Cooperative Feed and Animal Health Operations

Farmer Cooperatives in the United States

Cooperative Information Report 1 Section 21

United States Department of Agriculture
CONTENTS

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

Feeds ........................................................................................... 2

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

Wholesaling ........................................................................ 11

Manufacturing ................................................................... .14

Ingredient Plants................................................................. 19

Research and Farm Testing ................................................. 20

Transporting and Distributing ............................................. 23

Custom Grinding and Mixing ............................................. 23

Contracting and Feeding ..................................................... 24

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

Challenges Ahead.. ............................................................ .27

Animal Health Products.. ........................................................... 30

Retailing ............................................................................. 31

Wholesaling ........................................................................ 33

Challenges Ahead ............................................................... 36

Cooperative Information Report 1, Section 2 1

February 199 1

Cover: A major change over the years in the livestock industry has

been the switch from bagged to bulk custom-mix feed, with on-farm

delivery to large operations. The intricate push-button control panel

on the cover is part of a state-of-the-art feed mill owned by Southern

States Cooperative, Richmond, VA.
A little imagination could produce a number of explanations for this

picture, but what it really shows is the feed ingredient pipe system

in a feed mill owned by Farmland Industries, Inc.
Cooperalive

Feed and Animal

Health Operations

Livestock, poultry, and dairy farmers buy significant amounts

of their feeds and animal health supplies through cooperatives.

Farmers’ ownership and control of cooperatives exists in two primary forms. One is the fedcrated cooperative system. In a fcdcration, farmers own local cooperatives that operate warehouses, feed

stores, delivery trucks, and often feed mills. In turn, local cooperatives

own regional organizations that provide wholesaling and manufacturing services. Beyond that, regional coopcrativcs may own interregional cooperatives engaged in purchasing, manufacturing, or

research activities. The second form of ownership is the centralized

cooperative. Under it, farmers arc direct owners of the regional cooperatives that provide wholesaling and manufacturing services, much

like the federated regionals. This form distinguishes itself by operating

branch retail outlets that serve their owners.

Through these cooperative systems, farmers extcndcd ownership and control of the farm supply system beyond the farm gate.

In return, they receive products, scrviccs, and the net margins or

profits that arise from their cooperatives’ operations.

This report discusses the purchasing, distribution, and manufacturing of feed and animal health products. Similar information on

feeding equipment and building supplies is contained in Section 20

of CIR Report 1 on Farmer Cooperatives in the United States.
FEEDS

Feeds were one of the earliest and high-volume supplies that

farmers purchased through their cooperatives. They were still a major

production cost for U.S. farmers, who bought $7.9 billion worth of

commercial feeds in 1987. This outlay covered the purchases of

mixed or formula feeds, supplements, and premixes. It accounted

for 44 percent of the total expenditure for feeds that included grain,

hay, concentrates, and minerals (table 1). The latter products are not

emphasized in this report.

Commercial feeds accounted for 15 percent of all farm production expenses, the highest among manufactured inputs purchased

by farmers and a condition that existed during the farm recession of

the 1980’s.

The $7.9 billion was spent on an estimated 111 million tons

of commercial feeds, mostly on nearly 102 million tons of primary

feeds.’ This tonnage included about 1 million tons of liquid ruminant

feeds and at least a part of 3 million tons of dry pet food purchased

mostly by urban consumers.

Poultry and turkey feeds made up 44 percent of the primary

feeds; beef feed, 18 percent; dairy cattle feed, 17 percent; hog feed,

14 percent; and other feeds, 7 percent.

In 1984, about 6,700 mills manufactured animal and poultry

feeds in the United States.

Retailing

Development

Pooling orders for carlot purchases of sacked feed from

noncooperative millers was the earliest cooperative feed activity.

Many of these orders were supported by buying clubs that flourished

in the Midwest during the 1850’s. In the early 1900’s, northeastern

farmers formed buying clubs that used farmer-agents who bargained

’ Primary feeds are mixtures containing one or more individual ingredients,

including premixes added to finished feeds at a rate of less than 100 pounds per

ton. Secondary feeds are mixtures containing one or more ingredients and one or

more formula feed supplements added to finished feeds at a rate of 300 pounds or

more per ton.

2
for prices, then notified members to come to the rail sidings, load

the feed into their wagons, and pay the agents. These purchasing

agents came to be known as pooling agents or poolers. These activities came about 30 years after construction of the first U.S. feed

mill in Waukegan, IL.

As a next step, farmers began to integrate backward into the

feed business by setting up local retail supply purchasing cooperatives.

Some continued to pool orders and purchase in carlots, while others

set up warehouses with full-time managers. Cooperatives sponsored

by the Grange in the 1875-85 period and by the Farmers Alliance

between 1880 and 1890 may have been the first to distribute feed.

In the Far West, the Hayward Poultry Producers Association,

Hayward, CA, began handling feed in 1912, while local grain marketing cooperatives in the Midwest and North Central States began

adding feed and other supplies and services during the early 1900’s.

Notable was a wholesale buying department to serve local cooperatives organized by the Farmers Union State Exchange, Omaha, NE,

in 1914.

Cooperative feed buying on a significant scale began in New

England in 1915-20, and took three organizational forms: Grange

cooperative stores, group purchasing clubs, and associations for

obtaining trade discounts. Factors prompting this development were

the expansion of milk production and the commercialization of the

dairy industry a few years earlier. Some feed companies began compounding closed formula feeds in the form of balanced rations, but

dairymen and land-grant colleges found it difficult to determine their

digestibility and nutritional value. This led to a demand for “open

formula” (feed ingredients listed on the bag) feeds.

In 1913, Massachusetts Agricultural College employed a

cooperative specialist to help farmers organize local cooperatives.

Soon after, New York farmers asked their county extension agents

to assist them in obtaining better feed, seed, and other supplies. These

agents helped develop feed pooling plans through farmer representatives, farmer committees, and local cooperatives.

In the South, five cotton producers formed the Georgia

Cooperative Cotton Association in 1933. Its name was changed to

the Cotton Producers Association (CPA) in 1940 and to Gold Kist,

Inc., Atlanta, GA, in 1970. This regional diversified into feed in 1943

as more farmers turned to poultry production. CPA sold only 1,067

tons the first year. In 1950, CPA financed its first poultry growers.

In the Central and Midwestern States where surplus grain

3
Early labor-intensive feed-handling methods improved through a

combination of necessity and ingenuity, as illustrated by perhaps the

first mechanical. . .
. . . bulk feed truck (top) developed by Poultry Producers of Central

California, San Francisco, during World World II when bag supply

was critically short.
existed, early cooperatives custom-ground farmers’ grain and mixed

it with supplements. And in areas of dairy and egg production, farm

supply and grain marketing cooperatives began distributing mixed

or formula feeds first manufactured by mills of other firms.

Concurrently, some eastern cooperatives had begun to market horse

feed and pet food by the late 1930’s. After World War II, cooperative

volume increased greatly in the central part of the country when

many locals added small formula-feed mills and regionals built medium-size mills.

In the Far West, farmers had first integrated toward the conTable l-Cooperatives handling feed, net sales, and market share in

specified years, 1950-51 to 1989

Year ’

Cooperatives Cooperatives’

selling feed sales

feed (net) 2

I%rmer Cooperative

feed market

expenses 3 share 4

1950-51

1955-56

1960-6 1

1965-66

1970-71

1975-76

1981

1984

1986

1987

1988

Number Million dollars

4,409 695 3,714 18

4.405 775 3,887 19

4,412 891 4,658 18

4.301 1,057 6,038 17

4,078 1,321 8,039 17

3,819 2,496 13,639 18

3,603 3,531 20,855 18

3,181 3,640 20,239 18

3,000 2,883 17,875 18

2,914 2,713 17,958 17

2,829 3,807 20,620 18

2,602 3,881 22,722 17

Percent

’ Business years within 12 months. July 1 following June 30, except in 1981-1989, when

calendar years were used.

2 Excludes business among cooperatives.

3 Includes mixed formula feeds, feed grains, hay and pasture. Average of 2 calendar years

for 1950-51 through 197576. Economic Research Service, USDA.

4 Cooperative market share developed by Statistics and Technical Selvices Staff, ACS. USDA.

6
sumer by organizing poultry and dairy marketing cooperatives. Next,

some decided that providing feed for their members would be a

worthwhile service. Their original purpose was to combine sufficient volume so they could ship eggs or poultry profitably to the

eastern markets.

As the west coast population increased, the egg market changed

from an export to an import basis. Under these conditions, several associations found that the dollar volume of feed sales exceeded their revenue from poultry and eggs. In the South, cooperative mixed feed volume became more important as livestock production increased after

World War II.

In 1960-61, more than 4,400 farmer cooperatives retailed $89 1

million worth of feed (mixed feeds, concentrates, grain, and hay).

Both the number of cooperatives and the volume of feed were up

from the levels of 1950-51 (table 1). Sales about equaled the volume

of the entire industry 30 years previously, with cooperatives selling a

sizable amount of feed manufactured by noncooperatives. Two years

previously the number of cooperative feed marketers had peaked at

4,581.

By 1970-7 1, cooperative feed marketers had declined by

8 percent from 1960-61, while salts had increased by 48 percent.

In 1989, cooperative feed sales reached at $3.9 billion, up

another 194 percent since 197 1. Cooperatives reached this level

of sales with only about 2,600 feed marketers, down another 36

percent.

Current Position

In 1989, more than 2,600 cooperative feed marketers retailed

$3.9 billion worth of feed. Since 1984, the number of such cooperatives had dropped 18 percent while feed sales had risen 7 percent.

Farmer cooperatives’ market share of all the feed purchased by farmers was about 17 percent.

Fifteen regional cooperatives, each retailing more than $4.5

million worth of feed, accounted for nearly 19 percent of total cooperative retail sales. These regionals specialized as follows: milk and

milk products, 4; grain and oilseeds, 3; poultry and poultry products,

2; and farm supplies, 6. Agway, Cenex/LOL, and Southern States

dominated the group’s sales. Three within the group also each wholesaled over $200 million worth of feed.

7
Cooperative Grain & Supply, Hillsboro, KS, is typical of midwestern

local-area cooperative feed operations, from push-button mixing to

on-farm delivery . . ,
. . . northward is Creameries Blending, Inc., Little Fall, MN, and

southward (below) is regional MFC Services (AAL), Madison, MS.
The eight leading States in cooperative net all-feed sales during 1989 and 27 years earlier were:

1989 1961-62

State Sales State Sales

Iowa

Minnesota

Wisconsin

Illinois

New York

Kansas

Missouri

California

Million dollars

534 New York 101

298 California 67

233 Iowa 63

182 Pennsylvania 53

181 Missouri 49

156 Minnesota 47

152 Wisconsin 40

149 Illinois 40

Million dollars

The relative shift in cooperative sales from California and

the Northeast to the Midwestern States reflects regional shifts in livestock feeding and successful feed marketing by the regional cooperatives. Among the Midwestern States listed, cooperatives had an

average share of the feed market that ranged from 11 percent in

Kansas to 26 percent in Iowa.2

Operating Practices

Over the years, locals added scrviccs such as custom grinding

and mixing to those of distributing and merchandising feed. Except

for a few of their larger patrons, however, cooperatives did not deliver much feed until bulk forms became important.

With farm operations becoming larger and more local mills

coming into operation, bulk distribution developed rapidly after

World War II. Cooperatives became leaders in developing the bulk

feed business, encouraging farmers to construct bulk bins and experimenting with trucks and unloading equipment best suited to this

business. By 1959, cooperatives were delivering about 46 percent

of their feed in bulk. In the East and Far West, a few cooperatives

delivered practically all their poultry feed in this manner. By 1969,

bulk feed accounted for 74 percent of the total cooperative production,

2 Conclusions from these shares of market, though the best available, need to be

qualified because feed is defined to include hay and feed grain. According to the

1987 U.S. Census of Agriculture, these items constituted 82, 57, and 41 percent

of the totals in Kansas, Iowa, and the U.S., respectively.

10
than began to level off. In 1984, it stood at about 80 percent, about the

same share as for the entire feed industry.

Local cooperatives generally price feed at going market prices,

and most allow cash and quantity discounts on individual deliveries

and volume discounts on annual purchases.

Extension of credit and collection of accounts receivable are

continual problems for cooperatives. Most have attempted to operate

on a 30-day basis, but the extension of credit has proven to be a very

effective sales tool. When cooperatives are integrators and contract

for the production of poultry or livestock, financing is necessary.

Cooperatives’ merchandising methods are similar to those

of other firms. They involve advertising, sales campaigns, and personal advice on feeding. Incentives go to employees or patrons, or

both. A few cooperatives employ feed livestock specialists to work

with farmers, and along a more innovative line, a few have experimented with “drive-through” feed stores that cater to the needs of

urban customers.

The rate of patronage refunds among cooperatives depends

upon their volume, efficiency, competition, and refund policy.

Cooperatives pay patronage refunds on feed at yearend in a variety of

ways. Some pay separate per-ton or per-dollar rates on mixed feeds,

ingredients, and feed grains; others pay scparatc rates by type of

feed-dairy, poultry, etc.; and still others apply a single percentage rate

to patron sales of all farm supplies, including feed.

Wholesaling

Development

After local supply cooperatives had operated for a time, they

saw the need for organizing wholesale cooperatives, and several were

formed after World War I. By this time, farmers began to understand

the advantage of integrating further into the feed business.

In 1915, farm leaders formed the Eastcm States Agricultural

and Industrial Exposition to stimulate dairy and livestock production in the Northcast. In 1918, these activities led to the formation of

The Eastern States Farmers Exchange (Eastern States), West

Springfield, MA, a regional wholesale purchasing cooperative.

In 1916, the New York State Grange Purchasing Agency

began to market an open formula feed based on a formula provided

by Cornell University. This was followed by the pooling activities

of county Farm Bureau committees and the feed operations of the

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Dairymen’s League Association, and later the consolidation of the

feed operations of these three organizations into the Cooperative

Grange League Federation Exchange (GLF), Ithaca, NY.

GLF soon began a pooling plan through farmer representatives

and local cooperatives or exchanges. It also organized local GLF

retail store corporations but found they could not be developed fast

enough to meet the needs of farmers; so it enlisted local supply dealers (called agent buyers) to handle GLF products on a franchise basis.

This franchise required dealers to keep patronage records so that

GLF could pay wholesale patronage refunds to its farmer patrons.

With Eastern States and GLF actively selling feed, the cooperative retailing and wholesaling of feed began a rapid growth. This

growth was aided by Eastern States’ pooled buying, which began in

1922. Farmers placed orders through local farmer representatives

and exchanges, and feed was obtained from a commercial mill in

Peoria, IL. An early objective was to test various feeds and standardize on a line of four to six brands. At the next annual meeting,

management reported savings of $2 to $14 a ton, and that its price

quotations were having a competitive effect on the market and saving money for all New England farmers. Total volume jumped to

$4.6 million in 1923.

To the South, the Virginia Seed Service (VSS), now Southern

States Cooperative (SSC) of Richmond, established a mixed feed

wholesale purchasing service in 1925. It sought to reduce feed costs and

improve quality. VSS adopted a policy of public specifications or open

formulas where the tag on the bag told the type and quantity of ingredients used in the feed. The cooperative’s initial savings were $3 a ton

on dairy feed and $20 or more a ton on chick starting mashes.

By 1932, Eastern States was making feed shipments through

numerous local representatives, and about that time it began adding

area retail warehouses. Thus it became a retailing rather than a wholesaling cooperative. It had 127 warehouses in 1964 when it merged

with GLF to become Agway.

In the Central States, regional cooperatives also began to

wholesale feed. These included Indiana Farm Bureau Cooperative

Association (IFBCA), Indianapolis; Farm Bureau Services, Lansing,

MI now Countrymark, Delaware, OH; and Missouri Farmers

Association (MFA), Columbia; Land O’Lakes Creameries (LOL)

and Midland Cooperatives, both in Minneapolis, MN; and the Illinois,

Iowa, and Wisconsin Farm Supply Companies, now GROWMARK,

Bloomington, IL.

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Then additional regionals in the Midwest, South, and Pacific

Northwest added wholesale feed services. Among these were CPA;

Consumers Cooperative Association (CCA, now Farmland Industries),

Kansas City, MO.; Farmers Union Grain Terminal Association (GTA,

now Harvest States), St. Paul, MN; FCX, Inc., Raleigh, NC;

Mississippi Federated Cooperatives (now MFC Services), Madison,

MS; Pacific Supply Cooperative, Inc., Portland, OR; Tennessee

Farmers Cooperative, LaVergne, TN; and Western Farmers Assn.,

Seattle, WA.

At varying points along the way, cooperatives took an additional step of contracting for the mixing of feed to their specifications. Usually they employed a representative at the mills to check

quality, prices, and shipments. Frequently contracts were with noncooperative manufacturers, but exceptions occurred. VSS bought

feed from GLF for a time after it opened its first plant, and statewide

wholesale cooperatives in Arkansas and Mississippi bought feed

from the MFA Milling Company in Springfield, MO, during the

1950’s.

As farming contracted during the early 1980’s, several regionals were absorbed by other cooperatives. By date of absorption, these

regionals were Western Farmers and Midland (1982), Landmark,

Ohio Farmers Grain and Supply Association and Agra Land, Inc.,

once Farm Bureau Services, Inc, (198.5), and FCX (1986). Pacific

Supply had been absorbed in 1977.

The size of geographic markets ranged from more than 1 million square miles for Farmland to about 40,000 square miles for

Countrymark. The average market covered by regional salespeople,

not necessarily Farmland and Countrymark, ranges from 5,000 square

miles to three times as much.

Current Status

In 1989, regional cooperatives probably supplied well over

half of the feed sold by cooperatives, up from 40 percent during the

early 1950’s. Twenty regionals did most of the wholesaling. Of these,

the 10 largest wholesalers sold $1.8 billion, while the remaining 10

cited earlier among feed retailers wholesaled about $8 billion. The 10

regionals specialized as follows: milk and milk products, 1; grain

and oilseeds, 3; and farm supplies, 6. This group was dominated by

Agway and Cenex/LOL, a subsidiary of Ccnex and LOL entitled

Cenex/Land O’Lakes Ag Services, and Farmland.

Most regional cooperatives also handle pet foods, and some

1 3
sell liquid feeds. Agway began to handle liquid feeds in 1966, LOL a few

years later, followed by GROWMARK and SSC in the early seventies.

Simultaneously, more regional cooperatives got into or began

to re-emphasize the horse feed business. Harvest States began to

market horse feeds in the early 1970’s. Others reformulated their

feeds, tailored them for specific types of horses, packaged them better, and generally gave horse feeds more attention.

Several regionals introduced programs designed to advise

producers about the most economical ways to feed and raise livestock. For example, in 1981 GROWMARK began providing its locals

with personal computer programs to help livestock producers make

sound feeding decisions. GROWMARK claims it was the first farm

supply company to do this in Illinois and Iowa. Other examples are

Cenex’s old Feed/Animal Care consulting program and Farmland’s

Total Animal Performance Projection System (TAPPS), which were

put in place during the early 1980’s.

Manufacturing

Manufacturing was the next step cooperatives took to improve

feed procurement and quality, and enhance patron income. As noted

earlier, cooperatives first contracted with noncooperative mills to mix

feed to cooperative standards. Later, cooperatives began building their

own mills, believing this would help them improve quality control.

Development

One of the first cooperatives to manufacture feed was the

Hayward (CA) Poultry Producers Association, which acquired a mill

in 1912. In the Northeast, Eastern States purchased a large mill in

Buffalo, NY, for $300,000 in 1925. This was a strategic location for

incoming ingredients and for shipping feed in bags under millingin-transit privileges to all parts of the Northeast. In 1929, one writer

noted that Eastern States’ margin on feed was about half that of noncooperative manufacturer/distributor channels. By 1932, net savings

on its operations had paid for the mill.

GLF decided in 1930 that it could no longer depend on an

outside milling company for its feed requirements, which had reached

300,000 tons a year. In 193 1, it also constructed a large mill in

Buffalo. SSC built its first mill jointly with GLF in 1933 at Baltimore,

MD, and added two of its own in Virginia in 1934-35. MFA bought

a mill in 1929, having gotten into the formula feed business in 1923

using scoop shovels to do the mixing.

14
Going into World War II, many cooperatives were still dependent on outside sources for feed. Later, they found quality deteriorating and contracts being canceled as the war progressed.

Consequently, some cooperatives were forced to build their own

mills sooner than they had planned. Many cooperative mills were

built, however, and the net result was that cooperatives believed they

were in a much better position to serve their patrons. One example was

Farmland (then CCA), which acquired a 75-ton-a-day feed mill at

Enid, OK, in 1943 and built another at Eagle Grove, IA, in 1948. By

1964, it had seven feed mills and an annual capacity of 238,000 tons.

During World War II, many cooperatives had to relax feed

specifications and use substitute ingredients. After the war, attention

was given to this problem and the boards of directors with some

regionals set up standing committees on quality control to review

specifications for goods and services.

An early and continuing objective of cooperatives has been the

handling of quality supplies. Feed manufacturing cooperatives soon

obtained laboratories for testing incoming ingredients and finished

feeds. Also, the passage of State regulatory laws requiring feed companies to meet the minimum specifications claimed for their feeds

added further emphasis on quality control.

During the war, two groups of rcgionals manufactured feed

jointly. In the East, Cooperative Mills, Inc., Baltimore, MD, a subsidiary of SSC, purchased ingredients and supplied management for

three mills owned by FCX and CPA. It also operated five mills for

SSC. By 1965, it was managing and providing research for 10 mills

owned individually or jointly by 6 regional associations.

In the Midwest, the Farm Bureau Milling Company,

Hammond, IN, produced feed for Farm Bureau cooperatives in

Indiana, Ohio, Michigan, and Wisconsin. Both of these intercooperative operations ceased business when member cooperatives decided they were large enough to operate their own mills.

After World War II, two important developments occurred

in the industry. One was the expansion of regional cooperatives in

the South into integrated broiler and egg programs. Gold Kist (then

CPA) built a feed mill in Georgia in 1957 and one in Alabama in

1958, while MFC acquired a mill that same year. The second development was the modernization and building of automated or “pushbutton” mills. Large regionals in the Northeast closed their “line

mix” mills in transportation centers and built regional “batch mix”

15
This feed mill at Sangerfield, NY, is one of 20 Agway Inc. feed manufacturing plants serving six New England States. Below is a feed

delivery truck displayed by Countrymark, Delaware, OH, at a farm

science fair.
mills to serve designated trade areas. This action was consistent with

industry trends.

During the 1950’s and 1960’s cooperatives in the grain deficit

areas of the Northeast, Southeast, and Far West built relatively large

mills (capacities of 50,000 tons or more a year) to manufacture feed

for poultry and dairy cattle Coopcrativcs in the grain surplus areas of

the Midwest and North Central States built smaller mills to make

concentrates and premixes that were shipped to local cooperatives

either for custom mixing with patrons’ grains or for use in making

complete feeds.

In 1959, some 821 cooperatives owned 1,054 mills that produced more than 1,000 tons of feed annually. They produced about 7

million tons of formula feed. During the next 10 years, cooperatives

produced an increasing proportion of the feed they sold. Consequently,

the number of mills climbed to 1,810, up 72 percent, and production

soared to 20.8 million tons, up nearly 200 pcrccnt and to 21 percent

of the U.S. total.

By the early 1980’s, farmer-owned cooperatives had some

of the most modern mills in the feed industry. SSC, for example, had

built one of the first mills featuring computerized batching (1979), and

FCX had built a similar one in 1981. In 1984, Farmland advanced

its interest in premixes by beginning construction of a premix plant

at Eagle Grove, IA.

Current Position

Compared with 1969, the number of cooperative feed mills

that produced more than 1,000 tons of feed annually had changed

little by 1984, numbering 1,834 in that year and equaling 29 percent

of the industry total. These mills had become larger, however. They

had a capacity to produce 33.9 million tons of feed, still only 21 percent of the entire industry. This tonnage rcflccts a cooperative move

toward large mills. Consequently, 122, or 7 percent of them, accounted for 38 percent of coopcrativc capacity. These mills had annual

capacities of more than 100,000 tons.

Cooperatives produced 23.8 million tons of formula feed,

only 3 million tons more than in 1969. The total equaled 22 percent

of U.S. output; thus, the cooperatives’ increase in production had

paralleled that of competition over the preceding 15 years. Thus,

cooperatives manufacture practically all of the feed they sell.

17
Cooperatives produced 18.4 million tons of primary feed, 19

percent of the U.S. total, and 5.4 million tons of secondary feeds, 38

percent of total.

By 1984, four regionals had sufficient volume to operate their

own pet food plants. Farmland, Harvest States, and MFC each operated one plant and Agway had two, its first having been built in 1953

and its second in 1979. Agway’s newest plant at St. Marys, OH, was

modem and unique in purpose and sponsorship. Agway owned and

operated the plant and originally used long-term contracts to supply

five other regionals with pet food: FCX, SSC, Landmark, IFBCA,

and Farm Bureau Services. All six regionals marketed a principal

brand and jointly advised on product and strategies. In 1985, TFC

began marketing Agway feed, replacing FCX, which dissolved in

1984. In 1989, Southern Farmers Association (SFA), North Little

Rock, AR, entered the pet food market with its own dog food.

Cooperatives’ primary output in 1984 leaned heavily skewed

toward dairy, hog, and beef and sheep feeds, with respective shares

being 38, 18, and 12 percent of total cooperative output (table 2).

Compared with noncoopcratives, the thrust by cooperatives was mainly toward dairy and hog feeds and away from beef and broiler feeds.

Data suggest that feed specialization varied among regionals, with Gold Kist producing mostly poultry feed; at least one Corn

Belt regional milling relatively more hog feed; and Agway manufacturing more pet food and dairy, horse, and liquid feeds. In 1982,

Farmland still operated a half-dozen liquid blending plants capable of

Table 2-The importance of various formula feeds from primary

manufacturing produced by U.S. cooperatives, 1984

Type of feed

Dairy

Hog

Beef and sheep

Starter-grower:

layer-breeder

Broiler

Turkey

Horse

Other

All feeds

Percent of cooperative Percent of industry

production production

38 34

18 23

12 11

11 16

10 11

5 18

2 15

4 2 0

100 19

18
handling hot urea, but Agway and GROWMARK had begun to deemphasize liquid supplements. Bctwecn 1975 and 1984, the quantity

of liquid feeds distributed by cooperatives dropped from 333,000

tons to 179,000 tons.

In 1989, Farmland operated 22 feed mills, while Cenex/LOL

operated 21, and Agway operated 20 units. That same year, Gold

Kist, SSC, and Harvest States operated 13, 11, and 9, respectively.

Other cooperatives operating mom than 3 feed mills in 1989 include:

Countrymark, Intermountain Farmers Association (IFA), Salt Lake

City, UT, MFA, MFC, TFC, and SFA.

Ingredient Plants

Feed cooperatives process relatively little of the ingredients

they use, such as soybean meal, cottonseed meal, dehydrated alfalfa, and fish meals. Nevertheless, some rcgionals have taken another step in backward integration by moving into the production of

ingredients. Four examples include: (1) Farmland (then CCA) built

a soybean processing plant in 1944 at Coffeyvillc, KS; established

one at Van Buren, AR, in 1968; and later ones at Sioux City and

Sergeant Bluff, IA; (2) Gold Kist built a plant at Valdosta, GA, in

1968, followed by ones at Decatur, AL and Marks, MS; and bought

18 grain elevators in Tennessee to support its soybean plants; (3)

LOL obtained a soybean mill at West Bend, IA, in 1970, and later

mills at Dawson, MN, and Sheldon, IA; and (4) CCA built an alfalfa dehydration plant, in 1944, at Pond Creek, OK, which was later

moved to Longmont, CO. Also, LOL owned five such plants in

Nebraska for several years.

During much of the same period, Gold Kist also owned fishing boats and a 30,000-ton-a-year fishmcal plant in Peru. These operations were discontinued in 1973 through actions by the Peruvian

Government.

In 1976, 14 regional coopcrativcs formed an inter-regional

cooperative, CF Feeds, Long Grove, IL, to supply them with feedgrade dicalcium phosphate. It was managed by CF Industries, Inc.,

which mainly manufactures fertilizer for member regional cooperatives. Members contracted to purchase their dicalcium needs through

CF Feeds, which procured the ingredients under toll arrangements

with other manufacturers. By 1982, CF Feeds’ activities had been

absorbed by CF Industries.

In 1989, five cooperative feed manufacturers were engaged in

soybean processing through Ag Processing, Inc., Omaha, NE. These

1 9
cooperatives included Cenex, Farmland, Harvest States, LOL, and

MFA. Farmland and LOL sold their plants to Ag Processing in 1983.

The five regionals use large tonnages of Ag Processing’s soybean

meal. Only one feed manufacturing cooperative, Harvest States, continued to operate a soybean processing plant independently. Gold

Kist sold its last plant in 1987.

In 1983, Agway discontinued manufacturing feed-grade urea,

but Harvest States continued to use linseed meal and wheat byproducts from its mills.

Research and Farm Testing

For many years, farmer cooperatives relied on land-grant

colleges for recommendations in developing feed formulas and fccding programs. As animal production intensified and the feed industry developed, some cooperatives cnvisioncd their own feed research

farms. Eastern States purchased a 172-acre farm for that purpose in

1929. Other cooperatives followed suit.

In 1954, Cooperative Mills brought several cooperatives

together to form Cooperative Rcscarch Farms (CRF). Its mission

was to help enhance its members’ positions in the feed market and

economically benefit member patrons. Original members included

SSC, Gold Kist, and IFBCA, and the prcdcccssors of Agway and

Countrymark, all of which had done business with Cooperative Mills.

Early research was limited to poultry, primarily broilers.

Later, as additional cooperatives were brought in, swine, beef, dairy,

and rabbit research was added to the program. By 1961, membership extended into Canada, making CRF a North American association. Members make both financial and personnel commitments.

Until 197 1, CRF operated through cooperative committees. In

that year, it hired an administrative staff to manage its business affairs

and to act as a clearinghouse for research activity.

CRF enhanced its image by incorporating in 1979 and by

holding its first International Cooperative Conference in 1982. At

that time, according to CRF’s general manager, it became evident

that CRF was conducting the world’s largest livestock and poultry

nutrition research program.

Today CRF is owned by 13 regionals: Agway; Co-op Atlantic,

New Brunswick, Canada; Cooperative Federee de Quebec, Montreal,

Canada; Countrymark; Fedcrated Co-operatives Limited, Saskatoon,

Canada; Gold Kist; GROWMARK; IFBCA; LOL; SFA; SSC; TFC;

20
Beef feedlot and swine research takes place at this Cooperative

8. Research Farm facility at Lexington, IL. Below, a lab technician at

the Alpha (IL) FS feed mill weighs a test field sample. One of the

newer cooperative feed mills was built by Countrymark at Lima, OH.
and United Co-operatives of Ontario, Mississauga Ontario Canada.

These regionals share in research findings from a network of five

farms. Dairy research is conducted at Tully, NY, layers at Providence

Forge, VA; broilers at Talmo, GA; swine and beef at Lexington, IL;

and turkeys at Fort Dodge, IA. These farms are owned and operated

by resident regional cooperatives.

Each of CRF’s member coopcrativcs nominates a person to the

board of directors. In turn, it appoints cooperative nutritionists and

researchers to the research council and five research committees.

The research council is a 60-member “think tank” to provide general support for the five farms.

Each farm has a committee of about five members that oversees its research program. CRF’s board also appoints a person to

CRF’s communications council. It helps CRF’s cooperative members implement research recommendations.

CRF’s research program complctcs 70 to 75 studies yearly

and some lead to development of proprietary products. CRF’s costs

are recovered by an assessment of members. Assessments are based

on each member’s share of all feed manufactured for each species

of livestock and poultry.

In the late 1980’s, CRF cntcrcd into joint research with the

Upjohn Company on bovine somatotropin (1987) and installed a

state-of-the-art milking center to accommodate 240 cows milked

three times daily (1988).

Farmland and Harvest States conduct independent research

programs in animal feeding and nutrition, doing so for many of the

same species as CRF. Farmland established its first research farm in

1959. It was closed in 1972 when Farmland transfcrrcd its feed and

nutrition research program to a farm of 380 acres at Piper, KS.

Farmland emphasizes programs for swine (110 sows), dairy (110

cows), and dogs. The cooperative’s program cost $1.2 million in

1988, with about 20 percent going to universities for research on fish

and cat feeding. Farmland was investing about 18 staff-years in inhouse research, including contributions by six persons with graduate

degrees. The cooperative annually completes some 45 feeding and

nutrition projects. It also conducts production experiments in a scaled

mill on the farm. Farmland built a new dairy research center that

was completed in 1989 and plans to expand its kennel research facility and conduct aquaculture tests in a new unit.

Harvest States purchased 110 acres near Sioux Falls, SD in

1965, some 30 acres for a feed mill and 80 acres for facilities to con22
duct feeding and nutrition research. Harvest States completes almost

as many projects as Farmland, with at least half of them devoted to

swine and a couple to pheasants. None arc for dairy animals, that

type of research being contracted out to universities. Harvest States

employs three research nutritionists and a part-time veterinarian.

Transporting and Distributing

Transportation, another form of integration, is important to

cooperative feed operations. Some appreciation of this statement is

evidenced by the fact that trucks owned by cooperative feed manufacturers delivered 60 percent of their feed in 1984, up from 49 percent in 1969. Cooperatives still lagged the industry, however, which

recorded percentages of 65 and 58, respectively. Cooperatives trucks

also handled 12 percent of the cooperative manufacturers’ in-shipments of feed ingredients, versus 10 percent for the industry.

Cooperative manufacturers distributed their 24 million tons of

formula feeds as follows:

Method Percenl Method Percent

Wholesaled 33 Fed to own livestock 13

Retailed 33 Custom feed for others 1

Custom-ground

and mixed 20 Total 100

Cooperatives’ shares of the feed distributed by the entire

industry were: 49 percent custom-ground and mixed; 29 percent

retailed; 25 percent wholcsalcd; 10 percent fed to mill-owned livestock; and 2 percent sold for custom feeding.

Custom Grinding and Mixing

After many cooperatives began handling feed, they were soon

asked to custom-grind locally grown grains and mix them with other

ingredients. Custom-ground mixes wcrc made according to the fecders’ specifications or formulas.

In 1969, some 1,518 cooperative mills, with capacities of

more than 1,000 tons per year, custom-mixed nearly 8 million tons of

feed, 35 percent of the industry total. In addition, several hundred

smaller mills custom-mixed a substantial volume of feed. The 8 million tons accounted for 38 percent of all formula feeds produced by

cooperatives that year. Seventy percent was in the Corn Belt and

Lake States where surplus grain exists.

23
Between 1969 and 1984, cooperatives deemphasized custom

grinding and mixing, but not as much as competition. The number of

cooperative mills engaged in this activity declined to 1,139 in 1975

and to 1,035 in 1984. Meanwhile, output dropped from 6.8 million

tons to 4.9 million tons. Cooperatives continued to emphasize the

service aspects of grinding and mixing relative to the rest of the

industry.

Contracting and Feeding

Some cooperatives have integrated toward the consuming

public. They feel that patron control over the production and marketing of livestock products increases patron returns from livestock

production. They also hope that this control enhances cooperative

feed sales.

MFA became the first known regional feed cooperative to

enter into this form of integration. It purchased a meatpacking plant

in 1946, which it operated until the early 1970’s. Other regional feed

manufacturers that integrated into livestock or poultry productions

include Agway, Farmland, FCX, IFA, IFBCA, LOL, MFC, and SSC.

During the late 1940’s, Gold Kist began to offer production

contracts to help its farmers continue in the broiler business, building its feed volume in the process. It opened its first hatchery in

1950. Later, processing plants and special feed mills were added.

By 1959, some 191 cooperatives, including affiliated locals

of regional associations, had contracts covering $54 million worth

of feed. They also supplied another $41 million worth of credit on a

secured-term or notes-receivable basis. But difficult times for the

producers of poultry products came periodically, so SSC began a 4-

year phaseout of broiler contracting. Largely because of this action,

its feed sales dropped from 901,000 tons in 1959 to 448,000 tons in

1963. MFC also abandoned poultry and egg processing by 1982.

In 1969, some 209 cooperative mills fed 1.1 million tons of

feed to their own animals and livestock, mostly in the Southeast.

This tonnage equaled 5 percent of the cooperatives’ total volume

and 10 percent of the industry tonnage that was fed to owned livestock. By 1984, the number of cooperative mills involved in this

activity had declined to 115, down 45 percent. However, their tonnage

had grown to 3.2 million tons, up 188 percent. This tonnage equaled

13 percent of the cooperative total, but still only 10 percent of the

industry output.

In 1988, Gold Kist continued to contract for broiler produc24
tion. It sold $748 million worth of processed poultry, eggs, and pork,

and 170,000 head of finished hogs. Prior to that, its predecessor organization had experimented with meat processing during the late

1960’s. In 1975, Gold Kist had inaugurated a grow-out program for

hogs, and between 1982 and 1986, it had contracted with producers

to grow veal calves.

In 1989, Farmland operated two hog slaughtering plants, having acquired its first in 1959 and closed one in 1987. Two pork processing plants were purchased in 1989. In the meantime, it had also

acquired and closed a cattle slaughtering facility in 1980. In 1987,

Farmland marketed about 250,000 herd of feeder pigs grown under

contract with its patrons and considcrcd hog finishing contracts.

In 1989, LOL and Agway provided still other examples of

forward integration in the feed industry. LOL still handled swine

breeding stock (since 1973), but had abandoned beef packing, an

activity that involved three plants between 1978 and 1983 and sold its

remaining turkey and red meats operations in 1988. Agway still held

a majority interest in H. P. Hood, Inc., a major milk marketing company acquired in 1980. Agway also continued to experiment with

contracts to finish out hogs. IFA had left the turkey processing and egg

industries in the early 1960’s but now focuses on cattle production in

its own feed lot.

While farmer-owned cooperatives wcrc integrating into the

foregoing activities, farmer patrons urged their cooperatives to custom feed patron-owned livestock. However, only 44 cooperative

mills provided this service in 1984, producing only 183,000 tons.

This was only 15 percent of a comparable tonnage in 1969 when 462

cooperative mills custom-fed livestock.

Benefits

Farmer-owners have received many benefits from their feed

supply cooperatives. Owner satisfaction with these benefits is evidenced by the thousands of feed handling facilities across the Nation

and by their large annual volume. While most were built by preceding generations of farmers, the present generation continues to modernize and use these facilities.

Farmer-members have benefited economically in at least four

ways. First, cooperatives have generally provided output-increasing

feeds. In doing this, cooperatives originally worked with State agricultural experiment stations; eastern cooperatives, for example, pioneered in open formulas. More recently cooperatives have invested

25
heavily in research facilities. Output from these facilities have brought

higher feeding efficiencies, lower feeding costs, and relatively higher patron returns.

Second, cooperatives have been leaders in developing the

bulk delivery of feeds and in providing information on feeds, feeding

practices, and livestock managcmcnt systems.

Third, cooperatives have refunded millions of dollars to

patrons on their purchases of mixed feed and to a lesser extent on

their purchases of feed grains and other ingredients. Historically,

refunds have ranged from 3 to 10 percent on sales of mixed feeds

and from 1 to 3 percent on grains and other feed ingredients.

Also, cooperatives have had a competitive or moderating

effect on feed prices. Even though cooperative prices usually are

comparable with the competition, leaders believe that cooperatives’

presence reduces the market price. Morcovcr, cooperatives’ emphasis on bulk deliveries and limited formulas have lowcrcd feed costs.

It is also a matter of record that cooperatives have made special price

reductions during physical disasters such as droughts and during

periods of economic hardship such as runaway feed prices.

Fourth, farmers have benefited from services or functions

performed by local associations that reccivc, inventory, and deliver

feeds. For example, they often provide some type of feed-mixing

capability and can advise on feeding and management of poultry and

livestock. They establish politics, dcvclop facilities, and follow practices that best meet farmers’ needs.

Either directly or through local associations, farmers have

benefited from establishing regional coopcrativcs. They often have

been the key to successful locals through the savings they refunded

and the services they provided. Thcsc included: (1) buying feed ingredients economically, (2) building and operating mills and truck fleets

optimally, (3) managing inventory and merchandising products efficiently, (4) researching new products and techniques effectively, (5)

developing new and better farmer services, (6) counseling with locals

on mill construction, railway abandonment, and other economic

changes, (7) providing tax, legal, accounting, and management services for locals, and (8) assisting locals to opcratc efficiently.

Benefits have been noneconomic as well. Cooperatives’ leadership in promoting labor saving methods of handling feed (bulk

rather than in bags, for example) has cnhanccd farm life. Moreover,

26
cooperatives have given many members a sense of confidence and

security in obtaining feeds because their sources are farmer owned and

controlled.

Challenges Ahead

During the 1990’s, cooperatives in the mixed feed industry will

be challenged as seldom before in their efforts to maintain and increase

market share. This issue will be pervasive, no matter what direction

the economy or governmental regulations take. A key reason for this concern is declining patron loyalty and a shrinking patron base.

Most patrons are at least a generation removed from those

who founded cooperative feed operations and experienced their benefits. They are not motivated by past bcncfits and worry little about

product, prices, and services in a feed industry without cooperatives.

Rather, they buy from coopcrativcs because of current performance.

This attitude is especially prevalent among owners of large

commercial farms. The importance of these farms will continue to

increase. Consolidation and restructuring of agricultural/agribusiness

complex is progressing rapidly, with many of these large farms integrating directly into the feed industry and bypassing cooperatives.

Some authorities believe that by the year 2000, as few as 50,000

farms will produce 75 percent of the Nation’s agricultural output.

Moreover, these farmers will be well-educated, scientifically oriented, highly business-minded, and sophisticated decisionmakers. Potential gains from increased sales to part-time farmers,

horseowners, and urbanites cannot totally offset the potential loss of

business from large farms.

Meanwhile, the consolidation of feed manufacturers continues, with a few large companies steadily acquiring smaller ones. This

means that cooperatives will face more market power from fewer

competitors. Even more significant to cooperatives, noncooperatives

are advancing vertical integration rapidly within the feed industry.

For example, some believe that by the mid-1990’s, a half-dozen companies will control 60 percent of the Nation’s broiler production and

that a similar situation will occur in pork production shortly after

the turn of the century. Unless cooperatives act promptly, they will

lose a huge portion of the feed market.

Competition will be particularly keen in the non-integrated

portion of the industry. Companies competing therein will be vying

for business within an ever-shrinking segment of the feed industry.

Some competitors may feature low prices, but most will compete by

27
stressing quality feed and improved scrviccs and by using more advertising and intensified salesmanship. These marketing tools will be

enhanced by technological breakthroughs in information handling

and automation.

These same breakthroughs will enable feed companies to

manage larger mills and business units and help farm operators handle bigger herds and flocks. In the meantime, results from these

breakthroughs will be augmented by advances in biotechnology that

will enhance control of production processes.

More vertical integration of livestock/poultry production,

feed manufacturing, and marketing of livestock and poultry products is inevitable. Therefore, feed manufacturing coopcrativcs must

strengthen their vertical coordination with livestock/poultry producers. Cooperatives will need to contract with members to grow livestock and poultry. More might build their own production facilities.

Regardless of their course of action, they must take it in a manner

that enables farmer-owners to retain control of’thcir coopcrativcs. If

feed manufacturing cooperatives cannot meet this challenge, their

importance will decline in favor of noncoopcrativc firms, including

those that process meat and other food.

In general, cooperatives must continue to strive for greater

efficiency in researching, milling, marketing, and selling feed.

Superior feeds can be guaranteed by expanding and intensifying the

cooperative research effort and by continuing to adopt new technology. It will require cooperatives to spend a higher portion of their

sales dollars on research and to consolidate their rcscarch efforts into

a larger and more integrated base. Superior distribution can be guaranteed by consolidating cooperative activities into a more streamlined system.

Finally, cooperatives must also sharpen their basic competitive tools and supplement them with action, such as producing more

differentiated and value-added feeds. Marketing programs must focus

on the most profitable market segments, develop more innovative

services such as production advisories and one-stop shopping, and

intensify selling efforts, especially toward large accounts and through

the employment of more and bcucr qualified on-Farm field persons.

In summary, cooperatives must position themselves to meet

future challenges in the marketplace. They must preserve their business with traditional farmers/patrons, while at the same time emphasizing the development of distribution channels, nontraditional products and customers, and competitive stratcgics and tactics required to

do business in the 21st century.

28
Cooperatives’ animal health activities range from research and

demonstration farm operations, such as a swine unit at Farmland

Industries, to Agway on-farm delivery services of AH products.
ANIMAL HEALTH PRODUCTS

The animal health products industry is highly dependent on

the livestock, poultry, and formula feed industries. As these have

grown, so has the animal health products (AHP) industry. In fact, it

has stimulated the other industries through the control of animal

death losses and increased production efficiencies. Because it started later than the feed industry, the AHP industry has had more opportunity for growth and has grown relatively rapidly.

Manufacturers’ domestic sales reached an all-time high of

$2.6 billion from AHP in 1989. This figure is attributed to increased

animal and poultry numbers, rising prices, and perhaps some intensified usage on livestock and poultry. Dosage AHP, items for which

cooperatives have relatively strong marketing programs, showed continued growth over feed additives. Dosage AHP, at 51 percent of all

AHP sales, was up from 33 percent 12 years earlier.

AHP have three principal components (table 3). Biologicals

constituted 10 percent of AHP sales and included vaccines, bacterins,

and antitoxins to immunize animals and poultry from disease.

Pharmaceuticals contributed 40 percent of the total and covered

dosage quantities of antibacterials, injcctables, and external insecticides. Feed additives accounted for 49 pcrccnt and included nondosage antibacterials, anthelmintics, growth stimulants, vitamins,

and minerals.

U.S. farmers purchased an estimated $3.1 billion of AHP in

1987. Biologicals and pharmaceuticals probably were relatively more

important at the retail level than at the manufacturers’ level, reflecting higher markups on over-the-counter (OTC) products than on feed

additives.

Table 3-Domestic sales of animal health products by U.S. manufacturers, 1989

Principal types

Dollar volume ’

(million) I’erccnt

Biologicals 265.9 10.4

Pharmaceuticals 1.034.8 40.3

Feed additives 3.265.3 49.3

All products 2,566.0 100.0

t Source: Animal Health Institute.

30
Retailing

Development

Local cooperatives have been involved almost from their

inception in handling AHP. One of the earliest may have been an

association in Hancock County, IL, in 19 15.

About the same year, in response to a need for high-grade

cholera serum for hogs, a number of farmers around Thorntown, IN,

organized the Swine Breeders Pure Serum Company (SBPSC) to

supply themselves with serum directly. This was 8 years after USDA

scientists first vaccinated hogs successfully in Iowa in 1907. SBPSC

established a laboratory and built a plant at Thorntown.

By the early 1920’s, a number of local cooperatives and county Farm Bureaus in Illinois, Iowa, Ohio, and Michigan were handling AHP. In 1928, Southern States organized a direct-to-farmer

farm supply service, which began handling medicinals some time

later. About the same time, other regional cooperatives in the

Northeast and along the Atlantic seaboard began handling AHP for

dairy cows and layer hens through their branch stores and warehouses. Likewise, egg marketing coopcrativcs in the West provided

similar products for their mcmbcrs.

Current Position

In 1987, farmer cooperative relailcrs supplied an estimated 25

percent of the AHP purchased by farmers. At this level, farmer purchases from cooperatives were $780 million and amounted to 6 percent of the total expenditure on all farm supplies. Local cooperatives

selling AHP compete with mail-order houses, milk marketing companies, veterinarians, and some wholesale dislributors, as well as

other retail outlets.

Cooperatives have about a 25-percent share of the market

for feed additives, slightly higher for pharmaceuticals and slightly

lower for biologicals. Cooperatives mix a large volume of AHP into

feed at regional mills, but they also sell large volumes through grindand-mix operations and directly to farmers as low-potency OTC

products. Cooperatives are also strong marketers of pharmaceuticals, which probably offsets a loss for Lhose not selling ethical drugs

that are handled primarily by veterinarians.

About 2,600 local cooperatives-the number that handled

feed in 1989-sell AHP. Thus, locals average more than one per

31
county, although some serve markets of only a few hundred square

miles while others serve markets scvcral times that large. Regardless

of market size, locals try to have the right sclcction of dependable

and economical products immediately available for farmers. Types of

AHP range from 50 to 600, with the number of AHP patrons varying

from 50 to 1,500, or more. Quality service is especially important

to OTC items, because they arc often sold on an “as-needed” basis

when illnesses occur. Many patrons appreciate a ready supply of

AHP at the same location where they buy feed, thus sales of AHP

and feed benefit each other.

Locals have succcedcd by using a broad spectrum of

approaches. Encouraged and subsidized by regional suppliers, more

and more locals are reaching out to patrons through on-farm salespersons knowledgeable about AHP This effort increases AHP sales,

even though these persons tend to emphasize feed and other highvolume farm supplies more than AHP. A few locals even operate

route trucks, with one known to operate three that make weekly calls

on dairy farmers. These mobile showrooms rcprcscnt the highest

degree of service provided. On the other hand, a few locals achieve

large volumes of business by relying on low prices and on little or no

service outside their showrooms. Also, some local cooperatives conduct product shows for AHP exclusively, while others include AHP

with other farm supplies.

Only a limited amount of information is available on the

resources cooperatives allocate to AHP. Nevertheless, cooperatives,

as well as other retailers, have cnjoycd above-avcragc volumes of

AHP sales when they have been able to serve large livestock and

poultry arcas and when they have mcrchandiscd the products properly.

In addition to employing on-farm salcspcrsons and conducting product shows, proper merchandising includes treating AHP as a primary product line, as well as doing the standard things.

Even cooperatives with limited physical resources for AHP,

like locals selling from the crowded offices of feed mills, have found

AHP to be profitable. Profits follow when these locals have achieved

such things as low purchase prices, reasonable margins, and high

rate of inventory turnover. Among the larger locals, achieving low purchase prices includes gaining distributorships for some AHP Having

gained distributorships, neighboring locals sometimes share the

advantage through reciprocating arrangements.

Regardless of marketing strategies, techniques, and the overall volume of business, AHP contributes greatly to the savings gen32
erated by many local cooperatives. Savings are returned to patrons as

patronage refunds.

Wholesaling

Development

As with feed and other farm supplies, local cooperatives did

not handle AHP long until they saw the need to establish their own

wholesale sources.

In 1924, the Illinois Agricultural Association organized the

Illinois Farm Bureau Serum Association (IFBSA), Chicago, which

began to supply locals with serum. By 1933, IFBSA was one of the

larger distributors of hog cholera products in the United States. That

year it sold nearly 40 million cc. of strums and viruses to at least 71

county Farm Bureau cooperatives. In 1936, the Indiana Farm Bureau,

which had acquired SBPSC, began turning this operation over to the

Indiana Farm Bureau Cooperative Association, completing this merger in 1948.

By this date, many wholesale farm supply cooperatives in

Ohio, Michigan, and other States began handling serum. They provided the basis for saving both their locals and their locals’ patrons a

significant amount of money. IFBSA alone rctumcd $2.4 million to its

members in patronage refunds during its first 39 years of existence.

In the Northeast, Atlantic seaboard, and Southeast, regional

associations probably began wholesaling AHP to their retail service

stores and dealer-agents shortly after cntcring the mixed feed business

in the early 1930’s.

During the 1940’s and 1950’s, at least three regionals began

to market AHP Farmland initiated an animal health program in 1943

in conjunction with its new feed program. TFC did likewise by the

mid-1940’s, while IFBSA added biologicals and pharmaceuticals to

its product line in 1948. During the early 1950’s, cooperatives began

to add growth aids and medications to their feed as a new era developed in feed formulating. In 1955, Gold Kist brought AHP into its

product line.

During the next 35 years, rcgionals’ involvement in AHP

developed further. By 1970, FS Services, Inc., now GROWMARK,

had established an AHP line and acquired the assets of the IFBSA,

then the supplier of 15 to 20 local associations. Around 1974,

Universal Cooperatives, Inc., Minneapolis, MN, added biologicals

to its product line; then a line of premixes during the late 1970’s. In

1982, Agway added biologicals while Farmers Union Central

33
Exchange (Cenex), St. Paul, MN, established a new animal care

department. In 1987, Cenex and LOL began to market AHP jointly

through Cenex/Land O’Lakes Ag Services.

In 1969, Agway put its first dairy route truck on the road and

by 1982 had 36 trucks in operation. They handle a significant portion

of Agway’s retail AHP sales, make frequent regular stops at dairy

farms, and carry a broad spectrum of supplies in addition to AHP.

Farmland, in cooperation with its locals, began servicing feedlots

with route trucks in 1978. In 1982, Intermountain Farmers

Association, Salt Lake City, UT, began using an animal health route

truck that mainly serviced dairy farmers.

While cooperative route trucks are not unique, the financing

of them may be. Other AHP distributors bear all the cost of their

route trucks, while regional and mcmbcr locals sometimes share the

cost of cooperative trucks.

Current Position

At least 30 regionals that sold feed in 1989 also handled AHP.

Because of close ties with local cooperative mcmbcrs, regional wholesalers supply much of their AHP despite some competition from noncooperative distributors. Naturally, the regionals’ proportion of AHP

sales to independent locals is lower.

Farmland, which serves 20 States, is the largest regional cooperative wholesaler of OTC AHP. It reported sales of $33 million in

1987, which included some insecticides. It claimed to be “... the

largest single distributor of AHP in the Midwest.” Thus it qualified

as one of the largest in the United States, especially if it is credited

with the feed additives mixed and distributed through its 22 feed

mills. Sales by smaller regionals range downward to less than $1

million annually.

Cooperative regionals perform all activities normally associated with wholesaling AHP. They employ product managers and

sales personnel, purchase and inventory AHP, then price, advertise,

promote, and sell these products.

These managers and their staff spend much time buying and

pricing products. They buy as compctitivcly as possible, relying

heavily on volume discounts, supplier booking programs, and special

sales. They try to price competitively, with one regional acknowledged as the price leader within its geographical market. They generally suggest retail prices to all locals and outlets, then frequently

34
work with specific stores to meet the prices of local competition.

Regionals inventory AHP at one or more strategically located warehouses and arrange for dclivcrics. Since AHP arc often inventoried in or near the regionals’ general-purpose warehouses, the closer these facilities are to locals, the more they use their own trucks

to pick up AHP. More regionals seem to be leasing warehouses and

delivery services than in former years, especially route trucks for

regular deliveries to retail outlets.

Programs to advcrtisc and promote AHP vary widely among

cooperative regionals. Some advcrtisc heavily in their magazines

and customer flyers, at the same time subsidizing advertising by

locals. Other regionals do not, totally relying on their locals for retail

advertising. Some regionals use product shows successfully.

On the other hand, all regionals direct advertising and promotions at their locals, using flyers, price lists, booking programs, special sales, and sales premiums and subsidies. Regionals commonly

share the cost of local sales dinners, often with basic manufacturers.

Some regionals employ telemarkctcrs.

Territorial rcpresentativcs spearhead the selling of AHP by

most regionals. Usually supcrviscd by sales managers within feed

departments, reprcscntatives concentrate on feed and animal nutrition.

Nevertheless, they provide a large sham of the time regionals allocate

to AHP. Their relatively large number offset the small number of

specialists who devote all or most of their time to AHP.

Representatives call on locals and outlets to help with sales

meetings, product demonstrations, fdrm calls, advertising, and order

placement. AHP managers support the rcprcscntatives by providing

them with a basic understanding of animal health and AHP, training

them to market AHP, keeping them abreast of new products, sales

techniques, and market dcvclopmcnts, providing sales aids, and gcnerally supporting them. This includes answering questions on product use and performance, anticipating questions through frequently

distributed flyers, and making themsclvcs available to speak or arranging for other speakers at sales events sponsored by retail outlets.

The strength of foregoing activities varies according to the

interest of product and sales managers. This variation is either

enhanced or negated by the intensity of interest top management has

in AHP. Overall, sales of AHP varies from about $25,000 to

$1,500,000 per staff-year of input.

Despite these variations, all rcgionals have loyalty, a commonly shared strength. It stems from ownership, for tither locals

35
own regionals or regionals own outlets. It also comes from the support regionals give their locals and outlets. Support takes many forms,

including recruiting and training store managers, and frequently subsidizing onfarm salespersons.

Regionals also supply general business and consulting services dealing with financial accounting and records, often through

integrated information systems; real estate purchases and expansions;

store layout and merchandising; operations controls; and risk management programs. AHP sales of most rcgionals also benefit from

the marketing of feed by these regionals. Only a limited amount of

AHP research is done through programs discussed under cooperative feed operations.

Principal cooperative wholesalers of AHP organized the

Cooperative Animal Health Association (CAHA) in 1977. AHP product managers constitute its officers. CAHA’s principal activity is an

annual meeting of these managers. They hear presentations by AHP

manufacturers and discuss all aspects of their marketing programs,

except prices and pricing. Discussion of the latter subject is expressly forbidden.

Regionals do not manufacture basic AMP, but some formulate a considerable portion of their AHP salts. Most of the formulating involves diluting technical grades to OTC lcvcls of potency, often

at the regionals’ feed mills. Some formulating involves a few animal

insecticides and treatments that arc markctcd under the rcgionals’ private labels. Universal also formulates a few insccticidcs. Co-labeling products with manufacturers is more popular than private labeling.

Universal is the only intcrrcgional association that wholesales AHP to regional coopcrativcs. It purchases for 29 member organizations Lhroughout the United States and Canada. Its origin was

from two similar intcrregionals that started in the 1930’s and mcrgcd

in 1972. While Universal’s major products arc crop chemicals, tires

and other automotive supplies, steel products, and farmstcad equipment, this cooperative has a growing intcrcst in AHP and broadened

its product line in the 1970’s. In 1987, the volume of Universal’s

sales of AHP probably rivaled Farmland’s.

Challenges Ahead

Cooperatives marketing AHP in the 1990’s face most of the

challcngcs that confront cooperatives marketing feed. Howcvcr, they

will have to contend with special problems.

First, the decline in the number of AHP manufacturers may

36
not be as great as the decrease in feed manufacturers. At the same

time, and unlike the feed industry, the number of distributors may

continue to grow. This is especially true of competitors most troublesome to cooperatives-those operating discount stores and mailorder houses and those doing business directly with farmers. Further,

cooperatives sell few of their own AHP; thus, most of their products

are not distinguished by higher quality than their competitors. All

marketers sell essentially the same products. This combination of

factors means competition will remain keen as low prices and margins will continue, especially on commodity-type products that often

are high-volume items.

AHP are manufdcturcd and sold under broader govemmcntal

regulations than feed, even though many restrictions apply to the use

of AHP in feed. Most regulations will continue to challenge cooperatives about the same as non-coopcrativcs. One cxccption may prove

more bothersome to coopcrativcs, howcvcr. Regulators arc tending to

restrict more animal health products to vctcrinarian prescriptions.

As with feeds, coopcrativcs that sell AHP must sclcct the

best means of marketing their products. This means that more cooperative marketers of AHP, cspccially rctailcrs, must treat AHP as a primary product lint, which in turn will rcquirc more financially accountable and enthusiastic AHP managers. Such managers could fully

dcvclop synergisms bctwecn AHP and feed, other products, and scrvices; develop, and cvcn patent, new WCS and combinations for cxisting products; USC supplier scrviccs and programs more fully; employ

more specialists; and price according to demand. Last, many cooperatives could increase salts and lower costs by securing large portions of their annual sales through booking programs and product

shows.

Authors I Donald L. Vogelsang, J. Warren Mather, (both

deceased), agricultural economists I E. Eldon Eversull, agricultural

economist.

37

*U.S. GOVERNMENT PRINTING OFFICE:1991-519-942
U.S. Department of Agriculture

Agricultural Cooperative Service

P-0. Box 96576

Washington, D.C. 20090-6576

Agricultural Cooperative Service (ACS) provides research, management, and educational assistance to cooperatives to strengthen

the economic position of farmers and other rural residents. It works

directly with cooperative leaders and Federal and State agencies to

improve organization, leadership, and operation of cooperatives

and to give guidance to further development.

The agency (1 ) helps farmers and other rural residents develop

cooperatives to obtain supplies and services at lower cost and to

get better prices for products they sell; (2) advises rural residents

on developing existing resources through cooperative action to

enhance rural living; (3) helps cooperatives improve services and

operating efficiency; (4) informs members, directors, employees,

and the public on how cooperatives work and benefit their members and their communities; and (5) encourages international cooperative programs.

ACS publishes research and educational materials and issues

Farmer Cooperatives magazine. All programs and activities are

conducted on a nondiscriminatory basis, without regard to race,

creed, color, sex, age, marital status, handicap, or national origin.