Rural

COOPERA COOPERATIVES

Mission

Critical:

USDA / Rural Development March/April 2006

Mission

Critical:

Providing high-tech

support for rural

utilities, telecoms

page 4
Many years ago, when clearing some

copy for USDA’s co-op magazine, a

reviewer took offense at the statement

that “co-ops unite producers to promote

the general welfare.” “Sounds like communism!” she huffed in a note. Gene

Ingalsbe, ever calm and level-headed,

responded with a copy of the source

material quoted: the preamble to the U.S.

Constitution! The reviewer withdrew her

objection. 

Mr. Ingalsbe, who devoted his life to

helping farmers and other rural people

improve their lot through the development and improvement of cooperative

businesses, died March 2 after a long

fight with cancer. Because of the work of

Mr. Ingalsbe, countless people in the

United States and around the world today

know about the cooperative business

structure: how they operate on the same

principles of democracy that this nation

was founded on, and how people can harness the power of free enterprise to meet their needs by

building businesses they own and control.

Whether writing about how an effective co-op board

should function or compiling an up-to-date profile of the

nation’s agricultural cooperative sector, Mr. Ingalsbe was

often the central cog and connecting point between USDA’s

co-op program and the co-op sector. For many years, he

held the dual position of director of information and education for USDA’s Agricultural Cooperative Service (now part

of USDA Rural Development). Before that, beginning in

1971, he was editor of USDA’s News for Farmer Cooperatives,

forerunner of Rural Cooperatives. Even after retiring in 1992,

he volunteered to work on overseas cooperative development

and other co-op projects. 

Mr. Ingalsbe was writer and editor of numerous cooperative education publications still widely used nationally and

around the world. He was committed to articulating the principles and distinctive features that guide successful cooperatives and saw communications and education as cornerstones

of effective cooperatives. Without solid communication and

education programs, he often noted, most cooperatives do

not survive from one generation to

the next.

Mr. Ingalsbe was a graduate of

the University of Missouri School

of Journalism, and started his

career working for newspapers in

Iowa. It was there that he first

encountered the concept of a cooperative when selling a newspaper ad

to a local farmers’ elevator co-op.

He worked at Farmland Industries

from 1957 to 1969 as managing

editor of the co-op’s member newspaper, and then spent several years

in Cleveland as the editor of an

agricultural trade magazine before

heading on to USDA. 

“Gene had a true grasp of cooperative operations, in part because

of his previous work experience

with Farmland, and the ability to

write clearly and concisely about

them,” says Patrick Duffey, who

was magazine editor under Ingalsbe. “Through his magazine

articles and other publications, Gene brought insight into the

world of agricultural cooperatives. Throughout the cooperative community and within the halls of USDA, he was considered a master of the art of communications,” Duffey adds,

recalling Mr. Ingalsbe as “calm and patient — even in adversities — and a great teacher.”

Mr. Ingalsbe was presented the H.E. Klinefelter award in

1980, the highest honor bestowed by the Cooperative

Communicators Association (CCA), for his achievements and

dedication to improving the communications programs of the

nation’s cooperatives. He referred to the award as his “doctorate degree.” He was president of CCA from 1968-69. 

Mr. Ingalsbe is survived by his wife, Joan Mae Ingalsbe of

Moyock, N.C., daughters Linda O’Connor and Lisa Klein,

sons Terry, Randy and Ted Ingalsbe, as well as his brothers

Wayne and David Ingalsbe and five grandchildren. He is also,

of course, survived by the rich legacy of his writings on cooperatives, which continue to inform and inspire. ■

— Dan Campbell, editor 

2 March/April 2006 / Rural Cooperatives

COMMENTARY

Gene Ingalsbe: 

telling the co-op story

Gene Ingalsbe brought insight into the world of

cooperatives through his clear, concise writing.
Rural Cooperatives / March/April 2006 3

Rural COOPERATIVES (1088-8845) is published

bimonthly by Rural Business–Cooperative Service,

U.S. Department of Agriculture, 1400 Independence

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

The Secretary of Agriculture has determined that

publication of this periodical is necessary in the

transaction of public business required by law of 

the Department. Periodicals postage paid at

Washington, DC. and additional mailing offices.

Copies may be obtained from the Superintendent of

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change to: Rural Cooperatives, USDA/RBS, Stop

3255, Wash., DC 20250-3255.

Mention in Rural COOPERATIVES of company and

brand names does not signify endorsement over

other companies’ products and services.

Unless otherwise stated, contents of this publication

are not copyrighted and may be reprinted freely. For

noncopyrighted articles, mention of source will be

appreciated but is not required.

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,

genetic information, political beliefs, reprisal, or

because all or part of an individual’s income is

derived from any public assistance program. (Not 

all prohibited bases apply to all programs.) Persons

with disabilities who require alternative means for

communication of program information (Braille,

large print, audiotape, etc.) should contact USDA’s

TARGET Center at (202) 720-2600 (voice and TDD). 

To file a complaint of discrimination, write 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, Acting Administrator, 

Rural Business-Cooperative Programs

Roberta D. Purcell, Deputy Administrator,

USDA 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, Information Director,

This publication was printed with vegetable oil-based ink.

Rural COOPERA COOPERATIVES

March/April 2006 Volume 73 Number 2

p. 4

p. 8

p. 12

p. 16

FEATURES 

4 The Edge

High-tech co-op delivers cutting-edge computer services 

By Dan Campbell

8 Prospering in Rural America

Rural development issues in spotlight at Outlook Forum

By Dan Campbell

12 Ethanol plant to use new coal technology

By Stephen Thompson

16 Southern Exposure

Hazelnut Co-op sourcing product, members in South America

By Catherine Merlo

19 Dollywood East

Roanoke Electric Co-op key partner 

in N.C. entertainment complex

By Steven Johnson

21 Co-op rendering operation 

yields biodiesel & more

By Stephen Thompson 

23 Mastering Co-op Management

Can managers build healthy businesses 

based on co-op principles & values?

By Jane Livingston

DEPARTMENTS

2 COMMENTARY

15 LEGAL CORNER

26 NEWSLINE

32 PAGE FROM THE PAST

35 INSIDE RURAL DEVELOPMENT 

On the Cover:

Providing innovative information technology for its member electric and telecom co-ops is the mission of NISC, formed in 2000 through the merger of two

technology co-ops. Article on page 4. Photos courtesy NISC
By Dan Campbell, editor

hen a rural utility cooperative selects a computer information technology for crucial

services such as customer billing and data

protection, it may in effect be “betting the

farm.” The goal is to find a competitive

edge, but a wrong choice can have a devastating impact. For

most of the 40 years since its inception, National Information

Solutions Cooperative (NISC) (and

its predecessor co-ops) has been making the choice a pretty safe bet for

members.

The idea behind NISC was originally conceived in the early 1960s by

the Rural Electrification

Administration (now the Utilities

Program of USDA Rural

Development). The goal was to help

smaller, rural electric distribution coops better compete with larger utilities by developing jointly owned

information technology support centers. Starting with three members in

1964, NISC has grown into an

organization with 473 rural utility

and telecom members that provide

service to 7.2 million electric consumers and telecommunications subscribers. The co-op generates $85 million in annual

sales, most of it from leasing computer software and support

services to members. 

NISC operates in an industry known for very thin margins, in which efficiency at all operational levels is crucial. As

a mark of its reputation in this regard, NISC also provides

services to a number of Fortune 500 companies, on a nonmember basis. This helps generate a revenue stream that subsidizes the fees charged to members. The co-op provides

billing and other services for customers such as AT&T, WalMart and GTE, also helping some of them analyze energyconsumption patterns to help with energy conservation

efforts. 

“There hasn’t been one year in our 40 years that we have

failed to add members and increase revenue,” says Vern

Dosch, the co-op’s president and CEO. “This is a very

volatile business. Technology, energy and telecommunications have all been in turmoil, particularly during the last 10

years. Yet, when you look at the history of this organization,

you see very steady, stair-step growth. We are adding 10 to12

new members per year and revenue goes up every year. Not

one year in the past 40 has our revenue or membership

declined.”

4 March/April 2006 / Rural Cooperatives

The Edge 

High-tech co-op delivers cutting-edge

computer services for rural utilities 

“There hasn't been one year in our 40 years that we have failed to

add members and increase revenue,” says co-op CEO Vern Dosch

(above), framed by strands of fiber-optic cable. Photos courtesy

NISC

“Members belong to

our co-op because

they need missioncritical software

to run their businesses.”

W
NISC membership includes about 44

percent of its potential market of 800

rural electric cooperatives and 8 percent

of the nation’s 1,300 rural telecommunications co-ops and privately held

companies (the latter are typically family-owned). 

Expanded broadband 

facilitates merger

REA’s original plan had been to create six regional information technology

cooperatives to serve

the rural utility sector.

Computers were just

coming onto the landscape in the early

1960s, and rural electric and telephone

businesses were still

largely handling

billing and accounting

by hand. REA leaders

met with statewide

utility co-op associations, promoting the

idea that these associations were in the

perfect position to serve as business

incubators to foster this type of cooperation among co-ops. 

It made no sense, REA said, for each

electric distribution co-op to buy a

mainframe computer at a cost of more

than $1million, hire their own programmers and develop their own software

(which could not be licensed at that

time). “Even in ‘64, they recognized that

the technology business was all about

economies of scale,” Dosch says. 

The North Dakota statewide co-op

association took the lead with the concept, and, ultimately, two co-ops sprung

out of the original data processing business venture: the North Central Data

Cooperative (NCDC) in Mandan,

N.D., and the Central Area Data

Processing Cooperative (CADP) in St.

Peters, Mo.

“Perhaps the greatest driver behind

the success and growth of NCDC,

CADP and NISC during the last four

decades has been the steadfast relationships built with members,” noted Joe

Harris, chairman of the NISC board of

directors. “The fact that all but two of

the original 17 member systems are still

with us today speaks volumes about our

commitment to people, processes and

technology.” 

For most of their business lives,

CADP and NCDC provided very similar services to rural utilities. In 1999,

both were looking at the need for

multi-million-dollar investments to reengineer their software products. This

Rural Cooperatives / March/April 2006 5

As an intellectual- property company, NISC’s lifeblood is

largely the intellect and innovation of its employees. Wouldn’t it be much easier to attract these types of highly educated workers in Silicone Valley, Boston or one of the nation’s

other computing hotbeds rather than in rural areas like

Mandan, N.D., and Lake St. Louis, Mo.? 

“Easier to hire them, yes, but not necessarily easier to

keep them on board,” says NISC CEO Vern Dosch. In many

urban environments, it is easier to find workers, but it is

usually more challenging to find employees who will make

a commitment to not just work for a company, but to

become an integral part of the business. 

“Here, we talk about creating careers, rather than jobs,”

Dosch says. “We feel that our rural locations are actually

one of our competitive advantages.” NISC has an annual

staff turnover rate of just 4-5 percent, and has about 75 staff

members who have been with the co-op for more than 20

years. “Most of our staff come and stay.” 

A number of employees are refugees from the big city,

who have moved to North Dakota or Missouri to escape the

congestion, pollution, crime, high cost of living and failing

schools of many cities. Some are outdoor sports enthusiasts and looking for the friendlier, more relaxed pace of

rural life. 

“Some of our best employees grew up in the Midwest,

have gone to the bright lights of the big city, but are now

raising a family and they want to come back to rural North

Dakota or Missouri, where we don’t have to lock the doors

all the time and where the school systems consistently

score higher than national averages. 

“I really can’t think of any big disadvantage of having a

technology company in rural North Dakota, other than

maybe that travel in and out is a little more expensive.

Since there are no constraints in our ability to secure Internet bandwidth, there is a lot less need for business travel

than there used to be,” he adds.

NISC is hesitant to use “headhunters” to pull workers

from other technology businesses. “Our goal is to grow our

own. We encourage personal development, technical and

interpersonal skills. When you get an employee with good

aptitude and attitude, we aren’t afraid to put some money

into them to develop the skills we need. If we need someone with a Masters’ degree, the co-op will pay for the education.” ■

Attracting a skilled rural workforce

NISC’s Mandan, N.D., office (above) is home to about 280 of its

employees. It also has 250 employees in Lake St. Louis, Mo.
led to merger discussions, and the consolidation was consummated in 2000.

The development of broadband

Internet service greatly facilitated the

merger, making it possible to seamlessly

integrate the two operations, despite

being separated by more than 1,000

miles.

The co-op now has about 280

employees based in Mandan, and 250

more at its new Lake St. Louis facility

(about 40 miles west of St. Louis). In

May of last year, NISC completed the

135,000-square-foot facility, allowing all

of its Missouri employees to work

under one roof. The co-op also has

about 26 “virtual” employees scattered

about the country. Services include

Internet bill payment and presentation;

graphical and mobile mapping systems;

activity-costing systems; energy deregulated and diversified billing, including

propane, water, gas, etc., and telecommunications switch provisioning,

among others. 

Reinventing the co-op 

It is usually difficult to quickly put

aside the competitive inclinations of

businesses involved in a merger, and

that was the case here. “We had been

fierce competitors, then suddenly one

day we were best friends and cohorts,”

recalls Dosch, who had been with

NCDC prior to the merger, which he

joined in 1986 as business manager

before moving up to CEO of NISC 4

years ago. 

After the merger, the two staffs

immediately began working jointly on a

major development project for a new

product called iVUE, intended to help

move the co-op’s software into “a

dynamic, open systems arena, away

from the proprietary servers of the

past,” Dosch says. More than anything

else, this collaborative project — which

lasted over 2 years — helped to cement

the two organizations into one co-op. 

“I can’t say it was easy,” Dosch

recalls. “We had to literally reinvent the

organization from the bottom up.”

Often in a merger there is a dominant

partner which says: here is how we will

operate, like it or leave. “That was not

at all our approach, because this was a

consolidation of equals. Every policy

had to be rewritten; new vice presidents

were selected. We were very similar, yet

there were differences in business

strategies and cultures.” 

It was worth the effort. NISC has

been “built to lead” the rural utility

industry on the technology front,

Dosch says. The organization has

matured since the consolidation, and

now has more employees with “deeper

skill sets,” which is creating new opportunities, he adds. “The ability to deliver

robust, scaleable technology that meets

the needs of a diversified group of utilities and telecoms has grown by leaps

and bounds just in the last year. Both

offices today work collaboratively on

software development, installation and

support.” 

Ultimate test 

In the mid-1960s, the entire thrust of

the business was to automate billing

products. Large, main-frame computers

were used to calculate, process and

print bills in a central location. But 40

years on, NISC is essentially a software

house that develops products it licenses

to members. 

From a single billing product in the

early 1960s, it today offers a full suite of

more than 100 software products and

services. These include billing, accounting, engineering and ancillary products,

6 March/April 2006 / Rural Cooperatives

“We're not constrained by a mentality of: ‘we’ve 

got to push this

software out the

door, even though

it's not ready yet’...”

CEO Vern Dosch (back row, third from left) with the co-op’s vice presidents. 
such as electronic bill presentment and

payment, interfaces for automatic meter

reading, etc. 

“We’ve essentially become the outsourced Information Technology (I.T.)

department and help desk for our members,” Dosch says. “We are able to handle as little or as much of their I.T.

solutions and services as they require.” 

NISC also provides disaster recovery

and business continuance service. With

the worst hurricane season on record

last year, this part of the business has

proven to be a lifeline for some members. Indeed, Hurricane Katrina became

the ultimate test of NISC’s business

continuance capability.

The co-op’s disaster recovery staff

carefully monitored the progress of

Katrina early on, plotting the path of

the storm and determining which members would be in harm’s way. Two or

three days before the storm hit land,

NISC was communicating with those

members and backing up their data.

“This is an easier task today than in the

recent past, because hardware is really

just a commodity now — you don’t

have large centralized service bureaus

any longer,” Dosch says. 

The co-op’s disaster team identified

40 members in the path of the hurricane, but in the end, just five of them

were severely impacted. NISC’s support

for those co-ops ranged from going on

site and helping to rebuild their networks and infrastructure, to backing up

their data and providing access to it via

the Internet. 

With members in 47 states, hurricanes are far from the only weather

calamity members face; ice storms, tornadoes and floods can all take their toll.

Utilities are also now considered

part of the nation’s homeland security

network, and security considerations

have been ramped up considerably since

the 9-11 terrorist assaults on America. 

Co-op advantage

The co-op business structure of

NISC has contributed to his success,

Dosch says. As a co-op, the company is

better poised to pursue long-term goals. 

“The Achilles heel of so many technology firms is that they are just looking to their stock price and what to tell

the stock analysts this quarter. By contrast, our board understands the cyclical

nature of this business as it relates to

developing a new product and investing

in it; they understand that revenues will

Rural Cooperatives / March/April 2006 7

After the merger of the two co-ops that created NISC in

2000, employees were tasked with developing a statement

of values that would become the cornerstone of the co-op’s

business culture. “This was pre-Enron and World Com,

before it was considered cool — or mandated by Sarbanes-Oxley — to have such a document that spells out the

basic premise of the way we do business,” says CEO Vern

Dosch. The unique thing about ours, and why it is so effective, is that it was not developed by the board or vice presidents and then forced down on employees. They wrote it.”

A group of employees was secluded for a couple of

days, and came up with the statement. The vice presidents

made only a few very minor changes and the board adopted it without change. It now hangs in every office and is

part of the employee orientation and evaluation process. 

NISC Statement of Shared Values

(Editor’s note: The following is slightly abridged, due to

space limitations.)

“At NISC, we believe in striving for excellence with a

passion and determination that is founded on our shared

values. These values will inspire us, guide us and determine

the manner in which we will conduct ourselves in carrying

out the business of our organization. 

• Integrity — We hold ourselves to the highest professional, moral and ethical standards. We are committed

to doing the right thing, always. 

• Relationships — We believe people are the heart of

our organization. We are committed to building, nurturing and preserving lasting relationships with our member-owners, customers, partners, our families and

friends, and one another. We are passionate about the

service we provide and demonstrate that by being

responsive to the needs of our customers and constantly striving to exceed their expectations...We support a healthy balance between work and family.

• Innovation — We promote the spirit of creativity and

champion new ideas. We believe a passion for quality

and the desire to constantly improve what we do is

critical to our success... 

• Teamwork — We exemplify the cooperative spirit by

working together with respect for one another’s ideas

and contributions. We believe in using our individual

and collective knowledge and skills to improve our

organization and agree to show support of all decisions once they are made...

• Empowerment — We believe individuals have the power to make a difference. We agree to be accountable

and responsible in the decisions we make, use good

judgment and take pride and ownership in our work.

• Personal Development — We believe the free

exchange of knowledge and information is absolutely

necessary to the success of each individual and the

organization. We agree to work every day to learn new

things and are committed to sharing our ideas with

one another... .” ■

Importance of shared values

continued on page 28
By Dan Campbell, editor

dan.campbell@wdc.usda.gov

Editor’s note: For the complete text and webcasts of

speeches made at the USDA Outlook Forum, visit:

www.usda.gov/oce/forum.

very winter, USDA holds a little

get-together for more than 1,200

national and international farm

leaders at an event called the

Agricultural Outlook Forum.

The two-day forum has grown into a world-class conference

under the guidance of USDA’s World Economic Outlook

Board. Attendees get the inside track on what USDA and its

invited guest speakers see as the shape of things to come on

numerous fronts: crop and livestock markets, trade, technology, nutrition, food safety and security, farm policy and legislation, among many other topics that determine the state of the

nation’s $260 billion agricultural industry. 

But this year the program took on a distinctly new twist,

with more general rural development issues than ever in the

spotlight before a record crowd of more than 1,600.

Agriculture Secretary Mike Johanns devoted a much of his

keynote address to the impact USDA Rural Development

programs are having on the rural economy. One of the five

conference “workshop tracks” was devoted to rural development, with sessions ranging from the impact of e-commerce

on rural communities to finding the next generation of farmers and skilled rural workers.

Rural economy evolving 

Johanns noted that just 160,000 of the nation’s 2 million

farmers, who work 33 percent of our farmland, are responsible for 75 percent of U.S. farm receipts. In 1987, it took

295,000 farmers to account for that much of the nation’s crop

and livestock production. That means 92 percent of ag producers, working two-thirds of U.S. farmland, rely heavily on

off-farm income.

“They choose to carry on the great American tradition of

agriculture, but they do not depend on it as the sole source of

income or, in many cases, even as their primary source of

income,” Johanns said. “We must provide greater economic

opportunity for people

to choose a rural quality of life, a lifestyle

that upholds the values and principles

upon which this great

nation was truly built.” 

This trend is one

reason why public testimony at the Farm

Bill listening sessions

around the nation in

recent months has

been so unanimously

supportive of USDA

Rural Development

programs, Johanns

noted. USDA hosted

52 listening forums, of which more than 20 were conducted

by Johanns himself. The Secretary is well known as an

intense listener who takes notes during most meetings. He

recalled some of the key comments he heard regarding Rural

Development programs: 

• In Missouri, a producer told Johanns: “These Rural

Development programs are what is keeping the heart-blood

of the nation's business going and keeping us in a global

economy and part of the edge of innovation.” 

• In Oklahoma, a man said, “100 rural water districts, small

communities and towns [in the state] benefit from your

programs. We were able to go out and train operators and

bookkeepers and all sorts of things to upgrade the living

standards of our rural population.” 

8 March/April 2006 / Rural Cooperatives

Prospering in Rural America

Rural development issues in 

spotlight at Outlook Forum

E “We must provide

greater economic

opportunity for

people to choose a

rural quality of

life...” 

— Secretary 

Mike Johanns

USDA photos by Ken Hammond
• In Nebraska, a female producer said of the Value Added

Producer Grant (VAPG) program: “Those grants have led

to the development of a very successful ethanol plant....I

encourage you to keep that program up and to expand it, if

you can.”

• A Minnesota resident said: “About three years ago, Sleepy

Eye Medical Center took on a building expansion. We built

a new clinic, a new emergency room and a new radiology

addition. To help make this project a reality we obtained a

$4.5 million, low-interest loan from USDA Rural

Development. We created new jobs and increased the quality of our health care. We're proud of our facility.”

• In Florida, there was praise for the agency’s hurricane relief

efforts, with one woman saying: “Equally important is the

need to maintain a rental assistance program, which is currently assisting approximately 10,000 hurricane evacuees as

well as tens of thousands of rural citizens on a regular basis.” 

Johanns said the USDA Rural Development hurricanerelief team was one of the first on the scene “in the trenches,

helping people find shelter.” He noted that Rural

Development has invested $239 million in housing, economic

and community development recovery, and rebuilding efforts

to “help rural families put their lives back together and their

communities back together. We helped to place more than

10,000 evacuees in 45 states and helped 22,000 families literally pay the mortgage.” 

Market-driven strategy

The featured panel discussion during the opening plenary

session was titled: “Rural America’s New Economic

Frontier.” During it, Under Secretary for Rural Development

Thomas Dorr said that sustainable market development must

be market driven, not program dependent. He said he sees

USDA Rural Development’s primary role being that of an

investment banker and an “enabler” for rural America, rather

than a central planner or lender of last resort. 

What rural America most needs, Dorr stressed, is “viable

businesses, self-sustaining communities and young families

eager to build a future.” This job, he said, begins with identifying opportunities. 

Dorr said he sees three primary areas of opportunity for

the future of rural America: 

• Place (the quality of life factors that make rural living

attractive); 

• Connectivity (primarily broadband and other technologies

that will enable the nation to shift more jobs from central,

urban centers to dispersed, rural locations); and

• Energy (ethanol, biodiesel, wind and other renewable fuels

that will play an increasing role in helping to wean the

nation from imported oil). 

The “place” to be

“Place,” Dorr said, “is peace and quiet, green fields and

fishable streams. It’s lower taxes and a lower cost of doing

business. It’s affordable housing and a big yard for the kids.

It’s the pace of life,

low crime and good

schools.” 

He contrasted the

rural Iowa landscape

where he farms and

was raised to the 5

years he has spent in

Washington, D.C.,

now an urban metropolis of some 3.5 million people. “I’ve never seen a real estate ad in D.C., or any

other city, boasting about a bigger mortgage for a smaller

house, high taxes, noise, crime and a three-hour commute...We’re not trying to run folks out of urban areas; but

given the chance, people will vote with their feet. Our job is

to help empower that choice by investing in the infrastructure and business development that makes it possible.”

Rural Cooperatives / March/April 2006 9

“In this renewable

energy economy,

the question is:

Will farmers and

rural land-owners

participate as

vendors, or as

owners and

investors?” 

— Under Secretary

Thomas Dorr
Much of rural America has long suffered from a “brain drain,” in which it

has produced well-educated young people who, after graduation, migrate to

good jobs in cities. “Very few of the college graduates come back,” he noted. In

his own class, for example, Dorr said he

may well have been the only one (and

certainly one of the very few) who

returned home to a family farm (in

Marcus, Iowa, in his case). 

The goal must be “to create communities where our kids have a future;

communities where the next generations have more and better choices than

we did. If our kids’ hopes, dreams,

ambitions and talents take them around

the world, that’s great. We want them

to have that opportunity. But they

shouldn’t be forced to leave simply

because there is nothing at home.”

Getting connected 

Advances in information technology

— especially in broadband Internet service — have ignited a communications

revolution, Dorr said. This is resulting in

“the most radical decentralization of

information in human history — and it’s

happening at a critical moment in history. Since the fall of the Berlin Wall, up

to 3 billion people have joined the world

market system. This represents both a

new market and a new source of competition, he said, calling it “the greatest

expansion of economic freedom and

opportunity in human history.”

The broadband revolution has intersected with this new world marketplace,

meaning that “every person is going to

be connected — more-or-less instantaneously — with everyone else,” Dorr

said. “Whether we want to or not, we

will be competing with everyone in the

world with similar skill sets and a

modem. The upside is that our potential customer base will be just as broad.” 

Because data can be so easily shared

across great distances and there is less

need for shuffling paper from desk to

desk in one office, “administrative

structures, manufacturing, and distribution networks can

be decentralized.

To a degree

unprecedented in

history, people

are going to have

real choices about

where to live and

how to work. 

“Broadband

makes rural communities more

competitive than

they have been in

generations. It

opens the door to

everything else.”

Energizing the nation

Rural America may also hold the key

to the nation’s energy future, as biofuels

and other renewable energy sources

sprout into a major new cash crop,

Dorr stressed. He noted that President

Bush devoted a portion of his State of

the Union Address in January to

expressing his support for funding new

research on wind, cellulosic ethanol,

clean coal and new-generation nuclear

power. “The commitment is there and,

frankly, thanks to $60 per-barrel oil, so

is the opportunity.”

Dorr cited the following statistics to

underscore how rapidly the renewable

fuels industry is developing: 

• U.S. ethanol production in 2005

exceeded 4 billion gallons. The 7.5

billion gallon renewable fuels standard in the Energy Bill will be met

well ahead of schedule. 

• Biodiesel usage has soared from

about 5 million gallons in 2001, to 25

million gallons in 2004, to 75 million

gallons last year. 

• U.S. wind-power capacity by the end

of last year reached 6,740 megawatts.

Another 5,000 megawatts are currently under construction or in negotiation. The Department of Energy estimates that wind can generate at least

6 percent of U.S. electricity by 2020. 

The nation is also investing in other

biomass technologies, such as direct

combustion and methane gas recovery, as well as solar, geothermal and

hydrogen applications.

• Since 2001, USDA Rural

Development has invested almost

$290 million in new energy sources,

and energy will be a top priority for

2007.

“Energy from agriculture, in fact,

offers the rural economy its biggest new

market in history. But it’s not automatic. We’re talking about the emergence

of a distributed energy system. That’s

something different. It’s new. It will

take some creative work to make it happen. 

“The key issues will be ownership

and wealth creation — and our goal

must be to bring the benefits of this

extraordinary new opportunity back

home to rural America... Farmers and

other rural landowners are on the

ground floor.”

Farmers need to be 

energy system owners

As great as it is for farmers to be netting an extra 5 to 10 cents per bushel of

corn from ethanol, Dorr said, “the real

return is downstream, in the valueadded as a premium fuel.” In this

renewable energy economy, the ultimate question is: “Will farmers and

rural landowners participate as vendors,

or as owners and investors?”

Business and investment models,

including new tax and regulatory

regimes, are needed to bring the benefits of new energy sources back home to

rural communities, Dorr said. “This

doesn’t require more government

10 March/April 2006 / Rural Cooperatives

USDA Rural Development's Mike Kossey (left) answers questions

about USDA's renewable energy and other programs in the Outlook

Forum exhibit area.
expenditures on subsidies. But it does

require a strategy — new investment

models and supportive regulatory and

tax regimes — that permits distributed

energy opportunities to be capitalized

by the existing wealth already distributed within rural communities.

“This will happen when not just

farmers, but also the local dentist and

the school bus driver, the shopkeepers

and school teachers, the mechanics and

the retirees, all have a chance to participate in this extraordinary new opportunity to generate wealth in rural

America.” ■

Rural Cooperatives / March/April 2006 11

Editor’s note: The following is excerpted from Keith

Collins’ address at the 2006 USDA Ag Outlook Forum. You

can read the full text, or view a webcast of Collins (as well

as other plenary session speakers), on the conference

website: www.usda.gov/oce/forum. 

On paper, 2005 should have been a disaster for American

farmers and ranchers. Just consider some of these negative factors checked off by USDA Chief Economist Keith

Collins during his annual address at the USDA Agricultural

Outlook Forum in Arlington, Va.: 

• Near-record crops were harvested for the second year in

a row (raising the specter of glutted markets);

• Multiple, devastating hurricanes pounded the Gulf Coast

and shut down the central marketing infrastructure of the

country;

• Energy prices soared, including diesel prices that hit $3

per gallon and natural gas that rose to $14 per million btu;

• There was continued loss of Asian beef markets (due to

BSE concerns) and concern rose about the emergence of

a possible global avian influenza epidemic. 

Anyone who would have seen all that coming would

have said the farm economy would be in “deep, deep trouble,” Collins noted. Instead, the farm economy seemed to

respond with a: “What, me worry?” Domestic demand for

farm products soared, exports set a record high, U.S. farm

income was the second highest ever and farmland values

and farm wealth reached new all-time highs.

“The reasons for this outcome include strong global

demand for food, the flexibility of the agricultural system to

rebound from shocks, a substantial increase in government

support spending and cyclically tight markets for some

commodities, such as meat,” Collins said. 

“While demand remains strong, the farm economy will

be challenged by large stocks of crops, built up from the

abundant harvests the past two years, livestock expansion,

higher interest rates and energy costs, animal disease

issues and weather. While it is too early to be definitive,

these factors suggest that farm income will likely drop in

2006 and the farm economy will contract,” Collins said.

“The forecast for farm exports in fiscal 2006 is a recordhigh $64.5 billion, up $2 billion from 2005’s record. Imports

are forecast at $63.5 billion, up $2 billion from USDA’s last

forecast, leaving a forecast surplus of $1 billion for FY 2006.

The current period of strong foreign economic growth and

continued effects of the decline in the value of the dollar

from several years ago should show up in higher U.S. agricultural exports in the future and an improving trade balance. Projected economic growth suggests continued

increases in agricultural exports and imports, with the agricultural trade balance forecast to be positive but less than

in past years.

“Record or near-record production of major crops has

added to the stock levels built up last year. As a result, U.S.

supplies for feed grains, cotton and soybeans are at a

record high this year, although not for wheat. But this picture of the crop sector moving toward the bottom of the

cycle is not as transparent as it seems. Four factors suggest the prospect for divergent performances among the

major crop markets over the next couple of years: (1) Global

grain and oilseed markets are moving in different directions; (2) Biofuels may drive faster-than-expected demand

growth. Indeed, ethanol — rather than China — could well

be the No. 1 factor driving farm prices higher over the next

few years; (3) Energy and interest costs are likely to be a

rising challenge for many producers, and (4) Weather is

already being disruptive for the upcoming crops.

“From indicators such as a return to average national

farm income, lower enterprise and regional farm income,

lower cash margins, higher net worth and greater utilization

of debt repayment capacity, we can draw several conclusions for 2006. There is not an impending financial crisis in

U.S. agriculture, yet there will be greater financial stress for

an increasing number of crop producers in many regions.

That stress will likely show up in tighter credit standards

and delayed loan repayments and loan extensions. 

“The coming year will present more of a financial challenge for U.S. agriculture than in recent years. In addition,

agriculture will have to contend with questions over the

effect of rising interest rates on the durability of the U.S.

economic recovery, the value of the dollar, issues raised by

the federal budget deficit, trade negotiations, bird flu, BSE,

oil prices, Middle East issues and terrorism. Producers will

likely need to draw more on their resiliency and managerial

capabilities in 2006 than they did during the past couple of

years of abnormally high farm income.” ■

Storms, disease and soaring fuel costs

couldn’t derail farm economy in ‘05 
By Stephen Thompson

Assistant Editor

stephenA.thompson@wdc.usda.gov

ob Ferguson brandishes a sheet of paper. “Look

at this,” he says. “Our corn basis is 44 cents. We

just don’t have enough markets for our local

production.”

Ferguson is a farmer and businessman near

the small southern Minnesota town of Heron Lake. The corn

basis he is referring to is the difference between the going

price at the nearest New Vision elevator in Heron Lake and

the top price paid in Chicago. Ferguson’s response to low

prices was to help found Heron Lake BioEnergy LLC — a

mainly farmer-owned effort to build a new 50-million-gallonper-year ethanol plant to boost local corn prices and help

revitalize the local community. 

It’s a story being repeated across the Midwest as ethanol

plant construction continues in high gear. But there is a twist

here: the Heron Lake plant will not burn natural gas, as in

the vast majority of ethanol facilities, but coal. 

The cost of energy is critical to the bottom line

of a corn-to-ethanol plant because so much is used.

To prepare the corn for fermenting, it is blasted with

steam. Fermenting and distilling require heat.

Drying the distillers’ grains — the part of the corn

remaining after fermentation — requires even more,

as much as 50 percent of the entire fuel budget. 

Big savings over gas

The clean-burning coal technology will add to

the price of the plant, but a study in 2004 indicated that it

would cost 70 percent less for energy than using natural gas.

Since then, coal prices have risen; however, gas prices have

risen even more steeply, seemingly vindicating the decision to

go with coal (see sidebar). “Coal is still an extreme bargain,”

says Ferguson.

An LLC business structure was chosen because it was felt

that it offered more financing alternatives than a pure cooperative. Heron Lake LLC financing is grounded soundly in

the community, with the majority of its financing coming

from farmers; much of the rest comes from local residents. 

12 March/April 2006 / Rural Cooperatives

B

Ethanol plant to use

new coal technology

Adam Schumacher, an investor in the ethanol

project, runs a nursery operation just outside

the town of Heron Lake. USDA photos by Stephen

Thompson
“We have a sizeable investment from

the four counties surrounding us,” says

Ferguson, who is president of the company. Moreover, Minnesota law requires

that all investors in the LLC must

either be state residents or owners of

property in the state. The Minnesota

LLC allowed local businessmen — who

would not have been able to invest in a

traditional co-op — to buy in.

The venture began in 2001, when a

group of local farmers, led by Ferguson,

formed the board of directors, each

contributing $10,000. The first concern

was providing necessary infrastructure,

especially a reliable water supply. 

“You can get held hostage pretty fast

if you don’t do your homework,” says

Adam Schumacher, one of the board

members of Minnesota Soy Processors

MNSP), another LLC. A well was

drilled, and it promised sufficient water

not only to feed the plant, but also to

supply a biodiesel plant located about

11 miles south, operated by MSNP. 

In a three-way agreement, the town

of Heron Lake agreed to take over the

well and finance it with a 15-year bond,

which was to be paid off through fees

from the plant and from a pipeline supplying the biodiesel operation. Mayor

John Hay sees the agreement as vital to

the interests of the town as a whole:

“We want business here that can attract

jobs,” he says. “This will double our tax

base to $50 million and give us additional revenues to improve our school.”

Option to stay

Schumacher participated in the venture because he wants local children to

be able to stay in the community instead

Rural Cooperatives / March/April 2006 13

Bob Ferguson, president of Heron Lake BioEnergy LLC, divides his time between farming and

working on economic development through his involvement in local county government. 

The use of coal in the Heron Lake BioEnergy plant

depends on a new technology known as “fluidized bed”

combustion. A fluidized bed boiler works by blowing highpressure air through a bed of solid fuel grains. 

The resulting turbulence suspends the fuel in the air,

mixing both together thoroughly and allowing more complete combustion than other methods. This reduces or

eliminates carbon monoxide and hydrocarbon emissions.

At the same time, combustion temperatures can be regulated, keeping them below the level at which oxides of

nitrogen form, thus eliminating an important cause of acid

rain and “smog.” 

Limestone powder, which absorbs sulfur in the coal, can

be injected into the process, eliminating sulfur dioxide,

another troublesome precursor of acid rain. Those features

make expensive scrubbers and other equipment to clean

the exhaust from the boiler unnecessary.

Biomass applications 

The advantages of fluidized bed combustion don’t stop

there, however. The design lends itself well to biomass

fuels, such as straw, sawdust, corn stover, etc. In fact, any

solid fuel that can be ground up and blown into the boiler

can be used. If future regulations require the use of renewable fuels, the plant will be able to handle them without

costly modifications. 

Heron Lake BioEnergy President Bob Ferguson thinks

that, with no relief for high gas prices in sight, other

sources of fuel will become available. “There’s a lot of

growth, a lot of new technology in development,” he says.

One option originally considered was the use of distillers’ grains as fuel for the plant. “It wasn’t feasible to use

distillers’ grains as fuel when natural gas cost $3.50 for a

thousand BTUs,” says Ferguson. But as gas prices rose, so

did the utility of distillers’ grains as animal feed. 

While prices for distillers’ grains are still lower than

those of raw corn, it actually makes better feed because

the starch has been removed by the fermenting and distillation process, leaving more valuable fats and proteins. At

first, dried distillers’ grains (DDG) were used mainly as cattle feed; but DDG is now being used to feed hogs and poultry as well, with some being exported overseas. The growing value of DDG as feed has killed any interest in it as fuel.

■

Technology reduces oxide emissions
of moving away in search of jobs. “If every farmer can get a

nickel more a bushel, it might allow him to fit one of his kids

into the operation,” he says. “A lot of people who have moved

away would like to come back if they could.”

Schumacher’s farm doesn’t stand to benefit directly from

higher corn prices: it’s primarily a nursery operation, with most

of its revenue coming from sale of trees and shrubbery for use

as windbreaks, riparian buffers and other conservation uses.

Paul Pohlman, a corn and soybean farmer, echoes

Schumacher’s hopes. His roots in the area are deep: his

grandfather settled here in the 1800s, and he grew up on the

farm he now runs. He invested in the nearby biodiesel plant,

which has yet to turn a profit, and sees higher grain prices as

only part of the benefits of a successful ethanol plant: “It’s a

chance to improve the job situation here — give young people more opportunities.”

The equity drive began in July 2004, and lasted until the

following January. To encourage locals to participate, farmers

and non-farmers were allowed to purchase shares with a minimum investment of only $20,000. The response was strong,

say members, because local people share their vision of the

plant as a way to encourage overall prosperity and preserve

their community. The local Heron Lake State Bank helped

out by making loans for the purchase of equity shares. When

the drive was over, 1,069 investors had bought shares.

For its electrical power, the choice was between a local

cooperative, Federated Rural Electric, and an investor-owned

company. Though they were “neck and neck” in prices and

benefits, the board chose to go with the co-op. 

“They’re our neighbors,” says Ferguson. “People who care

about what we’re trying to do for our community.” The coop not only bought stock in the venture, it has applied for a

USDA Rural Development low-interest loan totaling

$740,000 for the project. “I can say nothing but good about

Federated,” Ferguson says. 

Environmental delays 

Construction of the plant was planned to begin in March

2005. However, the necessary permits from the Minnesota

Pollution Control Agency were held up for several months

because of objections by environmentalists over the use of

coal for fuel. “They were afraid that coal use would mushroom if the plant got built,” says Pohlman. 

He and the other board members see this as a case of

being unable to see the forest for the trees: the plant will not

only be clean-burning, its effect will be to lessen greenhouse

gas emissions by reducing overall the use of fossil fuels. 

14 March/April 2006 / Rural Cooperatives

Paul Pohlman and friend. Pohlman invested in the ethanol plant because

he wants to improve opportunities for local young people.

continued on page 34
By Donald A. Frederick

Program Leader for Law,

Policy & Governance;

USDA Rural Development/

Cooperative Programs

donald.frederick@usda.gov

n Arizona State Court of

Appeals decision in a

complex litigation

brought by former members against a milk marketing cooperative discusses two issues

of interest to cooperative leaders. One

concerns whether “dumping” member

milk during a contract dispute with

buyers meets the legal definition of

“marketing” that milk. The other

involves whether certain relationships

between a cooperative and a non-cooperative broker amount to an illegal

agreement to restrain trade. United

Dairymen of Arizona v. Schugg, 1 CACV 04-0611 (Ariz. Ct. App., Div. 1,

filed Feb. 9, 2006).

Case facts

United Dairymen of Arizona (UDA)

is a milk marketing cooperative with

roughly 90 members whose average

herd size is 1,200 cows. UDA markets

about 90 percent of the milk produced

in Arizona.

Michael and Debra Schugg were

producer members of UDA and signed

a contract giving UDA the exclusive

right to market their milk. That contract provided that UDA would “use its

best efforts to market the member’s

milk in such manner as the association

shall deem to be to the best advantage

of the member and all other members

of the association....” (court’s emphasis)

In an effort to enhance revenues,

UDA entered into agreements with

milk marketing cooperatives in other

states not to sell milk to fluid milk bottlers until they agreed to pay a substantial premium above the federally established minimum price. When two

major buyers of UDA milk refused to

pay the requested premiums, UDA was

unable to sell millions of pounds of

Grade A milk produced by its members. As a result, the Schuggs were

forced to “dump” a substantial quantity

of their milk.

UDA treated the milk dumped by its

members as if it had been sold when

computing its payments to members.

To make these payments, UDA incurred substantial debt. To minimize that

debt and allocate its costs among all

members on a patronage basis, UDA

imposed an assessment on its members’

milk production. The amount assessed

against the Schuggs’ milk production

was in excess of $232,000.

The Schuggs took certain actions

which they claimed freed them from

their contract to market through UDA

and began selling their milk to another

cooperative. UDA responded by suing

the Schuggs for alleged breach of that

contract. The Schuggs filed two counterclaims regarding UDA’s strategies for

marketing their milk, which are the

focus of this article.

Is “dumping” a 

form of “marketing?”

First, the Schuggs alleged that UDA

breached its contractual obligation to

market its members’ milk when it effectively forced members to dump their

milk, rather than deliver it to UDA’s

primary customers. They claimed their

damages from this action included the

amount of the assessment and other

financial losses.

The court described the argument of

the Schuggs as equating “market” with

an obligation to “sell” member milk to

the cooperative’s customers. The court

rejected this assertion.

The court said that: “UDA’s contractual duty to ‘market’ milk reasonably

includes taking actions to protect its

long-term ability to sell at prices beneficial to its members. UDA attempted

to obtain long-term contracts and premiums from its primary customers by

limiting the supply of milk from its

members and from members of other

cooperatives. In doing so, it was exercising its authority to ‘market’ in a manner

it deemed to be to the best advantage of

its members.”

So, this case reaffirms the legality of

an important strategy for cooperative

marketing associations, limiting the

supply of product their members deliver

to the market and working with other

cooperatives to limit supply on a broader scale. But it is important to remember that the same protection does not

apply to agreements with non-producers to limit supply.

Antitrust issues

The Schuggs also alleged that UDA’s

“dumping” policy was part of an illegal

anti-competitive scheme to limit milk

supply, in violation of federal and state

antitrust laws. While UDA prevailed on

this point as well, it is important to

understand why it prevailed.

The court notes that while the

Rural Cooperatives / March/April 2006 15

LEGAL CORNER

What it means to “market” milk

A

continued on page 27
By Catherine Merlo

Merlo is a freelance writer with extensive experience working with

cooperatives.

or 22 years, Hazelnut Growers of

Oregon has marketed what it calls “the

crunchy brown nut with the sophisticated taste” for the state’s hazelnut producers, many of whom farm in the state’s fertile

Willamette Valley.

But the nationality of the co-op’s membership

has just taken a quantum leap south. 

This year, Hazelnut Growers of Oregon accepted its first foreign member, a hazelnut farmer in

the South American country of Chile. And it

expects more Chilean hazelnut growers to join the

Oregon-based co-op in the near future.

“It’s a great opportunity for us,” says Troy

Johnson, vice president for Hazelnut Growers of

Oregon (HGO). “We have only one member so

far, but there is much interest there.”

HGO is just one of a growing number of U.S.

agricultural co-ops that have encountered the hard

reality of a global market. To succeed in today’s

24/7 marketplace, America’s grower-owned businesses must contend with increased foreign competition. They must satisfy the rise in consumer

demand for more and better products. And they

must protect their brands with a steady supply.

That means finding a way to overcome production

shortfalls that stem from adverse weather, alternate-bearing crops or shrinking acreage.

Southern Exposure

Hazelnut Growers of Oregon sourcing 

product & new members in South America 

F

16 March/April 2006 / Rural Cooperatives

Oregon is home to about 28,000 acres of hazelnut orchards, such as this. But acreage

has been declining due to disease, so Hazelnut Growers of Oregon is expanding to Chile.

Photo by, and courtesy of, Carl Johnson. To see more of this Alaska-based photographer's work,

visit: www.carljohnsonphoto.com. 
Opening new doors 

The venture into Chile offers a way

for HGO to meet those demands.

Sourcing some of its product in Chile

opens new doors to help the co-op

meet rising demand amid tightening

hazelnut supply.

“Things are changing

and the world is becoming smaller,” Johnson

says. “To be successful,

you’ve got to find the

strategic alliances, or

make the strategic decisions, to be successful in

the long term. You need

the best, most efficient

supply and you have to

be very good at all

aspects of your business.”

One benefit to the

Oregon co-op is that

Chile’s production comes

later in the season, in

April, avoiding the glut sometimes seen

when the North American hazelnut

harvest comes off in September. 

The co-op’s venture south also reaps

benefits for Chilean hazelnut producers.

For them, being part of an established

co-op is a big draw. “One of the basic

reasons for joining a co-op is that it

provides a home to bring your production to every single year for marketing,”

Johnson says. “That’s a very important

selling point that some people overlook.

It’s the biggest reason Chilean growers

want to be part of our co-op.”

Further, Johnson adds, “Chile sees

the U.S. as a fantastic consumer of

Chilean products, but

they also see the

American business model

as very successful.”

Goin’ south

A lengthy sliver of a

country that’s 20 times as

long as it is wide, the

Republic of Chile

stretches 2,700 miles

along the southwestern

coast of South America.

Home to a stable democracy with a population of

16 million, Chile is

famous for the snowcapped Andes mountains

that tower along the

country’s eastern border. 

But the country is also the home of a

long, fertile basin west of the mountain

range. Called the Central Valley, it

stretches south from Santiago to

Osorno and enjoys a Mediterraneanlike climate.

There, in its opposite seasonal cycle,

Chile harvests a variety of fruits, vegetables and grains some six months after

the Northern Hemisphere does. And

the production quality is generally

good. California-based Sunsweet

Growers has begun sourcing fruit there

(see sidebar). Well-known citrus co-op

Sunkist Growers has sourced fruit in

Chile in the past, although it doesn’t at

present.

“Everybody is looking to build the

most efficient supply chain,” says Terry

Barr, chief economist with the National

Council of Farmer Cooperatives. “The

consumer has spoken, and retailers want

access to a product year-round. U.S. coops are having to access products offseason, particularly if they have a brand

and want to keep its established position in the market.”

Chile’s hazelnut industry is young; it

needs another seven years before its

trees reach full nut-bearing maturity.

But that’s a short wait for the long-term

viability of Hazelnut Growers of

Oregon.

Up north 

The largest U.S.

handler of hazelnuts,

HGO accounted for

about one-third of the

nation’s 27,000-ton

production last year.

Virtually all U.S.

hazelnuts are grown in

Oregon, which is said

to grow the tastiest

varieties of the brown

nugget.

Grower-owned

since 1984, the co-op

generates about $25

million a year in sales.

It’s the nation’s only

hazelnut co-op and

counts 140 members.

It also receives part of its hazelnut supply from about 60 non-members who

deliver on a contract basis through an

independent company. HGO operates a

plant in Cornelius for processing, packing and distributing its hazelnuts.

The co-op owns two labels. Oregon

Orchard represents its in-shell brand,

Rural Cooperatives / March/April 2006 17

Jamie Perry, left, is the first Chilean member of Hazelnut

Growers of Oregon (HGO). With him is orchard manager/

agronomist Paz Alejandra Lopez (center) and another grower.

Photos courtesy HGO

Electrostatic sprayers are used to apply crop protectants to hazelnut orchards. 

continued on page 29
18 March/April 2006 / Rural Cooperatives

With two consecutive crop disasters since 2004,

Sunsweet Growers Inc. has decided it won’t sit back and

watch its line of branded products shrivel on the store shelf

for want of supply.

The grower-owned co-op, based in Yuba City, Calif., has

just completed construction of a fruit-drying facility on land

it purchased last year in Santa Cruz, Chile. The plant will

process Chilean-grown prunes and market them for the coop’s non-branded business. The 400-member co-op will

preserve its California fruit for the Sunsweet brand. 

“Chile is a way for us to help avert disaster,” says Dane

Lance, Sunsweet’s vice president of global

sales and marketing.

The co-op believes that by building its

own drying facility, Sunsweet can ensure

that the Chilean dried fruit meets the company’s quality standards. 

“While our international facilities are

managed with the help of experienced jointventure partners, they benefit from

Sunsweet’s proprietary systems and our

team’s quality control standards,” Sunsweet

President Arthur Driscoll II said last November when the co-op began construction of

the South American facility. “Our global

customers expect quality products that can

only be achieved by using Sunsweet’s proprietary drying processing and pitting methods.”

Furthermore, Sunsweet’s presence in Chile, the world’s

No. 2 prune producer, opens the door for it to participate in

and influence local markets, co-op officials say. “We see

Chile as a market for our brand,” says Gary Thiara, a California prune grower and Sunsweet’s board chairman.

Worldwide sales strategy

Sunsweet is the nation’s leading marketer of dried plums

as well as specialty dried fruit products and juices. The coop markets prunes and raisins in 60 countries, generating

about $250 million a year in sales. During its 88 years, it’s

built a brand that’s recognized by 85 percent of American

households. But adverse bouts with Mother Nature since

2004 have sharply limited California’s inventory of prunes, or

dried plums, as they’re also called. 

Unprecedented back-to-back disasters have pounded

growers and packers in the Golden State, which produces

98 percent of the nation’s prunes and 70 percent of the

world’s supply. The California crop typically yields about

160,000 tons of the dried fruit. But unfavorable weather conditions in 2004 led to the worst prune crop in the state’s history. Production dropped to just below 48,000 tons. 

Sunsweet’s members, who normally account for half of

the state’s output, delivered their smallest crop since 1918.

Then, in 2005, another unfriendly spring followed by intense

summer heat wrought another short crop.

The result? Increased expenses and reduced revenues

for farmers and packers — and a record low supply of

prunes to market into distribution channels.

“Some grocery shelves are bare of prune products, production lines are not utilized full time, many of our experienced teams must suffer through weeks of little or no work,

and some consumers are looking to other products to fill

their dried-fruit appetite and health

needs,” Sunsweet noted in its 2005 annual

report.

Short supply threatens 

retail accounts 

The prospect of losing key retail

accounts because of supply shortages

sent shivers through Sunsweet. “With a

brand, you pay a huge penalty if your

product goes out of stock,” says Lance.

“There’s a big cost to bring it back on to

the shelf.”

Thus, California’s consecutive crop disasters paved the way for Sunsweet’s foray

into Chile. Sourcing all of its prunes in California appears “increasingly risky,” Sunsweet has said.

If California had seen its normal production, says Lance,

it would be harder to explain why the co-op would need to

source dried plums from Chile. “But it’s been easy for

growers to understand that this is an attempt to protect

their business,” he says.

The co-op expects only modest volume out of its Chilean

operations — 2,000 tons of dried plums at most, compared to

the 75,000 tons Sunsweet sold in 2003, the last “normal” year.

It’s too early to forecast the 2006 California dried plum

crop, which will be harvested in September. But the co-op’s

move into Chile offers much-needed protection for

Sunsweet.

“It’s not our intention to abandon California as the primary source for the crop,” Thiara says. “But we definitely

need to supplement that position with production from other countries.” 

Already, Sunsweet sources dried fruits from the Philippines and Turkey, Thiara says. The co-op also works with

partners in the United Kingdom, Germany, China and the

Philippines to pack dried tree fruits for the Sunsweet brand.

—Catherine Merlo ■

Sunsweet puts down roots in Chile
By Steven Johnson

Editor’s note: This article is reprinted courtesy of “Electric Co-op

Today,” published by the National Rural Electric Cooperative

Association. Some information also supplied by Angela Perez of

Roanoke Electric. 

hen it comes to rolling out the red carpet,

Roanoke Electric Co-op is going to have a

larger one than most. That’s because the coop is a key component in construction of a

$129 million project to lure celebrities, dignitaries and thousands of tourists to Roanoke Rapids, N.C.,

located in the northeastern part of the state near the Virginia

border.

Randy Parton, brother of music and movie star Dolly

Parton, is spearheading construction of the Carolina

Crossroads Music and Entertainment District on about 800

acres served by Rich-Square-based

Roanoke Electric Co-op.

Upon completion, the endeavor should rival music-oriented

attractions and theme parks

such as Dollywood, Dolly

Parton’s Tennessee resort,

and Branson, Mo., and give

an economic lift to an area

best known for tobacco and

textiles.

“It’s the biggest thing

we’ve ever had here,”

said Curtis Wynn,

executive vice

president and

chief executive

officer of

Roanoke Electric. “It’s going to be a huge opportunity for

our system to grow.”

A study by a research center at the University of North

Carolina estimated the entertainment district will generate

12,000 jobs, add $500 million to the regional economy and

boost incomes by $204.7 million in the next 5 years.

Initial construction began in November, when workers

broke ground on the 35,000-square-foot, 1,500-seat Randy

Parton Theater, with an eye toward a spring 2007 opening.

The Nov. 11 kickoff, which included Dolly Parton and a host

of country music stars, brought an estimated 10,000 onlookers to the site.

“The economic impact of this project is staggering, and

will be felt for generations to come,” said Jack Runion, chairman of North Carolina’s Northeast Partnership Inc., the

group that was instrumental in attracting Parton to the area.

“This is an amazing venture that’s getting strong support

from all sides. We’re proud to have played a part in putting it

all together.”

Developer George Ragsdale, who is working with Parton,

predicted the venture “will turn this area into the foremost

entertainment destination on the eastern corridor.”

Wynn said the co-op will provide electricity to the entertainment district, and also has assumed a key role as a liaison

between contractors and the project.

“They want to involve as many local parties with construction as possible,” he said. “Our role is to interface with conRural Cooperatives / March/April 2006 19

Dollywood East

Roanoke Electric Co-op key partner

in new, N.C. entertainment complex

The site plan for the Carolina Crossroads Music & Entertainment

District

“Honey, it takes a lot of money to look this cheap!” Dolly Parton joked

during a ceremony in Roanoke Rapids, N.C., where her brother, Randy

Parton, is developing a $129 million entertainment complex. Photo by

Angela Perez, courtesy Roanoke Electric Co-op.

W
tractors and developers that come in as

work proceeds.”

That responsibility is likely to

include co-op-led training classes and

information distribution about particular aspects of the development, he said.

Roanoke Electric’s infrastructure

should be adequate to power the first

phase of the entertainment district, but

construction of an additional substation

is likely as the project grows, Wynn said.

Randy Parton’s team selected the site

after working with North Carolina’s

Northeast Partnership, a 16-county

economic development organization.

“Our territory is transforming from a

rural agricultural area to more of a service and tourism environment, so this fits

right in with that,” Wynn said.

Other businesses are likely to locate

near the district, with plans on board for

some hotels and restaurants to accommodate the tourist load, Wynn said.

“We’re positioning ourselves to work

both on the electricity and economic

development sides,” he said. “This will

be very significant for us.”

Lori Medlin, executive director of

the Halifax County Tourism Development Authority, said the development

should boost the growing tourism

industry. “Roanoke Rapids and Halifax

County are halfway between New York

and Florida and we want this to be a

destination, a reason for people to

spend several days enjoying themselves

with a focus on music and family entertainment.”

An additional study by Economic

Research Associates of New York and

Washington, D.C., verified that the

entertainment district should attract the

level of visitors required to make the

area a major travel destination for the

region and the state.

“Where today passers-by see green

fields and pine trees, I see the beginning

of a great transformation of our community,” said Roanoke Rapids Mayor

Drewery Beale, a key player in formulating the plan that attracted the project.

“I see economic opportunity and excitement like we’ve never seen before. This

is a new beginning for us.”

The process leading to selection of

Roanoke Rapids for The Randy Parton

Theater took place during several

months. “We drove a lot of miles, visited many beautiful communities, and

met a lot of great people in North

Carolina’s Northeast Region,” Randy

Parton said. “The pull of the Roanoke

Rapids area, with its strong leadership,

friendly and warm community and

Interstate 95 travelers made for the perfect combination for this project.”

The Nov. 11 groundbreaking took

place less than 5 months after Randy

Parton inked a deal with the City of

Roanoke Rapids, Roanoke Rapids

Entertainment One and Blanchard &

Calhoun Commercial to locate his theater in Roanoke Rapids.

Randy Parton has performed with

country music greats including Tanya

Tucker, Lorrie Morgan, Ronnie Milsap,

Merle Haggard and George Jones. His

“big break” came when Jean Shepard,

the grand lady of the Grand Ole Opry,

asked him to join her band. A successful

singer, songwriter and musician, he

began writing and performing shows at

Dollywood. 

■

20 March/April 2006 / Rural Cooperatives

Curtis Wynn, CEO of Roanoke Electric Cooperative, was

recently honored with an Innovation Award at a GlaxoSmithKline (GSK) Supplier Diversity Awards Luncheon in

Philadelphia. Wynn was recognized for leading GSK’s

efforts to help themselves and other corporations and government agencies seeking to grant contracts to small,

minority and women-owned businesses.

This “linking” project, known as the Triangle Area Buyer

Supplier Network, which is located in the Durham and

Research Triangle areas, gives GSK easy access to diverse

suppliers who are seeking an opportunity to bid on and

compete for construction-related contracts. As a developer

and proponent of the Network, Wynn has had the opportunity to work with some of the most progressive-thinking,

supplier diversity professionals in the business. “Given the

right opportunities, these smaller companies bring unique

values and skills to the table,” he said.

Typically, the businesses that Wynn is trying to help land

contracts go unnoticed in the

market. “They often aren’t

afforded the chance to let

these large corporations

know that they have valuable

services to offer. That’s where

our Network comes in.”

The Network, using Roanoke’s procurement software

program, provides a gateway through which qualified,

diverse suppliers can easily gain access to constructionrelated contract opportunities designated specifically for

them to bid on. 

“It’s a win-win situation,” said Wynn. “The big company

or agency gets a larger, more diverse pool of contractors

(which ultimately provides them with lower costs) and the

smaller diverse suppliers get a chance to grow their businesses through increased opportunities from companies

that are traditionally beyond their reach.” ■

Curtis Wynn, right,

receives his Innovation

Award.

Roanoke Electric Co-op CEO Wynn honored

for work with small & minority contractors 
By Stephen A.Thompson

Assistant Editor 

stephenA.thompson@wdc.usda.gov

edwood Falls, Minn., is

home to a co-op biodiesel

plant with a difference.

Most other biodiesel

operations use soybeans

or rapeseed as feedstocks. Northland

Choice biodiesel, however, is made

from a variety of agricultural

feedstocks, including animal fat.

It’s manufactured not as a primary

product, but as one tool among

many to extract the maximum

value from the products of

America’s only cooperative-owned

rendering operation.

Northland Choice biodiesel is

produced and distributed by

Farmers Union Industries LLC, a

corporation wholly owned by

cooperatives: Farmers Union

Marketing & Processing

Association (FUMPA) and

Farmers Union Enterprises, made

up of the state Farmers Unions of

Montana, North and South

Dakota, Minnesota and

Wisconsin. FUMPA was founded

in St. Paul, Minn., by the North

Dakota Farmers Union in 1929. 

Its original purpose was to provide

livestock farmers with marketing clout

in dealing with large meatpacking firms.

In 1947, it moved into rendering — the

processing of animals that have died or

are unfit for slaughter for food. This

endeavor proved so successful that the

co-op eventually got out of livestock

marketing altogether. 

The LLC was founded in July 1,

2005, and currently has two rendering

complexes that operate as Central Bi

Products: one in Redwood Falls and

another in Long Prairie, Minn. Both

rendering complexes provide full service rendering, with the majority of the

raw material supply coming from beef

and poultry slaughter plants.

In 1988, Farmers Union purchased a

mink-food processing facility in St.

Cloud, Minn., and in 1989, it launched

the Northland Choice brand of petfood ingredients. Northland Choice

sells to most major manufacturers of

well-known pet-food brands.

Aggressive innovation

The Farmers Union family pursues

product innovation aggressively, says

Chuck Neece, the co-op’s director of

research and development. A recent

addition is a patented pet litter product

called Swheat Scoop, made from wheat

by-products. It was acquired in 2002

with the purchase of privately held Pet

Care Systems Inc. 

Production of the pet litter is consistent with Farmers Union Industries

policy of diversifying risk while finding

ways to add value to agricultural products. “Our goal is to support agriculture

in total,” says Neece. 

In line with that approach, another

Farmers Union Industries business in Redwood Falls is

Redwood Metal Works, which

manufactures truck trailers,

including those used by rendering operations. Another division,

Midwest Grease, collects and

recycles used restaurant fats.

In addition to providing another tool to help manage risk,

biodiesel production promised a

good return on investment. This

is especially true due to

Northland Choice having

acquired a patent for the use of

glycerin as a feed ingredient.

Glycerin is a major byproduct of

the process that turns natural fats

and oils into biodiesel fuel.

Although a large facility was

originally considered, the co-op

board decided that a conventional, 30-

million-gallon-per-year plant was too

risky, especially since there seemed little

prospect at the time of federal support

for biodiesel prices. The co-op decided

that the best approach would be a relatively small facility producing 3 million

gallons annually, financed with cash-onhand. 

The initial decision to go ahead with

the project was made in March 2004.

Rural Cooperatives / March/April 2006 21

Co-op rendering operation 

yields biodiesel & more

R

Chuck Neece, director of research and development for

Farmers Union Marketing and Processing Association, with

promotional materials for Northland Choice biodiesel fuel.

USDA photos by Stephen Thompson
22 March/April 2006 / Rural Cooperatives

Finances got a boost in November of

that year, when the cooperative received

a $500,000 Value Added Producer

Grant (VAPG) from USDA Rural

Development for development of farmbased renewable energy sources. By

December, the facility was producing

biodiesel fuel — the first biodiesel plant

in the state.

Small, transportable unit

Northland Choice’s biodiesel facility

differs with most other biodiesel plants

that produce the fuel from vegetable

sources in more than just its choice of

feedstock. Most soybean and other vegetable-feedstock operations are invariably dedicated, stand-alone operations. 

Farmer’s Union biodiesel production, however, is carried out in a small

portion of the large, modern rendering

plant in Redwood Falls. The processing

machinery occupies a space perhaps

twice as big as a semi-trailer. It was

delivered skid-mounted

as a unit by truck. If

plans change, the entire

processing unit can be

removed and transported

to another site relatively

easily.

Neece is proud of the

fact that the Farmers

Union biodiesel operation was the first in

Minnesota, and says that

its success gave other

cooperatives the confidence to go ahead with

their own plans for

biodiesel. FUMPA was

an active supporter for

the recently promulgated Minnesota

requirement that all diesel fuel sold in

the state contain at least 2 percent

biodiesel. 

Northland Choice’s pioneering effort

has encouraged other biodiesel producers to consider the use of animal fats.

Neece says the brand could incorporate

vegetable oils as well if demand outstrips supply. “This new technology

helps both animal and soybean farmers,” he says, “and that’s what we’re

about.” ■

The biodiesel plant occupies a small part of the rendering

facility outside Redwood Falls.

Land O’Lakes Inc. had net earnings of

$128.9 million for 2005, up sharply

from $21.4 million for 2004. Co-op

officials said earnings were bolstered by

a $69.7-million after-tax gain from the

sale of its 38-percent interest in CF

Industries (a domestic fertilizer manufacturing venture). The 2005 sales of

$7.6 billion were down 1 percent from

2004’s $7.7 billion. 

Overall, the company reported strong

and improved performance in its feed,

seed and agronomy businesses, as well as

solid performance in its Dairy Foods

value-added product categories. This

positive performance was partially offset

by losses in its Layers business and

Dairy Foods manufacturing operations.

The company also reported significant progress on key strategic initiatives

of paying down debt and building balance-sheet strength, portfolio management and building its branded businesses. LO’L reduced total debt by

about $350 million in 2005 and ended

the year with a significantly improved,

long-term debt-to-capital ratio of 41.3

percent, compared to 51.9 percent at

the end of 2004. It had strong liquidity,

with $521 million in cash-on-hand and

unused borrowing authority. In the second half of the year, Moody’s and

Standard and Poor’s each upgraded the

co-op’s financial ratings, with both

agencies indicating their ratings carried

a positive outlook.

LO’L sold its swine production

assets and its 38-percent ownership in

CF Industries Inc., generating $385

million in cash from asset dispositions

in 2005. 

Among other 2005 highlights:

• In dairy foods, the launching of Land

O’ Lakes Light Butter with Canola

Oil and the introduction of a new

FlavorProtect wrapper for the company’s flagship Land O’ Lakes butter;

• In feed, the launch of such diverse

new products as Cornerstone fullgrowth milk replacer; RangeLand allweather beef mineral and Ultium

Competition Horse Formula. 

• In seed, the rollout of Roundup

Ready(R) Alfalfa, developed in 10-

year collaboration with Monsanto.

In other LO’L news, the co-op

announced plans to close its

Greenwood, Wis., cheese manufacturing facility. The decision came after

considerable study of market trends and

plant capabilities, said Executive Vice

President Alan Pierson. “There is

declining milk production in the upper

Midwest. Given these market conditions, it is not feasible to competitively

operate our Greenwood facility.” The

closing will affect approximately 30

employees. ■

LO’L sales hit $7.6 billion;

co-op earns $128 million
By Jane Livingston

Editor’s note: Livingston is a freelance

writer based in Maine who specializes in coop issues. Contact her at: mejane@gwi.net. 

s senior project manager

for the 100-year-old

Scottish Agricultural

Organization Society, Bob

Yuill works with 80 member cooperatives that have combined

annual sales of $2.8 billion, accounting

for well more than half of Scotland’s

annual $4 billion in total ag sales. His

job is to ensure that the Society meets

its purpose: “To strengthen the profitability, competitiveness and sustainability of Scotland’s farming, food and

related rural industries and communities through the development of cooperation and joint activity.”

It’s a challenging, complex job, so

Yuill was eager to learn more when he

first heard of the Master of Management — Cooperatives and Credit

Unions (MMCCU) degree program.

“I knew I didn’t want the standard

program based on profit maximization,”

Yuill says. “Even most of the co-op education courses I’d discovered seemed to

be the basic MBA with a co-op module

attached at the end. That doesn’t work.

You’re not using the fundamentals of

cooperation as the groundwork for

building the business. If you start with

the premise of maximizing return on

capital, you will always get to the wrong

conclusion.”

Yuhill’s boss had already signed the

Society up as a member of the

Cooperative Management Education

Cooperative (CMEC), which produces

the MMCCU accredited degree program (the only one of its kind in the

English language). Tom Webb manages

the program from its home base at St.

Mary’s University in Halifax, Nova

Scotia.

International scope

CMEC has more than 55 members

that represent every sector of cooperative enterprise. They are located in

Canada, the United States, the United

Kingdom, Ireland, Finland and

Oceania. Included are such well-known

names as Co-op Atlantic, Co-operators

Rural Cooperatives / March/April 2006 23

Mastering Co-op Management

Can managers really build healthy businesses based 

on co-op principles and values? How is success measured?

A

The headquarters building of the Mondragon

Cooperative (MCC) in Spain, another area the

class tours due to the large concentration of

co-ops there. Photo courtesy MCC 

The scenic Emilia

Romagna region of Italy is

one of the "co-op epicenters" the management

class tours. Photo by,

and courtesy of, Jerry

Peek. To see more of

Peek's work, visit:

www.photomondiale.com.
Insurance, Credit Union Central of

Canada, and the gigantic Co-operative

Group in the U.K. 

Credit Union National Association,

the National Co-op Bank and the

National Cooperative Business

Association in the United States are

members, as are the Co-operative

Federations of New South Wales and

Victoria (Australia) and the New

Zealand Co-operatives Association. 

Faculty and students enrolled in the

MMCCU program are scattered widely, too. After an initial, week-long orientation at St. Mary’s in Halifax, they

telecommunicate with one another

from home and at work. They also go

on at least one study tour together, to

co-op ‘epicenters’ such as Mondragon,

Spain, or Emilia Romagna, Italy. The

complete course is rigorous. It requires

144 weeks of classes, assignments and a

major project linked to the sponsoring

employer co-op/organization. 

“We operate the program on two

premises: One, that bankrupt co-ops

don’t meet their members’ needs; and,

two, that if there isn’t any difference

between your co-op and a regular business, no one really needs you,” Webb

says. “It’s the combination of these two

that drives the course. 

“We keep asking the question over

and over: ‘This is how it’s done in a

regular business. How is it done in a

co-op or credit union? How would you

design a store differently? How would

you treat your workers differently?

How would you do the accounting or

the marketing differently?’ 

“I dislike it when I hear people say,

‘Co-ops aren’t about making money’,”

he continues. “It’s dishonest. Otherwise,

they’re bankrupt. The real difference is

about the purpose of the business and

who gets to decide how the surplus is

used for the good of members and the

community. The problem is, we either

think about it from a consumer’s point

of view — ‘I want to pay the lowest

cost’ — or from the producer’s: ‘I want

to get the highest price.’ This doesn’t

reflect the cooperative concept of interdependence.” 

Unique curriculum

As the MMCCU curriculum was

being designed, an accountant for Coop Atlantic asked Webb what they were

going to do about teaching accounting.

Webb said, “Accounting is accounting.”

“So you’ve written us off as bean

counters, eh?” the accountant replied.

“Well, your program won’t achieve

what you want it to.” 

Webb explained what he meant this

way: “You’re the manager of a co-op

and I’m the chairman of the board. You

have four goals, but I measure

you only on one, not the other

three. You’ll do your best on

those others, but you’re really

going to focus on the one. So

in three years, how will you

know how successful you’ve

been on your other three

goals?” 

The trouble, says Webb, is

that co-ops can’t measure their

success with the accounting

tools that exist today. “The job

of an accountant is to show

how to use our resources to

achieve our goals. But we don’t

do it. We don’t account for our

other bottom lines. Where are

the tools that let a co-op know

if we’ve balanced our multiple

bottom lines?” 

Its challenges such as these

that the first class of MMCCU

students has been grappling

with for two years. 

Yuill is in the home stretch.

24 March/April 2006 / Rural Cooperatives

Mikel Lezamiz (far left), program director of the Mondragon Cooperative Corporation's Management

Education Center, outside the center's facility in Otalora, Spain. With him are MMCCU Program Coordinator Tom Webb (third from left) and class members and faculty. Photo courtesy Tom Webb

“Most of the co-op

education courses I’d

discovered seemed to

be the basic MBA

with a co-op module

attached at the end.

That doesn’t work.” 

— Bob Yuill 
He’ll complete the courses this spring

and earn his Master’s degree next

spring. How have he and the Scottish

Agricultural Organisation Society benefited from his participation? He lists

several concepts that he’s introduced to

his member-owners, which have helped

them improve the Society’s operation. 

“The organization’s awareness of

these areas of opportunity has grown

significantly,” he explains. “But even

more fundamental is that we never really had the confidence to base what we

do on co-op principles. This course

gave us the confidence to say, ‘This can

be done.’ Now, we recognize that we

are in a unique place in the market.

We’re much more focused on what we

are.”

Internal marketing 

Yuill refers to this as “internal marketing,” where the employees and

members of the organization internalize

the co-op principles and core values.

This in turn enables everyone to be part

of ‘marketing our cooperative advantage’ (or MOCA, a key concept of the

MMCCU program, and one which

Webb helped develop).

“As a result,” Yuill emphasizes, “our

effectiveness and influence as an organization is growing, on the basis of people’s trust in what we say. Our relationships with our members, clients, and

other stakeholders are much clearer.

And because we have greater clarity in

our approach, the solution that’s conveyed by cooperation is more readily

understandable.”

When he talks to someone in government now, that straightforwardness

enables Yuill to sell the co-op solution

more easily, whether he’s addressing a

civil servant, a minister or a member of

parliament. 

“They’re more supportive,” he says.

“The agricultural strategy developed 5

years ago didn’t refer to co-ops, except

in broadest terms. The new one, to be

published this spring, we are sure, will

be much more focused on the cooperative solution.”

Building strong leadership

Steve Lepp is general manager of the

Pioneer Gas Co-op in Alberta.

Incorporated in 1970, the co-op’s 350

members are mostly farm families who use the gas for heat,

water pumping and other

needs within the area’s diversified agriculture sector. He says

the fact that most of the

MMCCU program is pursued

from the students’ home communities hasn’t led to feelings

of isolation. 

“After we get face-to-face at

orientation for a week, we

pretty much know everybody,”

he says. “It’s interesting that,

although we’re nothing at all

alike and come from different

types and sizes of co-ops,

many of our problems and

issues are identical.” 

Lepp enrolled in the program because he knows his coop will need good leadership

in the years ahead. He doesn’t

mince words about it: “We are

one of 60 similar co-ops in the

province. By now, everyone in

Alberta who wants gas has it. We’ve

achieved that goal; our growth is done. 

“So how does the co-op keep going,

without growth? That’s a management

challenge, and that’s where this course

has come in handy. It’s shown us some

options we have in working cooperatively with others...Re-engaging our

members is a huge part of what we need

to do, not just give good service for a

fair price.” For example, the co-op is

now looking at several alternative energy technologies. 

Lepp says he’s been able to apply

“pretty much everything they’ve thrown

at me” in the Master’s program. One

change he made was to open the door

more widely to employee innovation.

During a study tour to Mondragon, he

was impressed by their commitment to

innovation. 

“If an employee comes up with an

idea, they’ll haul you right into the

process,” he says. “Now, we explain to

members all the ways the money they

invest is reinvested in the employees

and the community. We also emphasize

that because they are owners of the sysRural Cooperatives / March/April 2006 25

David Cudmore (right), CEO of Canada's Scotia Gold co-op, explains the workings of storage facilities

that permit apples to be stored for up to 10 months. The co-op, which came close to failing before righting itself, provided valuable lessons for visiting candidates in the co-op management class. Photo courtesy Tom Webb

continued on page 34
26 March/April 2006 / Rural Cooperatives

NEWSLINE

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

FCS report sees

expanding rural

opportunities

While the number of farmers and

communities that rely on agriculture

for their economic well-being have

declined, the future of U.S. agriculture remains bright. Future possibilities are expanding, not contracting,

according to Farm Credit

HORIZONS, a comprehensive,

nationwide-research study released by

the Farm Credit System, the nation’s

producer-owned farm lending network. Facing a rapidly changing global marketplace and structural change,

American farmers, ranchers and rural

entrepreneurs need reliable access to

a broad range of financial services and

expertise in order to capitalize on

emerging growth opportunities, the

report finds. 

“Today’s rural entrepreneurs,

including farmers and ranchers, are

on the leading edge of a global agricultural economy,” says Wayne

Lambertson, a Maryland farmer who

serves as chairman of the Farm

Credit Council board of directors.

“As this research makes clear, rapid

change requires

greater flexibility on

the part of the institutions that U.S.

agriculture and

rural America rely

on. Yesterday’s ways

of doing business

simply will not work

to ensure the continued success of

agriculture and America’s rural communities.” 

The report describes the need for

policy solutions that will help farmers, rural businesses and rural communities succeed in the emerging

marketplace. The HORIZONS

project has helped identify how

incremental changes to the

Farm Credit System can provide agriculture and rural

America greater access to additional capital that can be used

to expand agriculture’s contribution to rural prosperity. 

The HORIZONS report

contains the following key findings: 

• Farmers are diversifying their

business interests both within

and outside agriculture. The overwhelming majority, but especially

small-sized operations, rely on offfarm employment to stay in agriculture. 

• Farmers depend on a wide range of

businesses that may or may not be

owned by farmers, and they may or

may not be located in a rural community; but all are essential to the

economic viability and quality of

life for farmers. 

• It is becoming increasingly difficult

to define a “rural” community solely by population or traditional qualities. 

• Regional collaboration, public-private partnerships and coalitions of

investors are key to the future of

many rural communities. To create

jobs, attract new business and foster

an environment for future economic development, agriculture and

rural America will need to find new

ways to reinvest farm real estate

equity. 

• As innovative business owners,

today’s rural entrepreneurs, including farmers, ranchers and producers, will continue to need access to

capital, essential infrastructure and

business support services for that

entrepreneurial engine to continue

to spur rural economic growth. 

Copies of the HORIZONS final

report may be downloaded from:

http://www.fchorizons.com. To

request a printed copy, contact the

Farm Credit Council by mail: 50 F

St., N.W. Washington, D.C. 20001.

■

Hank Soule (above), general manager of the Portland (Maine)

Fish Exchange, has developed a $3 million plan to improve

the efficiency of the operation, where about 150 fishing vessels unload. Photos courtesy FCC 

Bill Miller plans to build rental housing for

teachers in Tahoka, Texas. He and Soule

(above) are profiled in FCC’s “Horizon” report.
MD/VA Milk Producers

buy Giant Foods milk plant 

Maryland & Virginia Milk Producers

Cooperative, Reston, Va., has agreed to

purchase Giant Food’s dairy processing

plant in Landover, Md., effective March

25, 2006. In addition to the plant and

11 acres, Maryland & Virginia secured a

long-term supply agreement to provide

Giant Food stores with fresh milk.

When the deal is finalized, Maryland &

Virginia’s combined fluid milk processing business will have more than

$270 million in total sales and

nearly 800 employees.

Currently, the Giant Landover

plant processes about 21 million

pounds of milk per month, caters

to 191 grocery stores and employs

97 people. Maryland & Virginia,

which had 2004 revenues of $821

million, has been the sole raw milk

supplier there for more than 30

years, so few operational changes

are expected. 

“Maryland & Virginia has a

vested interest in making sure consumers have a fresh, local milk supply; the Giant Landover operation

is a perfect complement to our existing

fluid processing business and our local

members supplying the milk,” said Jay

Bryant, the cooperative’s general manager, “ adding that the co-op has served

the D.C. metropolitan area with milk

and dairy products since 1920. 

“The co-op has been in the fluid

milk business for decades and is committed to the plant and the dairy farmers,” said Bill Holmes, executive vice

president of Giant Food. “Giant consumers will continue to enjoy the same

fresh quality milk that they have come

to expect when shopping at Giant.”

The plant will be operated as Marva

Maid of Landover, the name of the

cooperative’s private milk brand, which

is already available in northern

Virginia. The plant will continue to

produce Giant’s private-label milk,

according to the cooperative’s new supply agreement with Giant Food.

Owned and operated by 1,500 dairy

farm families from

Pennsylvania to Georgia,

Maryland & Virginia is a milk

marketing and processing

cooperative providing consumers throughout the MidAtlantic and Southeastern

United States with fresh milk

and dairy products. The co-op

also owns and operates two

fluid processing plants, Marva

Maid in Newport News, Va.,

and Maola Milk and Ice Cream

Co. in New Bern, N.C., a manufacturing plant in Laurel, Md.,

and an equipment warehouse

business in Frederick, Md. 

Rural Cooperatives / March/April 2006 27

The Maryland & Virginia Milk Producers co-op is buying

the Giant grocery chain's milk plant in Landover, Md.

Capper-Volstead Act allows farmers and

cooperatives to engage in collective discussion and make agreements that

impact price, the law does not protect

such agreements with other parties.

The Schuggs argued that UDA entered

into an illegal agreement with a noncooperative milk broker as part of its

scheme to limit supply.

The Schuggs based their claim on

the testimony of a witness who wore

several hats. She was co-owner of the

milk broker, the manager of a

California dairy cooperative and a

director representing the California

cooperative on the board of a regional

milk marketing association that agreed

to participate with UDA in the milkwithholding effort.

The court notes that at the time it

was developing the withholding strategy, UDA applied for membership in the

regional association. The witness testified that during the meeting of the

regional association board to consider

its application, UDA asked for assurances that milk being marketed by the

broker for independent Arizona producers wouldn’t be sold to Arizona bottlers. The witness testified that UDA

was assured the milk would be marketed

through the California cooperative and

not be sold to Arizona bottlers.

While the Schuggs argued that this

evidence suggested UDA entered into

an improper agreement with the broker, the court disagreed. The court

points out that the broker was not a

member of the regional association and

the testimony merely indicates that the

broker sold to another cooperative,

which could legally be a party to anticompetitive marketing agreements with

UDA. The court held that this is insufficient evidence from which a reasonable person could find UDA violated

the antitrust laws. Technically, the

appellate court upheld the trial court’s

ruling that the Schuggs’ argument was

too weak to even send it to the jury for

deliberation.

So, on the antitrust issues, the court

determined neither UDA’s inquiry as to

how the broker intended to market

independent producer milk, nor the

sales agreement between the broker and

another cooperative that was legally

engaging in joint supply management

with UDA, constitutes an illegal agreement to restrain trade between UDA

and the broker. If the court had found

an agreement between UDA and the

non-cooperative broker illegally

restrained trade, the court probably

would have held that the agreement was

not protected by Capper-Volstead. ■

Legal Corner continued from page 15
Stacyville Cooperative Creamery

merges with Foremost Farms USA 

Cooperative Creamery in Stacyville,

Iowa, merged with Foremost Farms

USA on Jan. 1. Stacyville’s members

approved the merger on Dec. 12,

whereby Foremost Farms will assume

the equity investments of all Stacyville

members. Stacyville Cooperative, in

Mitchell County in north-central Iowa,

formed in 1916 and has 66 members

whose farms border the western edge of

the Foremost Farms membership area. 

“Our members’ equity in Stacyville

Co-op Creamery will be matched dollar

for dollar by Foremost Farms,”

Stacyville Manager Randy Stephenson

said. “Foremost Farms is one of the

most financially stable cooperatives in

the U.S. dairy industry,

with a diversified product

base and comprehensive

member services. We are

proud to be joining forces

with a cooperative that is

fiscally responsible and

recognizes our members’

investment.” 

Foremost Farms

Chairman Ed Brooks,

Reedsburg, Wis., said,

“We welcome the opportunity to grow our milkshed in Iowa, and look

forward to working with

the new membership.” Foremost

Farms, headquartered in Baraboo, Wis.,

recently marked its 10th anniversary. It

operates 20 manufacturing facilities and

one milk transfer station for its 3,600

dairy farmer-members. Its brands

28 March/April 2006 / Rural Cooperatives

be small as you ramp up, and that it will

be a couple of years into deployment of

the product before you see the benefit.

“We’re not constrained by a mentality of ‘we’ve got to push this software

out the door, even though it’s not ready

yet, because we’ve got to meet a revenue target.’ We can take a long-term

view. Members belong to our co-op

because they need mission-critical software to run their businesses. They are

not all that concerned about the return

on their equity level in NISC and what

rate of return they will get on the equity.”

NISC directors understand this business cycle because most of them have

been through it a couple of times.

They’ve also seen the “melt down” of

many competitors in past 10 years,

Dosch says. “NISC kept clicking along,

growing and adding new products while

so many others were falling.”

Since members are more concerned

with service than double-digit returns

on equity, the co-op’s margins are modest in most years, typically $1.5 million

to $2.5 million. Margins are allocated

back to member-owners on a prorated

basis, with 21 percent paid in cash.

The co-op board has 14 members,

elected by regions. Each region nominates and elects its own director. 

Economy of scale

Another key co-op advantage is the

economy of scale derived from utilities

with similar needs joining forces. For

example, the billing products NISC

developed cost $13 million. It would

have been cost-prohibitive for most of

its individual members to shoulder that

cost alone. But spreading the cost out

among hundreds of members makes it

very affordable.

Co-ops have traditionally also

enjoyed a greater degree of customer

loyalty, because the members have a

vested interest in the business and have

a say in its governance through the

election of directors and participation

on advisory committees. 

“The loyalty factor is still there, but

less so today than 20 years ago, when

customers could recall when and why the

cooperative was formed. It was a huge

factor then. Today, with the next generation, they don’t have the historical background of the organization.” 

The biggest disadvantages of a coop, from a management viewpoint, is

the need to serve many masters, since

every customer is also an owner. “We

are not just a vendor to these utility systems; they all own a piece of us and

thus have a louder voice than they

would in a non co-op. 

Technology concerns

Staying ahead of the technology

curve is, of course, an ongoing task. To

help NISC do so, it relies heavily on its

Innovations Group — a panel of techsavvy employees tasked with tracking

emerging technologies and how the coop can use them. 

A big concern recently involves the

Blackberry patent-infringement lawsuit

and the impact its precedent could set for

intellectual property rights throughout

the industry. For the first time, NISC is

now taking out patents on certain aspects

of new products. 

“We’re having to become more defensive,” says Dosch. “You have to beware of

‘patent trolls’ — patent owners who

often don’t produce a product, but are

just out to generate funds from a patent

that they have no intention of ever using

themselves.” 

It’s rather like walking through a

field of landmines, he continues. “My

biggest concern is that this type of

activity can hinder innovation.

Software companies are now scared to

death to put tens of millions of dollars

into product R&D, then find a patent

troll somewhere has a patent for that

process and can throw up road

blocks.” 

■

The Edge continued from page 7

Gene Nyhre (left), chairman of Stacyville Co-op, exchanges

congratulations with Mike O’Brien, director of procurement

for Foremost Farms, following the merger vote. Photo courtesy Foremost.
include GG Golden Guernsey Dairy

and Morning Glory. 

Johanns featured speaker 

at Co-op Summit in D.C. 

Agriculture Secretary Mike Johanns

will be the featured speaker at the

National Co-op Summit, an unprecedented gathering of up to 400 cooperative business leaders May 3 in

Washington, D.C. USDA has vast

influence over cooperatives of all types,

including utility, housing and farmer

co-ops. USDA Rural Development is

the only federal agency with a cooperative services office, which provides coop research, education (including Rural

Cooperatives magazine), technical assistance, statistics and development.

Johanns will be the Summit’s lunch

speaker.

Earlier in the day, former Congressman Glenn English, now chief executive of the National Rural Electric

Cooperative Association, will provide

the keynote address. Other confirmed

speakers include Pauline Green, former

European Parliament member and current head of Co-operatives UK, and

Stephanie McHenry, board chair of the

National Cooperative Bank.

Breakout sessions will cover the

hottest co-op issues, including: marketing, ethics and governance, finance and

equity, co-op conversions, domestic and

international co-op development, crosssector issue alliances, and co-op solutions for disaster recovery. The Summit

will conclude with a panel of co-op senRural Cooperatives / March/April 2006 29

which is sold globally. Westnut is the

co-op’s industrial brand, sold to customers such as Kraft, Godiva, Planters,

Diamond, Emerald Nut and Sara Lee.

The co-op typically exports about 60

percent of its hazelnut supply, although

this year it’s the domestic market that’s

buying 60 percent of the co-op’s crop.

HGO has witnessed a 20-year

decline in hazelnut acreage. Some loss

may be due to urban sprawl, but most

stems from a tree-killing disease called

Eastern Filbert Blight. The disease has

been slowly diminishing Oregon’s

hazelnut production, especially in the

Willamette Valley. So far, Johnson says,

Eastern Filbert Blight has taken out

about 1,000 acres of hazelnut trees,

leaving 28,400 acres in Oregon.

Meeting rising demand

At the same time, worldwide hazelnut

demand is rising. As a result, prices are

reflecting the tight global supply and the

increased demand for hazelnuts, used in

candies and other confectionaries. For

the 2005-06 season, U.S. hazelnut growers are receiving their highest prices

ever: $1.15 a pound. That’s a sharp

increase from 2004’s 70-cent per-pound

price, or the average of 37.5 cents per

pound received from 1984-2004.

“The need to supply our customers

has grown significantly,” Johnson says.

“We want to continue to serve our markets, so we’ve been looking for [hazelnut] sources outside the U.S.”

HGO has considered several options

to meet customer demand, including

the possibility of buying hazelnuts from

Turkey, the world’s largest hazelnut

producer, and from Spain. But Turkey

has had two consecutive years of poor

production, further limiting the world’s

hazelnut supply.

Moreover, the Oregon co-op doesn’t

believe it can gain much added production by increasing its U.S. membership,

even though its prices have averaged 18

percent above the hazelnut cash price

since its 1984 inception. “In the U.S.,

only a certain percentage of people

want to be co-op members,” says

Johnson. “While our membership in

Oregon remains open, we see a real

advantage to balancing our supply with

our existing plant capacity by sourcing

product from members in Chile.”

After being contacted by a Chilean

hazelnut farmer at a conference in

Spain last fall, Hazelnut Growers of

Oregon discovered a receptive mentality toward co-ops in the South American

country.

“They’re good farmers, but not necessarily good marketers,” Johnson says.

“So, if they can be part of a company

with greater expertise that can provide

long-term profitability, they’re open to

it.”

60,000-ton potential 

In April, members of the board and

management of the cooperative are slated to travel to Chile to meet with growers and tour the production area. The

co-op hopes to sign up more members

at that time.

Because the Chilean hazelnut industry is still young, “we don’t anticipate

too much production this year,”

Johnson says. “I’d be surprised if they

produced 20 tons.”

But the co-op does foresee promising prospects. Its grower contacts in

Chile believe the industry can reach

60,000 tons of hazelnut production in

the next 20 years. Already, Hazelnut

Growers of Oregon has set up a

Chilean entity in Santiago with its first

Chilean member as its agent. That

should foster closer ties as well as more

local control, Johnson says.

“Initially, their production will be

shipped to us,” says Johnson. “But

what’s best is to have a processing plant

close to production. I think eventually

there will be.”

In the meantime, plenty of questions remain: Will Hazelnut Growers

have a separate pricing pool for its

Chilean membership? If the co-op

should decide to build a plant in Chile,

how would it be financed? If Chilean

members’ production gets big enough,

will they earn a seat on the board of

directors?

The co-op is still exploring these

issues. “We have to look long-term at

what’s best for the co-op as a whole,”

Johnson says. “But we believe there are

a lot of blue skies ahead for the hazelnut industry.” 

■

Southern Exposure continued from page 17
ior leaders discussing the top challenges

and opportunities facing the community.

“The Summit will bring together

representatives of every type of co-op

from across the nation,” says Paul

Hazen, president of the National

Cooperative Business Association

(NCBA), which is organizing the

Summit with help from the nation’s

leading cooperatives and their trade

associations. The event will also mark

NCBA’s 90th anniversary. “Attendees

will come away with the sense that they

are part of something much bigger than

their co-op or even their sector. The

Summit also will help them be more

successful and reveal how co-ops can

improve their communities.”

The Summit will take place in the

Ronald Reagan Building and

International Trade Center in downtown Washington. 

The May 3 date dovetails with other

co-op events in Washington, including

the Cooperative Hall of Fame Banquet

and Induction Ceremony and key meetings for electric, housing and student

co-ops and credit unions. NCBA’s annual meeting will follow the Summit by

one day.

For additional information or to register on-line, visit: www.ncba.coop.

Media interested in attending should

contact Art Jaeger at 202-383-5462 or

ajaeger@ncba.coop. 

Iowa turkey co-op to market 

for Norbest, Moroni co-ops 

Sales and marketing operations for

Nebraska’s only turkey processing

plant and its widely known Norbest

label will move from Utah to Iowa,

effective May 1. The Omaha WorldHerald reported that the Nebraska

Turkey Growers Cooperative and its

sister cooperative, Moroni Feed Co. in

central Utah, are merging sales efforts

with processed meat, poultry and cheese

manufacturer West Liberty (Iowa)

Foods LLC. Iowa Turkey Growers

Cooperative is majority owner of West

Liberty Foods. Norbest products will

continue to be processed by the plant in

Gibbon, Neb., which employs 250 people, and by two plants in Utah that

employ a total of about 800 people.

About 22 people selling and marketing Norbest products out of Midvale,

Utah, will be laid off or offered new

positions in Iowa, Paul Reed, director

of marketing for the Norbest label, told

the World-Herald. The Norbest label

was created by the Northwestern

Turkey Growers Association, founded

in 1930 in Utah. Members of that first

cooperative have changed over the

years, and the organization has evolved

into Norbest Inc. Marketing, based in

Utah for 75 years.

Norbest products are sold across the

United States as well as in Mexico and

the Caribbean, Middle East and the

Pacific Rim. 

Norbest and West Liberty will benefit from the coming change, Reed said.

West Liberty gains the national Norbest

brand familiar to grocery shoppers and

Norbest gets an expanded ability to

produce sliced luncheon meats and

other products, he said.

Dairy Development Grant awarded 

to Accelerated Genetics

Accelerated Genetics, Baraboo, Wis.,

has been awarded a Dairy Development

Grant by the state of Wisconsin to

develop a handheld computer software

program for reproductive management

on dairy farms, otherwise known as the

Accelerated Synchronization Assistance

Program (ASAP). Funds are being provided under Wisconsin’s Local Dairy

Development Pilot Grant program,

which helps small dairy producers and

cooperatives develop new strategies,

products or ideas. 

Accelerated Genetics says it demonstrated that ASAP technology can dramatically improve reproduction performance and quality of life for Wisconsin dairy producers, and that the coop has the technology, network and

human resources to succeed with the

project. The co-op says ASAP will fill a

tremendous need for simplified reproductive management by providing an

easy-to-use, versatile record-keeping

system. ASAP is already assisting producers in breeding their cows on time

and increasing pregnancy rates.

Co-op members already using the

ASAP systems praise it for helping

them maintain better records for shots,

breeding and herd health checks.

Portability means they can carry it 

everywhere and synchronize heifers.

The grant was awarded for development of ASAP within the state of

Wisconsin. Accelerated Genetics has

already made a major investment in the

program from software design, personnel, employee and customer training,

ASAP kit hardware and in advertising.

Accelerated Genetics is a global

provider of bovine genetics and

research, reproductive services and

solution-based animal health products. 

CoBank earnings, patronage up in ‘05

CoBank reported 2005 year-end

earnings of $298 million, an increase

from $275 million in 2004. This represents an 8-percent increase that was

driven largely by a lower provision for

credit losses, reflecting improved credit

quality and a lower level of losses on

debt prepayments, which more than

offset a decline in net interest income.

“CoBank has once again closed the

year with higher earnings than ever

before,” says Douglas D. Sims, CEO of

CoBank. “We also increased our capital,

maintained strong credit quality, continued to improve the effectiveness of

core business processes and expanded

30 March/April 2006 / Rural Cooperatives

Accelerated Genetics is developing software for dairy breeding records that can

be accessed on handheld computers. 
Rural Cooperatives / March/April 2006 31

our relationship with other Farm Credit

System institutions.” 

For 2005, CoBank will pay a patronage distribution of $168 million to its

customer-owners, of which $116 million will be in cash and the remainder

in stock. Patronage represents a 15.8

percent return on average invested capital for customer-owners. “Our success

is built on their (customer) success, and

we share our financial success with our

customer-owners through patronage,”

Sims said. For the past 5 years, CoBank

customer-owners received an average of

$151 million per year in cash as a result

of their investment in the bank. 

CoBank’s capital remained stable at

$2.9 billion, and assets increased to $33.8

billion from $30.9. Total loans and leases

outstanding to U.S. and international

customers increased to $26.3 billion,

from $24 billion at the end of 2004. This

growth was primarily due to increases in

agribusiness loan volume, lending to

Farm Credit associations and loans to

rural energy customers.

Countrymark secures financing

for clean-diesel fuel complex

Indianapolis-based Countrymark

Cooperative, Indiana’s largest supplier

of biodiesel fuel, has secured a $50-million line of credit to complete construction of a $45-million, clean-diesel fuel

complex. Countrymark will also use

some of the financing to upgrade existing facilities. The financing was

arranged through Chicago-based

LaSalle Bank NA. Countrymark supplies roughly 85 percent of the state’s

biodiesel, most of which is used for

agricultural applications. Countrymark

hopes more municipal and school bus

systems start using the technology.

“We see tremendous air quality benefits,” says CEO Charlie Smith. “If you

think about the average school kid waiting in line, breathing diesel air emission,

and then think about inhaling biodiesel

air, there is a significant difference.”

Barth to lead Dakota Pride

Leland “Judge” Barth, a former marketing specialist with the North Dakota

Wheat Commission and the state

Agriculture Department, has been hired

as the first executive director of the

Dakota Pride Cooperative. Dakota

Pride was formed in 1998 by North

Dakota Farmers Union members. It

markets specialty crops grown by co-op

members based on buyer specifications.

Barth will oversee day-to-day operations and market development, and also

will work with producers. “This will

take us to the next level in connecting

growers to end users,” said co-op

President Richard Schlosser.

DFA expands stake 

in Keller’s Creamery 

Dairy Farmers of America Inc.

(DFA) has acquired all of the ownership

interests in Keller’s Creamery LP, the

nation’s second largest manufacturer of

butter for retail, food service and industrial uses. Keller’s was formed in 2000

as a joint venture between DFA and

Frank Otis and Glenn Millar, the former management team of Sodiaal

North America Corporation. DFA now

becomes the majority owner of the

partnership in the butter business and

will oversee the management of Keller’s

warehouse and office operations in

Harleysville, Pa., and the butter processing plant in Winnsboro, Texas. 

Keller’s Creamery has been producing dairy products for more than a century. In 2003, the Texas plant churned

cream into more than 100 million

pounds of dairy products, including

premium and bulk butter, butter oil,

nonfat dry milk powder and other dairy

ingredients. Mark Korsmeyer, president

of DFA’s American Dairy Brands (ADB)

division, will manage Keller’s marketing, sales and manufacturing functions. 

USDA awards $21 million 

for energy projects 

Agriculture Secretary Mike Johanns

has awarded 14 grants and one loan

guarantee totaling more than $21.6 million to increase energy production or

improve electrical service and energy

efficiency in communities in five states.

“Increasing domestic energy production,

including the development of farmbased energy sources, helps to strengthen the economy of rural America and

reduces our dependence on imported

oil,” Johanns said while in Ames, Iowa.

“These funds will also help to promote

energy efficiency by improving our

existing electrical infrastructure.” 

In Clinton, Iowa, a USDA Rural

Development Renewable Energy

Systems loan guarantee of $3.22 million

will be used to partially fund construction and operation of a biodiesel production plant with a yearly capacity of

10 million gallons (see page 35). The

plant will use over 7 million bushels of

Midwestern-grown soybeans per year.

It is the first production facility to be

located in a new, 233-acre industrial

park in Clinton. 

Pioneer Electric Cooperative in

Greenville, Ala., will receive $855,000

under the High Energy Cost Grant program to install energy-efficient heating

systems and appliances and to weatherize the homes of low-income customers,

cutting energy costs by as much as 40

percent. The Alaska Village Electric

Cooperative will receive a grant of $1.15

million to construct a wind turbine in

the fishing community of Hooper Bay,

reducing the demand for diesel fuel for

electrical generation by 24 percent. 

The Sacred Power Corporation will

receive $1.9 million to provide hybrid

solar power stations to individual homes

on the Navajo Reservation in the

Cameron, Ariz., area that have no electrical service and currently use gasoline

generators. Other grant awards will be

used for hydro project repairs and electrical service improvements. The grants

are awarded under a USDA Rural

Development program intended to

upgrade service and reduce energy 

costs in communities where the cost 

of power is at least 275 percent of the

national average. A complete list of 

the grant recipients is available at:

http://www.rurdev.usda.gov. ■
50 Years Ago...

From the April 1956 issue of News for Farmer

Cooperatives

Florida Citrus Co-ops Look to Exports

“A group of Florida citrus men (mostly co-op

representatives) recently made a 10-day tour of

European markets. This trip was unusual for several

reasons. It was made in the midst of the busy citrus

season, not during the usual summer holiday. This

afforded an opportunity to witness the sale of competing fruits in the markets of Europe. Furthermore, this 

trip represented a new approach to expanding markets via an

industry committee — a cooperative approach.” Participants

included representatives from Florida Citrus Mutual,

Waverly Growers Cooperative and Seald-Sweet, among 

others.

Challenge to Marketing Cooperatives

Can marketing cooperatives keep pace with the rapid rate

of changes occurring in the business world? Yes, says Joseph

Knapp, administrator of the Farmer Cooperative Service.

“But they cannot afford to allow themselves the luxury of

complacency.” He examines the question against a backdrop

of a nation “enjoying unparalleled prosperity” while farmers

“struggle with a cost-price squeeze.” Knapp says marketing

co-ops must be able to affirmatively respond to four questions: Can they reduce farmers marketing costs? Can they

help farmers find and develop markets? Can they help farmers improve their bargaining power? Can they help farmers

increase their shrinking returns?

Should Co-ops Rotate Directors?

“Periodic rotation of directors can inject new enthusiasm,

new ideas and new perspectives on old problems. Some proponents of rotation advocate specific bylaws stipulating that a

director may not succeed himself for more than a specified

number of terms in office. But others feel that arbitrary termination of board membership may cost the cooperative

dearly. It is one thing to be able to eliminate unwanted directors, but quite another to force a good man out of office.

Automatic rotation runs this risk. 

30 Years Ago...

From the April 1976 issue of Farmer Cooperatives

High Milk Costs? Try Doing it Yourself!

Alan V. Lambert, communications director for the

National Milk Producers Federation, takes over the Guest

Editor’s Corner column to argue that milk is still a bargain

for consumers. “In the Washington, D.C. area, the farmer is

currently getting 47 cents per half gallon of raw milk,” he

notes. If it were feasible for consumers to buy directly from a

farm, they would have to drive about 50 miles, then would

need a home pasteurizer and would likely have to forgo

homogenization, etc. Ultimately, such a do-it-yourself

approach would wind up costing the consumer about $5.47

per half gallon and a lot of time and convenience, he calculates. “So the next time you buy a half gallon of milk for 82

cents, think about the services the dairy co-op and milk

processor have provided for your convenience.”

Securities Situation Concerns Farmer Co-ops

A lengthy article notes that ag co-ops that issue “investment paper” have generally been considered exempt from

registration under the Securities Act of 1933, and under the

“blue sky” laws of states in which they operate. “But recent

developments have raised some doubt as to whether all paper

issued by ag co-ops is, in fact, entirely exempt from the 1933

act or the blue sky laws. The whole area of paper issued by

cooperatives has come under closer scrutiny during the past

few years.” The article goes on to examine the issue in detail,

32 March/April 2006 / Rural Cooperatives

P A GE FROM THE PAST

From the archives of Rural Cooperatives

and its predecessor magazines

April 1956 issue.
including what is involved in registering with the SEC and

state securities commissions. It says the process is long and

expensive, and that most co-ops that have done so have the

luxury of an in-house attorney on staff.

Farm Credit System Loans Top $30 Billion

Farm Credit System loans to farmers and farmer cooperatives in 1975 soared 10 percent from the year before, to a

record $30.2 billion. Despite the 10-percent increase in loans,

farm borrowing slackened in 1975 compared with the pace in

recent years. Loans increased 16.5 percent in 1974 and 40

percent in 1973. FCA Governor W.M. Harding attributed

the moderating loan demand primarily to farmers’ use of

funds accumulated in the good years of 1973 and 1974.

10 Years Ago...

From the Jan./Feb. and March/April 1996 issues of

Rural Cooperatives

Co-op Share of Farm Marketings Hits 14-Year High

U.S. farmer co-ops had sales of $65.5 billion — accounting

for 31 percent of the nation’s crop,

livestock and milk sales — in 1994.

That was up from 29 percent in 1993 and matches the

previous record set in 1975 and last matched in 1980.

U.S. co-ops also sold $20.8 billion worth of major

farm production supplies, accounting for 29 percent

of the nation’s total, up from 28 percent in 1993.

Business Is Cooking for Plains Co-op Oil Mill

Its cotton seed volume has outpaced processing

capacity in recent years, so Plains Cooperative Oil

Mill — which processes cooking oil from cotton seed

— has been forced to sell whole seed to other processors. The co-op’s board has thus made a decision to

expand its own operations. “However, we couldn’t

expand on this location,” says PCOM Manager

Wayne Martin, so it is scheduled to break ground in

the spring on a major new expansion about 2 miles

from its existing plant in Lubbock, Texas. The new

oil mill will boost the co-op’s maximum annual production

from 500,000 tons of seed to 675,000 tons — double its

capacity of 15 years earlier.

Biotechnology and implications for ag co-ops

“As of December 1995, 12 genetically engineered crops

have been approved for commercial sale. Perhaps the most

important impact plant biotechnologies will have on cooperatives is to increase the amount of vertically integrated contacting,” says the first of a series of three articles on the topic.

“Under vertical contracts, the processor owns the product in

production, while the contractee generally furnishes the labor

and facilities for production. Private companies that own a

biotechnology can control how and to whom they contract

their product. Thus, cooperatives may face new obstacles in

gaining access to intellectual property rights for biotechnology. Co-ops and other “outsiders” may have to resort to new

forms of vertical coordination to secure biotechnologies for

their members.

■

Rural Cooperatives / March/April 2006 33

April 1976 issue.

March/April 1996 issue.
34 March/April 2006 / Rural Cooperatives

tem, they have a role to play in how the

co-op is run. They can come to meetings, speak their minds and run for

director if they want to.”

Co-op management 

style varies greatly

Co-op Atlantic has 129 member

cooperatives across Atlantic Canada and

the Magdalen Islands. It is one of the

largest integrated wholesale agri-food

operations in the region, and also has

significant holdings in real estate, housing and petroleum. In 2004, these

diverse businesses served more than

200,000 families, employed more than

5,000 Canadians and had consolidated

sales of $517 million. 

When Robert Lemoine came to Coop Atlantic to head the Food Division 3

years ago, he had some idea of what he

was getting himself into. Even so, he was

not prepared for the differences between

cooperative management and his previous management positions. 

“I came in with my eyes open,” he

says. “But actually living in a cooperative culture has shown me a lot more

than I anticipated. And since being

here, I quite like what I see. In the corporate world, there’s a lot of backroom

politics and old boy clubs, and I don’t

get that sense here. Here, there’s more

of a need to have a discussion. It may

take longer, but when you work it

through, you come out with a better

product.” 

Enrolling in the MMCCU program

was, for Lemoine, “a good way for me

to get up to speed quickly, which was

important at my entry level. I wanted to

make sure I would be able to contribute

to the co-op’s growth.” 

He was impressed right away by the

fact that the MMCCU students and

faculty were committed to rigorous

business practices. Lemoine had an

image of cooperative members as a

bunch of soft-hearted, but impractical,

idealists. Instead, he found a lot of practical knowledge pertaining to issues he

cares about: employee and member loyalty to the co-op and the co-op’s commitment to the bottom line and the coop values that support that. 

New territory

Lemoine appreciated the business

courses, but says, “I’ve been reading balance sheets for quite awhile. But when

we got into social audits and social

accounting — that’s new territory.” 

As the learning accumulates, it all

starts to come together: the history,

the philosophy, the accounting. “The

closer we get to the end of the

course,” he remarks, “the more interesting it becomes and the more usable

it is for me.”

Webb sums up his view of the

future of the cooperative business sector: “There is no perfect cooperative.

But we need to ask: what are the new,

innovative thoughts that are even more

consistent with our values? Where are

self-help, openness and solidarity in

the way we treat our workers? If we

had workers and consumers sitting at

the same table with the problems on

the table rather than under it, would

that help? 

“Some version of the stakeholder

model is the solution — that’s the real

cutting edge.” 

Webb talks about a board of directors composed of workers, consumers

and producers where “every topic is discussed, where there is a basis of trust

and no conflict of interest because

everyone there represents the co-op.

The power of the cooperative business

alternative,” Webb concludes, “is that it

can nurture what is best in people and

enable us to meet our needs in ways in

which everyone wins: consumers, workers, producer and, ultimately, families

and communities.”

The deadline to apply for next cycle

in the MMCCU program is May 31,

2006. Call (902) 496-8170 or (902) 863-

0678 or visit www.smu.ca/mmccu. 

■

The board hired lawyers, who helped

keep the resulting delay to a manageable length. Pohlman gives credit to

Ferguson for handling the situation:

“Bob knows where he wants to go and

how to get there.”

Further unexpected delays were

caused by issues with the design of the

railroad facility serving the plant. The

original plan called for a straight siding

next to the main rail line, providing

space for 75-car trains taking on ethanol

and DDG. However, the siding would

have blocked an important road, so the

board opted to redesign the track layout. 

A new plan called for a loop track.

This required the acquisition of 121

additional acres next to the site, and

moving the plant slightly from its originally planned position. The new layout

is more efficient, offering room for up

to 180 railroad cars, and allowing separate tracks for ethanol tankers and

DDG hoppers. The new design allows

for adding track capacity in the future.

Together, the delays pushed back the

construction date nine months, to

November. Completion is now scheduled for April 2007. Despite the hitch,

Mayor Hay remains confident in the

potential boost to the area. “A lawyer,

who is an investor, told us: ‘Take a picture of your main street today, and one

another 4 years from now. You’ll see the

difference.’”

Ferguson also looks forward to better times. “If we cause a narrowing of

the basis, the difference will go into

John Q. Farmer’s pocket, whether he’s a

member or not,” he says. “If it goes

down 20 cents, that means $2 billion

for the local economy.” ■

Ethanol plant using new coal technology continued from page 14

Mastering Co-op Management continued from page 25
By Jack Gleason, Administrator

Business and Cooperative

Programs

USDA Rural Development 

uaranteeing can be a little

dangerous. Sometimes it

works out, like Joe

Namath in Super Bowl

III, but, unfortunately,

many other times it doesn’t. USDA

Rural Development has a number of

loan guarantee programs that are

almost as successful as Broadway Joe’s

famous Super Bowl pledge.

Loan guarantees provide lenders, like

banks and credit unions, a guarantee

that they will receive a certain percentage of principal lost on a failed loan.

This guarantee can be the security a

bank needs to fund an application from

a rural business or co-op. The vast

majority of these projects are successful

and USDA rarely has to pay out the

guarantee. But, without the guarantee,

many rural development projects would

not have access to the resources they

need to move forward.

Loan guarantees are very successful

and a large part of the $63 billion that

USDA Rural Development has invested

in the rural economy since 2001.

One of the newer loan guarantee

programs available through Rural

Development is the Renewable Energy

and Energy Efficiency loan program.

These loans are designed to encourage

agricultural producers and small rural

businesses to create renewable and

energy efficient systems.

Clinton County Bio Energy LLC,

located in Eastern Iowa near

the Mississippi River, is an

example of one rural business

that has benefited from this

loan guarantee program. It

received a $3.22 million loan

guarantee to partially fund

construction and operation of

a biodiesel plant with a yearly

capacity of 10 million gallons.

The Clinton County

biodiesel facility is still under

construction and is expected

to be up and running by this

May. When completed, the

plant will use more than 7

million bushels of soybeans

each year and provide the Clinton area

with at least nine new jobs.

Clinton County Bio Energy is made up

of a relatively small group of investors,

so the opportunity provided by the

USDA loan guarantee was critical,

according to Daniel Holesinger, the

facility’s project manager. Because

USDA is sharing the risk, the bank is

willing to offer a loan.

Clinton County Bio Energy also

received a $500,000 grant last year

through the Renewable Energy and

Energy Efficiency program. USDA

Secretary Mike Johanns recently

announced that $176.5 million in loan

guarantees and almost $11.4 million in

grants is available through this program

to help agricultural producers and rural

small businesses purchase renewable

energy systems and make energy efficiency improvements.

In addition to biodiesel facilities like

Clinton County Bio Energy, eligible

projects include installing wind turbines, high-efficiency grain dryers, or

making energy efficiency changes, like

improving insulation or installing automatic lights.

The deadline to apply for grants

through this program is May 12, 2006,

but guaranteed loans will be awarded on

a continuous basis.

USDA Rural Development is a venture capital source for rural America

and has $17 billion to invest in the rural

economy this year. So, if you are interested in learning more about the Renewable Energy and Energy Efficiency

program or our other guaranteed loan

programs let us know. You can learn

more on our website:

www.rurdev.usda.gov. Or, you can call

us at (202) 720-4323 to be connected to

the USDA Rural Development office in

your state.

We look forward to working with

you to guarantee a successful future for

rural America. ■

Rural Cooperatives / March/April 2006 35

INSIDE RURAL DEVELOPMENT

G

Guaranteeing the future of

rural communities

Fuel tanks are installed at the new Clinton County Bio

Energy plant, which should be operational in May 2006. 
36 March/April 2006 / Rural Cooperatives

United States

Department of Agriculture

Washington, DC 20250

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