Rural

COOPERA COOPERATIVES

USDA / Rural Development May/June 2007

Northwest

Co-ops:

From Forest

to Ocean

page 24

Northwest

Co-ops:

From Forest

to Ocean
In an average year, 1,200 tornadoes

will rip through America. These storms

often develop and move at astonishing

speed, sometimes allowing those in the

path only a few minutes of warning to

find shelter. This renders conventional

warning systems — such as television and radio — inadequate,

since if you’re not listening or watching, you won’t get the

warning in time. 

One answer to this problem is a self-activating radio

receiver that emits a loud alarm when a storm warning is

issued. The National Oceanic and Atmospheric

Administration’s (NOAA) Weather Radio All Hazzards

System uses special transmitters that broadcast on assigned

frequencies and can be picked up by special receivers. The

receivers are left in a quiet “standby” mode until a storm

signal is issued, which activates the receiver and emits a loud

warning signal to everyone in earshot.

The awesome, terrible power of tornadoes — and the

importance of early warnings — was once again driven home

May 5, when the town of Greensburg, Kan., was virtually

wiped off the map by an F-5 tornado, with winds in excess of

200 miles per hour and a funnel that was more than a mile

wide. Seeing the photos on the front pages of the morning

newspapers the past few days, one can only wonder how most

of the 1,400 residents survived (there were about 10

confirmed deaths as of this writing). The only recognizable

structure left standing was a grain elevator. The town was

otherwise utterly devastated, looking like the target of a

wartime saturation bombing. 

News accounts indicate that residents received a warning

about 20 minutes before the tornado struck, which doubtless

was the reason the number of fatalities was not far higher.

This underscores the importance of a Newsline item on page

39 of this issue, concerning an announcement Agriculture

Secretary Mike Johanns made in March about USDA Rural

Development awarding $415,000 to extend coverage of the

NOAA Weather Radio All Hazzards System.

As of March, the Rural Utilities Program of USDA Rural

Development has awarded 92 grants under its Weather Radio

Transmitter Grant Program to extend the coverage of the

system. These grants cover 100 sites in 26 states and Puerto

Rico. Of the grants, 21 have been awarded to electric and

telecommunications cooperatives. Co-ops have been major

supporters of the program

and often make their

telecommunications towers

available for antenna and

transmitter placement. For

more details on the program,

visit: www.usda.gov/rus/telecom/weather/weatherradio.htm,

or call Craig R. Wulf, (202) 720-8427; or e-mail craig.wulf

@wdc.usda.gov.

Tragedy hits home

Among the buildings pulverized in Greensburg was the

USDA Service Center office, which included USDA Rural

Development offices. A day or two after the storm, an e-mail I

received related the story of one staff member and her

husband who lived about a mile south of Greensburg. “Their

two-story home collapsed on them and they were trapped

until neighbors could get them out,” it said. It then relates

how another USDA staffer helped pull “several people out of

homes” before returning to find his own home demolished. 

Another “storm dispatch” that landed in my e-mail a day

after the tornado came from the Kansas Cooperative Council

(KCC), which did a quick survey of the tornado’s impact on

its member co-ops and has been doing an outstanding job

marshalling efforts of the co-op community to help the

victims. It says: “Southern Plains Co-op, Lewis/Greensburg –

Four employees lost homes, along with most of the other

residents of the town. The co-op facilities in Greensburg

were, for all essential purposes, lost. Co-ops from the

surrounding areas are lending personnel and equipment to aid

in the relief effort.” 

The KCC report goes onto list the storm’s impact on a

number of other area co-ops, adding that, “Our hearts go out

to those families who lost loved ones. We encourage co-op

members to take the opportunity to act on one of our core

cooperative values, commitment to the community, by doing

what you can to help at the appropriate time.”

KCC has set up a disaster relief fund. For more

information contact: Kansas Cooperative Council, PO Box

1747, Hutchinson, Kansas 67504, or leslie@kansasco-op.coop.

— Dan Campbell, Editor ■

COMMENTARY

Heed the Call 

2 May/June 2007 / Rural Cooperatives

USDA photo by Tim Rogers 
Rural Cooperatives / May/June 2007 3

Rural COOPERATIVES (1088-8845) is published

bimonthly by Rural Business–Cooperative Service,

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Ave. SW, Stop 0705, Washington, DC. 20250-0705.

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Copies may be obtained from the Superintendent of

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Unless otherwise stated, contents of this publication

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

discrimination in all its programs and activities on

the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial

status, parental status, religion, sexual orientation,

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all prohibited bases apply to all programs.) Persons

with disabilities who require alternative means for

communication of program information (Braille,

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To file a complaint of discrimination, write to USDA,

Director, Office of Civil Rights, 1400 Independence

Avenue, S.W., Washington, D.C. 20250-9410, or call

(800) 795-3272 (voice), or (202) 720-6382 (TDD). USDA

is an equal opportunity provider and employer.

Mike Johanns, Secretary of Agriculture

Thomas C. Dorr, Under Secretary,

USDA Rural Development

Jack Gleason, Administrator, 

Rural Business-Cooperative Programs

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or

Fax (202) 720-4641

This publication was printed with vegetable oil-based ink.

Rural COOPERA COOPERATIVES

May/June 2007 Volume 74 Number 3

p. 4

p. 14

p. 24

p. 33

On the Cover:

Co-ops in Washington state are meeting a wide variety of needs,

from the state’s mountain forests to its coastal fisheries. Forest

landowners in the Okanogan County area have formed a co-op to

help improve forest health. Seen here is Patterson Lake. Photo by

Don Portman, courtesy Okanogan County Tourism Council

FEATURES 

4 When a Co-op Dies 

Long-time gin closes doors, one more casualty of California’s shrinking cotton industry

By Catherine Merlo

14 Shouldering the risk

Strategy for risk management essential to moving cellulosic technology forward

By Anthony Crooks

19 Producer ownership of ethanol a major

plus for rural America 

By Dan Campbell

24 From Forest to Ocean

Diverse Washington co-ops show business model flexibility

By Dan Schofer

28 Wisconsin farmers, small businesses benefiting from new health-care co-ops 

By Anne Todd

30 Where Credit Is Due

Russian farm credit officials study American finance model

By Perry Letson

33 Co-ops Focus Collective Action 

Business structure still helping producers address power disparity in the marketplace

By Thomas W. Gray

DEPARTMENTS

2 COMMENTARY

8 CO-OP DEVELOPMENT ACTION

12 LEGAL CORNER

23 MANAGEMENT TIP 

36 NEWSLINE

42 PAGE FROM THE PAST
4 May/June 2007 / Rural Cooperatives

By Catherine Merlo

Editor’s note: Merlo is a Bakersfield,

Calif.-based writer/editor with extensive

experience writing about cooperatives and

the issues that impact them.

arry Gallian grew up

with Visalia

Cooperative Cotton

Gin in his blood.

Gallian’s father served

as gin superintendent of the California

operation from 1951 until 1982,

helping build it into one of the bestknown cotton businesses in the San

Joaquin Valley. 

At its peak, the gin annually

produced 30,000 bales of cotton and

returned about $1 million to members

after ginning costs. Every July, up to

1,500 people from the surrounding

community flocked to the gin for the

“Tennessee Bologna Feed” put on by

Gallian’s father.

The younger Gallian continued the

gin’s prominence after he took over as

Visalia Co-op’s manager in 1964. He

would go on to serve as president of

each of the state’s two ginners’

organizations and was named ginner of

the year by the California Cotton

Ginners Association in 1991.

But today, Visalia Co-op is a thing of

the past, its membership disbanded, its

doors closed, its ginning equipment

L

When a Co-op Dies

Long-time gin closes doors, one more casualty

of California’s shrinking cotton industry
shuttered and silent. The sandy parking

lot, once filled with the pickup trucks of

farmers who stopped by early each

morning for coffee and news, is empty.

The very bones of the business – the

gin stands, the bale presses, the seed

storage site – have been sold. Only

Gallian, 63, stops by now, unable to

resist looking at the place where he

spent most of his life, a site many

consider a north Visalia landmark. 

Fifty-six years after it began, Visalia

Co-op formally ceased operations on

Dec. 31, 2006, victim not to bankruptcy

or merger but to the same forces that

have overtaken California’s oncethriving cotton industry. High costs,

urban sprawl and a shift to more

profitable permanent crops are

dethroning King Cotton in the Golden

State. 

California’s cotton production has

been declining for 25 years, and today is

only about a third of what it was in its

benchmark 1981 season. That year, the

state turned out 3.53 million bales, a far

cry from the 1.28 million bales

California will likely produce in 2007.

Estimates put the state’s 2007 cotton

acreage at about 460,000, down from

560,000 last year and a dramatic drop

from the 1 million acres planted in the

early 1990s. 

As cotton acreage has waned, so too

has California’s cotton ginning industry.

Once dotted with 299 cotton gins,

California is now home to only 61

surviving gins, according to the

California Cotton Growers and

Ginners Associations (CCGGA). Of the

remaining gins, 19 are co-ops.

Fighting to survive

For a while, Gallian thought he

could keep Visalia Co-op from suffering

the fate of other gin casualties. “We

fought it for years,” he says.

After all, the gin sat in the heart of

Tulare County, one of the top three

agricultural counties in the nation.

Visalia, located about 45 miles south of

Fresno, had always depended on

farming. And the co-op had weathered

storms before. In the 1970s, Visalia Coop had successfully fought verticilium

wilt, a disease that threatened cotton

fields. In the 1980s, the co-op had

withstood high interest rates and

competition for acreage from new citrus

plantings. An influx of dairies arrived in

the 1990s, tempting local cotton

growers to switch to producing more

profitable dairy cattle feed. 

Visalia Co-op had endured those

threats, even adding fertilizer and farm

supply businesses to its operations. But

by 2000, the odds for survival were

dimming. 

Across the San Joaquin Valley, home

to the bulk of California’s cotton

production, growers were exiting the

high-cost cotton business, shifting to

more profitable crops like almonds,

pistachios, alfalfa, fresh-market

tomatoes and carrots. Others had begun

diversifying into businesses like dairies

and real estate. Still others were finding

Rural Cooperatives / May/June 2007 5

“We rationalized that we would lose too much of the growers’ equity if we continued,”

says former manager Larry Gallian, outside the now-closed cotton gin. Opposite page:

San Joaquin Valley cotton fields ready for harvest. Photos by Catherine Merlo
more profit in selling land for

development to accommodate the

valley’s booming population growth.

Visalia alone saw its population jump by

almost 18,000 people in just five years,

climbing to 110,000 by 2005.

Equally daunting, perhaps, were

increasing air-quality regulations

required by the San Joaquin Valley air

pollution control district. In 2002,

Visalia Co-op spent $350,000 for air

emissions mitigation equipment, “just

to stay in business,” Gallian says.

By 2005, Visalia Co-op’s membership

had dwindled to 15, down from a high

of 166 when the gin formed in 1950. In

2006, the co-op counted just nine

members. Only Gallian and the plant

superintendent were employed fulltime, compared to 11 employees a

decade before. The gin’s returns to

members had eroded as well, dropping

to $15-$20 per bale from $45 in better

days. Moreover, Visalia Co-op’s returns

lagged behind the $30-$40 per bale that

larger co-op gins were paying. 

Gallian and the gin’s board of

directors realized the co-op had reached

its end. “We rationalized we would lose

too much of the growers’ equity if we

continued,” Gallian says. “You didn’t

have to be a brain scientist to see where

cotton was going.”

To operate for the 2006 season, the

gin would have had to borrow

$700,000. As one possible survival

strategy, the co-op considered installing

a roller gin, used to process longfibered cotton such as Pima.

Traditionally, most California gins have

used saw gins to process shorter-fibered

upland or Acala cottons. 

But roller gins have increased in

popularity as California cotton growers

have turned to Pima production. The

long-staple cotton is enjoying huge

demand and good prices. At the same

time, some growers have found a

profitable niche by roller-ginning,

rather than saw-ginning, upland cotton.

The production costs are higher, but it

has proven worthwhile for some

growers. 

Yet, without the necessary cotton

volume in the Visalia area to bring in

adequate revenue, the gin could hardly

afford a $3 million roller gin. A few

6 May/June 2007 / Rural Cooperatives

The cotton gin co-op’s membership had dwindled to nine by the time it closed, down from 166 when it formed in 1950.
attempts at merging with other co-ops

went nowhere. There was little point in

trying to continue.

Closure ‘very emotional’ 

All the same, the discussions to close

Visalia Co-op were “very, very

emotional,” says Gallian. “For a while,

no one wanted to bring up the word,

‘closure.’ And there was the matter of

pride. No one wanted to be the board

or manager who had closed the gin.”

But, on Sept. 11, 2006, the fivemember board voted unanimously to

end the business. Among those voting

that day was Gerald Steiner, 85, who

had helped put up the money to start

the co-op gin in 1950. “We invited him

to the meeting and gave him an

honorary vote,” Gallian remembers.

“He had tears in his eyes and his hand

was shaking as he voted for the

closure.”

Over the next few months, the gin

liquidated its assets, selling vehicles,

module trucks and other rolling

equipment. The co-op sold 15 acres of

nearby property for $225,000. The 30-

acre gin site, where the office and gin

buildings sit, sold for $1.15 million this

spring.

Final distribution dilemma

Gallian and the board are determined that every grower will “get back

every dime he invested in the co-op,”

he says. That includes 37 growers who

still have revolving funds due them.

By late April of this year, the co-op

had $380,000 in revolving funds to

distribute. Beyond that, the gin also was

awaiting $225,000 from the sale of air

pollution credits. Combined with the

proceeds from selling its property and

existing money in its bank account,

Visalia Co-op has $1 million to return

to former members after its last

revolving fund payout.

The final distribution of the co-op’s

assets has been a bit of a sticking point.

“How far back do you go to determine

who is paid?” Gallian asks. “As far as

practical,” the bylaws of Visalia Cotton

Co-op stipulate. Going back to the coop’s start isn’t feasible, Gallian says, since

75 percent of the membership from

those days is deceased. A 6- to 10-year

period may be more realistic, but

discussions are still underway with the

gin’s attorney and auditors.

“Distribution of excess money is key

to closing a co-op, but there’s nothing

out there to show us how to do it,”

Gallian says. “Most co-ops close broke.

We still have money.” 

The board will have to decide by

June 30 this year when the co-op once

and for all closes out its books. 

More closures ahead

More San Joaquin Valley cotton gins

will close in the coming year, leaving

only a handful of large cooperative gins

to handle the bale-making and cotton

seed business. Recent higher prices for

cotton seed will allow a few gins to

hang on a bit longer. But the clock is

ticking for many.

“It’s a heck of a transition period,”

says Earl Williams, president and CEO

of CCGGA, two linked trade

organizations that represent cotton

growers and ginners in legal, legislative

and regulatory affairs. “It’s survival of

the fittest now.”

Like Gallian, Williams grew up in

the cotton ginning business. But while

Gallian came from the cooperative side,

Williams emerged from independent

gins.

“Growing up, the co-op gins were

the enemy,” Williams remembers. “But

one thing I was always envious of was

how well the co-op gins were

organized.”

As California’s cotton ginning

industry has dwindled, however,

Williams has seen increasing dissension

and disagreements. He’s seen it, for

example, among co-op gins that have

met to discuss merging as a way to

survive. 

“Then the arguments would start,”

Williams says. “‘Which gin do we keep,

which do we close down? Which

manager, which board members do we

keep?’ It went downhill from there.” 

Changing landscape

Despite the industry contraction, few

are writing off cotton just yet. The

bright spot is Pima cotton. “We can’t

grow enough Pima to meet worldwide

demand,” Williams says.

The state now produces 90 percent

of the nation’s Pima crop. The longfibered variety has surpassed upland

cottons in planted acreage, a complete

about-face from past years.

Further, thanks to a long, dry

growing season and variety

improvements, California cotton

growers continue to produce highyielding, high-quality cottons that are

among the world’s best. Nearly 100

percent of the state’s cotton is exported,

heading to China, Korea, Thailand,

Japan, India and Pakistan. 

Even so, the state’s once-familiar

cotton landscape has a different feel. In

December 2006, one long-time cotton

cooperative, California Planting Cotton

Seed Distributors, was acquired by

Bayer CropScience. At least three more

cooperative gins and perhaps as many

independents will close soon, Williams

predicts. Some gins that are holding on

are not re-hiring managers when the

former ones retire or leave. Instead,

they’re counting on office managers to

do the job. 

Gallian has found work as an ag

chemical salesman. “I was offered four

or five jobs, but I chose the one that

gave me close contact with growers,” he

says.

Although Visalia Co-op is history

now, it’s still near and dear to Gallian.

Having come through the gin’s painful

demise, he offers clear-cut advice for

co-ops that may be contemplating

whether it’s time to close their doors. 

“Don’t keep going out of pride,” says

Gallian. “We could have kept going.

We would have made money for our

members, but not as much as they could

have received ginning somewhere else.

That’s not fair to farmers. A co-op is

supposed to be there for the farmer,” he

adds. “When the co-op can’t do the

farmer justice, it’s time to go.” ■

Rural Cooperatives / May/June 2007 7
ooperative Development

Services (CDS) is one of

the nation's best known

sources of expertise and

information for existing

food co-ops. It was a natural step for

CDS to become a partner in the

FoodCoop500 initiative, which seeks to

raise the number of food co-ops in the

United States from 300 to 500 by 2015

(visit: www.foodcoop500.coop). The

other partners are NCB (formerly

National Cooperative Bank)/NCB

Capital Impact and the National

Cooperative Grocers Association, which

recently pledged $200,000 to support

the project for the next two years.

Recently, CDS reaffirmed its longstanding commitment to producer coops, as well as consumer co-ops, with a

new initiative. "We will work with

producers of natural and organic

products for a sustainable world," said

CDS Director Kevin Edberg. "As with

our renewable energy work [profiled in

the July-Aug. 2006 issue of Rural

Cooperatives] we will leverage our

contacts to help producers find

relationships with food retailers that

support their entry to the market."

One example of this work is with

PastureLand, a small organic dairy coop that makes cheese and butter from

cows that graze on carefully managed

grasslands in southeastern Minnesota.

In 2006, the co-op's butter won its

third consecutive award at the American

Cheese Society Competition and

Judging.

PastureLand General Manager Jean

Andreasen worked at Mississippi

Market food co-op in St. Paul, Minn.,

for more than a decade, providing her a

good look at the work CDS does with

consumer-owned retail stores. "They

helped Mississippi Market with our

expansion project, staff trainings and

surveys. They were always there when

8 May/June 2007 / Rural Cooperatives

C

Forging family-to-family

food chains

CO-OP DEVELOPMENT ACTION
we needed something. So when I came

to PastureLand and wanted some

professional co-op business development services, I knew where to go." 

CDS helped PastureLand write a

business plan and raise funds for

operations. "I'm really happy with the

relationship we've been able to

cultivate," Andreasen adds. 

Prior to coming to PastureLand,

Andreasen was marketing coordinator

for the Midwest region of Food

Alliance, a national certification

organization for environmentally

friendly and socially responsible

agriculture practices, funded by Land

Stewardship Project and CDS.

PastureLand was the only Food

Alliance-certified dairy cooperative in

the region, and she worked with the

members to "market their co-op

difference" by placing articles about the

co-op’s products, practices and

producers in the newsletters of all the

food co-op stores in the area. 

These stores have long-standing

commitments to local producers and

already carried PastureLand’s butter

and cheese, but this was an additional

link, from one cooperative to another.

Andreasen points out that this is a way

of implementing both the fifth and sixth

International Co-op Principles:

commitment to education and

cooperation among co-ops. And that’s

good for co-op business.

MOON lights up Ohio

The mission of the Miami Oxford

Organic Network Co-operative Services

Inc. (or MOON Co-op) is to help grow

a sustainable food system in southern

Ohio and Indiana. Its nearly 250

members – local producers as well as

urban and rural consumers – plan to

open a natural foods store that

specializes in local and regional farm

products. 

Rural Cooperatives / May/June 2007 9

Minnesota’s PastureLand Co-op families (opposite page) are

benefiting from a new business plan. This page (clockwise

from upper left): La Montanita Food Co-op in Albuquerque,

N.M.; Los Poblanos co-op member harvests lavender for La

Montanita; growers now visit La Montanita by choice, rather

than necessity; the Wedge Co-op in Minneapolis, Minn., is

another food co-op that

supports local farmers,

including PastureLand. Photos

courtesy featured co-ops
Earlier this year, the group was

visited by Stuart Reid, who has been

hired to work fulltime with grant

recipients of the FoodCoop500

program. He was "very impressed with

the groundwork" the co-op had done,

saying "their hard work bodes well for a

vibrant and successful store." 

This year MOON received a

$25,000 Sprout Fund loan from

FoodCoop500 following a $10,000 FC500 Seed Fund grant it won last year. In

addition to financial assistance, co-op

members take part in regular

conference calls with consultants and

people from successful co-ops, and the

board submits regular reports on its

progress to Reid. 

From the very beginning, co-op

organizers sought help from their local

specialists at the Ohio Cooperative

Development Center (OCDC).

Treasurer Debra Peter recalls, "In our

initial organizing stages, OCDC helped

us determine the

structure and function of

our organization and

provided us with contacts

and resources to get

incorporated. We also

received two $5,000 startup grants from OCDC

that were used for

professional fees and

supplies. We have a solid

legal and financial

foundation for our

cooperative because of

the assistance provided by

OCDC."

Midwest farmers sharing resources

Farmers throughout the Midwest are

being challenged by rising costs of

machinery and shortages of skilled

labor. Some farmers are sharing these

resources to reduce costs and improve

efficiency. But there are a number of

factors to consider before making such

a move. These include tax, liability and

farm payment eligibility issues

associated with sharing equipment and

labor, as well as identifying available

resources to help producers plan and

implement that sharing.

To help producers better evaluate

proposed sharing arrangements, Iowa

State University Extension and

University of Missouri Extension

economists developed a "Machinery and

Labor Sharing Arrangements"

workshop, held in three locations last

winter. More than 80 people attended,

many looking for options to help them

efficiently transfer assets to the next

generation of farmers, or to a young

producer working to get established. 

The case study research that served

as a framework for the workshop was

developed by the Iowa Alliance for

Cooperative Business Development as

part of a Rural Cooperative

Development Grant from USDA Rural

Development (more at:

www.machinerysharing.info). Program

sponsors were North Central Risk

Management Education Center,

Leopold Center for Sustainable

Agriculture, Iowa State University

Extension and University of Missouri

Extension. The Iowa Farm Bureau

Federation and Grundy National Bank

also collaborated. 

Cooperating in the Southwest

The Beneficial Farm and Ranch

10 May/June 2007 / Rural Cooperatives
Rural Cooperatives / May/June 2007 11

Collaborative originated with a group

of farm families in southern Colorado

and northern New Mexico who sought

to meet the rising demand for a stable

supply of fresh foods in one of the

nation's most challenging growing

regions. They developed a labeling

initiative to reward organic farmers and

ranchers and to provide incentives for

conventional producers who would

agree to make the transition toward

organic. 

The staff of Rocky Mountain

Farmers Union Cooperative

Development Center helped the

producers with strategic business

planning as well as outreach and

recruitment. The producers were

seeking to increase their product base

without the demand for spending more

time off the farm. 

The Center's Dan Hobbs notes,

"From the outset there was discussion

about how the members were going to

sustain themselves as a service

cooperative when most of the other

'buy local' labeling programs are not

economically viable." 

The answer came in the form of

consumer-owned La Montanita Food

Cooperative. Begun in 1976 by 300

families in Albuquerque, today the coop has 13,000 consumer-members,

annual sales of more than $20 million,

and four stores located in Albuquerque,

Santa Fe and Gallup, N.M. In recent

years, annual member surveys indicated

that the desire for local products was

surpassing the desire for organics. So

the retailer stepped in to help the

producers.

"What the farmers could not do

alone, the consumers had the

wherewithal to help them achieve," says

Hobbs. "This has reduced duplication

in the delivery process and saved

producers valuable time as well as

money. And it has spread the risk more

evenly between the producers and the

consumers."

Food co-op members supported a

plan to lease a refrigerated truck and

pay drivers to pick up the food at the

farms and bring it to the stores. More

suppliers were recruited. Other retail

partners — including natural food

chain Whole Foods — were invited to

join the "regional food shed" project. A

full-time manager (one of the original

Beneficial Co-op member farmers) and

an assistant manager were hired to run

the distribution operation. 

Last January, La Montanita opened a

10,000 square foot distribution center

that includes 3,000 square feet of

refrigerated storage and 1,000 square

feet of frozen storage. A second truck

will be leased soon. 

In 2006, 20 percent of La

Montanita's sales were from 400

products grown or raised locally and/or

with substantive value added within the

region. "This is a long-term project

that must include as many producers,

retailers and consumers as possible to

move the needle on local production

here in New Mexico," says La

Montanita General Manager C.E.

Pugh. "We don’t know how much is

possible. We do believe that we must

actively work within our community to

increase the market and value of these

goods or the decline in regionally

produced food for local markets will

continue." ■

The national network of cooperative development centers has reorganized

itself as a member-owned service cooperative. This will enable individuals and

other organizations engaged in the development of new co-op enterprises to

join. Members may select from a menu of services delivered at cost. 

In addition to continuing as a professional peer network for practitioners

engaged in the development of new cooperative businesses, CooperationWorks!

program priorities for 2007 include the popular professional development training

'The Art & Science of Developing a Cooperative Business' (two intensive fiveday sessions in Madison, Wis.); three face-to-face membership meetings; more

of CW's well-attended conference calls on relevant issues for the development

of new cooperative enterprises; and maintaining a listserve that will help members seek and share information more readily. 

The new co-op also plans to continue its public education and advocacy for

the development of new cooperative enterprises as an effective economic

development strategy, which includes the publication of its newsletter NetWorks. For more information contact: Audrey Malan at 307-655-9162, or

cw@vcn.com. ■

CooperationWorks! goes co-op

Buying food locally as well as from small co-ops in developing nations (top) is often

called “fair trade at home,” and is practiced by many food co-ops, such as the Wedge.

Beneficial's award-winning eggs (lower left) are featured at La Montanita Co-op.

Members of Moon Co-op in Ohio move ahead with plans for a store featuring local food.

Photos courtesy featured co-ops
12 May/June 2007 / Rural Cooperatives

By Donald Frederick

Program Leader for Law, Policy & Governance

USDA Rural Development

donald.frederick@wdc.usda.gov

n 2002, Congress created the Antitrust

Modernization Commission (AMC) to

examine whether the antitrust laws should be

"modernized" and to submit its findings to

Congress and the President. The AMC was

a 12-member, bipartisan commission consisting primarily of

antitrust lawyers with large metropolitan law firms, several

with prior experience at the Antitrust Division, U.S.

Department of Justice.

During its deliberations, the AMC developed and studied

a list of all antitrust immunities and exemptions, including

those of greatest importance to agricultural producers:

• Section 6 of the Clayton Act (authorizes the formation of

non-stock agricultural co-ops),

• The Capper-Volstead Act (permits agricultural producers

to market their production on a cooperative basis),

• Fishermen's Collective Marketing Act (similar to CapperVolstead, protects associations of aquacultural producers), and

• Agricultural Marketing Agreement Act (authorizes

agricultural marketing orders and agreements). 

The Commission submitted its report on April 3, 2007.

The report does not call for repeal of the Capper-Volstead

Act or other laws important to rural cooperatives. It does,

however, include recommendations which, if enacted, would

create serious challenges for agricultural producers who

market their production on a cooperative basis.

Producers need antitrust protection

Since enactment of the Sherman Act in 1890, it has been a

criminal felony for competing businesses to agree on prices

and terms of sale. Each farmer or rancher is a "competitor"

under antitrust law. Without protection, any time their

cooperative establishes the price or other terms of trade for

selling the food and fiber they produce, they would be

committing a criminal act.

Capper-Volstead and the other laws listed above shield

farmers and ranchers from antitrust liability to market their

production on a cooperative basis. Cooperatives are used to

marketing many types of products across the United States

and internationally, including: dairy products, fruits, vegetables, nuts, wheat, feed grains, rice, oilseeds, cotton and livestock.

Without this protection, producers would be at a severe

disadvantage when trying to individually negotiate sales of

their products to the large national and international

processing and distribution firms in the food industry.

Capper-Volstead levels the playing field by allowing farmers

to combine their economic strength to balance that of the

firms that purchase their products.

Consumers are protected from being charged

unreasonable food prices. Section 2 of Capper-Volstead

provides that if the price of any agricultural product is

"unduly enhanced" by a cooperative, the Secretary of

Agriculture shall issue an order directing the producers to

cease such conduct. The U.S. Department of Justice has

authority to enforce the order if the cooperative doesn't stop

its unreasonable activity.

AMC deliberations

The overall AMC activity covered a wide spectrum of

antitrust law. Ten study groups were formed. The one that

examined producer association issues was called "Immunities

and Exemptions." So while the findings in this area are

significant to farmers and ranchers, the AMC did not only

look at these exemptions. They were a small part of a much

broader review.

During its process, the AMC asked for public comments

on all of the issues it was studying. Several organizations filed

comments in strong support of Capper-Volstead, including:

the U.S. Department of Agriculture, the Congressional

Farmer Cooperative Caucus, the National Council of Farmer

Cooperatives, the National Farmers Union and the National

Milk Producers Federation.

While a limited number of persons were allowed to make

presentations in person to the Commission, most were

antitrust enforcement officials, academicians and attorneys in

private practice whose backgrounds were similar to those of

the Commissioners. No one was allowed to appear as a

representative of any industry with antitrust protection.

Report recommendations

The Commission concluded that U.S. antitrust law and

I

LEGAL CORNER

Antitrust report a wake-up call for

co-ops to defend marketing rights
enforcement are fundamentally sound and sufficiently flexible

for the changing global economy and the evolving

understanding of how markets operate. Nonetheless, the 540-

page report offers 80 often multi-faceted recommendations

to the President and Congress. The more far-reaching

recommendations include:

• Repealing the Robinson-Patman Act;

• Overruling Supreme Court decisions to allow indirect and

direct purchasers of price-fixed goods to sue in federal

court;

• Streamlining the clearance process for mergers between

large firms;

• Urging the United States to enter into agreements with

other countries to spur international uniformity in antitrust

law and enforcement.

In the area of immunities and exemptions, the

Commission recommended:

• Congress should draft, and the courts should construe,

antitrust immunities and exemptions narrowly and against

the beneficiaries;

• All immunities and exemptions should be subject to sunset

provisions, forcing supporters to get them reenacted every

few years or they become null and void;

• The Federal Trade Commission should be authorized to

study the competitive effects of and justifications for

immunities and exemptions.

Many co-op leaders feel that adoption of these

recommendations by Congress, particularly the sunset policy,

would weaken cooperative marketing as a producer tool.

Uncertainty over whether Capper-Volstead and other

protections would be available in the future could make it

more difficult for cooperatives to arrange affordable longterm financing, establish good business relations with

suppliers and customers, and maintain a committed cadre of

producer-members.

It is important to remember that the AMC can only issue

recommendations; only Congress can make changes in

antitrust law. On May 8, the Antitrust Task Force of the

House Committee on the Judiciary held the first Congressional hearing to receive and review the report. The only

witnesses were the Commission’s chair and vice chair. While

their emphasis was on the more general recommendations of

the Commission, they expressed skepticism about the value of

antitrust immunities and again suggested enactment of a

sunsetting provision in all statutory immunities.

Congress will likely hold additional hearings on the report

and one or more bills will likely be introduced to implement

some of the recommendations. Producer-members and

leaders of cooperatives — particularly agricultural marketing

associations — will want to keep abreast of legislative

developments in this area or risk losing the right to market

their production on a cooperative basis. ■

Rural Cooperatives / May/June 2007 13

Recommendations made by the Antitrust Modernization

Commission (AMC) in its final report would destroy the ability

of farmers to form cooperatively-owned businesses, leaving

America’s agricultural producers in a severely weakened

position in the marketplace, according to the National Council

of Farmer Cooperatives(NCFC). 

“Farmer cooperatives offer the best opportunity for America to realize the farmer-focused ideal of an enduring, competitive agricultural industry,” NCFC President Jean-Mari Peltier

said in a statement issued in April following release of the

Commission’s report. “Instead of recognizing the positive

impact that cooperatives have had on rural America, the Commission recommends gutting the ability of farmers and ranchers to form effective co-ops and instead leave them at the

mercy of giant multinational corporations. If enacted, it would

represent a step backwards for American agriculture. 

Farmer-owned cooperatives enjoy limited antitrust immunity for marketing agricultural products under their founding

Capper-Volstead Act, often termed the “Magna Carta of

farmer cooperatives.” This limited immunity is necessary to

allow two or more farmers to simply talk about price or terms

of sale. The AMC recommended to Congress that it sunset all

immunities and exemptions, including Capper-Volstead.

The Commission's recommendations would apply to other

statutory antitrust immunities utilized by farmer cooperatives,

including the Agricultural Marketing Agreement Act, the

Webb-Pomerene Act, the Export Trading Company Act and others.

“Today, the Capper-Volstead Act is more important than

ever as agricultural producers compete in an economy dominated by relatively few, large buyers,” Peltier said. She also

objected to the Commission’s refusal to let affected industries

testify at its hearings, choosing instead to hear only from academics specializing in antitrust and government witnesses.

“Apparently, the Commission didn’t want to hear from a dairyman from Wisconsin or a peach grower in California, both of

whom see the direct benefit of their cooperatives not only to

producers, but to consumers as well,” she said.

Effective limits to Capper-Volstead’s antitrust immunity

already exists in the Act itself, she said, noting that the secretary of agriculture has authority to prevent cooperatives from

using their market power to unduly enhance the price of the

products they market. The framework and operation of the

Act places limits on cooperatives’ growth, and cooperatives

are also subject to inherent practical limitations relating to

obtaining capital.

“The Commission’s recommendations would destroy 85

years worth of hard work by America’s farmers and ranchers

to ensure a better life for their children and grandchildren,”

Peltier said. ■

NCFC: Commission recommendation would destroy farmers’ ability to compete
14 May/June 2007 / Rural Cooperatives

By Anthony Crooks, Agricultural Economist

USDA Rural Development

n his 2007 State of the Union Address,

President George W. Bush emphasized the

need to increase alternative fuel production

to 35 billion gallons by 2017, or nearly five

times the original target of 7.5 billion gallons

(see sidebar). To meet this goal, the commercial-scale

conversion of biomass feedstocks into ethanol, and primarily

cellulose to ethanol, will play a prominent role. This effort

will create more opportunities for producer-owned co-ops

and LLCs to become biofuel producers. 

To date, there are still no commercial-scale cellulose-toethanol facilities in operation. The risks and uncertainties of

these still unproven technologies are significant.

Breakthroughs in new technologies continue to develop

along multiple fronts to reach commercialization. A

partnership of technical expertise and the financial

wherewithal from both private and public sectors is required

to bridge the developmental gaps and to distribute the

startup risks. 

Financing represents the greatest hurdle for an unproven

technology. This article describes the difficulties involved

with the financing of unproven technologies and describes

the significant partnerships now arising to direct the

evolution of the cellulose-to-ethanol industry. 

I

Shouldering the risk

Strategy for risk management essential to moving

cellulosic technology forward
Rural Cooperatives / May/June 2007 15

Financing unproven technologies

Twenty-five years of industry experience has helped

ethanol industry lenders and financial backers to become well

acquainted with the risks associated with ethanol projects.

The risks of these projects typically involve a traditional

power plant, burning either natural gas or coal, and a wellproven process technology. However, cellulosic ethanol

plants that will soon compete for financing will use

equipment and/or process technologies that have little or no

commercial operating history. 

Unproven technology risks embrace all phases of a new

project: construction and startup as well as operations. Of

particular concern after a plant begins to operate at capacity

is ‘conversion risk,’ the relative efficiency at which the plant

is operating. Lenders are rightfully concerned that cuttingedge technologies operate at state-of-the-art efficiency, and

particularly so if their exposure is substantially greater than it

would be with a proven technology. But, if it can be

independently certified that the plant can operate at a level

sufficient to repay the debt plus some risk margin, lenders

may be persuaded to assume a portion of the conversion risk. 

Biofuels lenders who understand the history of the

industry may have fewer concerns about conversion risk.

Typically, once an ethanol project operates successfully for a

couple of years, it’s very likely that it will continue to do so.

Consequently, lenders now tend to focus more on the

technology risks involved with construction and startup

phases of a project, and less so on operations. 

Because cellulosic ethanol has no commercial operating

history, there is an element of technology risk that cannot be

assessed. Further, in the absence of a track record, lenders

will want to see if the project has demonstrated success on a

smaller scale. In other words: How successful is the pilot

plant or the demonstration plant? 

Unlike a pilot plant, a demonstration plant uses a

continuous process on an industrial scale. A demonstration

plant is usually a necessary stepping stone from a pilot plant

to a commercial-scale facility. It’s very difficult to leapfrog

from a 500-gallon tank to building a 20- or 50-million-gallon

biorefinery. Moving from a successful demonstration plant to

the next level involves finding a construction contractor

willing to assume the risk that the demonstration plant can be

replicated on a commercial scale. 

A related challenge confronting cellulosic ethanol is the

absence of a traditional engineering, procurement and

construction (EPC) contractor. The EPC is a contractual

arrangement signed by the builder and technology provider

to guarantee the plant’s timely delivery and performance to

specifications. The contract is necessary to plant developers

as they attempt to obtain financing.

The “full wrap”

Building a traditional ethanol plant involves working with

one of the small handful of process providers that offer turnkey design and construction services under a design-build

contract. The contract covers the process provider's core

technology and the "balance of plant," which often includes

every plant system, from grain receiving to fuel storage and

all points in between. The process provider is then

responsible for ensuring that the fully integrated plant is

constructed on time to contract specifications and is fully

operational at the specified (nameplate) production capacity.

This engineering, procurement and contracting agreement is

known commonly as a "full wrap." 

But as industry expansion strains the ability of most

Plant geneticist Michael Casler (opposite page) harvests switchgrass

seed as part of a breeding program to develop cultivars that will yield

more bioenergy. USDA/ARS photo. Inside Iogen’s cellulosic ethanol

demonstration plant in Ottawa, Canada (above). Photo courtesy Iogen
16 May/June 2007 / Rural Cooperatives

process providers to supply

full-wrap services, many

technology firms are

shifting away from active

involvement in design and

construction. Firms now

focus instead on licensing

their core technologies and

leave the design and

construction of the facility

to third-party engineers and

contractors. The

responsibility and risk of

ensuring that all of the

disparate systems, buildings

and equipment fit together

into an integrated operating

facility now lie with the

owner. 

An EPC for a cellulosic

plant must embrace

elements of conversion risk

that protect against

inadequate throughput

efficiency. Also, liquidated

damages (see below) will

need to be assessed to repay

the debt should the project

fail to operate as

contractually specified.

Lenders and private

equity funds prefer to back

an “early development”

project — a single unproven

technology or process that is

part of a system of proven

technologies — rather than

a “revolutionary” system.

However, with the

appropriate guarantees (and

sufficient reserves), the

uncertain elements of the

unproven technology can be

“wrapped” in with the final

performance of the project

and proven technologies. 

Revolutionary systems are ideally small-scale venture

capital investments that range from $5 million to $7 million,

rather than large project transactions that involve a 20-year

payout. Generally, the limit for venture capital is about $50

million and requires a 25- to 30-percent return on

investment. There is another

rub for cellulosic ethanol.

For even a relatively modest,

commercial-scale cellulosic

ethanol biorefinery of 25 to

40 million gallons per year,

capacity is expected to cost

upwards of $300 million. 

Expecting quick returns

However, perhaps an even

greater problem with

venture capital financing of a

cellulosic project is the

expectation of a quicker

return. A venture capitalist

expects a technology

investment to be a means to

build a company and gain

significant value from the

relatively quick selling of

either many units of the

business, or the entire

business itself. This

expectation lies in sharp

contrast with a private

equity investor in energy or

infrastructure who looks for

a return from business

operations over an extended

period of time. 

So, unless a cellulosic plant

is financed entirely from

equity, at levels far exceeding

those that traditional venture

capital sources will support,

an equity investor will expect

a lender to finance

construction. Otherwise, it

will be difficult to persuade

the equity fund to provide

developmental capital. 

A financing impasse can

result. Lenders refuse to

assume risk on unproven

technologies and equity

funds won’t provide funding unless a lender will finance

construction. 

An alternative approach might be to separate the unproven

elements from the rest of the project. The proven portion of

the project might then be financed using traditional sources

Engineers Neil Goldberg (left) and Akwasi Boateng operate a

thermo-chemical reactor they designed and built for converting

crop residues into renewable bio-oils and fuels. Top: Elite

bioenergy switchgrass in eastern Nebraska. USDA/ARS photos
Rural Cooperatives / May/June 2007 17

and the unproven portion using equity. Overall, the project is

a blend of equity and traditional project financing. 

A problem with this approach, however, is that equity

stands in line behind any debt should the project fail and go

to foreclosure or liquidation. The challenge with this

structure is to provide a return with a reasonable risk

premium, given the enormous scale of the project. Apart

from the federal government or a deeply-pocketed

construction contractor to guarantee performance, such a

project is very unlikely to secure private equity funding.

Liquidated damages, related issues

One way to get past the technology risk issue might be to

negotiate with the contractor or the equipment vendor to

assume the risk and pay the risk bearer in the form of

liquidated damages. Damages are said to be liquidated when

the amount of damages recoverable in the event of a specified

contract breach (for example, late performance at

construction, or inefficient performance at conversion) is

agreed at a specified date. 

Two conditions must be met to uphold liquidated

damages. First, the amount of the damages identified must

roughly approximate the damages likely to be incurred by the

party seeking relief in the event of failure. Second, damages

must be sufficiently uncertain at the time the contract is

made that both parties recognize the significant benefit of

The U.S. Department of Energy recently awarded $385

million in funds for six biorefineries developing technology

for creation of cellulosic ethanol. Combined with the industry

cost share, more than $1.2 billion is expected to be invested

in these six biorefineries. 

■ Abengoa Bioenergy Biomass of Kansas LLC, Chesterfield, Mo., will receive up to $76 million. The proposed

plant will be located in Kansas and produce 11.4 million

gallons of ethanol annually and enough energy to power

the facility. Any excess energy will be used to power the

adjacent corn dry grind mill. The plant will use 700 tons

per day of corn stover, wheat straw, milo stubble,

switchgrass and other feedstocks. Investors/participants include: Abengoa Bioenergy R&D Inc.; Abengoa

Engineering and Construction LLC; Antares Corp.; and

Taylor Engineering. 

■ ALICO Inc., La Belle, Fla., will receive up to $33 million.

The proposed plant will be in LaBelle (Hendry County),

Fla., and will produce 13.9 million gallons of ethanol a

year and 6,255 kilowatts of electric power, as well as 8.8

tons of hydrogen and 50 tons of ammonia per day. For

feedstock, the plant will use 770 tons per day of yard,

wood and vegetative wastes and, eventually, energy

cane (sugar). Investors and participants include: Bioengineering Resources Inc. of Fayetteville, Ark.; Washington Group International of Boise, Idaho; GeoSyntec

Consultants of Boca Raton, Fla.; BG Katz Companies/

JAKS LLC of Parkland, Fla.; and Emmaus Foundation Inc. 

■ BlueFire Ethanol Inc., Irvine, Calif., will receive up to $40

million. The proposed plant will be in Southern California, sited on an existing landfill and will produce about

19 million gallons of ethanol annually. For feedstock, the

plant would use 700 tons per day of sorted green waste

and wood waste from landfills. Investors/participants

include: Waste Management Inc.; JGC Corporation;

MECS Inc.; NAES; and PetroDiamond. 

■ Broin Companies of Sioux Falls, S. D., up to $80 million.

The plant is in Emmetsburg (Palo Alto County), Iowa,

and after expansion, it will produce 125 million gallons

of ethanol per year, of which roughly 25 percent will be

cellulosic ethanol. For feedstock in the production of

cellulosic ethanol, the plant expects to use 842 tons per

day of corn fiber, cobs and stalks. Participants include:

E. I. du Pont de Nemours and Company; Novozymes

North America Inc.; and DOE National Renewable Energy Laboratory. 

■ Iogen Biorefinery Partners LLC, of Arlington, Va., will

receive up to $80 million. The proposed plant will be

built in Shelley, Idaho, near Idaho Falls, and will produce

18 million gallons of ethanol annually. The plant will use

700 tons per day of agricultural residues, including

wheat straw, barley straw, corn stover, switchgrass,

and rice straw as feedstocks. Investors/partners

include: Iogen Energy Corp.; Iogen Corp.; Goldman

Sachs; and The Royal Dutch/Shell Group.

■ Range Fuels (formerly Kergy Inc.) of Broomfield, Colo.,

will receive up to $76 million. The proposed plant will be

constructed in Soperton (Treutlen County), Ga., and will

produce about 40 million gallons of ethanol and 9 million

gallons of methanol annually. As feedstock, the plant will

use 1,200 tons per day of wood residues and wood

based energy crops. Investors/participants include:

Merrick and Co.; PRAJ Industries Ltd.; Western

Research Institute; Georgia Forestry Commission; Yeomans Wood and Timber; Treutlen County Development

Authority; BioConversion Technology; Khosla Ventures;

CH2MHill; Gillis Ag and Timber. ■

Biorefinery projects

awarded $385 million
18 May/June 2007 / Rural Cooperatives

being spared any future difficulty of estimating those

damages.

Liquidated damages for construction risk are generally

written to account sufficiently for each phase of construction

risk: mechanical completion, substantial completion and final

completion. Liquidated damages for mechanical completion,

when the plant is fully ready to start operations, should be no

less than the complete cost of construction. Otherwise, the

exposure to investors is too great. 

Liquidated damages for substantial completion, where the

plant is demonstrated to fully work at a specified target

capacity — 50 percent, for example — ranges from 10 to 20

percent of construction costs. Final completion involves the

plant fully operating at the nameplate capacity specified in

the contract, and generally requires liquidated damages of

not less than 10 percent.

Other ways to allocate risk 

Suppose, however, that a project is sufficiently interesting

for a venture capitalist and a lender to consider financing, but

the lender is unwilling to assume the technology risk. A

project finance expert can parcel out, or deconstruct, and

distribute the risks of a project among many takers: insurance

providers, ethanol or specialty product marketers, sponsors,

construction contractors and technology licensors. 

Generally, however, it’s the construction contractor, equity

provider and — on rare occasions — the technology

providers that are the principle risk takers in a project. While

insurance providers have also attempted to wrap the risk of

new technologies into projects, insurance is generally

considered ineffective protection because of the gaps in

coverage. Moreover, a performance bond on a construction

contract is significantly easier to collect than an insurance

contract which may have many outs. 

Federal government role 

Many are looking to the federal government to assume a

significant part of the risk in developing renewable energy

technology. This expectation is being fulfilled in the

proposed Farm Bill, which includes billions of dollars for

renewable energy (see sidebar), and by a $2.1 billion

guaranteed loan program under the U.S. Department of

Energy. To qualify for loan guarantees under this program, a

project must meet two basic requirements:

• It must avoid, reduce or sequester pollutants and

gases, and

• It must use new, or significantly improved,

technologies when compared to those in general use

in the marketplace.

However, lenders have been loath to participate in the

program because the guarantees are structured to put the

lender in the “first-loss” position in the event of foreclosure.

The government guarantee is for up to 80 percent.

Because the U.S. government takes the first lien on the

project, a lender would be left with a second lien for the nonguaranteed 20 percent of the loan value. For a $400 million

Agriculture Secretary Mike Johanns says the Administration's new Farm Bill proposal would dramatically expand

the federal commitment to renewable fuels. He notes that a

series of Farm Bill forums showed “real excitement about

renewable energy” and the new funding it provides for

renewable energy research, development and production

— much of it targeted to cellulosic ethanol.

The Farm Bill would establish a program to invest $25

million a year for four years for incentives to encourage the

development and expansion of cellulosic ethanol production. In addition, the BioPreferred Program would be reauthorized and would provide $18 million over 10 years to

expand the use of biobased products by the federal government and to speed the development and adoption of

these products in the private sector. 

Among other energy provisions of the Farm Bill are

measures to: 

• Include a biomass reserve within the Conservation

Reserve Program (CRP), under the proposed Conservation legislation. 

• Reauthorize the Renewable Energy Systems and Energy

Efficiency Improvements grants, loan and loan guarantee

programs to provide an estimated $2.17 billion of cellulosic ethanol loan guarantees and $500 million for grants,

under the proposed Rural Development legislation. 

• Revise the Biomass Research and Development Act of

2000, providing $150 million for grants focusing on cellulosic ethanol production, under the proposed Rural

Development legislation. 

• Include a Bioproducts Research Initiative, providing $500

million in grants to increase the cost-effectiveness of

bioenergy, in the proposed Research legislation. 

• Provide $150 million for Forest Service research into better ways to use woody biomass for the production of

bioenergy, in the proposed Forestry legislation. ■

Farm Bill supports cellulosic

ethanol development

continued on page 40
Rural Cooperatives / May/June 2007 19

By Dan Campbell, Editor 

ural America reaps

substantially more

benefits from the

biofuels revolution

when ownership is

held on Main Street rather than

Wall Street, according to John M.

Urbanchuk, director at consulting

firm LECG LLC, who called

ethanol “an engine for the

economic revival of rural

America.” Speaking in March on a

biofuels panel during the 2007

USDA Ag Outlook Forum in

Arlington, Va., Urbanchuk said

biofuel production is bringing new

vitality to rural towns, and even

helping to attract young people

back home who had moved away

to find jobs.

While the long-term outlook

for ethanol production looks

promising, the next two years

could be a little bumpy, added

Tom Houser, a biofuels lending

specialist with CoBank in Omaha,

Neb.

Another panelist, Ryland Utlaut, president of MidMissouri Energy (MME) in Malta Bend, Mo., provided a

step-by-step overview of how producers organized and

financed their plant. He also discussed how the co-op’s

sudden success has attracted buy-out offers from outside

(non-producer) investors.

Panel moderator Jack Gleason, USDA Rural

Development’s administrator for Business and Cooperative

Programs, noted that there is a direct link to increased

numbers of rural jobs created when ethanol plants are under

local ownership, and stressed that USDA is promoting local

ownership through its programs, an example being the

financial help it provided to Mid-Missouri Energy. 

How important are these

biofuels jobs in rural areas?

Consider this: for the 40 jobs

created at the Missouri ethanol

plant, Utlaut said the co-op

received 450 applications. 

Study sees major gains

from local ownership

Urbanchuk was hired about

a year ago by the National Corn

Growers Assoc. to study the

impact of absentee vs. local

ownership of ethanol plants.

While rural America benefits from

both types of ownership,

Urbanchuk said that more valueadded dollars clearly stay at home

when the ownership is held by a

producer-owned co-op or LLC

than if owned by outside investors. 

Today, nearly half of

ethanol plants and 38 percent of

total ethanol production are

farmer-owned, he noted. But that

is up sharply from just five years

ago, when producers owned about

20 percent of ethanol production. However, total ownership

in farmer hands, as a percent of production, is likely to drop

in the future as plants get larger and more expensive to build,

“although I hope I am wrong about that,” he said. 

The rapid increase in plant building costs — the average is

now $2 per gallon of plant capacity vs. $1.35 just a few years

ago — added to the fact that the average size of a plant has

increased from 50 million gallons to more than 100 million

gallons — is making it hard for farmers to compete with

outside investors. 

Investment firms have ready cash at hand and often have

unlimited borrowing capacity, whereas farmers usually must

undertake lengthy equity drives to raise money to build a

plant. 

Despite the expanding size of new plants, Urbanchuk

R

The Mid-Missouri Energy ethanol plant is considering

doubling its annual production capacity to 100 million

gallons. USDA photo by Dan Campbell

Producer ownership of ethanol

a major plus for rural America
stressed that a well-managed, 50-million-gallon plant is still

highly viable. 

“In many respects, the economic impact of a farmerowned and absentee-owned ethanol plant on the local

community is similar,” Urbanchuk said. “There are, however,

two significant differences that increase the impact of a

farmer-owned plant: larger local expenditures and dividend

payments. Since a farmer-owned cooperative ethanol plant is

literally a member of the community, the full contribution to

the local economy is likely to be as much as 40 percent larger

than the impact of an absentee-owned corporate plant.”

Not only are more jobs associated with a locally owned

plant, many of those are the higher paying jobs. Accounting,

administrative and marketing functions are much more likely

to be filled locally if farmers own the plant, he said.

Financing of a farmer-owned plant is also more likely to be

provided by local lenders. 

Farmer-owners of a cooperative participate in the profits

of the ethanol plant through dividends. The distribution of

dividend payments represents additional income to the

individual farmer-owners and their families, and these dollars

turn over many times in a local community or region. With

absentee ownership, most dividends instead flow back to the

corporate headquarters.

Crunching the numbers

Urbanchuk’s analysis was based on a plant producing 50

million gallons per year in a facility that cost $2 per gallon of

capacity to build, with depreciation over 15 years. He figured

60 percent debt financing over 10 years at 8.5 percent

interest, with borrowing done locally for the co-op, or

outside the area by the absentee-owned plant. He calculated

that the farmer-owed plant would set aside 20 percent of the

net margins as retained earnings, with the remainder paid as

dividends to the farmer-owners. Total operating expenditures

were estimated at $78.2 million for the absentee-owned plant

vs. $84 million for the farmer-owned plant. 

Based on this model, Urbanchuk calculated that the plant

would have revenue of $120.7 million if the fuel sold for $2

per gallon and earned an additional 35 cents per gallon from

dried distiller grains (DDG). Net margins would have been

$28.11 million in 2006, or 55 cents per gallon. Retained

20 May/June 2007 / Rural Cooperatives

The best way to support continued development of the

ethanol industry is to require that all gasoline sold nationwide contain a set amount of ethanol, probably 10 percent,

with 85- and 20-percent ethanol blends also available in

states that want to go further, according to CHS Inc. President and CEO John Johnson. Speaking at USDA’s annual Ag

Outlook Forum in March, Johnson said a nationwide mandate of 10 percent ethanol would require 14 to 15 billion gallons of ethanol production annually. Current annual production is about 5 billion gallons, but rising steadily.

“We believe this kind of across-the-board national

standard is the best way to get every driver in our nation to

embrace renewable fuels,” said Johnson, who leads the

nation’s largest federated farmer co-op, representing

350,000 farmers and ranchers. 

“We’re also seeking continued tax assistance for

ethanol and biodiesel production and blending, as well as

economic incentives when companies substitute an alternative energy source for petroleum or natural gas-based

production,” he said. CHS is advocating accelerated investment in cellulose-based ethanol research and development.

CHS owns 22 percent of U.S. BioEnergy, the second

largest ethanol producer in the United States, with 650 million gallons of production either on-line or in process. But,

unlike most others in the renewable fuels industry, CHS also

has a major stake in fossil fuel refineries and distribution.

“So, CHS is deeply involved in literally every aspect of

these complex businesses, from the farm field to the gas

tank,” Johnson said. 

The CHS system has been the leading marketer of

ethanol-blended fuels for 30 years, he noted. Despite the

vast potential of renewable fuels, many challenges must be

met, he noted, to build an industry that is resilient enough to

withstand the wild swings of the fuel market. 

“During just the past six months, we’ve seen wild economic swings that can impact this business,” Johnson said.

“When corn prices were $2 in mid 2006 and crude oil

reached $70 a barrel, the economics were extremely

CHS: Make ethanol-blended fuel mandatory 

CHS President and CEO John Johnson, speaking at the USDA

Ag Outlook Forum, called for an ethanol blend of at least 10

percent in all gasoline. USDA photo by Ken Hammond
earnings would be $5.6 million, with an available dividend of

just under $22.5 million. 

The economic impact of co-op dividend payments would

generate $171.2 million in GDP for the co-op vs. $123.2

million for the absentee-owned plant. There would also be an

additional 648 jobs in all sectors of the entire local economy,

Urbanchuk said. 

Tapping rural equity 

Ryland Utlaut said the energy picture was vastly different

just four or five years ago, when producers in Missouri

started pursuing the construction of a new ethanol plant

(only the third one in the state). At that time, crude oil prices

were hovering around $40 a barrel, a bushel of corn averaged

$1.80 and ethanol was selling for $1.25 a gallon. At those

prices, Wall Street investors were still very much on the

sidelines and farmers were on the playing field.

“Our challenge in building Mid-Missouri Energy (see also

Sept./Oct. 2006 Rural Cooperatives) was to find enough

investors to build a $60 million, Fagen-ICM designed plant,”

he said. The plan was to raise $24 million in equity and

borrow the other $36 million. The minimum investment was

two shares at $10,000 each. Members also had to make a

commitment to deliver corn to the plant, and are paid 80

percent on delivery. 

The co-op got bankers and ag lenders involved at the getgo, inviting them to the pre-kickoff meetings for the equity

drive, where the business plan was shared with them. 

One of the first hurdles was to secure funds to conduct an

equity drive of more than 100 producer meetings. Area banks

provided the co-op with a line of credit of up to $500,000.

The co-op’s 15 board members guaranteed $150,000 of that

total. The co-op also received a $189,000 grant from the

Missouri Small Business Development Authority.

The co-op collected $30,000 in donations from

community organizations that wanted to support the project,

including $25,000 from Catholic Charities (which has since

been repaid $50,0000 by the co-op). Members also paid a

$500 membership fee to join the co-op. 

Grain merchandisers were among those the co-op forged

early strategic alliances with. “MME buys grain only from

shareholders and grain merchants,” Utlaut stressed. “We did

Rural Cooperatives / May/June 2007 21

attractive. Investors of all types raced to grab their share;

plans for new and expanded ethanol production were

announced almost daily.” Between 2004 and 2007, non-traditional investors pumped $1.9 billion into the industry,

Johnson noted. 

But when corn hit $4 a bushel and crude oil prices fell

into the low $50s in 2007, the economic equation changed

quickly, he said. [As of this writing in late April, oil prices

were soaring again.] “The picture was suddenly far less

attractive to those seeking quick returns and who were

unprepared or unwilling to be part of what essentially is a

commodity business subject to market-driven highs and

lows.”

Johnson said CHS sees the nation’s energy future “not

as a single pathway, but as a four-lane superhighway, with

each lane representing one component of the energy solution, but all headed in the same direction.” Those four lanes

are: fossil fuels, renewable fuels, emerging energy technologies and conservation. 

With 20 percent (and expected to go much higher in

coming years) of the nation’s corn already being diverted

from traditional channels to ethanol, concerns are rising

about the availability of adequate grain supplies for other

customers, including domestic livestock producers and

export markets. 

Johnson said other complex issues also must be

addressed, including transportation logistics for both

renewable fuels production and dried distillers grains,

along with concerns about water use in areas with limited

water supplies. 

“I am convinced that research now underway will deliver increases in corn yields and expand the production

geographies,” Johnson said. “When they are given the

seed genetics with which to do the job, I have every confidence in the ability of the American farmer to produce

bountiful crops that can both feed and fuel the world.” 

Johnson said he could not predict a time frame, but that

“Clearly, energy research will lead us to other renewable

fuel feedstocks, including cellulose, switchgrass or even

animal waste.” He also sees great potential for wind power, conversion of coal to gas and other technologies. 

On the conservation front, agriculture is helping to lead

the way in reducing fuel consumption, Johnson said.

“More seed genetics, more efficient equipment and fuelconserving farming practices have cut overall farm diesel

consumption in the past two decades.” He cited research

showing that in 2004 alone, no-till farming practices gained

through weed-resistant crops reduced greenhouse gas

emissions by 10 million metric tons. “That’s the equivalent

of taking 20 percent of our nation’s cars off the road for a

year.” 

Ethanol and biodiesel are here to stay, Johnson

stressed. “In the end, I believe as industries and as a

nation, we have the commitment and ingenuity to tackle all

of these issues, but there are no simple solutions.” 

—By Dan Campbell ■
not want to knock any grain merchants out of business, as has

occurred elsewhere when large amounts of grain have been

diverted to ethanol plants.” 

Utlaut said the project was pursued much like “an oldfashioned barn raising.” The community responded with

ongoing, supportive coverage in local newspapers and radio

stations. Co-op members were featured on radio call-in

shows. Service clubs and farm equipment dealers threw their

support behind the co-op. 

USDA Rural Development provided a big boost —

psychological as well as financial, according to Utlaut —

when it provided the co-op with a $500,000 Value-Added

Producer Grant in June 2004. 

The first round of equity-drive meetings raised $16

million. There was a 60-day extension, during which another

$20 million was raised. It was followed by yet another 60-day

extension, during which another $24 million was raised. Ag

Star, a Minnesota-based cooperative bank, committed to lend

the co-op the other $36 million. 

The plant’s ethanol is also marketed through a

cooperative: the Renewable Products Marketing Group.

The plant went into operation just in time to reap the

rewards of a major run-up in ethanol prices, and members

were delighted with a 31 percent dividend in the first year of

operation. MME is considering doubling its 50-milliongallon production capacity, financing the new construction by

using retained earnings and new borrowing. The other

alternative is to use the dividends to pay off its loan from

AgStar ahead of schedule. “It’s a tough decision,” Utlaut said. 

Such tremendous success soon attracted buyout offers

from outside investors — at least one offer being for 10

times the investment cost. “There were plenty of people

saying we would be fools to not take such a price,” Utlaut

recalled. Others felt it was in the best long-term interested of

the producers and the local economy to maintain producer

ownership. However, most of the offers began dissipating

when ethanol prices began to drop and amid ongoing press

reports about the industry being overbuilt.

Buyout offers are especially tempting to those producers

who borrowed most of their investment money – and some

borrowed all of it, Utlaut said. On average, co-op members

invested $33,000. “The co-op’s policy is to return as much as

it can as dividends, since many need that money to service

the debt.” 

Perfect weather, or storm brewing? 

CoBanks’s Tom Houser provided the perspective of the

nation’s largest ethanol financer, with involvement in nearly

50 plants and well more than $1 billion in debt funding so

far. “Biofuels are here to stay, and the industry will continue

to grow,” Houser predicted, noting that “well-located, wellcapitalized, low-cost producers” will do well. 

“My concern is not for the long term, but for the next two

years,” Houser said, adding “the industry scares me for the

next couple of years. Are we faced with perfect weather, or a

perfect storm,” in terms of production supply/demand and

industry economics?

The nation’s 113 ethanol plants are currently producing

more than 5 billion gallons of ethanol annually, but with

another 78 to 84 plants under construction (and others

expanding), Houser said production will increase to 11

billion gallons is just two or three years. 

The primary risk plant owners face, he said, is the

volatility of oil prices and the related impact on ethanol

market values. Houser said the increase in oil prices from $40

to $60 a barrel completely changed the dynamics of the

ethanol industry by attracting more outside investors. 

Corn prices are, of course, the other big factor impacting

ethanol profitability. Ultimately, higher corn prices could

slow the expansion of the industry, Houser said.

The DDG market also has risks. The market has

improved greatly in recent years with more livestock feeders

buying DDG. But with so many new plants being built, the

DDG market could become saturated. 

Transportation logistics are also challenging the industry

to come up with better ways of getting ethanol from plant to

refinery. Rail shipments of ethanol have tripled since 2001. 

In 2010, the current 54-cent-a-gallon ethanol subsidy

could end, although Houser said he expects it to be extended.

Ethanol processing technology is constantly being improved

to require less energy, he added, which bodes well for the

future of the industry. 

As for the long-term future of the ethanol, it may well be

in cellulosic production — fuel made from grasses, corn

stover and wood wastes. It’s not so much a question of “if”

but “when” cellulosic ethanol becomes part of the industry,

Houser predicted. However, he also emphasized that

significant technological progress must be made for

production to be economical compared to corn. In addition,

infrastructure/ logistical issues associated with gathering and

transporting feedstock will also require substantial investment

and time to evolve (see related article, page 14) . ■

22 May/June 2007 / Rural Cooperatives

The Mid-Missouri Energy plant was pursued “much like an oldfashioned barn raising,” Ryland Utlaut, the co-op’s president, said

at the USDA Ag Outlook Forum. USDA photo by Ken Hammond
Rural Cooperatives / May/June 2007 23

By Jim Wadsworth, Agricultural Economist

USDA Rural Development

ooperative management has many

responsibilities to fulfill to keep the business

running smoothly. These responsibilities

hinge on overseeing day-to-day operations,

sound financial management and making the

right administrative decisions. Management’s ability to meet

the following high-priority responsibilities

is also critical to a co-op’s success or

failure: 

• Responsibility to the board of directors;

• Responsibility to members; 

• Responsibility to employees and

• Responsibility to the community. 

If these responsibilities are all met,

management will create an effective

cooperative business environment that will

greatly increase the probability for success. 

Responsibility to board 

Cooperative management’s overall

responsibility is to the board of directors.

The board hires and evaluates

management and institutes the policies for

governing the cooperative. The general

manager or CEO must adhere to these

policies while overseeing and managing

the cooperative’s operations. The manager

should be transparent in relaying information to the board in

a timely fashion. This allows the board to make decisions or

determine policies, if necessary, for the manager to follow. 

The manager also has a responsibility to the board to hire

employees qualified to carry out co-op operations and to

properly train and manage them.

Providing the board with annual budgets and operational

plans is another basic responsibility of management.

Management should ask for feedback from the board and

work with the directors on developing a strategic plan, which

management must implement. 

Responsibility to members

Cooperative managers must be tuned-in to their members

through effective member relations and communications

programs. Open communication channels with the board of

directors, members, employees and the community are

absolutely essential for cooperatives. 

Members must be made to feel like an intricate and vital

part of the cooperative. Management must let members know

they are the co-op owners and its most valued asset, ensure

that employees treat members with

respect, and constantly gauge whether the

co-op is meeting member needs. This

entails ensuring that employees fully

understand how their company differs

from others, and what is expected of them.

Co-op employees need to go the extra

mile to deliver good customer service,

because members aren’t just customers,

they are the owners. 

Communication with members is an

ongoing process throughout the year — it

does not begin and end with the manager’s

report at the annual meeting. Most co-ops

use a member newsletter or magazine, email and (increasingly) a Web site to keep

members up-to-date on the functioning of

their co-op. 

Providing a reliable method for

members to communicate back to

management is just as important. Two-way

communications is probably more vital to a co-op than to

other types of business. Member committee meetings are

often a vital way for management to get regular, detailed

feedback from the field. Board meetings, of course, can fill a

similar role, but committees can focus on specific subject

areas and provide feedback on them, allowing more time at

board meetings for conducting other business. 

Responsibility to employees

Management also has responsibility to employees – the

continued on page 41

MANAGEMENT TIP

Four high-priority responsibilities

for effective co-op management

C

Managers must

be tuned-in to

their members

through effective

member

relations and

communications

programs.
By Dan Schofer

Co-op Development Specialist

USDA Rural Development

e-mail: dan.schofer@wdc.usda.gov

number of innovative cooperatives have been

formed or expanded in Washington state in

recent years to meet widely divergent needs,

ranging from those of forest landowners to

the fishing industry. Working with these coops and producer-owned businesses is USDA Rural

Development and its frequent partner, the Northwest Center

for Cooperative Development (NWCDC). 

“In the Northwest, we have a very large and growing

interest in co-ops,” explains Diane Gasaway, executive

director of the Center. “Our goal in recent years has been to

build up our abilities and capacity to deliver quality assistance

in areas such as feasibility studies and board training.”

NWCDC has been helping people in Washington and the

Pacific Northwest since 1979. The staff provides a wide

variety of in-house experience and expertise, including

financial, organizational, co-op development, business,

educational and project management, or a combination of the

above. 

Jon DeVaney, USDA Rural Development state director for

Washington, says, "USDA Rural Development is bringing a

variety of tools to the task of supporting agricultural and

rural cooperatives in Washington. By combining direct

technical assistance from Rural Development staff, ongoing

support for the NWCDC and project-specific financial

assistance through our Business and Cooperative Programs,

we have been able to leverage these resources to the benefit

of rural Washington residents." 

Following are some examples of co-ops NWCDC and

USDA have helped.

Methow Forest Owners Cooperative

This is a co-op of small-scale forest landowners in rural

north-central Washington, near the communities of

Winthrop and Twisp. The co-op was created to provide a

coordinated effort to help small-scale forest owners promote

forest health while managing risk of impact from wildfires. 

The co-op, which started with eight members but now

counts 60, provides services such as thinning crews, preferred

logging contractors and consultations with a contract

forester, all at discounted prices. Becoming a member entitles

the landowner to a free initial two-hour consultation with a

forester. 

24 May/June 2007 / Rural Cooperatives

A

From Forest

Diverse

Washington

co-ops show

business model

flexibility

Forest land in Washington provides year-round recreation opportunities.

Photo courtesy Okanogan County Tourism Council. 
Creating a market for small-diameter timber is a major

challenge in rural Northwest communities. The co-op is

assisting its members with market access to wood flooring

manufacturers for small-diameter Douglas fir. 

Many absentee landowners live along the coast and west

of the Cascade Range. Most do not actively manage their

forest land, and even locating and contacting them can be a

challenge. To help, the co-op has developed a database of

landowners in the region which it is using to educate

landowners about the importance of promoting forest health. 

The forest co-op has partnered with local community and

economic development organizations, including the USDA

Forest Service, Washington State Department of Natural

Resources, Methow Fire Planning Group, Sustainable

Northwest, Okanogan Conservation District and Okanogan

Communities Development Council. Local communities

benefit from the reduced fire hazard, improved forest health

and forest restoration.

NWCDC provided funding for the creation of the

steering committee, completion of the feasibility study and

development of a business plan. It is presently supporting a

public outreach and education campaign. 

“The cooperation of private landowners has been integral

to coordinate ecosystem restoration, fire safety, energy

security, and community development,” says Lorah Waters,

general manager of the co-op.

Last Mile Electric Cooperative

NWCDC worked closely with the Last Mile Electric Coop to organize stakeholders, develop a board and provide

assistance for an initial manager and administration.

Members include utility companies, electric cooperatives,

nonprofit organizations and government agencies. The

mission of the co-op is to provide affordable, reliable,

renewable, cost-based electricity to rural and urban

customers.

The co-op focuses on: (1) developing small farm and

community-sized wind projects; (2) assisting members in

researching possible renewable energy projects and (3)

developing utility-scale electric projects by and for Last Mile

members. 

Members of the co-op have formed White Creek LLC to

develop an initial 200 megawatt, utility-scale wind project in

Roosevelt, Wash., on the Columbia River. Currently under

construction, this project will be the largest publicly owned

wind project in the country. The project currently anticipates

that 100-200 megawatts will be on-line in 2007. An

additional 100 megawatts have been sited and will be

Rural Cooperatives / May/June 2007 25

To Ocean

Salmon harvested by a co-op on the Makah Indian Reservation are ready for processing.

Photo courtesy Cape Flattery Fishermen’s Co-op
developed when commercially

feasible.

Dave Warren, the original

Last Mile manager, explains,

“There have been some bumps

in the road, but Last Mile is a

great model for large and small

utilities to work together on

renewable energy projects.”

Okanogan Producers

Marketing Assoc.

Located in north-central

Washington, this cooperative

includes six family-owned fruit

and vegetable farms. The co-op

enables these farmers to market

their produce collectively to

mid-sized grocery chains, CSA

customers in Seattle and

Spokane and a farmers’ market

in Des Moines, Wash. (between

Tacoma and Seattle). 

The farmers’ market was a demonstration project for

Farming and the Environment, a Seattle based nonprofit

organization. During the growing season, two members take

the co-op’s produce to the farmers market every Saturday,

allowing the other members to continue working their farms.

“We are hoping to do more marketing at roadside stands

for the local community and tourism,” says co-op member

Tom Cloud. “If we want food to be available locally, farmers

have to stay in business.”

NWCDC conducted a feasibility study and business plan

with input and local research provided by the steering

committee and membership. The success of the co-op is

credited with saving one family farm, and improving the

income of the other members.

Value-Added Projects

USDA Rural Development’s Value-Added Producer Grant

program has also played a vital role in promoting co-op and

other producer-owned efforts to increase the value of

Washington’s farm, forest and aquatic resources. Following

are some examples of how those funds are used. 

AMF Farms

AMF Farms in Burlington, Wash., used a USDA ValueAdded Producer Grant in 2005 to conduct a feasibility study

and business plan for branded produce. Co-founders Michele

Youngquist and Liz Mitchell had previously developed their

signature Pumpkin Patch Pals. They also created a “Fruit

Deco” process, a proprietary process used to emboss a variety

of fruits and vegetables with various edible logos, slogans and

other designs. 

The “pals” are a vibrant crew of individually hand26 May/June 2007 / Rural Cooperatives

USDA programs support

co-op development, expansion

Assistance rendered to the co-ops and producer-owned

businesses profiled in this article have benefited from three

programs administered, or supported, by USDA Rural Development.

■ The Value-Added Producer Grant Program (VAPG),

administered by USDA Rural Development, provides funds

for business planning activities, including feasibility studies and business plans as well as working capital for marketing value-added, agricultural products and farm-based

renewable energy.

■ The Northwest Cooperative Development Center

(NWCDC) is a nonprofit organization funded by the USDA’s

Rural Cooperative Development Grant (RCDG) program to

foster community economic development, primarily

through cooperative development.

■ USDA cooperative development specialists provide inhouse expertise for grassroots technical assistance, as

well as informed input and oversight into both the RCDG

and VAPG programs. ■

Selective thinning and other forest management practices espoused by the Methow Forest

Owners Co-op (MFOC) are helping to improve forest vigor, as on this member’s land.

Photo courtesy MFOC
Rural Cooperatives / May/June 2007 27

decorated, painted mini-pumpkins with happy character

faces. Over the years, the Pumpkin Patch Pals have been

successfully marketed throughout the United States, Canada

and even several Pacific Rim countries. 

USDA funding enabled AMF Farms to expand its

promotion to apples, pears and other fruit. These produce

items are marketed under the Farm Fresh Palz. A website and

promotional video were created to market fresh produce to

children, parents, and teachers. A marketing relationship with

Haggen Food and Pharmacy, a local grocery chain, resulted

in increased sales and revenue. An in-store consumer survey

showed positive reactions from parents of young children and

teachers. 

AMF Farms recently started a pilot project offering free

fruit and vegetable snacks to elementary school students in

Skagit County, Wash. Local businesses are sponsoring the

project, which will provide a snack once a week to around

5,500 children. “Children are facing serious nutritional

problems and being bombarded with influence from all

directions,” says Michele Youngquist. “Farm Fresh Palz will

provide children an alternative snack option, as well as create

nutrition awareness.” 

The Cape Flattery Fishermen’s Cooperative

This fishery co-op received a Value-Added Producer

Grant in 2006 to expand operations and improve its

efficiency. The co-op, located on the Makah Indian

Reservation at the westernmost tip of the Olympic Peninsula,

started with seven members, but has since grown to about 30

members. Tribal membership is required to join the co-op. 

The co-op also buys fish directly from about 30 nonmember fishermen, depending on availability of fish and

market demand. Salmon, flounder, sole, halibut and cod are

dressed, boxed, iced and sold to four or five regional

processors. 

Before the co-op existed, the processors did not have to

compete for the harvested fish. The fishermen were price

takers and not price makers. The Cape Flattery co-op has

given the fishermen more control over their catch and prices.

In 2005, fishery co-op sales hit $1 million. In 2006, sales

soared to $2.5 million.

The co-op also sells fillets to local restaurants, although

more for the benefit of the Makah Tribal community than

the bottom line of the co-op or the fishermen. “You can’t get

fish any fresher, unless it is still

swimming,” says Fred Cross,

general manager, with a smile. 

These are just a few

examples of co-ops and other

producer-owned businesses helped

by USDA Rural Development and

the NWCDC. 

USDA/RD co-op

development specialist John

Brugger has played a major role in

the growth of co-ops in

Washington. In addition to some

of the co-ops mentioned above, he

has also worked with: the Sequim

Lavender Growers Cooperative;

Northwest Berry Cooperative; San

Juan Island Energy Cooperative;

North Country People’s

Cooperative; Madison Market

Food Cooperative; Mountain

Community Cooperative; a

community-based anaerobic digester and a community

kitchen. He was also on the NWCDC advisory board. 

Brugger recently moved on to become USDA/RD’s

director for the Community and Facilities Program in

Oregon, but the fruits of his work will continue to benefit the

people of Washington for many years to come. 

Partners Contact Information:

• USDA Rural Development: www.rurdev.usda.gov; 

• Northwest Cooperative Development Center:

www.nwcdc.coop; 

• Last Mile Electric Cooperative: www.last-mile-electriccoop.org; 

• Methow Forest Owners Cooperative:

www.okanogan1.com/forest/aboutus.html; 

• AMF Farms: www.farmfreshpalz.com; and

www.pumpkinpatchpals.com;

• Cape Flattery Fishermen’s Cooperative:

capeflattery@centurytel.net.

■

Tribal membership is required to join the Cape Flattery Fishermen’s Co-op, which now has

about 30 members. Photo courtesy Cape Flattery Fishermen’s Co-op
28 May/June 2007 / Rural Cooperatives

Wisconsin farmers, small businesses

benefiting from new health-care co-ops

By Anne Todd,

USDA Rural Development

isconsin is the first state to use the power of

cooperatives to bargain for adequate, costeffective health insurance for agricultural

producers and small businesses. The concept

of using group purchasing power to bargain

for lower health insurance rates is not new. However, prior to

the enactment of Wisconsin’s landmark Co-op Care 

legislation, only large organizations had the ability to conduct

these negotiations. Co-op Care extends those market

concepts to help smaller scale businesses, including farmers

and the self-employed. 

The Farmers’ Health Cooperative is Wisconsin’s first

health purchasing co-op dedicated to farmers and agribusinesses. Its formation was made possible by the 

Co-op Care law. Like other co-ops, the Farmers’ Health

Cooperative will be owned and governed by its members,

who will be directly involved in future financial and benefitpackage decisions. The initial cooperative board includes six

producers and three staff members of the Wisconsin

Federation of Cooperatives (WFC), the statewide advocacy

association for cooperative businesses.

Health co-op strikes chord with producers

After three years of extensive development work by WFC

and a number of dairy, farm supply and farm credit co-ops,

FHC health insurance plans became active on April 1.

Within just two days, thousands of people had already

requested information about the program, says project

coordinator Katie Mnuk. “This shows a clear demand from

farmers and agri-businesses for affordable health insurance

coverage,” says Mnuk.

The co-op’s mission is to provide Wisconsin’s 70,000

farmers — and the agri-businesses that directly serve them —

with access to affordable, comprehensive health insurance.

Farmers’ Health Cooperative is designed to use its power as a

cooperative entity to bargain for cost-effective coverage and

increase health care options for its members.

About 35 town meetings were held across the state during

the spring to discuss the plan with producers and rural small

business owners. WFC President and CEO Bill Oemichen

says attendance was well beyond expectations. In the Green

Bay area alone, more than 600 producers attended meetings

during a three-day period. 

After only five weeks of marketing the co-op program, the

number of producers and agricultural businesses that had

already signed up and paid their first insurance premiums was

rapidly nearing the number projected for the first year,

Oemichen noted. 

The co-op’s marketing effort began Feb. 19 with a press

conference at the Wisconsin state capitol led by U.S. Senator

Herb Kohl, Governor Jim Doyle and Oemichen. 

Aetna, one of the largest U.S. health care insurers, has

been selected to provide the health insurance for the

cooperative. Agri-Services Agency of New York (ASA) has

been selected as the plan administrator. ASA is a subsidiary of

Dairylea Cooperative. Now that the plans are active,

individual members can begin reaping the benefits of that

group purchasing power, backed by the expertise of a healthcare industry leader as their provider.

FHC offers members a choice from among six different

enrollment plans, with deductibles ranging from $300 to

$5,000. Mnuk says these plans offer more comprehensive

benefits at lower prices than most could buy under an

individual plan. FHC members may choose from traditionally

structured, preferred provider organization plans, or take

advantage of the tax benefits available through coverage

under one of two high-deductible health savings account

compatible plans. 

The various insurance products have been tailored to meet

the specific needs of the farming community, and include

coverage for injuries that occur on the farm. Also included is

coverage for $500 of preventive care per member per year,

maternity care and prescription drug coverage. 

One of the co-op’s goals is to provide more predictable,

stable rates for its members. To be eligible to join the co-op,

applicants must be between the ages of 18 and 64, live or

work in Wisconsin, and derive at least 66 percent of their

income from farming.

An initial capitalization payment is required by state law,

and is returned after members have been enrolled for three

years. Other than that, the co-op charges a modest, $2

monthly membership fee that is collected as a portion of

members’ health insurance premiums.

W
Rural Cooperatives / May/June 2007 29

Genesis of legislation

During the past several years, limited access to health care

and rising costs have become paramount concerns for rural

families. Often, producers’ only option has been to buy

individual health insurance plans that are significantly more

expensive than the group plans available to workers in other

professions. 

Because farming can be dangerous (American farmers have

the third-highest rate for non-fatal injuries among all

occupational groups) and many producers do not carry

workers’ compensation insurance, the insurance industry

considers farmers a high-risk group. Several studies show that

Wisconsin farmers experience a high rate of work-related

injuries, and that as many as 82 percent of them don’t have

access to 24-hour medical care because of restrictions in their

policies.

WFC leaders felt that the situation was a crisis, and that a

solution was needed to sustain the state’s farm economy and

its agriculture-dependent rural communities. In 2003, WFC

began seeking legislation that would help producers and

small business owners obtain coverage at a lower cost. WFC

worked closely on the Co-op Care legislation with state and

federal officials, its member co-ops and other affiliated

groups. 

The Co-op Care law was signed into law by Governor

Doyle in December 2003, but development efforts faltered

soon after when the Wisconsin Insurance Commissioner’s

Office concluded that co-op members would still be

considered individuals when purchasing coverage and would,

therefore, be subject to individual rates and terms. The Coop Care legislation was unanimously amended by the

Wisconsin Legislature in 2005 and again in 2006 in an effort

to resolve this concern. 

The 2006 legislation included more effective language

codifying that the cooperative entity is the purchaser, not the

individual members. These revisions cleared the way for

development and formation of Wisconsin health care co-ops,

and progress resumed with renewed vigor. 

The Co-op Care goals are:

• To allow purchasing cooperative members to band

together to purchase insurance of better value than one

could purchase individually. 

• To provide members with a comprehensive plan,

including coverage for preventive care and prescription

drugs. 

• To provide members with rate stabilization. 

• To advance quality measurement and consumerism in

health care purchasing decisions.

Under the Co-op Care law, the cooperative’s health

insurers must provide insurance coverage for a minimum of

three years. This is a unique provision that was intended to

provide stability to the cooperative.

Healthy Lifestyles Co-op seeks lower costs

The mission of the Healthy Lifestyles Cooperative (HLC),

based in Green Bay, is to stabilize insurance rates through

cooperative purchasing, while also emphasizing the need for

members to take personal responsibility for their well-being

by maintaining a healthy lifestyle. The focus on wellness is

what makes HLC unique. 

Insurance plans sponsored by HLC became active on Jan.

1, making it one of the earliest health care co-ops in the state.

HLC serves a primarily urban area of northeast

Wisconsin. Like the Farmers’ Health Cooperative, HLC also

uses the collective power of a group of employers, who pool

their resources to purchase coverage as a group. Membership

is open to self-employed people, for-profit or nonprofit

corporations, trade or labor organizations, municipalities or

any partnership that does business in, or is principally located

in, Brown County. 

To be eligible, members must also belong to a local farm

Initial interest in Wisconsin’s new Farmers Health Cooperative has far exceeded what was anticipated, says WFC President and CEO

Bill Oemichen, flanked here by a number of state and national leaders while addressing a press conference held to launch the co-op.

Photo courtesy Wisconsin Federation of Cooperatives

continued on page 41
30 May/June 2007 / Rural Cooperatives

By Perry Letson, Vice President for

Communications

ACDI/VOCA

t seems like southern

Illinois,” said

ACDI/VOCA Vice

President Fred Smith

while surveying the rich

black soil of Krasnodar, Russia, in 1994.

But he was surprised to learn that local

farmers only produced 50 bushels per

hectare. Fertilizer, hybrid seed and the

proper equipment for weed control

were available, and the local markets

were short on grain supply. “There was

just no working capital in the system —

no way for farmers to finance

improvements,” Smith said.

Smith developed a plan for

improving the availability of rural credit

in Russia. It took a while to implement,

but more than a decade later, the

Mobilizing Agricultural Credit

program, led by ACDI/VOCA, has

been called “one of the most successful

programs in the mission’s portfolio,” by

Ray Lewman, deputy director of the

Office of Economic Growth for

USAID/Moscow. The Russians’

appetite for a reliable farm credit

system has been whetted.

Credit needed in rural Russia 

Only 5 percent of the market for

rural credit in Russia is currently being

served. The Russian Rural Credit

Cooperation Development Foundation

(RCCDF), together with ACDI/VOCA,

managed the groundbreaking RussianAmerican Loan (RAL) Program that

has helped to bring rural credit to

Russia. 

The idea was hatched by Smith, a

North Carolinan, who was frustrated by

the unfulfilled potential of rural Russia.

It was initially funded with loan capital

from USDA and technical assistance

funds from USAID, first through the

Mobilizing Agricultural Credit project

and now the Cooperative Development

Program. 

From a starting point of $6 million

in USDA capitalization, the RAL

Program now has $10 million of equity

and has successfully loaned more than

$38 million to rural credit cooperatives.

About 91,000 people belong to Russian

rural credit co-ops, which provide the

best — and often the only — access to

financing.

“While credit cooperatives improve

access to credit for farmers and rural

“I

Russian farm and credit leaders attended briefings at the Capitol in Washington, D.C., as

part of their fact-finding tour to learn more about farm and rural credit in America.

Photos courtesy ACDI/VOCA

Where

Credit Is Due

Russian farm credit

officials study American

finance model
Rural Cooperatives / May/June 2007 31

entrepreneurs and are thus an

important economic development tool,

they also facilitate grassroots

improvements to local civil society,”

says ACDI/VOCA’s country

representative, Michael Harvey. 

Credit cooperatives also have a

national impact. Credit cooperative

leaders have become political leaders in

Russia. At least one female credit co-op

leader has been elected to the State

Duma, Russia’s parliament. In addition,

staff of the RCCDF and Union of

Rural Credit Cooperatives have served

as expert advisers in both the Duma and

the Federation Council.

Building a rural credit system

Given this history, ACDI/VOCA was

the natural choice to organize a recent

U.S. fact-finding mission for some

Russian farm and credit leaders. Nine

Russians, among them three republic

ministers of agriculture, looked

intensively at the American model last

November. 

ACDI/VOCA President Carl

Leonard welcomed the group to the

organization’s headquarters in

Washington, D.C., and Smith spoke of

the company’s seminal work in Russia.

The Russians got an overview of the

U.S. farm credit system from John

O’Day, former vice president of

AgriBank, and a briefing on the federal

government’s role in fostering

cooperatives from USDA Rural

Development economist James Baarda. 

The first day ended with a reception,

at which Asif Chaudhry, deputy

administrator of USDA’s Foreign

Agricultural Service, formally welcomed

the group on behalf of the government.

After dinner, participants took a

nighttime tour of the Lincoln

Memorial. 

The next day the group was off to

the heartland. O’Day had arranged

meetings at AgriBank in St. Paul,

Minn., the largest farm credit bank in

the nation, with a loan portfolio of $40

billion. The Russians were addressed (in

Russian) by a bank employee who had

emigrated to the United States at age

16. C.T. Fredrickson, former bank

president and former senior deputy

governor of the Farm Credit

Administration, had a rapt audience

when he spoke about the dire U.S. farm

credit crisis of the 1980s and the lessons

it provided. 

While the turmoil and dislocation

suffered by many farm families and

farm credit professionals could not be

ignored, Fredrickson said a legislative

remedy proved highly successful — no

doubt an interesting lesson for the

Russians. He added, however, that there

were dangers in the government playing

too prominent a role in such situations.

“Those engaged in businesses in which

government policy is a large factor in

determining prices, profits and asset

values should always remember that the

market forces cannot be suppressed by

the government indefinitely,”

Fredrickson said.

Other tour highlights included:

• Lee Egerstrom, business reporter for

the St. Paul Pioneer Press, presented

the Russians with signed copies of

two of his influential books on

cooperatives, including “Make No

Small Plans,” much of which is

applicable to Russia as it strives to

build a stronger rural credit system.

Egerstrom stressed that a co-op has

two main objectives: to succeed as a

business and to help its memberowners succeed in their own

businesses.

• John Schmitz and Tom Larson, CFO

and executive vice president,

respectively, of CHS, the largest U.S.

farmer co-op, also addressed the

group. Schmitz said that he saw great

potential for Russian agriculture, but

that Soviet style co-ops, while able to

perform certain governmental

functions, are poorly structured to

succeed as businesses in the global

marketplace.

• Bob Doane, a regional manager of

CoBank, provided an overview of

CoBank operations, while a

representative of Farm Credit Leasing

Co. explained how it works with

CoBank customers and others to

determine if it is advantageous to

lease or buy equipment. Export

financing is an important part of

CoBank’s portfolio, and the bank has

John O'Day, former vice president of AgriBank and now a consultant, explains the

workings of the U.S. farm credit system during a briefing at ACDI/VOCA headquarters in

Washington, D.C.
32 May/June 2007 / Rural Cooperatives

$2.3 billion in lines of credit,

including $158 million in Russia.

Members of the Russian delegation

expressed interest in working with

CoBank in importing new and used

farm equipment, fertilizer and Jersey

cows.

• Upon their return to the Washington

area, the Russians visited the

headquarters of the Farm Credit

Administration (FCA) in McLean,

Va., where they learned about its role

as an independent regulatory agency

in governing the farm credit system,

as well as the nuts and bolts of

rulemaking and the examination

process. Several FCA officials have a

keen interest in global rural finance,

including Roland Smith, secretary to

the FCA board, who has facilitated

the short-term service of FCA staff as

ACDI/VOCA volunteers. Smith

introduced one of them, Ron Boehr,

who has served on six assignments in

Russia over 11 years.

• Gene Swackhamer, former president

of the Farm Credit Bank of

Baltimore, sketched a history in which

farm credit authority migrated from

the U.S. Treasury Department to

USDA, and then from the FCA to the

banks themselves and, more recently,

to associations.

• The Russians traveled to the

Maryland Eastern Shore to tour the

65-head St. Brigid’s Dairy Farm in

Kennedyville and some local grain

and chicken farms.

• A briefing was held at the Farm

Credit Council, the U.S. farm credit

system’s advocate in Washington.

Terry Barr, economist for the

National Council of Farmer

Cooperatives, discussed the

economics of world agricultural trade

and the issues of the Doha round of

trade talks.

Wind-up on Capitol Hill

The last working day of the tour was

spent on Capitol Hill, meeting with

officials of the 5.7-million-member

American Farm Bureau and staff of the

Senate Agriculture Committee who

explained the mechanics of the Farm

Bill. The Russians were interested to

hear that the House Agriculture

Committee alone employs 48 full-time

professional staff members. A tour of

the Capitol was provided by Senator

Norm Coleman of Minnesota. 

During lunch at the Monocle

Restaurant (considered a Hill

institution) the group met with Senator

Richard Lugar of Indiana, who at the

time chaired the Senate Committee on

Foreign Relations and who formerly

chaired the Senate Agriculture

Committee. Senator Lugar, who visits

Russia at least once a year, listened

intently as the visitors described

objectives of the mission and of the

progress being made in Russian

agriculture. 

As a result of the tour, strong

relationships have been established with

ministers from key areas of Russia’s

North Caucasus region and they have

found new contacts within the

cooperative credit system. ■

ACDI/VOCA was founded by U.S. cooperatives to

bring the advantages of the co-op model overseas.

True to its roots, the development organization invokes

a great cooperative system that has served this country’s farmers and business owners for decades and

that now extends to the productive soil of Russia. 

Without the support and involvement of the U.S.

farm credit and cooperative community, the current

Russian system would not exist and the recent fact-finding tour could not have been made. Principles of

cooperation soundly trump concerns about competition or lingering cold war issues. 

For 43 years and in 145 countries, ACDI/VOCA has empowered people in developing and transitional

nations to succeed in the global economy. It delivers technical and management assistance in agribusiness systems, financial services, enterprise development and community development in order to promote broad-based economic growth and vibrant civil society. ACDI/VOCA currently has approximately 90

projects in 40 countries and revenues of approximately $85 million. ■

Exporting the U.S.

cooperative model

Russian officials visit St. Brigid’s Dairy in

Kennedyville, Md.
Rural Cooperatives / May/June 2007 33

By Thomas W. Gray, Ph.D.

Rural Sociologist

USDA Rural Development, Cooperative Programs

Editor’s note: The author welcomes feedback from readers on

this article and more generally on farmers, collective actions,

and social movements at: Thomas.Gray@usda.gov.

hen cooperatives are in their early

formative stages, they can often

resemble social movements. Social

movements are a kind of group action,

composed of individuals with common

interests, seeking to achieve some larger socioeconomic, political, and/or cultural change. 

Social movements go through various stages, from

pre- and early-mobilization, through organizational

formation and sometimes closure. In the case of market

failures and economic grievances, businesses may form

as cooperatives. This article focuses on the importance

of common belief systems, grievances and identities,

participation and leadership during mobilization. 

Role of re-awakened belief systems

Berton Klandermans, (2001, “Why Movements

Come into Being and Why People Join Them”) says

social movements and collective actions seldom invent

ideas they form around. Rather, they build upon a

heritage of ideas, values and earlier actions in a group’s

history. During the early stages of a collective action,

people’s historically held belief systems and cultural

inheritances may sometimes be re-awakened. Farmers

have a long history of actions that have waxed and

waned with the booms and busts of the farm economy,

and the cycling of government intervention and freemarket policies. 

Farm history is, in fact, rich with movements that

resulted in the creation of cooperatives. Examples

include, among others, the Grange, the Northern and

Southern Farmer Alliances, the Farmers Union, the

National Farmers Organization and the Federation of

Southern Cooperatives (see, respectively, books by

Patrick Mooney, “Farmers and Farmer Movements”;

Jon Lauck, “American Agriculture and the Problem of

Monopoly”; and Bruce Reynolds, “Black Farmers in

America”). 

Many of these movements have at their core farmers

who wish to continue to live and operate as farm

families, with values that embrace civil liberties,

property rights, civic participation and decentralized

democracy. As Kendall Thu and E. Paul Durrenberger

of the University of Iowa put it, they seek: the social

and human character benefits of “learning honesty,

hard work, ingenuity, flexibility and fairness as part of

being reared in a farm environment.” Cooperatives

themselves are embedded within a series of values that

include, among others: mutual self-help, equality,

equity, democracy, voluntarism and service. 

These embedded belief systems can link farmers to

contemporaries who may be struggling in similar

situations, as well as to mutual histories as surviving

farmers in particular regions, raising particular

products. Klandermans suggests such belief systems —

when re-awakened in collective actions — can help

W

Business structure helps producers

address power disparity in the marketplace

Co-ops Focus

Collective Action
34 May/June 2007 / Rural Cooperatives

facilitate a greater sense of life-meaning among members, as

well as provide a grounding and vehicle for voicing feelings

of injustice. 

Farmers and market grievances 

Farmers have formed social movement groups, or focused

their collective action, for several reasons. Frequently

(though not exclusively) an economic or market grievance is

involved. Potential members come to realize they have

certain unmet needs, and/or are positioned in certain

disadvantaged market relationships. 

For example, farmers may find that input prices are too

high, or prices for their product too low, leaving them to

operate in only a minimally solvent (or less than solvent)

manner. Or some needed service or product may be lacking,

and not easily obtainable. 

They might also discover in operating and engaging in

their various farm transactions, that they are forced to deal

with a single business or a very limited number of large

businesses. They may have few, if any, alternatives beyond

these firms. Historically, when these situations have occurred

it has not been unusual for power disparities to evolve

between the larger business and the much smaller farm

operation. Various terms have been constructed to help

describe these different power relationships, including

“monopoly.” 

Generally speaking, a monopoly exists when there is but

one seller of a product or service in the market place, and

many buyers. A monopolist may be in a position to

potentially dictate prices for products and assume a “take it

or leave it” market stance. Since there are no alternative

businesses for buyers to go to, and there are many buyers,

individual purchasers have little power in the monopoly

situation. The monopoly firm can dictate a given price,

knowing full well buyers have no choice but to buy their

product or go without.

What if several producers are trying to sell a product to a

single purchaser? Similar to the single-seller situation, a

single buyer may be able to make an offer to buy products at

a certain price and rebuff potential sellers who argue the

price is too low. The term used in this situation is

“monopsony.” 

In a monopsony, sellers have no choice but to sell their

products to the single buyer. There are no alternatives. Since

there are many potential sellers, the monopsonist firm can

dictate a price, knowing there are many sellers to buy from,

and no alternatives for sellers, regardless of the price set.

Again, there is a “take it or leave it,” mentality and approach

to the market. 

Of course, in either of these situations, monopoly or

monopsony, the price cannot be either so high or so low that

it drives all of the many sellers or buyers out of business. The

firm with predominant market-power must be careful not to

destroy its own market.

There are very few actual unregulated large monopolies or

monopsonies in the United States. Where they do exist,

typically they are heavily regulated by government oversight.

Where such power disparities exist, small numbers of large

firms, rather than a single firm, hold large proportions of

market share in particular product areas. 

When these firms are sellers, they are “oligopolies” (rather

than monopolies); if they are purchasers of products, they are

called “oligopsonies” (rather than monopsonies). While their

actions in the marketplace are complex, their power over

large numbers of small firms parallels the monopoly and

monosopony situation.

Researchers argue that U.S. farmers have had to deal with

these various power disparities historically (see, for example,

analyses of Cargill, ADM, ConAgra and Dean Foods by

William Heffernan of the University of Missouri, and various

writings on market concentration by Ronald Cotterill,

University of Connecticut, Richard Sexton, University of

California-Davis and Bruce Marion, University of

Wisconsin-Madison.) John Craig of York University suggests

that when these situations have occurred, farmers have

historically off-set (or countervailed) some of their respective

power disadvantages by forming cooperatives.

Coming together as a group does not just happen

spontaneously because a need exists however. Farmers are

famous for being rugged individuals. Some kind of collective

identity has to develop, grievances have to be identified and

leadership, loyalty and commitment have to evolve.

Role of identity and participation

The grievance may often be associated with a person’s

farming, or social identity. Dairy farmers, or grain farmers, or

family farmers may find commodity prices too low, or supply

prices too high, for example, and in turn, may suffer solvency

problems (the grievance). Typically, some precipitating event

has occurred, such as a series of farm foreclosures or a

business has closed that was providing needed services.

Buyers of farm production may have been arbitrary in their

pricing and/or in its product acceptance-policies; or sellers of

supplies may be gouging customers with exorbitantly high

prices (respectively, the oligopsony and oligopoly problems). 

Some rudimentary leadership must emerge to facilitate

early meetings among those feeling aggrieved. Common

identities among participants (e.g., livestock, vegetable, fruit,

and grain farmers/ranchers) can ease discussion and facilitate

discovery of other similarities, as well as differences. The

sharing of current grievances will likely predominate. 

As discussion occurs, members discover ways their

grievances overlap. Together, they gradually construct

(sometimes through conflict and negotiation) joint meanings

and explanations for their situation. Members begin to

develop a sense of themselves as a collective group; a concept

of “we” evolves. Pre-existing, and re-awakened belief systems

can play a particularly important role at this point, helping

members solidify their common needs and history. 

Once a common collective identity begins to take shape
Rural Cooperatives / May/June 2007 35

and members more easily join in and participate, the more

they participate. Participation engenders more participation.

The more members are involved, the more they build

alliances, the more they are heard, the less their individual

differences interfere and the more the group is empowered as

a group.

Role of leadership

During these early phases of development, a more

permanent leadership — beyond leadership for the initial

facilitation of meetings — tends to take shape. Characteristics

of a successful leader are beyond the scope of this article.

However, a few aspects will be mentioned (see James

Wadsworth “Director Leadership,” “Rural Cooperatives”

Nov./Dec. 2003, for a more detailed article on cooperative

leadership). 

Successful leaders generally come from the communities

they help mobilize. They must be able to read the

environment for opportunities for grievance resolution, as

well as constraints to resolution. Being able to assign causes

of the problem and assign blame to someone, something

and/or some process is frequently key to bringing a focus to

the movement. Equally important, leaders must be able to

communicate to the members that taking collective action as

a group can be fruitful. 

These determinations generally come about through

group discussion, as speakers gradually build credibility

among the membership. In a process of articulation,

negotiation and re-articulation, members begin to internalize

conceptions of a leader (or leaders) as someone who can

speak for them and who does so in a manner that does not

create group schisms, splits or alliances via scapegoating. 

Constructing whole-group solidarity is emphasized.

Leaders may also be attuned to calling up and reminding

members of the sets of values and beliefs they all grew up

with, and share with each other in the community, and

historically. 

Summary

These several influences — existing belief systems,

identities, grievances, participation, leadership — tend to act

together to reinforce each other. Members with similar

identities and common grievances may come together in a

group such that discussion and planning for action are

facilitated. Collective identities tend to emerge from this

group participation. 

In successful movements, leaders emerge who can bring

greater clarity to grievances, assess opportunities and

engender hopefulness about possible actions. Leaders may

also be adept at calling up and articulating sets of belief

systems that ground members to their histories and build

solidarity across members. As members participate with other

members, participation itself deepens collective identity and

builds greater commitment, increasing the likelihood that

participation will continue.

■

The more members

are involved, the

more they build

alliances, the more

they are heard, the

less their individual

differences interfere

and the more the

group is empowered

as a group.

A co-op poultry receiving station in North Carolina, circa 1944. USDA archive photo
36 May/June 2007 / Rural Cooperatives

CoBank’s record earnings

support $193 million patronage

CoBank reported record 2006 yearend earnings of $335 million, an

increase of $37 million from 2005. As a

result, it is returning $193 million in

patronage to customer-owners.

CoBank’s 2006 earnings represent a

12- percent increase over 2005 and the

seventh consecutive year of earnings

growth. The increase was largely due to

an increase in net interest income,

driven by higher loan volume across

most market segments and a reduction

in the provision for credit losses,

reflecting continued strong credit

quality for the year. 

“CoBank was able to provide muchneeded capital to our agribusiness and

rural utility customers during a time of

market volatility,” says Robert B. Engel,

CoBank president and CEO. Of the

$193 million in patronage distributions

for 2006, $126 million will be paid in

cash and the remainder in CoBank

stock. 

Patronage distributions for 2006

represent an 18.2 percent return on

average invested capital for customerowners. For the past five years, CoBank

customer-owners received an average of

$160 million per year in cash as a result

of their investment in the cooperative

bank. 

Assets increased to $41.4 billion

from $33.8 billion in 2005. Loans and

leases outstanding to U.S. and

international customers increased to

$33.1 billion, from $26.3 billion in

2005. This growth was primarily due to

increases in agribusiness loan volume,

lending to Farm Credit Associations

and loans to rural energy customers. 

With $10 billion in loans

outstanding, the Agribusiness Banking

Group comprised 31 percent of the

bank’s portfolio, an increase of $6.9

billion. The bank’s Strategic

Relationships Division, which includes

Farm Credit Association customers,

had $10 billion in loans outstanding, or

30 percent of the portfolio, an increase

of 28 percent. Of this total, $8.3 billion

in loans were to CoBank’s five affiliated

Farm Credit association customers,

which serve 28,000 customers in 13

states in the Northeast and Northwest. 

The Communications and Energy

Banking Group had $7.7 billion in

loans outstanding, an increase of $865

million. Energy and water sector loans

totaled $5.3 billion, while communications sector loans reached $2.4 billion. 

UPG forms joint venture to

operate potato dehydrator

United Potato Growers of Idaho has

formed a joint venture that will create

the nation’s second largest potato

dehydrator, subject to government

approvals. United, a cooperative of

potato growers based in Idaho Falls,

Idaho, joins with Idaho Fresh-Pak

Corporation (also known as Idahoan)

and the R.D. Offutt Co., together

creating a broad network of potato

processing plants with convenient

access to markets and customers. 

“Since forming two-and-half-years

ago, United has proven its ability to

manage fresh potato supplies, meet and

match demand, and improve grower

returns,” said Jerry Wright, United

president and CEO. “This new venture

will not only lead to a more stable

dehydrator industry, but also serve as an

important tool for growers to balance

their fresh crop and fresh industry

marketing pipelines, all with the

objective of improving grower returns.

As a result, potato growers, our

communities and the entire industry

will benefit.” 

Under the terms of the agreement,

United has formed United II, a new

grower cooperative that will be involved

in the new company with Idahoan and

Offutt. Idaho potato growers who are

members of United, or who join

United, can opt to join United II. By

investing in United II, UPG leaders say

potato growers will have ownership of

the new company, will receive

dividends, and have a guaranteed

market for their dehydrator-grade

potatoes.

“This new venture is another in a

series of strategic initiatives by United

to improve potato grower returns,” says

Wright. “The fresh and dehydrator

industries work hand-in-hand. By

maintaining a fair dehydrator price,

fresh grower returns also improve. This

NEWSLINE

Send items to: dan.campbell@wdc.USDA.gov

United Potato Growers is pursuing a joint

venture to dehydrate potatoes.
Rural Cooperatives / May/June 2007 37

new dehydrator company also provides

United with an outlet for surplus

potatoes. Through United, growers

have access to market data and facts

that are crucial to their marketing.

Through United II, growers who invest

will have the opportunity to earn

dividends while having a reliable market

for their dehydrator-grade potatoes.” 

Members of United II will be the

sole potato suppliers for the new

company. “Potato growers will now be

integrated vertically into the overall

industry system,” says Wright.

“Through United II, we will create

efficiencies from the development of

seed to production to marketing. We

anticipate greater long-term stability

and no more boom or bust cycles.” 

AMPI earnings bounce back

Increased revenue and sharp cuts in

expenses helped Associated Milk

Producers Inc. (AMPI) record a

significant financial turnaround in 2006.

AMPI reported $4.6 million in earnings

on sales of $1.1 billion for 2006, AMPI

President and CEO Mark Furth said

during the dairy cooperative’s annual

meeting in Bloomington, Minn. The

co-op handled 5.1 billion pounds of

milk from its 3,400 members and made

$8.2 million in equity payments. 

The co-op rebounded from a

disappointing 2005, when its butter

manufacturing facility — a good source

of profits — was being rebuilt following

a fire in late 2004. A return to pre-fire

production levels at the butter plant

figured significantly in the company

exceeding budget expectations for

2006. Furth said the improved

performance reflected the cooperative’s

ability to increase energy surcharges

and premiums on AMPI dairy products

and reduce energy costs associated with

milk hauling and manufacturing.

“They probably haven’t heard of us

down on Wall Street, but if AMPI were

a publicly traded company its stock

would be rising,” Furth told delegates.

AMPI was able to return to profitability

for its dairy farmer-owners despite a

milk market-downturn that

characterized most of 2006. 

“Our milk marketing company is a

consistent performer in a volatile

marketplace,” said AMPI Board

Chairman Paul Toft, a dairy producer

from Rice Lake, Wis. “We’re poised to

grow in the Midwest — throughout

AMPI country.” 

Montana ranchers form

Organic Producers Co-op

Twenty-five organic livestock

producers have joined together to form

the Montana Organic Producers Co-op

(MOPC). Its mission is to help organic

producers achieve fair, stable pricing for

their output, based on cost-of-production, plus a fair return. 

Co-op leaders say organic producers

face a number of challenges in obtaining a fair price, including: cheap offshore organic meats being sold to

consumers without country-of-origin

labeling; a lack of local certified organic

processing facilities; limited transportation to inter- and intra-state markets,

and a lack of information on cost-ofproduction and grading to help

producers continually improve their

herds and manage their pricing

proactively. 

"MOPC's purpose is to help organic

producers market their products at a

fair price regardless of the hurdles

particular to organic production. We

want to represent our members in those

arenas which can affect infrastructure

and legislation to the benefit of not

only organic producers, but our

agricultural community as a whole,"

says Clay McAlpine, MOPC

chairperson. 

MOPC was formed from the input

of more than 70 organic producers who

worked together to develop a unique

co-op model. It orchestrates the

growing, feeding and finishing of

animals produced by its members,

allowing profits of cow-calf and feed

sales to remain within the group before

finished animals are sold to national and

regional buyers. 

"Our pricing model has little to do

with conventionally produced meats

and commodity pricing because our

animals are raised using a completely

different production management

system," says McAlpine. "MOPC's

certified organic growers adhere to

current organic law, but they take their

commitment to sustainable farming

practices one step further. Our animals

are pasture-raised and grass finished,

while commodity pricing levels are tied

to corn prices and feedlot systems." 

MOPC began negotiating sales

contracts for potential members in

2005. Sales and shipments for 2006

jumped 338 percent and are anticipated

to increase another 70 to 80 percent in

2007. MOPC coordinates all animal

Terry Keel on his ranch outside Power, Mont., is raising organic beef as one of 25

members of the new Montana Organic Producers Co-op. Photo by www.KraigofCraig.com,

courtesy MOPC
38 May/June 2007 / Rural Cooperatives

shipments of participating producers so

that even the smallest producers may

benefit from farm-gate prices generally

reserved for volume contracts and full

potload shipments. 

"While our aim is to promote

Montana certified organic products, we

have attracted members from across

Montana and several adjoining states,”

says McAlpine. “Our current

membership is comprised of ranchers

from Montana as well as South Dakota,

Nebraska and Idaho. We do not

anticipate developing a MOPC brand,

nor do we require that our members

sell all of their production through the

co-op. Of course, our hope is to do a

good enough job for our members that

they'll choose to sell most, if not all, of

their production through MOPC." 

MOPC's current focus is on beef,

but it will also be marketing lamb,

goats, pork and possibly bison. 

Alto Dairy to close

liquid feed division

Atlo Dairy in Waupun, Wis.,

announced in April that operations of

its Liquid Feed Division (LFD) in Black

Creek, Wis., would cease on May 11,

2007. LFD is a leading manufacturer of

liquid veal milk replacers, which use

whey as one of the main ingredients. 

“Due to current market conditions,

including the high market price for

whey, which is reflected in the price we

pay for milk, we assessed our

opportunities for pursuing highervalue-added uses for our whey stream.

As a result, we have chosen to close

LFD and exit the veal-feed business,”

said Rich Scheuerman, Alto Dairy’s

president and CEO. “This decision

impacts our employees and customers

and we are committed to treating

everyone fairly and working to help

them during this change of strategy for

our cooperative.”

The current market price for whey is

three times its 10-year average, and

WPC prices are more than double their

10-year average. These higher prices,

which exist industry-wide, have

dramatically impacted the profitability

of raising veal calves, with many veal

producers choosing to reduce the size

of their veal herd or deciding to stop

producing veal altogether. This has

resulted in reduced demand in LFD’s

products.

Sunsweet marks 90th

anniversary

The year was 1917 — the first year

women were allowed to vote in New

York state and the beginning of a dried

fruit company in California with

products that would become famous

throughout the world. Sunsweet

Growers Inc., now the world's largest

handler of dried tree fruits, is marking

its 90th anniversary. 

The Sunsweet Growers cooperative

boasts a 320-member roster, focusing

on farming, harvesting and manufacturing practices that help ensure the

highest quality fruit and consistent

products are delivered to supermarket

shelves. The organization represents

one-third of the world's prune supply

and continues to build on its foundation

of quality, innovation and healthy

products.

Headquartered in Yuba City, Calif.,

Sunsweet products include dried plums,

apricots, cranberries and raisins. A

grower-owned marketing cooperative,

Sunsweet product innovations go back

decades, to the introduction of the first

pitted prunes and the popular fruitessence prunes. It is also pioneering

new and exciting ideas with both

packaging and products, including new

Sunsweet Ones. These individually

wrapped prunes are meant for the “busy

consumer looking for a convenient,

healthy food option.” 

In addition, Sunsweet now offers a

wide range of products such as Jumbo

Red raisins and a new line of premium

dried fruit including blueberries,

cherries, mangoes and berry blend.

Sunsweet also offers a line of nutritious

juices, including PlumSmart, which

launched in 2006. 

DFA to idle Lovington, N.M.,

cheese plant

Dairy Farmers of America Inc.

(DFA) has announced that operations at

its Lovington, N.M., cheese plant will

be idled, with its cheddar production

transferred to other DFA plants. The

plant has been jointly owned and

operated by DFA and the Greater

Southwest Agency. 

Open since 1995, the Lovington

plant produces 40 million pounds of 40-

pound-block cheddar cheese annually.

The announcement comes after years of

repeated efforts to stimulate successful

operations, including periodic

adjustments to the production schedule

and an expansion to help the facility

better accommodate increased volume.

Despite these efforts, the plant has

failed to become financially viable. 

DFA members will experience

minimal impact from the plant closure,

he said. Milk formerly marketed to the

Lovington plant will be absorbed at

DFA’s other facilities, and no change to

hauling rates for member dairy

producers is planned. About 60 jobs will

be impacted. 

Co-op master's degree

application deadline

The Master of Management

Cooperatives and Credit Unions

(MMCCU) program was recently

awarded $75,000 to help launch a

Centre of Excellence in Accounting and

Reporting for Cooperatives by the

Canadian Institute of Chartered

Accountants. The MMCCU is the only

degree of its kind in English awarded

by an accredited institution (St. Mary's

University in Nova Scotia, Canada). 

Drawing together an impressive

community of faculty and students from

around the world, each class meets once

each August for an intense orientation

week in Halifax, Nova Scotia. Degree

candidates then return to their

respective countries and sponsoring coops or cooperative organizations to
Rural Cooperatives / May/June 2007 39

pursue 12 courses of study that combine

independent and group work, assisted

by telecommunications technology. 

Half-way through the program, the

class meets for a 10-day study visit to a

place where cooperatives dominate the

economy, such as Mondragon in the

Basque region of Spain, or the Emilia

Romagna region of Italy. Non-students

may apply to join the Study Visit.

Applications for the Fall 2007 class

were due May 31, 2007, but later

applications may be considered.

Contact Tom Webb at:

tom.webb@smu.ca. To learn more, read

student profiles and the MMCCU

newsletter at: www.smu.ca/mmccu.

Foremost has $12.5 million loss;

closes juice plant; hires COO

Foremost Farms USA, Baraboo,

Wis., had a $12.5 million loss for 2006,

the first loss in its history. Co-op

leaders say the loss was the result of

federal milk marketing rules and

competition from California. Last year,

the co-op had earnings of $4.2 million,

and two years ago it had record

earnings. Press reports quoted a co-op

official as saying Foremost Farms is still

in a strong financial situation despite

the loss, noting that for every dollar in

liabilities the co-op has $1.38 in cash

reserves. 

Changes in marketing rules have

already corrected some of the problem,

Foremost Chairman Ed Brooks told the

Baraboo News Republic. He added that

management is working to cut costs,

choose more profitable products and

bring the co-op back into the black. He

said the co-op's cost for milk and other

products it uses to make cheese have

increased, and, until February, a federal

"make allowance" rule that had not

been adjusted since 1999 did not take

into account the co-op's rising costs for

energy, insurance and labor. The “make

allowance” is deducted from the price a

co-op pays farmers for their milk. 

Foremost has announced the closure

of a fruit juice packaging plant it owns

in Fitchburg, Wis., and a distribution

center it leases in Windsor, Wis. About

77 salaried and hourly employees will

be impacted. The juice facility

represents less than 2 percent of the

cooperative’s annual sales. 

In another action, Foremost named

Michael Doyle as its new vice president

for finance/chief operating officer.

Doyle was most recently the chief

financial officer of Creekstone Farms

Premium Beef LLC. Before joining

Creekstone, Doyle spent more than 11

years with Land O’Lakes, where he rose

to the rank of vice president for finance

and operations for the Ag and Feed

Division.

CHS distributes record

$258 million to members

CHS Inc. owners in 47 states are

sharing in a $258 million disbursement

as a result of the energy and grainbased foods cooperative’s record fiscal

2006 earnings. It marks the third

consecutive record return to owners by

CHS and is the largest ever made by a

U.S. cooperative.

The distribution consists of cash

patronage, equity redemption and CHS

preferred stock issued as equity

redemption. Patronage refunds also

include a record 14.8 cents per gallon

paid to eligible customers who

purchased gasoline, diesel and other

refined fuels from CHS during its fiscal

2006, a total of $99 million in cash on

refined fuels purchases. CHS is the

nation's largest member-owned energy

company.

"This record return represents one

of the most important ways we can

deliver on our CHS mission of adding

value for all of our stakeholders," said

Michael Toelle, CHS board chairman.

CHS net income for its fiscal year

ending Aug. 31, 2006, was $490.3

USDA awards $415,000

for early-warning broadcasts 

Agriculture Secretary Mike Johanns in March announced the award of

more than $415,000 in grants for weather radio transmitters to extend the

coverage of the National Oceanic and Atmospheric Administration Weather

Radio All Hazards (NWR) early warning system to seven more rural

communities. "With the tragedy of tornadoes, we have heard national

broadcasters saying everyone should have a NOAA Weather radio," Johanns

said. "These seven grants to rural communities who do not have coverage

from NOAA Weather Radio Transmitters will help save lives." 

The NWR is a nationwide network of radio stations broadcasting 24 hours

a day from National Weather Service offices to alert people of approaching

dangerous weather and other emergencies, including natural, environmental

and public safety alerts. Thousands of people die or lose property annually

because they did not know soon enough about hazards, disasters or

emergencies. 

The NWR covers all major metropolitan areas and many smaller cities and

towns. The Weather Radio Transmitter grant program helps provide

coverage to those rural areas that do not have NWR coverage or are poorly

covered. The grants are funded using residual funds from grant projects that

were completed under budget. Today's award brings to 91 the total number

of grants awarded to electric and telecommunications cooperatives, nonprofit

groups and state and local governments covering 100 sites in 26 states and

Puerto Rico.

Details of the grant recipients and projects and further information on

Rural Development programs are available at: http://www.rurdev.usda.gov or

at local USDA Rural Development offices.
40 May/June 2007 / Rural Cooperatives

million. During 2007, distributions are

being made to 1,325 member

companies and more than 37,000

individuals. 

In other CHS news, the co-op has

signed an agreement to buy Nor-Lakes

Service Midwest, Hugo,

Minn., and the Farm-Oyl

Co. of St. Paul, Minn.

Nor-Lakes is a lubricants

manufacturer, founded in

1988 to produce privatelabel lubricants and

greases, including the

Farm-Oyl brand. FarmOyl has been marketing

heavy-duty lubricants to

Upper Midwest customers

since 1929.

CHS has also announced it has

formed a partnership with Sunrise Ag

Service Co. to enhance specialty and

bulk grain-handling access via the

Illinois River. The 50/50, limited

liability partnership is to build and

operate a new river grain terminal at

Havana, Ill. At the same time, the two

companies have entered into a separate

agreement with Clarkson Grain for

another LLC to manage truck-to-barge

access through two belts at the

Beardstown, Ill., river terminal.

MMPA elects new

president

St. Johns, Mich., dairy

farmer Ken Nobis has

been elected president of

Michigan Milk Producers

Association. Nobis was

first elected to the MMPA

board of directors in 1992

and has served as vicepresident. He and his

brother, Larry, operate an

800-cow dairy and farm 3,000 acres

near St. Johns. They were recognized as

Michigan State University’s “Dairy

Farmers of the Year” in 2006.

Nobis serves as treasurer of the

National Milk Producers Federation

(NMPF) board of directors and is a

member of NMPF’s Environmental

Committee. He serves on the United

Dairy Industry of Michigan board and

the Michigan Dairy Market Committee.

Bob Kran, of Freesoil, Mich., was

elected vice-president. To honor retired

President Elwood Kirkpatrick’s 26 years

of service to MMPA, the co-op board

has designated him as president

emeritus of MMPA. 

MMPA is a member owned and

controlled milk-marketing cooperative

serving about 2,400 dairy farmers in

Michigan, Wisconsin, Ohio and

Indiana. 

NH to host conference

The New Hampshire Cooperative

Enterprise Conference will be held June

15, 2007, at Southern New Hampshire

University. Economic Development

professionals and nationally respected

co-op leaders will explore how

cooperatively structured businesses can

advance economic and community

development goals. For more

information visit: www.cdi.coop, or email: info@cdi.coop.

Ken Nobis

loan, 20 percent is not an insignificant

sum. So a lender has a major exposure if

there is a liquidation. 

The guidelines also require that both

guaranteed and non-guaranteed

portions of a loan be traded together in

secondary markets. So where lenders

often desire to sell the guaranteed

portion of a note on a facility, selling

just the guaranteed portion appears not

to be an option. While the guidelines

left unexplained what would happen if

this condition were breached, it could

lead to inability to enforce the loan

guarantee. Opportunities to restructure

the risk into a package of wraps and/or

strips thus appear unavailable. The

intent of the program may have been to

encourage lenders to finance projects

with unproven technologies, but its

impact had the opposite effect.

The U.S. Department of Energy

(DOE) recently announced that is

investing up to $385 million for six

biorefinery projects over the next four

years (see sidebar, page 17). Each award

is equivalent to a 20-percent equity

stake. With these awards and the

pending guaranteed loans that follow,

the federal government will not only

guarantee the loans on the projects, it

will also assume the first loss in the

event of foreclosure.

Given the scale of investment and

the role of intellectual property in

cellulosic ethanol, the farmer-owned

business model may struggle to find its

place in this emerging segment of the

industry. However, as cellulosic

technologies become proven, producerowned businesses may to be launched

— or existing ones expanded — to

produce cellulosic ethanol under some

forms of licensing arrangements. 

In four of these six plants, farmers

will produce the main source of

cellulosic feedstock necessary to

produce ethanol. It may be possible,

therefore, for farmers to negotiate a

place in the ownership structure for

themselves. Broin Companies’ system of

partnering with farmers and rural

investors seems very adaptable to tie

together capital, intellectual property

and feedstock sourcing.

The DOE solicitation, announced

about one year ago, was initially for

$160 million for three biorefineries.

However, in an effort to expedite the

goals of President Bush’s “Advanced

Energy Initiative” and “Twenty-in-TenInitiative” (which aim to increase the

use of renewable and alternative fuels in

the transportation sector to the

equivalent of 35 billion gallons of

ethanol a year by 2017) Energy

Secretary Bodman raised the funding

ceiling.

“We had a number of very good

proposals, but these six were considered

‘meritorious’ by a review panel of

bioenergy experts,” Bodman said. ■

Risk

continued from page 18
Rural Cooperatives / May/June 2007 41

engine that drives the cooperative. It must provide

the co-op staff with adequate direction and leadership

so that they can do their jobs properly. Employees

must be treated fairly, and jobs must be properly

delegated. 

Management must educate employees in a manner

that allows them to perform at their highest level.

This is important both for sound cooperative

operations and for employee self-improvement.

Management needs to provide opportunities for

advancement and promotion for those employees

who meet or exceed their expectations. 

A fair system of employee evaluation is needed so

that workers know how they are doing and where

they need improvement. Bad or non-performing

employees can be disruptive to the cooperative’s

operations and harm the morale of more productive

employees. When necessary, it is management’s

responsibility to remove such employees. Of course,

to offer sustained employment, regular raises and

benefits, a cooperative needs to be profitable and

maintain a strong financial position. 

A quality work environment is one that protects

employee health and safety, and which is competitive

in its marketplace for wages, benefits and retirement

options. The co-op should provide equal opportunity

to all and adhere to other relevant employment laws.

Employees should be granted the opportunity to

invest for their future and/or retirement. 

Responsibility to community

Cooperative management has responsibilities to

the communities that the cooperative and its members reside in. This includes the community the

headquarters is located in, as well as the communities

in which the cooperative has branches or other facilities. As businesses owned by user-members, management must work to integrate the cooperative into the

community. The co-op should get involved in

community events and gear operations to the greatest

extent possible to help build a stronger community. 

Management needs to take an active role in

communicating with community leaders, local

government and other businesses to see that the

cooperative becomes an integral and healthy part of

the community. The cooperative must work to serve

the community. 

When management meets all four of these highpriority cooperative responsibilities, along with its

other important business responsibilities, the likely

result will be a healthy and profitable cooperative

business. ■

Management Tip

continued from page 23

cooperative, the Green Bay Area Chamber of Commerce or a

nonprofit resource group.

HLC began negotiating with carriers last summer to determine

which would provide the best overall program. Last September, the

co-op chose Destiny Health. Destiny offers an array of health savings

account-type plans or health reimbursement arrangements for the

co-op employer/members.

Although not well known in the United States, Destiny has been

successfully administering consumer-directed wellness programs

since 1992, starting in South Africa. It entered the U.S. market in

2000. Destiny’s innovative program motivates clients to participate

actively in their health care, and rewards them for making healthy

choices.

Destiny’s incentives measure is called the Vitality program, and

members earn “Vitality Bucks” which can be redeemed for rewards

of their choice. Vitality Bucks can also boost the value of members’

health accounts with Destiny.

Clients are required to take an annual health-risk assessment test

to determine their general health and identify areas for

improvement. Clients are provided with a personal health

nurse/coach at no extra cost, who helps them develop personal

wellness plans that will reduce future health risks and health costs. 

As of April, 135 employer/members were participating in the

program, and more than 1,800 employees have already taken their

initial health-risk assessments test, a 90-percent response rate. In late

April, HLC announced that it is seeking members for a second pool.

Effects of Co-op Care initiative

Co-op Care backers say the law is having a spill-over effect, in

which competing insurance providers have lowered premiums and

raised benefits for producers in response to the packages offered

through the FHC. They note that one (non-cooperative) carrier has

begun advertising 24-hour coverage for farmers, similar to the coop’s plan.

Oemichen, who is also president and CEO of the Minnesota

Association of Cooperatives, notes that Minnesota is close to passing

similar health-purchasing cooperative legislation. 

The Co-op Care legislation has fostered development of a number

of health purchasing co-ops in various stages of development around

the state. Other projects (in addition to HLC) in the planning stages

include a cooperative for Wisconsin physicians, and cooperatives

providing health insurance coverage for small businesses in several

areas of the state.

According to Oemichen, Wisconsin’s novel approach of using

cooperatives to increase access to quality health care is attracting

significant interest from insurance companies, even some foreign

companies. WFC has received a number of inquiries from elected

officials and interested parties in a number of other states.

To learn more about Co-op Care, visit the WFC Web site:

www.wfcmac.coop. FHC’s website is: www.farmershealthcooperative

.com; HLC’s Web site is: www.healthylifestylescoop.org/. ■

Health-care Co-ops

continued from page 29
42 May/June 2007 / Rural Cooperatives

50 Years Ago...

From the May & June 1957 issues of News for Farmer Cooperatives

FS Springfield feed mill opens (cover article)

Illinois Farm Supply Co., headquartered in Chicago, took

its place in the electronic age with the opening of its new

modern feed mill at Springfield early this year. The mill

turned out its first bag of high-quality FS feed on Jan. 17 and

the first truck rolled away from the loading dock the following

day.

An electronic panel with rows of push buttons is the nerve

center of the plant. One man can control automatic weighing,

batch mixing and blending of each of the 83 kinds of FS

formula feeds. This automation

makes it possible to produce a ton

of feed with less than one manhour of labor — a considerable

change from the early days of feed

mills.

Manufacturing capacity of the

Springfield mill is 30 tons of feed

an hour in all forms —meal,

pellets, or crumbles — either

bagged or in bulk. Annual

production is projected in excess

of 100,000 tons.

The new plant is located on a 20-acre tract south of

Springfield. Construction of the mill building required 4,200

yards of cement and 425 tons of steel. At its highest point the

building stands 147 feet above ground level. The basement

goes down 17 feet below ground. More than 20 miles of

electric wiring were used in the various electric circuits plus

over a mile of low voltage wire in the blending panel.

Illinois farm supply records show that FS feed is now the

largest single brand fed on Illinois farms and demand is

continuing to increase. In 1955, feeds accounted for nearly

$13 million of the company’s business.

Rockingham rings in seventh year

Shen-Valley Meat Packers Inc., Timberville, Va., home of

the “Rockingham” brand of beef and pork meat products, has

just celebrated its seventh birthday at an annual meeting, its

most successful year so far. A local television station also

carried highlights of the meeting.

In 1956, substantial growth was shown in membership,

volume of business and in net savings. More members used

their meat plant to market their hogs and cattle than in any

previous year. There was a 15

percent increase in 1956 in the

membership, now totaling 1,717

members from 20 Virginia and

four West Virginia counties.

With a record slaughter of

hogs and cattle in 1956, the sales

tonnage approached the 20-

million-pound mark, a 12 percent

increase over the preceding year.

Net sales were $5.8 million. For

the first time, the cooperative paid

a 6 percent dividend on all outstanding capital stock.

Keynote speaker Maury A. Hubbard, executive secretary of

the Virginia Farm Bureau Federation, said, “You cannot

measure the value of a cooperative by the patronage refund.

The best way to measure the value of a cooperative is to first

do without it.”

30 Years Ago...

From the May & June 1977 issues of Farmer Cooperatives

Cooperative Farm Credit Loans Total $36.7 Billion

The Farm Credit System’s loans outstanding on Dec. 31,

1976, totaled $36.7 billion, a 15.7 percent increase from $31.7

billion a year earlier. Farmers and their cooperatives borrowed

a total of $34.6 billion through the lending units of the Farm

Credit System during 1976, a 15-percent increase from the

$30.1 billion borrowed in 1975, according to figures released

by the Farm Credit Administration.

Federal Land Banks had

loans outstanding of $19.1

billion, an increase of 15.1

percent, and made loans of

$4.7 billion during the year,

a 6.6 increase. Production

Credit Associations made

loans of $18.5 billion during

1976, a 14.9 percent increase

P A GE FROM THE PAST

From the archives of Rural Cooperatives

and its predecessor magazines
Rural Cooperatives / May/June 2007 43

from 1975, while outstanding loans totaled $12.3 billion, up

13.9 percent. Banks for Cooperatives made loans of $10.5

billion, up 18 percent. 

Minnesota Cooperatives Buy Volstead House (cover

article)

A man reviled by his contemporaries will be assured a place

of honor in history after action taken to make his home a

museum. Andrew J. Volstead, 1860-1947, served as a U.S.

representative from Minnesota’s 7th District from 1903 to

1923. He was best known, and often hated, during his lifetime

for authoring the Volstead Act, or

the 18th Amendment to the

Constitution, which established the

prohibition of alcoholic beverages.

In turning his home in Granite

Falls into a museum, citizens of the

community and members of the

Minnesota Association of

Cooperatives (MAC) seek to pay

tribute to Volstead for an

achievement that has far outlived

the memory of prohibition — his

contribution to co-ops. As chairman of the House Judiciary

Committee, Volstead wrote what is now known as the

Capper-Volstead Act of 1922. It enables farmers to jointly

market their products without being prosecuted for antitrust

violations.

Before the law was passed, Minnesota farmers were thrown

in jail for trying to bargain with buyers to achieve higher

prices. The act prohibits cooperatives from engaging in

unlawful business activities, such as undue price enhancement,

predatory trade practices and collusion with outside parties.

Before passage of the act, marketing co-ops were small and

struggling. Since enactment of what has been called the

“Magna Carta of Cooperation,” farmers now market $33

billion worth of agricultural goods annually through co-ops.

They purchase another $9 billion worth of products and

services.

In 1923, Volstead wrote: “The cooperative marketing law

will do more good than any other law that you can name,

because it will make it possible for farmers through farm

organizations to sell their products upon an equal footing with

the businessmen.”

Henry Harren, of the Minnesota Historical Society’s

historic sites division, says if he had to select one Minnesotan

whose life has had the greatest impact upon all Americans, he

would vote for Andrew Volstead. 

The home was purchased from Mable Connor by MAC

with a $40,000 grant contributed by a number of Minnesotabased cooperatives. MAC has donated the home to the city of

Granite Falls. The U.S. Department of Interior’s National

Park Service has established a $15,000 grant for acquisitions

in the project.

10 Years Ago...

From the May/June 1997 issue of Rural Cooperatives

West Virginia Quilters Stitch New Marketing Plan (cover

article)

She quietly wields needle and

thread, stitching patches of cloth

into a portion of the quilt

collected in a square wood frame

propped against her knees. The

rest of the quilt cascades across

her lap and onto the floor. She is

a member of the Cabin Creek

Quilters Cooperative, following a

long-standing tradition handed

down through families and friends

living in the coal-laden hills and

hollows of southern West Virginia.

The extra earnings from her quilts have helped to keep her

family and others like them alive in this community, both

during the heydays of the mines and later when the coal

supply played out. When Cabin Creek formed in the early

1970s, the state had 75,000 people working in the mines, but

today employment there has dwindled to 25,000.

Today, the co-op claims 300 members. However, only 40 to

100 are active at any one time and receiving checks for their

work. “It’s often seasonal work for many, explains co-op

representative Jamie Thiebeault. “Many work on quilts in the

winter; some make only one or two a year, while others are

looking for $100 to $200 a month to supplement Social

Security income.”

By the mid-1970s, the cooperative was thriving, helped

considerably by national publicity garnered when Jackie

Kennedy purchased two quilts and later ordered more. The

co-op was propelled into the national market and yearly sales

climbed to $500,000. Prices for quilts soared to the $500 to

$800 range in the early 1980s. These higher returns to

producers were more in line with the intense labor and

craftsmanship involved in producing the quilts. However, the

higher prices put the product beyond the affordability range

for many people. Competitors found cheaper material and

labor in overseas factories in Haiti, the Philippines and China.

As cheap imitations began to flood the market and

undercut domestic producer prices, the co-op was on the

verge of folding. But core members were determined to fight

back. They decided they needed a new headquarters store and

marketing plan to lower their products’ costs.

In 1991, the co-op moved to a historic house in Malden to

draw more tourist business and in 1992, it developed the “allAmerican” quilt as a joint venture with two other domestic

craft cooperatives. The co-op decided to market this symbolic

product through Land’s End, the Wisconsin mail order

clothing house. The arrangement continued until 1995.

Another marketing strategy is to better tap into West

Virginia’s growing tourism trade. ■
44 May/June 2007 / Rural Cooperatives

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