Service

P.O. Box 96576

Washington, D.C. 20090-6576

Agricultural Cooperative Service (ACS) provides research,

management, and educational assistance to cooperatives to

strengthen the economic position of farmers and other rural

residents. It works directly with cooperative leaders and Federal

and State agencies to improve organization, leadership, and

operation of cooperatives and to give guidance to further

development.

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

cooperatives to obtain supplies and services at lower cost and to

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

on developing existing resources through cooperative action to

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

operating efficiency; (4) informs members, directors, employees,

and the public on how cooperatives work and benefit their

members and their communities; and (5) encourages international

cooperative programs.

ACS publishes research and educational materials and issues

farmer Cooperatives magazine. All programs and activities are

conducted on a nondiscriminatory basis, without regard to race,

creed, color, sex, age, marital status, handicap, or national origin.