United States

Department of

Agriculture

Rural Business–

Cooperative

Service

RBS Research

Report 190

The Changing Federated

Relationship Between

Local and Regional

Cooperatives
Abstract The evolution of the federated relationship between local and regional cooperatives is

examined from the perspective of local cooperatives’ need for commodity-based farm

supplies and regional cooperatives’ identity as food companies. Because locals want

many competing bids for the supplies they purchase, they resist a strong and close

affiliation with regional cooperatives, which then find themselves with excess capacity.

Regionals have responded by instituting tighter bonds with selected local cooperatives

operating as "internal supply networks," in exchange for certain benefits. This adaptation reduces the impact of divergent goals among regionals and locals within the federated system.

Key words: Cooperatives, federation, networks, competition, regionalization.

The Changing Federated Relationship Between Local and

Regional Cooperatives

Julie A. Hogeland

Rural Business-Cooperative Service

RBS Research Report 190

August 2002
Contents Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Regionals’ Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Functions and Sources of Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Service Maximization Model and Critique . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Regional Specialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

The Resource Provider Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

How Far Should Specialization Go? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Detachment Among Locals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

The Regional as Self-Sustaining Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Some Predictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Need for Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

New Rules for Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Cultural Influences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Discussion and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

i
ii
Highlights Regional cooperatives have typically been regarded as leaders of cooperatively organized and owned marketing channels in the Midwest. They have relied on the customary power bases of channel leaders to induce member local cooperatives to follow

their lead. These include rewards, coercion, legitimacy, referent (identification or association) power, and expertise.

These measures have been used in a cooperative culture that emphasizes the primacy of services over profits. This cultural model implies a regional will provide, essentially at cost, most if not all of the services and products locals require. In turn, they will

supply the regional with the raw material it requires to manufacture supplies and

process foods. Survival of the regional cooperative relies on the support and patronage of local cooperatives.

This model breaks down when any of the following situations occur: locals can use

alternative suppliers; regionals have a higher cost of production than alternative suppliers; locals are affiliated with multiple regionals; locals need product regionals don’t

make or can’t access; locals can meet their own needs internally; regionals need more

product than locals can provide; and the regional acquires an identity and existence of

its own, independent of locals.

The federated system particularly struggles with regionals’ cost of production versus

that of other suppliers. Cooperative norms stress the value of the "competitive yardstick" where the value of a cooperative lies primarily in its ability to provide an additional bid to enhance market competition. Local cooperatives have frequently translated

this expectation into an implicit demand that the regional be the lowest bid. If it is not,

locals may perceive that their regional has not necessarily "added value" to the marketing channel.

For their part, regionals with a strong presence in processed foods do not always know

how their locals fit into the marketing channel. They perceive their strategies are driven

by market forces first, and locals second.

Resolving these disconnects within the federated system could require a way for locals

to benefit on a day-to-day basis from the processed foods business of regionals.

Currently, patronage benefits are generally revolved only once a year. Locals need a

formal, institutionalized link to the food operations of their regionals.

Regionals may not always meet locals’ expectations as low-cost suppliers, because of

regionals’ approach to marketing and the rigidities of the cooperative system. So,

some locals may work independently of regionals. In other areas, a particular regional

and a selected group of member-locals may decide to collaborate on particular objectives. These locals would form an "internal supply network," using an organizational

model more centralized than federated .

ii
The Changing Federated Relationship

Between Local and Regional Coopertives

Julie A. Hogeland

RBS Agricultural Economist

Introduction1

Questioning the value provided by alternative

configurations of supply chains has become routine

throughout agribusiness, and cooperatives are no

exception. A business environment forced to measure

the profit of many transactions in pennies, not dollars,

has led local and regional cooperatives to ask whether

their prominent ties should be maintained in the current form.

As suppliers to locals, regionals have sometimes

had ties with investor-owned firms (IOFs). Increasing

consolidation has brought a stronger market presence

for several mega-IOFs. Locals are increasingly asking

whether such companies are, in some cases, a better

partner for them than regionals. They ask, "What can a

regional cooperative do for me over and beyond what

an IOF can do?" Such questions, inconceivable in an

earlier era, have led regionals to wonder if locals will

continue to be part of a cooperatively organized supply chain in the same manner as in the past.

Many locals, of course, are very satisfied with the

way their regionals perform. But questions and challenges posed by some larger locals--superlocals or

mini-regionals--may influence how and what regionals

provide to locals in the future.

This report is an outgrowth of RBS Research

Report 181, Locals’ Role in the Identity-Preserved

Grain Industry (by Hogeland, 2001). In that study,

locals classified their approach to innovation as (1)

rapidly changing despite some financial risk; (2) delaying in anticipation of further improvements; or (3)

focusing less on innovation than on perfecting service

and pricing within a particular arena. These responses

were classified as "innovator," "follower," and "status

quo" positions. Respondents were evenly divided

among these categories.

Innovators handled a much larger volume of

identity-preserved grain than cooperatives in follower

or status quo categories. Innovators often favored partnerships with regionals. Followers and status quo

appeared to adopt the cultural framework evident in

the grain industry, where regional cooperatives must

compete for locals’ grain the same as any other bidder.

The two groups were also similar in other ways.

Results indicate that most cooperatives prefer a

predictable environment where they function as

dependable, reliable suppliers. Although cooperative

culture favors incremental, slowly absorbed changes,

recent strategic alignments among regionals have

imposed uncomfortable change on some locals. It is

not always clear what membership in a cooperative

means, requires or provides in this new setting.

Where do locals get their standards to evaluate

regionals? How are those standards defined? This

study indicates many standards come from cooperative culture--attitudes and marketing practices that differentiate cooperatives from other business organizations. One of the most important is the familiar

"competitive yardstick" role.

The balance of power between regionals and

locals has shifted, altering how regionals express their

power as leaders of a cooperatively owned and organized marketing channel. Locals have developed a

degree of independent power, necessitating changes in

the distribution of labor between local and regional, as

well as in the expectations each has of the other. These

changes will be illustrated through a critique of a

model of cooperative behavior which focuses on the

1

1 An earlier version of this paper was presented at NCR-194, Las

Vegas, NV October 30, 2001.
primacy of services over profits. This study will also

focus on specialization and the development of internal supply networks as regionals’ response to such

countervailing power.

This study arose from conversations with numerous local cooperative managers from June 2000 to June

2001. Executives of both federated and centralized

regionals also provided their perspective. The results

are expected to contribute to a more informed dialogue

on what cooperatives realistically can and cannot

accomplish, and not be evaluated by outdated standards.

This report is not a report card on the accelerated

pace of mergers and consolidations during the past

five years. That is a decision for those who own

regionals, locals and farmers. Instead, this report will

cast such events within a framework that will enable

cooperatives to understand them as inevitable answers

to challenges posed by market evolution.

Regionals’ Functions

Federated regionals market farm supplies, and

meat, dairy, and grain products. They include

Farmland, GROWMARK, CHS (formerly CenexHarvest States), Land O’Lakes, MFA, Inc., and

Southern States Cooperative. The specific focus is

regional cooperatives serving the Midwest, where

most realignments and mergers have occurred.

Farm supply regionals typically contribute to

cooperative infrastructure and, indirectly, food processing and marketing. Activities include:

● centralizing purchasing and distribution on

behalf of locals;

● building mills and other infrastructure needed

for ingredient processing and marketing;

● facilitating transportation by truck fleets, unit

trains or coordination with rail depots;

● lobbying regarding rail abandonment, trade

restrictions and other economic events;

● providing financing and other risk-management tools; and

● training manager and employee and benefit

systems,

As food companies, regionals typically:

● create branded identities reflecting particular

standards of production or processing;

● provide an integrated marketing channel that

reaches from the farm gate to the dinner plate;

● provide market access;

● invest in food processing assets;

● partner with other agribusinesses to provide

the necessary complement of services and

products for locals;

● perform marketing research and training that

expands the reach of local cooperatives; and

● engage in overseas market development.

Who in the channel should perform these functions is a question increasingly open to discussion as

some locals approach the size of early regionals. For

example, locals point to Felco, a 1970 merger partner of

Land O’Lakes, as an example of their own potential.

Nevertheless, explicit dialogue about the division of

labor among cooperatives at different levels has been

obscured, to some degree, by the considerable structural realignments and mergers among regional cooperatives.

Functions and Sources of Power

Countrymark, Inc. (Countrymark), a regional

cooperative formed from the 1991 merger of Indiana

Farm Bureau Cooperative Association and the

Ohio/Michigan-based Countrymark Cooperative represents an example of a "traditional" regional cooperative whose service-oriented approach2 was jeopardized

by the forces described in this report. In 1998, Land

O’Lakes acquired what may be considered one of the

"core" businesses of Countrymark, its seed, agronomy,

and feed operations.3

Regionals like Countrymark can be regarded as

leaders of a cooperatively owned and organized marketing channel with leadership based on locals’ willingness to purchase or market in a particular way,

through a well-defined system and process, such as:

● using a regional’s brand name ("Farmland

Foods," "Land O’Lakes Pork System," etc.);

● using product standards established by the

regional (premixes with a particular nutrient

content or pork certification programs);

● using farm production supplies and other

products sourced or manufactured by the

regional;

● adhering to managerial and professional standards either originated by or endorsed by the

regional;

2

2 Other regional cooperatives, like SF Services (acquired by

Farmland in 1998), were similar to Countrymark.

3 Further details of this and other notable mergers and acquisitions

among cooperatives can be found in Wadsworth, James J.

Cooperative Unification: Highlights from 1989 to Early 1999,

USDA/Rural Business-Cooperative Service Research Report 174,

September 1999.
● using similar accounting systems; and

● adhering to the strategic vision proposed by

the regional.

Adopting any of these practices is up to the

local. They do not automatically do what the

regional wants, unless they are owned (or centrally coordinated) by the regional and function like a

dealership or franchise.4 Most federated locals, the

subject of this report, selectively follow the lead of

their regional. They are not obliged to do business

with them.

Consequently, regionals must induce locals to follow their lead, and like other (non-cooperative) channel leaders, they use a combination of positive and

negative reinforcements, such as :5

● rewards--potential benefits to locals, such as

manager placement within the cooperative system; participation in advisory councils; financing or patronage refunds;

● coercion--unfavorable terms of trade or limited

managerial opportunities;

● legitimacy--internalized values that obligate

locals to accept regional influence;

● referent power--the value of explicit identification or association with a regional;

● expertise--greater knowledge or experience

attributed to a regional.

These are examples of the power exerted by

channel leaders.

Power may seem to be an unusual term to use in

the context of cooperation, but the elements are largely

positive. Countrymark provided a particularly tempting model for cooperatives. Countrymark was said to

"do it all" and represented leadership based on the

benefits or rewards of regional affiliation.

Service Maximization Model and Critique

Some felt Countrymark exhausted its resources

serving member locals, in part by maintaining an

administrative structure perceived necessary to provide member services, as well as maintaining reputedly unprofitable locations.

In many ways, Countrymark’s choices epitomize

many of the dilemmas facing regionals. Cooperative

culture emphasizes the primacy of services over profits, an orientation familiar to Countrymark. In its

fullest expression, this model implies a regional will

provide, essentially at cost, most if not all of the services and product locals require. In turn, locals will

supply the regional with the raw material it requires to

manufacture supplies and process foods. In this

model, the support and patronage of local cooperatives is a necessary and, conceivably, sufficient condition for the survival of the regional. Essentially, the

two exist in a closed, recursive (feedback) system,

impervious to outside influence.

The service model has several implicit assumptions:

● the regional will be the primary supplier to

locals;

● a local will be affiliated with only one regional;

● the regional’s cost of production (COP) is sufficiently low so as to preclude competition from

alternative suppliers;

● locals will get all needed services from the

regional;

● locals will use the regional for market access or

marketing;

● the product received from locals is sufficient to

meet the regional’s requirements; and

● the role of the regional is to sustain the locals

that own it, but locals do not have a reciprocal

obligation toward their regional.

In reality, these assumptions break down

because:

● locals can pick and choose among suppliers,

regional or not.6

● the regional, because of its multi-product and

multi-service orientation, may have a higher

cost of production than alternative suppliers;

● locals are affiliated with more than one regional;

3

4 GROWMARK, MFA, Southern States, and Tennessee Farmers

Assn. fall into this catagory.

5 Hunt, Shelby D. and John R. Nevin, Power in a Channel of

Distribution: Sources and Consequences, Journal of Marketing

Research, Vol. 11 (May, 1974), 187.

6 GROWMARK, Tennessee Farmers Cooperative, MFA, and

Southern States Cooperative represent important exceptions to this

framework because their locals have institutionalized closer ties to

their regionals. These cooperatives have a mixed federatedcentralized structure 
● locals need products regionals don’t make or

can’t access;

● locals (or regionals) can meet their own needs

internally;

● locals can market on their own or choose channels other than their regional;

● the volume or quality of inputs from locals fall

short of the regional’s needs;

● the regional acquires an identity and existence

of its own, independent of locals;

● locals choose to be independent because they

want to differentiate themselves from other

agribusinesses, including their regional; and

● outside forces like government policies alter

exchange relations between local and regional.

This reality alters the effectiveness of regionals in

such culturally mandated roles as:

● being a competitive yardstick;

● creating change in the way industries are being

run;

● being a purveyor of technical change to locals;

● having facilities commensurate with those of

mega-IOFs;

● being a low cost supplier;

● being a multipurpose, multiservice organization;

● generating income (returning patronage,

revolving equity);

● being a supplier of last resort (e.g., petroleum

during shortages);

● providing an integrated food system from farm

to grocer;

● maintaining staying power as a long-term supplier; and

● providing market access.

These roles, which were identified through interviews with local cooperative managers, may be considered culturally determined. Typically, managers

viewed regionals’ effectiveness through the filter of

two or more potentially conflicting roles. For example,

local managers chided regionals because they were not

always the lowest cost supplier, and at the same time,

expected them to be as "basic" in certain supplies as

some mega-IOFs (presumably incurring high fixed

investment costs). Others wanted low-priced supplies

as well as a nice-sized patronage refund at the end of

the year.

Such conflicting expectations weigh in against

regionals’ power as channel leaders. Coupled with

some locals’ tendency (or ability) to operate independently of regionals in the ways suggested by the service model critique, they diminish the effectiveness of

the traditional supports for channel leadership--

rewards, legitimacy, etc.

Regionals have choices. They can try to "do more

of the same and do it better" or they can try to compel

locals’ attention if the traditional motivations are no

longer working. These include: (1) intensifying ties

with locals through specific incentives and management structures (i.e., "regionalization"); (2) expanding

the arena for cooperatives through globalization; and

(3) making dealings with locals inevitable because the

regional is national seller of particular farm supplies.

Generally speaking, CHS has pursued regionalization;

Farmland, globalization; and Land O’Lakes, size and

scale.

In fact, these strategies are based on several of the

culturally mandated roles noted earlier.

Regionalization represents the local "as an extension of

the regional" in the context of a multipurpose, multiservice organization limited to a particular geographic

area. Globalization stresses market access. Being a

dominant vendor of particular farm supplies is perhaps a variation on the mega-IOF position of being

"basic" in certain commodities. These strategies coincide with a more focused approach to delivering particular services through the recent formation of

Agriliance (combining the agronomy business of Land

O’Lakes, Farmland and CHS), Country Energy (consolidating the petroleum operations of Cenex, Harvest

States and Farmland), and the Land

O’Lakes/Farmland feed joint venture.

These arrangements represent a move by regionals away from being multi-product to being productspecialized.

Regional Specialization

The Resource Provider Function

In 1985, Prof. Brice Ratchford from the University

of Missouri predicted that separate systems for feed,

chemicals, fertilizer, etc., would replace the multipurpose farm supply distribution system. He also expected investor-owned competitors would have a profound influence on the optimal role and structure of

cooperatives.7 In 2000, Harry Cleberg, past CEO of

4

7 C. Brice Ratchford, “Strategies for Cooperative System Design: The

Case for Coordination Among Cooperatives: Discussion,” in

Farmer Cooperatives for the Future, A Workshop Nov. 4-6, 1985,

USDA: Agricultural Cooperative Service, 116.
Farmland Industries, similarly expected that each

regional would be associated with a single product

area--agronomy, petroleum, meat, grain, or dairy.8 This

realignment would occur in response to significant

environmental stressors, and ultimately alter traditional ways of relating between locals and regionals.

These predictions concern regionals’ fundamental

identity as resource providers to locals, a function particularly evident when locals were smaller, single location, and more numerous. By providing centralized

buying and distribution for locals, regionals eliminated the need for individual negotiation with suppliers.

Typical of a supply channel comprised of isolated and

autonomous decision-making units, locals were unable

to program distribution activities as effectively as their

regionals.9 The resulting asymmetrical power relations

between regionals and member locals made regionals

the natural choice for channel leaders. Locals seeking

alliances almost automatically turned to the nearest

regional cooperative.

Assisting this identification with a regional were

territorial and cultural boundaries. Just as local cooperatives often represent a particular group’s interest in

having its "own" cooperative, regionals, too, became

affiliated with specific commodity interests (Land

O’Lakes and dairy); farm movements (Cenex and

Farmers Union)10 and regions (Southern States

Cooperative and the Southeast). Scale economies

encouraged regionals, whose role as resource

providers includes manufacturing, to expand their

geographic boundaries, and in so doing, enter one

another’s territory.11 This process meant locals often

invested in--and therefore, were members of--more

than one regional.

As regional cooperatives (those that survive

today) broke through their traditional boundaries to

expand market share and so implicitly create the foundation for specialization, locals learned to play a price

game: to cherry-pick regionals for the best deal.12 The

price game has continued despite the formation of

Agriliance and other ventures; locals simply substitute

IOF bids for those of multiple regionals.

In this price game is the core of how locals as a

group think of regionals: their purpose is to satisfy

their own need for commodities--petroleum, fertilizer,

feed, grain, some seed. These commodities are the gist

of what locals sell to their own farmer-members. These

members demand that locals help lower farm supply

costs. What regionals are known for, in contrast, is selling processed foods--meats, dairy, pasta, etc. This is

why interviewed locals referred to regionals as "food

companies."

A commodity orientation entails different needs

and resources than processed foods. Part of the reason

some locals have, according to interviews, a particularly hard time valuing what regionals contribute to the

federated relationship is that they have no institutional

tie to the food operations of regionals. Farmers are tied

to the food operations of regionals through direct

membership. The better prices dairy farmers receive

from branded cheeses and the market access attained

by pork producers, for instance, flow from the regional

straight to the producer. The local is sidestepped.

Moreover, this disconnect has been institutionalized through the mixed membership structure of

Midwest regionals. Their membership is made up of

both locals (as a group or federation) and individuals

(representing producers in certain specialties). During

the past decade, there have been efforts by regionals to

tie locals to food production by having them sell specialty feed to the producers who are direct members.

Discrepancies among locals’ handling practices and

other coordination issues have led regionals to abandon this effort. Their need to streamline distribution,

to offer process-verified production systems for

processed foods, and to meet other requirements of a

marketplace geared to product consistency and food

safety has become paramount.

5

8 Cleberg, H.D., “Remarks: Cooperatives Working Together,” 2000

annual meeting of the National Society of Accountants for

Cooperatives, San Antonio, Tex., August 9, 2000.

9 McCammon,B.C., Jr., Perspectives for Distribution Programming,

in Vertical Market Systems, L.P. Bucklin, ed., Glenview, IL: Scott,

Foresman, 32-51.

10 Egerstrom observes that Cenex was founded by Farmers Union

organizations. Egerstrom, Lee, Make No Small Plans: A

Cooperative Revival for Rural America: Rochester, MN, Lone Oak

Press, 1994, 142.

11 Egerstrom refers to competition among regionals: “Will Land

O’Lakes” farm supply joint venture, known as Cenex/Land

O’Lakes Ag Services, need to tread on other regional

cooperatives’ turf to expand its markets and assure future

profits?” (p. 142). About Cenex, he says, “Changing rural

demograpics, changing agronomic practices on farms and

environmental restrictions on use of its products, and what

appears to be an inevitable geographic collision with Farmland

and other petroleum supply co-op create problems that need

creative responses” (p. 143).

12 The centralized nature of GROWMARK, MFA, Southern States,

and Tennessee Farmers Assn. means their member-locals will

automatically purchase most supplies from their regional as a

matter of course. The open market is much less of a factor in their

relationship than it is with the more independent locals based in

the core Midwest.
Regionals are torn by the requirement to be

resource providers to locals and their own need to protect food manufacturing investments. The dual focus

of the federated system continually confronts regionals

with the strategic issue of whether a dollar of investment capital should go into providing the commodities needed by member locals or providing the

processed foods that are the core of regionals’ identity.13 This decision is complicated by the fact that food

operations can strengthen a regional’s balance sheet,

diminishing the requirement for equity investment by

local cooperatives.

The splintering of a multipurpose, multiproduct

cooperative structure into a meats company

(Farmland), a dairy company (Land O’Lakes); a grain

company (CHS), and an agronomy company

(Agriliance) represents an uneasy accommodation

with locals because it does not contribute, necessarily,

to an integrated food system--a seamless web from

farm to grocer. As long as each is essentially operating

on a different level--regionals in foods and locals in

commodities--the ability of locals to identify with

regionals (referent power) will be constrained. So, the

specialization advocated by Ratchford and Cleberg can

be seen either as a transitional step to a more fully

coordinated system (with the next step still unclear) or

as a way of formalizing the disconnect between the

two levels by compartmentalizing it.

How far should specialization go?

Regionals perceive that Agriliance and other

instances of horizontal integration "take costs out of

the market," although, to some locals, eliminating multiple regional bids can appear more like "taking competition from the marketplace." Locals’ position as

middlemen limits their endorsement of a streamlined

marketing system. The more bids they can sift

through, the more they fulfill and justify their historically designated role.

Farmers innately fear situations where they get

only one bid, and regional specialization is interpreted

by some as a move in this direction. So it’s not surprising that the short-term consequence of specialization

has been some degree of share loss. A year after implementation, interviewed regionals commented that

their collective market share through the specialized

and combined ventures has been less than what they

used to get selling individually. Locals’ reaction to

restructuring makes it far harder for regionals to realize intended cost savings.

By massing the business of several regionals into

one large entity, specialization opens up the possibility

for each of the new companies to catapult into a position of industry leadership. From regionals’ perspective, this is a good strategy. It diminishes the relevance

of a price game and the dominant position serves to

compel member-locals’ attention. But it is not a strategy locals are used to. Despite the fact that the CapperVolstead Act looks favorably on large cooperatives,

members sometimes find them hard to accept, asking,

"Is that what a cooperative should be?" This reveals a

cultural preference for cooperatives that are "big--but

not too big."

Culture aside, such a move conceivably positions

regionals to take competition to the next level, from a

focus on day-to-day commodity prices to a system orientation. The trace-back and identity-preserved methods of food production and safety embodied in a systems approach have become a way for food processors

to differentiate themselves in the marketplace.

Farmland’s speedy application of USDA- approved

process-verified pork production demonstrated that

regional cooperatives are aware of what they need to

do.

Paper-thin margins industry-wide coupled with a

cultural bias toward competition-as-a-way-of-life may

prevent many locals from stepping back and assessing

how--and whether--they will position themselves for

this further evolution of the food system. Study of

locals’ response to identity-preserved grains indicates

that most maximize the prices received for their producer-members’ grain by maximizing the number of

bids. Different paths to the same end (livestock feeding, processed products) were hard for all but the most

adventurous and innovative to see. Therefore, for specialization or industry prominence to be accepted by

locals, regionals must generate the patronage refunds

that are the singular perquisite of a dominant supplier

that is also a cooperative. Patronage refunds are the

link between the old and new ways of doing things,

the one thing that can reassure locals that a system

they may have trouble endorsing will in fact perform

like--or even better than--the old.

6

13 In describing Harvest States, Egerstrom observes, “But the bulk of

the cooperative’s profits come from the processing businesses, not

the grain trading for which the co-op is widely known” (p. 134).

Egerstrom also cites Dr. Robert Cropp regarding a similar focus

by Land O’Lakes, “There is still room for growth in all of Land

O’Lakes business sectors, but the surest way to is to reach out

territorily and to raise up the foods...We know there are going to

be fewer and fewer animals in Wisconsin and Minnesota, this

can’t be the only place where the company does business”: (p.

141). Regarding Farmland’s business mix, Egerstrom says, “food

sales {are expected to be} emerging on top by 1995” (p. 137).
To do this, regionals will have to consistently

make money. Regionals put this goal as, "Make money

every day. Run a commercial business." Twenty years

ago, the pre-eminence of the service model would

have made such statements sound heretical, if not

impossible. Making money, achieving profitability, is

the antithesis of the service model of cooperatives.

Regionals that formerly sought to induce member

business and loyalty through special programs or promotions (as the rewards of channel leadership) may

have a better chance at overriding any tendency to

stray from the federated relationship by commanding

respect through patronage refunds and focused

growth.

Competitive Yardstick

Some observers have interpreted specialization as

a way of getting locals accustomed to one bid, to constrain their tendency to play one regional against

another. This may be difficult behavior to modify

because cooperative culture has looked favorably upon

multiple bids and even used them to justify cooperatives.

Specifically, when multiple suppliers and differing production costs exist, cooperative culture ascribes

the role of "competitive yardstick" to regional cooperatives: providing an additional bid in the marketplace

to minimize the possibility of collusive or monopolistic

behavior among suppliers. Note that the competitive

yardstick argument does not require the regional to

have the winning bid, but rather keep everyone honest

by adding market competition.

The expectation that regionals will supply product essentially at cost (a dimension of the service

model) apparently has led locals to expect that regionals will be, as one observer said, "always and at all

times the lowest bid." If regionals turn out to be simply

an additional bid because someone else was cheaper,

interviewed locals have concluded that their regionals

have been ineffective. Ironically, Nourse, the philosophical founding father of Midwestern cooperation,

justified the formation of locally owned cooperatives

based on this idea of providing an extra bid,14 but the

role is apparently of little practical value when locals

assess the performance of their regionals. Many locals

themselves may owe their existence to producers’

interest in maximizing the terms of trade on any particular day, without getting bogged down in investment requirements or equity valuation. As a group,

locals seem to view regionals through the same lens.

In contrast, interviewed regionals see their role as

providing "reasonable" or "fair" prices, measured by an

annualized rolling average, for example. They emphasize that they are "competitive in value," implying that

the total package of auxiliary services and technical

support combine with the product price to provide a

satisfactory transaction for most locals, most of the

time. Expertise continues to be a critical part of channel leadership, such as Land O’Lakes’ continuing leadership and innovation in animal nutrition.

Many locals, fully satisfied with their regionals,

would agree with these performance criteria.

Nevertheless, the competitive yardstick is not enough

to ensure regionals’ future. They must make money

consistently.

How regionals achieve such profitability is

another issue. Although locals want their regionals to

position themselves as low-cost suppliers (the regional

would almost always be the lowest bid), regionals

resist for a variety of reasons:

● A low-cost supplier position is eroded when

the lowest price is adopted as the industry

standard. When industry demand is fixed or

overcapacity exists, such competition can

become destructive. No one gains.

● Regionals want to convey a consistent vision to

their farmer and end-use customers regarding

product standardization and performance. The

stand-alone price preferred by some member

locals could lead to a mix-and-match approach

(combining products of several vendors) that

would dilute this message.

● A low-cost supplier position is always vulnerable to being eroded by import competition (i.e.,

fertilizer) or scale economies from the latest

version of manufacturing technology.

Cooperatives lack the financial resources to be

at the forefront of every technological advance.

Regionals prefer to emphasize quality over

price because they believe that, long term, this

will give them the ability to "pick and choose"

their customer.

● Regionals have obligations of ownership,

investment, and use that result in a certain

rigidity in the federated system. Just because

7

14 Prof. Michael Cook from the University of Missouri, emphasizes

the cultural imperative of the competitive yardstick role among

local (and, by extension, regional) cooperatives: “Founded to

provide a missing service or to avoid monopoly power or to

reduce risk or achieve economies of scale, [local cooperatives}

epitomize the Nourse philosophy of cooperation--that of a

‘competitive yardstick’ with the objective to keep investororiented firms competitive.” See Egerstrom, 146.
an Oklahoma location would have a lower cost of production does not mean that a North Dakota cooperative can simply pull up stakes and move there.

● Getting multiple bids ("the price game") may

be an economically rational activity for individual locals. From a systems perspective, however, their preference for shopping around means

the federated system faces higher transaction

costs than one conducive to forecasts of customer (local) demand and inventory levels.

Because regionals must market themselves to

member locals, resources are diverted from

improving member-local service to ensuring a

certain level of industry competition.

Detachment among Locals

Given their position as food companies with processing plants to run and contracts to fulfill, regionals

can’t depend on having the best bid on any given day.

For locals that favor absolutes, all that matters is that

the regional be the lowest bid today. That detachment

has led some locals to operate in what several managers described as an "arms length" relationship with

regionals. Detachment maintains the historically designated separation of roles in the federated system, but

may be an anachronism in terms of agriculture’s

increasing emphasis on systems built from interdependent stages.15

Detachment may also create a free-rider problem

within the federated system. Members may invest--and

bid--only the minimum necessary to sustain the regional as an additional bid. This behavior is at odds with the

interest expressed by other industry segments in partnering or supply chain management.16 When the bid is

the singular measure of performance, all other aspects

of locals’ generally multifaceted investment in the

regionals are vulnerable to being considered an "unproductive investment."17

As a strategy, detachment is useful in keeping

suppliers off balance. No one can depend on getting an

order at any given time. Short-term contracts are the

norm, with negotiations continually re-opened on the

basis of new market information.18 Moreover, buyers

may be secretive about their needs, fearing market

share disclosures may result in pricing according to

"what the market can bear." This attitude was not

unknown among interviewed locals.

Detachment also presupposes suppliers are interchangeable. There is no difference in their ability to

provide product enhancements, training, or other

attributes important to locals.19

This strategy may have been reasonable when the

marketing environment was composed of multiple,

competing regionals. Now that interdependence, longterm contracts, or a systematic approach to addressing

the needs of producers (or end-use customers) is needed, it is less adaptive.

Regional as Self-Sustaining Entity

Federated locals have the right but not the obligation to do business with their regional. They are free to

sift among bids. Local managers interviewed for this

study who operated closer to a dealership mode,20 that

is, routinely accepting some products or policies from

their regional, did not manifest the dissatisfaction of

other managers.

This is an important point. Even though conflict

is an intrinsic part of any marketing channel (not as an

end in itself but as a means to some economic objective),21 more regionals may find themselves favoring

policies that make the local an extension of the regional and so minimize conflict. That policy virtually guarantees that there will be a market for the supplies sold

by the regional as well as product from locals to fill

processing and export contracts.

Industry competition in developing and sustaining branded processed foods (including slotting fees

and advertising) reduces regionals’ ability to control

their own destiny. Industry observers comment that

the profitability of particular brands depends on the

product choices of the very small number of major grocers. Casting locals in the role of internal suppliers

reduces one element of uncertainty. With this "captive

market," there is less risk that a regional’s facilities will

be underused. Essentially, this is a way for regionals to

protect their investment in manufactured foods, in

particular.

8

15 Fulton, Murray, “Traditional versus New Generation

Cooperatives,” in A Cooperative Approach to Local Economic

Development, Christopher D. Merritt and Norman Walker, eds.

Westport, Connecticut: Quorum Books, 2001.

16 Coles, Gary J. and James D. Culley, Not All Prospects Are Created

Equal, Business Marketing, May 1986.

17 This term was used by managers of five superlocals.

18 Day, George S., Market Driven Strategy. New York: The Free

Press, 1990, 228.

19 Ibid.

20 These were managers of locals affiliated with Growmark or CHS.

21 Stern, Louis W. and Torger Reve, Distribution Channels as

Political Economies: A Framework for Comparative Analysis,

Journal of Marketing (44), Summer 1980, 53.
Regionals are then taking actions to preserve

their own self-interest. This is completely at odds with

the notion (from the service model) that the regional’s

role is not to sustain itself, but the locals who own it.

Most core Midwestern locals interviewed for this

study, particularly superlocals, resisted any concept of

themselves as a captive market. Their individual

strengths allow them to scrutinize the federated system more closely than smaller locals more dependent

on regionals. Superlocals see that the federated system

as a whole has developed an infrastructure reflecting

the needs and priorities of multiple regionals (some no

longer in existence) and, of course, multiple locals.

This infrastructure may not necessarily be well positioned or sufficiently streamlined to meet some superlocal needs. So, they may build their own.

Such asset duplication, while not ideal from the

standpoint of the system as a whole, is probably

inevitable. It reflects the fact that the federated system

is more parochial than centrally planned or administered. Federation’s greatest strength, responsiveness to

individual rural communities, is also a weakness, insofar as it creates a system somewhat improvised and

piecemeal. This issue is not particular to the federated

system. IOFs also struggle with top-down/bottom-up

issues as they switch back and forth from centralized

businesses to individual business unit (profit) centers.

Some Predictions

Internal supply networks will probably become a

more pronounced feature of the cooperative landscape

as a way to "force" a coordinated system. In the core of

the Midwest, such networks have always implicitly

existed because regionals had the power of channel

leadership to decide, for instance, which of two locals

would merit a new feed mill. Now these networks will

become explicit as the federated system becomes more

centralized, approaching (at the extreme) the manner

defined by Cobia:

Centralized cooperatives have no autonomous

local association members. Instead, they have

branches, retail outlets and, in a few cases, franchise dealers. Operational control and authority

are centralized in the headquarters of the cooper

ative. Individuals are direct members. . .

Operation of local units is vested in a manager

hired by the management of the centralized cooperative.22

Cobia observes that the local units of centralized

cooperatives are more easily standardized in product

and services, leading to a lower cost system. A lowcost system is just what is needed for commodities that

have reached the stage of product maturity.

Cobia also identifies three disadvantages of a federated system--less control and coordination over

product flow between regionals and locals; locals’ freedom to bypass regionals; and divergent goals at each

level. It is clear that these have emerged as destabilizing factors in the federated system. Although centralized regionals face the risk of operating at both the

regional and the local level, they may offer locals more

of a stake in the strategic goals pursued by regionals,

and so, in important ways, may correspond to the

needs of the emerging marketplace better than a purely federated system.23

Need for Focus

GROWMARK, a federated cooperative serving

Illinois, Iowa, Wisconsin and Ontario, has often been

regarded as centralized because key distribution decisions are made by the regional. In important ways, it

may be a prototype of the internal supply networks

being spawned to the North and West. Focusing on a

relatively narrow segment of agriculture, corn and

soybeans, has given GROWMARK a unity of purpose

not evident in the experience of other, more diversified

regionals.

The potential to offset losses in one commodity

with gains in another has been regarded as a powerful

economic argument supporting diversified, multipurpose organizations. Nevertheless, cross subsidization

does not necessarily appeal to cooperative members

(local or producer). Those representing different commodity or processed foods constituencies have frequently challenged regionals to be industry leaders in

each of their various enterprises--dairy, hog production, fertilizer, red meats, grains, poultry, etc. The

greater the diversity, the greater the pressure.

Setting priority goals and perhaps settling for

"second-best" in some areas does not seem to be an

option for most of the federated system, due to politics

and scale economies. Consequently, the cooperative

record in commodities and foods is somewhat checkered--intense involvement in some areas followed by

withdrawal, followed by a tentative re-entry. This may

9

22 Cobia, David (ed), Coooperatives in Agriculture: New Jersey,

Prentice Hall, 1989, 45.

23 Although greater centralization could offset some of the

shortcomings of a federated system, it will generate a new set of

issues and concerns for the cooperative sector. Identification of or

speculation about what these might be is beyond the scope of this

report.
be considered both an economic and organizational

shortcoming indicating that the federated system does

not respond well to complexity.

The less-diluted focus of the GROWMARK system may be aided by its relationship with ArcherDaniels Midland (ADM), which encapsulates the foods

business and allows GROWMARK (as a regional) to

focus on the more commodity-oriented concerns of

member locals. This minimizes conflict between the

two levels. GROWMARK also takes a bottom-up

approach, allowing centralized decision-making to

occur in a setting where the regional regards itself as

"nothing more than what its locals are (or aspire to)."

This philosophy moves GROWMARK closer to a definition of the federated ideal:

Distributor and manufacturer working partnerships [are defined as] the extent to which there is

mutual recognition and understanding that the

success of each firm depends in part on the other

firm, with each firm consequently taking actions

so as to provide a coordinated effort focused on

jointly satisfying the requirements of the customer marketplace.24

GROWMARK defines its purpose as serving

member locals, and through them, the farmer. This is

also the view of other regionals who have a large supply or agronomy business. The more specific or specialized a cooperative is, the easier it may be to identify and respond to the expectations of the member

owner.

Customer choice is not a clear-cut decision for

cooperatives. Diversified food-based regionals believe

that the federated system’s goal is to produce more of

what the market (consumers or farmers) wants, when

it wants. Although locals want to be seen as the driver

of the federated relationship because they own regionals, the real driver is the customer. Interviewed regionals observed that customer decisions do not take into

account whether a local was part of the marketing

channel. Standardization, quality, timing of delivery,

etc., matter far more than cooperative organization.

Consequently, regionals were not always sure

how locals fit into the marketing channel, as shown by

issues raised during interviews:

● Should we always go through a local?

● Does it stand in the way of the customer to do

business with locals?

● How much of our energies and resources must be

devoted to getting locals included in the solutions

we have devised for our end-use consumers?

● Who will be key in the relationship with the

farmer, the local or regional?

● At the end of the day, who is the customer of

the regional--the farmer, local cooperative, or

end-use consumer?

Most food-based Midwestern regionals define

their customer as farmers or end-users, not locals.25

They are also more directly and visibly involved in the

food business than GROWMARK. Could they be as

successful in foods if they defined locals as their customers? Most would probably say no. However, this

issue remains an important conceptual and empirical

challenge for the federated system because cooperative

culture demands that certain stake-holders, like small

farmers and locals, be included in the organizational

framework, irrespective of their economic contribution.

New Rules for Competition

A centralized system or internal supply network

can be viewed as a network of firms (or cooperatives).

Market analysts have observed that global competition

is increasingly occurring between networks of firms,

such that "to be an effective competitor (in the global

economy) requires one to be a trusted cooperator (in

some network)."26 Yet cooperatives’ culturally based

need for an adversary has prevented them from gaining maximum benefit from existing federations.

Bringing together an assortment of producers or

locals may require a mechanism to dampen perceptions of individual differences so collective action can

take place. Identifying an adversary--another regional

cooperative, a mega-IOF or some other entity--may

help define what a cooperative is by defining what it is

not.

Prior to specialization, interviewed regionals

viewed their competition almost exclusively as "other

regionals." Interviews suggest that carryover from this

"us against them" approach has made it harder for

10

25 Regionals were asked, “Who is your customer?”

26 Morgan, Robert M. and Shelby D. Hunt, The Commitment-Trust

Theory of Relationship Marketing, Journal of Marketing (58) July

1994, 20.

24 Anderson, James C., and James A. Narus, A Model of Distributor

Firm and Manufacturer Firm Working Partnerships, Journal of

Marketing (54), January 1990, 42.
cooperatives formed from mergers to transcend their

previous cultures and commit to a new one. Lingering

attitudes toward former IOF competitors may also

forestall the interdependence necessary to surmount

limited resources by learning to survive in a concentrated marketplace.

In an environment defined by a limited number

of buyers and sellers, a firm--especially a mega-IOF--

may be a competitor in one context and a partner in

another. In their resource provider function, regionals

have had sufficient exposure to IOFs on a day-to-day

basis so that they can comfortably accept partnerships

or joint ventures as a logical outgrowth of this process.

Locals may have more difficulty with a complex

"friend" and "foe" view. This could be an outgrowth of

locals’ cultural bias (evidenced in the price game)

toward a "win-lose" mentality.

A particular example of market complexity arises

when a regional’s response to some market contingency (such as an acute, short-term need for facilities

or resources to maintain production flow) leaves locals

out of the loop. To locals that have invested heavily in

the federated system, this is not what the cooperative

system is about.

In turning to the nearest IOF (not the nearest

local), regionals reveal that they are motivated less by

governance issues, i.e., how market arrangements are

governed, than by the dictates of competitive advantage, such as a speedy outcome or resolution. This

means regionals will probably take other actions that,

in a particular context, could appear to go against the

grain of cooperative practices and norms. Regionals

perceive that their strategies are determined by market

forces first, locals second.

Since the federated system is critically dependent

on the performance of the small number of regionals,27

yet control rests with an essentially fragmented and

diverse group of locals, regionals will probably try to

push the limits of culturally accepted behavior. If likely conflicts with governance result, regionals will

probably buffer themselves by increased reliance on

internal supply networks.

Whether member complaints about how equity is

being used will redirect the federated system is

unclear. The lines of control and accountability are not

necessarily firmly drawn in the federated system.

Specialized ventures like Agriliance represent an effort

by regionals to impose greater transparency on the

federated system, but overlap and fuzzy boundaries

will probably persist due to the complexity of cooperatives as an organizational form.

Cultural Influences

Federated cooperatives are responsible to many

stakeholders and influences. These include:

● Industry cultures as a context for cooperation--

cooperation has a different meaning for dairy

producers than for those specialized in grain or

pork.

● Rural communities--cooperatives are often a

mainstay of their communities. Closing a feed

mill or elevator can cost a community jobs and

income.

● Predecessor farm organizations--Farm Bureau,

for example, differs from Farmers Union in

governance preferences, scope of activity, and

attitude toward cooperation.

● Geographic preferences--the South uses farm

stores; the Midwest, local cooperatives;

California does neither.

● American values--individualism and a "can do"

pioneer spirit, traits usually associated with

livestock producers, are generally considered

incompatible with cooperation, although there

are important exceptions.

● Particular stakeholders--notably, small or "family farm" operators.

● New Generation Cooperatives--these offer a

competing model of ownership and investment

structures.

● IOFs, particularly mega-IOFs--these are far

more driven by profit than service concerns.

Yet, cooperatives seeking to close outdated,

out-of-position assets may turn to this model.

● European or other international models of

cooperation.

These examples represent some of the particular

contexts or situations in which cooperation can occur.

Each culture will place a different value on cooperation and expect different things from cooperatives.

Nevertheless, there are certain universal principles

that will always define cooperatives or cooperation

irrespective of context. These are:28

11

28 Dunn, John R., Basic Cooperative Principles and Their

Relationships to Selected Practices, Journal of Agricultural

Cooperation (3), 1988, 85.

27 Positioning Farmer Cooperatives for the Future, A Report to the

Senate Agricultural Appropriations Subcommittee. USDA:

Agricultural Cooperative Service, 1987, 31.
● User ownership—A cooperative is owned by

its members;

● User control—A cooperative is controlled by its

members;

● User benefits—The benefits of the cooperative

accrue to its members.

Cooperatives are collective organizations and so

encompass more than one point of view or objective.

But cultural influences can conflict, pushing and

pulling a cooperative in different directions. Managing

these interdependencies and agendas is the key task

for the cooperative sector in the next decade, replacing

the 1990s focus on managing scale economies.

Interviewed regionals saw this as a primary way they

could uniquely add value to the federated system.

Cooperatives are known as comparatively selfcontained, even insular organizations. Maintaining the

integrity of the universal principles will become an

even more important task in the future as cooperatives

necessarily engage other organizations in their quest to

serve farmers.

Discussion and Conclusions

Regional cooperatives have typically been

regarded as leaders of cooperatively organized and

owned marketing channels. They have relied on the

customary power bases of channel leaders to induce

member local cooperatives to follow their lead. These

include rewards, coercion, legitimacy, referent power,

and expertise. These measures have been used in a

cooperative culture that emphasizes the primacy of

services over profits. This cultural model implies a

regional will provide, essentially at cost, most if not all

of the services and products locals require. In turn,

locals will commit to the regional the raw material it

requires to either acquire or manufacture supplies and,

also, process foods. The support and patronage of

member local cooperatives constitutes conceivably, a

necessary and sufficient condition for the survival of a

regional cooperative.

In reality, this model can break down in several

ways. For example, locals may have other suppliers;

regionals may have a higher cost of production than

alternatives; multiple regional affiliations exist; locals

may need that product regionals don’t make or can’t

access; locals may meet their own needs internally;

regionals may need more product than locals can provide; and the regional may acquire an identity and

existence of its own, independent of locals.

The federated system particularly struggles with

regionals’ cost of production relative to that of other

suppliers. Cooperative norms stress the importance of

the "competitive yardstick," where the value of a cooperative lies primarily in its ability to provide an additional bid to enhance market competition for commodities. Local cooperatives have frequently

translated this expectation into an implicit demand

that the regional be the lowest bid. If it is not, locals

may perceive that their regional has not necessarily

"added value" to the marketing channel.

Moreover, the patronage-generating processed

foods operations of regionals do not "add value" to the

federated system on a day-to-day basis in ways that

would contribute to a more unified, cohesive system.

An alternative mechanism is needed to give the commodity-oriented locals more reason to identify with

the often food-oriented regionals. Otherwise, the

divergence between the two levels of the federated

system could increase to a point where the system is

irrevocably fractured.

Locals and regionals necessarily pursue different

goals. Among cooperative supporters, the promise of

"farm gate to plate" has been an enticing vision. But

this cultural mandate has required the federated system to twist and stretch itself to encompass two distinct systems, food and unprocessed commodities.

They often conflict over issues of resources, infrastructure, and customer definition. It is not easy, and maybe

not even possible, for the federated system to integrate

inputs (farm supplies) with outputs (processed products). To date, the best the federated system has been

able to do is to compartmentalize commodity and food

operations. The recently formed, specialized ventures

like Agriliance, Country Energy, and the Land

O’Lakes/Farmland feed joint venture as well as the

compartmentalized relationship between the grain

operations of GROWMARK and the foods business of

ADM are examples of this process.

For their part, regionals with a strong presence in

processed foods do not always know how their locals

fit into the marketing channel. They perceive that their

strategies are driven by market forces first, locals second.

Locals derive meaning and existence from the

constant comparative price-shopping imposed on

them by the nature of the commodities they handle.

Locals want regionals to fit into the demands of this

system by being low-cost suppliers. Yet, the way

regionals approach marketing and certain rigidities of

the cooperative system may preclude this, to some

degree. The multiproduct and multiservice aspect of

regionals can prevent them from attaining the special12
ization that usually supports a low-cost supplier position. This may mean that some locals may at times

operate outside the federated system.

Patronage refunds--the singular prerogative of a

cooperative supplier--may bring these locals back. To

accomplish this, regionals will have to consistently

make money, every day. Running a commercial business and achieving consistent profitability is a tall

order for a cooperative sector nurtured on the concept

of service as an end-goal. But regionals that formerly

sought to induce member business and loyalty

through special programs or promotions (as the

rewards of channel leadership) may have a better

chance at overriding any tendency to stray from the

federated relationship by commanding respect

through patronage refunds and focused growth.

In other areas, greater commitment to the federated system may occur as individual regionals and

selected member-locals decide to collaborate on specific objectives. These locals would form an "internal supply network" for their regionals, using an organizational model more centralized than federated.

The dual focus of the federated system is

revealed in the structural tendencies of the system.

Locals generally gravitate to a strategy of horizontal

integration and regionals, vertical integration.

Conflicts over the goals, commitment, and performance of the federated system as a whole are the result

of perceptual differences at each level of cooperation.

Often, regionals and locals each pay attention to and

value different things. Continuous and severe industry

competition reinforces this tunnel vision and distracts

the federated system (as a whole) from developing a

broad-based unifying vision, a concept of what could

be. The promise of "farm gate to plate" will never be

exploited to its full potential across the federated system until regionals and locals see themselves more as

partners than as adversaries or competitors. Until

then, implementation of this vision will be spotty and

localized, restricted to areas where internal supply networks are in place.

The environment is ripe for new organizational

forms and terms. The regional-local distinction may be

outdated and may perpetuate paternalistic notions of

channel leadership that have lost meaning in a world

of locals, superlocals, and regionals. South Dakota

Wheat Growers, the world’s largest local cooperative,

covers more territory than some "regionals." Is it really

appropriate to call it a local, and bring to mind all the

territorial and service limitations associated with this

concept?

The challenge for the federated system is to

evolve to a system of partnerships, of networks, to

minimize or eliminate the top-down frame of reference

embodied in the notion of regional cooperatives as

channel leaders. This may be occurring in a small way

with the development of internal supply networks,

where groups of locals more closely associate themselves with a regional cooperative in exchange for certain benefits. It is possible prominent superlocals will

develop their own internal supply networds and so the

federated system will evolve to a level of greater complexity.

13
U.S. Department of Agriculture

Rural Business–Cooperative Service

Stop 3250

Washington, D.C. 20250-3250

Rural Business–Cooperative Service (RBS) 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 cooperative segment of RBS (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. RBS also publishes research and

educational materials and issues Rural Cooperatives magazine.

The U.S. Department of Agriculture (USDA) prohibits

discrimination in all its programs and activities on the basis of

race, color, national origin, gender, religion, age, disability,

political beliefs, sexual orientation, and marital or family

status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for

communication of program information (braille, large print,

audiotape, etc.) should contact USDA’s TARGET Center at

(202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director,

Office of Civil Rights, Room 326-W, Whitten Building, 14th and

Independence Avenue, SW, Washington, D.C. 20250-9410 or

call (202) 720-5964 (voice or TDD). USDA is an equal

opportunity provider and employer.