Rural

COOPERA COOPERATIVES

USDA / Rural Development USDA / Rural Development March/April 2004 March/April 2004

Got milk, will travel Got milk, will travel

Cass-Clay Creamery ships 

value-added cargo from Fargo
2 March/April 2004 / Rural Cooperatives

Sometimes dairy farmers can get

away with skipping a minor chore –

like maybe doing some maintenance

in the milk barn or changing their

tractor’s oil on schedule. But one

thing the industry can’t afford to skip

is recruiting the next generation of

dairy farmers.

If the sons and daughters of today’s

dairy farmers decide they would

rather work in a bank or a computer

shop than on the farm, it won’t matter how much we improve herd

genetics and feeding strategies, or

how many innovative new dairy products co-ops develop. The industry

will move somewhere else. As you

can read on page 7 of this issue, it’s

not that farm kids today are afraid of

hard work; it’s more the unrelenting

time demands of dairy farming — and

the uncertainty of being able to earn

a decent living from the farm.

Just how incredibly time-demanding dairy life can be was hammered

home for me in Central California in

the mid-1980s. I had gone to Los

Banos in western Merced County to

interview a dairy farmer who was to

be honored for a lifetime of volunteer

work with the FFA. The man, then in

his 70s, was born and raised on the

family farm. After the interview, as I

snapped a few photos, I observed that

it must be nice living only about 70

minutes from Monterey, one of the

most beautiful places on earth. “You

know, Dan,” he said matter of factly,

“I’ve never been there.” Seems there

just was never time in 70 years.

When I recently related this conversation to North Dakota dairy

farmer Alan Qual, he didn’t bat an

eyelash. “I don’t doubt it at all,” Qual

said, recalling how growing up on a

family dairy, all of his activities

revolved around the unrelenting

demands of milking. 

But unlike many, Qual and his

brothers have children who are intent

are carrying on the family dairying

tradition. Part of the secret: making

sure everyone gets every other weekend off. It makes a huge difference, he

says. So while dairy life will never be a

40-hour-per week job, there are ways

to provide for a good quality of life. 

In the next issue of Rural

Cooperatives, we will continue to focus

on this crucial subject when we take a

look at a new co-op in Vermont that

was created, with the help of USDA,

to supply temporary laborers for dairy

farmers when they fall ill or want to

take some time off. While this is a specialized labor co-op, existing co-ops

can, and sometimes do, serve as

sources of information on how to deal

with labor issues.

One more strategy for dairy parents who want to encourage their

children to take over the farm: make

sure they periodically read the Dilbert

comic strip before giving up the

country for life in an office cubicle! 

Farewell, Mr. Duffey

Speaking of hard acts to follow,

Patrick Duffey recently ended his 47-

year career as a journalist and farm

editor, including 35 years spent writing about cooperatives and 23 years

at USDA. Cooperatives today are

better informed and stronger thanks

to Pat’s efforts.

He began his career at a Waupaca,

Wis., weekly newspaper, then moved

on to the job of farm editor at the

Appleton Post-Crescent, a Wisconsin

daily. There he wrote about federal

milk market orders, dairy cooperatives and all the other agricultural

activities of the region. After five

years, he went to work as publicity

director for GROWMARK in

Bloomington, Ill., where he was soon

immersed in the operations of a

major Midwest farm supply co-op.

He had his hands full becoming

familiar with all the FS facilities, new

faces and geography, annual meetings, director training and businessupdate conferences and quickie

lessons in the nuts and bolts of agriculture. 

He must have been enjoying himself, because 12 years whizzed by

pretty fast.

In the fall of 1980, he moved to

USDA and began editing this magazine, then called “Farmer

Cooperatives.” He spent 12 years as

its editor, and another 11 years as the

chief technical editor of all USDA coop information and research reports.

Untold thousands of people across the

United States and internationally have

a better understanding of what can be

achieved through cooperatives as a

result of Pat’s efforts. For that, we all

owe him our thanks.

As I finish this commentary, a box

of recent USDA co-op reports and

magazines has been delivered to my

office, which Pat has asked that I

drop off at his house on my way

home tonight. He is going to distribute them at the annual meeting of the

Virginia Council of Cooperatives –

proving that “retirement” is a relative

term for those who believe in co-ops

as strongly as Pat. 

By Dan Campbell

Editor

COMMENTARY

Hard acts to follow
Rural Cooperatives / March/April 2004 3

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Ann Veneman, Secretary of Agriculture

Gilbert Gonzalez, Acting Under Secretary,

USDA Rural Development

John Rosso, Administrator, Rural BusinessCooperative Service

Pandor Hadjy, Acting Deputy Administrator,

USDA Rural Business-Cooperative Service

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

Have a cooperative-related question?

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United States Department of Agriculture

Rural COOPERA COOPERATIVES

March/April 2004 Volume 71 Number 2

On the Cover:

Fargo-based Cass-Clay Creamery is seeking to expand its marketing area for

its fluid milk, ice creams and a variety of processed dairy products. The coop’s operations include a fleet of 40 trucks. Photo courtesy Cass-Clay Creamery

FEATURES

4 Making good things

Cass-Clay Creamery expanding product line 

and marketing horizons

By Dan Campbell

10 Making hay, the right way

Oregon producers organize to market certified 

weed-free, premium hay

By Dan Schofer, Dan Sherwin, Penelope Deibel

14 Dairy co-ops continue dominant role 

in marketing nation’s milk

By Charles Ling

16 Greener pastures for bio-tech co-ops?

New, bio-based products may only be scratching the surface 

of potential 

By Steve Thompson

20 Missouri-based co-op brewery unveils 

Pony Express line of beer

21 Exploring a greater role for ag co-ops 

in sustaining rural living

By Thomas W. Gray 

24 Net income, sales decline for local farm co-ops

By Beverly L. Rotan

26 Weighing in

Study gauges impact of local ag co-ops on rural economies

of Great Plains, eastern Cornbelt

By Kevin McNamara, Joan Fulton, Susan Hine

DEPARTMENTS

2 COMMENTARY

9 VALUE ADDED CORNER

29 NEWSLINE

35 NEW USDA CO-OP PUBLICATIONS 

p. 4

p. 10

p. 14

p. 16
4 March/April 2004 / Rural Cooperatives

Making good things

Cass-Clay Creamery expands product line;

Marketing horizon moves eastward

By Dan Campbell, editor 

rowing up on a North

Dakota grain and dairy

farm, Keith Pagel was

not a big fan of farmer

cooperatives. He recalls

the many times he would pull into his

local co-op elevator to have his grain

milled into feed, where – more often

than not – none of the co-op staff

seemed to care how long he had to

wait for service, or even if he did business there or not. 

“It seemed like you just had to stand

there and wait and wait and wait. If you

had a lot of grinding to do at one co-op,

you usually just wound up doing it yourself,” says Pagel, admitting that patience

has never been one of his strong suites.

But lack of patience can sometimes be

an asset in the business world.

Today, as the president and general

manager of Class-Clay Creamery in

Fargo, N.D., those early experiences

have contributed to Pagel’s passion for

delivering superior service to co-op

members and customers. “When I

came on board, I struggled with it at

first — knowing this was a co-op and

remembering those early experiences I

had. So it has always been my goal to

provide excellent service to members

and customers.” For field staff, that

can mean being on call 24 hours a day

if there’s a milk-quality issue to be

resolved on a member’s dairy. 

“When something needs to be

done, we won’t tolerate people who

stand around and procrastinate, or who

always pass the job off to someone

else.” The co-op’s management philosophy can be summarized as: “Let’s get

it done.” 

Cass-Clay, which was founded in

1934, stands today as a prime example

of a traditional co-op that has re-generated itself through a combination of

excellent management, strong member-service orientation and aggressive

product-development and marketing

programs. A big part of its success is

due to the involvement of a young,

savvy board of directors that has a

strong working relationship with management. Cass-Clay’s sales in recent

years have totaled just under $100 million, and patronage payments have

been as high as 40 percent of record

income in 2002.

Carving niche markets with 

“vanity” ice creams, dips 

Cass-Clay is one of only a few coops in the nation that has been successful as a fluid milk bottler and distributer. Class I sales account for about

45 percent of its total volume and have

actually been increasing at a time when

most Class I distributors have seen

declines. The co-op markets a variety

of milks, including chocolate and highcalcium skim milk. In 2002, Cass-Clay

introduced easy-grip, three-quart plastic bottles into its beverage product

line, which have proven quite popular.

“They are easier for kids to grip and

pour milk on their cereal; older people

find them easier to use, too,” Pagel

says. And because they turn over

quicker than gallons, people enjoy a

fresher milk product. 

Despite its success in fluid milk, the

co-op has been very active in expanding its line of other dairy products.

G
Rural Cooperatives / March/April 2004 5

These include cottage cheeses, chip

dips, yogurt, butter and sour cream.

Cass-Clay markets about two-thirds of

its output under the Cass-Clay brand,

but it also makes dairy products for the

private label market. 

There’s been a major push in recent

years to expand the market for the coop’s premium ice creams. Two years ago,

it was named the official dairy of the

Minnesota Vikings, and it now markets

four ice cream flavors with the Viking

logo, including Viking Touchdown

Toffee and First Down Fudge. 

Cass-Clay also packages a number

of other ice creams and chip dips that

are aimed at alumni and backers of the

region’s universities. Hence, rolling out

of the Cass-Clay plant in Fargo you

will find products such as North

Dakota State University Bison Crunch

or University of Dickinson Buster Blue

Hawk ice creams. There’s also North

Dakota University Fighting Sioux

Champion Chip ice cream and

University of Minnesota Golden

Gopher ice cream, among others.

Alan Qual, who served three years as

board chairman and farms near Lisbon,

N.D., says the niche marketing of premium ice cream and dips has proven to

be a successful strategy. “We’re focusing on creating new products in areas

where we have experience, such as the

production of premium ice creams,”

says Qual, who – along with the families of his two brothers — operates a

525-cow dairy and farms about 5,000

acres of grain crops.

Diversification pays dividends 

Having a diversified product line is a

major key to success for the co-op,

Pagel says. “When the Class III market

skyrocketed (late last summer), cheese

prices went from $1.15 to $1.60, he

says. “We have the ability to then focus

more on those products. Diversification
6 March/April 2004 / Rural Cooperatives

means we can move products into the

highest value markets.”

“Many of the large-scale processors

are focused on making large volumes

of specific products, but we’re small

enough that we can cater to the special

needs of many niche markets,” Qual

adds. “We’ve made great ice cream for

many years, but now we’ve improved it

and expanded our flavor offerings. And

we’ve got good people working to get

these products sold in more markets.” 

Greg Hansen, vice president for

marketing, oversees a staff of 11 sales

reps stationed throughout the co-op’s

four-state trade territory. This includes

all of North and South Dakota, eastern

Montana and western and northern

Minnesota. In the last several years,

Cass-Clay has also begun to push into

the Minneapolis-St. Paul metro area. 

The ice cream business has been

growing at such a clip that, two years

ago, the co-op invested $2.5 million

for a new freeze tunnel and tripled the

size of its cooler room at Fargo.

Before the new tunnel was built, it

took 24 to 36 hours to freeze ice

cream. “Now we can do it in an hour

and produce a better quality ice

cream,” Pagel says as he watches cartons of ice cream scoot by on the manufacturing line.

Young board bullish on 

plant investments, promotion

Not too many years ago, the average age of a director on Cass-Clay’s

nine-member board of directors was

close to 60 — which is fairly typical for

the industry. But then there was a rash

of retirements, and a number of bright

young candidates stepped forward. As

a result, the average age for directors is

now about 40. 

“These are businessmen – not just

farmers who milk cows,” Pagel notes.

“It’s been a huge change. They are

very supportive, but also very demanding — they want

good answers and

solid plans.” 

“With a younger

board, there seems

to be a tendency to

want to invest more

in the plants, with

an eye toward longterm profitability,”

says David Glawe, a

nine-year board

veteran with a dairy

farm near Detroit

Lakes, Minn.

In addition to

the new ice cream

freeze tunnel and

cooler, the co-op

recently invested $2.4 million in highspeed bottling lines and material handling equipment for Fargo. Nor has the

board and management turned its back

on the co-op’s other two plants. A new

cooler and load-out dock has been

installed in Mandan, N.D., where the

co-op bottles gallons, half gallons and

institutional-size containers of milk.

New boilers have been installed in CassClay’s cheese plant in Holven, S.D.,

where it manufactures specialty cheeses

— including Romano and Parmesan —

for the food ingredients industry. 

In total, Cass Clay has invested

more than $5 million in plant improvements in just a little more than two

years. And it plans to continue to invest

about $1 million per year to keep the

plants well equipped and efficient. 

“The board reviews these types of

expenditures very carefully – after all,

we’re there to look after the members’

equity,” Qual says. 

Adds Glawe: “We want to see realistic projections of what the returns

will be on an investment before we

approve it.”

Adjusting to changing 

wholesale dairy market

Some changes at the plants are

being made in response to changes in

the wholesale food industry. In the

past, most products where shipped out

of Cass-Clay on tandem or single-axle

trucks. But increasingly, larger food

retailers dispatch huge semi trucks that

load at the co-op’s docks and deliver to

grocery stores. 

“We do a lot more dock loading

now because of the demand for large

volume shipments,” says Qual. “These

truck drivers are working under contract, and they are in a hurry to get in

and out. I don’t blame them. They

make money by being on the road, not

standing in a line waiting to load.” So

Cass-Clay is striving to speed the rate

at which they can load. 

A sampling of the Cass-Clay line of dairy products. The co-op also produces for the privatelabel market. Photo courtesy Cass-Clay Creamery

Keith Pagel, president and general manager of Cass-Clay

Creamery, says the co-op has been increasing its fluid milk sales.

Here he checks as half-gallon cartons are filled at the co-op’s

Fargo plant. Preceding pages: the co-op’s Fargo plant at sunrise. 

USDA photos by Dan Campbell
Rural Cooperatives / March/April 2004 7

Qual joined the board about five

years ago, “because I wanted to give

something back to the co-op, and I

felt that I could contribute to it. If

Cass-Clay isn’t successful, neither are

we.” He spent three years as board

chairman, then rotated off, in accordance with the bylaw that limits directors to three consecutive years in any

office, after which they must sit out at

least one year. “That way, everybody

gets experience,” he notes. 

Glawe says it is the board’s job to

“ask hard questions and closely monitor the co-op operations. We’re not

Alan Qual doesn’t have to look very far to see signs of the

way dairy farming is evolving in the Upper Midwest. He grew

up on the family farm, which his father started after World

War II near Lisbon, N.D. To save money on hauling their milk,

the Quals were one of 28 dairy farms in the Lisbon area that

formed their own milk hauling co-op to deliver to Cass-Clay in

Fargo (about 75 miles away). Today, the hauling co-op is still

going, but it’s now down to two members. 

What happened? A couple of those farmers moved their operations to other states. A

couple of others switched to another co-op,

Qual recalls. But most of the rest have either

quit farming or they switched away from

dairy to grain-only or grain and beef farming.

In the cases where the dairies closed shop

or switched away from dairy farming, it is usually because the children lacked interest in

coming back to run the dairy. They saw the

lifestyle as too demanding, Qual says. Add to

that they often saw the need to greatly expand

the size of the farm to keep it competitive in

the years ahead, and many said “no thanks” to

dairy life. 

It says volumes about just how timedemanding dairy life is when you consider

that beef cattle and grain crop production —

not exactly the best career for a slacker – are viewed as far

less demanding than dairying. Hence the decision of many

one-time dairy operators to switch to crops and beef. 

Lack of new producers entering the business is a “huge

concern,” says Keith Pagel, president and general manger of

Cass-Clay Creamery in Fargo. “When we did a survey eight

years ago, the average age of a producer was 57, and it’s

getting older,” Pagel notes. “Kids very often look at dairying

and see their parents working seven days a week, 15 hours a

day and no vacations. It’s a lot of struggle. Then they see

their friends working in downtown Fargo, 40 hours a week

and earning more. Some young people do still like dairy life,

but very often they feel they can’t get to the size needed to

financially have a good quality life.” 

But there are ways to structure a dairy so that you don’t

have to be chained to the farm. The Quals have done it by creating a farm where three brothers (Alan, Danny and Rodney)

and their families all live and work, as well as several employees. They expanded from about 200 cows in the 1970s to 525

today. But Qual says he still doesn’t consider himself or his

brothers really big dairy farmers. You have to divide that 525

by three families, he says, which comes out to about 175

cows per family. 

The Quals have structured their duties so that they get

every other weekend off – a real luxury compared to the

round-the-clock duty many dairy farmers live

with. When he was growing up on the then

much smaller dairy farm, Alan says he could

never go anywhere unless he could be back

by 4 p.m. to milk. 

“We’re large enough that we have

employees, so we can get away at times,”

Alan says. “And that is crucial to making

this life attractive enough to get kids who

want to come back and farm.” His eldest

son, John, has been back on the farm for

three years now following school, and

plans to buy into the incorporated family

business as a stockholder in just a few

months. Some of this brothers’ children

also appear quite interested in being dairy

farmers. “We haven’t pushed them to come

back – just made it available to them if their

interest was here.”

There are also some new dairy farmers moving into the

area, including some “transplanted” from Europe. 

Pagel notes that to attract more, the area has to do a better PR job of advertising the assets of the region and its quality of life. “There is a general misconception about the harshness of our climate and available leisure activity here.” Pagel

says there’s a great quality of life to be had around Fargo. 

“A lot of people feel North Dakota is in the middle of

nowhere and that there’s nothing to do here. There’s lots to do

– lots of places you can go in an hour. And our outdoors activity can’t be beat: fishing, hunting, camping, boating, cross

country skiing, snowmobiling, ice fishing – you name it. And

we’ve got good schools.” 

Interviews with some dairy farmers who moved their operations to other states indicate some wish they hadn’t left, he

says. ■

— By Dan Campbell

Cass-Clay board member Alan

Qual goes over records with

his son, John, who has decided to make the family dairy

his career. Photo by Tom Kludt,

courtesy Cass-Clay Creamery 

Attracting the Upper Midwest’s next generation of dairy farmers
In the Detroit Lakes area of Minnesota, dairy producer

Dave Glawe says securing farm labor is a major challenge

for dairy farmers. Glawe has to compete for labor with both

manufacturing and tourism. 

“A kid can go to work in a manufacturing plant for $9 per

hour plus benefits,” says Glawe, who currently runs the

farm with his brother and one employee. “We did have

another worker, but when milk prices dipped, it was hard to

justify keeping him on. So you just do more yourself.” 

“Every farmer I talk to, labor is their biggest challenge

right now,” says Lisbon, N.D., dairy farmer Alan Qual. North

Dakota is one of the most sparsely populated areas of the

nation. 

“I have two openings right now, and have advertised for

two weeks. But I only got one applicant, and he decided to

pass. We’re willing to train someone, but they will have to

relocate.” Like Glawe, Qual says he has to contend with

competition from manufacturing, most notably a plant that

builds Bobcat loaders. “If I had to pay my labor what they

pay, I might as well close the doors right now; it wouldn’t

pencil out even if we were milking 2,000 cows. Even with

an operation of our size, the margins are very thin when

milk prices dip as low as they have.” 

Milk prices have been on a roller coaster the past last

couple of years, ranging from a low of about $10 to a high of

$16 per hundredweight. The price dips have hastened the

number of producers leaving the business. 

“When prices drop to $10, you better not have any debt,

because that’s about the break-even point for most farmers

around here,” Glawe says. “This is a real serious challenge

for the nation: to find ways to make small farms more

viable. If we keep losing farmers at this rate, we’re going to

keep losing rural towns.” 

Loss of farms sends ripples throughout rural America,

he notes. To cite one of the more dramatic and obvious

examples, Glawe notes one need look no further than the

local farm implement trade. These days, when one goes to

replace a tractor or harvester, the equipment dealers are

no longer interested in taking old gear in trade. “There just

isn’t a secondary market for used equipment any more

around here — the smaller operations are no longer

around.” 

Despite such challenges and the fact that production

trends show the dairy industry is still moving ever westward, dairy farmers in the Fargo area say they can compete

with anyone. Qual notes that the corn supply is a major

advantage for the Upper Midwest. “We have abundant

corn and lower land values. They (the West Coast) have an

advantage with alfalfa, because they get more cuttings in a

season than us. They also seem to have a more ready

source of labor.”■

8 March/April 2004 / Rural Cooperatives

afraid to try new things to improve

returns for our fellow producers,

which means taking some risk.”

Glawe has been a strong advocate

for expanding the co-op’s marketing

territory and of more aggressive

advertising and promotional efforts.

The co-op now spends about $1 million annually to advertise, and has

been tailoring its ads to play up the

fact that Cass-Clay is farmer-owned. 

Marketing studies showed that

Cass-Clay didn’t have a strong identity

with consumers, most of whom did not

realize the business was farmer-owned.

So TV commercials have been filmed

on members’ farms, and print and billboard advertising also stresses the

farmer-owned nature of the business.

The co-op’s own fleet of 40 delivery

trucks has been re-designed to convey a

more attractive, quality look, Pagel says.

A city bus in Fargo has even been decorated to resemble a carton of Cass-Clay

milk. “It’s been a total face lift for the

co-op, and the public and the members

really seem to like it,” Pagel says.

Cass-Clay, which was founded in

1934, got its name from what were initially the two main counties of its production area: Cass County, N.D., and

Clay County, Minn. When Pagel

joined the co-op in 1985, at first as

quality control manager, Cass-Clay

had about 1,400 members in three

states: North and South Dakota and

Minnesota. Due to ongoing farm consolidation, the co-op now has 400

members in the same three states but

handles even more milk: about 420

million pounds annually.

Dave Glawe unloads corn last fall on his dairy and grain

farm near Detroit Lakes, Minn., where farmers are finding it

increasingly difficult to find labor. USDA photo by Dan Campbell 

continued on page 34

Finding labor can be a struggle
Rural Cooperatives / March/April 2004 9

Biodiesel project looks

promising for Iowa co-op

By Jeff Jobe, Co-op Specialist

USDA Rural Development, Iowa

ooperatives everywhere are looking for

new opportunities to

add value and expand

markets for their

members. Farmers Co-op Elevator Co.

(FCEC) at Ruthven, Iowa, is accomplishing this by processing its members’ soybeans into an array of soy oil

and meal products and biodiesel fuel.

FCEC, founded in 1902, is a fullservice cooperative providing grain

handling and marketing, agronomy

services and feed and petroleum products to 1,176 members in northwest

Iowa. Annual sales for the cooperative

have exceeded $50 million.

In 1999, the cooperative management and board of directors created a

new company called Soy Solutions to

explore and expand marketing opportunities for the 3.5 million bushels of

soybeans produced by co-op members. After exhaustively analyzing the

soy-processing industry, Soy Solutions

created Iowa Lakes Processing (ILP)

to use the Insta-Pro extruder and

expeller’s process to transform locally

grown soybeans into soybean meal

and oil. 

ILP produces a high-quality, natural

soybean meal that can be used in a

variety of products for human consumption and livestock feed. This was

a natural fit for

the co-op’s feed

division, as it

allowed FCEC 

to source a highquality protein

through its own

operations. The

same process also

yields soybean oil,

which ILP has

initially been selling on the open

market. 

Soy Solutions

looked at the opportunities available

for further processing and enhancing

the value of the soy oil. With the assistance of Cenex Harvest States, Iowa

Soybean Promotion Board, National

Biodiesel Board and Iowa State

University’s Institute for Physical

Research and Technologies, Soy

Solutions created Power Plus

Technologies to develop and operate a

soy methyl ester manufacturing plant. 

Soy methyl ester is commonly

known as biodiesel, an alternative fuel

that can be used as a blend in petroleum

diesel. Its physical and chemical properties (as it relates to operation of diesel

engines) are similar to petroleum-based

diesel fuel. More than 10 years of testing and 60 million road miles have

proven that biodiesel is comparable to

conventional diesel in performance, fuel

efficiency, power and torque. 

Fuel distributors across the United

States are beginning to offer biodiesel

in blends of 2 percent (B2), 5 percent

(B5) or 20 percent (B20) soyoil mixed

with conventional diesel fuel. Diesel

engines can run on 100 percent

biodiesel with little or no modification.

“If all Iowa farmers used a B2

biodiesel blend, they would use the oil

from 3 million bushels of soybeans,

and if all on-road trucks used B2

biodiesel, they would use the oil from

473 million bushels of soybeans,” says

Karen Andersen-Schank of the Iowa

Soybean Promotion Board. “That’s

basically Iowa’s entire crop.”

In developing these opportunities,

Farmers Cooperative Elevator

Company has made a sizable investment in this project. There was overwhelming support in Iowa for the proV ALUE-ADDED CORNER

C

Farmers Co-op Elevator Co. in Ruthven, Iowa, has created a new subsidiary to process soybeans into meal and oil. USDA Photo by Jeff Jobe 

continued on page 30
By Dan Schofer, Co-op Development Specialist, USDA Rural Development 

e-mail: Dan.schofer@usda.gov

Dan Sherwin, Weed/Vegetation Manager, Deschutes County, Oregon

Penelope Diebel, Associate Professor, Oregon State University

rower cooperatives and quasi-cooperative producer associations

have a long tradition of using group action to establish or

improve quality standards and to promote product uniformity

for their crops and livestock. These efforts have often been key

to creating new domestic and international markets. Such

endeavors often include working closely with state and federal government

agencies.

A recent example of this can be seen in northeast Oregon, where hay

growers formed the Wallowa County Hay Growers Association in 2003 to

tap into an expanding market for weed-free and premium forage products.

In addition to improving market opportunities for its members, the hay

association may also yield environmental benefits by helping to reduce the

spread of noxious weeds on public and private lands. 

Steering committee assesses opportunity 

The organizing process began in February 2002, when a steering committee of five local growers began assessing different organizational possibilities. The committee held occasional discussions during the spring calving season and summer cutting season. In October 2002, the pace was

ratcheted up, as the committee began meeting weekly to explore options in

greater depth. 

Growers wanted to

maintain control of

their own hay and to

make their own sale

decisions. Ultimately,

it was decided to

organize as a producers’ association. The

primary purpose of

the hay association is

to promote the quality

G

Making hay,

the right way

Oregon farmers organize to market 

certified weed-free, premium hay

10 March/April 2004 / Rural Cooperatives

When organizing growers for group action, "a successful outcome depends on having the right producers in the room. We have had that at every step,"says

Extension agent John Williams. From top: A producers' planning meeting in Enterprise, Ore.; hay is irrigated, cut and baled. USDA photos by Dan Schofer
Rural Cooperatives / March/April 2004 11

and availability of weed-free and premium forage products produced by

local farmers. The association provides customers — including brokers,

exporters, ranchers, horse owners and back-country enthusiasts — with a

single point of contact. 

“We work through the association to find buyers and bring them to the

growers for both weed-free and premium hay,” says Jim Petty, a local

grower and association board member. The association has developed a

website: (http://www.certifiedwallowacountyhay.com) containing product

descriptions and contact information. Those without Internet access may

contact association President Mark Butterfield at (541) 432-3735. 

Growers’ goals defined

At a recent growers’ meeting, Butterfield described the group’s three

main goals for the coming year: 

• Establish and promote Wallowa County as a premier hay-growing

region;

• Find and establish new markets, and 

• Determine market needs (bale size, quality, weed-free, transportation,

etc.).

“Customer service, in addition to quality, is important to keep a good

reputation. The growers need to back up any sales with a quality product,”

Petty says. 

There are currently 18 participating growers in the association who produce a variety of products, including alfalfa, alfalfa mixes, timothy mixes

and wheat straw. These will be available as premium-quality products,

judged by nutrient content, stage of maturity at harvest, harvest conditions,

lack of weather damage, proper storage and customer preference.

Growers have adopted the standards set by the North American Weed

Management Association (NAWMA). NAWMA is composed of weed managers in local, state and federal land agencies, including the U.S. Forest

Service, National Biological Survey and Bureau of Land Management. To

meet NAWMA standards, forage products have to be found to be free of

54 noxious and invasive weed species. 

Wallowa County has taken certification one step further. For the 2003

season, the association had a “NAWMA Plus” line of hay which is free of

the 54 weed species targeted by NAWMA, as well as of 18 other more

common weeds. Wallowa County growers feel that this will ensure customer satisfaction. More information on NAWMA and its standards can be

found at www.nawma.org. 

Field inspections ensure quality

To maintain high-quality forage, field inspections and a stringent certification process are crucial. The Wallowa County government provides a

third party inspection process through its vegetation manager (or a contractor). Cost for field inspections is $3 per acre, and requires 7–10 days’ notice. 

The inspector walks through the fields before harvest and lists all weeds

found. Weed sites are tracked using a Global Positioning System (GPS) unit.

Special areas of interest are field perimeters, drainage swells and power-line

rights of way. A report lists any weeds present and indicates whether the field

passed or failed. Fields can be reinspected, if the grower chooses. 

It is not unusual for sections of fields to be accepted as “weed-free,”

excluding swaths around the perimeter. Weed-free forage is stored separately from other hay and straw.

The county, through its Wallowa County Weed-Free Forage Inspection

Program, provides the farmer with a certificate of inspection and a separate

From top: Hay bales are loaded onto flatbed trucks or

stored under tarps, then trucked to destinations, such

as a livery stable from where trail rides begin into the

scenic mountains of northeastern Oregon. Opposite

page: a sign at the Wallowa County hay station urges

a concerted effort to help prevent the spread of noxious weeds. 
12 March/April 2004 / Rural Cooperatives

transit certificate, if needed. This documentation is important to customers

purchasing weed-free hay as well as

local and state governments monitoring hay transportation.

John Williams, agriculture extension agent in Wallowa County, maintains the inspection records and serves

as the storefront for the association.

Growers apply for field certification at

the local Oregon State Extension

office. 

“I have been amazed at the dedication, professionalism and the followthrough that the growers have displayed in the process of creating a

weed-free forage program and the

development of the association,”

Williams says. “As an extension agent,

I know that a successful outcome

depends on having the right producers

in the room. We have had that at

every step.” 

Government aids market research

Preliminary market research was

conducted by Wallowa County government, Eastern Oregon University

(EOU) and USDA’s Agricultural

Marketing Service. A questionnaire

was designed to identify the type and

numbers of animals customers owned

and their preferences when buying

hay. 

Wallowa County mailed questionnaires to a wide range of hay buyers,

including 4-H clubs, local FFA chapters, ranchers, guides, rodeo participants and backcountry horse riders.

EOU students handed out questionnaires at local feed stores. The students tabulated and analyzed the information, which was then presented to

the growers.

Discussions have been held with

hay brokers in Ellensburg, Wash., 

who market hay to many regions of

the country and to foreign markets.

One broker alone moves as much as

400,000 tons of hay per year. The 

brokers have expressed interest in

shipping the association’s hay to the

Pacific Rim. Hay shipped from

Ellensburg is compressed, shrinkwrapped and loaded into 40-foot 

shipping containers.

Wallowa Resources, a grassroots,

nonprofit corporation in Enterprise,

Ore., has also been working with the

growers. It provided funds for the

design and startup of the association’s

website.

“Hopefully, local growers will get a

better price for their weed-free hay,”

says Mark Porter, rangeland stewardship coordinator for Wallowa

Resources and chairman of the County

Weed Board. “That is important,

because economics are pretty tight

these days.”

The applicability of the Wallowa County Hay Growers

Association project goes well beyond Wallowa County. Tim

Butler, supervisor of the Oregon Department of Agriculture

(ODA) Noxious Weed Program, has been supportive of the

association and sees statewide implications for it. 

“ODA is taking a look at establishing a statewide,

weed-free hay program and hopes to build on the successes and learning experiences of Wallowa County, especially

in the areas of establishing quality standards, developing

inspection procedures and creating additional income

opportunities for Oregon family farmers. By expanding the

pilot project in Wallowa County, Oregon hopes to create a

win-win situation in the future for farmers and from a noxious weed-control perspective.”

Wallowa County is famous for its natural beauty and

wildlife. Visitors and residents depend on and enjoy the

outdoor resource values of this area. About 65-70 percent

of the land within the county is owned and managed by the

U.S. Forest Service or the Bureau of Land Management. So

the support of the staff of the Wallowa-Whitman National

Forest has been important for the project’s success. 

“We want to help our visitors to enjoy themselves and

do the right thing,” says Kendall Clark, area ranger for the

Eagle Cap District in Wallowa County and the nearby Hells

Canyon Recreational Area. “Having local growers be able

to provide weed-free hay to our users makes our job a lot

easier. A website providing contacts for local certified

weed-free hay will be a tremendous tool to help visitors.”

The Forest Service is both a potential customer for

certified, weed-free straw and a regulator of weed-free

hay used by recreational and hunting enthusiasts on public lands. Certified weed-free straw is used to control erosion in wildfire rehabilitation and construction projects,

thereby reducing the damage to soils, watersheds and

burned-over landscapes. Priorities for stabilization activities include protecting human life and property, stabilizing

municipal watersheds, stabilizing steep slopes and unstable terrain, protecting archeological resources, replacing

culverts and protecting public health and safety. The

large number of acres affected by recent fires (and the

likelihood of future forest and range fires) represents a

potentially large and expanding market for certified

weed-free straw.

In 1988, the Eagle Cap Ranger District of the WallowaWhitman National Forest adopted a regulation that prohibits possessing, storing or transporting any supplemental livestock feed that is not free of all noxious weed

seeds. A similar plan is now being developed for the entire

Wallowa-Whitman National Forest, the Hells Canyon

Recreation Area and, eventually, will be in effect for all

National Forest public lands in the Oregon and Washington region. ■

Growers’ hay project may go statewide
Rural Cooperatives / March/April 2004 13

Hay is often culprit

in spreading weeds 

“Weed-free hay also reduces the

spread of weeds across the county and

the region,” Porter says, adding that

weedy hay is often responsible for

weed infestations of Oregon forests

and rangelands.

Association customers “will not be

bringing weeds onto their farms and

properties. That will save them money

and a few headaches in the long run.” 

Although this effort has become a

collaborative one, it is important to

remember that hay growers of

Wallowa County are responsible for

the initial concept, the direction and

the implementation of the project.

The responsibility and credit primarily

go to these growers, working to better

their own farm businesses and quality

of life in a rural western community. 

“Starting this association has been

an effort to help our neighbors and all

people in the county,” says association

member Jay McFetridge. “That’s just

what you do when you live in a community at the end of the road.” ■

Hay harvested in northeastern Oregon may be sold locally, or could wind up being compressed, shrink-wrapped, loaded into 40-foot containers and shipped to customers around the Pacific Rim. 

The Old Chief Joseph gravesite is a national

historic landmark in Wallowa County, Ore.,

and is sacred to the Nez Perce people. 

His son, also named Chief Joseph, is

famous for his "I will go no further" speech,

which has come to symbolize the plight of

American Indians during the 19th century.
14 March/April 2004 / Rural Cooperatives

By K. Charles Ling, Ag Economist

USDA Rural Development/ RBS

e-mail: charles.ling@usda.gov

Editor’s note: for a more detailed examination of topics in this article, see Research

Report 201, “Dairy Cooperative

Operations, 2000” available on our 

website, www.rurdev.usda.gov/rbs/pub/

newpub.htm. For a hard copy, call 

(202) 720-8381, or e-mail: 

dan.campbell@usda.gov. 

airy co-ops continue to

be the nation’s primary

source for milk and dairy

products. Data analyzed

by USDA Rural

Development shows that dairy products represented 33 percent of the

value of all products marketed by agricultural cooperatives during 2002.

Dairy cooperatives received, or bargained for, 86 percent of all milk sold

by farmers (or 83 percent when nonmember milk is subtracted). 

The number of dairy cooperatives

decreased 13 percent, from 226 to 196,

from 1997 to 2002. The number of

cooperatives that process milk and

manufacture dairy products dropped

from 63 to 46 during that same fiveyear period. 

More than 61,390 members marketed their milk through the nation’s 194

direct-member dairy cooperatives.

Three regions – the East North

Central, West North Central and

North Atlantic – together accounted for

84 percent of all member-producers and

52 percent of cooperative milk volume.

Sixty-two percent of total cooperative milk volume was sold as raw milk

in 2002, compared to 61 percent in

1997. The other 38 percent was manufactured at plants owned and operated

by cooperatives. The number of cooperatives selling raw milk fell from 204

to 174 during this period. 

Types of co-op milk plants

Dairy cooperatives operated 209

milk plants in 2002. Of these:

• 35 plants only receive and ship

milk;

• 49 plants manufacture American

cheese;

• 21 plants process Italian cheese;

• 30 plants package fluid milk products;

• 43 plants manufacture dry-milk

products;

• 27 plants churn butter.

Dairy cooperatives also held investments in 75 dairy plants that they did

not directly operate. Of these, 52

plants package fluid milk products, 18

process other dairy products and 7

make ice cream. (The production of

these plants is not counted as cooperative volume.)

Cooperative marketing of butter,

dry-milk products and cheese

increased from 1997 to 2002.

Cooperatives’ share of butter increased

from 61 to 71 percent during the half

decade. Their share of dry-milk products (nonfat dry milk, dry-whole milk

and dry buttermilk) climbed from 76

to 85 percent. Cooperatives continued

to have an overwhelming share of nonfat dry milk, which was 86 percent in

2002, a 5-point increase. 

Co-op cheese volume jumps

Cooperatives marketed 17 percent

more cheese in 2002 than in 1997, their

volume increasing from 2,907 million

to 3,402 million pounds. Nationally,

overall cheese production also increased

17 percent. Cooperatives’ share of the

natural cheese market was unchanged at

40 percent.

Sales of packaged fluid milk products by cooperatives decreased both in

volume and in market share. The

3,810 million pounds marketed by coops equaled 7 percent of the nation’s

production, down from 14 percent in

1997. Cooperatives sold 9 percent of

the nation’s cottage cheese in 2002,

down from 10 percent, while their

share of ice cream decreased from 6

Dairy co-ops continue dominant 

role in marketing nation’s milk

D

A Maryland-Virginia Milk Producers’ tanker

rolls through the farm country of Maryland.

The co-op is one of 196 dairy co-ops in the

nation, down from 226 in 1997. USDA photo 

by Ken Hammond
Rural Cooperatives / March/April 2004 15

percent to 3 percent. In 2002, cooperatives marketed 6 percent of the nation’s

ice cream mix, 2 percent of yogurt, 53

percent of bulk-condensed milk, 52

percent of dry-whey products, 13 percent of sour cream and 34 percent of

condensed buttermilk.

Co-ops mostly small, but growing

Most dairy cooperatives continue to

be relatively small business organizations. But through consolidation and

growth, an increasing amount of dairy

products are being sold by larger cooperatives. 

Members of the nation’s eight

largest cooperatives marketed 52 percent of the total U.S. volume of milk

sold to plants and dealers, up from 42

percent in 1997. Their volume represented 63 percent of member milk

marketed through all cooperatives, up

from 52 percent. However, their

share of dairy products was less significant. The eight largest dairy

cooperatives sold only 6 percent of

the nation’s packaged fluid milk, 36

percent of cheese and 47 percent of

dry whey and dry whey products.

They dominated only in marketing

butter (with a 67 percent share) and

nonfat dry milk (80 percent market

share).

Member milk of the four largest

cooperatives accounted for 41 percent

of U.S. milk sold to plants and dealers and 49 percent of member milk

marketed through all cooperatives.

Their shares of U.S. production of

selected products were: packaged

fluid milk products, 5 percent;

cheese, 29 percent; dry whey and dry

whey products, 34 percent; butter, 

56 percent; and nonfat dry milk, 

66 percent. ■

Jean-Mari Peltier has been

named president and chief executive officer of the National Council

of Farmer Cooperatives (NCFC), a

Washington, D.C.-based trade association representing the interests of

U.S. agricultural cooperatives.

Peltier brings more than 25 years of

national and state governmental,

agricultural and trade association experience to her new

position. Peltier most recently served in the Bush administration as counselor for agricultural policy for the administrator of the Environmental Protection Agency (EPA).

“We were extremely impressed with Ms. Peltier’s

career accomplishments, the depth and breadth of her

governmental and industry experience, as well as her

keen understanding of agricultural policy, trade issues and

the business challenges facing U.S. agriculture in general

and agricultural cooperatives in particular,” noted Douglas

D. Sims, chairman of NCFC’s search committee and CEO of

CoBank. “She is uniquely qualified to lead NCFC at a critical time when the needs of NCFC members are changing

in a highly competitive and global business environment.”

John E. Gherty, president and chief executive officer of

Land O’Lakes Inc. and NCFC board chairman, added, “Ms.

Peltier will bring a fresh perspective and dynamic leadership to NCFC. She has a passion for agriculture and a

strong commitment to the future success of agricultural

cooperatives.”

“I’m enthused to devote my energy and experience to

serving this country’s farmer cooperatives,” says Peltier,

who began her NCFC duties Feb. 1. “This is not new

ground for me. I have been associated with agricultural

cooperatives for most of my career. I am looking forward

to working with my colleagues here in Washington and

with the agricultural business leaders across the nation.” 

Prior to her appointment with EPA, Peltier held a number of executive-level positions in the California agricultural industry and state government, including president of

the California Citrus Quality Council, executive director of

the California Pear Advisory Board, president of the California Pear Growers (a farmer-owned bargaining cooperative), and director of public and government relations for

the California Grape and Tree Fruit League. 

In addition, Peltier served as chief deputy director of

the Department of Pesticide Regulation for the California

EPA, senior policy specialist for the California State

World Trade Commission under Governor George Deukmejian, and as a legislative assistant for Congressman

Tony Coelho.

A native Californian and graduate of Fresno State University, Peltier also has served as a director or board officer for a wide range of agricultural and trade organizations, including the Coalition for Urban/Rural

Environmental Stewardship, Minor Crops Farmer Alliance,

Future Farmers of America Foundation, Agricultural Technical Advisory Committee on Trade, Agricultural Council of

California, and Capital Agri-Women.

There are nearly 3,000 farmer cooperatives across the

United States, whose members include a majority of our

nation’s more than 2 million farmers, ranchers and growers. Farmer cooperatives also provide jobs for nearly

300,000 Americans, many in rural areas, with a combined

payroll of over $8 billion.

Additional information about NCFC can be found at

www.ncfc.org. ■

NCFC names California’s Peltier president, CEO
By Steve Thompson, WriterEditor, USDA Rural Development

StephenA.thompson@usda.gov

hat do lubricating

oils, diesel fuel,

glues, plastics, paints,

solvents, inks and

packing peanuts have

in common?

If you immediately thought “petroleum,” you’re only partly right.

Petroleum is usually used in the manufacturing of such products, but other

raw materials can also be used, including those grown on farms. The manufacture of new “bio-based” products to

replace or supplement those made with

conventional, non-renewable materials

may provide new opportunities for

farmer cooperatives to add value to

their members’ crops. 

As the nation observes Earth Day in

April, it is a particularly good time to

take a close look at a new federal government requirement designed to spur

development of bio-based products

and what that can mean for the

nation’s farmers.

Farm Law spurs purchases 

The Farm Security and Rural

Investment Act of 2002 requires federal agencies to buy officially designated,

bio-based products whenever possible

for purchases of $10,000 or more. On

Dec. 19, 2003, the U.S. Department of

Agriculture published a proposed regulation for designating bio-based products, to help pave

the way for promulgating the new

federal procurement guidelines. 

The 2002 act

gives three main

objectives for the new

requirement. The first is

to improve the demand for biobased products — good news for producers of commodities that can serve

as raw materials. The second is to

encourage the development of agbased, value-added processing and

manufacturing in rural communities.

The third objective is encouraging the

substitution of fossil fuels with more

environmentally friendly substances

(see sidebar). 

The range of a new generation of

bio-based products already available is

surprising. The best known are the

fuel additives ethanol and biodiesel.

Ethanol is made by distilling ethyl

alcohol produced by fermenting grain

with yeast — basically the same

process used for hundreds of years to

make distilled liquor. Because the

ethanol molecule contains atoms of

oxygen, its addition to gasoline can

make engines run marginally cleaner. 

The Environmental Protection Agency

requires that many urban areas use

oxygenated fuel, especially during winter, when air pollution is worst. Until

recently, methyl tertiary butyl ether

(MTBE) has been the oxygenator of

choice. But revelations that MTBE has

contaminated groundwater

in some areas, along with

its unhealthy effects

when breathed as fumes,

have caused many states

to ban it. That leaves

environmentally friendly

ethanol as the best alternative. Farmer-owned ethanol

plants — both traditional cooperatives

and hybrid co-op/limited-liability corporations — are springing up like

mushrooms across the Midwest.

W

16 March/April 2004 / Rural Cooperatives

USDA’s Agricultural Research Service

(ARS) is exploring a number of bio-based

technologies. Microbiologist Rodney

Bothast works on developing feasible

methods for processing vegetable oils 

into acrylic plastics. USDA/ERS photo

Greener pastures for 

bio-tech co-ops?

New, bio-based products may only be scratching the surface of potential 
Rural Cooperatives / March/April 2004 17

Biodiesel is produced by modifying

soy oil or other naturally produced

oils. Even the waste fat from fast-food

deep fryers can be used, and the conversion process is simple enough that

some enthusiasts make it in their own

kitchens. When biodiesel is used by

itself as diesel fuel, it reduces both soot

and greenhouse gases as compared to

conventional diesel. It also has better

lubricating qualities, which can

enhance engine life. The major diesel

engine and fuel injection system producers have endorsed its use. 

Biodiesel’s most common use

promises to be as an additive, in a 1-

to-4 mixture with the petroleum fuel

known as B-20. In addition to lower

carbon emissions, its improved lubricity allows refiners to lower the amount

of sulfur in their fuel, which reduces

emissions that contribute to acid rain.

Blue Sun Producers is a Colorado

farmer co-op that sells B-20 blended

biodiesel through retail outlets. The

co-op has set a goal of having 100

biodiesel pumps throughout the state

by the end of the year, and is soliciting

participation by local producers (see

sidebar 2).

Bio-based cleaning products use

technology that dissolves grease and

dirt without harsh solvents. One biobased cleaner is advertised as being

“powerful enough to clean battleships,

yet mild enough for baby kittens,”

while offering better worker and environmental safety compared to comparable conventional cleaners. Soy-based

paint-remover doesn’t give off harsh

fumes or burn the skin, unlike many

conventional solvents. 

Iowa co-op producing

soy-based lubricants

West Central Cooperative, a farmer

co-op in Iowa, markets a number of

soy-based industrial and agricultural

lubricants, including hydraulic fluid

and penetrating oil, as well as specialized cleaners such as graffiti remover.

The co-op says these products reduce

environmental impact and pollution.

Modified castor oil is now used in the

The manufacture of biodiesel is only one

of a number of bio-based product initiatives being pursued by Iowa’s West

Central Cooperative. Photo courtesy West

Central Co-op

For the purposes of the new initiative, a bio-based product is broadly defined as "a product determined by the Secretary as a commercial or industrial product (other than

food or feed) that is composed, in whole or in significant

part, of biological products or renewable domestic agricultural materials (including plant, animal, and marine materials) or forestry materials." 

Because part of the goal is to encourage development

of new markets, the new requirements will not include

items that USDA has determined have "mature markets."

Thus, for instance, "silk, cotton and wool garments, household items and industrial or commercial products are

excluded, unless made with a substantial amount of a biobased plastic product."

Products are divided into 11 categories: adhesives;

construction materials and composites; fibers, paper and

packaging; fuel additives; landscaping materials, compost

and fertilizer; lubricants and functional fluids; plastics;

paints and coatings; solvents and cleaners; sorbents

(materials that soak up liquids); plant and vegetable inks.

To qualify, a product must contain a certain percentage

of bio-based materials, which varies by product. For example, 80 percent of a liquid fuel additive must be bio-based

ingredients, while automotive lubricating grease is only

required to contain 25 percent total bio-based materials.

For co-ops already producing bio-based items, the federal government is not yet ready to start procurement

under the 2002 act. Each bio-based product will be designated as suitable for preferred procurement only after consideration of such factors as feasibility, availability, relative

price, long-term costs, performance and health and environmental benefits. Each designation will take the form of a

regulation published in the Federal Register, first with publication of a draft rule allowing for a 30-day comment period, followed by the final rule.

USDA is charged with developing the pilot procurement

program, including procurement guidelines and employee

training, in cooperation with the White House's Office of

Federal Procurement Policy. Producers can help the

approval process along by providing information about the

items they wish to sell. On its Bio-based Preferred Procurement Program website, USDA offers a draft Product Information Sheet manufacturers can use as a template for submitting product information:

http://www.biobased.oce.usda.gov/public/prodSub.cfm.

The information posted by manufacturers and venders will

be used by Federal agencies to help identify products that

fit their needs. ■

— Steve Thompson

Eligible bio-products defined
18 March/April 2004 / Rural Cooperatives

production of urethane plastics, inks,

rubber and other synthetic products.

Polymerized soy oil is used in paints

and caulking and glazing compounds.

There’s even a new kind of paper that

qualifies as bio-based: it’s made from

kenaf, a fast-growing field crop related

to cotton and okra.

Despite the growing number of biobased products and the benefits they

offer, their total share of the market is

still tiny. “It’s a chicken or egg problem,” says Dan Manternach, president

of the Bio-based Manufacturers

Association. “To really take off, the

market needs to attract big buyers: the

McDonalds, the Walmarts and so on.

The trouble is, the big buyers tell producers they’ll consider buying their

products only if they can promise large

quantities of them. But the producers

can’t expand to make large quantities

until they have big buyers.” 

Manternich is excited about the

possibilities the new federal initiative

opens up for value-added activities.

“This is extremely promising for providing the seed the market needs,” he

says. He thinks the federal government’s role in the bio-based products

market will be similar to that of an

“anchor store” in a shopping mall,

attracting other customers and giving

manufacturers and potential manufacturers the confidence they need to start

up and expand. As a bonus, the media

attention will, hopefully, provide the

bio-based movement with a muchneeded publicity boost.

Proponents of bio-based technologies

say that current products only scratch

the surface of possibilities. Kim Kristoff

is the CEO of Gemtek, a company that

makes bio-based cleaners, lubricants and

other products. “Bio-based technologies

offer tremendous

value-added opportunities for farmers,” he

says. “There are so

many things they could

be doing to enhance

their income, but

they’re not looking for

them.” For example,

Kristoff sees current

use of the grain

byproducts from distillation and brewing —

known as brewers’ and

distillers’ grains — as

hugely wasteful. 

“They’re using them as animal feed,”

says Kristoff, “But there are all kinds

of useful substances that can be

extracted from them.” He names

lignins, xanthan gums and complex

sugars and proteins as examples, as

well as enzymes for use in manufacturing plastics. 

European co-ops have head start

Kristoff says that European farmer

co-ops, especially in Belgium,

Germany, Switzerland and France,

have a big head start in exploiting biobased technologies. Manternach points

out that European farmers are allowed

to plant canola farmland as participants

in set-aside programs similar to the

U.S. Conservation Reserve Program,

an option that isn’t on the horizon for

U.S. farmers.

Recent research has investigated

the extraction of nutritional supplements and pharmaceuticals from distillers’ grains. And oilseed byproducts,

known as soapstocks, are also rich in

exploitable chemicals, says Kristoff.

USDA’s Agricultural Research Service

(ARS) has been exploring other uses,

and has found that cottonseed, safflower, soybean, and even rice bran

soapstocks can be processed into a

safe, food-grade coating that keeps

vegetables such as cucumbers fresh

longer. Other scientists are looking

into a hair gel made from the substance, which could be produced at a

lower cost than similar products made

from synthetic polymers. Even watermelon rinds may be useful: ARS is

USDA grant helping Colorado cooperative produce biodiesel

West Central Co-op-marketed soy-based cleaning products are

promoted as less toxic and less harmful to the environment

than are conventional cleaners. Photo courtesy West Central Co-op

Blue Sun Producers co-op was founded in June 2003 to

provide biodiesel production opportunities for farmers in Colorado and neighboring High Plains states. Members will grow

a new kind of crop based on mustard seed, which, the co-op

says, is cheaper to produce and can be made into a higher

quality fuel than can soybeans. 

Mustard seed also requires less rain, crucial in the arid

High Plains. The growing cycle of the new oilseeds allows

them to be planted after harvest on land used for winter

wheat, making two crops a year from the same acreage.

The co-op will provide feedstock to Blue Sun Biodiesel, a

corporation founded in 2001, which opened its first biodiesel

pump Feb. 3 at a feed and hardware store in Fort Morgan,

Colo. On the same day, the co-op received a $450,000 grant

from USDA Rural Development for development of this new

renewable energy source.

Blue Sun is now recruiting farmers in Colorado, Nebraska, Wyoming and Kansas to grow the new crop. Further

information is available on the web at <http://www.gobluesun.com> or by telephone, 970-221-0500. ■
Rural Cooperatives / March/April 2004 19

researching the extraction of a key

amino acid from them for use in treating sickle-cell anemia.

Production of industrial lubricants

is a field that may offer attractive

opportunities to co-ops. A research

program of the University of Northern

Iowa, called Agriculture-Based

Industrial Lubricants (ABIL), is

exploring the manufacture of lubricants derived from such sources as cottonseed, soybeans, canola and other

field crops. Lou Honary, an associate

professor and the head of the program,

says that producing greases and other

lubricants from plant sources isn’t that

feasible for our farmers.

“We had farmers who set up soybean crushing and grease manufacturing on their farms,” Honary says.

“Under a USDA grant, three farm

sites were set up to crush soybeans

using mechanical presses, feed the

meal to livestock and make fifth-wheel

grease for trucks.”

ABIL has developed some 30 different lubricants, including lubricants for

machining metal, several different

hydraulic fluids and bearing and fifthwheel greases. Their most successful

product, at 2.5 million pounds sold so

far, is rail curve grease for railroads.

This grease is applied to the rail curves

or train wheels to reduce noise and

wear on wheel flanges. According to

Honary, two of the five largest Class I

U.S. railroads use ABIL rail curve

grease and other Class I railroads have

approved it or are in the process of

approving it. “This is a ‘lost-in-use’

product,” he says, “and the bio-based

grease doesn’t present the kind of environmental contamination problems

petroleum grease does.”

Honary says that cotton farmers and

co-ops could take advantage

of the cottonseeds they harvest to economically provide

a necessary “lost-in-use”

lubricant to themselves.

“Their cotton-picking

machines each use gallons of

grease every day to lubricate

their spindles,” he says.

Pressing oil from the seeds

and making spindle grease

from it would be easy and

require only a small investment. “They could make it

and use it themselves, and

save money,” says Honary.

And, since most of the grease

lost goes on the field or into

the cotton, using

cottonseed-based

grease would be

more environmentally friendly and

save cleaning costs.

Marketing expertise needed 

ABIL-invented

products are marketed through

West Central Coop in Iowa

and Illinois-based

GROWMARK.

“They market

them through

their own outlets,”

he says. But

Honary thinks a

major problem

with that approach

is that most co-ops

don’t have the expertise or resources

necessary to successfully market industrial lubricants. He believes that the

answer is to enter into relationships

with established petroleum distributors. 

“I don’t think the people who sell

oils and greases really mind what the

source is,” he says. “They just want to

sell a product that solves the problem

and which they can make money on.”

One issue that American farmers

must take into consideration when

looking at value-added activities is

opportunity cost: the cost of losing

one opportunity to pursue another.

The opportunity cost of using oilseeds

as feedstock is currently high. Oilseed

— especially soybean — prices are

now at record high levels, and some

analysts say that, because of rising

incomes in China and India, the market may stay strong for quite some

time. 

Despite the new federal bio-based

procurement requirements, high prices

at present serve as a disincentive to soybean producers from making the investment needed to add value to their

crops. But among the advantages of

selling value-added and finished products is the vital one of more stable markets. Foregoing development of new

value-added products in favor of taking

advantage of current high commodity

markets may well impose on producers

its own long-term opportunity cost. ■

A small, relatively inexpensive crushing press and grease

kettle can be set up on farms to produce bio-based greases for use at the site or for sale. Photo courtesy ABIL

West Central Co-op’s biodiesel production facilities. The manufacture

of most bio-based products relies on relatively accessible technology. Photo courtesy West Central Co-op
ransCon AG, a

Missouri-based newgeneration grower

cooperative, is positioning itself to

become the central business hub for

a variety of value-added agricultural

products. With a solid business plan

and a global marketing strategy, the

cooperative has launched a line of

specialty beers as its first products.

The beers include: Pony Express

Gold, Pony Express Rattlesnake

Pale Ale and Pony Express Original

Wheat. The beers are now selling in

Missouri and Kansas, and should be

available soon in California and

Arizona. Later in 2004, the co-op

plans to expand distribution to the

majority of the Midwest. 

The grower cooperative is pursuing

international distribution through

office presence in Taiwan, China,

Japan and Mexico, according to Joe

Effertz, president of TransCon AG and

chairman of the board for the co-op’s

brewing operations. The co-op is

already shipping beer to China. 

“China is a big market for soy-based

products, like Pony Express Gold – a

soybean-based beer,” says Mark Vogel,

executive vice president for brand

management at Osborn & Barr in St.

Louis, the co-op’s strategic partner for

marketing. “Marketing research shows

that soy products are perceived as

healthy, so product perception of Pony

Express Gold is immediately high.” 

Market demand could outpace production capacity, currently limited to

15,000 barrels, although new equipment is being purchased to double

capacity by the first quarter of next

year.

The TransCon AG cooperative was

formed by Missouri producers who

banded together to establish a valueadded organization to improve the

profitability of their farm operations.

The co-op’s strategy may eventually be

centered around taking advantage of

the Kansas City SmartPort, located at

the old Richards-Gebauer airbase. The

KC SmartPort is designed to be the

major distribution hub of trade

between Mexico, Canada and the

20 March/April 2004 / Rural Cooperatives

Missouri-based co-op brewery

unveils Pony Express line of beer

T

Minnesota ethanol co-op producing premium Vodka 

Another farmers’ co-op has entered the “adult beverage”

industry with a premium vodka that has met with early success. A farmer-owned ethanol plant in Benson, Minn., is using

a small portion of its distilling capacity to produce Shakers

Original American Vodka, which was unveiled last year. So far

it’s been a huge hit – at least on its home territory. That success has the co-op and the beverage company that markets

the vodka looking at much broader distribution.

Vodka is a sideline for Chippewa Valley Ethanol, which produces the beverage through a subsidiary for Infinite Spirits of

Napa Valley, Calif. Just one month after its introduction, sales

of 500 cases in Minnesota exceeded first-year projections.

The potential market for premium vodka –currently dominated

by European companies — is a large. Last year, consumers in

the United States spent about $9.5 billion on vodka, including

about $950 million for premium brands. 

Although sales have been focused in Minnesota, Shakers

vodka is now being introduced in 14 states, including

California. The goal is nationwide distribution this year.

Shakers is being promoted as the only ultra-premium vodka

made in the United States by the farmers who grow the grain.

The municipal liquor store in Benson, a town of 4,000, saw

gross sales jump by $100,000 this year, which the manager

credits to sales of Shakers vodka. ■

continued on page 31
Rural Cooperatives / March/April 2004 21

By Thomas W. Gray,

Ph.D., Rural Sociologist, 

USDA Rural Development/ RBS 

thomas.gray@usda.gov

gricultural cooperatives

have a long history of

helping farmers achieve

their goals. For generations, they have enabled

U.S. farmers to address

recurring concerns: low crop

and livestock prices, the high

cost of farm production supplies and the need to expand

markets to absorb surplus

production. Historically,

individual farmers have had

to contend with these

dynamics while competing in

a marketplace with much

larger — sometimes global

— firms.

While cooperatives have

served as vehicles for collective action to develop markets and to improve the economic viability of farmers,

the strategies used to achieve gains

have tended to follow, and/or deepen,

paths leading to an industrialized system of agriculture. 

The predominant development trajectory of U.S. agricultural production, historically, has involved an

increasing use of biological, chemical

and mechanical technologies. While

this development path has resulted in a

massive expansion in production, it has

also created conditions that made it

impossible for many thousands of farm

families to stay in business. 

Willard Cochrane of the University

of Minnesota characterizes this dynamic as akin to being on a treadmill. As

individual farmers have increased scale

to increase farm revenues, total quantities of product released to the market

have increased and prices — while

fluctuating — have on average

remained stable or declined. Many

farm families, unable to meet increasing costs of production and lower farm

prices, have thus had to leave farming. 

Agricultural cooperatives have had

to contend with these as well as other

socio-economic pressures. Fewer farmers means fewer co-op members.

Large-scale production has allowed

some farmers to go direct to terminals

and bypass local cooperatives. Fewer,

larger farms, low prices and keen competition have made the economic services of many cooperatives redundant.

Many have succumbed to bankruptcy,

including some of the nation’s largest

co-ops in the past few years.

Some co-ops have responded by

diversifying into other product-revenue centers, expanding geographically

(including globally) as well as pursuing

horizontal and vertical integration.

These survival strategies —

frequently adopted in a crisismanagement mode — have

resulted in many cooperatives

taking on a new shape as

large, complex organizations

that are far removed from the

individual farmer. 

As farm numbers decline,

so do rural communities

The result of these

strategies has been larger

farms, fewer farmers and

fewer, but larger, cooperatives. As farms and cooperatives go out of business, local

communities struggle for

continued vitality with fewer people,

fewer families and fewer businesses.

Tax bases erode, services decline.

With these declines, the ability of

communities to sustain themselves

through time comes into question, as

do the culturally enriching, and diversifying, experiences of rural living.

Thu and Durrenberger of the

University of Iowa suggest that as rural

communities decline, so also goes the

“social and human character benefits

Exploring a greater role for

agricultural cooperatives in

sustaining rural living

A

The health of rural communities and cooperatives are often closely

bound. Both are threatened by the decline in numbers of family

farms. USDA photo by Ken Hammond
22 March/April 2004 / Rural Cooperatives

of learning honesty, hard work, ingenuity, flexibility and fairness as part of

being reared in a farm [and rural] environment.” Yet the cultural importance

of rural living remains evident in various, not so subtle, advertising images.

Hence we see product names such as

Nature’s Pride, Country Time and

Florida Natural. These symbols of a

rural lifestyle sell products on a massive scale. 

Hundreds of thousands, if not millions, of people closely identify with

these images and invest their consumer dollars in them. Paradoxically,

while there is a felt longing within the

culture for the values of this rural

lifestyle, there is a simultaneous decline

in numbers of farmers and farms, and

in opportunities for rural living. 

Individual and collective benefits

Cooperatives offer individual and

collective benefits. A farmer who

receives a higher price for his or her

individual products when marketed

through a cooperative is receiving an

individual benefit due to joint marketing with other farmers. The fact that

he or she can raise a particular product

for a market that an individual farmer

could not reach is a mutual collective

benefit (Parnell). 

Historically, agricultural cooperatives have tended to emphasize individual collective benefits (though not

exclusively). Most have moved with

much of the rest of agriculture down a

trajectory dependent on large, capitalintensive production units and technology, with heavy reliance on external

sources of energy and credit. The

unintended consequences — as mentioned — have been to fragment family

farming functions and to displace family farmers and rural communities. 

While there are many trade-offs,

some cooperatives made a historic

choice that emphasized individual collective benefits to farmers at the

expense of mutual benefits, such as

maintaining a dispersed ownership

agriculture and retaining overall family

farm numbers. While large numbers of

individual farmers have been able to

survive, the mass of farmers as a group,

particularly family farmers, have not. 

Rethinking directions

Some of the major names in agricultural cooperatives have recently

gone bankrupt — most notably

Farmland, Agway and Tri-Valley

Growers — while many others have

merged and acquired other organizations to survive. Mid-sized farmers

continue to go out of business and

rural communities struggle to sustain

themselves. We may have reached an

exhaustion point in our current ways of

doing things and thinking, relative to

the inter-connections of agricultural

cooperatives, farmers and rural communities. 

Farmers, managers, employees and

rural residents may need to begin asking themselves what they enjoy about

living in a rural environment and how

it can be sustained. Agricultural cooperatives are at the economic (and, in

some ways, sociological) center of

many rural communities. What agendas might be developed that explicitly

capture the mutual stake-holding and

interests of rural residents generally?

What roles might cooperatives play

that concretely embrace their central

importance in rural communities,

while developing the mutual interests

of rural residents? 

Alternatives to consider

Several rural sociologists —

Chiappe and Flora at Iowa State, Beus

and Dunlap at Washington State,

Gillespie and Hilchey at Cornell,

Stofferahn at the University of North

Dakota, Wright at Northern Iowa —

suggest there are a series of values and

commitments that could deepen rural

community sustainability. As mentioned above, most agricultural cooperatives have moved with much of the

rest of agriculture down a trajectory

dependent on large capital-intensive

production units and technology, with

heavy reliance on external sources of

energy and credit. 

The unintended consequences have

been to fragment family farming functions and to displace family farmers and

rural communities. The above authors

suggest there are various tradeoffs and

choices. Some of these choices are presented here, not as mutually exclusive

alternatives, but as possible shifts in

emphases. They include:

• Deepening links between agriculture and small rural communities,

including acknowledgment of

mutual interests as rural residents,

rather than passive acceptance of

loosely connected, but dispensable, relationships between agriculture and rural communities.

• Understanding that farming is a

business and a way of life (and

part of rural life) vs. viewing

farming solely as a business. 

• Planning to place greater emphasis on both short-term benefits

and long-term quality and permanence vs. predominant emphasis

given to short-term benefits. 

• Placing greater value on local

knowledge, skills and wisdom and

lessening dependence on external

specialists and experts.

• Giving greater consideration to

restrained consumption and conservation to preserve rural

lifestyles, rather than automatically relying upon high consumption

as a driver of economic vitality.

• Broadening focus to, and encouragement of, local/regional production, processing and marketing, and dilution of dependence

upon, and searching for,

national/international production,

processing and marketings. 

• More closely considering and

encouraging smaller, lower capital production units and technology, and lessened reliance upon

larger capital-intensive production units and technology as

strategies for sustaining farming

(and rural living). 

• Planning that gives greater consideration to dispersed control of

land, resources and capital, rather

than passively accepting greater

concentration in the control of

land, resources and capital.
Rural Cooperatives / March/April 2004 23

• Pursuing greater cooperation and

planning to develop the mutual

interests of rural residents, rather

than limiting cooperation around

self-interest. 

• Explicit valuing of traditions of a

rural and farming lifestyle, rather

than passively devaluing of rural

and farming traditions and rural

culture as not mattering and dispensable.

These, of course, are only outlines

of choices for thinking about more

concrete alternatives. Such thinking

may not seem practical when decisions

have already been made, capital is sunk

and strategic plans set. However to

ignore these choices, and to continue

along traditional agricultural trajectories, portends continued losses in a

lifestyle that many mourn losing and

seek to re-attach to. 

Land O’Lakes Inc. had net earnings of $83.5 million for

2003, compared to $98.9 million for 2002. Co-op officials indicated that 2002 earnings were bolstered by vitamin litigation

settlements. When those and other one-time gains and

losses were factored out, earnings from operations were

substantially improved over 2002. LO’L officials credit generally improved markets, effective cost-reduction efforts and

strong sales volumes — particularly in branded and proprietary value-added product lines – for bolstering the co-op’s

performance in 2003. 

The co-op reported $6.3 billion in total 2003 sales, an 8-

percent increase over $5.8 billion in 2002. The sales

increase was due in part to the consolidation of MoArk

(Land O’Lakes’ egg industry joint venture) into the company balance sheet. Without that accounting change, sales

were up 3 percent for the year. 

The company recently completed a debt-restructuring

initiative that included the sale of $175 million in bonds to

pay down senior bank debt and a three-year extension of

its revolving line of credit. LO’L paid down long-term debt

by $131 million (excluding the debt restructuring initiative)

in 2003. It reported finishing the year with strong liquidity,

with $383 million in cash-on-hand and unused borrowing

authority, and remained in compliance with all its financing covenants.

Co-op leaders say the new bond sale did not increase

debt levels, but rather enabled the company to improve its

capital structure by taking advantage of declining longterm interest rates, securing its sources of traditional seasonal and short-term borrowing, spreading term debt payments over a longer period and maintaining strong

liquidity. Major assets sold in 2003 included the co-op’s

powdered cocoa business and its ownership position in

QC, Inc. (a testing company).

New products in 2003 included two new Land O’ Lakes

brand dairy products: a spreadable butter with

canola oil and a soft baking butter with

canola oil. Sales are running ahead of

forecasts. Strong sales were also

realized in such areas as LO’L

branded deli and foodservice

products; CROPLAN GENETICS

Seed; and AgriSolutions crop protection products. Land O’

Lakes- and Purina Mills-branded products also continued

to provide the foundation for the co-op feed division. 

• LO’L divisions reported the following 2003 fiscal

results:

• Dairy Foods – $5.6 million in earnings, as compared to

a loss of $32.1 million for 2002. Sales totaled $3 billion,

compared to $2.9 billion in 2002. 

• Feed – $46.4 million in earnings, compared to $156.5

million in 2002. Factoring out litigation settlements and

other one-time gains and losses from 2002, feed earnings were down modestly from 2002. Feed sales of

$2.5 billion, compared to $2.4 billion for 2002.

• Seed – Seed sales generated pretax earnings of $11.6

million vs. $8.3 million for 2002. Sales reached $479.3

million, up from $406.9 million in 2002. 

• Layers/Eggs – Significant market improvement, volume growth and the success of branded eggs contributed to the company’s performance in the

layers/eggs industry (conducted through its MoArk

joint venture), where year-end earnings totaled $33.4

million, compared to a loss of $9.5 million in 2002. Consolidated sales for the year were $317.8 million.

Because consolidation began in July, only half-a-year

of MoArk’s sales are included. Full-year sales for

MoArk were $552 million; 100 percent of MoArk’s

earnings are included in Land O’Lakes income.

• Swine – While the company reported a pretax loss of

$9.8 million for the year, swine performance was

improved over 2002, when losses totaled $23.2 million.

Contributing to this improvement were better average

hog prices, production efficiencies and progress in

reducing capital use and exposure to market risk.

Swine sales were $91.2 million, compared to $83.2 million in 2002. 

• Agronomy – Land O’Lakes conducts its

agronomy business through the Agriliance

joint venture, in which it holds 50-percent interest. The company reported

$13.2 million in pretax earnings,

compared to a loss of $1.8 million in 2002. ■

Land O’Lakes reports nearly $84 million in earnings

continued on page 33
24 March/April 2004 / Rural Cooperatives

By Beverly L. Rotan, Economist

USDA Rural Development/RBS 

Beverly.rotan@usda.gov

ocal U.S. farm supply

cooperatives (many of

which also market grain)

had slight declines in

both sales and net

income in 2002, but patronage refunds

from regional cooperatives helped

many show a profit for the year. The

year was a dynamic one, with cooperatives facing many challenges.

Average sales per local co-op were

$15,288,026 in 2002, a 0.14-decrease

from $15,309,299 in 2001. The average net income per local co-op was

$228,500 in 2002, a 0.13-percent

decline from $265,622 in 2001. 

Of 263 local co-op financial statements analyzed for this article, 85 (or

32.3 percent) had losses in 2002.

However, patronage refunds paid by

regional cooperatives were up 40.1

percent. When patronage is included,

only 20.1 percent of the local co-ops

showed a loss. 

Farm supply sales by co-ops declined

2.44 percent in 2002. Fertilizer sales

were down 3.6 percent and petroleum

sales fell almost 11 percent. 

Farm supply sectors showing gains

were: feed, up 4.4 percent; seed, up

13.1 percent; and crop protectants, up

3.1 percent.

Grain sales were stronger for local

cooperatives — which is particularly

impressive in the face of declines in

national production in some major

grains (corn production was down 1

percent, spring wheat production was

off 17 percent, durum wheat declined

23 percent and winter wheat was down

5 percent). Soybean production, however, was up 1 percent. 

The 263 local cooperatives studied

were classified by size: small, medium,

large and super (table 2). The cooperatives were further classified into four

types based on what percentage of

their sales come from farm supplies

(see table 2 for the precise criteria). 

Stronger local co-op assets

Both current assets and total assets

were up slightly, 9 and almost 6 perNet income, sales decline for

local farm cooperatives

L

Table 1–Average farm supplies sold and products marketed; 

change from 2001 to 2002

Change: 2001 2002 2001 to 2002

————— Dollars ————— ——Percent——

Farm supplies sold: 

Feed 1,552,247 1,620,295 4.38

Seed 301,070 340,479 13.09

Fertilizer 1,782,396 1,718,493 -3.59

Crop protectants 1,338,688 1,380,241 3.10

Petroleum products 3,274,949 2,916,409 -10.95

Other 1,226,632 1,269,071 3.46

Total 9,475,892 9,244,988 -2.44 

Products marketed:

Grains and oilseeds 5,761,800 5,994,056 4.03

Other 71,507 48,982 -31.51

Total 5,833,407 6,043,038 3.60

TOTAL SALES $15,309,299 $15,288,026 -0.14
Rural Cooperatives / March/April 2004 25

cent, respectively. All aspects of current assets, except cash, increased during the two-year study period. Cash

was down almost 7 percent. 

Current liabilities for local co-ops

jumped nearly 10 percent during the

study period, with allocated equity

(cash), current term debt and shortterm (seasonal) debt having doubledigit increases. Dividend on equity had

the largest decrease (58 percent), with

revolving equity redeemed (53 percent)

showing the second largest decline. 

Possible causes for declines in

revolving equity include losses allocated from previous years, merger and/or

the cooperative was fully capitalized.

Although total revenue was up 0.8

percent, total sales were down 0.14

percent. The rise of revenue was

attributed to a slight increase in service

income, marketing products and a sizable increase in patronage refunds

from regional co-ops. 

The average operating income

(from commodity marketing, farm supplies and service income) rose slightly.

Marketing farm commodities (crops

and livestock) and grain sales both rose

almost 4 percent. Service income

increased 8 percent. Cost of goods sold

was down 0.11 percent. In 2002, cost

of goods sold averaged about 88 percent of net sales.

Total expenses was also up about 3

percent). Total wages were up for the

two-year period by nearly 5 percent

and represented 8 percent of total

expenses. Wage expense includes payroll/salaries, employee benefits including retirement and payroll taxes.

Co-ops in the study had an average

of 41 employees (part- and full-time),

who earned an average salary of

$24,681. Although there was an

increase in employees, salaries were

about the same as in 2001. 

Directors’ fees and expenses were a

small part of total expenses. However,

director compensation is an important

factor that helps many cooperatives

convince producers to divert time each

month to help guide their cooperative.

Co-op boards averaged seven members,

who were paid an average of $942 per

year. Director’s fees were up 3 percent.

Monitoring performance

Some performance factors are within the control of cooperative management, but others are not. One way to

monitor the performance of your

cooperative is through financial statements and ratios. Ratios for the surveyed cooperatives remained relatively

unchanged from 2001 to 2002 (table

3). Ratios that help assess your cooperative’s performance include:

• Liquidity ratios – focus on a company’s ability to pay bills when

due. If liquidity ratios remain relatively high for a prolonged period, too much capital may be

invested in liquid assets (for example, cash, short-term investments,

accounts receivable and inventory)

and too little is devoted to

increasing member equity. These

ratios should equal one or more.

On average, surveyed cooperatives

had quick and current ratios of

slightly more than 1.0. Small

cooperatives did a better job, with

a current ratio of 2.09 and a quick

ratio of 1.09.

• Leverage ratios – reveal a company’s use of borrowed funds (rather

than members’ equity for investments) to expand its business.

The goal is to borrow funds at a

low interest rate and invest in

business activity that produces a

high rate of return, exceeding the

target rate of return for investment. Debt-to-equity ratio measures the long-term solvency of a

company by comparing debt to

net worth. A company with a high

debt-to-equity ratio could have

trouble meeting fixed

interest/debt payments if business

Cooperative size Definition Number

Small up to $5 million in total sales 90

Medium over $5 million to $10 million 55

Large over $10 million to $20 million 56

Super over $20 million 62

Cooperative type Definition Number

Farm supply total net sales from farm supplies 137

Mixed farm supply from 50 to 99 percent 57

Mixed marketing from 25 to 49 percent 53

Marketing less than 25 percent 16

Table 2–Size and type definitions used 

for respondent cooperatives

Ratio 2001 2002 

Current 1.35 1.34

Quick 0.68 0.65

Debt 0.44 0.45

Debt-to-total equity 0.81 0.81

Times-interest-earned 2.81 2.90

Total-asset turnover 1.93 1.97

Fixed-asset turnover 6.61 7.11

Gross profit margin 12.70 12.74

Return-on-total assets 

before interest & taxes 5.54 5.78

Return-on-total equity 7.91 8.70

Table 3–Financial analysis

ratios for all cooperatives,

2001 and 2002

continued on page 29
26 March/April 2004 / Rural Cooperatives

By Kevin T. McNamara

Joan Fulton

Susan Hine

Editor’s note: Kevin T. McNamara

and Joan Fulton are professor and associate professor, respectively, in the

Department of Agricultural Economics,

Purdue University. Susan Hine is an

associate professor in the Department of

Agricultural and Resource Economics,

Colorado State University

ural economic development — always a topic of

great importance to

community and government leaders — has

taken on even greater importance

today, given recent changes in the rural

and agricultural marketplace.

Increased consolidation of American

agriculture is resulting in fewer farms,

which, in turn, places pressure on rural

economies, since there are fewer farm

families to generate spending and economic activity. 

In addition, recent low commodity

prices are placing pressure on the

spending ability of producers and farm

families, which puts further pressure

on rural economies. Locally owned

agricultural cooperatives — businesses,

which have typically centered on farm

supply and grain marketing — have

historically been an integral component of the local economy. 

The objectives of this article are to:

(1) calculate the direct and total

employment and income impacts of

locally owned farm supply and grain

marketing cooperatives in Colorado

and Indiana; (2) evaluate the loss of

employment and income that would

occur in Colorado and Indiana if the

locally owned agricultural cooperatives

were to cease business; and (3) compare the local economic impact of

these agricultural cooperatives in the

Great Plains (Colorado) and the

Eastern Cornbelt (Indiana).

Data for the analysis in the article

was obtained from 70 locally owned

cooperatives in Colorado and Indiana

(35 cooperatives in each state). In-person interviews with the managers were

conducted in the spring of 2000 and

data was collected on level of sales,

number of employees and the volume

of business that would be lost to the

local economy if the cooperative were

not operating.

Ag’s impact on state economies

The agricultural sector is a large

industry in both Colorado and

Indiana. The ag output of Colorado

was valued at just over $5 billion in

1999 (USDA Economic Research

Service) and contributed more than

$3.67 billion in value added to the

state economy (Bureau of Economic

Analysis). That’s about 2.47 percent of

the total $153.72 billion value added

generated in Colorado in 1999. Cattle

and calves accounted for about 53 percent of 1999 farm receipts in

Colorado, which is home to 28,268

farms and ranches. Following cattle in

importance were: corn (6 percent of

ag receipts), dairy (6 percent), wheat

(5 percent) and hogs (4 percent). The

value of Colorado agricultural production, while spread across the state, is

concentrated in the northeast region

of the state. About 39 percent of

Colorado’s ag receipts come from

Weld and Yuma counties. 

Total 1999 farm receipts in Indiana

were $4.89 billion (USDA Economic

Research Service). Agriculture, forestry

and fisheries, and farms contributed

$2.94 billion to Indiana’s total $182.2

billion of value added in 1999 (Bureau

of Economic Analysis).

Corn (31 percent) soybeans (23 percent), hogs (12 percent), dairy (7 percent) and eggs (6 percent) accounted

for the largest share of ag receipts in

Indiana. Agricultural production is less

concentrated in Indiana than in

Colorado. Kosciusko and Dubois

counties, Indiana’s leading farm counties, accounted for less than 6 percent

of total state agricultural receipts. 

Measuring ag’s impact

using multipliers

Multiplier’s used for estimating the

contribution of agriculture to the

economy have not always been valid.

For instance, seven is a commonly

quoted farm multiplier which can be

traced back to Carl Wilken, an analyst

for the Raw Materials National

Council. In 1944, he published a

report that used a multiplier of seven,

based on the 7-to-1 ratio of nominal

national income to farm marketings

that year (Schluter). Applying Wilken’s

ratio today would yield a farm multiplier in the 20s. 

The advent of the computer and

better access to data have allowed a

number of economists to construct

input/output models that can be used

to present a more exact estimate of the

economic impacts of agriculture.

Studies using these models were conWeighing in

Study gauges impact of local ag co-ops on 

rural economies of Great Plains, eastern Cornbelt 

R
Rural Cooperatives / March/April 2004 27

ducted for a number of states in the

1990s. 

The contribution of agriculture to

an economy is generally evaluated by

totaling the sums of output, employment and income for all industries in

the food and fiber supply chain. These

include input suppliers, farm-production units, processing, marketing and

distribution. Sales, value-added and

employment from these activities are

added to the induced impacts associated with household spending of income

earned in the food and fiber system to

produce estimated total sales, valueadded and employment impacts. 

Using such methodology in an

input-output framework, as calculated

by Schluter and Edmondson (1986),

shows that about 21 percent of the

national civilian workforce was

involved in the food and fiber system.

Several economists have conducted

similar studies to assess the importance

of agriculture to state economies.

Johnson and Wade (1994) estimated

the impact of Virginia’s agriculture system on the state’s economy to be 12

percent of the state’s total value added

and 15 percent of employment in the

state. Henry (1995) included the state’s

forestry sector, and estimated that the

agriculture and natural resource industries accounted for a 23-25 percent

share of the South Carolina economy. 

The food and fiber industry in

Colorado and Indiana account for

about 14 percent of employment in

both states (USDA Economic

Research Service). In Colorado, agricultural production accounts for 1.7

percent of employment, farm inputs

0.2 percent, processing and marketing

1.3 percent and wholesale and retail

10.6 percent. 

In Indiana, farms account for 2.3

percent of employment, farm inputs

0.4 percent, processing and marketing

1.4 percent and wholesale and retail 10

percent. 

Economic impact of ag cooperatives

Cooperatives provide a critical link

in the food and fiber supply chain. By

supplying production inputs, cooperatives meet producers’ supply needs.

The effectiveness of cooperatives influences producers input costs and, consequently, their profitability. Likewise,

the marketing functions that cooperatives perform influence farmers’ ability

to market their commodities and

directly affect the profitability of producers’ operations. Cooperatives, like

other input suppliers and service

providers, are a critical part of the food

and fiber industry’s supply chain. 

Another aspect of cooperative operations, which is the focus of the following discussion, is as a source of

local employment and income. It is

also a source of goods and services to

non-agricultural rural residents. In

other words, cooperatives function as a

critical element in sustaining a community’s economic base.

Direct impacts of local cooperatives

Thirty-five cooperatives in both

Colorado and Indiana provided information about the number of people

they employed. The Colorado cooperatives employed 1,524 people, who

earned a total of $20.94 million. Using

employment and income multipliers for

the retail establishments of 1.74 and

2.25 respectively, estimated total

employment and income impacts associated with the Colorado cooperatives

in the sample is 2,652 jobs and nearly

$47.13 million in total income. The

Indiana cooperatives reported a total

employment of 2,651 and income of

$36.43 million. These jobs stimulated a

total employment impact of 4,613 jobs

and nearly $81.98 million of income.

What loss of co-ops would mean to

jobs and business service

To estimate the impact of cooperatives as a source of local employment,

in addition to the retail/service support

they provide for agricultural producers, cooperative managers were asked

what local employment and business

impact would be felt by the local economy if the cooperative were to go out

of operation. The managers were

asked to estimate what share of their

employees would have to move out of

the county or be unable to find

employment. They were also asked to

estimate what share of their business,

in terms of sales of products and services such as farm supplies, would be

moved to business establishments outside of the local economy.

Managers of the Colorado cooperatives estimated that 429 (28 percent) of

the 1,524 people who work for their

cooperatives would have to move out

of the county to find work. While

these jobs would not be lost to the

Colorado economy, they would be

shifted from the rural areas to other

communities. The result would be a

decline in the employment base of the

local economy. 

For many farming communities, the

probability is low of other investment

coming into the county to create

replacement jobs. Additionally, the

cooperative managers indicated that

about 32 percent of sales of products

and services from all reporting cooperatives would have to move to suppliers

in counties outside the economy where

the cooperative currently operates.

The reporting cooperatives indicated that they had $472 million in sales

during 1999 and would lose $163 million of sales to suppliers outside the

For many farming

communities, the

probability is low 

of other investment

coming into the

county to create

replacement jobs

(when co-ops close). 
28 March/April 2004 / Rural Cooperatives

county if the cooperative were not in

business. Twenty-four of the 33 cooperatives indicated that local business

would be lost. On average, the cooperatives estimate that 37 percent of total

business would be lost. The range was

15 to 100 percent. 

Managers for the Indiana cooperatives estimated that 265 people (18

percent) working in the 2,651 co-op

jobs would have to move out of the

local economy to find work if the

cooperative went out of business.

Higher population densities and

greater economic diversification in

rural Indiana counties lessen the

potential impact of employment losses,

but the loss would be substantial for

the most remote counties. 

The Indiana co-op managers estimated that 27 percent of sales of

products and services from all reporting cooperatives would move to

another county if a cooperative went

out of business. The cooperatives,

which reported more than $1.07 billion in 1999 sales, said the county

would lose $289 million in sales if the

cooperative were not in business.

Twenty-seven cooperatives said local

sales in the range of 15-75 percent

would be lost.

Comparing Colorado and

Indiana economies

While the agricultural sector is an

important part of the economies for

both Colorado and Indiana, the states

and the regions they represent are

quite different. Indiana is part of the

established manufacturing region of

the country. Manufacturing is the

largest employment sector, accounting

for about 22 percent of all jobs and 32

percent of gross product in Indiana

(Bureau of Economic Analysis). 

The service sector is the second

largest sector in the Indiana economy,

accounting for 17 percent of gross

state product. Indiana’s population of

just over 6 million has grown 11 percent during the past 20 years. And

while Indiana boasts a strong, diversified agricultural sector, every Indiana

resident is within 60 miles of a major

city, so off-farm employment possibilities exist for farm families. Just over

1.6 million people, 26 percent of the

state’s population, live in the

Indianapolis metropolitan area. 

Colorado, part of the Great Plains

region, has an economy based on services and finance, real estate and insurance (FIRE). The service sector

accounts for the largest share of the

state’s value-added activity, contributing 23 percent of gross state product.

FIRE accounts for 17 percent (Bureau

of Economic Analysis). Colorado’s

population of 4.3 million is 49 percent

larger than in 1980. About 60 percent,

or 2.85 million, of the state’s total population live in the Denver metropolitan area. The manufacturing sector

contributes 10 percent of gross state

product. The state is known for some

of the nation’s best vacation and recreation sites, a fact that supports the

importance of the service sector to the

state economy. 

The rural areas of Colorado and

Indiana are different from each other

in economic structure, farm structure

and population density. According to a

classification system developed by the

USDA Economic Research Service, 30

rural Indiana counties (or 55 percent

of the state’s non-metropolitan counties) are classified as manufacturing

dependent (table 1). This means that

30 percent or more of total personal

income in each of these counties was

earned from manufacturing wages and

salaries. Only three Indiana counties

Table 1–Selected characteristics of non-metropolitan counties

Indiana Colorado 

Farm-dependent Manufacturing- Farm-dependent Manufacturingcounties dependent counties counties dependent counties 

Number of Counties 3 30 17 0 

Population 25,000 1,093,000 86,000 - 

Population/County 8,198 36,432 5,074 - 

Persons/Square Mile 29.6 87.6 3.3 - 

State Population 6,080,485 4,301,261 

Source: USDA Economic Research Service’s 1989 Revised County Typology; Census

continued on page 32

The cooperative

obviously represents

an integral part of

the county’s economy. It provides local

jobs and is a major

supplier of goods 

and services.
Rural Cooperatives / March/April 2004 29

Iowa Turkey Growers Co-op

expands new processing plant

The Iowa Turkey Growers

Cooperative (ITGC) is expanding its

Mount Pleasant Foods slicing plant

from 55,000 square feet with 12 slicing

rooms by an additional 25,000 square

feet and eight slicing rooms. The coop’s workforce at the plant will expand

from 250 to 400. ITGC has also

formed an alliance with Millard

Refrigerated Services, of Omaha, Neb.,

to build a cold storage warehouse adjacent to the Mount Pleasant facility.

The expansion of Mount Pleasant

Food and construction of the Millard

warehouse are expected to be complete

by late this summer. 

When it opened in June 2003 to

further process turkey, ham and beef

products, ITGC leaders thought the

Mount Pleasant facility would meet

the co-op’s needs for about three years.

But customer demand has grown so

rapidly that the

timetable had to be

shortened, according

to Ken Rutledge, coop president. 

ITGC operates two

other processing

plants, West Liberty

Foods and Sigourney

Foods, which ship

fully cooked, ready-toeat meat products to Mount Pleasant

for slicing. Slicing in a separate facility

helps to ensure food safety. Mount

Pleasant processes and sells deli and

meat products for several national

retailers, including 1 million pounds

of turkey annually for Subway, sandwich “set-ups” for Wal-Mart and

sliced turkey and ham for Denny’s

restaurants. 

Finished product will move from

the Mount Pleasant plant by conveyor

belt directly to the Millard facility next

door for storage and distribution, says

Ed Garrett, ITGC senior vice president and chief operating officer.

Miller’s 60,000-square-foot warehouse

will have both refrigerated and frozen

storage, with a capacity of 52 million

pounds of meat products. It will

employ 30 people. ITGC has annual

sales of $200 million and a workforce

of 1,500. 

Georgia oilseed co-op plan

launched with USDA grant 

Georgia’s Farmers Oilseed

Cooperative (FOC), after more than

two years of planning, has hired its

first CEO and launched a stock drive.

Robert Carlson, a native of Minnesota

and a veteran in the oilseed business,

was hired in November and is now

directing the day-to-day operations of

the co-op. Carlson has extensive expeNEWSLINE

Compiled by Dan Campbell

Send items to: dan.campbell@USDA.gov

falters or does not grow as

planned. Most lenders would

prefer this ratio to be 3 or lower.

Farm supply cooperatives had a

debt-to-equity ratio of 0.57,

which is better than average.

• Activity ratio turnover — also

called “efficiency ratios,” measure activity or changes in certain assets. Poor turnover generally indicates resources are

invested in non-income-producing assets. The inventory

turnover ratio measures how

quickly inventory is sold and

replaced each year. An inventory

turnover of 12 means inventory

is sold (turned over) once each

month. The times-interestearned ratio measures a company’s ability to make interest payments on debt. If the ratio does

not exceed the interest rate on

current debt, the business may

not be making enough to pay

interest expenses. 

• Profitability ratios — vary from

industry to industry and should be

compared to a company’s ratios for

prior years/periods. The returnon-assets measures how well a

company is using its assets to generate net profits. The return-onmember equity ratio measures a

company’s return on members’

money. Marketing cooperatives’

gross profit margin was lower than

cooperatives in the surveyed

group. This may be an indication

of lower demand for their products or higher production of marketed products (crops). ■

Net income, sales decline for local co-ops continued from page 25

Business is booming, so the ITGC slicing plant in Mount

Pleasant is undergoing a major expansion. Photo courtesy ITGC 
30 March/April 2004 / Rural Cooperatives

rience running an oilseed processing

plant and in marketing the finished

product, both nationally and internationally.

One of Carlson’s first actions was to

launch a class-A stock sale. One share

of the stock represents a 50-pound unit

of commodity: canola, soybeans or

other oilseeds. The co-op will need to

sell over 10 million shares to fully utilize its planned crushing and refining

facility. Promotional material is being

sent out to all Georgia oilseed producers. The co-op’s board anticipates that

stock sales will continue for about 10

months.

FOC has been assisted in its planning efforts with a Value-Added

Development Grant awarded in 2002

by USDA Rural Development. The

USDA funds were used to complete a

business plan, finish securities work and

pay for other organizational expenses.

The co-op board has worked closely

with the University of Georgia and the

RBS Cooperative Development division of USDA Rural Development

throughout the planning process, the

goal of which is to increase on-farm

income and to create a positive impact

on Georgia’s rural economy. Visit:

www.farmersoilseed.com for more

information.

Iowa Premium Pork selling

stock for plant purchase

Iowa Premium Pork Co. (IPPC), a

farmer-owned co-op, is attempting to

raise $6.5 million to buy a processing

plant the Hartley, Iowa. The plant is

owned by PM Beef Holdings LLC, of

Richmond, Va., which closed it a year

ago after it expanded a similar plant in

Minnesota. IPPC farmer members are

being asked to invest $10 to $12 per

share, up to 1.7 million shares, in a

subsidiary called Majestic Food Group

LLC. Majestic plans to acquire the

processing plant and have hogs

slaughtered at other plants. Plans call

for 1,000 hogs to be processed daily,

building to 2,000 daily within a month

after operations begin this summer.

Within three years, the co-op plans to

process 6,000 hogs daily, or about 1.5

million per year. The plant will employ

130 people. 

NMPF says CWT program 

having major price impact 

The National Milk Producers

Federation is projecting that dairy producers in Wisconsin and Minnesota

ject. Funding for the project came

from many sources, including the city

of Milford, Dickinson County

Economic Development Group, the

Iowa Department of Economic

Development, the Iowa Energy Center

and CoBank. 

“Our cooperative is a 101-year-old

company operating as a traditional

Chapter 499 (Iowa Code) cooperative,”

Kevin Hartkemeyer, general manager

of the Farmers Co-op Elevator Co.,

says in an article in the Iowa Institute

for Cooperatives newsletter. “One

required provision of being a 499 cooperative is that a minimum of 20 percent

of all profits must be returned to our

member/owners each year. However,

we return 40 percent of all our company’s profits in cash. This makes it very

difficult, if not impossible, for even a

profitable company like ours to build

large sums of venture capital needed

for a project like this. 

“Having extra capital in addition to

the normal working capital it takes to

run a corporation our size can be challenging, especially when trying to grow

a company like ours. With that in

mind, we knew it would be necessary to

tap nontraditional sources of funding

for us to complete this project.” 

In June 2002, the co-op learned that

it might be eligible for a USDA Value

Added Development Grant after visiting with Dave Holm from the Iowa

Institute of Cooperatives and with Jeff

Jobe, director of cooperative services

with USDA Rural Development. 

“Since we were almost half done

with the construction of our plant, we

focused on the feasibility of obtaining

a working capital grant,” Hartkemeyer

continued. It was a tough decision to

decide whether it was worth the large

effort it would take to obtain a grant.

“To help our decision-making

process, I contacted Dick Drahota of

the Storm Lake Rural Development

Office. Dick came to my office and sat

down with my project manager and

myself, and very extensively reviewed

the program and its intent. We went

step by step through the evaluation criteria, and compared our scope and

intent – it was critical that these complimented each other. Based on our

review, we reached the conclusion that

our project should be on target with

most of the evaluation criteria. 

“Dick then went carefully through

each step of the application process. As

an applicant, we had to evaluate if the

detail of each step in the application

process might be too involved and outweigh the possibility of potential

reward. We reached the conclusion

that while this would be a lengthy and

very detailed process, it was pretty

straight forward and there were obviously people in the USDA that were

very willing to give advice and answer

questions.” 

As a result of their work, Farmers

Co-op Elevator Co. was awarded a

$500,000 grant for working capital to

assist in the start-up and operation of a

soy biodiesel plant. 

Hartkemeyer says “that only

because of this program was the

cooperative able to commit resources

to this project, without having to

borrow additional funds for the

development of this project. It also

allows our entire membership to capture the benefits of this type project,

without having to form a new, closed

membership business where only a

few of the cooperative members

would participate.” ■

Biodiesel project looks promising for Iowa cooperative continued from page 9
Rural Cooperatives / March/April 2004 31

will realize an additional $200 million

of income by September as a result of

the Cooperatives Working Together

(CWT) program. CWT is an industry-sponsored and funded self-help

effort to boost prices to farmers by

reducing surplus milk production.

Participating farmers pay a 5-cent fee

on every 100 pounds of milk they produce, which NMPF uses to pay other

producers for reducing their production or selling their herds. The herd

retirement part of the CWT program

has removed 33,000 cows from the

nation’s milking herd of 9 million

cows. Others have cut back production

by changing feed programs or stopping

use of growth hormones, etc. 

Milk prices have risen from $11 per

hundredweight to about $13.50 in

much of the Upper Midwest since the

program was launched. Even many

critics are now calling the program a

success, according to press reports.

“With prices at record lows for 22

months, you had to do something,”

Waterloo, Wis., dairyman Todd Topel

told the Associated Press. “It seemed

to have some effect,” he added, noting

that he was not participating in the

program. 

California Co-op Center closes;

services continue via Extension

Despite extensive support from the

co-op community, the University of

California Center for Cooperatives in

Davis closed Jan. 5, a victim of budget

cutbacks. However, rural cooperatives

will continue to be supported by the

university, which is moving the position of the center’s director, Shermain

Hardesty, to a specialist position in the

Cooperative Extension of the university’s Agricultural and Natural Resources

Division. Hardesty says she expects to

establish a new co-op center within the

department. 

This smaller co-op center would

continue to support the development

of new rural cooperatives in California,

as well as addressing issues related to

established rural cooperatives. In addition to Hardesty, the center will be

staffed by a half-time program assistant

and graduate research assistants. The

center’s mission will be to continue to

provide research, education, extension

and outreach to the state’s co-op community, and to administer USDA

Rural Cooperative Development

grants. 

Wisconsin home-healthcare

co-op named national finalist

Waushara County,

Wis., and the

Cooperative Care

home-healthcare

co–op are one of 50

finalists for the 2003

Innovations in American

Government award – considered by may to be the “Oscars” of

public service. The award is bestowed

United States through its strategic

location on the Kansas City Southern

Railway. 

TransCon is initially focusing on

three areas of concentration: distribution, malting and brewing operations.

TransCon has acquired the trademark

of the former Pony Express

Brewing Co. and is operating under

the name “Great Plains Brewing Co.” 

The co-op has 153 members, 90

percent of whom are producers. 

“The other 10 percent are

involved in other businesses which

add value in other ways that an everyday producer could not, i.e., marketing, finance, retail, distribution, etc.,”

Effertz says. 

Stock sold at $10,000 per unit, with

the option to buy 1-3 units.

“We started our drive Jan. 1, 2003,

and we were funded by May 15th,”

Effertz says, adding that the co-op may

do an additional membership drive or

spin off one of its three operations into

a separate co-op. 

TransCon is researching the opportunity to malt alternative grains from

the fields of its producers. These

grains include sorghum, soybeans, rice,

corn, buckwheat and others. Having

the ability to distribute these grains,

whether in raw form or in any other

stage of production, down to a final

product, is the ultimate goal of the coop, says Effertz. 

Extensive research was conducted to

determine the initial product offering,

brand positioning and marketing

strategies. Consumer research was

conducted with key beer-market target

segments across the country and with

Chinese nationals. Research indicated

brand positioning that could have high

appeal with both young and more

mature beer drinkers. 

The brand attribute most valued by

the target market is the brand’s

American persona. The distinction of a

brewery solely owned by the agricultural producers of the ingredients is

greatly valued by beer drinkers and

seen as an additional assurance of quality and freshness. The market research

led to a campaign focused on American

themes of patriotism and independence. 

The label design and packaging feature eye-catching photographs of grain

fields and patriotic imagery that position Pony Express as an all-American

beer. In addition to glass bottles, polyethylene terephthalate (PET) bottles

allow the beer to be sold at sports stadiums and golf courses. The Pony

Express bottles use a multi-layer construction that incorporates a patented

oxygen scavenger. In the past, beer in

plastic bottles had a short shelf life, but

the multi-layer technology keeps the

beer fresher longer by minimizing

light strike and oxygen ingress while

protecting against CO2 loss. The 16

oz. PET bottles were specifically

designed to run through existing glass

lines to minimize the cost impact of

adding PET bottles to the packaging

mix. ■

Missouri-based co-op brewery unveils Pony Express line of beer continued from page 20
32 March/April 2004 / Rural Cooperatives

by the Kennedy School of

Government at Harvard University. 

Cooperative Care is an 89-member,

worker-owned co-op of home health

care providers who assist the elderly

and disabled to live independently in

their homes. The co-op development

process began in September of 1999

and became operational on June 1,

2001. For more on the co-op, see the

May-June 2003 issue of Rural

Cooperatives, pages 9-12 (on-line at:

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

A competitive judging process will

choose 15 finalists, to be announced in

March. The National Selection

Committee on Innovations in

American Government, chaired by

David R. Gergen, editor-at-large of

U.S. News & World Report and

director of the Center for Public

Leadership at Harvard University, will

then choose five winning programs,

which will be announced on July 28,

in Washington. Winners receive

$100,000 grants to promote and replicate their innovative efforts.

Jim Quane of Harvard University

visited Wautoma, Wis., February 25-

27 to examine Cooperative Care’s

innovative approach and best practices.

If the co-op’s application makes it to

the next round, a team from Wautoma

will be flown to Harvard to present the

Cooperative Care story before a distinguished panel of judges.

Ralph Bunje, farm co-op

bargaining leader, dies at 92

Ralph Bunje died Nov. 8 at the age

of 92. A nationally recognized farm

leader, orator and innovator, Bunje

served as president of the California

Canning Peach Association from 1950-

1974. He was considered the dean of

farm bargaining for over 50 years. He,

along with Joseph Knapp, a former

administrator of the USDA Farmer

Cooperative Service, was instrumental

in initiating the National Bargaining

are classified as farm dependent —

counties in which 25 percent or more

total personal income over the past five

years was earned in the farm sector. In

Colorado, by contrast, 17 of 53 nonmetropolitan counties were classified

as farm dependent. No Colorado

counties were classified as manufacturing dependent. 

The number of people impacted by

agriculture in the respective states is

noteworthy. About 25,000 people live

in Indiana’s three farm-dependent

counties. There are 17 farm-dependent

counties in Colorado. There are 3.3

persons per square mile in the farmdependent counties of Colorado compared to 29.6 (nine times greater) persons per square mile in the farmdependent counties in Indiana.

While it is useful to examine the

impacts of local cooperatives on

employment and income at the state

level, those aggregate measures may

not tell the complete story with

respect to their importance to rural

communities. To illustrate the impact

from the perspective of rural communities, one locally owned agricultural

cooperative’s county level data was

evaluated. In this one Colorado county, the local cooperative accounted for

20 of the 807 civilian jobs. In that

same county there were 47 private,

non-farm establishments. The cooperative operated a convenience store,

retail gasoline station, retail farm supply outlet, car-care operation, and

grain-marketing facility, and it sold

animal health and feed products as

well as liquid propane, fertilizer and

bulk petroleum. 

The cooperative obviously represents an integral part of the county’s

economy. It provides local jobs. It also

is a major supplier of goods and services to the local economy. If cooperatives in remote rural counties like this

were to go out of business, jobs would

be lost and consumers could lose

access to critical retail markets.

Conclusions

Agricultural cooperatives are an

important source of income and

employment in Colorado and Indiana.

Seventy reporting cooperatives account

for 4,175 jobs and an estimated $56

million in income in the two states.

The combined total employment and

income impacts associated with the

operation of the cooperatives are:

7,265 jobs and $129 million in personal income.

While the income and employment

contribution of cooperatives is important to the state economies, cooperatives can be a critical income and

employment source to remote rural

communities. 

To the extent that a community

can sustain a cooperative as a viable

local enterprise, it is maintaining the

associated income and employment in

a community that would not be competitive in attracting other private

business capital (manufacturing,

retail, or service) because a business

could not achieve the scale of operation to obtain a competitive return on

investment. 

Given the presence of cooperatives

in rural communities, rural development programs should consider the

importance of sustaining cooperatives

as viable businesses for their

income/employment contribution to

the local economy. Policy might also

consider strategies that use the management and other resources of local

cooperatives as a building block for

development activities that expand the

availability of goods and services to

rural residents.

References:

For references, contact Sue Hine 

at (970) 491-7370, or

suehine@lamar.colostate.edu. ■

Weighing in continued from page 28
Rural Cooperatives / March/April 2004 33

Conference in the early 1950s, which

continues to meet annually. 

Bunje was also instrumental in coalescing California and national bargaining groups in supporting passage of the

Agricultural Fair Practices Act in 1967.

At the behest of Randall Torgerson,

then administrator of the USDA

Agricultural Cooperative Service, Bunje

authored the book “Cooperative Farm

Bargaining and Price Negotiations,”

published by USDA in 1980 (as

Cooperative Information Report 26). It

is still in demand and was recently

reprinted by USDA. It is a publication

of enduring importance that is used by

many farm groups today. 

Bunje emphasized the importance

of having a well-informed board of

directors as a key to successful cooperative organizations. He also strongly

believed in political action and member involvement.

Ron Long, A.I. innovator,

retires from Select Sires

Ron Long, a respected innovator in

the artificial insemination (A.I.) industry, has retired after 30 years with

Select Sires. Long, who was vice president, dairy sire procurement, retired

Dec. 31. Long began his career with

Select Sires in 1973, working on a

dairy herd-consultation service. This

program, Select Mating Service, has

since evolved into the largest mating

program in the world, conducting

more than 3 million matings per year.

“Without a doubt, Ron Long is the

most respected person in the A.I. business for his cow knowledge,” says Lon

Peters, manager of SMS, Select Sires.

“He has traveled to all corners of the

world to judge cattle shows, and to discuss genetics and the economic impact

that good corrective-mating programs

can have. Ron is a one-in-a-million

individual who will be missed at Select

Sires.”

In addition to his accomplishments

with Select Sires, Long has been an

industry leader, serving as president of

National Dairy Shrine, on the

Holstein Association USA Type

Advisory Committee and Genetic

Advisory Committee, on the National

Association of Animal Breeders

(NAAB) Standardization of Type Traits

committee and on the Ohio State

University Dairy Science Advisory

committee. This national and international dairy judge was also elected into

the Ohio State University Dairy

Science Department Hall of Fame.

Based in Plain City, Ohio, Select

Sires Inc. is a federation of 10 farmerowned and -controlled cooperatives.

Community credit union

to serve low-income co-ops 

Northcountry Cooperative Federal

Credit Union (NCFCU), a new community development credit union, is

helping to make affordable home

ownership available to more people

across Minnesota and the Upper

Midwest. The credit union will make

loans to housing cooperatives and

members of housing cooperatives to

secure affordable home ownership

through owner-occupied housing

cooperatives. The credit union also

offers socially motivated investors an

opportunity to support the developCo-ops as bulwarks

of rural living 

The larger culture — in the symbols they embrace, and the massive

consumption they pursue — seeks

greater attachments reminiscent of

rural family farms and communities.

Agricultural cooperatives are at the

center (economically and sociologically) of many of these images. While

pursuing individual collective benefits

of farmers has kept many in business,

the mutual collective benefits of

retaining family farmers in business as

a group has not been emphasized.

The lost benefits of rural living generally, are rarely considered. 

Yet agricultural cooperatives have a

rich history of pursuing the interests of

people seeking change in their lives.

Embracing the desire to continue living

out a rural identity, as rural residents —

including managers, employees, farmers, families, husbands, wives and children — could provide a base to actively

carry, if not protect, rural culture. 

Re-shaping cooperative rural presence as an organization with the commitments of farmers — as being reared

on a farm — in rural communities that

value decentralized living, neighborliness and closeness to the seasons and

food production, might serve to make

explicit the mutual and collective interests of rural residents generally. The

democratic aspects of cooperative

organization, service and voluntary

collective action are quite congruent

with the older democratic, republican

values of rural people (Lauck). 

Perhaps cooperatives, even if only

in support of the activities of others,

could help pursue alternatives that are

more directed toward deepening rural

traditions and culture, sustaining

smaller rural communities, as well as

the survivability of farmers. This

broadening would require agricultural

cooperatives to augment their older

agendas of “getting a fair share,” and

greater power (the freedom to have) to

one of “a freedom to be”— to continue

to embrace, live out and express their

identities as rural residents. ■

Exploring a greater role for agricultural cooperatives in sustaining rural living continued from page 23

Ron Long is a leading genetics expert

who travels around the globe to judge

cattle shows. Photo courtesy Select Sires
34 March/April 2004 / Rural Cooperatives

ment of affordable housing in their

communities while enjoying the safety

of federal deposit insurance. 

“NCFCU’s primary mission is to

increase access to financing products

for housing cooperatives and their

members,” says Margaret Lund, executive director of Northcountry

Cooperative Development Fund

(NCDF), sponsor organization for the

credit union. “Housing cooperatives

are one of the best entry-level home

ownership opportunities that exist.

Unfortunately, widespread use of this

important tool is hindered by the fact

that few conventional lenders know

how to lend on these properties. The

credit union will be a catalyst, providing communities across the upper

Midwest access to this vital wealth

building opportunity.”

NCDF is a Community

Development Financial Institution

(CDFI) and has been making loans to

cooperative enterprises across the

regional Midwest since 1978. NCDF is

structured as a cooperative, with over

100 member cooperatives, and acts as a

catalyst for the development and

growth of cooperative enterprises. 

Co-ops gain North American 

option for .coop registration

Cooperatives now have a North

American option for registering or

renewing .coop Internet addressees.

Pennsylvania-based Domain Bank

Inc., 10th largest registrar in this

country and among the 20 largest in

the world, has begun registering .coop

names in addition to other popular

Internet domains such as .com, .net

and .org. 

“Domain Bank is highly regarded in

the industry and a North American registrar is something we all have wanted

for some time,” said Paul Hazen, CEO

of the National Cooperative Business

Association, which won approval for the

.coop top-level domain in November

2000. Hazen said a key advantage of

using Domain Bank is its full range of

services for those registering .coop

names. For example, he said, Domain

Bank offers free and easy activation of

Internet names as part of its registration

fee. In addition, it offers forwarding services for email and website support services for a seamless transfer from a .com

or .org address to .coop. ■

Penlight restores 

power in record time

Winter storm conditions in January

tested the reliability of Peninsula Light

Company’s (Penlight) distribution system, but the 26,000-member electric

cooperative reports that it passed with

flying colors. CEO Rob Orton said

that many

other utility

customers

in the Puget

Sound region were without power for

days. “Our response time has significantly improved,” said Orton, who

credits the co-op’s accomplishment to

its power-reliability program, which

“undergrounds” overhead lines,

replaces old underground cable and

trims “rogue tree branches.” 

Competition for milk 

leads to volume premiums

The hottest membership issue for

the past couple of years has been the

volume premiums the co-op pays to

large producers. Some members with

smaller farms view them as unfair, but

the Cass-Clay board feels it has to

offer them to maintain the milk volume needed to keeps its plants operating at maximum efficiency.

To understand why, one must consider the changing farm demographics of the area. In the mid-1980s, the

co-op’s largest farm had about 200

cows. Today, it has eight members

which each milk 800 to 1,000 cows

and account for nearly 25 percent of

the co-op’s milk volume. Still, the

average farm in the co-op has about

50 cows. 

Cass-Clay competes for milk with a

number of other, larger co-ops, including DFA, Land ‘O Lakes and AMPI, as

well as some private purveyors.

However, co-ops in the area often

work together. For example, CassClay and DFA have a co-hauling

arrangement that has saved both coops money. 

“We need those large members, but

then the smaller members feel they are

not being treated fairly. It’s a balancing

act – how far do you go with premiums?” Pagel says. 

The competition for milk has

grown as the number of farmers quitting the business in the Upper

Midwest has risen. The average age of

a dairy producer in the region is about

57, and even though it’s not unusual

for a farmer to work into his or her

70s, there’s a definite horizon issue.

(See sidebar.)

“Personally, I don’t like the volume

premiums,” Glawe says. “But if you’re

competing with others that initiated

them, we have little choice. We can’t

make our co-op a sacrificial lamb for

the sake of principle. Right now, you

have to do it to get the product you

need to keep your plants operating

efficiently. I’d says the general feeling

of the board is that it’s necessary, but

we’re not fond of it.”

Given current trends, Pagel thinks

volume premiums will soon pass away

on their own, which he notes has

already occurred on the West Coast. 

Not too many years ago, quality

premiums were the hot issue of the

day, notes Pagel, whose nearly two

decades with Cass-Clay, including 11

years as manager, have changed his

attitude about co-ops.

“There is such strength in the

membership and in their commitment

to see this business succeed,” says

Pagel. “Their participation has been

instrumental in shaping the direction

and success of this co-op every step of

the way.” ■

Making good things continued from page 8
Rural Cooperatives / March/April 2004 35
36 March/April 2004 / Rural Cooperatives

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