Rural

COOPERATIVES COOPERATIVES

USDA / Rural Development January/February 2001 USDA / Rural Development January/February 2001

Challenges pile

up for sugar beet

co-ops

Challenges pile

up for sugar beet

co-ops
2 January/February 2001 / Rural Cooperatives

Cooperative leaders across America

are coming to grips with the sweeping

changes in the farm economy and

structural changes in the ag processing

and distribution sectors. The changes

include a dwindling number of farms,

an increased size of remaining farms,

and concentration in food processing

and retailing. Other challenges are

posed by the burden of huge inventories of many crops that are causing

depressed markets and by the effects

of new technology, such as e-commerce, robotics and satellite communications systems. 

The economics of farm operations

clearly influences the vitality of growers’ off-farm businesses — their cooperatives — as shown in the reports on

cooperative share of marketing activity

and the performance of the largest

cooperatives found on page 7.

As cooperative boards of directors

and managers deal with these issues,

we should remind ourselves of the

benefits of cooperatives working

together as a strategy for the efficient

use of member resources. Regional

and national federations of cooperatives have operated successfully for

many years, linking the basic manufacturing of farm supplies (fertilizer,

petroleum, etc.) to distribution at the

local level. 

Similarly, farm credit associations

own regional farm credit banks while

rural electric distribution cooperatives own generation and transmission

cooperatives. Livestock shipping associations have been linked to regional

livestock marketing cooperatives.

U.S. Premium Beef is linked through

ownership in Farmland National

Foods and cooperative grain elevators

are linked to soybean processing and

milling operations, such as Ag Processing Inc. and CHS Cooperatives. 

Minnesota and North Dakota sugar beet cooperatives have developed a

close working relationship through

marketing agencies-in-common.

These include Midwest Agri-Commodities for marketing sugar beet

byproducts and United Sugars Co. for

marketing refined sugar (see page 10).

These combined marketing efforts

offer a fine example of benefits to producer members from coordinated

marketing activity.

Many more examples could be 

cited, but the point is that effective

cooperative systems have been developed which serve farmer and rancher

members well — and continue to

serve them well — through cooperation among cooperatives. Farmers and

ranchers have realized significant

independence through their purchasing and marketing cooperatives. But

the system is only as good as the support generated by continued commitment to working together for the

common good.

A tendency exists in some quarters

to align operations with investorowned firms rather than remaining

committed to developing strong cooperative systems. Many associated issues

concerning farmer ownership and control are quite complex and require

careful analysis to determine long-term

implications. 

During times of economic stress

for the farm economy, as exist now,

there are no “silver bullets” to secure

financing, nor are there any “magic”

business alignments that will solve

long-term problems; we should not

deviate from sound cooperative principles

and practices. Continued progress

through forward-looking cooperative

strategies and cooperative education

for boards and managers — and the

farm sector at large — are called for

if a vibrant cooperative system is to

be a part of the rural scene in the

future. 

Randall Torgerson, Deputy Administrator 

USDA Rural Business-Cooperative Service

COMMENTARY

Commitment to cooperative systems

During times of

economic stress for

the farm economy,

as exist now,

there are no 

“silver bullets” to

secure financing.
Rural Cooperatives / January/Febrary 2001 3

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Ann Veneman, Secretary of Agriculture

Randall Torgerson, Deputy Administrator, USDA

Rural Business-Cooperative Service

Dan Campbell, Managing Editor

Pamela J. Karg, Field Editor

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Have a cooperative-related question?

Call (202) 720-6483, or

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United States Department of Agriculture

Rural

COOPERATIVES COOPERATIVES

January/February 2001 Volume 68 Number 1

On the Cover:

Big sugar beet crops — such as this Red River Valley harvest — have

added challenges for producers and their cooperatives, which are struggling to bring balance to the market. A Payment-In-Kind (PIK) diversion program has encouraged diverting a portion of the crop. See story on page 10.

Photo courtesy American Crystal Sugar

FEATURES

4 Peach growers cling to association

CCPA assumes greater role in helping industry manage supply,

avoid pitfalls.

By Pamela J. Karg

7 Co-ops’ share of farm market, major cash

expenditures down in ‘99

By Charles Kraenzle

10 Sweet and sour

Surgar cooperatives restructure to combat foreign threats, low prices.

By Pamela J. Karg

15 A critical look at new-generation cooperatives

By Randall Torgerson

20 Financial performance declines for largest ag

co-ops in ‘99

By David Chesnick

27 EdVisions

Minnesota teacher’s co-op serves rural charter schools

By Katherine L. Hanson

DEPARTMENTS

2 COMMENTARY

30 NEWSLINE
4 January/February 2001 / Rural Cooperatives

By Pamela J. Karg

Field Editor

Editor’s note: this is the second of two

articles focusing on bargaining cooperatives. In the Nov.-Dec. 2000 issue, the

focus was on the cherry industry’s bargaining association. 

on Schuler does whatever it takes to ensure that

his cling peach growers

make another sale.

“That’s where some bargaining associations fail,” he says.

“They just want price. But you can’t

look at just price. You have to make

every effort you can to make a sale. If

something doesn’t work, you have to

try something else.”

Peach Growers Cling to

Association

CCPA assumes greater role in helping industry manage supply, avoid pitfalls

R
Rural Cooperatives / January/February 2001 5

Schuler has led the California Canning Peach Association (CCPA)

through a plethora of issues that

range from grower-funded supply

management plans to negotiating

contracts with new owners of the former Tri-Valley Growers canning

facilities. He says there is no topic the

Association should shy away from if it

influences the marketing picture for

CCPA members.

“We’re active and involved in all

aspects of our industry. Why else

would I be sending Association

employees to an energy seminar?

Because it impacts all of us and we

need to know about it,” Schuler says.

That total immersion has made

CCPA the longest-lived cooperative

bargaining association in the nation. It

also has earned Schuler respect within

California agricultural circles.

“He is the dean of California bargaining associations,” says Vaughn Koligian, chief executive officer of the Raisin

Bargaining Association in California.

Yet longevity and admiration don’t

add up to much in the face of market

share erosion due to cheap imports,

food industry concentration, a processor bankruptcy and a farm policy that

offers little for specialty crops such as

peaches. Something has to change,

peach growers say. And, as it has always

done, CCPA is doing everything it can

to make sure it does. 

A home and a price

Growers founded CCPA in 1922

with a $30,000 loan from A.P. Giannini

of the Bank of Italy (which eventually

became Bank of America). Local, disparate groups of peach growers came

together under two ideals: a home for

every grower’s peaches and a fair price

for the fruit. 

Unlike freestone peaches that could

be sold fresh, dried or canned, cling

peaches had only one use: canning. As

a result, the California cling peach

industry grew up with the idea that it

was captive to canners.

“By 1901, more cling than freestone

peaches were canned in California for

the first time,” writes Frank Van Konynenburg, a retired CCPA director and

past chairman of the board. He wrote

“A Home and A Price: 75 Years of History with the California Canning

Peach Association” in 1997. “That

same year, California Fruit Canners’

Association-Del Monte offered fiveyear term contracts to cling growers at

$20 per ton. A number of growers

signed up to ensure a home and take

some risk out of growing clings having

an assured home with a canner every

year was much more of a necessity,”

Van Konynenburg adds.

Rapid inflation caused by World

War I saw long-term contract growers

receive $25 a ton while non-contract

growers earned up to the astronomical

price of $110 a ton. Through county

Farm Bureaus, growers organized local

pools. However, canners told tales of

postwar economic depression woes.

Undaunted, growers realized they

needed something larger than a county

group. Before the end of January 1922,

CCPA organized and hired Ambert

Dal Poggetto as its manager. By spring,

760 growers representing 25 percent of

cling growers and tonnage in California were CCPA members. Thanks to

the February 1922 passage of the Capper-Volstead Act, the association operated without threat of anti-trust battles.

Canning peaches today

In the 1927 annual report, CCPA

leaders noted that, “Despite a contrary

belief among growers, the growers’

interest does not cease until the final

product is consumed.” Through the

decades, CCPA has learned valuable

lessons like this and they mold its programs, policies and attitudes today. 

This past summer, Tri Valley Growers announced it was filing for Chapter

11 bankruptcy protection and reorganization. CCPA growers were among several farm groups to feel the chilling

after-shocks of a lost market on top of

world trade issues that were rearing their

ugly heads.

“TVG announced it could only take

85 percent of the 2000 crop, so we

needed to do something to take care of

the other 15 percent, or about 30,000

tons of peaches,” Schuler explains. “If

that production had come onto the

open market at the same time we were

trying to negotiate a price with Del

Monte, we wouldn’t have had a strong

market,” he stresses.

As it had done a few other times in its

history, CCPA offered members a chance

to pull out trees and to receive money to

do so. Other commodity groups have had

similar production reduction programs.

Jagtar Gill examines his peach crop

prior to harvest in Central California. He

and other peach growers benefit from

the efforts of the California Canning

Peach Association to bargain for fair

prices for producers. Photos copyright

Sacramento Bee 
However, the CCPA plan is unique because producers fund 

it entirely.

“It wasn’t as equitable to everyone as it could have been,”

Schuler explains. “There were growers with extra-earlies (early ripenning peach varieties) who weren’t allowed to participate due to timing. But, as it turns out, we got 11,000 acres

out and we accomplished our goal of reducing oversupply,

which helped sustain prices.”

Small, specialty market

The canning peach industry is not a large agricultural sector compared to dairy or

corn. Producers voted out

a state Joint Marketing

Order in 1996. There are

no government programs

and no volume control

provisions, though a

peach marketing board is

in place to promote the

California-grown fruit. 

Peach growers have

taken a decidedly independent path. Yet, pitfalls

abound, and Schuler

believes the next Farm

Bill needs to address

small, specialty farm

crops, such as peaches.

“There was $28 billion

paid to farmers last year

by the government, but

less than 3 percent went to California farmers while over 50

percent of our nation’s fruits and vegetables come from farms

here,” Schuler points out. “Somewhere along the line, we have

to realize that we can’t continue like this. It’s getting increasingly difficult for our farmers to compete.”

A major portion of the competition comes from the Greek

peach industry. Those growers are over-producing low-quality fruit that is flooding the U.S. marketplace at low prices,

Schuler charges.

“We’re trying to work with them so they understand

what could potentially happen to everyone’s market if they

continue on this path,” Schuler says. One option U.S.

growers have suggested to their Greek counterparts are

green drops. Producers agree to pull down a certain

amount of fruit in exchange for some partial payment. In

the process, supplies shrink and prices may rise as long as

consumption holds. “It’s been hard to convince them that

this could work just as it has for CCPA in the past,”

Schuler adds.

Meanwhile, higher quality standards are in place for

American fruit. U.S. cling peach growers also face competition from within: consolidation in the food industry and rising production costs, which includes another jump in the

minimum wage.

Rising costs, more consolidation

“Sixty-eight percent of peach costs are labor,” Schuler

says. Processors have been reluctant to buy machine-harvested fruit over charges of inferior quality. But a recent increase

in the California minimum wage has growers and processors

taking a second look.

“A few in the past have done a poor job with machineharvesting. So, we’re working between processors and

growers to set up strict rules on how to do it without sacrificing quality. We’ll have padding requirements on the

machines to minimize bruising. We’re working on quality

criteria for when that

fruit gets to the plant.

We need varieties that

can hold up to machine

harvesting. There will be

a price differential in

place,” he explains.

The other major production cost for the

entire California agricultural system is energy.

Natural gas and electrical

costs are rising, and

rolling blackouts are

plaguing the state. “We

need to be aware of both

the processor side as well

as the producer side of

every issue. Knowing

both sides is key,”

Schuler says.

To that end, members need to hear from the marketing

side of their business. This year’s annual meeting keynote

speaker was Bob Piccinini, chairman and chief executive officer of SaveMart Supermarkets.

“If we don’t hear what our customers want or follow

processor guidelines, we cannot achieve a reasonable price.

We need to hear what our customers are going through so

we know how to respond and we know what’s possible,”

Schuler says.

Growers at the meeting heard that the food industry

continues to consolidate. Fewer, yet larger, customers want

the highest quality fruit at the lowest possible price. The

food chain is squeezing out more costs. Consumers are

spending a greater share of their food dollar at fast-food

restaurants. 

As a result, supermarkets need quick, nutritious foods for

harried consumers who would rather drive-thru to pick up

supper in a bag than check out at the express lane with 10

items or less. Producers were encouraged to continue new

product testing and new packaging designs. 

“We’ve always got to be looking for that next sale,”

Schuler adds. “The Association has to do whatever it can to

make sure we get people to eat some golden sunshine – cling

peaches in a can.” ■

6 January/February 2001 / Rural Cooperatives

CCPA was quick to respond to the bankruptcy of Tri Valley Growers with an

orchard removal program that helped stabilize the market. Photo copyright

Sacramento Bee
Rural Cooperatives / January/February 2001 7

Charles A. Kraenzle, Director

USDA Rural Development, RBS

Statistics Staff

Editor’s note: Assistance in developing

estimates of cooperatives’ shares of farm

marketings and farm production expenditures was provided by the Rural BusinessCooperative Service of USDA Rural

Development staff, including David Chesnick, 100 largest cooperatives; Dave Cummins, grains and oilseeds; Eldon Eversull,

farm supplies; and Andy Jermolowicz,

fruits and vegetables and tobacco.

recent U.S. Department

of Agriculture analysis

showed that farmer

cooperatives’ share of

total farm marketing —

including crop, livestock and poultry

— was 27 percent in 1999. That’s down

from 30 percent in 1998 and the lowest

it has been since 1992, when it was 27

percent (fig. 1). The 1999 market share

was based on cooperatives’ net marketing business volume of $72 billion,

down from $76.6 billion in 1998 and

the record $79.4 billion in 1996.

The major factors in the overall

decrease in cooperatives’ share of

farm marketing were the significant

decreases in grain and oilseed and

cotton shares. Grain and oilseed share

dropped from 39 percent in 1998 to

34 percent in 1999. Cotton and cottonseed share decreased from 43 

percent to 29 percent. 

Cooperatives’ share of major farm

production items — feed, seed, fertilizer, crop protectants and petroleum —

purchased by the nation’s farmers was

27 percent in 1999, down from 29 percent in 1998. The 1999 share of farm

Co-ops’ share of farm market,

major cash expenditures down 

in ‘99

A

Figure 1—Co-ops’ share of U.S. farm marketings and major farm

production expenditures, 1990-99

34 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

32 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

30 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

28 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

26 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

24 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

22 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

1990 91 92 93 94 95 96 97 98 99

1/ Based on U.S. fram cash receipts.

2/ Based on U.S. cash expenditures for crop protectants, feed, fertilizer, 

petroleum and seed used for farm production

Farm Marketings 1/ Major Farm Production Supplies 2/

Figure 2—Co-ops’ share of U.S. farm products marketed, by 

commodity group, 1995-99

100 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

80 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

60 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

40 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

20 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

0 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

1995 96 97 98 99

Livestock and wool Fruits and vegetables

Cotton / cottonseed Grains and oilseeds

Milk

Percent of U.S. cash receipts
8 January/February 2001 / Rural Cooperatives

supplies purchased was based on cooperatives’ net sales of $23.2 billion,

down from $24.6 billion in 1998 and

the record $25.2 billion in 1997. 

Most milk sold through co-ops

Farmer cooperatives’ net sales of

milk and milk products totaled $26 billion in 1999, up $0.7 billion, or 2.6

percent, from 1998. U.S. farm cash

receipts for milk were down nearly

$0.9 billion, or 0.8 percent, in 1999,

due to lower milk prices. Co-ops’ share

of total U.S. farm cash receipts for milk

was down slightly in 1999, to 89 percent, from 90 percent in 1998 (table 1). 

Nationally, the quantity of milk

marketed in 1999 was up .8 percent

from 1998. At the same time, the

weighted average U.S. price per 100

pounds of milk was down nearly 7 percent. Co-ops’ share of milk sales at the

first-handler level includes the value of

milk for which cooperatives bargained

with processors over price and terms of

trade for members. 

Co-ops’ share of grain and oilseed

marketed at the farm-gate dropped from

39 percent in 1998 to 34 percent in 1999.

Faced with continued sharp price

declines in 1999, many co-ops withheld

marketing proportionally larger volumes

of grains and oilseeds than did investorowned grain firms, based on the anticipation of higher prices in the future. This

was facilitated by the co-ops’ traditionally

proportionally larger grain storage capacity at the local level. During 1999, farmer

cooperatives marketed $17.1 billion

worth of grains and oilseeds, down from

$21.3 billion in 1998. 

Co-ops’ share of cotton and cottonseed cash receipts stood at 29 percent in

1999, down from 43 percent in 1998.

The net value of cotton and cottonseed

purchased by farmer cooperatives was

$2.1 billion, down nearly 30 percent from

1998. In comparison, farm cash receipts

for cotton and cottonseed were down

only 3.9 percent for the 1998 crop. The

exit of one large co-op that marketed cotton, as well as lower cotton production—

due to drought and fewer planted acres—

were major factors in the decline.

Co-ops accounted for 18 percent of

the nation’s fruit/vegetable sales in

1999, compared with 19 percent in

1998. Co-ops’ sales of fruits and vegetables totaled nearly $9.3 billion in

1999, down 1.1 percent from a year

earlier. Total U.S. average cash receipts

for fruits/vegetables, however, were up

1.9 percent in 1999.

Cooperatives’ share of livestock

(including wool and mohair) marketings was 13 percent in 1999, down

slightly from 14 percent in 1998. Coops’ net sales of livestock were $7.3 billion in 1999, down from $7.4 billion, or

1.3 percent. However, total U.S. cash

receipts for livestock/wool increased 4.9

percent from 1998 to 1999, due mainly

to higher prices for beef cattle.

Cooperatives’ share of “all other”

marketings — such as poultry, dry edible beans and peas, tobacco, nuts, rice

and sugar — was 12 percent, the same

as reported for 1998. Co-ops’ “all other” marketings totaled $10.2 billion in

1999 and 1998. In comparison, total

U.S. cash receipts for “all other” marketings increased 3.4 percent. The

biggest increase was in nuts and miscellaneous marketings, such as hay, grasses

and other field crops. 

Table 1—Cooperatives’ share of U.S. farm marketings, by selected

commodity group, 1999-97 

Commodity group 1999 1998 1997

Percent of U.S. cash receipts 1/

Milk 89 90 88

Grains and oilseeds 34 39 43

Cotton and cottonseed 29 43 38

Fruits and vegetables 18 19 19

Livestock and wool 2/ 13 14 12

All other 3/ 12 12 13

Total 4/ 27 30 29

1/ Estimates are rounded to the nearest whole percent. Selected data items for 1997

and 1998 were revised.

2/ Includes mohair.

3/ Includes poultry and eggs, dry edible beans and peas, nuts, rice, tobacco, sugarcane, sugar beets, honey and other miscellaneous marketings.

4/ All farm commodities weighted by value.

Table 2—Cooperatives’ share of major U.S. farm production 

expenditures, 1999-97

Farm production item 1999 1998 1997

Percent of U.S. farm production expenditures1/

Fertilizer 45 45 45

Petroleum 45 50 45

Crop protectants 34 34 34

Feed 19 21 22

Seed 10 10 10

Total 2/ 27 29 29

1/ Estimates are rounded to the nearest whole percent.

2/ The five major farm production items weighted by value.
Rural Cooperatives / January/February 2001 9

Figure 2 shows the most recent fiveyear market-share trends for selected

farm commodities marketed by farmer

cooperatives. Grain and oilseed, and

cotton and cottonseed shares varied.

Milk, fruit and vegetable, and livestock

and wool shares were fairly level. 

Share of Farm Production

Expenditures Drops

Co-ops’ share of major farm production items — feed, seed, fertilizer,

petroleum and crop protectants — was

27 percent in 1999, down from 29 percent in 1998. Co-ops’ shares of fertilizer, crop protectants and seed remained

the same, while feed dropped to 19

percent and petroleum dropped to 45

percent (table 2 and figure 3). 

Total U.S. farm cash expenditures

for the five major supply items

decreased 2.5 percent from 1998 to

1999, while co-ops’ sales decreased 7.5

percent. Co-ops’ sales of feed were

$4.7 billion, down from $5.4 billion, or

12.6 percent, in 1998. Total feed

expenditures were down 2.1 percent.

Co-ops’ 45-percent share of petroleum expenditures was down from a

record-high 50 percent in 1998. Coops’ sales of petroleum totaled $6.3 billion, down from $6.6 billion, or 5.4

percent, from 1998. However, total

U.S. farm expenditures for petroleum

fuel and oils in 1999 were $5.8 billion,

up from $5.6 billion, or 3.3 percent.

Calculating co-ops’ share of petroleum expenditures is based on the assumption that 43 percent of petroleum purchased through cooperatives is for farm

use. This percentage was applied to coops’ net sales in calculating market share.

This can vary from year to year, depending on factors such as weather conditions.

Co-ops’ lowest share of the major

farm supply items was seed, at 10 percent, unchanged from 1998 and 1997.

Co-ops’ share of total U.S. cash

expenditures for seed was 19 percent

as recently as 1987. 

Cooperatives’ sales of

major farm supplies

totaled $19.5 billion in

1999 (table 3). Petroleum

sales accounted for nearly

$6.3 billion, or 32.1 percent, of the total. Co-ops’

sales of seed were up,

while sales of all other

farm inputs were down.

Total U.S. farm cash

expenditures were up for

petroleum, about the same

for seed, and down for the

others — feed, fertilizer

and crop protectants. 

Fertilizer accounted

for the second largest

proportion of co-ops’

major farm supply sales (24.4 percent),

followed by feed (24.2 percent) and

crop protectants (15.5 percent). Seed

accounted for only 3.9 percent. Total

U.S. feed expenditures accounted for

43.7 percent of the major farm supplies

purchased, followed by fertilizer (17.7

percent), crop protectants (15.4 percent) and seed (12.9 percent).

Methods Used in Developing Co-op

Shares

Cooperative-share estimates for

selected commodities and farm supplies

Table 3—U.S. farm cash expenditures and co-ops’ sales of major farm supplies,

1999-98

Farm production item U.S farm cash expenditures 1/ Co-ops’ sales of major farm supplies

1999 1998 1999 1999 1998 1999

Bil. Dol. Percent Bil. Dol. Percent

of total of total 

Feed 24.5 25.0 43.7 4.7 5.4 24.2

Fertilizer 9.9 10.6 17.7 4.8 5.2 24.4

Crop protectants 8.6 9.0 15.4 3.0 3.2 15.5

Seed 7.2 7.2 12.9 .7 .7 3.9

Petroleum 5.8 5.6 10.3 6.3 6.6 32.1

Total 2/ 56.1 57.5 100.0 19.5 21.1 100.0

1/ Source: USDA, ERS.

2/ May not add due to rounding.

Figure 3—Co-op’s share of selected U.S. farm production 

expenditures, 1995-99

60 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

50 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

40 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

30 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

20 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

10 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

0 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

1995 96 97 98 99

Seed Feed

Crop protectants Fertilizer

Petroleum

continued on page 31

Percent of U.S. cash expenditures
10 January/February 2001 / Rural Cooperatives

By Pamela J. Karg

Field Editor

here is nothing sweet

about the U.S. sugar

market.

Raw sugar prices have

been hovering about 25

percent below their historical average

and refined sugar prices bottomed out

last fall. A self-supporting sugar industry program has turned to government

support. Good weather, a large domestic sugar crop, government-guaranteed

import increases and trade disputes

with Mexico and Canada have soured

the outlook for the industry.

As prices took a nearly unprecedented free-fall in late 2000, however,

growers and their cooperatives began

their own slicing and dicing to determine how to weather the economic

lumps. Sugar cooperatives are cutting

costs to improve operating efficiencies

and have anteed up money to study

whether to own a greater share of the

farm-to-consumer processing chain.

They continue to educate political

leaders about the realities of U.S. sugar

policy. In the process, American sugar

growers might turn their sour grapes

into sweet successes through innovation and perseverance. 

Processors forfeit sugar, PIK offered

growers

Weak prices have caused many sugar

operations, including American Crystal

Sugar Co. of Moorhead, Minn., to forfeit sugar to the government for the

first time in more than 20 years. James

Horvath, president and CEO of the

sugarbeet grower’s cooperative says,

“Turning sugar over to the government

is not something we do lightly. However, market conditions at this time make

forfeiture a viable alternative.”

Under the sugar price-support program administered by USDA, processors may pledge sugar as collateral for

nine-month loans. If market prices are

below the loan rate for sugar, the

processor may forfeit sugar to USDA

instead of repaying the loan.

Horvath pointed to a number of factors that combined to push U.S. sugar

prices to their lowest level since the

mid-1980s. Foremost among these are

trade and domestic policy issues.

Traditionally, USDA managed sugar

imports to balance supply and demand.

Horvath says a number of recent

actions by government policymakers

have limited USDA’s ability to use this

tool to the extent it has in the past.

“In the Uruguay Round of the

World Trade Organization negotiations, the government agreed to

import at least 1.25 million tons of

sugar each year, regardless of whether

the U.S. market needs the sugar or

not,” Hovarth says. “This means that

foreign sugar coming into the U.S. is

causing pressure on prices.” 

Another source of price weakness

within the U.S. sugar market is something called “stuffed molasses.” This

mixture of sugar and molasses, made in

Canada and brought into the United

States, wreaks havoc on the industry.

Horvath says that stuffed molasses

imports will displace at least 100,000

tons of domestic sugar this year.

Finally, he says, there is potential for

an increase in sugar imports from Mexico. Under the North American Free

Trade Agreement (NAFTA), that country can ship unlimited amounts of sugar into the U.S. market after it pays a

“second tier tariff.” Mexican sugar production has grown dramatically since

Sweet and Sour

Sugar cooperatives restructure to combat foreign threats, low prices

T

American Crystal Sugar, a grower-owned cooperative which operates this modern processing plant in 

Photos courtesy American Crystal Sugar
implementation of NAFTA in 1994.

Because of sharp declines in world

market prices, Mexican producers

divert some of their surplus here.

“When NAFTA was being negotiated, the second tier tariff provision did

not look like a threat to U.S. producers,” according to Horvath. “Now,

because of the very poor prices available in the world market, paying the

second tier tariff and shipping sugar

into the U.S. is beginning to look more

attractive to Mexican sugar producers.” 

Trade issues are compounded by a

large domestic sugar crop this year.

“Some U.S. sugar producers were

blessed with a very good crop this year,

both in cane and beet areas,” Horvarth

says. “This is certainly a part of the

supply/demand balance. Even though

American Crystal’s shareholders harvested fewer tons in 1999 than in 1998,

we are getting more sugar per ton.

Putting these two factors together, our

total sugar production will be about 

the same.” 

Poor domestic prices have forced

American Crystal to forfeit sugar to

USDA. “The Sugar Program approved

by Congress in 1996 gives sugar producers the loan program as a way to

ensure the market is balanced,” Horvath said. “Last fall, forfeiture to the

government was the best financial

alternative for our shareholders. However, our long-term interest is to bring

the market back into balance. If that

can be accomplished, we anticipate

prices would return to the levels normally provided by the Sugar Program.”

On the grower side of the supply

equation, USDA’s Commodity Credit

Corporation (CCC) offered a Payment-In-Kind (PIK) diversion program. The PIK program offered sugar

beet producers the choice of diverting

from production a portion of their crop

in exchange for sugar held in CCC

inventory. CCC Executive Vice President Keith Kelley reported that producers submitted 5,022 acceptable bids

to participate in the program. Sugar

beet acreage diverted from production

totaled 101,832.9 acres.

By reducing the 2000 harvest, the

PIK program helped lower government

inventory costs, alleviate the current

over-supply of sugar resulting from

changes in supply conditions, and consequently strengthen sugar prices. CCC

transferred title to 277,349 tons of

refined crystalline sugar to participating

producers, or their assignees, on Dec. 1.

The acres diverted from production by

the PIK program represented about 7

percent of acreage planted to sugarbeets. Transfer of this sugar will result

in about a $555,000 reduction in

monthly CCC storage-related outlays.

The sugar transferred from CCC inventory also represented about 7 percent of

the expected fiscal year 2001 domestic

sugar production from sugarbeets.

Testifying before the Senate Agriculture Committee in late summer, Horvath said that his farmer/owners “are

supportive of this (PIK) concept. We

believe it achieves several worthwhile

objectives for the industry and the government.” He listed these benefits:

■ It helps reduce the current oversupply of sugar by cutting the number of

harvested acres this year.

■ It saves USDA the responsibility of

obtaining and managing large amounts

of purchased or forfeited sugar.

■ It starts the industry down the road

to balance an over-supplied market.

■ It saves the government money.

Nevertheless, Horvath emphasized

that PIK does not eliminate the need for

USDA to purchase additional sugar. In a

letter to then-Agriculture Secretary Dan

Glickman, the domestic sugar industry

representatives said, “We cannot emphasize too much how important we believe

it is that USDA issue an announcement

immediately of an additional sugar purchase, in a significant amount, to avoid

CCC sugar loan forfeitures.”

In a September 2000 editorial, The

Miami Herald weighed in on the sugar

situation. “The full impact of the failure

of the 1996 Freedom to Farm Act will

be felt in South Florida as sugarcane

growers forfeit their crops in lieu of

repaying $141 million in government

loans,” the editorial reads. “Among

Midwest beet farmers, the losses to taxpayers are likely to be much greater,

$251 million... In theory, Freedom to

Farm and the weaning of farmers from

government controls had a lot going for

it. Even today, the U.S. Department of

Agriculture can point to studies showRural Cooperatives / January/February 2001 11

 Moorhead, Minn., has had to forfeit sugar to the government for the first time in 20 years. 
12 January/February 2001 / Rural Cooperatives

ing that farmers are generally better off

than they would have been under the

programs that had government telling

farmers what to plant and guaranteeing

minimum prices. However, the new

policy isn’t working for all the farmers

or all the commodities, and the sugar

program is one example.”

Diversifying, owning operations

American Crystal Sugar, the largest

U.S. sugar beet processor, is owned by

nearly 3,000 grower/shareholders in

the Red River Valley of North Dakota

and Minnesota.

Throughout the

1990s, American

Crystal and other partners

formed several

marketing agencies in common

(MAC) and joint

ventures to

expand marketing and to diversify agricultural

opportunities for area farmers.

One marketing agency in common,

United Sugars, was started in 1993 by

American Crystal; Minn-Dak Farmers

Cooperative, Wahpeton, N.D.; and

Southern Minnesota Beet Sugar Cooperative, Renville, Minn. By pooling

their resources, the three co-ops

formed the nation’s largest beet sugar

marketing company. In 1997 amid

heavy blizzards and a 500-year flood,

United States Sugar Corporation, a

Clewiston, Fla., sugarcane grower and

processor owned primarily by employees and two charitable foundations,

joined the venture. That addition

increased United Sugars’ share of the

U.S. market to 25 percent. That same

year, American Crystal introduced

Pillsbury Best, the country’s first

national brand of sugar.

The three Upper Midwest sugarbeet

cooperatives had developed close working relations in 1979 by forming Midwest Agri-Commodities, a marketing

agency in common. American Crystal,

Minn-Dak and Southern Minnesota

Beet Sugar Cooperative are partners in

the organization that markets molasses,

beet pulp and other byproducts. 

American Crystal has a 46-percent

ownership interest in ProGold LLC.

The corn syrup plant in Wahpeton,

N.D., was organized as a farmer-owned,

value-added processor in 1996 by Golden Growers Co-op, American Crystal

Sugar and Minn-Dak Farmers Cooperative. It began operations just before

high-fructose corn syrup prices dropped

by 28 percent. Operating losses caused

the new cooperative to lease its plant to

Cargill, which manages all aspects of its

operations. Operations were halted

temporarily Jan. 16.

American Crystal Sugar Company

has a 50-percent ownership interest

in Crystech, LLC, which was formed

to acquire, construct, finance, operate and maintain a molasses desugarization facility at the Hillsboro,

N.D., sugar factory. The Crystech

facility came on line in 2000.

Success of the Minnesota and North

Dakota sugar beet cooperatives has

inspired western U.S. sugar farmers to

explore ways to capture a greater share

of the consumer food dollar. Growers

are bidding to buy sugar plants owned

by Tate & Lyle’s Western Sugar Co. and

by Imperial Sugar’s Holly division.

Frank Eckhardt of the Colorado Sugarbeet Growers Association believes farmers will raise the money and the plants

will come under farmer ownership. 

“This goes back to 1974 when we

wanted to buy the Great Western Sugar

plants,” Eckhardt says. “But a man

named White got them, who then sold

them to the Hunt Brothers in the early

1980s. When they went bankrupt, Tate

& Lyle North American Sugars bought

them. Every 10 to 12 years, we’ve had

to go through somebody else buying

them. When times were tough, private

investors got out and growers had a

The American Sugar Alliance in Arlington, Va., is a national coalition of

cane, beet and corn farmers, processors, suppliers and workers dedicated

to preserving a strong domestic sweetener industry. It’s made up of more

than 1 million beet, cane and corn farmers who produce sugar and corn for

sweetener, as well as thousands of other Americans who work in sweetener

production and processing. The ASA works to ensure that farmers and workers survive in a world of heavily subsidized sugar. “Only through a united

effort can these dedicated Americans continue to offer a plentiful and

secure domestic supply of sweetener at a reasonable price,” says ASA

Executive Director Vickie Myers.

According to ASA, the corn sweetener industry includes 17 refineries

nationwide that use over 750 million bushels of corn each year. That is a cornfield almost four miles wide, stretching from Washington, D.C., to San Francisco. Over 1.4 million acres of sugarbeets grow in 13 states and 33 factories

process them. In the sugar cane industry, 12 refineries and 34 mills process

sugar cane raised in Florida, Hawaii, Louisiana and Texas.

The ASA reports that from 1985 to 1995, U.S. sweetener policy operated at

no cost to the government. The industry paid an estimated $40 million a year

into the U.S. Treasury under a special marketing assessment. The Congressional Budget Office estimates that through the end of the 1996 farm bill in

2002, that assessment will total $288 million.

Current U.S. sugar policy allows efficient U.S. corn, beet and cane growers

and processors to compete against unfair foreign subsidies and trade practices.

The program provides for reliable supplies of sugar at fair and stable prices for

consumers and operates at no cost to the taxpayer, who pays 28 percent less

than consumers in other developed countries for their sweeteners. ■

How sweet it is
chance to get in, but times were tough

for us, too,” Eckhardt explains. However, current owner Tate & Lyle – based

in England and one of the world’s

largest sugar industry players — has

been receptive to a farmer buyout.

“They’re offering the plants at their

appraised value. Because the farmers

have been investing in the plant, silos and

equipment all along, we have $12 million

in equity built up. We would have had

more, but we lost it all when the Hunt

Brothers went broke. So now we will

only need to pay $78 million for the

plants instead of the $90 million they’re

appraised at,” Eckhardt explained.

To buy the six sugar plants – one

each in Montana and Wyoming, and

two each in Colorado and Nebraska –

several western organizations banded

together to form the Rocky Mountain

Sugar Growers Cooperative. Included

in the founding group is Eckhardt’s Colorado sugarbeet bargaining association,

for which he serves as board treasurer.

“It seems as though there’s only

enough profit for one entity anymore,

and a cooperative has more latitude in

operations and sales,” Eckhardt said.

Western sugar growers are hearing

the message. The co-op is asking growers to commit $185 per acre of planted

beets, with $35 per acre due by Feb.1

and the rest a month later. The co-op is

seeking commitments representing

about 185,000 acres in the four states.

The sale faces a March 31 deadline.

There are over-subscriptions in Montana, and Wyoming is right on target

with the amount of acres that have

been contracted in the past to supply

the plant, said Rick Rodriguez, vice

president of the Big Horn Basin Beet

Growers. Big Horn Basin is a partner

in the farmer buy-out effort.

“We were a little skeptical going

into this, but I’m meeting with my

growers this morning to go through

some more questions they have. I’d

have to say everyone is fairly positive

about this. There’s even a few growers who have decided not to go in,

but they sure hope it works out

because they don’t want Rodriguez

farms to suddenly be marketing 1,500

acres of (pinto) beans,” Rodriguez said.

The Basin area has a short growing

season and crop production mainstays

are malt barley on contract for Coors

beer, some seed crops, sugarbeets and

dry beans. Rodriguez and his father,

Paul, plant about 1,500 acres of sugarbeets. Switching to another crop

could upset the agricultural market

balance in the Big Horn.

“Even the guys downtown realize

the importance of sugarbeets to this

area. It’s a $30 million industry here,

when you consider growers and

employees at the Lovell plant,”

Despite some major obstacles, American sugar producers remain among

the world’s most efficient, according to a global survey by the renowned commodities research firm, LMC International, based in Oxford, England.

For the most recent five-year period studied, 1994/95-98/99, U.S. corn

sweetener producers were the lowest cost of 19 countries, U.S. beet sugar

producers were second lowest cost of 40 countries, and U.S. cane sugar producers ranked 31st among 63 nations. For beet and cane sugar combined, the

U.S. ranks 32nd among 102 countries studied. “Adding in the very cost competitive corn sweetener industry lifts the combined U.S. sweetener sector to 20th

place out of 120 countries,” said LMC analyst Martin Todd.

Todd said U.S. corn sweetener producers have long been the world’s lowest cost producers by far, and that American sugar producers have managed

to improve their ranking in each of the five-year periods LMC has studied

since 1979. 

Todd said the U.S. producers’ ranking is all the more impressive because

they faced two major obstacles. One is that their competition is dominated by

developing-country cane producers “where wages are generally very low and

environmental regulations tend to be far less stringent than in the U.S.,” he

said. Developing countries produce two-thirds of the world’s sugar.

The second obstacle was the strong value of the dollar, which has soared

in value by about two-thirds in the past 20 years against the currencies of

most other cane-producing countries. Todd explained, “A strong dollar acts to

inflate that value of your costs relative to other countries, irrespective of

whether or not you have managed to lower your own costs.”

Todd said, “The second half of the 1990’s presented the U.S. sweetener

industry with a stern test of its ability to remain internationally cost competitive. Perhaps the greatest of these has been the strengthening of the U.S. dollar, which is beyond the control of domestic producers. Nevertheless, the

industry has shown itself equal to the challenge, maintaining its impressive

international ranking as a sugar and sweetener producer.” ■

U.S. ranked among world’s lowest

cost producers

Rural Cooperatives / January/February 2001 13

Wetlands maintained around this American

Crystal Sugar processing plant, in Hillsboro,

ND, provide wildlife habitat. 
Rodriguez added. “I just got a $100 check from the local

Kiwanis to put towards our feasibility study costs. And we’ve

received money from all three cities in the area – Powell,

Cody and Lovell – as well as Big Horn and Park counties.

The state didn’t have any money, but did help us secure a

$25,000 USDA grant.” 

Eastern Colorado may be a bit over-subscribed and western Colorado is still uncertain, Eckhardt added about his

home state.

“The average age of farmers is a little higher in the western region. They have a few more options because of the

continued population growth and land pressures, and if they

don’t have children coming into the business, this is a hard

decision to make. If we do this right, those older farmers who

do come in can make some money,” explains Eckhardt, who

farms 1,750 acres of sugarbeets, onions, potatoes, edible

beans, shelled corn and silage corn at LaSalle, Colo., near

Greeley. The fourth-generation farm includes his two sons.

Some years, his sugar acres are the second- or third-highest

income generators in the operation.

“Sugarbeets have just worked a lot better in our rotation

and with the price fluctuations for different commodities,” he

says. “With different trade policies coming into play, prices to

farmers haven’t been too good. So we just feel that, as a cooperative, we could do better with marketing and keeping prices

more stable for farmers.” 

Helping the newly formed Rocky Mountain group

throughout these initial stages has been Larry Steward. He

retired in September as chief executive officer of Minn-Dak

Farmers Cooperative in Wahpeton and planned to move to

Colorado. “But he’s agreed to help us during the feasibility

study. When we get going, our plan would be to hire him as

our CEO,” said Rodriguez.

By mid-January, it was uncertain what Nebraska growers

would do. While a number of them had put up a $2-per-acre

fee to fund the feasibility study, Nebraskans now have a second option to consider after Imperial Sugar Co. announced

its Holly Sugar plants in Wyoming and Montana may close

due to financial troubles.

Randon Wilson, a Salt Lake City lawyer working on both

proposals and providing assistance to similarly affected

Michigan beet growers, said Western and Holly growers have

talked about joining forces if their efforts succeed. That

won’t happen if too few growers back the Tate & Lyle buyout, he told the Scottsbluff, Neb., World-Herald.

Nebraska panhandle growers “have got a clear choice,”

said Wilson, who helped Idaho and Oregon beet growers buy

Amalgamated Sugar Co. in 1997. “They either save the

(local) industry or sentence it to death.”

Eckhardt added that, if the grower buyout fails, Tate &

Lyle say they will shut down Western Sugar’s factories after

contracts with growers expire in 2003. He and other organizers don’t think that way; they foresee a sweeter future. ■

14 January/February 2001 / Rural Cooperatives

“The American sugar farmers I work with every day are

having a really scary Halloween, with prices they receive

for their crop down by almost a third in the four years of

operating under the current Farm Bill,” said Luther Markwart, executive vice president of the American Sugarbeet

Growers Association (ASGA) this past October. The economic picture remained unchanged months later.

“At the same time,” he said, “the big international

manufacturers of sugar-containing products — from candy makers to bakers and cereal companies — continue

to raise their prices.”

Markwart, who is also chairman of the American Sugar Alliance, cites figures from the Bureau of Labor Statistics and USDA in making his assertion. “Since the start of

the 1996 Farm Bill, the wholesale refined sugar price has

dropped almost 29 percent. The price for raw cane sugar

has declined during this same period by more than 14

percent,” he said.

“The price consumers pay for candy has risen more

than 6 percent during this period. Cereal prices are up

almost 7 percent, cookies and other bakery products are

up 8 percent and ice cream prices have climbed by 10 percent,” Markwart said. “Even for sugar on the grocery store

shelf, despite the dramatic one-third plunge in the wholesale price, the price consumers pay has barely declined at

all, a mere half-a-percentage point,” he added.

The ASGA incorporated in October 1975 to unite the

sugarbeet growers in the United States and promote the

common interests of its members, which include legislative and international representation and public relations. ASGA represents over 12,000 sugarbeet farmers in

13 states. ■

Candy goblins gobble up profits from lower sugar prices
Randall E. Torgerson, Deputy Administrator

USDA Rural Business-Cooperative Service

Editor’s note: this article is based on the author’s remarks at

the annual Pacific Coast/National Cooperative Bargaining Conference in Reno, Nev. 

aking a critical look at the concept of new-generation cooperatives is a topic where some have

feared to tread. But in the wake of the recent

bankruptcy of Tri Valley Growers, it is a

subject that merits close attention.

Growers have two basic organizational strategies for

achieving marketing power. One is by organizing horizontally to help establish farmgate prices. In addition to cooperative bargaining associations, guilds, alliances and farm

organizations are variants that engage in the pricing of

identity-preserved commodities.

The second strategy is vertical integration, by which

producers seek to add value

beyond the farmgate through

cooperative marketing.

All business organizations have three distinguishing features: ownership,

control and who receives

the benefits. The cooperative is owned and controlled

by its users through democratic or proportional voting.

It is capitalized by those

using its services and

returns to capital are limited. And it is obligated to

return net margins (benefits) to users on the basis of

their patronage. We define a cooperative as a user-owned

and user-controlled business in which benefits are

received in proportion to use.

What is different about new-generation cooperatives in

terms of structure and operations? A number of elements

incorporated in these co-ops have been found in California

for a number of years. But they were reborn on the high

plains and prairies of North Dakota and Minnesota in the

1970s through the efforts of

sugar beet growers. Based on

the success of these organizations, a terrific resurgence of

interest took place in the

1980s and 1990s by growers

of durum wheat, corn, hard

winter red wheat, bison, beef

and (most recently) pork. 

Factors driving this trend

include: (1) Grower

returns for raw commodities as a percent of

the consumers’ food dollar have been declining;

(2) access to markets for

growers has become

more difficult as concentration among food

processors and retailers has accelerated; (3) independent family farms feel threatened by the so-called “industrialization”

of agriculture; (4) technological advances continue to result

in increased production; (5) exports were curtailed by the

downturn in Asian markets, by globalization of markets and

by the strong dollar; and (6) growers have been looking for a

way to share in any increase in the value of their cooperative,

especially when they approach retirement. 

The combination of these factors suggests that if farmers

and ranchers are to survive as independent producers, they

need to capture a larger share of the marketing profits generated between the farmgate and consumers. One of the primary means of doing so

is for farmers to form

cooperatives that

process their raw

products into valueadded products and

then market them,

thus bringing growers closer to the ultimate consumer.

Rural Cooperatives / January/February 2001 15

A critical look at new-generation

cooperatives

T

USDA photos
16 January/February 2001 / Rural Cooperatives

Farmer organizations — such as the National Wheat Growers, National Corn Growers and National Pork Producers

Council — have become leading proponents urging their

members to move in this direction.

Based on these facts, many growers have pursued a vertical-integration strategy by organizing for marketing. Common characteristics of these new-generation cooperatives are

that equity investment is a prerequisite to establishing delivery rights. These delivery rights are part of a producer marketing agreement (contract) that pools the delivery of products and links them to equity units purchased in the

cooperative. If a grower is unable to deliver his agreed raw

products, purchase of commodities is authorized by the

cooperative for undelivered obligations. Delivery rights are

allocated according to plant processing capacity. This closes

membership at plant capacity. 

Delivery rights are in the form of equity shares that can

be sold to other eligible producers at prices agreed to by the

buyer and seller. The board of directors approves all stock

transfers to assure that they are held only by eligible producers. This prevents ownership by outside investors. The

value of delivery rights (shares) may appreciate or depreciate in value depending upon the performance of the cooperative. High levels of cash patronage refunds are issued

annually to producers since they have substantial risk capital

invested in the organization.

The advantage of the new-generation cooperative

approach is that adequate equity capital is raised at the outset. The burden of capitalization is distributed equitably in

proportion to future use of the marketing organization. Substantial up-front investment by members means that they

want the business to succeed. And, assuming the business is

performing adequately, exiting members can sell their invested equity at a value reflecting the cooperative’s performance.

Like any business, future success depends upon a wellfounded business strategy, identification of a ready market

for the product, sound management, a strong role by the

board of directors overseeing policy direction of the organization and protecting members’ assets, and good

board/management relations. The organization also has to

follow sound cooperative practices. Deviation from these

often spells trouble, often leading to poor performance or

even the failure of the business.

Examples of new-generation cooperatives include: Dakota

Growers Pasta Cooperative, Spring Wheat Bakers, South

Dakota Soybean Processors, North American Bison Cooperative, Iowa Turkey Growers Cooperative, U.S. Premium

Beef and Corn Plus ethanol cooperative. A number have

started from scratch and built new facilities. Others, such as

Pacific Coast Producers, have taken over ownership of

processors that growers were formerly supplying.

A variant of these new-generation marketing cooperatives

are those organized for farm production purposes. Production cooperatives have been organized by corn and soybean

growers to add value to their raw commodities by feeding

them to poultry and livestock. New, large-scale production

enterprises have been organized in the pork, egg and dairy

sectors. Examples are ValAdCo pork producers, Golden Oval

and Dakota Layers Cooperative, and some new dairy cooperatives in Kansas and North Dakota. 

It is estimated that between 75 and 100 new-generation

cooperatives have been organized to date. Many are still in

the formative stages. But of those that are operating, we can

identify some strengths and shortfalls, and lessons to learn. 

How are they performing? 

Four issues can be raised about the existence and performance of new-generation cooperatives: ability to control production, stock vs. non-stock form of business, exclusivity in

the farming community and the business culture.

New-generation cooperatives, in theory, are very market

oriented — they find a market for their output and produce

for it, expanding production of processed products only to

meet increasing demand. Presumably, they do not expand

production beyond the immediate market. Evidence to date

on this score is mixed. 

In their formative stages, new-generation cooperatives

have done an excellent job of identifying markets for their

processed products, i.e., not just producing something and

then asking the market to take it. This has been accomplished through thorough market research as a part of their

feasibility analyses and then activating a particular marketing

strategy in a business plan. Clearly, this has been a plus. 

Over the long term, however, it does not appear that

they are immune from the trap of many isolated units

making independent production decisions and then overproducing for the market. This is the exact same dilemma

that faces individual growers and is the Achilles heel of

One of the attributes of new-generation cooperatives, in 

theory, is that they are very market oriented — that is, they

find a market for their output and produce for it.
Rural Cooperatives / January/February 2001 17

independent growers, each making their own production

decisions in isolation. 

One current example is the dilemma found in the sugar

industry (see related story, page 10). Like many other commodity sectors, refined sugar is being produced in sugar

beet country in excess of market needs, despite the fact that

about one-half of the production is sourced from new-generation cooperatives in the Red River Valley, Idaho and

Washington. Production expansion has occurred in recent

years where cooperatives have believed that they have a

strategic advantage. 

Marketing cooperatives by themselves are not a mechanism for industry-wide production reduction and

restraint. Indeed, this is one reason that they have been

looked upon – in aggregate – as a competition-enhancing

influence on markets. 

Business form is a hot-button issue. Most states permit

incorporation under either non-stock or capital stock cooperative statutes. At one time, there was a movement that

suggested that the non-stock cooperative was a purer form

of cooperative. This feeling was particularly strong in California in the 1920s. However, many U.S. cooperatives

involved in value-added marketing are organized on a stock

basis. The conversion of Tri Valley Growers to a stock plan

raised this issue again. 

Exclusivity is another key issue. Cooperatives have

often had open membership policies under which growers

could freely join, sometimes simply by walking in the door

and transacting business. This has been especially true in

the farm supply business and many raw commodity marketing and bargaining associations. Larger numbers of

producers often translate into larger volumes, greater

operating efficiencies, more strength in the market and a

feeling of community spirit. 

To the extent that new-generation cooperatives are only

open to those who can afford sometimes high, up-front

capitalization investments, they are viewed as more restrictive in their membership. Rather than having a rising tide

that lifts all boats, only those that can afford to invest are

benefactors. This criticism is heightened in those new-generation cooperatives that tie membership control to the

number of delivery rights owned, instead of the more typical one-person, one-vote rule.

A fourth issue is the potential for new-generation cooperatives to take on more of an “investor” than a “cooperative” culture. Since access to delivery rights is linked to

investment in shares and an internal market is created for

these delivery rights, some critics feel there is a potential

for the organization to become more driven by return-tocapital than by return-to-use as a guiding principle. This

becomes exacerbated if the business is allowed to be organized as a limited liability company that has management

or other outside investors. A trend can easily develop

whereby the business is driven strictly by return-on-investment considerations. It then evolves culturally into just

another business — not one dedicated solely to serving the

interest of growers. 

Co-op practices need scrutiny

In the United States, share of marketing activity represented by cooperatives has doubled since the 1950s. And

there is a great deal of opportunity for future growth. When

problems occur, it is generally due to faulty practices. These

lead to under-performance of the business and, in some cases, to ultimate failure.

A few new-generation cooperatives have experienced

problems, including: 

1. Purchase of delivery rights outside of a grower’s production territory.

2. Use of purchases “off the market” rather than a member’s delivery as a predominant means of fulfilling

delivery right obligations.

3. Leasing of delivery rights as a way to hold on to appreciated value rather than having ownership in the hands

of active producers.

4. Making fixed-term market obligations for final products

when the market for a raw commodity is short, causing

wide price disparity for producers and losses for the

business.

5. Hiring of management from outside of the industry

that doesn’t know intricacies of the market or how to

adapt their management style to a user-owned business.

6. Sourcing equity outside of membership, thereby resulting in conflicting goals and fiduciary responsibilities.

7. Attempts by board members to micro-manage the

business.

8. Engaging in large amounts of non-member business.

9. Efforts by the board chairman to also serve as chief

executive officer, creating lack of trust within the 

membership.

Ownership of delivery rights 

One successful new-generation cooperative in Minnesota

decided to expand operations in a state that was not even contiguous to it. Instead of selling delivery rights for supplying the

new plant to producers surrounding it, many of the delivery

rights were purchased by existing members in the distant state.

Similarly, some producers subscribed to more delivery rights

than they had the capacity to deliver from their own farms. 

This practice violates basic tenets of operating on a cooperative basis, in which value is added to the production of

one’s own farming operation. Instead, it appears that return

on investment was simply sought by processing someone

else’s raw commodities. 

Off-market purchases

The provision for purchases “off the market” in newgeneration cooperatives was put there because of the possibility of a drought, hail storm or disease that would make it

impossible for a member to fulfill his or her contractual
18 January/February 2001 / Rural Cooperatives

delivery obligation. To keep the plant running at capacity,

the cooperative could make purchases on the open market

in the member’s name. 

Some new-generation cooperatives have made this a common practice, again losing the traceability of production

from one’s own farm through the cooperative. This practice

again smacks of operating more like an investor-owned firm

than a user-owned business. Some California cooperatives

have even been processing non-member products (cash market) instead of using plant capacity to process members’

products under marketing agreements. This has led to member dissatisfaction in several instances and criticism that

members are being treated as residual claimants rather than

primary beneficiaries.

Leasing of delivery rights

Cooperative control should be vested in the hands of

active producers. The recent payment-in-kind (PIK) program for sugar beet growers disclosed that many sugar cooperative members — particularly older ones — had leased

their delivery rights to other producers. This presented many

administrative problems for USDA.

The sugar program notwithstanding, the fact that delivery

rights were leased clearly shows a problem. Growers holding

delivery rights, while not actively producing themselves, are

doing so based on expected appreciation in value of those

rights or for tax purposes regarding their estates. This is a

property rights issue, not unlike production quotas, which

requires active monitoring by boards of directors and the

need for policy direction. Otherwise, ownership in the cooperative could end up in the hands of retirees rather than

active producers.

The previous three practices are those particularly related to new-generation cooperatives. The following six are

related to all types of cooperatives including the new-generation variety.

Fixed-term market obligations

A Minnesota new-generation cooperative ran into severe

difficulty when its management entered into fixed-price contracts for sale of processed products at a time when a short

crop led to skyrocketing raw commodity prices. Millions of

dollars in losses occurred that threatened to wipe out a large

part of the entire grower equity base. 

In order to survive, the company had to seek an outside

equity investor, in this case a major investor-owned firm

that was in the same business. When it recovered from the

debacle, members wanted to buy out the outside firm, but

found resistance to liquidating the investment by the outside company, which had been given some control over the

cooperative’s marketing operations as a condition of investment. In an era of fluctuating commodity prices associated

with the global market, this shows that boards have to scrutinize management activities through policies that assure

continuity of operations. 

Hiring management from outside the industry

It is a necessity to secure top management that believes in

the cooperative method of doing business and understands

basic cooperative principles and practices. Numerous examples can be found where outside management is hired that

possesses little understanding of the cultural differences

between user-owned and investor-owned businesses, and

moreover are not predisposed to learning about them. As a

result, both board and management experience a great deal

of frustration that leads to under-performance. Similar situations can be found where a successful manager in one industry is brought in to another, but an understanding of the

essential nuances of that industry is missing. This results in

poor decisions and can lead to failure.

Outside Equity

A basic cooperative operating premise is that control follows investment. If farmers want to control their business,

they have to invest in it. There simply is no substitute for

grower equity in a cooperative. Some people like to promote

outside ownership in cooperatives without realizing that this

act changes the basic fiduciary relationship within the organization. Conflicting goals result between maximizing returns

to investors and maximizing returns to grower owner-users.

Basic methods of providing equity capital are through upfront subscription, retained annual earnings and per-unit

capital retains. One or a combination of these must be used

to finance the value-added marketing business. 

Using outside sources of ownership dilutes the purpose

and the direction of cooperatives — frequently making

them more management than producer controlled. Ready

sources of debt capital continue to be available to cooperaA basic cooperative operating premise is that control

follows investment. If farmers want to control their

business, they have to invest in it.
Rural Cooperatives / January/February 2001 19

tives that are creditworthy through the cooperative credit

system and other sources.

Board micro-management 

A key to successful cooperatives is good board-management relations. This is a practice that is a two-way street and

has to be worked on every day of the year. It requires constant education about the respective roles of each. Boards

must hire qualified managers in whom they have confidence

and then turn over the day-to-day managerial responsibilities to them. Boards set policies that guide managers and

provide them adequate room with which to manage. 

Periodic evaluations determine if objectives are being met

and whether corrective action is required. Managers have a

responsibility for maintaining good board-management relationships. Boards that develop an adversarial attitude toward

managers or attempt to second guess decisions by micromanaging are destructive.

As an example, the board of a commodity promotion

organization in Wisconsin was spending board meeting time

going over every check written by the association. A North

Dakota sugar beet cooperative lost a very resourceful manager because a few board members were attempting to dictate

hiring and other belt tightening measurers rather than letting

the manager handle it. These are examples of actions that

lead to mistrust that eventually can lead to the demise of a

cooperative.

Non-member business

Engagement in large amounts of non-member business

can lead to changing priorities in a cooperative. It is often

justified on the basis of using tax-paid surplus as a cushion for

losses. But it can also shift management’s attention to maximizing profits at this end of the business rather than enhancing returns to member-users. Over time, the culture of the

organization changes to operating more as an investor-owned

rather than a user-owned business. Recent developments in

Calavo exemplify this development. 

Attempts to wear two hats

Periodically, we see a board chairman who thinks he

should also wear the hat of the chief executive officer. This

situation is closely related to the former issue of micromanaging, but is a special case. While there is no question

that one of the primary responsibilities of a board of directors is to see that members’ assets are protected and that the

organization is being operated in the members’ interests,

attempts by board leaders to substitute their policy role

with executive management responsibilities simply doesn’t

work in cooperatives. 

Much progress, strong potential

Despite identifying certain practices that have been, or

have the potential to be, problematic for new-generation

cooperatives, there are many more success stories. The failure rate has not been high. We have to consider this new

form of organization as a work in progress in which continual

fine-tuning and adjustments will be made to enhance their

potential for success on all operational fronts: governance,

transfer of delivery rights, capitalization methods, pooling

rules, expansion options and membership relations.

A number of these projects typify farmers’ and ranchers’

efforts to identify niche markets that they can fill without

incurring the wrath of dominant players in the industry. As

smaller businesses, they are more nimble and can adapt their

marketing strategy within these market settings. In some cases, such as Dakota Growers Pasta Cooperative and sugarbeet

cooperatives’ marketing agencies in common, they may grow

to become top players in the industry. In others, such as

Spring Wheat Bakers and North American Bison Cooperative, they have identified niche markets that are not dominated by any major player. 

The Iowa Turkey Growers Cooperative has found its

mark in further processing of meats rather than selling whole

birds, and is rapidly expanding its role in luncheon meats for

delis and for private-label markets. U.S. Premium Beef has

developed a quality grid that rewards members for delivering

higher quality beef that meets consumer demand. As part

owner of the rapidly growing Farmland Foods cooperative

team, they are participating in retail markets through Walmart and other major outlets. A number of grain growers

have seen their ethanol cooperatives experience improved

margins with the rise in petroleum prices and the possible

reduction in the use of MTBE as a gasoline additive. Dozens

of others are up and running or on the launching pad.

Congress is supporting these efforts through loan guarantees for stock purchase in new value-added cooperatives,

grant programs that provide assistance in studies and help

defray some startup costs, establishment of a value-added

market development resource center and establishment of

cooperative centers that offer technical assistance. A proposal has even been introduced that would establish a government-sponsored equity capital venture fund to augment

these developments. And USDA recently announced a program that rewards processors for using more grains in

ethanol-producing facilities. Conversion of other forms of

biomass to energy are also the subject of expanded program funding.

In short, there is a lot of momentum and energy in the

value-added arena as farmers seek to strengthen income and

keep themselves in the driver’s seat at a time of rapid consolidation and concentration in the food industry. How will it all

turn out? Are these efforts too late? Or, are they on the cutting edge of new institutional market development?

The outcome will be determined by the strength of leadership offered, careful development of business plans and

marketing strategy, and proper capitalization. Ultimately, the

assurance that these businesses are set up on a user-owned,

user-controlled and user-benefitted basis will determine if

members are the primary beneficiaries. ■
20 January/February 2001 / Rural Cooperatives

By David Chesnick, Ag

Economist 

USDA Rural Development

Editor’s note: USDA’s annual look at the

financial performance of the top 100 U.S.

farm cooperatives has been condensed into a

single article this year, instead of the threepart series that has run in the past. A more

in-depth version of this article will soon be

available at: www.rurdev.usda.gov/rbs/

pub/miscell.htm . 

s go the farmers, so go

their cooperatives and

communities.

For yet another year, most

of the farming community

suffered through depressed prices. In turn,

this affected all agribusinesses, including

cooperatives. According to a preliminary

report from the Rural Business-Cooperative Service, Farmer Cooperative Statistics,

1999, there are 3,466 agriculture cooperatives. The business volume for all marketing, farm supply and related-service cooperatives dropped nearly 5 percent in 1999. 

This article focuses on the 100 largest

agricultural cooperatives because of their

dominance in the co-op community. The

contribution of the “top 100” co-ops to

total business transacted by all ag co-ops

illustrates their contributions. While representing only 3 percent of the total number

of agriculture cooperatives, they account for

58 percent of total gross business volume.

They also control 59 percent of total assets.

The largest 100 cooperatives vary

tremendously in their type and volume of business. The

total volume of business ranges from $63 million to $10.8

billion. The types of businesses include manufacturing,

farm supply sales, marketing and processing. While more

than half of the largest cooperatives sell farm supplies, only

those that sell predominantly farm supplies were included

in that category in this report. Cooperatives involved with

several commodities were classified as “diversified.”

Stagnant sales hamper agriculture cooperatives

Low prices and adverse weather put pressure on the farm

community. For the third consecutive year, operating revFinancial performance declines

for largest ag cooperatives in ‘99

A

Table 1—Consolidated statement of operations, 1998-99, Top 100

cooperatives

1999 1998 Difference Percent 

——— $ thousand ——— Change

Revenues

Marketing 50,481,262 50,104,312 376,950 0.75%

Farm Supply 16,143,245 16,598,476 (455,231) -2.74%

Total Sales 66,624,507 66,702,788 (78,281) -0.12%

Other Operating Revenues 541,922 612,823 (70,901) -11.57%

Total Operating Revenues 67,166,429 67,315,611 (149,182) -0.22%

Cost of Goods Sold 60,667,323 61,094,980 (427,657) -0.70%

Gross Margin 6,499,106 6,220,631 278,475 4.48%

Expenses

Operating Expenses 5,751,883 5,230,018 521,865 9.98%

Net Operating Margins 747,223 990,613 (243,390) -24.57%

Other Revenues (Expenses)

Interest Expense (634,149) (566,210) (67,939) 12.00%

Interest Revenue 69,123 92,045 (22,922) -24.90%

Other Income 359,583 341,188 18,395 5.39%

Other Expenses (54,696) (60,211) 5,515 -9.16%

Patronage Revenue 47,783 96,999 (49,216) -50.74%

Net Margins from Operations 534,867 894,424 (359,557) -40.20%

Non-Operating Rev. (Exp.) 11,974 (10,582) 22,556 -213.15%

Net Margins 546,841 883,842 (337,001) -38.13%

Prior year restated on all tables
Rural Cooperatives / January/February 2001 21

enues for the largest ag cooperatives slipped. While some

bright spots existed, most of the largest organizations did not

fair well in 1999. Sixty-four of the top 100 saw revenues

decline. The hardest hit were cotton, farm supply and grain

cooperatives, which accounted for the majority of lower sales.

As shown in Figure 1, marketing revenues generally held

steady during the last three years. Farm supply sales on the

other hand declined steadily from their high in 1997 of $20.6

billion. Other operating income dropped as well.

In the two-year comparison of sales revenue (Table 1), total

farm supply sales by all top 100 co-ops fell 2.7 percent, to

$16.1 billion, while sales by top 100 co-ops that specialize in

farm supplies fell 2.5 percent, to $5.4 billion. Grain and cotton cooperatives also took large hits to their revenues. Cotton

fell 23 percent to $1.8 billion while grain fell 19 percent to $3

billion. Production of both cotton and grain increased from

1998. However, prices fell thereby suppressing the overall

sales for these cooperatives (Table 2). 

The bright points included increased

total revenue for sugar, dairy, fruit/vegetable, and poultry/livestock cooperatives. However, the gain made in these

sectors couldn’t overcome the drop in the

other sectors.

Gross margins show resilience to

sluggish sales.

Gross margins for all 100 cooperatives

(Table 3) jumped 4 percent despite stagnant sales. The poultry/livestock sector

caused most of the jump. 

While all cooperatives in that sector had

an increase, one cooperative accounted for

nearly one-third of the total increase in

gross margins for the top 100 co-ops.

Higher expenses hurt operating income

An increase in operating expenses for the

cooperatives wiped out any gains made from

higher gross margins. Operating expenses

jumped 10 percent in 1999, the largest increase in the five-year

period examined. 

Labor expenses account for some of the increase. The

average increase for labor was 5 percent in 1999. Only some

cooperatives and sectors could control labor costs. Cotton

cooperatives had lower operating expenses, due almost entirely to lower labor costs. Rice cooperatives also had overall lower labor costs. However, they were also able to find greater

operating efficiencies that lowered their expenses further.

The other sectors showed higher labor costs and higher

overall operating costs. However, most were able to control

some of their operating costs despite huge increases in labor

expenses. 

These overall higher operating expenses hurt operating

margins (Table 4). Operating margins for all cooperatives fell

25 percent to $747 million in 1999. All sectors except poultry

& livestock and sugar cooperatives ended the year with lower

operating margins. 

Lower interest rates made debt financing more attractive.

High debt pushed interest expenses to 1980 levels. Interest

expenses jumped 12 percent to $634 million. While not a crisis, there should be some concern by cooperatives if interest

rates climb.

Most of the increase in interest expense can be attributed

to diversified and fruit/vegetable cooperatives. These two

groups accounted for two-thirds of the total increase in interest expenses as well as the total increase in debt. Farm supply

and sugar cooperatives were the other two commodities with

increased interest expenses. Fruit/vegetable, farm supply and

sugar cooperatives had a major firm in each sector that

pushed interest expenses higher while the others in their

respective groups remained consistent. The other sectors all

showed lower interest expenses. 

Table 2—Total operating revenue by commodity group, 1998-99, Top

100 Cooperatives

Total Sales and Operating Revenue

1999 1998 Difference Percent 

——— $ thousand ——— Change

Cotton 1,913,399 2,492,752 (579,353) -23.2

Dairy 18,421,051 17,170,810 1,250,241 7.3

Diversified 24,508,109 24,674,277 (166,168) -0.7

Fruit & Vegetable 7,005,105 6,748,965 256,140 3.8

Farm Supply 5,353,663 5,489,923 (136,260) -2.5

Grain 5,094,027 6,164,594 (1,070,567) -17.4

Poultry & Livestock 2,448,339 2,282,089 166,250 7.3

Rice 1,136,630 1,173,017 (36,387) -3.1

Sugar 1,286,106 1,119,184 166,922 14.9

year

$ billion

■ other operating income

■ farm supply

■ marketing

60

40

20

0 1995 96 97 98 99

Figure 1

Sources of total

operating revenue, 1999

80
22 January/February 2001 / Rural Cooperatives

Patronage refunds received for all cooperatives fell to a new

decade low. Patronage refunds from other cooperatives declined

51 percent, to $48 million. Cotton and dairy cooperatives were

the only sectors to receive higher patronage refunds. The major

decline occurred in diversified and grain cooperatives. 

Interest income for all co-ops also dropped 25 percent, to $69

million. Interest income includes revenue earned on member

accounts and finance subsidiaries. For some cooperatives, interest

income is substantial and represents up to 7 percent of total revenue. For most co-op, it represents less than 1 percent of total

revenue. Every commodity group had lower interest income.

Other income/expense represents earnings or losses associated with joint ventures or unconsolidated subsidiaries. Generally, this income indirectly relates to operations. For all coops, other income/expense reached record levels, jumping 9

percent to $305 million. While most sectors showed higher

amounts of other income, diversified and fruit/vegetable

cooperatives account for 85 percent of the total increase. Only

dairy and poultry/livestock cooperatives had lower other

income. Usually these other income/expenses are not substantial. However, eight cooperatives would have ended 1999 with

a loss if not for income generated by these sources.

Net margins continue to slide

After peaking in 1995, net margins before distribution

for the largest agriculture cooperatives turned downward.

Figure 2 illustrates this point. While cooperatives generated higher margins on their sales, they were not able to

control operating expenses. These expenses eroded their

bottom line. Table 5 shows net margins for each commodity group. Sugar co-ops showed higher margins only

after suffering losses in the prior two years. They turned

their operations around and ended 1999 with $2 million

in net margins. However, persistent slumping sugar prices

will continue to put pressure on these cooperatives.

Allocated patronage refunds decline

Members did not get back much in the way of allocated

patronage refunds in 1999 (Figure 3). Not only were there fewer margins to distribute, but also the largest cooperatives allocated a smaller percent of their income than in past years. Table

6 shows the distribution of net margins by commodity type.

Cooperatives allocated only 64 percent of their net margins to members, compared with 75 percent in the prior

years. Income taxes took a larger chunk of net margins in

1999 than in 1998. Retention of a higher percent of net margins was partially to blame. However, nonmember business

Table 4—Operating margins by commodity group,

1998-99, Top 100 Cooperative

Operating Margins 

1999 1998 Difference Percent 

—— $ thousand —— Change

Cotton 64,323 77,747 (13,424) -17.3

Dairy 186,140 209,571 (23,431) -11.2

Diversified 183,229 335,008 (151,779) -45.3

Fruit & Vegetable 116,550 189,457 (72,907) -38.5

Farm Supply (20,914) 107,094 (128,008) -119.5

Grain 49,875 98,451 (48,576) -49.3

Poultry & Livestock 119,246 (80,174) 199,420 -248.7

Rice 18,143 32,470 (14,327) -44.1

Sugar 30,631 20,989 9,642 45.9

Figure 2—Net margins before distribution,

1999

$ Billion

1.6 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

1.4 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

1.2 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

1 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

0.8 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

0.6 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

0.4 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

0.2 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

0 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

1995 96 97 98 99

Year

Table 3—Gross margins by commodity group,

1998-99, Top 100 Cooperative

Gross Margins

1999 1998 Difference Percent 

—— $ thousand —— Change

Cotton 141,258 161,792 (20,534) -12.7

Dairy 1,074,521 1,071,627 2,894 0.3

Diversified 1,574,936 1,520,525 54,411 3.6

Fruit & Vegetable 1,846,556 1,747,684 98,872 5.7

Farm Supply 589,706 648,388 (58,682) -9.1

Grain 437,257 474,192 (36,935) -7.8

Poultry & Livestock 218,978 7,042 211,936 3009.6

Rice 299,928 327,962 (28,034) -8.5

Sugar 315,966 261,419 54,547 20.9
and other ventures contribute to the increase as well. 

Cooperatives also are paying out more dividends. These dividends are not the same as patronage dividends paid on business

done with the cooperative, but rather dividends paid on shares

owned. Some cooperatives are using more non-patronage

sources of equity to help finance their operation and expansion.

Total assets jump as co-ops accumulate more debt

Despite slumping sales, cooperatives continue to increase

their asset base. Assets for all cooperatives jumped 7 percent in

1999 (Figure 4), ending the year with a value of $28.2 billion. 

Current assets increased 5 percent, to $13.7 billion. Cooperatives were holding a higher percentage of cash in 1999

than in 1998. While both accounts receivable and inventory

increased, their percentage of total assets fell for the fifth

straight year. This would indicate that cooperatives are trying

to adjust to a declining agriculture economy.

The largest increase in assets occurred in investments, and

joint ventures accounted for most of it. The largest increase

in investments was with non-cooperative- joint ventures and

unconsolidated subsidiaries. 

Property, plant and equipment expanded 7 percent, to

$8.4 billion. These fixed assets represent 30 percent of total

assets, the same percentage as in 1998.

Expansion of assets fueled by higher debt

Liabilities financed 80 percent of asset expansion in 1999.

Total liabilities climbed 9 percent, to $17.7 billion in 1999.

Leading the way was debt. Total short- and long-term

increased by $1.3 billion. 

Current liabilities increase by 5 percent, to $10.1 billion.

Short-term debt and accounts payable were the leading

causes of this increase. Those liabilities owed to members —

either through cash patronage and other revolving equity or

through pool liabilities — fell by $313 million. All this leads

to a higher leveraged cooperative and greater influence from

outside creditors. 

Rural Cooperatives / January/February 2001 23

Table 5—Net margins by commodity group,

1998-99, Top 100 Cooperative

Net Margins 

1999 1998 Difference Percent 

—— $ thousand —— Change

Cotton 58,187 61,579 (3,392) -5.5

Dairy 222,766 300,239 (77,473) -25.8

Diversified 134,091 336,610 (202,519) -60.2

Fruit & Vegetable 6,905 87,615 (80,710) -92.1

Farm Supply (66,170) 84,305 (150,475) -178.5

Grain 80,864 137,189 (56,325) -41.1

Poultry & Livestock 95,149 (137,252) 232,401 -169.3

Rice 12,913 21,042 (8,129) -38.6

Sugar 2,136 (7,485) 9,621 -

Table 6—Distributrion of net margins by commodity type, 1999

Cotton Dairy Diversified Fruit & Farm Grain Poultry & Rice Sugar

Vegetable Supply Livestock

Cash Patronage 24,811 68,088 44,479 3,923 7,350 21,243 2,417 6,890 -

Retain Patronage 12,917 78,977 72,391 (84,941) 18,409 40,913 12,314 415 -

Nonqualified Noncash Patronage 521 - - 17,211 - 1,843 - - -

Dividends 24,261 944 11,398 8,195 1,081 55 - 491 -

Unallocated Equity (4,240) 52,146 1,357 29,828 (85,929) 12,089 46,099 5,389 752

Income Tax (83) 22,611 4,466 32,689 (7,081) 4,721 34,319 (272) 1,384

Total Distribution 58,187 222,766 134,091 6,905 (66,170) 80,864 95,149 12,913 2,136

year

$ billion

■ Income Tax

■ Dividends

■ unallocated

■ Allocated

1995 96 97 98 99

Figure 3

Distribution of 

net margins,

1995-1999 1.2

1

0.8

0.6

0.4

0.2

0

1.6

1.4
Non-current liabilities posted a 

15 percent jump, ending 1999 at $7.6

billion. Long-term debt was the major

influence on this increase, jumping $912

million. Fruit/vegetable, farm supply

and diversified cooperatives contributed

the largest increases in long-term debt.

Only a few cooperatives dominated the

fruit/vegetable and farm supply arena

while most cooperatives in those two

sectors actually had lower long-term

debt. Every cooperative in the diversified group showed higher debt levels.

Equity climbs but is 

overshadowed by debt

Equity for the largest agriculture

cooperatives increased 3 percent, to a

record high level of $9.9 billion. Every

category of equity increased, with

member equity having the greatest

increase (Figure 5). Member equity,

which includes common stock, preferred stock, equity certificates and

credit, jumped $286 million, ending

1999 at $8 billion. Unallocated equity

increased 1 percent, to $1.9 billion.

However, the increase in equity did not

rise as much as the

liabilities of these

co-ops.

Large co-op

performance

continues to take

beating

The average

performance measures for all 100

cooperatives continued to show

deterioration over

the prior year.

The tools developed to analyze the cooperative’s

financial information include several

performance measurements or ratios

(Table 9). These measurements are

standard ratios found in most financial textbooks. 

The current and quick ratios examine

the cooperative liquidity. Both ratios

show that the average cooperative liquidity has been eroding over the 4 years

preceeding 1999. The current ratio fell

from 1.37 to 1.36 between 1998 and

1999. The quick ratio fell from .76 to

.74 during the same period. While this

change is relatively small, it does support the assumption stated earlier that

most cooperatives are relying more

heavily on outside financial sources.

With short-term debt and accounts

payable increasing faster than current

assets, cooperatives are also relying

more on outside sources to finance their

day-to-day operations.

Other ratios, such as days-to-sell

24 January/February 2001 / Rural Cooperatives

Table 7—Condensed balance sheet by commodity type, 1999

Cotton Dairy Diversified Fruit & Farm Grain Poultry & Rice Sugar

Vegetable Supply Livestock

——————————————————$ Thousand—————————————————

total current assets 438,500 2,108,381 5,313,040 2,359,946 1,370,433 952,116 511,403 265,668 367,738

total investments 56,221 1,009,457 1,322,259 467,446 596,997 283,920 111,334 34,956 116,670

net pp&e 164,122 1,074,905 2,513,678 1,358,489 1,406,667 786,055 255,874 182,009 692,964

other assets 15,168 97,919 1,249,567 283,033 170,679 102,897 99,635 3,101 13,928

total assets 674,011 4,290,662 10,398,544 4,468,914 3,544,776 2,124,988 978,246 485,734 1,191,300

total current liabilities 304,370 1,658,250 4,166,028 1,523,412 8,517,724 766,838 397,678 181,772 291,712

total noncurrent liabilities 81,674 699,174 3,051,421 1,624,168 1,005,382 341,554 277,006 66,913 461,000

total liabilities 386,044 2,357,424 7,217,449 3,147,580 1,857,154 1,108,392 674,684 248,685 752,712

minority interest - 302,658 109,380 43,000 7,444 70,297 1,048 - 947

member equity 263,200 1,256,627 2,636,213 1,007,971 1,286,207 721,942 217,941 161,644 451,219

unallocated capital 24,767 373,953 435,502 270,363 393,971 224,357 84,573 75,405 -13,578

total equity 287,967 1,630,580 3,071,715 1,278,334 1,680,178 946,299 302,514 237,049 437,641

total liabilties and equity 674,011 4,290,662 10,398,544 4,468,914 3,544,776 2,124,988 978,246 485,734 1,191,300

Figure 4

$ billion

year

■ other assets

■ Net PP&E

■ Investments

■ Current assets

1995 96 97 98 99

Figure 4

Asset allocation,

1995-1999 25

20

15

10

5

0

30
Rural Cooperatives / January/February 2001 25

inventory and days-in-accounts receivable, also point to lower liquidity.

Days-to-sell inventory represents the

average number of days a cooperative

holds inventory before marketing it.

This ratio increased from 51.6 to 54.1

days. Similarly, days-in-accounts

receivable represents the average number of days cash is tied up in accounts

receivable. This value increased from

27.8 to 32.1 days. An increase in these

values would indicate a less liquid position and a greater need to manage

inventory and accounts receivable.

Leverage ratios show the risk associated with financing and the cooperatives’

ability to meet their long- and shortterm obligations. The debt-to-asset ratio

illustrates an asset financing option. In

1999, the debt-to-asset ratio was 0.6, up

from 0.59 in 1998. Looking at it another

way, members financed only 40 percent

of assets directly. Examining long-term

financing, we focus on the long-term

debt-to-equity ratio. This ratio jumped

from 0.5 in 1998 to 0.58 in 1999. 

While leveraging a cooperative is

not necessarily a bad thing, it does put

more risk on the business. The biggest

risk comes from a co-op defaulting on

its loans. An examination of the timesinterest-earned ratio provides a quick

look at that scenario. The times-interest-earned ratio looks at the number of

times interest expense is covered by net

margins with interest added back. This

ratio fell from 5.2 to 3.8 in 1999. While

there is no current crisis, the leverage

ratio points to a situation where cooperatives are leveraging themselves at a

time when their businesses are beginning to show some financial stress.

Activity ratios look at how well the

cooperative uses its assets. Again, cooperatives are finding activity ratios sliding. Local-asset-turnover, calculated by

taking total revenues divided by local

assets, dropped from 3.5 to 3.2. This

represents the amount of revenue generated by each dollar invested in local

assets. Local assets are total assets less

investment in other cooperatives. This

seems to indicate that revenues are not

keeping pace with the growth in the

cooperative’s assets. Fixed-assetTable 8—Combined balance sheet all Top 100 co-ops, 1998-99

Assets 1999 1998 difference % change

—————$ Thousand—————

Current Assets

Cash 859,316 745,714 113,602 15.2%

Accounts Receivable 5,701,565 5,460,916 240,649 4.4%

Inventory 6,024,047 5,698,768 325,279 5.7%

Other Current Assets 1,102,297 1,176,749 (74,452) -6.3%

Total Current Assets 13,687,225 13,082,147 605,078 4.6%

Investments

Investment in cooperatives 2,119,593 2,052,184 67,409 3.3%

Investment in others 1,879,667 1,459,836 419,831 28.8%

Total Investments 3,999,260 3,512,020 487,240 13.9%

Net PP&E 8,434,763 7,883,924 550,839 7.0%

Other Assets 2,035,927 1,807,042 228,885 12.7%

Total Assets 28,157,175 26,285,133 1,872,042 7.1%

Liabilities

Current Liabilities

Total Short-term Debt 3,308,836 2,885,950 422,886 14.7%

Accounts Payable 3,667,197 3,347,622 319,575 9.5%

Member Payables 422,870 595,287 (172,417) -29.0%

Patron and Pool Liabilities 1,164,744 1,305,463 (140,719) -10.8%

Other Current Liabilities 1,578,185 1,494,550 83,635 5.6%

Total Current Liabilities 10,141,832 9,628,872 512,960 5.3%

Long-term Liabilities

Long-term debt less 6,428,116 5,516,117 911,999 17%

current portion

Other liabilities and 1,180,176 1,094,291 85,885 7.8%

deferred credits

Total noncurrent liabilities 7,608,292 6,610,408 997,884 15.1%

Total liabilities 17,750,124 16,239,280 1,510,844 9.3%

minority interest 534,774 481,846 52,928 11.0%

member equity

preferred stock 1,572,153 1,421,296 150,857 10.6%

common stock 727,470 678,745 48,725 7.2%

equity certificates 5,703,341 5,617,068 86,273 1.5%

and credits

unallocated capital 1,869,313 1,846,898 22,415 1.2%

total equity 9,872,277 9,564,007 308,270 3.2%

total liabilities and equity 28,157,175 26,285,133 1,872,042 7.1%
turnover also fell, from 15.5 to 14.8. 

These ratios indicate cooperatives

are losing efficiency in their asset use.

In other words, cooperatives are

increasing the amount of assets they

hold but these assets are not generating

the revenues they once did.

Profitability ratios, while limited as an

absolute indicator, do provide a view of

financial strength for the cooperative.

We have already seen that cooperatives

were less profitable and efficient with

their assets. Therefore, we would expect

return on assets to fall and indeed that is

what we find. Return on total assets, calculated as net margins plus taxes and

interest expense

divided by total

assets, fell from 7.4

to 6.2 in 1999. This

ratio focuses on the

operation itself

without respect 

to cooperative

financing. 

Return on member equity looks at

the return on

member investment after deducting all expenses,

including taxes and

interest. Here we

can see the effects of leveraging on the

cooperative. While the return on

assets fell 1.2 points, the return on

member equity fell from 12.1 to 9.1.

Leverage, in affect, caused a greater

proportional drop in member returns.

This is the risk of using borrowed

capital. Interest must be paid whereas

members must take what is left over.

Cooperatives must brace for the future

Overall, cooperatives are finding

themselves in a “catch 22” position. With

depressed agriculture conditions, cooperatives are finding their bottom line

shrinking. Since traditional equity financing for cooperatives relies on their net

margins, cooperatives are increasingly

turning to outside sources of capital to

fund their operations. This action puts

further pressure on their expenses, with

higher interest payments cutting deeper

into their net margins. If cooperatives did

not borrow funds, it would be more difficult for them to fund expansion. Putting

off these investments will make it hard to

increase efficiencies in their operations

and thus cut into their future net margins.

While it is not time to panic, cooperatives must balance their need for

capital with their need for investment.

Many cooperatives are taking a proactive approach to funding as well as to

how they are conducting their operations. We see various experiments with

new forms of funding, but there are no

“sliver bullets” for financing cooperatives. Mergers, consolidations and

joint ventures (with both cooperatives

and non-cooperatives) are other ways

cooperatives are trying to streamline

their operations. A few questions

remain. Will the agriculture economy

finally recover enough for the remaining cooperatives to survive? Are these

cooperatives in a position to weather a

tight agriculture economy or will more

change be forthcoming? ■

26 January/February 2001 / Rural Cooperatives

Table 9—Ratios by commodity group, 1999

Current Quick Debt-to-asset L-Term debt-to Times interest Local asset Fixed asset Gross profit Net operating ROA ROE

Equity earned turnover turnonver margin margin

———Ratio———— —————Times————— ————————Percent———————

All coopeatives 1.36 0.74 0.60 0.58 3.78 3.19 14.85 15.12 1.76 6.19 9.05

Cotton 1.60 0.96 0.54 0.23 6.02 3.54 21.83 10.89 4.42 11.73 19.12

Dairy 1.29 0.85 0.59 0.32 7.71 5.32 28.24 9.61 1.61 8.01 14.94

Diversified 1.36 0.90 0.70 1.43 1.84 2.22 9.16 12.24 1.50 4.15 4.48

Fruit/Vegetable 1.49 0.74 0.67 0.88 2.56 2.10 9.94 24.36 2.07 4.41 6.07

Farm Supply 1.43 0.63 0.57 0.58 2.37 2.31 8.67 16.13 1.60 4.75 3.66

Grain 1.27 0.66 0.54 0.40 4.06 3.03 8.60 12.54 1.04 6.34 9.50

Poultry/livestock 1.20 0.90 0.78 0.79 0.33 4.57 59.58 5.78 2.04 6.15 4.26

Rice 1.56 0.73 0.51 0.32 3.11 2.54 6.26 28.16 2.52 6.47 10.23

Sugar 1.22 0.55 0.63 1.03 1.13 1.03 1.63 24.30 2.96 3.22 0.42

year

$ billion

■ unallocated capital

■ equity certificates and credits

■ common stock

■ preferred stock

1995 96 97 98 99

Figure 5

Sources of equity,

1995-1999 10

8

6

4

2

0

12
Rural Cooperatives / January/February 2001 27

Katherine L. Hanson, Education

Specialist 

USDA Rural Development

n Minnesota, a group of

teachers and education

professionals has turned

to a cooperative in an

attempt to improve

accountability for student performance

and overall school success. Its members

are seeking alternatives to the existing

framework of traditional educational

governance and structure through a

teachers’ cooperative. They have taken

control of their instructional programs

and professional futures. 

In 1994, a group of educators at the

Minnesota New Country School

(MNCS) in the Minnesota River Valley

took these goals to heart by forming

EdVisions

Teacher Cooperative.

MNCS

was

originally located in three storefront

buildings in the sponsoring district of

LeSueur-Henderson, about 60 miles

southwest of Minneapolis. The school

opened its doors with 65 students, and

has since increased its enrollment to

130 students in grades 7-12. The

increased enrollment forced MNCS

officials to relocate from LeSueur to a

new, $1.2 million facility in Henderson.

The new building was the result of a

partnership between USDA Rural

Development and local investors. 

It is no coincidence that MNCS is an

innovative public charter school enjoying

substantial success in terms of state-measured student achievement. The MNCS

teachers were confident their approaches

to teaching would make a difference, and

they were eager to have more control

over the educational process. 

The cooperative of professional

teachers would operate on a new

premise quite different from that of a

large teacher’s union. As member-owners, they would gain true site-based

management and control of educational resources. 

Ted Kolderie of the Center for

Policy Studies in St. Paul supported

the EdVisions Cooperative from its

inception. He

says many

educators

were disenchanted

with their

teacher’s union,

and viewed the organization as a “protector

of the teaching profession, rather

than an enhancer of education.” He

believed teachers would act differently if they were at least “spiritual owners” of their instructional program.

Likewise, fellow EdVisions founder

Ron Newell felt a teacher cooperative

would encourage professional collegiality and nurture a sense of responsibility for professional development.

Teachers were eager for the opportunity to have a say in the quality and

quantity of their training. Many

teachers said they felt as though they

were working at the will of the administrators in the traditional public

school. By marketing their services to

the school board, the members of this

cooperative ensured that the administrators were instead working at the

will of the teaching professionals. By

becoming their own bosses, the EdVisions teachers could influence career

decisions directly impacting themselves and their program.

Cooperative Advantages

According to Newell, one very positive aspect of the teacher cooperative

is that student learning activities benefit from money saved in the system.

The advantages a teacher cooperative

can offer in terms of increased autonomy are obvious. However, what are

some other benefits of this type of

worker cooperative? 

In EdVisions, the educator-owners

carry many different responsibilities

in addition to teaching. Some of

these duties include establishing and

maintaining insurance and benefits

packages for co-op employees, marketing the school to attract students,

and preparing payrolls. By serving as

EdVisions 

Minnesota teachers’ co-op serves rural charter schools 

I

EdVisions teacher Dean Lind offers advice to a MNCS student.

Photos courtesy MNCS student Dan Madlo and EdVisions
their own governance system, the

members eliminate about 20 percent

of the costs normally associated with

administrative staffing duties. This

can be especially difficult since charter schools deal with twice as much

paperwork as do their traditional

counterparts.

Dean Lind is a veteran teacher at

MNCS and a charter member of

EdVisions. Like many in the organization, Lind must assume responsibility for a portion of the administrative operations of the cooperative.

“The original intent of the charter

school law was to help reduce the

paperwork associated with school

operations. However, because we

represent small, independent schools,

EdVisions can’t take advantage of the

economy of scale in a larger administration to spread the workload more

evenly,” Lind explains. “Further,

charter schools are scrutinized much

more closely in terms of accountability, which contributes to the paperwork burden.” 

Membership in this worker-owned

cooperative is not limited to professional educators. EdVisions provides a

voice to the people who are directly

involved with, and affected by, decisions regarding teachers. In their

eagerness to make the educational

process an interactive one, EdVisions

members invite parents to join the coop. Since parents are “outsiders” to

the teaching profession – and not

directly affected by administrative

decisions such as salary, benefits, and

staff development — the potential for

friction exists.

According to Newell, there has been

no dissension among the members

based on whether they are teachers or

parents. By contrast, the parents defer

to teachers on career-affecting decisions and are more concerned with curriculum and instruction issues. 

Another cooperative advantage is its

ability to pool resources and ideas with

other teacher-members who are also

striving to deliver guaranteed academic

achievements that ensure job retention.

If a particular method or activity proves

28 January/February 2001 / Rural Cooperatives

Why are teachers seeking

alternatives to the traditional, topdown administrative systems in

education? Consider the state of

education in America’s burgeoning

society.

Education is a top priority for

the new Bush administration.

Many public school systems are in

a state of crisis with rising enrollments and falling academic

achievement. There are more children enrolled in school now than at

any time in American history, and

that number is increaseing at a

phenomenal rate in some districts.

Last September, 53 million children

entered U.S. public and private

schools – an increase of 8 million

schoolchildren in the last 15 years. 

At the same time, many public

education systems have failed to

accomplish the goals established

by state and federal mandates.

Many districts have not re-invested in their school buildings as they

compete with other government

programs for tax dollars.

These factors translate into

increased demands for academic

accountability. Parents, teachers,

administrators and legislators recognize the need for education

reform and improved teaching

methods. Public education reforms

have provided innovative, marketbased alternatives to the traditional system. Teachers in the trenches fighting the accountability

battle have real-life ideas for

change that could improve student

performance. Quite simply, they

recognize the need for change in

the education business.

In addition to the first-known

teachers’ cooperative, another

part of the reform effort originating

in Minnesota was the nation’s first

charter school, formed in 1991. A

charter school operates on public

funds, under a written agreement

between a school and a granting

authority. What makes a charter

school different is its freedom from

most administrative constraints

that traditionally encumber public

schools.

The trade-off is that a charter

school must demonstrate greater

accountability in exchange for

autonomy. Achieving performance

standards stated in the charter is

the basis for its periodic renewal.

The school faces suspension or

closure if it fails to meet accepted

standards. Naturally, if a charter

school closes, its teachers are out

of a job. 

This novel approach has

encouraged teachers and education professionals to be more creative in their curriculum design,

development and delivery. Charter schools, proponents say,

allow for freedom in the development of customized curricula and

educational programs. Indeed,

although charter schools are

accountable for the academic

achievement of their students,

the methods by which they produce those results are completely

individual. 

Teachers get the flexibility and

independence to customize learning opportunities to meet the

needs of their specific students.

This ability to empower teachers

and make them stakeholders in the

educational process makes charter schools popular educational

options. From this environment of

autonomy and accountability, a

new breed of teachers has

emerged. More importantly, these

teachers want to own their services, and market those services

competitively. ■

Educational challenges pose 

need for change
highly successful to one teacher, it benefits the entire cooperative to share that

success and spread the educational

wealth. In this way, school “A” can help

train school “B” in the successful cooperative principles. Cooperatives can

share state-required standardized testing materials, thus reducing costs and

increasing efficiency. 

One distinguishing feature of a

teacher cooperative is its reimbursement system. Teachers no longer

receive their paychecks from the district. Instead, the sponsoring district

pays the school to hire teachers, the

school pays the cooperative for the

teachers’ services, and the cooperative

pays the teachers. There is no relationship between the teachers and the

sponsoring district, but legislation entitles the cooperative’s teachers to the

same state retirement benefits as nonco-op teachers. 

EdVisions teachers are employees

of the school, employees of the cooperative, and self-employed memberowners. In a sense, the triple-employment aspect of this cooperative offers

the best of two worlds – teachers gain

educational independence and governance control without sacrificing the

benefits and protections normally

associated with traditional teacher

employment situations.

Cooperative growth

What began as a handful of visionary teachers and education professionals has grown to include nearly 90

members. This cooperative has been so

successful that the Bill and Melinda

Gates Foundation has awarded it a substantial grant (see sidebar) to replicate

the governance system by creating 10

new organizations in 15 new charter

schools in Minnesota and Wisconsin.

As EdVisions implements the 10 new

co-ops, it will realize its vision of

becoming a “nationwide cooperative,”

with “individual cells of locally controlled cooperative members.” In

achieving that goal, EdVisions will grow

large enough to gain economy-of-scale

for administrative purposes, benefits

packages and professional development

opportunities, while retaining teacherlevel control. As it grows, so will the

repository of available teaching strategies, activities, and creative practices of

its member-owners.

Based on the success of the EdVisions Teacher Cooperative and the satisfaction of its professional memberowners, the future looks bright for

others in the field of education who

want to create opportunities for

increased involvement in owning and

operating educational entities. Prospective members will be entrepreneurs

who are ready to challenge the existing

molds of educational thinking, and lead

the way into a new century of changing

educational paradigms. ■

Rural Cooperatives / January/February 2001 29

The EdVisions instructional philosophy encourages independent learning in non-traditional

settings. 

The member-owners of EdVisions Teacher Cooperative have made big

believers out of some influential friends of the education community. Last September, the Bill and Melinda Gates Foundation awarded a $4.5 million grant to

this group of innovative education professionals. The grant has a twofold purpose: it is being used in the replication of the EdVisions teacher-owner governance model and the learning model at the Minnesota New Country School,

where EdVisions was founded. Over the next five years, the EdVisions project

will create 15 new schools modeled after the highly successful instructional

approach refined at the Minnesota New Country School. 

This sizeable award is just a small part of a larger $56 million initiative

aimed at supporting schools that provide small, focused learning environments. The Bill and Melinda Gates Foundation is dedicated to helping all

students achieve at high levels by recognizing and encouraging highachieving schools and developing strong leadership throughout the education system. This desire to improve people’s lives through education is evidenced by the foundation’s three-year, $350 million commitment to that end.

Led by Bill Gates’ father, William H. Gates, Sr., and Patty Stonesifer, the

Seattle-based foundation has an asset base of $21.8 billion. Information on

the Bill and Melinda Gates Foundation’s education grants can be found at

http//www.gatesfoundation.org/learning/education. ■

Foundation Awards $4.5 Million to

EdVisions, Minn. New Country School
30 January/February 2001 / Rural Cooperatives

U.S., Canadian Pasta Co-ops Link

Officials from Dakota Growers Pasta Company, Carrington, N.D., and

Prairie Pasta Producers, Carlyle,

Saskatchewan, signed a

memorandum of

understanding Jan. 25

outlining how the two

durum co-ops will

work together in building an international,

farmer-owned, valueadded pasta company.

The partnership is a

proactive approach

positioning Dakota

Growers Pasta Company in an increasingly

competitive global pasta market. “We’re trying to do what is right for the farmer.

This is not an action that will allow the

dumping of Canadian durum into U.S.

markets,” said Tim Dodd, president of

Dakota Growers Pasta Company.

Perry MacKenzie, board chairman of

Prairie Pasta Producers, sees the preliminary understanding as a positive opportunity for Canadian durum producers.

“Together, Prairie Pasta Producers and

Dakota Growers Pasta Company can

work toward developing a level playing

field for durum producers in North

America.” Dakota Growers Pasta Co.

now can allow non-United States entities

and associations of agricultural producers

to join the cooperative. 

“It is very important to our members

that this company remain farmerowned,” said Dodd. New associations

that apply for cooperative membership

must be grower owned and require

board approval. “Our mission is twofold,

but is very simple: providing our customers with premium quality pasta

products and maximizing returns to our

grower-members.” Dodd embraces the

idea of including all durum producers

from the durum triangle

region of the northern plains

to create a single producerowned pasta company. 

“The pasta industry is in

the state of overcapacity. We

have quadrupled our pasta

capacity and milling needs

over the last seven years.

Enrolling Canadian farmers

into our cooperative provides a broader base to select

durum that meets the quality

needs our customers have

come to expect. By working

together with the Canadian

farmers, we can accomplish more than

working against one another.”

The overcapacity market issue has

been clearly identified by Prairie Pasta

Producers in its feasibility study and

business plan as well. The group has

recognized that building a “greenfield”

plant presents tremendous risk at a

time that the pasta industry is fighting

for market share at less than desirable

prices. This agreement would allow

them to work together in Dakota

Growers Pasta Co. rather than against

them. The next step for the two organizations is to develop a definitive

agreement that can be submitted to the

Saskatchewan Securities Commission.

Three-person panel to settle raisin

deadlock

Raisin packers and growers in California are in the midst of a serious

impasse over the field price for raisins.

Prices are normally set by October, but

in late January the price was still unsettled and growers were left without payment for much of their crop while packers were trying to deal with the food

industry without knowing their ultimate

costs for raisins. In the latest development, Superior Court Judge Stephen

Kane in Fresno ruled that a three-member arbitration panel will be used to

determine the price. According to the

Fresno Bee, this is the first time in the

34-year history of the Raisin Bargaining

Association that the matter has been

moved to arbitration because of a deadlock between growers and packers. 

Potato co-op seeks answers to crop

surplus 

Northwest potato growers are struggling to survive in a supply-bloated

market that has seen prices plunge to

about one cent per pound for a crop

that costs them about five cents per

pound to produce. To help reduce the

surplus, a new cooperative, Potato

Management Inc., has been formed by

Potato Growers of Idaho. The co-op

hopes to dispose of 10 percent of the

crop – or about 400 to 600 million

pounds of the 1.5-billion pound crop.

By reducing the over-supply and

encouraging members to reduce their

planted acreage, the co-op hopes to drive prices back up. In late January, the

co-op was donating spuds to charitable

organizations to feed the needy. 

Executive director sought for

Cooperation Works

Cooperation Works, the national network of cooperative developers and centers, is conducting a nationwide search

for an executive director. The North

Dakota Association of Rural Electric

NEWSLINE

Packaged pasta rolls

down the line at Dakota

Growers Pasta Co.

USDA Photo
Rural Cooperatives / January/February 2001 31

Cooperatives is coordinating the recruiting project. Interested persons should

apply by March 22 to Kent Brick,

NDAREC, P.O. Box 727, Mandan, ND

58554-0727. Cooperation Works’ mission is to advance the national network

of cooperative developers dedicated to

prosperous sustainable communities.

Robson heads Milk Board 

James Robson, a former vice president with Dairygold Inc., Seattle,

Wash., is the new chief executive officer

of the Wisconsin Milk

Marketing Board, Madison.

He leads the $26.5 million

organization, which conducts statewide and national dairy marketing and promotion programs for

Wisconsin-made dairy

products. Producer checkoff

funds support the activities.

Most recently, Robson

managed a Texas firm that

worked with dairies, food

processors, wholesalers and retailers in

strategic planning, new product development, promotion and sales training.

Tripp Producers join AMPI

Another 27 dairy producers, this

time shippers to the defunct Tripp,

S.D. Cheese Company, now market

milk to the Freeman, S.D., plant

owned by Associated Milk Producers,

Inc. (AMPI). Combining overlapping

routes should streamline operations

and cut hauling costs. In other AMPI

news, the cooperative has distributed

equities and earnings payments totaling

$8.3 million to members - - revolved

$5.6 million of members’ 1995 capital

retain investment and paid $2.7 million

in allocated equities.

Co-op education on web site

Local cooperative directors, managers and employees in the Cenex Harvest States-Land O’Lakes systems can

now access cooperative

education material and a

host of other resources by

tapping into the new website, www.mbrservices.com.

The new site includes an

electronic newsletter, ePreview, frequently used

regional phone numbers

and e-mail addresses and

Co-op Shop, where you

can purchase product and

promotional materials and

meeting supplies identified with these

regional cooperative systems. Jessica

Lamker, managing editor of the site,

says it offers more informational and

educational resources for local cooperatives, such as director’s corner,

monthly articles on ways to improve

operations of boards of directors, jobs

in the country to help with cooperative

employee placement, and financial

understanding, a series of learning

modules about the basics of cooperative financial statements.

Alabama honors Loftis

The Alabama Council of Cooperatives has bestowed its annual cooperator

award on Jim Loftis for his 30 years of

promoting cooperatives in the Southeast. He currently is director of communications and governmental affairs

for Southern States Cooperatives, Richmond, Va. A native of Tennessee, Loftis

began a 24-year career with Gold Kist

Inc., Atlanta, managing its grain elevators in North Carolina and later

becoming regional manager of member

relations and director of public affairs.

He is a past chairman of the Georgia

Agribusiness Council and serves on the

public affairs committee of the National

Council of Farmer Cooperatives.

Alto leads cheese project

A new cheese yield project by Alto

Dairy Cooperative, Waupun, Wis.,

teaches members how to tailor their

milk production to meet specific protein needs of cheesemakers. Producers

learn what management practices can

help them meet the milk component

levels required by individual processors. Higher cheese yields and possibly

higher prices paid to producers are

among anticipated results. The pilot

project was made possible, in part, by

the Wisconsin Department of Agriculture, Trade and Consumer Protection.

Co-op’ share of farm market continued from page 9

are based on data from several sources.

They include the annual survey of farmer

cooperatives conducted by USDA’s Rural

Business-Cooperative Service, other

Cooperative Services studies, cash

receipts from farm marketings and farm

production expenditures published by

USDA’s Economic Research Service

(ERS), milk volume handled by the top

50 cooperatives published by Hoard’s

Dairymen, and from Cooperative Services’ commodity specialists. 

Co-ops’ shares of farm marketings

represent estimates of cooperative activity at the farm-gate or first-handler level.

Share estimates for farm production

items represent cooperative activity in

sales of supplies to farmers. The share

estimate for each commodity was based

on dollar value and annual changes in

related data or on physical quantity

(where available). In most cases, the

share estimate was based on dollar value.

For those commodities where physical quantity handled by cooperatives was

not available, cooperatives’ shares of

farm marketings were estimated by first

subtracting gross margins from net

cooperative business volume. These estimated “payments to farmers” were then

related to their respective total U.S. cash

receipts, adjusted for crop year, to calculate the percentage share figures. 

Shares of the major farm supply

items were estimated by first subtracting from co-ops’ net business volume

the volume of business exported, sold to

other firms and used for nonfarm purposes. These adjusted business volumes

were then related to their respective

total U.S. cash expenditures to calculate

their percentage share estimates. ■

James Robson
32 January/February 2001 / Rural Cooperatives Rural

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